<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934 (Amendment No. ____)*
Diamond Multimedia Systems, Inc.
- --------------------------------------------------------------------------------
(Name of Issuer)
Common Stock
- --------------------------------------------------------------------------------
(Title of Class of Securities)
252714-10-0
- --------------------------------------------------------------------------------
(CUSIP Number)
Walter D. Amaral
Senior Vice President, Finance
Chief Financial Officer
S3 Incorporated
2841 Mission College Boulevard
Santa Clara, CA 95054
(408) 588-8000
with a copy to
Jorge A. Del Calvo, Esq.
Pillsbury Madison & Sutro LLP
2550 Hanover Street
Palo Alto, CA 94304
(650) 233-4500
- --------------------------------------------------------------------------------
(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
June 15, 1999
- --------------------------------------------------------------------------------
(Date of Event which Requires
Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(e), 13d-1(f) or 13d-1(g), check the following box
|_|.
NOTE: Schedules filed in paper format shall include a signed original and five
copies of the Schedule, including all exhibits. See Rule 13d-7(b) for other
parties to whom copies are to be sent.
<PAGE>
CUSIP No. 252714-10-0 Schedule 13D Page 2 of 9 Pages
*The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities, and
for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 ("Act") or otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the Act (however, see the
Notes).
<PAGE>
CUSIP No. 252714-10-0 Schedule 13D Page 3 of 9 Pages
1. NAME OF REPORTING PERSON S3 Incorporated
I.R.S. IDENTIFICATION NO. OF ABOVE PERSON 77-0204341
- --------------------------------------------------------------------------------
2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) |_|
(b) |_|
- --------------------------------------------------------------------------------
3. SEC USE ONLY
- --------------------------------------------------------------------------------
4. SOURCE OF FUNDS WC
- --------------------------------------------------------------------------------
5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS
REQUIRED PURSUANT TO ITEM 2(d) OR 2(e) |_|
- --------------------------------------------------------------------------------
6. CITIZENSHIP OR PLACE OF ORGANIZATION Delaware
- --------------------------------------------------------------------------------
NUMBER OF 7. SOLE VOTING POWER 4,597,871
SHARES -------------------------------------------------
BENEFICIALLY
OWNED BY 8. SHARED VOTING POWER -0-
EACH -------------------------------------------------
REPORTING
PERSON 9. SOLE DISPOSITIVE POWER 4,597,871
WITH -------------------------------------------------
10. SHARED DISPOSITIVE POWER -0-
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH
REPORTING PERSON 4,597,871
- --------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11)
EXCLUDES CERTAIN SHARES |_|
- --------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 13.0%
- --------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON CO
- --------------------------------------------------------------------------------
<PAGE>
CUSIP No. 252714-10-0 Schedule 13D Page 4 of 9 Pages
Item 1. Security and Issuer.
- ------- --------------------
This statement relates to the shares of Common Stock, $0.001 par value
per share (the "Diamond Common Stock"), of Diamond Multimedia Systems, Inc., a
Delaware corporation ("Diamond"). The principal executive offices of Diamond are
located at 2880 Junction Avenue, San Jose, California 95134.
Item 2. Identity and Background.
- ------- ------------------------
This statement is being filed by S3 Incorporated ("S3"). The principal
offices of S3 are located at 2841 Mission College Boulevard, Santa Clara, CA
95054. S3 is principally engaged in the business of supplying multimedia
acceleration hardware and its associated software for the PC market.
Item 3. Source and Amount of Funds or Other Consideration.
- ------- --------------------------------------------------
As more fully described in Item 4 of this Statement, Diamond has issued to
S3 three (3) warrants to purchase an aggregate of 4,597,871 shares of Diamond
Common Stock (collectively, the "Diamond Warrants"). The first of those three
warrants entitles S3 to purchase 1,165,501 shares of Diamond Common Stock at an
exercise price of $4.29 per share. The second warrant entitles S3 to purchase
1,196,172 shares of Diamond Common Stock at an exercise price of $4.18 per
share. The third warrant entitles S3 to purchase 2,236,198 shares of Diamond
Common Stock at an exercise price of $4.471875 per share. If S3 were to exercise
the Diamond Warrants in full, the funds required to purchase the shares of
Diamond Common Stock issuable upon such exercise (assuming a cash exercise)
would be approximately $20.0 million. It is currently anticipated that such
funds would be provided from S3's working capital.
<PAGE>
CUSIP No. 252714-10-0 Schedule 13D Page 5 of 9 Pages
Item 4. Purpose of Transaction.
- ------- -----------------------
S3 and Diamond entered into a Credit Agreement, dated as of June 10, 1999,
and amended on June 14, 1999 (the "Credit Agreement"), pursuant to which S3
agreed to make three (3) separate loans to Diamond in amounts not exceeding
$20.0 million in the aggregate. One of the conditions precedent to the making of
each of those loans by S3 is that Diamond shall have issued a common stock
purchase warrant to S3. On June 10, 1999 and in connection with the first loan
under the Credit Agreement (in the amount of $5.0 million), Diamond issued to S3
a warrant (the "First Diamond Warrant") to purchase 1,165,501 shares of Diamond
Common Stock at an exercise price of $4.29 per share, subject to certain
adjustments in accordance with Section 6 of the First Diamond Warrant. On June
15, 1999 and in connection with the second loan under the Credit Agreement (in
the amount of $5.0 million), Diamond issued to S3 a warrant (the "Second Diamond
Warrant") to purchase 1,196,172 shares of Diamond Common Stock at an exercise
price of $4.18 per share, subject to certain adjustments in accordance with
Section 6 of the Second Diamond Warrant. On June 21, 1999, Diamond issued to S3
a warrant (the "Third Diamond Warrant") to purchase 2,236,198 shares of Diamond
Common Stock at an exercise price of $4.471875 per share, subject to certain
adjustments in accordance with Section 6 of the Third Diamond Warrant. The First
Diamond Warrant terminates on the later of June 10, 2000 or the date on which
Diamond's indebtedness to S3 under the Credit Agreement is paid in full. The
Second Diamond Warrant terminates on the later of June 15, 2000 or the date on
which Diamond's indebtedness to S3 under the Credit Agreement is paid in full.
As of the date hereof, the Third Diamond Warrant has not become exercisable and
shall only become exercisable upon the occurrence of certain events. The Third
Diamond Warrant terminates on June 21, 2000 or the date on which Diamond's
indebtedness to S3 under the
<PAGE>
CUSIP No. 252714-10-0 Schedule 13D Page 6 of 9 Pages
Credit Agreement is paid in full. Notwithstanding any provisions therein to the
contrary, each of the First Diamond Warrant, the Second Diamond Warrant and the
Third Diamond Warrant shall terminate upon the consummation of certain
transactions involving the acquisition of more than 50% of the outstanding
voting securities of S3 or the disposition of all or substantially all of S3's
assets. As the holder of the First Diamond Warrant, the Second Diamond Warrant
and the Third Diamond Warrant, S3 has certain demand and piggyback registration
rights with respect to the shares of Diamond Common Stock covered by such
warrants.
S3 and Diamond entered into an Agreement and Plan of Merger, dated as of
June 21, 1999 (the "Merger Agreement"), with respect to the merger of a
wholly-owned subsidiary of S3 (the "Merger Sub") with and into Diamond as
provided for in the Merger Agreement (the "Merger"). In the Merger, each
outstanding share of Diamond Common Stock will be converted into shares of
common stock, par value $0.0001 per share, of S3 (the "S3 Common Stock") at an
exchange rate equal to 0.52 share of S3 Common Stock for each share of Diamond
Common Stock. As a result of the Merger, Diamond will become a wholly-owned
subsidiary of S3, and Diamond's board of directors will consist of the directors
of Merger Sub immediately prior to the effective time of the Merger.
Except as described herein and in Item 6 below, neither S3 nor, to the
knowledge of S3, any of its directors or executive officers has any present plan
or proposal which relates to, or could result in, any of the events referred to
in paragraphs (a) through (j), inclusive, of Item 4 of Schedule 13D. However,
subject to S3's obligations under the agreements referred to above, S3 will
continue to review the business of Diamond and may in the future propose that
Diamond take one or more of such actions.
<PAGE>
CUSIP No. 252714-10-0 Schedule 13D Page 7 of 9 Pages
Item 5. Interest in Securities of Diamond.
- ------- ----------------------------------
(a) If S3 exercises the First Diamond Warrant, the Second Diamond Warrant
and the Third Diamond Warrant in full (assuming that the Third Diamond Warrant
becomes exercisable), S3 would become a beneficial owner of an aggregate of
4,597,871 shares of Diamond Common Stock. Based on the number of shares of
Diamond Common Stock reported as outstanding as of March 31, 1999, S3 would then
beneficially own approximately 13.0% of the outstanding shares of Diamond Common
Stock.
(b) If S3 exercises the First Diamond Warrant, the Second Diamond Warrant
and the Third Diamond Warrant in full (assuming that the Third Diamond Warrant
becomes exercisable), the number of shares as to which S3 would have:
(i) Sole power to vote or direct the vote: 4,597,871 shares;
(ii) Shared power to vote or direct the vote: none;
(iii) Sole power to dispose or direct the disposition of: 4,597,871
shares; and
(iv) Shared power to dispose or direct the disposition of: none.
As of the date of this filing, neither S3 nor, to the knowledge of S3, any
of its directors or executive officers beneficially owns any shares of Diamond
Common Stock.
(c) Except as stated in Item 4 above, there have not been any transactions
in the Diamond Common Stock effected by or for the account of S3 or, to the
knowledge of S3, any of its directors or executive officers, during the past 60
days.
(d) In the event that S3 were to exercise the First Diamond Warrant, the
Second Diamond Warrant and the Third Diamond Warrant in full (assuming that the
Third Diamond Warrant becomes exercisable), no person, other than S3, would have
the right to receive or
<PAGE>
CUSIP No. 252714-10-0 Schedule 13D Page 8 of 9 Pages
the power to direct the receipt of dividends from, or the proceeds from the sale
of, shares of Diamond Common Stock then owned by S3 for its own account.
(e) Not applicable.
Item 6. Contracts, Arrangements, Understandings or Relationships With Respect
- ------- ---------------------------------------------------------------------
to Securities of Diamond.
- -------------------------
Except as set forth in response to Items 3, 4 and 5 hereof, neither S3 nor,
to the knowledge of S3, any of its directors or executive officers, has any
contracts, arrangements, understandings or relationships (legal or otherwise)
with any person with respect to any securities of Diamond, including, but not
limited to, transfer or voting of any securities of S3, finder's fees, joint
ventures, loan or option arrangements, puts or calls, guarantees of profits,
division of profits or loss or the giving or withholding or proxies.
Item 7. Material to be Filed as Exhibits.
- ------- ---------------------------------
Exhibit 1. (1) Agreement and Plan of Merger between Diamond Multimedia
Systems, Inc. and S3 Incorporated, dated as of June 21,
1999.
Exhibit 2.1 Credit Agreement, dated as of June 11, 1999, by and between
Diamond Multimedia Systems, Inc. and S3 Incorporated.
Exhibit 2.2 First Amendment to Credit Agreement, dated as of June 14,
1999, by and between Diamond Multimedia Systems, Inc. and S3
Incorporated.
Exhibit 3. First Common Stock Purchase Warrant issued by Diamond
Multimedia Systems, Inc. to S3 Incorporated.
Exhibit 4. Second Common Stock Purchase Warrant issued by Diamond
Multimedia Systems, Inc. to S3 Incorporated.
Exhibit 5. Third Common Stock Purchase Warrant issued by Diamond
Multimedia Systems, Inc. to S3 Incorporated.
- ----------------
<PAGE>
CUSIP No. 252714-10-0 Schedule 13D Page 9 of 9 Pages
(1) Incorporated by reference to Exhibit 2.1 to the Registrant's Current Report
on Form 8-K filed June 25, 1999.
SIGNATURE
---------
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
Dated as of June 25, 1999.
/s/ Walter D. Amaral
----------------------------------------
Walter D. Amaral
Senior Vice President, Finance
Chief Financial Officer
<PAGE>
================================================================================
CREDIT AGREEMENT
By and Between
DIAMOND MULTIMEDIA SYSTEMS, INC.
and
S3 INCORPORATED
-------------
Dated as of June 11, 1999
-------------
================================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
ARTICLE 1 DEFINITIONS..............................................1
1.1 Definitions..............................................1
1.2 Accounting Terms.........................................6
ARTICLE 2 LOANS....................................................6
2.1 Loans....................................................6
(a) Loans...........................................6
(b) Note............................................6
(c) Borrowing Procedures for Loan...................6
2.2 Interest.................................................6
(a) Interest Rate...................................6
(b) Payment of Interest.............................6
(c) Computation of Interest.........................7
(d) Excess Interest.................................7
2.3 Payments of Principal....................................8
(a) Repayment.......................................8
(b) Prepayment of Loan..............................8
(c) Payments........................................8
(d) Offset..........................................8
ARTICLE 3 CONDITIONS OF CLOSING AND LOANS..........................8
3.1 Closing..................................................8
3.2 Conditions to First Loan.................................8
(a) Closing Documents...............................9
(b) No Existing Default.............................9
(c) Representations and Warranties Correct..........9
(d) Consents and Approvals..........................9
(e) Litigation......................................9
3.3 Conditions to Second Loan................................9
(a) Merger Agreement and Warrant...................10
(b) No Existing Default............................10
(c) Representations and Warranties Correct.........10
(d) Borrowing Request and Note.....................10
(e) No Material Adverse Change.....................10
3.4 Conditions to Third Loan................................10
(a) Closing Documents..............................10
(b) No Existing Default............................11
(c) Representations and Warranties Correct.........11
(d) Borrowing Request and Note.....................11
(e) No Material Adverse Change.....................11
(f) Payment of Taxes...............................11
3.5 Conditions for the Benefit of the Lender................11
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF THE BORROWER..........11
4.1 Organization of Borrower................................11
4.2 Requisite Power.........................................11
4.3 No Conflict.............................................12
i
<PAGE>
4.4 Authorities.............................................12
4.5 No Event of Default.....................................12
4.6 Subsidiaries............................................12
4.7 Indebtedness............................................13
4.8 Intellectual Property Rights............................13
4.9 Litigation..............................................13
4.10 Taxes...................................................13
4.11 Title to Property.......................................14
4.12 Leaseholds..............................................14
4.13 Insurance...............................................14
4.14 Labor Matters...........................................14
4.15 SEC Filings.............................................15
4.16 Financial Statements....................................15
4.17 Absence of Certain Changes..............................15
4.18 No Undisclosed Material Liabilities.....................16
4.19 Employee Benefit Plans..................................16
4.20 Compliance With Laws....................................17
4.21 Environmental Laws......................................17
4.23 Statutory Regulation....................................18
4.24 Use of Proceeds.........................................18
ARTICLE 5 AFFIRMATIVE COVENANTS...................................18
5.1 Accounting Records......................................18
5.2 Financial Statements and Notices........................18
5.3 Access..................................................19
5.4 Maintenance of Existence................................19
5.5 Qualifications To Do Business...........................19
5.6 Insurance...............................................19
5.7 Collateral..............................................20
5.8 Taxes and Other Liabilities.............................20
5.9 Governmental Approvals..................................20
5.10 Compliance With Governmental Approvals and
Governmental Requirements...............................20
5.11 Prevent Contamination...................................20
5.12 Liens and Perfection....................................20
5.13 Change of Location......................................21
ARTICLE 6 NEGATIVE COVENANTS......................................21
6.1 Mergers.................................................21
6.2 Restricted Payments.....................................21
6.3 Change of Name, Etc.....................................21
6.4 Accounting Policies.....................................21
6.5 Liens...................................................21
6.6 Contingent Obligations..................................21
6.7 Indebtedness............................................22
6.8 Sale of Assets..........................................22
6.9 Loans to Affiliates.....................................22
6.10 Certain ERISA Payments..................................22
6.11 No Solicitation.........................................22
ARTICLE 7 EVENTS OF DEFAULT.......................................23
7.1 Events of Default.......................................23
ii
<PAGE>
7.2 Termination of Commitment and Acceleration..............25
ARTICLE 8 MISCELLANEOUS...........................................25
8.1 Successors and Assigns..................................25
8.2 No Implied Waiver.......................................25
8.3 Amendments; Waivers.....................................25
8.4 Remedies Cumulative.....................................25
8.5 Severability............................................25
8.6 Costs, Expenses and Attorneys' Fees.....................25
8.7 Indemnification.........................................26
8.8 Notices.................................................26
8.9 Interpretation..........................................27
8.10 Governing Law and Consent to Jurisdiction...............27
8.11 Counterparts............................................28
8.12 Headings................................................28
8.13 Survival................................................28
8.14 Calculations............................................28
8.15 Confidential............................................28
Exhibit A Note
Exhibit B Borrowing Request
Exhibit C Security Agreement
Exhibit D Patent, Trademark and Copyright Collateral Assignment
Exhibit E Pledge Agreement
Exhibit F Officer's Certificate
Exhibit G Opinion of Counsel to Borrower
iii
<PAGE>
CREDIT AGREEMENT
----------------
THIS CREDIT AGREEMENT is dated as of June 11, 1999, by and between
DIAMOND MULTIMEDIA SYSTEMS, INC., a Delaware corporation, and S3 INCORPORATED, a
Delaware corporation,
W I T N E S S E T H:
WHEREAS, Diamond Multimedia Systems, Inc. desires to borrow an amount
not exceeding in the aggregate twenty million dollars ($20,000,000) from S3
Incorporated, and S3 Incorporated is prepared to make such a loan upon the terms
and conditions hereof:
NOW THEREFORE, in consideration of the premises and mutual agreements
herein contained, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
-----------
1.1 Definitions. Except as otherwise expressly provided or unless the
context otherwise requires, the terms defined in this Section 1.1 shall, for all
purposes of this Agreement, have the meanings herein specified, the following,
definitions being equally applicable to the singular and plural forms of any of
the terms herein defined:
"Acceleration" means that the Loans (i) shall not have been paid at the
Final Maturity Date or (ii) shall have become due and payable prior to their
stated maturity pursuant to Section 7.2 hereof.
"Affiliate" means with respect to any Person (i) each Person that,
directly or indirectly, owns or controls, whether beneficially, or as a trustee,
guardian or other fiduciary, ten percent (10%) or more of the capital stock
having ordinary voting power in the election of directors of such Person, (ii)
each Person that controls, is controlled by or is under common control with such
Person or any Affiliate of such Person or (iii) each of such Person's officers,
directors, joint venturers and partners. For the purposes of this definition,
the term "control" (including with correlative meanings the terms "controlling,"
"controlled by" and "under common control with") as applied to any Person shall
mean the possession, directly or indirectly beneficially, of the power to direct
or cause the direction of its management or policies, whether through the
ownership of voting securities, by contract or otherwise.
"Agreement" means this Credit Agreement between the Borrower and the
Lender (including the Schedules and Exhibits hereto), as originally executed or
as it may from time to time be supplemented, modified or amended as provided
herein.
"Authorized Officer" means an officer of the Borrower designated in the
latest Certificate of Incumbency executed by or on behalf of the Borrower. The
Lender shall be entitled to conclusively rely on the latest such Certificate of
Incumbency delivered to it.
"Borrower" means Diamond Multimedia Systems, Inc., a Delaware
corporation.
"Borrowing Request" means each request by the Borrower for a Loan as
specified in such request, which shall be in the form of Exhibit B attached
hereto. Each Borrowing Request shall be accompanied by the documents which are
required to substantiate such request.
"Business Day" means a day other than a Saturday, Sunday or any other
day on which commercial
-1-
<PAGE>
banks in San Francisco, California are required or
authorized to be closed.
"Capitalized Lease Obligation" means any lease obligation that, in
accordance with GAAP, is required to be shown as a liability on the financial
statements of the lessee. The amount of a Capitalized Lease Obligation shall be
the amount required by GAAP so to be shown.
"Certificate of Incumbency" means the latest Certificate of Incumbency
executed by or on behalf of the Borrower and delivered to the Lender.
"Code" means the Internal Revenue Code of 1986, as amended.
"Collateral" means the property, real or personal, in which the Lender
has a security interest under the Security Documents.
"Contingent Obligation" means, as applied to any Person, without
duplication, any direct or indirect liability, contingent or otherwise, of that
Person with respect to any indebtedness, lease, dividend, letter of credit or
other obligation of another, including, without limitation, any such obligation
directly or indirectly guaranteed, endorsed (otherwise than for collection or
deposit in the ordinary course of business), co-made or discounted or sold with
recourse by that Person, or in respect of which that Person is otherwise
directly or indirectly liable, including, without limitation, or to provide
funds for the payment or discharge of such obligation (whether in the form of
loans, advances, stock purchases, capital contributions or otherwise), or to
maintain the solvency or any balance sheet item, level of income or other
financial condition of the obligor of such obligation, or to make payment for
any products, materials or supplies or for any transportation, services or lease
regardless of the nondelivery or nonfurnishing thereof, in any such case if the
purpose or intent of such agreement is to provide assurance that such obligation
will be paid or discharged, or that any agreements relating thereto will be
complied with, or that the holders of such obligation will be protected (in
whole or in part) against loss in respect thereof. The amount of any Contingent
Obligation shall be equal to the actual amount of the obligation so guaranteed
or otherwise supported.
"Disclosure Letter" means the letter delivered by the Borrower to the
Lender immediately prior to the execution of this Agreement, and signed by an
Authorized Officer of the Borrower.
"Effective Date" means the date specified as such in Section 3.1
hereof.
"Environmental Laws" means any federal, state, local and foreign
statutes, laws (including, without limitation, common law), judicial decisions,
regulations, ordinances, rules, judgments, orders, codes, injunctions, permits,
governmental agreements or governmental restrictions relating to human health
and safety, the environment or to pollutants, contaminants, wastes, or
chemicals.
"Existing Debt" means the Indebtedness of the Borrower and its
Subsidiaries (a) to Finova Capital Corporation ("Finova") under the Loan and
Security Agreement dated January 21, 1999 between Finova and the Borrower, the
Secured Revolving Credit Note in an original principal amount of $50,000,000
dated January 21, 1999 by the Borrower in favor of Finova, (b) loans in a
principal amount not to exceed DM10,000,000 to the Borrower and Spea Software
Gmbh from BHF Bank, and (c) loans in a principal amount of 350,000,000 Japanese
Yen (approximately $2,900,000) to the Borrower's Japanese Subsidiary, Diamond
MultiMedia Systems, KK from Sanwa Bank, Ltd., which loans are guaranteed by the
Borrower and for which the Borrower has posted a standby letter of credit issued
by Imperial Bank.
"Event of Default" shall have the meaning set forth in Article 7
hereof.
"Final Maturity Date" means June 10, 2000.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board and the American
Institute of Certified Public Accountants and
-2-
<PAGE>
statements and pronouncements of the Financial Accounting Standards Board or in
such other statements by such other entity as may be approved by a significant
segment of the accounting profession, which are applicable to the circumstances
as of the date of determination.
"Incipient Default" means any event which, upon the lapse of time or
the giving of notice or both, would constitute an Event of Default.
"Indebtedness" of a Person means (a) any obligation of such Person for
borrowed money; (b) any obligation of such Person evidenced by bonds,
debentures, notes or other similar instruments; (c) any obligation of such
Person to pay the deferred purchase price of property or for services (other
than in the ordinary course of business); (d) any Capitalized Lease Obligation
of such Person; (e) any obligation or liability of others secured by a lien on
any asset of such Person, whether or not such obligation or liability is
assumed; (f) indebtedness of such Person consisting of reimbursement obligations
under letters of credit issued for the account of such person; and (g) any other
obligation or liability which is required by GAAP to be shown as part of the
Consolidated Liabilities on a consolidated balance sheet of such Person.
"Lender" means S3 Incorporated, a Delaware corporation.
"Lien" means any interest in property securing an obligation, whether
such interest is based on common law, statute or contract, and including but not
limited to any security interest or lien arising from a mortgage, encumbrance,
pledge, charge, easement, servitude, security agreement, conditional sale or
trust receipt or a lease, consignment or bailment for security purposes. The
term "Lien" shall also include reservations, exceptions, covenants, conditions,
restrictions, leases and other title exceptions and encumbrances affecting
property.
"Loan" means a loan made pursuant to Section 2.1 hereof.
"Loan Documents" means this Agreement, the Notes, the Security
Documents, powers of attorney, consents, assignments, contracts, notices,
leases, financing statements, reimbursement agreements, certificates,
statements, reports and notices and all other writings heretofore, now or
hereafter executed by, on behalf of or for the benefit of the Borrower and
delivered to the Lender pursuant to or in connection with this Agreement or the
transactions contemplated hereby, together with all amendments, modifications
and supplements thereto.
"Material Adverse Change" means any change, violation, inaccuracy,
circumstance or effect that is materially adverse to the business, properties,
assets (including intangible assets), liabilities, capitalization or financial
condition of the Borrower and its Subsidiaries, taken as a whole, as the case
may be; provided, however, that the following shall not be taken into account in
determining whether there has been or could or would be a "Material Adverse
Effect" on or with respect to a party: (i) any occurrences relating to the
economy of the United States in general or the economies in which such entity
operates or the multimedia and connectivity products for personal computer
industry in general and not specifically relating to such party, (ii) the delay
or cancellation of orders for such party's products from customers or
distributors (or other resellers) directly attributable to the announcement of
this Agreement, the Merger Agreement or the consummation of the transactions
thereunder, (iii) the lack of or delay in availability of components or raw
materials from such party's suppliers directly attributable to the announcement
of this Agreement or the Merger Agreement, (iv) any litigation brought or
threatened against a party or any officer or member of the Board of Directors of
such party in respect of this Agreement or the Merger Agreement (including any
stockholder class action litigation arising from allegations or a breach of
fiduciary duty relating to this Agreement), (v) changes in trading prices for
such party's securities, and (vi) the loss of employees as a result of reduction
in force that are mutually agreed upon by the Borrower and the Lender.
"Maturity" means any date on which the Loan or any portion thereof
becomes due and payable whether as stated, by acceleration or otherwise.
-3-
<PAGE>
"Maturity Triggering Event" shall mean an event or series of related
events as a result of which (i) any person or "group" (as such term is defined
under section 13(d) of the Securities Exchange Act of 1934 and the rules and
regulations thereunder), other than the Lender or any Affiliate of the Lender,
becomes the beneficial owner of shares of the Borrower representing more than
fifty percent (50%) of the combined voting power of the then outstanding
securities entitled to vote generally in the election of directors of the
Borrower ("Voting Securities"), or (ii) the Borrower consolidates with or merges
with or into or effects a business combination or similar transaction with
another entity, or conveys, transfers or leases all or substantially all of its
assets to any person, other than in each case with the Lender or any affiliate
of the Lender, and, in the case of any such transaction, the stockholders of the
Borrower immediately prior to such transaction do not own, immediately after
such transaction, at least a majority of the combined voting power of the then
outstanding securities entitled to vote generally in the election of directors
or similar managing authority of the surviving or resulting entity in such
transaction in substantially the same proportion as their ownership of Voting
Securities immediately before such transaction.
"Note" means one of the Borrower's promissory notes substantially in
the form of Exhibit A attached hereto, evidencing the Loan as provided in
Section 2.1(b) hereof.
"Obligations" means all loans, advances, debts, liabilities
obligations, covenants and duties owing to the Lender by the Borrower of any
kind or nature, present or future, whether or not evidenced by any note,
guaranty or other instrument, arising under this Agreement, either of the Notes,
the Security Documents, or any of the other Loan Documents, whether or not for
the payment of money, arising by reason of an extension of credit, absolute or
contingent, due or to become due, now existing or hereafter arising, including
all principal, interest, charges, expenses, fees, attorneys' fees and
disbursements and any other sum chargeable to the Borrower under this Agreement
or any other Loan Document.
"Other Assurances" means any agreement, instrument, conveyance,
mortgage, pledge, hypothecation or other document executed and delivered
pursuant to Section 5.12 hereof (as amended, modified or supplemented from time
to time).
"Patent, Trademark and Copyright Assignment" means the Patent
Collateral Assignment in the form attached hereto as Exhibit D.
"PBGC" means the Pension Benefit Guaranty Corporation and any successor
to all or any part of such corporation's functions under ERISA.
"Permitted Liens" means: (a) the Liens created under the Security
Documents; (b) carriers', warehousemen's, mechanics', landlords', materialmen's,
suppliers', tax, assessment, governmental and other like liens and charges
arising in the ordinary course of business securing obligations that are not
incurred in connection with the obtaining of any advance or credit and which are
not overdue, or are being contested in good faith by appropriate proceedings,
provided that, in accordance with GAAP, adequate reserves have been set aside on
the books of the Borrower for the eventual payment thereof in the event it is
determined that such obligations are payable by the Borrower; (c) Liens arising
in connection with worker's compensation, unemployment insurance, appeal and
release bonds and progress payments under government contracts; (d) any
"banker's lien" or similar right of offset; (e) any lien arising in connection
with a Capitalized Lease Obligation not prohibited hereunder on the asset which
is the subject of the related lease; (f) Liens for any Taxes, or other
governmental charges, either not delinquent or secured by a bond reasonably
acceptable to the Lender or not yet due and being contested in good faith and by
appropriate proceedings, so long as (x) such proceedings shall not involve any
substantial danger of the sale, forfeiture or loss of a material portion of the
Collateral or have a Material Adverse Effect on the Borrower, or (y) a bond or
other security acceptable to the Lender, in its sole discretion, has been posted
or provided in such manner and amount as to assure the Lender that any amounts
determined to be due will be promptly paid in full when such contest is
determined; and (g) Liens existing on the Effective Date in favor of holders of
Existing Debt, (h) purchase money security interests in specific equipment, (i)
leases of specific equipment, (j) Liens existing on equipment at the time of its
acquisition or lease by the Borrower, provided that the Lien is confined solely
to
-4-
<PAGE>
equipment and improvements acquired prior to January 21, 1999, (k) any
judgment that does not otherwise cause an Event of Default, unless the judgment
is not discharged or the execution thereof effectively stayed and bonded against
pending appeal within 30 days of the entry thereof, (l) licenses granted to
others on the Borrower's intellectual property that do not interfere in any
material respect with the business of the Borrower, and (m) easements, rights of
way, servitudes or zoning or building restrictions and other minor encumbrances
on real property and irregularities in the title to such property which do not
in the aggregate materially impair the use or value of such property or risk the
loss or forfeiture of title thereto.
"Person" means any individual, corporation, partnership, trust, joint
stock company, unincorporated organization, association or other entity or
organization, including any government, political subdivision, agency or
instrumentality thereof.
"Pledge Agreement" means the Pledge Agreement substantially in the form
attached hereto as Exhibit E.
"Restricted Payment" means, as applied to the Borrower, (a) any
dividend or other distribution on any of the shares now or hereafter outstanding
of the capital stock of the Borrower or return of capital to its stockholders as
such; and (b) any purchase or other acquisition for value of (i) any shares of
the capital stock of the Borrower (except shares acquired solely upon the
conversion thereof into other shares of its capital stock) or (ii) any security
convertible into, or any option, warrant or other right to acquire, shares of
the capital stock of the Borrower.
"Security Agreement" means the Security Agreement substantially in the
form of Exhibit C attached hereto.
"Security Documents" means the Security Agreement, the Pledge
Agreement, the Patent, Trademark and Copyright Security Agreement and the Other
Assurances.
"Subsidiary" means any corporation, partnership, joint venture,
association or other business entity of which the Borrower now or hereafter
owns, directly or indirectly, securities or other ownership interests having
ordinary voting power to elect a majority of the board of directors or other
governing body thereof.
"Taxes" means any and all governmental or quasi-governmental fees
(including, without limitation, license, filing and registration fees), taxes,
charges, fees, levies or other assessments, including, without limitation, all
net income, gross income, gross receipts, excise, stamp, real or personal
property, ad valorem, withholding, social security (or similar), unemployment,
occupation, use, service, service use, license, net worth, payroll, franchise,
severance, transfer, recording, employment, premium, windfall profits,
environmental (including taxes under section 59A of the Code, as amended),
customs duties, capital stock, profits, disability, sales, registration, value
added, alternative or add-on minimum, estimated or other taxes, assessments or
charges imposed by any federal, state, local or foreign governmental entity and
any interest, penalties, or additions to tax attributable thereto.
1.2 Accounting Terms. Each accounting term not defined herein and each
accounting term partly defined herein to the extent not defined shall be
construed in accordance with GAAP.
-5-
<PAGE>
ARTICLE 2
---------
LOANS
-----
2.1 Loans.
------
(a) Loans. Subject to all of the terms and conditions of this
Agreement, the Lender agrees to make three loans (the "Loans") to the Borrower
in the aggregate amount not to exceed twenty million dollars ($20,000,000) each
to be governed by the terms and conditions of, and repaid in accordance with,
this Agreement. The first Loan, in an amount not to exceed five million dollars
($5,000,000), will be made upon satisfaction of the conditions specified in
Section 3.2. The second Loan, in an amount not to exceed five million dollars
($5,000,000), will be made as soon as reasonably practicable after the
conditions set forth in Section 3.3 have been satisfied. The third Loan, in an
amount not to exceed ten million dollars ($10,000,000), will be made as soon as
reasonably practicable after the conditions set forth in Section 3.4 have been
satisfied. The Lender shall have no obligation to make the second Loan after
July 1, 1999 and the third Loan after September 30, 1999. Amounts repaid in
respect of the Loans (whether repaid when due or prepaid) may not be reborrowed.
(b) Notes. Each Loan made by the Lender shall be evidenced by a single
promissory note of the Borrower, such note to be substantially in the form
attached hereto as Exhibit A, dated the date on which such Loan is made, payable
to the order of the Lender and in a principal amount equal to the amount of such
Loan and otherwise duly completed. On the date on which the Borrower submits a
Borrowing Request for a Loan, the Borrower shall deliver the Note to the Lender.
(c) Borrowing Procedures for Loan. The Borrower shall give the Lender
written notice of its request for the first and second Loans no later than 11
a.m. on the Business Day on which the Loan requested is to be made and two (2)
Business Days' written notice of its request for the third Loan, specifying in
each case the information required by the form of Borrowing Request attached
hereto as Exhibit B. No Borrowing Request may be delivered to the Lender after
the date falling thirty (30) days after the Effective Date. Subject to the
Lender's receipt of a Borrowing Request, and satisfaction of the other
conditions specified in Article 3 hereof on the date requested, the Lender shall
wire transfer the portion of the Loan so requested as specified in the Borrowing
Request.
2.2 Interest.
---------
(a) Interest Rate. The Obligations shall bear interest from the date of
disbursement on the unpaid principal amount thereof until such amount shall
become due and payable (whether upon Maturity, by Acceleration or otherwise) at
the lesser of the "Prime Rate" or the maximum permitted by law. Upon Maturity,
the Loans (or such portion thereof as has so become due and payable) shall, to
the extent permitted by applicable law, bear interest at a rate equal to the
lesser of the Prime Rate plus two percentage points per annum or the maximum
permitted by law. "Prime Rate" is a per annum rate equal to the rate of interest
published in the "Money Rates" section of The Wall Street Journal as the "prime
rate" (the "Prime Rate"). The interest rate chargeable hereunder in respect of
the Loans shall be increased or decreased, as the case may be, without notice or
demand of any kind, upon the announcement of any change in the Prime Rate. Each
change in the Prime Rate shall be effective hereunder on the first day following
the announcement of such change.
(b) Payment of Interest. Interest on the average daily balance of the
principal outstanding on the Loan shall be payable in arrears on the last day of
each month and on the Final Maturity Date.
(c) Computation of Interest. Interest shall be computed for the actual
number of days elapsed on the basis of a year consisting of three hundred
sixty-five (365) days.
(d) Excess Interest. The contracted for rate of interest of the Loans
contemplated hereby, without
-6-
<PAGE>
limitation, shall consist of the following: (i) the interest rate set forth in
Section 2.1(a), calculated and applied to the principal balance of the
Obligations in accordance with the provisions of this Agreement; (ii) interest
after an Event of Default, calculated and applies to the amount of the
Obligations in accordance with the provisions hereof, and (iii) all Additional
Sums (as herein defined), if any. The Borrower agrees to pay an effective
contracted for rate of interest which is the sum of the above-referenced
elements. The other charges, goods, things in action or any other sums or things
of value paid or payable by Borrower (collectively, the "Additional Sums"),
whether pursuant to this Agreement or any other documents or instruments in any
way pertaining to this lending transaction or otherwise with respect to this
lending transaction, that under any applicable law may be deemed to be interest
with respect to this lending transaction, for the purpose of any applicable law
that may limit the maximum amount of interest to be charged with respect to this
lending transaction, shall be payable by Borrower as, and shall be deemed to be,
additional interest and for such purposes only, the agreed upon and "contracted
for rate of interest" of this lending transaction shall be deemed to be
increased by the rate of interest resulting from the inclusion of the Additional
Sums.
(e) It is the intent of the parties to comply the usury laws of the
State of California (the "Applicable Usury Law"). Accordingly, it is agreed that
notwithstanding any provisions to the contrary in this Agreement, or in any of
the documents securing payment hereof or otherwise relating hereto, in no event
shall this Agreement or such documents require the payment or permit the
collection of interest in excess of the maximum contract rate permitted by the
Applicable Usury Law (the "Maximum Interest Rate"). In the event (i) any such
excess of interest otherwise would be contracted for, charged or received from
the Borrower or otherwise in connection with the loan evidenced hereby, or (ii)
the maturity of the Obligations is accelerated in whole or in part, or (iii) all
or part of the Obligations shall be prepaid, so that under any of such
circumstances the amount of interest contracted for, shared or received in
connection with the loan evidenced hereby, would exceed the Maximum Interest
Rate, then in any such event (A) the provisions of this paragraph shall govern
and control, (B) neither Borrower nor any other Person now or hereafter liable
for the payment of the Obligations shall be obligated to pay the amount of such
interest to the extent that it is in excess of the Maximum Interest Rate, (C)
any such excess which may have been collected shall be either applied as a
credit against the then unpaid principal amount of the Obligations or refunded
to the Borrower, at the Lender's option, and (D) the effective rate of interest
shall be automatically reduced to the Maximum Interest Rate. It is further
agreed, without limiting the generality of the foregoing, that to the extent
permitted by the Applicable Usury Law; (x) all calculations of interest which
are made for the purpose of determining whether such rate would exceed the
Maximum Interest Rate shall be made by amortizing, prorating, allocating and
spreading during the period of the full stated term of the loan evidenced
hereby, all interest at any time contracted for, charged or received from the
Borrower or otherwise in connection with such loan: and (y) in the event that
the effective rate of interest on the loan should at any time exceed the Maximum
Interest Rate, such excess interest that would otherwise have been collected had
there been no ceiling imposed by the Applicable Usury Law shall be paid to the
Lender's from time to time, if and when the effective interest rate on the loan
otherwise falls below the Maximum Interest Rate, to the extent that interest
paid to the date of calculation does not exceed the Maximum Interest Rate, until
the entire amount of interest which would otherwise have been collected had
there been no ceiling imposed by the Applicable Usury Law has been paid in full.
The Borrower further agrees that should the Maximum Interest Rate be increased
at any time hereafter because of a change in the Applicable Usury Law, such
increases shall apply to all indebtedness evidenced hereby regardless of when
incurred; but, again to the extent not prohibited by, the Applicable Usury Law,
should the Maximum Interest Rate be decreased because of a change in the
Applicable Usury Law, such decreases shall not apply to the indebtedness
evidenced hereby regardless of when incurred.
2.3 Payments of Principal.
----------------------
(a) Repayment. The Borrower shall repay the principal amount of the
Loan on the Final Maturity Date.
(b) Prepayment of Loan. The Loans are subject to prepayment as follows:
-7-
<PAGE>
(i) The Borrower may prepay the Loans in part or whole at any
time without penalty or premium.
(ii) The Borrower shall promptly prepay the interest accrued
on and the principal outstanding of the Loans upon the occurrence of a
Maturity Triggering Event or a sale by the Borrower of substantially
all of its assets.
(iii) The Borrower shall, to the extent permitted by the
Existing Debt, promptly prepay the interest accrued on and the
principal outstanding of the Loans from the net cash proceeds of any
equity in the Borrower issued thereby or of any Indebtedness incurred
by the Borrower which is subordinate to the Obligations.
(c) Payments. All payments of interest on and principal amounts of the
Loans and other amounts payable by the Borrower hereunder shall be in United
States Dollars, in immediately available funds, to Wells Fargo Bank, 121 Park
Center Plaza, San Jose, CA 95113, ABA Routing No. 121000248, for credit to the
Lender's account No. 4572045219, not later than 2:00 p.m. San Francisco,
California time on the date on which such payment is due. All (whether or not
scheduled) payments received after 2:00 p.m. San Francisco, California time
shall be considered to have been received the next Business Day. The Borrower
shall give the Lender notice on the date of any prepayments. Whenever any
payment falls on a day which is not a Business Day, such payment shall be made
the next succeeding Business Day, such extension of time shall be included in
the computation of interest. The Lender is hereby authorized to note the date,
amount and interest rate of the Loan and each payment of principal and interest
with respect thereto on the Lender's books and records (either manually or by
electronic entry), which notation shall be presumptive evidence of the
information noted absent manifest error.
(d) Offset. In addition to and not in limitation of all rights of
offset that the Lender may have under applicable law, the Lender, upon the
occurrence and during the continuance of an Acceleration, shall have the right
to appropriate and apply to the payment of all Obligations any and all balances,
credits or moneys of the Borrower then or thereafter with the Lender.
ARTICLE 3
---------
CONDITIONS OF CLOSING AND LOANS
-------------------------------
3.1 Closing. The execution and delivery of the Loan Documents by all of
the parties thereto shall take place on June 11, 1999 or such later date as
shall be agreed to by the Lender and the Borrower (the "Effective Date"), at the
offices of Pillsbury Madison & Sutro LLP, 2550 Hanover Street, Palo Alto,
California 94304.
3.2 Conditions to First Loan. The obligation of the Lender to disburse
any portion of the first Loan shall be subject to the prior or contemporaneous
satisfaction of each of the following conditions precedent:
(a) Closing Documents. The Lender shall have received all of the
following, each duly executed (where appropriate) and dated as of the Effective
Date (or such earlier date as shall be satisfactory to the Lender), in form and
substance satisfactory to the Lender:
(i) This Agreement.
(ii) The Borrowing Request for the first Loan.
(iii) The Note for the first Loan.
-8-
<PAGE>
(iv) The Common Stock Purchase Warrant granted by the
Borrower, as issuer, to the Lender, as purchaser.
(v) A certificate of the Secretary or an Assistant Secretary
of the Borrower as to (A) the Borrower's bylaws, (B) authorization of
the execution, delivery and performance of this Agreement and all of
the other Loan Documents executed by the Borrower (including action of
shareholders where required) and (C) the incumbency and signatures of
Authorized Officers authorized to act hereunder and thereunder.
(vi) A certificate, in the form of Exhibit F attached hereto,
signed by a Authorized Officer of the Borrower, stating (A) that the
representations and warranties contained in Article 4 hereof are then
true and accurate as though made on and as of such date, and (B) that
there has then occurred no Event of Default or Incipient Default which
is continuing.
(vii) Articles of Incorporation of the Borrower, certified to
by the Secretary of State of Delaware not more than ten (10) days
before the Effective Date.
(b) No Existing Default. No Event of Default or Incipient Default shall
exist on the Effective Date, or after giving effect to the transactions
contemplated to take place hereunder on such date.
(c) Representations and Warranties Correct. The representations and
warranties set forth in Article 4 shall be true and correct in all material
respects on the Effective Date, and after giving effect to the transactions
contemplated to occur on such date.
(d) Consents and Approvals. The consents of the holders of the Existing
Debt and all Governmental Approvals required to be taken, given or obtained for
the execution and delivery of, and the performance of the obligations under, the
Loan Documents executed on the Effective Date shall have been taken, given or
obtained, as the case may be, and shall be in full force and effect on the
Effective Date and the time for appeal or challenge with respect to any thereof
shall have expired (or, if an appeal or challenge shall have been taken or
brought, the same shall have been dismissed) and shall not be subject to any
pending proceedings or appeals, administrative, judicial or otherwise.
(e) Litigation. No action, proceeding or investigation shall have been
instituted nor shall governmental action before any Governmental Authority be
threatened, nor shall any order, judgment or decree have been issued or proposed
to be issued by any Governmental Authority to set aside, restrain, enjoin or
prevent the consummation of this Agreement, the transactions contemplated hereby
or by any other Loan Document.
3.3 Conditions to Second Loan. The obligation of the Lender to advance
any portion of the second Loan is subject to the prior or contemporaneous
satisfaction of each of the following conditions precedent:
(a) Merger Agreement and Warrant. The Borrower shall have issued a
common stock purchase warrant on terms agreed between the Borrower and the
Lender and entered into an agreement ("Merger Agreement") with the Lender
pursuant to which the Borrower will merge into, combine its business and assets
with or transfer substantially all of its business and assets to the Lender.
Nothing in this Agreement, however, shall be deemed to imply an obligation for
the Lender or the Borrower to negotiate the terms of such warrant or for the
Borrower or Lender to agree as to the terms of such warrant or to enter into any
agreement pursuant to which the Borrower will merge into, combine its business
and assets with or transfer substantially all of its business and assets to the
Lender.
(b) No Existing Default. No Event of Default or Incipient Default shall
exist at the date of making such advance or after giving effect to the
transactions contemplated to take place hereunder on such date.
-9-
<PAGE>
(c) Representations and Warranties Correct. The representations and
warranties set forth in Article 4 hereof shall be true and correct at the date
of making such advance, and after giving effect to the transactions contemplated
to take place hereunder on such date (except that to the extent that such
representations and warranties by their terms relate solely to an earlier date,
in which such case such representations and warranties shall have been true and
correct in all material respects as of the date when made).
(d) Borrowing Request and Note. The Lender shall have received a
Borrowing Request and the Note in connection with the request for the second
Loan.
(e) No Material Adverse Change. No Material Adverse Change shall have
occurred since the Effective Date.
3.4 Conditions to Third Loan. The obligation of the Lender to advance
any portion of the third Loan is subject to the prior or contemporaneous
satisfaction of each of the following conditions:
(a) Closing Documents. The Lender shall have received all of the
following, each duly executed (where appropriate), in form and substance
satisfactory to the Lender:
(i) The Security Agreement.
(ii) The Patent, Trademark and Copyright Security Agreement.
(iii) The Pledge Agreement.
(iv) Uniform Commercial Code financing statements naming the
Borrower as debtor and the Lender as secured party for filing in the
offices as the Lender shall reasonably request.
(v) Certificates of existence or good standing for the
Borrower from the offices of the Secretaries of State of Delaware,
California, Oregon, Washington, Massachusetts, and other states as the
Lender shall reasonably request.
(vi) A written opinion by Messrs. Wilson Sonsini Goodrich and
Rosati, as counsel to the Borrower, covering the matters set forth in
Exhibit G attached hereto.
(vii) Any other document, instrument, undertaking or
certificate stated in any of the Loan Documents to be delivered on the
Effective Date.
(b) No Existing Default. No Event of Default or Incipient Default shall
exist at the date of making such advance or after giving effect to the
transactions contemplated to take place hereunder on such date.
(c) Representations and Warranties Correct. The representations and
warranties set forth in Article 4 hereof and the other Loan Documents shall be
true and correct in all material respects at the date of making such advance,
and after giving effect to the transactions contemplated to take place hereunder
on such date (except that to the extent that such representations and warranties
by their terms relate solely to an earlier date, in which such case such
representations and warranties shall have been true and correct in all material
respects as of the date when made).
(d) Borrowing Request and Note. The Lender shall have received a
Borrowing Request and the Note in connection with the request for the third
Loan.
(e) No Material Adverse Change. No Material Adverse Change shall have
occurred since the Effective Date.
-10-
<PAGE>
(f) Payment of Taxes. All fees payable in connection with the
execution, delivery, recordation and filing of all the documents and instruments
referred to in this Agreement shall have been fully paid.
3.5 Conditions for the Benefit of the Lender. The conditions set forth
in this Article 3 are for the exclusive benefit of the Lender and may be waived,
for purposes of this Agreement, only by the Lender.
ARTICLE 4
---------
REPRESENTATIONS AND WARRANTIES OF THE BORROWER
----------------------------------------------
In order to induce the Lender to enter into or become a party to this
Agreement and to make the Loan, the Borrower makes the following representations
and warranties to the Lender except as disclosed in the Disclosure Letter:
4.1 Organization of Borrower and Subsidiaries.
(a) The Borrower is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware and has all requisite
corporate power and authority to own, lease and operate its respective
properties and to carry on its business as now being conducted. The Borrower is
qualified to do business as a foreign corporation and is in good standing under
the laws of each state or other jurisdiction in which the nature of its business
requires such qualification, except where the failure to be so qualified or in
good standing which, taken together with all other such failures, would not have
a Material Adverse Effect on the Borrower.
(b) The chief executive office of the Borrower is located at Diamond
Multimedia Systems, Inc., 2880 Junction Avenue, San Jose, CA 95134-1922.
4.2 Requisite Power. The Borrower has full corporate power and
authority to execute and deliver this Agreement and the other Loan Documents to
consummate the transactions contemplated hereby and thereby. The execution and
delivery of this Agreement and the other Loan Documents and the consummation of
the transactions contemplated hereby and thereby have been duly and validly
authorized and approved by the Borrower's Board of Directors, and except as set
forth in the Disclosure Letter, no other corporate proceedings are necessary to
authorize this Agreement or the consummation of the transactions contemplated
hereby. This Agreement and the Note have been duly and validly executed and
delivered by the Borrower. Each of this Agreement and the Note constitute, and
the other Loan Documents, when executed and delivered by the Borrower will
constitute, a legal, valid and binding agreement of the other parties hereto, it
constitutes a legal, valid and binding agreement of the Borrower, enforceable
against it in accordance with its terms, except (a) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium and other laws of general
application affecting enforcement of creditors' rights generally and (b) as
limited by laws relating to the availability of specific performance, injunctive
relief or other equitable remedies.
4.3 No Conflict. The execution, delivery and performance by the
Borrower of this Agreement and the other Loan Documents and the consummation by
the Borrower of the transactions contemplated hereby and thereby do not and will
not (a) contravene or conflict with the certificate of incorporation or bylaws
of the Borrower, (b) contravene or conflict with or constitute a violation of
any provision of any law, regulation, judgment, injunction, order or decree
binding upon or applicable to the Borrower or any of its Subsidiaries, (c)
constitute a default under or give rise to a right of termination, cancellation
or acceleration of any right or obligation of the Borrower or any of its
Subsidiaries or to a loss of any benefit to which the Borrower or any of its
Subsidiaries is entitled under any provision of any agreement, contract or other
instrument binding upon the Borrower or any of its Subsidiaries or any license,
franchise, permit or other similar authorization held by the Borrower or any of
its Subsidiaries, or (d) result in the creation or
-11-
<PAGE>
imposition of any Lien on any asset of the Borrower or any of its Subsidiaries,
except for such contraventions, conflicts or violations referred to in clause
(b) or defaults, rights of termination, cancellation or acceleration, or losses
or Liens referred to in clause (c) or (d) that would not, individually or in the
aggregate, have a Material Adverse Effect on the Borrower.
4.4 Authorities. The execution, delivery and performance by the
Borrower of this Agreement and the other Loan Documents and the consummation of
the transactions contemplated hereby and thereby require no consent of, or
filing with, any governmental body, agency, official or authority other than (a)
compliance with any applicable requirements of the 1933 Act and state securities
laws, and (b) other actions or filings which if not taken or made would not,
individually or in the aggregate, have a Material Adverse Effect on the
Borrower.
4.5 No Event of Default. No Event of Default or Incipient Default has
occurred and is continuing or would result from the execution of this Agreement.
4.6 Subsidiaries.
(a) Except as set forth on the Disclosure Letter, the Borrower does not
have any subsidiaries, or any interests, direct or indirect, in any corporation,
partnership, joint venture or other business entity. The Disclosure Letter shows
for each subsidiary (i) the respective jurisdictions of their corporation; and
(ii) the jurisdictions in which they are qualified to do business as a foreign
corporation.
(b) Each of the Borrower's Subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation and has all requisite corporate power and
authority to own, lease and operate its properties and to carry on its business
as it is now being conducted. Each of the Subsidiaries is duly qualified as a
foreign corporation to do business, and is in good standing, in each
jurisdiction where the character of its properties owned or leased or the nature
of its activities makes such qualification necessary, except where the failure
to be so qualified or in good standing would not have a Material Adverse Effect
on the Borrower. All of the outstanding shares of capital stock of the
Subsidiaries are validly issued, fully paid and nonassessable and, other than
directors' qualifying shares in the case of foreign Subsidiaries, are owned by
the Borrower or by a wholly owned Subsidiary of the Borrower free and clear of
all Liens except for the Lien in favor of Finova, and there are no irrevocable
proxies with respect to such shares. Except as set forth in the Disclosure
Letter and except for the capital stock of its Subsidiaries, the Borrower does
not own, directly or indirectly, any capital stock or other ownership interest
in any corporation, partnership, joint venture, limited liability company or
other entity which is material to the business of the Borrower and its
Subsidiaries, taken as a whole. There are no material restrictions on the
Borrower to vote the stock of any of its Subsidiaries.
4.7 Indebtedness. The Borrower is not liable for any Indebtedness
except for the Existing Debt and Indebtedness incurred under the Loan Documents.
4.8 Intellectual Property Rights.
(a) The Disclosure Letter accurately lists and describes in summary
form all United States and foreign letters patent and pending applications,
patent, trade name and trademark registrations and pending applications, service
mark registrations and pending applications, copyright registrations and pending
applications, those trade names and common law trademarks which are currently in
use by the Borrower or any Subsidiary, now owned in whole or in part by the
Borrower or any Subsidiary.
(b) The Borrower or its Subsidiaries owns each of the patents and
patent applications referred to in the Borrower SEC Documents and, except as set
forth in the Borrower SEC Documents, (i) to the knowledge of the Borrower, each
of the Borrower and its Subsidiaries owns or possesses, or could obtain
ownership or possession of (on terms not materially adverse to the consolidated
financial position, stockholders' equity, or results of operations of the
Borrower and its Subsidiaries taken as a whole) adequate
-13-
<PAGE>
and enforceable rights to use all other Intellectual Property (as defined below)
necessary for the conduct of their businesses, (ii) no claims are pending or, to
the knowledge of the Borrower, threatened that the Borrower or any Subsidiary is
infringing on or otherwise violating the rights of any Person with regard to any
Intellectual Property that, if the subject of an unfavorable decision, ruling or
finding, could reasonably be expected to (or, with respect to any pending patent
litigation, the Borrower does not believe will) have a Material Adverse Effect
and the Borrower knows of no basis therefor, and (iii) to the knowledge of the
Borrower, no person is infringing on or otherwise violating any right of the
Borrower or any Subsidiary with respect to any Intellectual Property owned by or
licensed to the Borrower or any Subsidiary. Except as set forth in the Borrower
SEC Documents, the Borrower has received no notice of potential indemnity claims
from customers based upon a notice of infringement any such customer has
received from a patent owner relating to an assertion of infringement of a
patent other than potential indemnity claims that individually or in the
aggregate would not reasonably be expected to have a Material Adverse Effect.
The Borrower's policy is to require that its employees execute agreements
assigning to the Borrower all rights such employees otherwise would have in
Intellectual Property developed by such employees while in the employ of the
Borrower.
For purposes of this Agreement, "Intellectual Property" shall mean,
with respect a Person, patents, copyrights, trademarks (registered and
unregistered), service marks, brand names, trade names, and registrations in any
jurisdiction of, and applications in any jurisdiction to register, the
foregoing, technology, know-how, software, and tangible or intangible
proprietary information or materials and any other trade secrets related
thereto.
4.9 Litigation. Except as disclosed in the Borrower SEC Documents filed
prior to the date hereof, there is no action, suit, investigation or proceeding
pending against, or to the knowledge of the Borrower threatened against or
affecting, the Borrower or any of its Subsidiaries or any of their respective
properties before any court or arbitrator or any governmental body, agency or
official which would reasonably be expected to have a Material Adverse Effect on
the Borrower.
4.10 Taxes. Except as set forth in the Borrower Balance Sheet
(including the notes thereto) or as otherwise set forth in the Disclosure Letter
and except as would not, individually or in the aggregate, have a Material
Adverse Effect on the Borrower, (a) all Borrower Tax Returns required to be
filed with any taxing authority by, or with respect to, the Borrower and its
Subsidiaries have been filed in accordance with all applicable laws; (b) the
Borrower and its Subsidiaries have timely paid all Taxes shown as due and
payable on the Borrower Tax Returns that have been so filed, and, as of the time
of filing, the Borrower Tax Returns correctly reflected the facts regarding the
income, business, assets, operations, activities and the status of the Borrower
and its Subsidiaries (other than Taxes which are being contested in good faith
and for which adequate reserves are reflected on the Borrower Balance Sheet);
(c) the Borrower and its Subsidiaries have made provision for all Taxes payable
by the Borrower and its Subsidiaries for which no Borrower Tax Return has yet
been filed; (d) the charges, accruals and reserves for Taxes with respect to the
Borrower and its Subsidiaries reflected on the Borrower Balance Sheet are
adequate under GAAP to cover the Tax liabilities accruing through the date
thereof; (e) there is no action, suit, proceeding, audit or claim now proposed
or pending against or with respect to the Borrower or any of its Subsidiaries in
respect of any Tax where there is a reasonable possibility of an adverse
determination; and (f) to the best of the Borrower's knowledge and belief,
neither the Borrower nor any of its Subsidiaries is liable for any Tax imposed
on any entity other than such Person, except as the result of the application of
Treas. Reg. section 1.1502-6 (and any comparable provision of the tax laws of
any state, local or foreign jurisdiction) to the affiliated group of which the
Borrower is the common parent. For purposes of this Agreement, "Tax Returns"
shall mean any return, report, form or similar statement required to be filed
with respect to any Tax (including any attached schedules), including, without
limitation, any information return, claim for refund, amended return or
declaration of estimated Tax.
4.11 Title to Property. The Borrower and each of its Subsidiaries has
good and marketable title to all of its material properties and assets, free and
clear of all Liens, except for Permitted Liens.
-13-
<PAGE>
4.12 Leaseholds. Neither the Borrower nor any of its Subsidiaries has
given or received notice of any material default under any material lease under
which the Borrower or any of its Subsidiaries is the lessee of real property
(each a "Borrower Lease" and collectively the "Borrower Leases") and, to the
knowledge of the Borrower, neither the Borrower nor any of its Subsidiaries nor
any other party thereto is in default in any material respect under any of the
Borrower Leases. All of the Borrower Leases are in full force and effect, and
are valid, binding and enforceable in accordance with their terms, except (a) as
limited by applicable bankruptcy, insolvency, reorganization, moratorium and
other laws of general application affecting enforcement of creditors' or
lessors' rights generally and (b) as limited by laws relating to the
availability of specific performance, injunctive relief or other equitable
remedies. Except as set forth in the Disclosure Letter, neither the Borrower nor
any of its Subsidiaries has leased, subleased, licensed or assigned, as the case
may be, all or any portion of its leasehold interest under any Borrower Lease to
any person.
4.13 Insurance. The insurance carried by the Borrower and its
Subsidiaries is in such types and amounts and covering such risks as are
consistent with customary practices and standards of companies engaged in
businesses and operations similar to those of the Borrower and its Subsidiaries.
Except as would not have a Material Adverse Effect on the Borrower, all such
insurance is in full force and effect and none of the Borrower nor any of its
Subsidiaries is in default thereunder. Except as would not have a Material
Adverse Effect on the Borrower, all claims thereunder have been filed in a due
and timely fashion. Except as would not have a Material Adverse Effect on the
Borrower, neither the Borrower nor any of its Subsidiaries has been notified in
writing of a refusal of any material insurance coverage relating to products
liability (including renewals of any such products liability coverage) by any
insurance carrier to which it has applied for insurance during the past three
(3) years.
4.14 Labor Matters. There are no controversies pending or, to the best
knowledge of each of the Borrower and its respective Subsidiaries, threatened,
between the Borrower or any of its Subsidiaries and any of their respective
employees, which controversies have or could reasonably be expected to have a
Material Adverse Effect of the Borrower. As of the Effective Date, neither the
Borrower nor any of its Subsidiaries is a party to any collective bargaining
agreement or other labor union contract applicable to persons employed by the
Borrower or its Subsidiaries nor does the Borrower or its Subsidiaries know of
any activities or proceedings of any labor union to organize any such employees
as of the Effective Date which have or could reasonably be expected to have a
Material Adverse Effect on the Borrower and its Subsidiaries. As of the
Effective Date, neither the Borrower nor any of its Subsidiaries has any
knowledge of any strikes, slowdowns, work stoppages or lockouts, or threats
thereof, by or with respect to any employees of the Borrower or any of its
Subsidiaries as of the Effective Date which have or could reasonably be expected
to have a Material Adverse Effect on the Borrower and its Subsidiaries.
4.15 SEC Filings.
-----------
(a) The Borrower has made available to the Lender (i) its annual
reports on Form 10-K for its fiscal years ended December 31, 1996, 1997 and
1998, (ii) its quarterly reports on Form 10-Q for its quarter ended March 31,
1999, (iii) its proxy or information statements relating to meetings of, or
actions taken without a meeting by, the stockholders of the Borrower held since
December 31, 1998, and (iv) all of its other reports, statements, schedules and
registration statements filed with the SEC since December 31, 1998 (the
documents referred to in this Section 4.15(a) being referred to collectively as
the "Borrower SEC Documents"). The Borrower's quarterly report on Form 10-Q for
its fiscal quarter ended March 31, 1998 is referred to herein as the "Borrower
10-Q."
(b) As of its filing date, each Borrower SEC Document complied as to
form in all material respects with the applicable requirements of the Exchange
Act and the 1933 Act.
(c) As of its filing date, each Borrower SEC Document filed pursuant to
the Exchange Act did not contain any untrue statement of a material fact or omit
to state any material fact necessary in order to make the statements made
therein, in the light of the circumstances under which they were made, not
misleading.
-14-
<PAGE>
(d) Each such registration statement, as amended or supplemented, if
applicable, filed pursuant to the 1933 Act as of the date such statement or
amendment became effective did not contain any 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.
4.16 Financial Statements. The audited consolidated financial
statements and unaudited consolidated interim financial statements of the
Borrower (including any related notes and schedules) included in its annual
reports on Form 10-K and the quarterly report on Form 10-Q referred to in
Section 4.15 fairly present in all material respects, in conformity with GAAP
applied on a consistent basis (except as may be indicated in the notes thereto),
the consolidated financial position of the Borrower and its consolidated
Subsidiaries as of the dates thereof and their consolidated results of
operations and changes in financial position for the periods then ended (subject
to normal year-end adjustments and the absence of notes in the case of any
unaudited interim financial statements). For purposes of this Agreement,
"Borrower Balance Sheet" means the consolidated balance sheet of the Borrower as
of March 31, 1999 set forth in the Borrower 10-Q and "Borrower Balance Sheet
Date" means March 31, 1999.
4.17 Absence of Certain Changes. Except as set forth in the Disclosure
Letter, since Borrower Balance Sheet Date, the Borrower and its Subsidiaries
have conducted their business in the ordinary course consistent with past
practice and there has not been:
(a) any event, occurrence or development of a state of circumstances or
facts which has had or reasonably would be expected to have, individually or in
the aggregate, a Material Adverse Effect on the Borrower;
(b) any declaration, setting aside or payment of any dividend or other
distribution with respect to any shares of capital stock of the Borrower or any
repurchase, redemption or other acquisition by the Borrower or any of its
Subsidiaries of any outstanding shares of capital stock or other securities of,
or other ownership interests in, the Borrower or any of its Subsidiaries;
(c) any amendment of any material term of any outstanding security of
the Borrower or any of its Subsidiaries;
(d) any transaction or commitment made, or any contract, agreement or
settlement entered into, by (or judgment, order or decree affecting) the
Borrower or any of its Subsidiaries relating to its assets or business
(including the acquisition or disposition of any assets) or any relinquishment
by the Borrower or any of its Subsidiaries of any contract or other right, in
either case, material to the Borrower and its Subsidiaries taken as a whole,
other than transactions, commitments, contracts, agreements or settlements
(including without limitation settlements of litigation and tax proceedings) in
the ordinary course of business consistent with past practice, those
contemplated by this Agreement, or as agreed to in writing by the Borrower;
(e) any change in any method of accounting or accounting practice
(other than any change for tax purposes) by the Borrower or any of its
Subsidiaries, except for any such change which is not significant or which is
required by reason of a concurrent change in GAAP; or
(f) any (i) grant of any severance or termination pay to (or amendment
to any such existing arrangement with) any director, officer or employee of the
Borrower or any of its Subsidiaries, (ii) entering into of any employment,
deferred compensation or other similar agreement (or any amendment to any such
existing agreement) with any director, officer or employee of the Borrower or
any of its Subsidiaries, (iii) increase in benefits payable under any existing
severance or termination pay policies or employment agreements or (iv) increase
in (or amendments to the terms of) compensation, bonus or other benefits payable
to directors, officers or employees of the Borrower or any of its Subsidiaries,
other than in the ordinary course of business consistent with past practice, as
permitted by this Agreement, or as agreed to in
-15-
<PAGE>
writing by the Borrower.
4.18 No Undisclosed Material Liabilities. There are no liabilities of
the Borrower or any Subsidiary of the Borrower of any kind whatsoever, whether
accrued, contingent, absolute, determined, determinable or otherwise, other
than:
(a) liabilities disclosed or provided for in the Borrower Balance
Sheet or in the notes thereto;
(b) liabilities which in the aggregate would not reasonably be expected
to have a Material Adverse Effect on the Borrower;
(c) liabilities disclosed in Borrower SEC Documents filed prior to the
date hereof or set forth in the Disclosure Letter; and
(d) liabilities under this Agreement.
4.19 Employee Benefit Plans.
----------------------
(a) Prior to the date hereof, the Borrower has provided the Borrower
with a list (set forth in the Disclosure Letter) identifying each material
"employee benefit plan," as defined in section 3(3) of ERISA, each material
employment, severance or similar contract, plan, arrangement or policy
applicable to any director, former director, employee or former employee of the
Borrower and each material plan or arrangement (written or oral), providing for
compensation, bonuses, profit-sharing, stock option or other stock related
rights or other forms of incentive or deferred compensation, vacation benefits,
insurance coverage (including any self-insured arrangements), health or medical
benefits, disability benefits, workers' compensation, supplemental unemployment
benefits, severance benefits and post-employment or retirement benefits
(including compensation, pension, health, medical or life insurance benefits)
which is maintained, administered or contributed to by the Borrower and covers
any employee or director or former employee or director of the Borrower, or
under which the Borrower has any liability. Such material plans (excluding any
such plan that is a "multiemployer plan," as defined in section 3(37) of ERISA)
are referred to collectively herein as the "Borrower Employee Plans."
(b) Except as set forth in the Disclosure Letter, each Borrower
Employee Plan has been maintained in compliance with its terms and with the
requirements prescribed by any and all statutes, orders, rules and regulations
(including but not limited to ERISA and the Code) which are applicable to such
Plan, except where failure to so comply would not, individually or in the
aggregate, have a Material Adverse Effect on the Borrower.
(c) Neither the Borrower nor any affiliate of the Borrower has incurred
a liability under Title IV of ERISA that has not been satisfied in full, and no
condition exists that presents a material risk to the Borrower or any affiliate
of the Borrower of incurring any such liability other than liability for
premiums due the Pension Benefit Guaranty Corporation (which premiums have been
paid when due).
(d) All Borrower Employee Plans that are intended to be qualified under
section 401(a) of the Code have been the subject of determination, opinion,
notification or advisory letters from the Internal Revenue Service ("IRS") which
the company has made available to the Lender. Each such letter as the effect of
stating that each such Borrower Employee Plan is qualified and is exempt from
Federal income taxes under section 501(a) of the Code. The remedial amendment
period with respect to each such Borrower Employee Plan has not expired for any
amendment to any such Borrower Employee Plan that was made on or after the date
of the application for the determination, opinion, notification or advisory
letter. No such determination, opinion, notification or advisory letter has been
revoked, nor has any event occurred since the date of the most recent such
letter that would adversely affect its qualification, other than as set forth in
the Disclosure Letter.
-16-
<PAGE>
(e) Except as set forth in the Disclosure Letter, no director or
officer or other employee of the Borrower or any of its Subsidiaries will become
entitled to any retirement, severance or similar benefit or enhanced or
accelerated benefit (including any acceleration of vesting or lapse of
repurchase rights or obligations with respect to any employee stock option or
other benefit under any stock option plan or compensation plan or arrangement of
the Borrower) solely as a result of the transactions contemplated hereby.
(f) Except as reflected in Disclosure Letter, no Borrower Employee Plan
provides post-retirement health and medical, life or other insurance benefits
for retired employees of the Borrower or any of its Subsidiaries (other than
benefit coverage mandated by applicable statute, including benefits provided
pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985, as
codified in Code section 4980B and ERISA section 601 et seq., as amended from
time to time ("COBRA")).
(g) Except as set forth in the Disclosure Letter, there has been no
amendment to, written interpretation or announcement (whether or not written) by
the Borrower or any of its affiliates relating to, or change in employee
participation or coverage under, any Borrower Employee Plan which would increase
materially the expense of maintaining such Borrower Employee Plan above the
level of the expense incurred in respect thereof for the twelve (12) months
ended on the Borrower Balance Sheet Date.
4.20 Compliance With Laws. Neither the Borrower nor any of its
Subsidiaries is in violation of, or has since January 1, 1999 violated, any
applicable provisions of any laws, statutes, ordinances or regulations except
for any violations that, individually or in the aggregate, would not reasonably
be expected to have a Material Adverse Effect on the Borrower.
4.21 Environmental Laws. Except for such exceptions as, individually or
in the aggregate, have not had, and would not reasonably be expected to have, a
Material Adverse Effect on the Borrower, (a) no notice, notification, demand,
request for information, citation, summons, complaint or order has been received
by, and no investigation, action, claim, suit, proceeding or review is pending
or, to the knowledge of the Borrower or any of its Subsidiaries, threatened by
any Person against, the Borrower or any of its Subsidiaries, and no penalty has
been assessed against the Borrower or any of its Subsidiaries, in each case,
with respect to any matters relating to or arising out of any Environmental Law;
(b) the Borrower and its Subsidiaries are and have been in compliance with all
Environmental Laws; and (c) there are no liabilities of or relating to the
Borrower or any of its Subsidiaries relating to or arising out of any
Environmental Law of any kind whatsoever, whether accrued, contingent, absolute,
determined, determinable or otherwise, and there is no existing condition,
situation or set of circumstances which could reasonably be expected to result
in such a liability.
4.22 Year 2000 Compliance. Except as would not reasonably be expected
to have a Material Adverse Effect on the Borrower, all of the Borrower's
Information Technology (as defined below) is effectively addresses the Year 2000
issues, and will not cause an interruption in the ongoing operations of the
Borrower's business on or after January 1, 2000. For purposes of this Agreement,
the term "Information Technology" shall mean and include all software, hardware,
firmware, telecommunications systems, network systems, embedded systems and
other systems, components and/or services that are owned or used by the Borrower
in the conduct of its business, and the term "Year 2000 Issues" shall mean the
question of whether product or software accurately processes and stores
date/time data (including, but not limited to calculating, comparing,
displaying, recording and sequencing operations involving date/time data)
during, from and into and between the twentieth and twenty-first centuries, and
the years 1999 and 2000, including correct processing of leap year data.
4.23 Statutory Regulation. The Borrower is not an investment company
within the meaning of the Investment Borrower Act of 1940, as amended, and to
the Borrower's knowledge, is not, directly or indirectly, controlled by or
acting on behalf of any person which is an investment company, within the
meaning of said Act. The Borrower is not subject to any Governmental Requirement
regulating public utilities or similar entities, and is not, within the meaning
of the Public Utility Holding Borrower Act of
-17-
<PAGE>
1935, as amended, (a) a holding company; (b) a subsidiary or affiliate of a
holding company; or (c) a public utility. The Borrower is not subject to
regulation under the Federal Power Act or to any other Governmental Requirement
limiting or placing conditions upon their respective power or right to borrow
money.
4.24 Use of Proceeds. The proceeds of the Loans will be used solely for
working capital purposes.
ARTICLE 5
---------
AFFIRMATIVE COVENANTS
---------------------
The Borrower covenants and agrees that so long as any Obligation is
outstanding it shall comply with the following provisions; provided that the
Borrower shall have no obligation under this Article 5 if the Borrower and the
Lender enter into the Merger Agreement so long as that agreement remains in full
force and effect:
5.1 Accounting Records. The Borrower shall maintain adequate books and
accounts in accordance with sound business practices and GAAP consistently
applied. The Borrower shall promptly furnish to the Lender any information
regarding their business or finances as the Lender may reasonably request,
provided that nothing in this Section 5.1 shall entitle the Lender to any
information which would result in a disclosure of the Borrower's proprietary
information or trade secrets.
5.2 Financial Statements and Notices. The Borrower shall furnish to the
Lender all of the following financial statements, information and notices:
(a) The Borrower shall, within thirty (30) days after it is required to
file the same with the Securities and Exchange Commission, deliver copies of the
annual reports and of the information, documents and other reports (or copies of
such portions of any of the foregoing as the Securities and Exchange Commission
may from time to time by rules and regulations prescribe) which the Borrower may
be required to file with the Securities and Exchange Commission pursuant to
section 23 or section 15(d) of the Securities Exchange Act of 1934, as amended.
(b) Promptly but in no event later than one (1) Business Day after (i)
the occurrence of an Event of Default or an Incipient Default, or (ii) any
default or Event of Default as defined in any evidence of Indebtedness or under
any agreement, indenture or other instrument under which such evidence of
Indebtedness has been issued, whether or not such Indebtedness is accelerated or
such default waived, the Borrower shall notify the Lender thereof, and within
five (5) calendar days after obtaining such an occurrence, a statement of a
Authorized Officer setting forth details of such Event of Default or Incipient
Default and the action which the Borrower proposes to take with respect thereto.
(c) As soon as practicable written notice of any actual or threatened
claims, litigation, suits, investigations, proceedings or disputes against or
affecting the Borrower, including, without limitation: (i) any claims,
litigations, suits, investigations, proceedings or disputes involving in
aggregate a monetary amount in excess of fifty thousand dollars ($50,000),
whether or not covered by insurance; (ii) any labor controversy which is
reasonably expected to result in a strike against the Borrower; (iii) any
proposal by any Governmental Authority to acquire any of the assets or business
of the Borrower; (iv) any investigation or proceeding before or by any
Governmental Authority, the effect of which could reasonably be expected
materially to limit, prohibit or restrict the manner in which the Borrower
currently conducts its business or to declare any substance contained in the
products manufactured or distributed by the Borrower to be dangerous; (v) any
summons, citation, directive, notice, complaint, letter or other communication,
whether oral or written, from any person concerning any alleged violation by the
Borrower, or any predecessor of the Borrower, of any Environmental Law, or any
alleged noncompliance of any of the properties or the operations of the Borrower
therewith; or (vi) any investigation of or request for information from the
Borrower relating to the handling, storage or disposal of any Hazardous
Substance, or the release thereof
-18-
<PAGE>
into the environment, by the Borrower or any of their predecessors or any other
Person, which investigation or request is other than routine.
5.3 Access. Following the occurrence and during the continuance of an
Event of Default, the Borrower shall permit the Lender, at such reasonable times
and intervals as the Lender may designate upon reasonable notice, at its own
expense (unless as part of an audit of the Collateral as provided in Section 5.1
hereof), by and through the representatives and agents of the Lender, to
inspect, audit and examine its books and records, to make copies thereof, to
discuss its affairs, finances and accounts with its officers and independent
public accountants, and to visit and inspect its properties; provided, however,
that nothing in this Section 5.3 shall entitle the Lender to make inquiries
which would result in disclosure of the Borrower's proprietary information or
trade secrets.
5.4 Maintenance of Existence. The Borrower shall preserve and maintain
its corporate existence.
5.5 Qualifications To Do Business. The Borrower shall qualify to do
business and shall be and (in the case of corporations) remain in good standing
in each jurisdiction in which the nature of its business requires it to be so
qualified, except where the failure to be so qualified could not reasonably be
expected to have a Material Adverse Effect.
5.6 Insurance. The Borrower shall maintain in full force and effect
insurance normal and customary for the business of the Borrower and increase,
and the Borrower shall add to such insurance coverage insurance of the types and
amounts customarily carried in their respective lines of business, including,
but not limited to, fire, public liability, property damage, products liability
and workers' compensation insurance.
5.7 Collateral. The Borrower shall keep the Collateral in good repair,
working order and condition, and from time to time shall make necessary repairs
or replacements thereto so that the Collateral shall be maintained adequately
for their intended use. The Borrower shall not move any Collateral, other than
inventory sold in the ordinary course of business, from its location on the
Effective Date without giving the Lender prior written notice of the new
location to which such Collateral will be moved.
5.8 Taxes and Other Liabilities. The Borrower shall pay and discharge
when due any and all material Taxes, except as may be subject to good faith
contest or as to which a bona fide dispute may arise; provided, however, that
adequate reserves in accordance with GAAP or other provision is made to the
satisfaction of the Lender for prompt payment thereof in the event that it is
found that the same are its obligations.
5.9 Governmental Approvals. The Borrower shall apply for, diligently
pursue, and obtain or cause to be obtained, and shall thereafter maintain in
full force and effect all Governmental Approvals that shall now or hereafter be
necessary under any Governmental Requirement (a) for land use, public and
employee health and safety, pollution or protection of the environment, (b) for
the grant by the Borrower of the Liens granted by any of the Security Documents
and for the validity and enforceability thereof or for the perfection of and the
exercise by the Lender of its rights and remedies thereunder, and (c) for the
operation of the business of the Borrower, except where the failure to be so
qualified could not reasonably be expected to have a Material Adverse Effect.
The Borrower shall promptly notify the Lender in the event of any, and provide
the Lender with a copy of all notices of, denial, suspension, variance or
revocation of any material Governmental Approvals.
5.10 Compliance With Governmental Approvals and Governmental
Requirements. The Borrower shall materially comply with all Governmental
Requirements, all terms and conditions of all Governmental Approvals and with
all other limitations, restrictions, obligations, schedules, timetables and
reporting requirements in any Governmental Requirements.
5.11 Prevent Contamination. The Borrower shall conduct its operations
on property owned, leased
-19-
<PAGE>
or used by it in such a way as to prevent material contamination of any part of
such property by any Hazardous Substance through the action of the Borrower. The
Borrower shall use reasonable efforts to manage all Hazardous Substances in a
manner that does not require a Hazardous Waste Facility Permit, and in
compliance in all material respects with all Governmental Requirements and
Governmental Approvals. Without limiting the foregoing covenants, the Borrower
shall not intentionally or recklessly, shall endeavor not to unintentionally,
and shall use reasonable efforts to assure that no other Person to, emit,
release or discharge on or from any property owned, leased exclusively or used
exclusively by the Borrower into air, soil, surface water or groundwater any
Hazardous Substance in excess of permitted levels or reportable quantities, or
other concentrations, standards or limitations under any Governmental
Requirements or Governmental Approvals.
5.12 Liens and Perfection.
--------------------
(a) From and after the Effective Date, the Borrower shall cause the
Security Documents to be and remain, except for Permitted Liens, first priority
Liens on all Collateral for the benefit of the Lender and to become first
priority Liens on any real or personal property now owned or hereafter received
by the Borrower upon the disposition of any of the Collateral which property is
not subject to the Liens created by the Security Documents. The Borrower shall,
upon the request of the Lender, execute and deliver or cause to be executed and
delivered to the Lender any agreement, instrument, conveyance, mortgage, pledge,
hypothecation or financing statement, in form and substance reasonably
satisfactory to the Lender, which agreement, instrument, conveyance, mortgage,
pledge, hypothecation, document or financing statement the Lender shall
reasonably determine is necessary to obtain, perfect or enforce a first priority
Lien on any property owned by the Borrower on which the Lender does not have a
perfected security interest or lien or any property received by the Borrower
upon its disposition of any of the Collateral.
(b) Without limiting the generality of Section 5.12(a) hereof, the
Borrower shall from time to time do all things and deliver all documents and
instruments reasonably requested by the Lender to perfect, protect and enforce
the Liens granted under the Security Documents and pursuant to this Section
5.12. Such acts include, without limitation, the filing of financing statements
under the Uniform Commercial Code and of other documents and instruments under
other applicable laws.
5.13 Change of Location. The Borrower shall notify the Lender not
later than thirty (30) days in advance of any change in the location of its
chief executive office.
ARTICLE 6
---------
NEGATIVE COVENANTS
------------------
The Borrower covenants and agrees that so long as any Obligation is
outstanding it shall comply and, if applicable, cause each Subsidiary to comply
with all of the following provisions; provided that the Borrower shall have no
obligation under this Article 6 if the Borrower and the Lender enter into the
Merger Agreement so long as that agreement remains in full force and effect:
6.1 Mergers. Except for consolidations and mergers as may be agreed
with the Lender, the Borrower shall not enter into any merger, consolidation,
reorganization or recapitalization, or any agreement, in each case, to do any of
the foregoing.
6.2 Restricted Payments. The Borrower shall not make Restricted
Payments to its shareholders unless it has received the prior written consent of
the Lender.
6.3 Change of Name, Etc. The Borrower shall not (a) change its name
without at least thirty (30) days' prior notice to the Lender, or (b) change the
nature of its business or engage in any other business other than the businesses
in which it is engaged as of the Effective Date without the prior written
consent of the
-20-
<PAGE>
Lender.
6.4 Accounting Policies. Except in order to comply with GAAP, the
Borrower shall not materially change any of its accounting policies or its
fiscal year.
6.5 Liens. The Borrower shall not create or permit to exist any Lien
upon any of the Collateral, except for Permitted Liens, or enter into any
agreement to grant a Lien (other than in connection with the granting or
sufferance of a Permitted Lien, provided that such agreement pertains only to
the property covered by the Permitted Lien) on any of the Collateral.
6.6 Contingent Obligations. The Borrower shall not become liable,
directly or indirectly, for any Contingent Obligation except by (a) endorsement
of instruments for deposit, (b) for the existing guarantees made by the Borrower
prior to the date hereof, if any, which are set forth in the Disclosure Letter;
(c) contingent obligation with respect to letters of credit, banker's
acceptances, surety bonds and the like in the ordinary course of business, (d)
contingent obligations of the Borrower with respect to any obligations of a
Subsidiary, (e) contingent obligations in connection with investments, and (f)
contingent obligations consisting of guaranties and other credit support in
respect of transactions entered into in the ordinary course of business and any
other contingent obligations, not to exceed $20,000,000 in the aggregate at any
time.
6.7 Indebtedness. The Borrower shall not incur, create, assume or
permit to exist any Indebtedness except (a) the Obligations, (b) the Existing
Debt (and any amendment, modification, refinancing or refunding thereof on terms
no less materially unfavorable to the Borrower), (c) trade payables and other
contractual obligations to suppliers and customers incurred in the ordinary
course of business, (d) Indebtedness subordinated to the Obligations on terms
reasonably acceptable to the Lender, (e) intercompany Indebtedness, (f)
Indebtedness consisting of Contingent Obligations permitted by Section 6.6, (g)
purchase money Indebtedness secured by Permitted Liens, and (h) other
Indebtedness not to exceed ten million dollars ($10,000,000) at any time
outstanding.
6.8 Sale of Assets. Except for (a) inventory sold in the ordinary
course of business, (b) sales of assets that are obsolete or no longer useful or
sales, and (c) transfers, leases, license or other dispositions of assets that
are not, in the aggregate, material between or among any of the Borrower and its
Subsidiaries, neither the Borrower nor any Subsidiary shall sell, transfer,
lease, license or otherwise dispose of any of its assets.
6.9 Loans to Affiliates. The Borrower shall not, directly or
indirectly, make any loan or advance to any Affiliate, except in the ordinary
course of business and as permitted in Section 6.7.
6.10 Certain ERISA Payments. The Borrower shall not make any payment of
any material liability arising under ERISA or under the Code of any ERISA
Affiliate.
6.11 No Solicitation. The Borrower agrees that, from and after the date
of this Agreement until 12:01 a.m. on Tuesday, June 15, 1999, neither it nor any
of its Subsidiaries nor any of the officers or directors of it or its
Subsidiaries, nor its or their employees, investment bankers, attorneys,
accountants, financial advisors, agents or other representatives (collectively,
"Representatives"), shall directly or indirectly, initiate, solicit or otherwise
induce any inquiries or the making of an Acquisition Proposal (as defined
below). The Borrower further agrees that neither it nor any of its Subsidiaries
nor any of its or its Subsidiaries' officers or directors shall, and that it
shall direct and use its best reasonable efforts to cause its Representatives
not to, directly or indirectly, have any discussions with or provide any
confidential information or data to any Person relating to an Acquisition
Proposal or engage in any negotiations concerning an Acquisition Proposal, or
otherwise facilitate any effort or attempt to make or implement an Acquisition
Proposal. The Borrower agrees that it will, on the date hereof, immediately
cease and cause to be terminated any existing activities, discussions or
negotiations with any Person conducted heretofore with respect to any
Acquisition Proposal. Nothing contained in this Agreement shall prevent the
Board of Directors of the Borrower from complying with Rule 14d-9 and Rule 14e-2
promulgated under the
-21-
<PAGE>
Securities Exchange Act of 1934 (the "Exchange Act") with regard to an
Acquisition Proposal; provided that the Board of Directors of the Borrower shall
not recommend that the stockholders of the Borrower tender their shares in
connection with a tender offer. Notwithstanding the foregoing, the Borrower may
continue to provide information to and conduct negotiations with the parties
listed in Schedule 6.11 of the Disclosure Letter in connection with due
diligence related to the proposed equity financing described therein.
For purposes of this Agreement, "Acquisition Proposal" shall mean any
offer or proposal (other than an offer or proposal by Lender) relating to any
transaction or series of related transactions involving: (a) any purchase from
the Borrower or acquisition by any Person or "group" (as defined under section
13(d) of the Exchange Act and the rules and regulations thereunder) of more than
a five percent (5%) interest in the total outstanding voting securities of the
Borrower or any of its subsidiaries or any tender offer or exchange offer that
if consummated would result in any person or "group" (as defined under section
13(d) of the Exchange Act and the rules and regulations thereunder) beneficially
owning five percent (5%) or more of the total outstanding voting securities of
the Borrower or any of its Subsidiaries or any merger, consolidation, business
combination or similar transaction involving the Borrower; (b) any sale, lease
(other than in the ordinary course of business), exchange, transfer, license
(other than in the ordinary course of business), acquisition or disposition of
more than five percent (5%) of the assets of the Borrower; or (c) any
liquidation or dissolution of the Borrower.
ARTICLE 7
---------
EVENTS OF DEFAULT
-----------------
7.1 Events of Default. Each of the following shall constitute an Event
of Default under this Agreement:
(a) Payments. The Borrower shall fail to pay when due:
(i) any installment of principal hereunder;
(ii) any payment of interest or any other sum payable
hereunder or under any of the other Loan Documents within three (3)
Business Days of when due; or
(iii) any amounts aggregating to $2,000,000 due to the Lender
under any contract (including any purchase order) pursuant to which the
Lender does business with the Borrower not paid within twenty (20) days
of when due.
(b) Other Covenants and Agreements. The Borrower shall default in the
performance of any of its agreements set forth in any other provision herein or
in any of the other Loan Documents (and not constituting an Event of Default
under any of the other clauses of this Section 7.1).
(c) Representations and Warranties. Any warranty, representation or
certification made by the Borrower or any officer of the Borrower in any of the
Loan Documents, shall be untrue in any material respect or shall omit to state a
fact necessary to make it not materially misleading in light of the
circumstances under which it was made, in any case on any date as of which the
facts set forth are stated or certified.
(d) Judgment. A judgment or judgments shall be entered against the
Borrower in the aggregate amount of five million dollars ($5,000,000) or more on
an uninsured claim or claims or a claim or claims which the insurer does not
undertake to pay, and such judgment or judgments shall remain unstayed,
unvacated, undischarged or unsatisfied for ten (10) days.
(e) Liens for Pension Contributions. Any material Lien shall have been
placed upon the assets of
-22-
<PAGE>
the Borrower or any ERISA Affiliate under the Code or ERISA.
(f) Plan Termination or Withdrawal Liability. Any termination of a
single employer plan (as defined in section 4001(a)(15) of ERISA) or any
complete or partial withdrawal from a multiemployer plan (as defined in section
4001(a)(3) of ERISA) shall occur, or steps shall have been taken by any Person
that make it reasonable to expect that such termination or withdrawal will
occur, and such termination or withdrawal could reasonably be expected to result
in liability of the Borrower or any ERISA Affiliate to the PBGC, to a trustee or
to such multiemployer plan in the aggregate amount of one million dollars
($1,000,000) or more. A plan amendment described in section 4041(e) of ERISA
shall be treated as a plan termination for purposes of this paragraph.
(g) Funding Waiver. The Borrower or any ERISA Affiliate shall apply
under section 412 of the Code for a waiver of the minimum funding standard.
(h) Plan Qualification. Any plan of the Borrower or an ERISA Affiliate
that is intended to have qualification under section 401(a) of the Code loses
such qualification, if the loss of such qualification can reasonably be expected
to impose on the Borrower or any ERISA Affiliate liabilities (for additional
taxes, to plan participants or otherwise) in the aggregate amount of one million
dollars ($1,000,000) or more.
(i) Cross-Default. The Borrower shall default in the payment when due,
whether by acceleration or otherwise, of an amount greater than ten million
dollars ($10,000,000) on any of its Indebtedness (not arising hereunder or under
any of the other Loan Documents), or default in the performance or observance
(subject to any applicable grace period) of any agreement, covenant or condition
with respect to any such Indebtedness if the effect of such default is to
accelerate the maturity of any such Indebtedness or to permit the holder or
holders of any such Indebtedness, or any trustee or agent for such holders, to
cause such Indebtedness to become due and payable prior to its expressed
maturity or, if such Indebtedness is a guaranty, to call upon such guaranty in
advance of nonpayment of the guaranteed indebtedness.
(j) Collateral. A judgment creditor of the Borrower shall obtain
possession of any material portion of the Collateral) by any means, including,
but not limited to, levy, distraint, replevin or self-help.
(k) Impairment of Collateral. The Lender's Lien, or the priority
thereof, on any material portion of the Collateral shall become impaired or
otherwise unenforceable.
(l) Bankruptcy. The Borrower shall institute a voluntary case seeking
liquidation or reorganization under Chapter 7 or Chapter 11, respectively, of
the United States Bankruptcy Code, or shall consent to the institution of an
involuntary case thereunder against it; or the Borrower shall file a petition
initiating or shall otherwise institute any similar proceeding under any other
applicable federal or state law, or shall consent thereto; or the Borrower shall
apply for, or by consent or acquiescence there shall be an appointment of, a
receiver, liquidator, sequestrator, trustee or other officer with similar
powers, or the Borrower shall make an assignment for the benefit of creditors;
or the Borrower shall admit in writing its inability to pay its debts generally
as they become due; or, if an involuntary case shall be commenced seeking the
liquidation or reorganization of the Borrower under Chapter 7 or Chapter 11,
respectively, of the United States Bankruptcy Code, or any similar proceeding
shall be commenced against the Borrower under any other applicable federal or
state law, and (i) the petition commencing the involuntary case is not timely
controverted; or (ii) the petition commencing the involuntary case is not
dismissed within forty-five (45) days of its filing; or (iii) an interim trustee
is appointed to take possession of all or a portion of the property and/or to
operate all or any part of the business of the Borrower; or (iv) an order for
relief shall have been issued or entered therein; or a decree or order of a
court having jurisdiction in the premises for the appointment of a receiver,
liquidator, sequestrator, trustee or other officer having similar powers over
the Borrower, or of all or a part of the property of any of the foregoing, shall
have been entered; or any other similar relief shall be granted against the
Borrower under any applicable federal or state law.
(m) Material Adverse Change. The Lender shall have determined that a
Material Adverse Change
-23-
<PAGE>
other than solely as a result of losses incurred by the Borrower in the ordinary
course of business has occurred since the Effective Date.
(n) Invalidity of Loan Documents. Any of the Loan Documents shall cease
for any reason to be in full force and effect in any material respect or any
party thereto (other than the Lender) shall purport to disavow its obligations
thereunder, shall declare that it does not have any further obligation
thereunder or shall contest the validity or enforceability thereof.
7.2 Termination of Commitment and Acceleration. If any Event of Default
described in Section 7.1(l) shall occur, the Notes and all other Obligations
shall become immediately due and payable, all without notice of any kind. If any
other Event of Default shall be continuing, the Lender may declare its
obligation to advance further portions of the Loans to be terminated and the
outstanding Notes and all other Obligations to be due and payable, or all of the
foregoing, whereupon the Notes and all other Obligations shall immediately
become due and payable, all as so declared by the Lender and without
presentment, demand, protest or other notice of any kind.
ARTICLE 8
---------
MISCELLANEOUS
-------------
8.1 Successors and Assigns. The terms and provisions of this Agreement
shall be binding upon, and the benefits thereof shall inure to, the parties
hereto and their respective successors and assigns; provided, however, that the
Borrower shall not assign this Agreement or any of the rights, duties or
obligations of the Borrower hereunder without the prior written consent of the
Lender.
8.2 No Implied Waiver. No delay or omission to exercise any right,
power or remedy accruing to the Lender upon any breach or default of the
Borrower under this Agreement or under any of the other Loan Documents shall
impair any such right, power or remedy of the Lender, nor shall it be construed
to be a waiver of any such breach or default, or an acquiescence therein, or of
or in any similar breach or default occurring thereafter, nor shall any waiver
of any single breach or default be deemed a waiver of any other breach or
default occurring theretofore or thereafter.
8.3 Amendments; Waivers.
-------------------
(a) No amendment, modification or waiver of, or consent with respect
to, any provision of this Agreement, the Note or any of the other Loan Documents
shall in any event be effective unless the same shall be in writing and signed
and delivered by the Lender and the Borrower.
(b) Any amendment, modification, waiver or consent hereunder shall be
effective only in the specific instance and for the specific purpose for which
given.
8.4 Remedies Cumulative. All rights and remedies, either under this
Agreement, by law or otherwise afforded to the Lender shall be cumulative and
not exclusive, and any single or partial exercise of any power or right
hereunder or thereunder does not preclude other or further exercise thereof, or
the exercise of any other power or right.
8.5 Severability. Any provision of this Agreement, the Note or any of
the other Loan Documents which is prohibited or unenforceable in any
jurisdiction shall be, only as to such jurisdiction, ineffective to the extent
of such prohibition or unenforceability, but all the remaining provisions of
this Agreement, the Note and the other Loan Documents shall remain valid.
8.6 Costs, Expenses and Attorneys' Fees. If, at any time or times, the
Lender or, in subsection (a) below, the Borrower shall employ counsel or other
professional advisors for advice or other representation
-24-
<PAGE>
or shall incur reasonable legal, appraisal, accounting, consulting or other
costs and expenses in connection with any of the following:
(a) Any litigation, contest, dispute, suit, proceeding or action
(whether instituted by any party to any Loan or any other Person) in any way
relating to the Collateral, any of the Loan Documents or any other agreements to
be executed or delivered in connection herewith, including any litigation,
contest, dispute, suit, case, proceeding or action, and any appeal or review
thereof, in connection with a case commenced by or against the Borrower or any
other Person that may be obligated to the Lender by virtue of the Loan, under
Title 11 of the United States Code, as now constituted or hereafter amended, or
any other applicable federal, state or foreign bankruptcy or other similar law;
provided, however, that in any litigation between the Borrower and the Lender
the prevailing party shall be entitled to recover reasonable attorneys' fees
under this Section 8.6(a).
(b) Any attempt to inspect, verify, protect, collect, sell, liquidate
or otherwise dispose of any or all of the Collateral.
In any such event, the reasonable fees of such attorneys and other professional
advisors arising from such services, including those of any appellate
proceedings, and all reasonable expenses, costs, charges and other fees incurred
by such counsel or other professionals in any way or respect arising in
connection with or relating to any of the events or actions described in this
Section 8.6 shall be payable, on demand. Without limiting the generality of the
foregoing, such reasonable expenses, costs, charges and fees may include:
attorneys' fees, costs and expenses, paralegal fees, costs and expenses;
accountants' fees, costs and expenses; appraisers' fees, costs and expenses;
other consultants' fees, costs and expenses; court costs and expenses;
photocopying and duplicating expenses; court reporter fees, costs and expenses;
long distance telephone charges; air express, courier and other delivery
charges; telegram charges; facsimile costs and expenses; secretarial overtime
charges; and expenses for travel, lodging and food paid or incurred in
connection with the performance of such legal or other professional services.
8.7 Indemnification. The Borrower shall indemnify, defend and hold
harmless the Lender and its directors, officers, employees, Affiliates,
attorneys and agents (collectively called the "the Lender Indemnitees") from and
against any and all liabilities, obligations, losses, damages, penalties,
impositions and charges imposed by any Governmental Authority, actions,
judgments, suits, claims, costs, expenses and disbursements of any kind or
nature whatsoever, whether or not well founded, meritorious or in meritorious
(including, without limitation, any expenses (including attorneys' fees)
incurred by any such the Lender Indemnitee in connection with any investigation
or administrative or judicial proceeding, whether or not any such the Lender
Indemnitee shall be designated a party thereto) which may be imposed on,
incurred by or asserted against such the Lender Indemnitees by any Person other
than the Lender (whether direct, indirect, consequential or punitive and whether
based on any Governmental Requirement, including, without limitation,
securities, environmental and commercial laws and regulations, under common law
or at equitable cause, or on contract or otherwise) in any manner relating to or
arising, directly or indirectly, out of this Agreement, any other Loan
Documents, or any act, event or transaction related or attendant thereto; the
making of Loans hereunder, the management of the Loans (including any liability
under federal, state or local environmental laws or regulations), the use or
intended use of the proceeds of the Loans (collectively, the "Indemnified
Matters"); provided, however, that the Borrower shall have no obligation to a
the Lender Indemnitee under this Section 8.7 with respect to Indemnified Matters
to the extent such Indemnified Matters were caused by or resulted from the gross
negligence or willful misconduct of a the Lender Indemnitee. To the extent that
the undertaking to indemnify, pay and hold harmless set forth in the preceding
sentence may be unenforceable because it is violative of any law or public
policy, the Borrower shall contribute to the payment and satisfaction of all
Indemnified Matters incurred by the Lender Indemnitees the maximum portion which
the Borrower is permitted to pay and satisfy under applicable law. This
indemnification shall survive repayment by the Borrower of all Loans made under
this Agreement, and the termination of this Agreement. This Section 8.7 shall
apply only if the second Loan is not made.
8.8 Notices. Any notice, request, instruction or other document to be
given hereunder by any party
-25-
<PAGE>
to the other shall be in writing and delivered personally or sent by certified
mail, postage prepaid, by telecopy (with receipt confirmed and promptly
confirmed by personal delivery, U.S. first class mail, or courier), or by
courier service, as follows:
(a) If to the Lender to:
S3 Incorporated
2801 Mission College Boulevard
Santa Clara, CA 95052-8058
Attn: Chief Executive Officer
Fax:
with a copy to:
Pillsbury Madison & Sutro LLP
2550 Hanover Street
Palo Alto, CA 94304
Attn: Jorge A. del Calvo
Fax: (650) 233-4545
(b) If to the Borrower to:
Diamond Multimedia Systems, Inc.
2880 Junction Avenue
San Jose, CA 95134-1922
Attention: Chief Executive Officer
Fax:
with a copy to:
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94306
Attn: Jeffrey D. Saper
Fax: (650) 493-6811
8.9 Interpretation. This Agreement, together with the Schedules and
Exhibits to this Agreement and all of the other Loan Documents, is intended by
the Lender and the Borrower as a final expression of their agreement and,
together with all of the other Loan Documents, is intended as a complete
statement of the terms and conditions of their agreement.
8.10 Governing Law and Consent to Jurisdiction. THE VALIDITY,
CONSTRUCTION AND EFFECT OF THIS AGREEMENT, THE NOTE AND EACH OF THE OTHER LOAN
DOCUMENTS SHALL BE GOVERNED BY THE LAWS OF THE STATE OF CALIFORNIA, WITHOUT
REGARD TO ITS CHOICE OF APPLICABLE LAW PRINCIPLES.
ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST THE BORROWER WITH RESPECT TO
THIS AGREEMENT, THE NOTE OR ANY OF THE OTHER LOAN DOCUMENTS MAY BE BROUGHT IN
ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE OF CALIFORNIA,
AND THE BORROWER ACCEPTS FOR ITSELF AND ITS ASSETS AND PROPERTIES, GENERALLY AND
UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF THE AFORESAID COURTS.
THE BORROWER WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE
-26-
<PAGE>
LAW, ANY OBJECTION (INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING
OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS) WHICH IT MAY NOW OR
HEREAFTER HAVE TO THE BRINGING OF ANY SUCH ACTION OR PROCEEDING IN ANY SUCH
JURISDICTION. NOTING HEREIN SHALL LIMIT THE RIGHT OF THE LENDER TO BRING
PROCEEDINGS AGAINST THE BORROWER IN THE COURT OF ANY OTHER JURISDICTION.
8.11 Counterparts. This Agreement may be executed in any number of
counterparts each of which shall be an original with the same effect as if the
signatures thereto and hereto were upon the same instrument.
8.12 Headings. Captions, headings and the table of contents in this
Agreement are for convenience only, and are not to be deemed part of this
Agreement.
8.13 Survival. The obligation of the Borrower under Sections 8.6
and 8.7 of this Agreement shall survive the repayment of the Loans.
8.14 Calculations. Any calculations made by the Lender pursuant to this
Agreement shall be prima facie evidence in the absence of manifest error.
8.15 Confidential.
------------
(a) Neither of the parties hereto shall make any public announcement
regarding the transactions contemplated in this Agreement and the other Loan
Documents without the prior consent of the other party. Each of the parties
hereto shall keep strictly confidential any and all information furnished to it
or to its Affiliates, agents or representatives in the course of negotiations
relating to this Agreement or any transaction contemplated by this Agreement and
the other Loan Documents, and the business and financial reviews and
investigation conducted by the parties hereto in connection with this Agreement
and the other Loan Documents, and such parties have instructed their respective
officers, employees and other representatives having access to such information
of such obligation of confidentiality. The parties hereto covenant and agree
that they will not use any information so obtained except in connection with the
transactions contemplated by this Agreement, will not disclose or divulge such
information to any other person and will keep confidential any information so
obtained; provided, however, that any disclosure of such information may be made
by the Lender to protect or enforce its rights in the Collateral to the extent
disclosure is reasonably necessary for such protection or enforcement or after
consultation with the other party to the extent required by applicable
Governmental Requirement and that such information may be used as evidence in or
in connection with any pending or threatened litigation related to this
Agreement or other Loan Documents or any transactions contemplated hereunder or
thereunder. The obligations of confidentiality set forth herein shall not apply
to information generally available to the public or in the possession of the
receiving party prior to its disclosure under this Agreement or that is given to
the receiving party by another person other than in breach of obligations of
confidentiality owed by such person to the disclosing party under this
Agreement.
(b) Notwithstanding the foregoing in this Section 8.17, if either party
shall be required to disclose any information concerning this Agreement or
required to make any public announcement or press release, such party shall not
disclose such information or make any public announced or press release without
consulting the other party and jointly making such disclosure, announcement or
press release.
-27-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement by
their duly authorized officers as of the date and year first above written.
DIAMOND MULTIMEDIA SYSTEMS, INC.
By /s/ William J. Schroeder
--------------------------------------
William J. Schroeder
President and Chief Executive Officer
S3 INCORPORATED
By /s/ Walter D. Amaral
------------------------------------
Walter D. Amaral
Senior Vice President, Finance
Chief Financial Officer
<PAGE>
FIRST AMENDMENT TO CREDIT AGREEMENT
-----------------------------------
THIS FIRST AMENDMENT TO CREDIT AGREEMENT (this "First Amendment"),
dated as of June 14, 1999, by and between DIAMOND MULTIMEDIA SYSTEMS, INC., a
Delaware corporation (the "Borrower"), and S3 INCORPORATED, a Delaware
corporation (the "Lender"),
W I T N E S S E T H:
WHEREAS, the Borrower and the Lender are parties to a Credit Agreement,
dated as of June 11, 1999 (the "Credit Agreement") pursuant to which the Lender
has extended certain credit facilities to the Borrower; and
WHEREAS, the parties desire to amend the Credit Agreement to revise
certain conditions to the funding of the second Loan and the third Loan as set
forth in Sections 3.3 and 3.4 of the Credit Agreement and to make other changes
as more specifically provided for herein:
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto agree as follows:
1. Defined Terms. Unless otherwise specifically defined herein, each
-------------
term used herein which is defined in the Credit Agreement has the meaning
assigned to such term in the Credit Agreement.
2. Amendments.
----------
(a) Section 3.3(a) of the Credit Agreement is hereby amended to read in
its entirety as follows:
"(a) Warrant. The Borrower shall have issued a common stock
purchase warrant on terms satisfactory to the Lender. Nothing in this
Agreement, however, shall be deemed to imply an obligation for the
Lender or the Borrower to negotiate the terms of such warrant or for
the Borrower or Lender to agree as to the terms of such warrant."
(b) New Sections 3.4(g), (h) and (i) shall be added after Section 3.4(f)
of the Credit Agreement as follows:
"(g) Merger Agreement and Warrant. The Borrower shall have
issued a common stock purchase warrant on terms agreed between the
Borrower and the Lender and entered into an agreement ("Merger
Agreement") with the Lender pursuant to which the Borrower will merge
into, combine its business and assets with or transfer substantially
-1-
<PAGE>
all of its business and assets to the Lender. Nothing in this
Agreement, however, shall be deemed to imply an obligation for the
Lender or the Borrower to negotiate the terms of such warrant or for
the Borrower or Lender to agree as to the terms of such warrant or to
enter into any agreement pursuant to which the Borrower will merge
into, combine its business and assets with or transfer substantially
all of its business and assets to the Lender.
(h) Assignment or License of Trademark. The Borrower shall
have entered into an assignment or license agreement pursuant to which
the Borrower shall assign or license its rights in a trademark on terms
to be agreed upon between the Borrower and the Lender. Nothing in this
Agreement, however, shall be deemed to imply an obligation for the
Lender or the Borrower to negotiate the terms of such agreement or for
the Borrower or Lender to agree as to the terms of such agreement.
(i) Negotiation of a Supply Agreement. The Borrower shall have
entered into a supply agreement with the Lender upon terms to be agreed
upon between the Borrower and the Lender. Nothing in this Agreement,
however, shall be deemed to imply an obligation for the Lender or the
Borrower to negotiate the terms of such agreement or for the Borrower
or Lender to agree as to the terms of such agreement."
(c) The reference to "Tuesday, June 15, 1999" in Line 2 of Section 6.11
of the Credit Agreement shall be changed to "Tuesday, June 22."
3. Governing Law. This First Amendment shall be governed by and
-------------
construed in accordance with the laws of the State of California (without regard
to principles of conflicts of law).
4. Counterparts; Effectiveness; Entire Agreement. This First Amendment
---------------------------------------------
may be signed in any number of counterparts, each of which shall be an original,
with the same effect as if the signatures thereto and hereto were upon the same
instrument. This First Amendment shall be effective on the date when the Lender
shall have received a duly executed counterpart hereof signed by Borrower. This
First Amendment, together with the Credit Agreement, contains the entire and
exclusive agreement of the parties hereto with reference to the matters
discussed herein and therein. This First Amendment supersedes all prior drafts
and communications with respect thereto. This First Amendment may not be amended
except in accordance with the provisions of Section 8.3 of the Credit Agreement.
5. Ratification of Credit Agreement. Except as amended hereby, all of
--------------------------------
the provisions set forth in the Credit Agreement remain in full force and
effect. As of the effective date of this First Amendment, any reference in the
Credit Agreement to "this Agreement" shall mean the Credit Agreement as amended
by this First Amendment.
6. Severability. If any provision of this First Amendment shall be held
------------
to be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
7. Headings. The headings hereof are for convenience only and are not
--------
intended to affect the meaning or interpretation of this First Amendment.
-2-
<PAGE>
8. Benefit of Agreement. This First Amendment shall inure to the
--------------------
benefit of, and be enforceable by the Lender, the Borrower, and their respective
successors and assigns provided that the condition in Section 8.1 of the Credit
Agreement is satisfied.
9. Further Assurances. The Borrower agrees, upon the reasonable request
------------------
of the Lender, to execute any additional documents and to take any further
action, that may be deemed necessary or advisable by the Lender to effectuate
the purpose of this First Amendment.
-3-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this First
Amendment as of the date first above written.
DIAMOND MULTIMEDIA SYSTEMS, INC.
By /s/ William J. Schroeder
--------------------------------------
William J. Schroeder
President and Chief Executive Officer
S3 INCORPORATED
By /s/ Walter D. Amaral
------------------------------------
Walter D. Amaral
Senior Vice President, Finance
Chief Financial Officer
-4-
<PAGE>
================================================================================
THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS WARRANT
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY
NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT FILED UNDER SUCH ACT OR PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER SUCH ACT.
***********************************************
DIAMOND MULTIMEDIA SYSTEMS, INC.
FIRST COMMON STOCK PURCHASE WARRANT
***********************************************
This certifies that, for good and valuable consideration, Diamond
Multimedia Systems, Inc., a Delaware corporation ("Diamond" or the "Company"),
grants to S3 Incorporated, a Delaware corporation ("S3" or the "Warrantholder"),
the right to subscribe for and purchase from the Company the number of fully
paid and nonassessable shares (the "Warrant Shares") of the Company's Common
Stock, $0.001 par value (the "Common Stock") specified herein, at the purchase
price per share (the "Exercise Price") determined as set forth herein,
exercisable, subject to the restrictions set forth herein, during the period
(the "Exercise Period") set forth in Section 1.4 hereof, all subject to the
terms, conditions and adjustments herein set forth. This Warrant (the "First
Warrant") is issued in connection with and pursuant to that certain Loan
Agreement (the "Loan Agreement"), dated as of June 10, 1999, by and between the
Company and S3. Certain capitalized terms used herein are defined in Section 8
hereof. Capitalized terms used herein not otherwise defined herein shall have
the meanings assigned to them in the Loan Agreement.
================================================================================
<PAGE>
1. Exercise of Warrant.
-------------------
1.1 Duration and Exercise of Warrant.
--------------------------------
(a) Cash Exercise. This Warrant may be exercised by the Warrantholder by
(i) the surrender of this Warrant to the Company, with a duly executed Exercise
Form specifying the number of Warrant Shares to be purchased, during normal
business hours on any Business Day during the Exercise Period and (ii) the
delivery of payment to the Company, for the account of the Company, of the
Exercise Price for the number of Warrant Shares specified in the Exercise Form,
(A) by wire transfer of immediately available funds to a bank account specified
by the Company; (B) by certified or bank cashier's check; (C) by cancellation of
indebtedness under the Loan Agreement, or (D) of any other amount due to the
Warrantholder under any other contract (including any purchase order) pursuant
to which the Warrantholder does business with the Company not paid within twenty
(20) days of when due, or as otherwise mutually agreed to between the parties.
The Company agrees that such Warrant Shares shall be deemed to be issued to the
Warrantholder as the record holder of such Warrant Shares as of the close of
business on the date on which this Warrant shall have been surrendered and
payment made for the Warrant Shares as aforesaid. A stock certificate or
certificates for the Warrant Shares specified in the Exercise Form shall be
delivered to the Warrantholder as promptly as practicable. If this Warrant shall
have been exercised only in part, the Company shall, at the time of delivery of
the stock certificate or certificates, deliver to the Warrantholder a new
Warrant evidencing the rights to purchase the remaining Warrant Shares, which
new Warrant shall in all other respects be identical with this Warrant. No
adjustments shall be made on Warrant Shares issuable on the exercise of this
Warrant for any cash dividends paid or payable to holders of record of Common
Stock prior to the date as of which the Warrantholder shall be deemed to be the
record holder of such Warrant Shares.
(b) Net Issue Exercise. In lieu of exercising this Warrant pursuant to
Section 1.1(a), this Warrant may be exercised by the Warrantholder by the
surrender of this Warrant to the Company, with a duly executed Exercise Form
marked to reflect Net Issue Exercise and specifying the number of Warrant Shares
to be purchased, during normal business hours on any Business Day during the
Exercise Period. The Company agrees that such Warrant Shares shall be deemed to
be issued to the Warrantholder as the record holder of such Warrant Shares as of
the close of business on the date on which this Warrant shall have been
surrendered as aforesaid. Upon such exercise, the Warrantholder shall be
entitled to receive shares equal to the value of this Warrant (or the portion
hereof being exercised) computed as of the date of surrender of this Warrant to
the Company using the following formula:
X = Y x (A-B)
---------
A
Where X = the number of shares of Common Stock to be issued to
Warrantholder under this Section 1.1(b);
Y = the number of shares of Common Stock otherwise purchasable
under this Warrant (at the date of such calculation);
-2-
<PAGE>
A = the fair market value of one share of Common Stock (at the date of
such calculation);
B = the Exercise Price (as adjusted to the date of such calculation).
(c) Fair Market Value. For purposes of Section 1.1(b) "fair market value"
of one share of Common Stock shall mean:
(i) the average closing price per share of the Common Stock on the
principal national securities exchange on which the Common Stock is listed
or admitted to trading for the ten (10) Trading Day period ending on the
date of exercise, or,
(ii) if not listed or traded on any such exchange, the average last
reported sales price per share of the Common Stock on the Nasdaq National
Market or The Nasdaq SmallCap Market (collectively, "Nasdaq") for the ten
(10) Trading Day period ending on the date of exercise, or,
(iii) if not listed or traded on any such exchange or Nasdaq, the
average of the mean of the bid and asked prices per share of the Common
Stock as reported in the OTC Bulletin Board or, if not so reported, in the
"pink sheets" published by the National Quotation Bureau, Inc. for the ten
(10) Trading Day period ending on the date of exercise, or,
(iv) if such quotations are not available, the fair market value per
share of the Common Stock on the date such notice was received by the
Company as reasonably determined by the Board of Directors of the Company.
1.2 Number of Warrant Shares. This Warrant shall entitle the Warrantholder
to purchase 1,165,501 shares of Common Stock.
1.3 Exercise Price. The Exercise Price shall be equal to $4.29 (the
"Exercise Price"). From and after the issuance of this Warrant, the Exercise
Price shall be adjusted in accordance with Section 6 hereof.
1.4 Term of Warrant and Exercisability.
(a) Term of Warrant. This Warrant shall terminate on the later of (i) June
10, 2000; (ii) the date on which the indebtedness of the Company to the
Warrantholder under the Loan Agreement is paid in full; provided, however, that
this Warrant shall terminate upon the consummation of an S3 Acquisition. Nothing
in this Section 1.4(a), however, shall require S3 or Diamond to negotiate or
enter into an agreement providing for the merger of Diamond with S3 (directly or
indirectly), and neither party shall have any liability for failing to do so.
The parties' rights and obligations under Sections 2, 8 and 9 hereof shall
survive the termination of this Warrant.
(b) Exercisability. This Warrant shall be immediately exercisable, during
the Exercise Period, in whole or in part as to ninety-nine percent (99%) of the
Warrant Shares. This
-3-
<PAGE>
Warrant shall become exercisable, during the Exercise Period, as to the
remaining one percent (1%) of the Warrant Shares upon a Change of Control of
Diamond. Notwithstanding anything to the contrary herein, this Warrant may not
be exercised prior to June 15, 1999.
1.5 Payment of Taxes. The issuance of certificates for Warrant Shares shall
be made without charge to the Warrantholder for any stock transfer or other
issuance tax in respect thereto; provided, however, that the Warrantholder shall
be required to pay any and all taxes which may be payable in respect of any
transfer involved in the issuance and delivery of any certificate in a name
other than that of the then Warrantholder as reflected upon the books of the
Company.
1.6 Information. Upon receipt of a written request from a Warrantholder,
the Company agrees to deliver promptly to such Warrantholder a copy of its
current publicly available financial statements and to provide such other
publicly available information concerning the Company as such Warrantholder may
reasonably request (if electronic access to such information via EDGAR is not
then generally available to the public) in order to assist the Warrantholder in
evaluating the merits and risks of exercising the Warrant and to make an
informed investment decision in connection with such exercise.
2. Registration Under the Securities Act of 1933.
2.1 Piggyback Registration.
(a) Right to Include Registrable Securities. If at any time or from time to
time prior to the fifth anniversary of the date hereof, the Company proposes to
register any of its securities under the Securities Act on any form for the
registration of securities under such Act, whether or not for its own account
(other than by a registration statement on Form S-8 or other form which does not
include substantially the same information as would be required in a form for
the general registration of securities or would not be available for the
Registrable Securities) (a "Piggyback Registration"), it shall as expeditiously
as reasonably possible give written notice to all Holders of its intention to do
so and of such Holders' rights under this Section 2.1. Such rights are referred
to hereinafter as "Piggyback Registration Rights." All references to "Warrant
Shares" and "Warrants" for purposes of this Article 2 shall refer to any such
shares or warrants issued by Diamond to S3. Upon the written request of any such
Holder made within ten (10) days after receipt of any such notice (which request
shall specify the Registrable Securities intended to be disposed of by such
Holder), the Company shall include in the Registration Statement the Registrable
Securities which the Company has been so requested to register by the Holders
thereof and the Company shall keep such registration statement in effect and
maintain compliance with each federal and state law or regulation for the period
necessary for such Holder to effect the proposed sale or other disposition (but
in no event for a period greater than ninety (90) days).
(b) Withdrawal of Piggyback Registration by Company. If, at any time after
giving written notice of its intention to register any securities in a Piggyback
Registration but prior to the effective date of the related Registration
Statement, the Company shall determine for any reason not to register such
securities, the Company shall give notice of such determination to each Holder
and, thereupon, shall be relieved of its obligation to register any Registrable
Securi-
-4-
<PAGE>
ties in connection with such Piggyback Registration. All best efforts
obligations of the Company pursuant to Section 2.4 shall cease if the Company
determines to terminate prior to such effective date any registration where
Registrable Securities are being registered pursuant to this Section 2.1.
(c) Piggyback Registration of Underwritten Public Offerings. If a Piggyback
Registration involves an offering by or through underwriters, then (i) all
Holders requesting to have their Registrable securities included in the
Company's Registration Statement must sell their Registrable Securities to the
underwriters selected by the Company on the same terms and conditions as apply
to other selling shareholders and (ii) any Holder requesting to have his or its
Registrable Securities included in such Registration Statement may elect in
writing, not later than seven (7) Business Days prior to the effectiveness of
the Registration Statement filed in connection with such registration, not to
have his or its Registrable Securities so included in connection with such
registration.
(d) Payment of Registration Expenses for Piggyback Registration. The
Company shall pay all Registration Expenses in connection with each registration
of Registrable Securities requested pursuant to a Piggyback Registration Right
contained in this Section 2.1.
(e) Priority in Piggyback Registration. If a Piggyback Registration
involves an offering by or through underwriters, the Company, except as
otherwise provided herein, shall not be required to include Registrable
Securities therein if and to the extent the underwriter managing the offering
reasonably believes in good faith and advises each Holder requesting to have
Registrable Securities included in the Company's Registration Statement that
such inclusion would materially adversely affect such offering; provided that
(i) if other selling shareholders who are employees, officers, directors or
other affiliates of the Company have requested registration of securities in the
proposed offering, the Company will reduce or eliminate such other selling
shareholders' securities before any reduction or elimination of Registrable
Securities; and (ii) any such reduction or elimination (after taking into
account the effect of clause (i)) shall be pro rata to all other holders of the
securities of the Company exercising "Piggyback Registration Rights" similar to
those set forth herein in proportion to the respective number of shares they
have requested to be registered.
2.2 Demand Registration.
(a) Request for Registration. Unless this Warrant is exercised pursuant to
Section 1.1(b) hereof, if, at any time prior to the fifth anniversary of the
date hereof, Holders holding the greater of (i) at least twenty-five percent
(25%) of the combined total of Warrant Shares issuable and Warrant Shares
outstanding pursuant to the First Warrant and any subsequent warrant issued by
Diamond to S3 or (ii) one hundred percent (100%) of such shares issued or
issuable pursuant to the First Warrant, at such time request that the Company
file a registration statement on Form S-3 (or Form S-1 if Form S-3 is not then
available to the Company) under the Securities Act, as soon as practicable
thereafter the Company shall use its commercially reasonable efforts to file a
registration statement with respect to all Warrant Shares that it has been so
requested to include (the "Demand Registration") and obtain the effectiveness
thereof, and to take all other action necessary under any federal or state law
or regulation to permit the Warrant Shares that are held and/or that may be
acquired upon the exercise of the Warrants specified in the notices of the
-5-
<PAGE>
Holders or holders thereof to be sold or otherwise disposed of, and the Company
shall maintain such compliance with each such federal and state law and
regulation for the period necessary for such Holders or holders to effect the
proposed sale or other disposition, which period shall be not less than thirty
(30) days; provided, however, the Company shall be entitled to defer such
registration for a period of up to forty-five (45) days if and to the extent
that its Board of Directors shall determine that such registration would
interfere with a pending corporate transaction. The Company shall also promptly
give written notice to the Holders and the holders of any other Warrants and/or
the holders of any Warrant Shares who or that have not made a request to the
Company pursuant to the provisions of this Section 2.2(a) of its intention to
effect any required registration or qualification, and shall use its
commercially reasonable efforts to effect as expeditiously as possible such
registration or qualification of all such other Warrant Shares that are then
held and/or that may be acquired upon the exercise of the Warrants, the Holder
or holders of which have requested such registration or qualification within
fifteen (15) days after such notice has been given by the Company. The Company
shall be required to effect a registration or qualification pursuant to this
Section 2.2(a) on a total of one (1) occasion.
(b) Payment of Registration Expenses for Demand Registration. The Company
shall pay all Registration Expenses in connection with the Demand Registration.
(c) Selection of Underwriters. If the Demand Registration is requested to
be in the form of an underwritten offering, the managing underwriter shall be
selected by the Holders of a majority of the Warrant Shares to be registered.
Such selection shall be subject to the Company's consent, which consent shall
not be unreasonably withheld.
(d) Procedure for Requesting Demand Registration. Any request for a Demand
Registration shall specify the aggregate number of the Registrable Securities
proposed to be sold and the intended method of disposition. Within ten (10) days
after receipt of such a request the Company will give written notice of such
registration request to all Holders, and the Company will include in such
registration all Registrable Securities with respect to which the Company has
received written requests for inclusion therein within fifteen (15) Business
Days after the date on which such notice is given by the Company. Each such
request shall also specify the aggregate number of Registrable Securities to be
registered and the intended method of disposition thereof.
2.3 Registration Procedures. If and whenever the Company is required to use
its commercially reasonable efforts to take action pursuant to any federal or
state law or regulation to permit the sale or other disposition of any
Registrable Securities that are then held or that may be acquired upon exercise
of the Warrants in order to effect or cause the registration of any Registrable
Securities under the Securities Act as provided in this Article 2, the Company
shall, as expeditiously as practicable:
(a) prepare and file with the SEC, as soon as practicable within forty-five
(45) days after the end of the period within which requests for registration may
be given to the Company (but subject to the provision for deferral contained in
Section 2.2(a) hereof) a Registration Statement or Registration Statements
relating to the registration on any appropriate form under the Securities Act,
which form shall be available for the sale of the Registrable Securities in
accordance with the intended method or methods of distribution thereof, subject
to Section 2.1(e) hereof, and use its commercially reasonable efforts to cause
such Registration Statements to
-6-
<PAGE>
become effective; provided that before filing a Registration Statement or
Prospectus or any amendment or supplements thereto, including documents
incorporated by reference after the initial filing of any Registration
Statement, the Company will furnish to the Holders of the Registrable Securities
covered by such Registration Statement and the underwriters, if any, copies of
all such documents provided to be filed, which documents will be subject to the
review of such Holders and underwriters;
(b) prepare and file with the SEC such amendments and post-effective
amendments to a Registration Statement as may be necessary to keep such
Registration Statement effective for a period of thirty (30) days; cause the
related Prospectus to be supplemented by any required Prospectus supplement, and
as so supplemented to be filed pursuant to Rule 424 under the Securities Act;
and comply with the provisions of the Securities Act with respect to the
disposition of all securities covered by such Registration Statement during such
period in accordance with the intended methods of disposition by the sellers
thereof set forth in such Registration Statement or supplement to such
Prospectus;
(c) notify the selling Holders of Registrable Securities and the managing
underwriters, if any, promptly, and (if requested by any such Person) confirm
such advice in writing, (i) when a Prospectus or any Prospectus supplement or
post-effective amendment has been filed, and, with respect to a Registration
Statement or any post-effective amendment, when the same has become effective;
(ii) of any request by the SEC for amendments or supplements to a Registration
Statement or related Prospectus or for additional information; (iii) of the
issuance by the SEC of any stop order suspending the effectiveness of a
Registration Statement or the initiation of any proceedings for that purpose;
(iv) if at any time the representations and warranties of the Company
contemplated by paragraph (m) below cease to be true and correct in all material
respects; (v) of the receipt by the Company of any notification with respect to
the suspension of the qualification of any of the Registrable Securities for
sale in any jurisdiction or the initiation or threatening of any proceeding for
such purpose, and (vi) of the happening of any event that makes any statement of
a material fact made in the Registration Statement, the Prospectus or any
document incorporated therein by reference untrue or which requires the making
of any changes in the Registration Statement or Prospectus so that they will not
contain any 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;
(d) make every reasonable effort to obtain the withdrawal of any order
suspending the effectiveness of a Registration Statement at the earliest
possible moment;
(e) if reasonably requested by the managing underwriters, immediately
incorporate in a Prospectus supplement or post-effective amendment such
information as the managing underwriters believe (on advice of counsel) should
be included therein as required by applicable law relating to such sale of
Registrable Securities, including, without limitation, information with respect
to the purchase price being paid for the Registrable Securities by such
underwriters and with respect to any other terms of the underwritten (or
"best-efforts" underwritten) offering; and make all required filings of such
Prospectus supplement or post-effective amendment as soon as notified of the
matters to be incorporated in such Prospectus supplement or post-effective
amendment;
-7-
<PAGE>
(f) furnish to each selling Holder of Registrable Securities and each
managing underwriter, without charge, at least one signed copy of the
Registration Statement and any post-effective amendment thereto, including
financial statements and schedules, all documents incorporated therein by
reference and all exhibits (including those incorporated by reference);
(g) deliver to each selling Holder of Registrable Securities and the
underwriters, if any, without charge, as many copies of the Prospectus or
Prospectuses (including each preliminary Prospectus) any amendment or supplement
thereto as such Persons may reasonably request; the Company consents to the use
of such Prospectus or any amendment or supplement thereto by each of the selling
Holders of Registrable Securities and the underwriters, if any, in connection
with the offering and sale of the Registrable Securities covered by such
Prospectus or any amendment or supplement thereto;
(h) prior to any public offering of Registrable Securities, cooperate with
the selling Holders of Registrable Securities, the underwriters, if any, and
their respective counsel in connection with the registration or qualification of
such Registrable Securities for offer and sale under the securities or Blue Sky
laws of such jurisdictions within the United States as any selling Holder or
underwriter reasonably requests in writing, keep each such registration or
qualification effective during the period such Registration Statement is
required to be kept effective and do any and all other acts or things necessary
or advisable to enable the disposition in such jurisdictions of the Registrable
Securities covered by the applicable Registration Statement; provided that the
Company will not be required to qualify to do business in any jurisdiction where
it is not then so qualified or to take any action which would subject the
Company to general service of process in any jurisdiction where it is not at the
time so subject;
(i) cooperate with the selling Holders of Registrable Securities and the
managing underwriters, if any, to facilitate the timely preparation and delivery
of certificates representing Registrable Securities to be sold and not bearing
any restrictive legends; and enable such Registrable Securities to be in such
denominations and registered in such names as the managing underwriters may
request at least two (2) Business Days prior to any sale of Registrable
Securities to the underwriters;
(j) use its commercially reasonable efforts to cause the Registrable
Securities covered by the applicable Registration Statement to be registered
with or approved by such other governmental agencies or authorities within the
United States as may be necessary to enable the seller or sellers thereof or the
underwriters, if any, to consummate the disposition of such Registrable
Securities;
(k) upon the occurrence of any event contemplated by Section 2.3(c)(vi)
above, prepare a supplement or post-effective amendment to the applicable
Registration Statement or related Prospectus or any document incorporated
therein by reference or file any other required document so that, as thereafter
delivered to the purchasers of the Registrable Securities being sold thereunder,
such that the Prospectus will not contain an untrue statement of a material fact
or omit to state any material fact necessary to make the statements therein not
misleading in the light of the circumstances under which they were made;
-8-
<PAGE>
(l) with respect to each issue or class of Registrable Securities, use its
commercially reasonable efforts to cause all Registrable Securities covered by
the Registration Statement to be listed on each securities exchange, if any, on
which similar securities issued by the Company are then listed if requested by
the Holders of a majority of such issue or class of Registrable Securities;
(m) enter into such agreements (including an underwriting agreement) and
take all such other action reasonably required in connection therewith in order
to expedite or facilitate the disposition of such Registrable Securities and in
such connection, if the registration is in connection with an underwritten
offering (i) make such representations and warranties to the underwriters, in
such form, substance and scope as are customarily made by issuers to
underwriters in underwritten offerings and confirm the same if and when
requested; (ii) obtain opinions of counsel to the Company and updates thereof
(which counsel and opinions in form, scope and substance shall be reasonably
satisfactory to the underwriters) addressed to the underwriters covering the
matters customarily covered in opinions requested in underwritten offerings and
such other matters as may be reasonably requested by such underwriters; (iii)
obtain "cold comfort" letters and updates thereof from the Company's accountants
addressed to the underwriters, such letters to be in customary form and covering
matters of the type customarily covered in "cold comfort" letters by
underwriters in connection with underwritten offerings; (iv) set forth in full
in any underwriting agreement entered into the indemnification provisions and
procedures of Section 2.4 hereof with respect to all parties to be indemnified
pursuant to said Section; and (v) deliver such documents and certificates as may
be reasonably requested by the underwriters to evidence compliance with clause
(i) above and with any customary conditions contained in the underwriting
agreement or other agreement entered into by the Company; the above shall be
done at each closing under such underwriting or similar agreement or as and to
the extent required hereunder;
(n) make available for inspection by one or more representatives of the
Holders of Registrable Securities being sold, any underwriter participating in
any disposition pursuant to such registration, and any attorney or accountant
retained by such Holders or underwriter, all financial and other records,
pertinent corporate documents and properties of the Company, and cause the
Company's officers, directors and employees to supply all information reasonably
requested by any such representatives, in connection with such; and
(o) otherwise use its commercially reasonable efforts to comply with all
applicable federal and state regulations; and take such other action as may be
reasonably necessary to or advisable to enable each such Holder and each such
underwriter to consummate the sale or disposition in such jurisdiction or
jurisdiction in which any such Holder or underwriter shall have requested that
the Registrable Securities be sold.
Except as otherwise provided in this Agreement, the Company shall have sole
control in connection with the preparation, filing, withdrawal, amendment or
supplementing of each Registration Statement, the selection of underwriters, and
the distribution of any preliminary Prospectus included in the Registration
Statement, and may include within the coverage thereof additional shares of
Common Stock or other securities for its own account or for the account of one
or more of its other security holders.
-9-
<PAGE>
The Company may require each seller of Registrable Securities as to
which any registration is being effected to furnish to the Company such
information regarding the distribution of such securities and such other
information as may otherwise be required by the Securities Act to be included in
such Registration Statement.
2.4 Indemnification.
(a) Indemnification by Company. In connection with each Registration
Statement relating to disposition of Registrable Securities, the Company shall
indemnify and hold harmless each Holder and each underwriter of Registrable
Securities and each Person, if any, who controls such Holder or underwriter
(within the meaning of section 15 of the Securities Act or section 20 of the
Exchange Act) against any and all losses, claims, damages and liabilities, joint
or several (including any reasonable investigation, legal and other expenses
incurred in connection with, and any amount paid in settlement of any action,
suit or proceeding or any claim asserted), to which they, or any of them, may
become subject under the Securities Act, the Exchange Act or other federal or
state law or regulation, at common law or otherwise, insofar as such losses,
claims, damages or liabilities arise out of or are based upon any untrue
statement or alleged untrue statement of a material fact contained in any
Registration Statement, Prospectus or preliminary Prospectus or any amendment
thereof or supplement thereto, or arise out of or are 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 not misleading; provided, however,
that such indemnity shall not inure to the benefit of any Holder or underwriter
(or any person controlling such Holder or underwriter within the meaning of
section 15 of the Securities Act or section 20 of the Exchange Act) on account
of any losses, claims, damages or liabilities arising from the sale of the
Registrable Securities if such untrue statement or omission or alleged untrue
statement or omission was made in such Registration Statement, Prospectus or
preliminary Prospectus, or such amendment or supplement, in reliance upon and in
conformity with information furnished in writing to the Company by such Holder
or underwriter specifically for use therein; provided, further, that the Company
shall not be liable to such Holder or any underwriter (or any person controlling
such Holder or underwriter) with respect to any such untrue statement or alleged
untrue statement or omission made in any preliminary Prospectus that is
corrected in the Prospectus (or any amendment or supplement thereto) if the
person asserting any such loss, claim, damage or liability purchased shares of
the Common Stock from such Holder or underwriter but was not given a copy of the
Prospectus (as amended or supplemented) in any case where such delivery of the
Prospectus (as amended or supplemented) was required by the Securities Act. The
Company shall also indemnify selling brokers, dealer managers and similar
securities industry professionals participating in the distribution, their
officers and directors and each Person who controls such Persons (within the
meaning of section 15 of the Securities Act or section 20 of the Exchange Act)
to the same extent as provided above with respect to the indemnification of the
Holders of Registrable Securities, if requested. This indemnity agreement shall
be in addition to any liability which the Company may otherwise have.
(b) Indemnification by Holder. In connection with each Registration
Statement, each Holder shall indemnify, to the same extent as the
indemnification provided by the Company in Section 2.4(a), the Company, its
directors and each officer who signs the Registration Statement and each Person
who controls the Company (within the meaning of section 15 of the Securities
-10-
<PAGE>
Act and section 20 of the Exchange Act) but only insofar as such losses, claims,
damages and liabilities arise out of or are based upon any untrue statement or
omission or alleged untrue statement or omission which was made in the
Registration Statement, the Prospectus or preliminary Prospectus or any
amendment thereof or supplement thereto, in reliance upon and in conformity with
information furnished in writing by such Holder to the Company specifically for
use therein. In no event shall the liability of any selling Holder of
Registrable Securities hereunder be greater in amount than the dollar amount of
the net proceeds received by such Holder upon the sale of the Registrable
Securities giving rise to such indemnification obligation. The Company shall be
entitled to receive indemnities from underwriters, selling brokers, dealer
managers and similar securities industry professionals participating in the
distribution, to the same extent as provided above, with respect to information
so furnished in writing by such Persons specifically for inclusion in any
Prospectus, Registration Statement or preliminary Prospectus or any amendment
thereof or supplement thereto.
(c) Conduct of Indemnification Procedure. Any party that proposes to assert
the right to be indemnified hereunder will, promptly after receipt of notice of
commencement of any action, suit or proceeding against such party in respect of
which a claim is to be made against an indemnifying party or parties under this
Section, notify each such indemnifying party of the commencement of such action,
suit or proceeding, enclosing a copy of all papers served. No indemnification
provided for in Section 2.4(a) or 2.4(b) shall be available to any party who
shall fail to give notice as provided in this Section 2.4(c) if the party to
whom notice was not given was unaware of the proceeding to which such notice
would have related and was materially prejudiced by the failure to give such
notice, but the omission so to notify such indemnifying party of any such
action, suit or proceeding shall not relieve it from any liability that it may
have to any indemnified party for contribution otherwise than under this
Section. In case any such action, suit or proceeding shall be brought against
any indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate
in, and, to the extent that it shall wish, jointly with any other indemnifying
party similarly notified, to assume the defense thereof, with counsel
satisfactory to such indemnified party, and after notice from the indemnifying
party to such indemnified party of its election so to assume the defense thereof
and the approval by the indemnified party of such counsel, the indemnifying
party shall not be liable to such indemnified party for any legal or other
expenses, except as provided below and except for the reasonable costs of
investigation subsequently incurred by such indemnified party in connection with
the defense thereof. The indemnified party shall have the right to employ its
counsel in any such action, but the fees and expenses of such counsel shall be
at the expense of such indemnified party unless (i) the employment of counsel by
such indemnified party has been authorized in writing by the indemnifying
parties, (ii) the indemnified party shall have reasonably concluded that there
may be a conflict of interest between the indemnifying parties and the
indemnified party in the conduct of the defense of such action (in which case
the indemnifying parties shall not have the right to direct the defense of such
action on behalf of the indemnified party) or (iii) the indemnifying parties
shall not have employed counsel to assume the defense of such action within a
reasonable time after notice of the commencement thereof, in each of which cases
the fees and expenses of counsel shall be at the expense of the indemnifying
parties. An indemnified party shall not be liable for any settlement of any
action, suit, proceeding or claim effected without its written consent.
-11-
<PAGE>
(d) Contribution. In connection with each Registration Statement relating
to the disposition of Registrable Securities, if the indemnification provided
for in Section 2.4(a) or 2.4(b) hereof is unavailable to an indemnified party
thereunder in respect to any losses, claims, damages or liabilities referred to
therein, then the indemnifying party shall contribute to the amount paid or
payable by such indemnified party as a result of the losses, claims, damages or
liabilities referred to in paragraphs (a) or (b) of this Section 2.4 in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party on the one hand and of the indemnified party on the other in connection
with the statements or omissions that resulted in such losses, claims, damages
or liabilities, or actions in respect thereof, as well as any other relevant
equitable considerations. Relative fault 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 the indemnified party and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such untrue statement or omission. The amount paid or payable
by an indemnified party as a result of the losses, claims, damages or
liabilities (or actions in respect thereof) referred to above in this paragraph
(d) shall be deemed to include any legal or other expenses reasonably incurred
by such indemnified party in connection with investigating or defending any such
action or claim.
(e) Underwriting Agreement to Control. Notwithstanding the foregoing
provisions of this Section 2.4, to the extent that the provisions on
indemnification and contribution contained in any underwriting agreement entered
into in connection with the underwritten public offering of the Registrable
Securities are in conflict with the foregoing provisions, the provisions in such
underwriting agreement shall control.
(f) Specific Performance. The Company and the Holder acknowledge that
remedies at law for the enforcement of this Section 2.4 may be inadequate and
intend that this Section 2.4 shall be specifically enforceable.
(g) Survival of Obligations. The obligations of the Company and the Holder
under this Section 2.4 shall survive the completion of any offering of
Registrable Securities pursuant to a Registration Statement under this Article
2, and otherwise.
2.5 Reports Under Securities Exchange Act of 1934. With a view to making
available to the Holders the benefits of Rule 144 promulgated under the
Securities Act and any other rule or regulation of the SEC that may at any time
permit a Holder to sell securities of the Company to the public without
registration or pursuant to a registration on Form S-3, the Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in SEC Rule 144, at all times;
(b) file with the SEC in a timely manner all reports and other documents
required of the Company under the Securities Act and the Exchange Act; and
(c) furnish to any Holder, so long as the Holder owns any Registrable
Securities, forthwith upon request (i) a written statement by the Company that
it has complied with the
-12-
<PAGE>
reporting requirements of SEC Rule 144, the Securities Act and the Exchange Act,
or that it qualifies as a registrant whose securities may be resold pursuant to
Form S-3 (at any time after it so qualifies), (ii) a copy of the most recent
annual or quarterly report of the Company and such other reports and documents
so filed by the Company and (iii) such other information as may be reasonably
requested in availing any Holder of any rule or regulation of the SEC which
permits the selling of any such securities without registration or pursuant to
such form.
2.6 Restrictions on Transfer; Compliance with Securities Laws. This Warrant
and the Warrant Shares issued upon the exercise of the Warrant may not be
transferred or assigned in whole or in part without compliance with all
applicable federal and state securities laws by the transferor and transferee
(including the delivery of investment representation letters and legal opinions
reasonably satisfactory to the Company, if such are requested by the Company).
The Warrantholder, by acceptance hereof, acknowledges that this Warrant and the
Warrant Shares to be issued upon exercise hereof are being acquired solely for
the Warrantholder's own account and not as a nominee for any other party, and
for investment, and that the Warrantholder will not offer, sell or otherwise
dispose of any Warrant Shares to be issued upon exercise hereof except under
circumstances that will not result in a violation of the Securities Act or any
state securities laws. Upon exercise of this Warrant, the Warrantholder shall,
if requested by the Company, confirm in writing, in a form satisfactory to the
Company, that the Warrant Shares so purchased are being acquired solely for the
Warrantholder's own account and not as a nominee for any other party, for
investment, and not with a view toward distribution or resale.
2.7 Restrictive Legends. This Warrant shall (and each Warrant issued upon
transfer in whole or in part of this Warrant pursuant to this Section 2 or
issued in substitution for this Warrant pursuant to Section 4 shall) be stamped
or otherwise imprinted with a legend in substantially the following form:
"THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS WARRANT
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND
MAY NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT FILED UNDER SUCH ACT OR PURSUANT TO AN EXEMPTION
FROM REGISTRATION UNDER SUCH ACT."
Except as otherwise permitted by this Section 2, each stock certificate for
Warrant Shares issued upon the exercise of any Warrant and each stock
certificate issued upon the direct or indirect transfer of any such Warrant
Shares shall be stamped or otherwise imprinted with a legend in substantially
the following form:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD OR
OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT FILED UNDER SUCH ACT OR PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER SUCH ACT."
-13-
<PAGE>
Notwithstanding the foregoing, the Warrantholder may require the Company to
issue a stock certificate for Warrant Shares without a legend if (i) such
Warrant Shares, as the case may be, have been registered for resale under the
Securities Act or sold pursuant to Rule 144 under the Securities Act (or a
successor rule thereto) or (ii) the Warrantholder has received an opinion of
counsel reasonably satisfactory to the Company that such registration is not
required with respect to such Warrant Shares.
3. Representations and Warranties of the Company. The Company hereby
represents and warrants to the Warrantholder (except as otherwise may be
prohibited, restricted or limited by law or any rule or regulation of a
regulatory entity) as follows:
3.1 Organization; Authority Relative to this Warrant. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. The Company has all requisite corporate power and
authority to execute and deliver this Warrant, to perform its obligations
hereunder and to consummate the transactions contemplated hereby. The execution
and delivery of this Warrant by the Company and the consummation by the Company
of the transactions contemplated hereby have been duly and validly authorized by
all necessary corporate action on the part of the Company. This Warrant has been
duly and validly executed and delivered by the Company and constitutes a valid
and binding obligation of the Company enforceable against the Company in
accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting creditors' rights generally, and by general equitable principles.
3.2 Authority to Issue Shares. The Company has taken all necessary
corporate action to authorize and reserve and permit it to issue, and at all
times from the date hereof through the end of the Exercise Period shall have
reserved, all the Warrant Shares issuable pursuant to this Warrant. All of the
shares of Common Stock issuable under this Warrant, upon their issuance and
delivery in accordance with the terms of this Warrant, will be duly authorized,
validly issued, fully paid and nonassessable, will be delivered free and clear
of all security interests, liens, claims, pledges, options, rights of first
refusal, agreements, limitations on the Warrantholder's voting rights, charges,
adverse rights and other encumbrances of any nature whatsoever (other than this
Warrant) and will not be subject to any preemptive rights.
3.3 No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Warrant by the Company does not, and
the performance by the Company of its obligations hereunder and the consummation
of the transactions contemplated hereby will not, (i) conflict with or violate
the certificate of incorporation or bylaws of the Company, (ii) assuming that
all consents and filings described in Section 3.3(b) have been obtained or made,
conflict with or violate any law applicable to the Company or by which any
property or asset of the Company is bound or affected or (iii) result in any
violation pursuant to, any note, bond, mortgage, indenture, contract, agreement
, lease, license, permit, franchise or other instrument or obligation to which
the Company is a party or by which the Company or any of its properties may be
bound or affected.
(b) No consent of, or filing with, any governmental entity is required by
the Company in connection with the execution and delivery of this Warrant, the
performance by the Company
-14-
<PAGE>
of its obligations hereunder or the consummation by the Company of the
transactions contemplated hereby, except for (i) compliance with the
Hart-Scott-Rodino Act and (ii) consents or filings the failure of which to be
obtained or made would not, individually or in the aggregate, prevent or
materially delay the consummation of the transactions contemplated hereby or the
performance by the Company of any of its obligations hereunder.
3.4 Reservation and Registration of Shares, Etc. The Company covenants and
agrees that all Warrant Shares which are issuable upon the exercise of this
Warrant will, upon issuance, be validly issued, fully paid and nonassessable and
free from all taxes, liens, security interests, charges and other encumbrances
with respect to the issue thereof, other than taxes in respect of any transfer
occurring contemporaneously with such issue. The Company further covenants and
agrees that, during the Exercise Period, the Company will at all times have
authorized and reserved, and keep available free from preemptive rights, a
sufficient number of shares of Common Stock to provide for the exercise of the
rights represented by this Warrant and will, at its expense, upon each such
reservation of shares, procure such listing of such shares of Common Stock
(subject to issuance or notice of issuance) as then may be required on all stock
exchanges on which the Common Stock is then listed or on Nasdaq.
4. Exchange, Loss or Destruction of Warrant. Upon receipt by the Company of
evidence satisfactory to it of the loss, theft, destruction or mutilation of
this Warrant and, in the case of loss, theft or destruction, of such bond or
indemnification as the Company may require, and, in the case of such mutilation,
upon surrender and cancellation of this Warrant, the Company will execute and
deliver a new Warrant of like tenor. The term "Warrant" as used in this
Agreement shall be deemed to include any Warrants issued in substitution or
exchange for this Warrant.
5. Ownership of Warrant. The Company may deem and treat the person in whose
name this Warrant is registered as the holder and owner hereof (notwithstanding
any notations of ownership or writing hereon made by anyone other than the
Company) for all purposes and shall not be affected by any notice to the
contrary.
6. Certain Adjustments.
6.1 Adjustments. The number of Warrant Shares purchasable upon the exercise
of this Warrant and the Exercise Price shall be subject to adjustment as
follows:
(a) Stock Dividends. If at any time prior to the exercise of this Warrant
in full (i) the Company shall fix a record date for the issuance of any stock
dividend payable in shares of Common Stock or (ii) the number of shares of
Common Stock shall have been increased by a subdivision or split-up of shares of
Common Stock, then, on the record date fixed for the determination of holders of
Common Stock entitled to receive such dividend or immediately after the
effective date of subdivision or split-up, as the case may be, the number of
shares of Common Stock to be delivered upon exercise of this Warrant will be
increased so that the Warrantholder will be entitled to receive the number of
shares of Common Stock that such Warrantholder would have owned immediately
following such action had this Warrant been exercised immediately prior thereto,
and the Exercise Price will be adjusted as provided below in paragraph (f).
-15-
<PAGE>
(b) Combination of Stock. If at any time prior to the exercise of this
Warrant in full the number of shares of Common Stock outstanding shall have been
decreased by a combination of the outstanding shares of Common Stock, then,
immediately after the effective date of such combination, the number of shares
of Common Stock to be delivered upon exercise of this Warrant will be decreased
so that the Warrantholder thereafter will be entitled to receive the number of
shares of Common Stock that such Warrantholder would have owned immediately
following such action had this Warrant been exercised immediately prior thereto,
and the Exercise Price will be adjusted as provided below in paragraph (f).
(c) Reorganization, etc. If at any time prior to the exercise of this
Warrant in full any capital reorganization of the Company, or any
reclassification of the Common Stock, or any consolidation of the Company with
or merger of the Company with or into any other person or any sale, lease or
other transfer of all or substantially all of the assets of the Company to any
other person, shall be effected in such a way that the holders of Common Stock
shall be entitled to receive stock, other securities or assets (whether such
stock, other securities or assets are issued or distributed by the Company or
another person) with respect to or in exchange for Common Stock, then, upon
exercise of this Warrant the Warrantholder shall have the right to receive the
kind and amount of stock, other securities or assets receivable upon such
reorganization, reclassification, consolidation, merger or sale, lease or other
transfer by a holder of the number of shares of Common Stock that such
Warrantholder would have been entitled to receive upon exercise of this Warrant
had this Warrant been exercised immediately before such reorganization,
reclassification, consolidation, merger or sale, lease or other transfer,
subject to adjustments that shall be as nearly equivalent as may be practicable
to the adjustments provided for in this Section 6.
(d) Fractional Shares. No fractional shares of Common Stock or scrip shall
be issued to any Warrantholder in connection with the exercise of this Warrant.
Instead of any fractional shares of Common Stock that would otherwise be
issuable to such Warrantholder, the Company will pay to such Warrantholder a
cash adjustment in respect of such fractional interest in an amount equal to
that fractional interest of the fair market value of one share of Common Stock
as of the date of exercise.
(e) Carryover. Notwithstanding any other provision of this Section 6, no
adjustment shall be made to the number of shares of Common Stock to be delivered
to the Warrantholder (or to the Exercise Price) if such adjustment represents
less than one percent (1%) of the number of shares to be so delivered, but any
lesser adjustment shall be carried forward and shall be made at the time and
together with the next subsequent adjustment which together with any adjustments
so carried forward shall amount to one percent (1%) or more of the number of
shares to be so delivered.
(f) Exercise Price Adjustment. Whenever the number of Warrant Shares
purchasable upon the exercise of the Warrant is adjusted, as herein provided,
the Exercise Price payable upon the exercise of this Warrant shall be adjusted
by multiplying such Exercise Price immediately prior to such adjustment by a
fraction, of which the numerator shall be the number of Warrant Shares
purchasable upon the exercise of the Warrant immediately prior to such
adjustment, and of which the denominator shall be the number of Warrant Shares
purchasable immediately thereafter.
-16-
<PAGE>
(g) No Duplicate Adjustments. Notwithstanding anything else to the contrary
contained herein, in no event will an adjustment be made under the provisions of
this Section 6 to the number of Warrant Shares issuable upon exercise of this
Warrant or the Exercise Price for any event if an adjustment having
substantially the same effect to the Warrantholder as any adjustment that
otherwise would be made under the provisions of this Section 6 is made by the
Company for any such event to the number of shares of Common Stock (or other
securities) issuable upon exercise of this Warrant.
6.2 No Adjustment for Dividends. Except as provided in Section 1 hereof or
Section 6.1 hereof, no adjustment in respect of any dividends shall be made
during the term of the Warrant or upon the exercise of this Warrant.
6.3 Notice of Adjustment. Whenever the number of Warrant Shares or the
Exercise Price of such Warrant Shares is adjusted, as herein provided, the
Company shall promptly mail by first class, postage prepaid, to the
Warrantholder, notice of such adjustment or adjustments and a certificate of the
chief financial officer of the Company setting forth the number of Warrant
Shares and the Exercise Price of such Warrant Shares after such adjustment,
setting forth a brief statement of the facts requiring such adjustment and
setting forth the computation by which such adjustment was made.
7. Notices of Corporate Action. In the event of:
(a) any taking by the Company of a record of the holders of any class of
securities for the purpose of determining the holders thereof who are entitled
to receive any dividend or other distribution, or any right to subscribe for,
purchase or otherwise acquire any shares of stock of any class or any other
securities or property, or to receive any other right, or
(b) any capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company or any Change of Control,
or
(c) any voluntary or involuntary dissolution, liquidation or winding-up of
the Company,
the Company will mail to the Warrantholder a notice specifying (i) the date or
expected date on which any such record is to be taken for the purpose of such
dividend, distribution or right and the amount and character of any such
dividend, distribution or right, and (ii) the date or expected date on which any
such reorganization, reclassification, recapitalization, Change of Control,
dissolution, liquidation or winding-up is to take place and the time, if any
such time is to be fixed, as of which the holders of record of Common Stock (or
other securities) shall be entitled to exchange their shares of Common Stock (or
other securities) for the securities or other property deliverable upon such
reorganization, reclassification, recapitalization, Change of Control,
dissolution, liquidation or winding-up. Such notice shall be mailed at least ten
(10) days prior to the date therein specified, in the case of any date referred
to in the foregoing subdivision (i), and at least ten (10) days prior to the
date therein specified, in the case of the date referred to in the foregoing
subdivision (ii).
-17-
<PAGE>
8. Definitions. As used herein, unless the context otherwise requires, the
following terms have the following respective meanings:
Business Day: any day other than a Saturday, Sunday or a day on which
national banks are authorized by law to close in the City of San Francisco,
State of California.
Change of Control: shall mean (i) the consolidation of the Company with or
merger of the Company with or into any other person in which the Company is not
the surviving corporation or in which the Company's stockholders prior to such
transaction do not own, directly or indirectly, immediately after such
transaction, fifty percent (50%) or more of the outstanding securities entitled
to vote generally for the election of directors or similar managing authority of
the surviving or resulting entity in such transaction, (ii) the sale of all or
substantially all of the assets of the Company to any other person or (iii) any
sale or transfer of any capital stock of the Company after the date of this
Warrant, following which forty (40%) or more of the combined voting power of the
Company becomes beneficially owned by one person or group acting together. For
purposes of this definition of Change of Control, "group" shall have the meaning
as such term is used in section 13(d) under the Exchange Act and the rules and
regulations thereunder.
Company: Diamond Multimedia Systems, Inc., a Delaware corporation.
Exchange Act: the Securities Exchange Act of 1934, as amended, or any
successor federal statute, and the rules and regulations of the SEC thereunder,
all as the same shall be in effect at the time. Reference to a particular
section of the Securities Exchange Act of 1934, as amended, shall include a
reference to a comparable section, if any, of any successor federal statute.
Exercise Form: an Exercise Form in the form annexed hereto as Exhibit A.
Exercise Price: the meaning specified in Section 1.3, as such price may be
adjusted pursuant to Section 6 hereof.
Holder: shall mean a holder of Registrable Securities.
Nasdaq: the meaning specified in Section 1.1(c)(ii).
Person: shall mean an individual, a corporation, a limited liability
company, a partnership, an association, a trust or any other entity or
organization, including a government or political subdivision or any agency or
instrumentality thereof.
Prospectus: shall mean any prospectus included in any Registration
Statement, as amended or supplemented by any prospectus supplement, with respect
to the terms of the offering of any portion of the Registrable Securities
covered by such Registration Statement and all other amendments and supplements
to the Prospectus, including post-effective amendments and all material
incorporated by reference in such Prospectus.
Registration Expenses: shall mean any and all expenses incurred in
connection with any registration or action incident to performance of or
compliance by the Company with Article 2,
-18-
<PAGE>
including, without limitation, (i) all SEC, national securities exchange and
NASD registration and filing fees; all listing fees and all transfer agent fees;
(ii) all fees and expenses of complying with state securities or blue sky laws
(including the fees and disbursements of counsel of the underwriters in
connection with blue sky qualifications of the Registrable Securities); (iii)
all printing, mailing, messenger and delivery expenses, (iv) all fees and
disbursements of counsel for the Company and of its accountants, including the
expenses of any special audits and/or "cold comfort" letters required by or
incident to such performance and compliance, and (v) any disbursements of
underwriters customarily paid by issuers or sellers of securities including the
reasonable fees and expenses of any special experts retained in connection with
the requested registration, but excluding underwriting discounts and
commissions, brokerage fees and transfer taxes, if any, and fees of counsel or
accountants retained by the Holders of Registrable Securities to advise them in
their capacity as Holders of Registrable Securities.
Registrable Securities: shall mean any Warrant Shares issued to the
Warrantholder, and/or other securities that may be or are issued by the Company
upon exercise of this Warrant, including those which may thereafter be issued by
the Company in respect of any such securities by means of any stock splits,
stock dividends, recapitalizations, reclassifications or the like, and as
adjusted pursuant to Article 6 hereof; provided, however, that as to any
particular security contained in Registrable Securities, such securities shall
cease to be Registrable Securities when (i) a Registration Statement with
respect to the sale of such securities shall have become effective under the
Securities Act and such securities shall have been disposed of in accordance
with such Registration Statement; or (ii) they shall have been sold to the
public pursuant to Rule 144 (or any successor provision) under the Securities
Act.
Registration Statement: shall mean any registration statement of the
Company filed or to be filed with the SEC which covers any of the Registrable
Securities pursuant to the provisions of this Warrant, including all amendments
(including post-effective amendments) and supplements thereto, all exhibits
thereto and all material incorporated therein by reference.
SEC: the Securities and Exchange Commission or any other federal agency at
the time administering the Securities Act or the Exchange Act, whichever is the
relevant statute for the particular purpose.
Securities Act: 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 at the time. Reference to a particular section of
the Securities Act of 1933, as amended, shall include a reference to the
comparable section, if any, of any successor federal statute.
S3 Acquisition: shall mean any transaction or series of related
transactions involving: (i) any purchase from S3 or acquisition by any Person or
"group" (as defined under section 13(d) of the Exchange Act and the rules and
regulations thereunder) of more than a fifty percent (50%) interest in the total
outstanding voting securities of S3 or any tender offer or exchange offer that
if consummated would result in any person or "group" (as defined under section
13(d) of the Exchange Act and the rules and regulations thereunder) beneficially
owning fifty percent (50%) or more of the total outstanding voting securities of
S3 or any merger, consolidation, business combination or similar transaction
involving S3 in which the stockholders of S3 immediately prior to such
transaction do not own, immediately after such transaction, at least a majority
of the
-19-
<PAGE>
outstanding securities entitled to vote generally for the election of
directors or similar managing authority of the surviving or resulting entity in
such transaction; or (ii) any sale, lease (other than in the ordinary course of
business), exchange, transfer, license (other than in the ordinary course of
business), acquisition or disposition of all or substantially all of the assets
of S3, other than to an entity of which at least a majority of the outstanding
securities entitled to vote generally for the election of directors or similar
managing authority are directly or indirectly owned or controlled by S3.
Trading Day: any day other than a day on which securities are not traded,
listed or reported on the principal securities exchange or securities market on
which the Common Stock is traded, listed or reported.
Warrantholder: the meaning specified on the cover of this Warrant.
Warrant Shares: the meaning specified on the cover of this Warrant, subject
to the provisions of Section 1 and Section 6 hereof.
9. Miscellaneous.
9.1 Entire Agreement. This Warrant constitutes the entire agreement between
the Company and the Warrantholder with respect to this Warrant.
9.2 Binding Effects; Benefits. This Warrant shall inure to the benefit of
and shall be binding upon the Company and the Warrantholder and their respective
successors. Nothing in this Warrant, expressed or implied, is intended to or
shall confer on any person other than the Company and the Warrantholder, or
their respective successors, any rights, remedies, obligations or liabilities
under or by reason of this Warrant.
9.3 Restrictions on Transferability. Subject to the terms and conditions of
this Warrant and compliance with all applicable securities laws, this Warrant
and all rights hereunder (and any shares of common stock acquired upon exercise
of this Warrant) may be transferred in whole or in part, only (a) to a wholly
owned subsidiary of the Warrantholder, or (b) in a sale effectuated pursuant to
Rule 144 promulgated under the Securities Act, or (c) in an offering registered
under section 5 of the Securities Act.
9.4 Amendments and Waivers. This Warrant may not be modified or amended
except by an instrument or instruments in writing signed by the Company and the
Warrantholder. Either the Company or the Warrantholder may, by an instrument in
writing, waive compliance by the other party with any term or provision of this
Warrant on the part of such other party hereto to be performed or complied with.
The waiver by any such party of a breach of any term or provision of this
Warrant shall not be construed as a waiver of any subsequent breach.
9.5 Section and Other Headings. The section and other headings contained in
this Warrant are for reference purposes only and shall not be deemed to be a
part of this Warrant or to affect the meaning or interpretation of this Warrant.
-20-
<PAGE>
9.6 Further Assurances. Each of the Company and the Warrantholder shall do
and perform all such further acts and things and execute and deliver all such
other certificates, instruments and documents as the Company or the
Warrantholder may, at any time and from time to time, reasonably request in
connection with the performance of any of the provisions of this Agreement.
9.7 Notices. All notices and other communications required or permitted to
be given under this Warrant shall be in writing and shall be deemed to have been
duly given if delivered personally or sent by United States mail, postage
prepaid, or by facsimile (with electronic confirmation of successful
transmission) to the parties hereto at the following addresses or to such other
address as any party hereto shall hereafter specify by notice to the other party
hereto:
(a) if to the Company, Diamond Multimedia Systems, Inc.
addressed to: 2880 Junction Avenue
San Jose, CA 95134
Attention: President and Chief Executive Officer
Telecopier: ___________________
(b) if to the Warrantholder, S3 Incorporated
addressed to: 2801 Mission College Boulevard
Santa Clara, CA 95052-8058
Attention: President and Chief Executive Officer
Telecopier: ___________________
Except as otherwise provided herein, all such notices and communications shall
be deemed to have been received on the date of delivery thereof, if delivered
personally, or on the third Business Day after the mailing thereof.
9.8 Separability. Any term or provision of this Warrant which is invalid or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such invalidity or unenforceability without rendering invalid
or unenforceable the terms and provisions of this Warrant or affecting the
validity or enforceability of any of the terms or provisions of this Warrant in
any other jurisdiction.
9.9 Governing Law. This Warrant shall be deemed to be a contract made under
the laws of the State of California (irrespective of its choice of law
principles).
-21-
<PAGE>
9.10 No Rights or Liabilities as Stockholder. Nothing contained in this
Warrant shall be determined as conferring upon the Warrantholder any rights as a
stockholder of the Company or as imposing any liabilities on the Warrantholder
to purchase any securities whether such liabilities are asserted by the Company
or by creditors or stockholders of the Company or otherwise.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its
duly authorized officer.
Dated: June 10, 1999.
DIAMOND MULTIMEDIA SYSTEMS, INC.
By /s/ William J. Schroeder
--------------------------------------
William J. Schroeder
President and Chief Executive Officer
-21-
<PAGE>
EXHIBIT A
THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE
SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT FILED UNDER SUCH ACT OR PURSUANT TO AN EXEMPTION FROM REGISTRATION
UNDER SUCH ACT.
EXERCISE FORM
-------------
(To be executed upon exercise of this Warrant)
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant, to purchase Warrant Shares and (check one):
|_| herewith tenders payment for _______ of the Warrant Shares to the
order of Diamond Multimedia Systems, Inc. in the amount of $_________
in accordance with the terms of this Warrant; or
|_| herewith tenders this Warrant for _______ Warrant Shares pursuant to
the Net Issue Exercise provisions of Section 1.1(b) of the Warrant.
The undersigned requests that a certificate (or certificates) for such
Warrant Shares be registered in the name of the undersigned and that such
certificate (or certificates) be delivered to the undersigned's address below.
In exercising this Warrant, the undersigned hereby confirms and
acknowledges that the Warrant Shares are being acquired solely for the account
of the undersigned and not as a nominee for any other party, or for investment,
and that the undersigned will not offer, sell or otherwise dispose of any such
Warrant Shares except under circumstances that will not result in a violation of
the Securities Act of 1933, as amended, or any state securities laws.
Dated: ___________________.
-----------------------------------
Signature
-----------------------------------
(Print Name)
-----------------------------------
(Street Address)
-----------------------------------
(City) (State) (Zip Code)
If said number of shares shall not be all the shares purchasable under the
within Warrant, a new Warrant is to be issued in the name of said undersigned
for the balance remaining of the shares purchasable thereunder.
A-1
<PAGE>
================================================================================
THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE
SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT FILED UNDER SUCH ACT OR PURSUANT TO AN EXEMPTION FROM REGISTRATION
UNDER SUCH ACT.
*************************************
DIAMOND MULTIMEDIA SYSTEMS, INC.
SECOND COMMON STOCK PURCHASE WARRANT
*************************************
This certifies that, for good and valuable consideration, Diamond
Multimedia Systems, Inc., a Delaware corporation ("Diamond" or the "Company"),
grants to S3 Incorporated, a Delaware corporation ("S3" or the "Warrantholder"),
the right to subscribe for and purchase from the Company the number of fully
paid and nonassessable shares (the "Warrant Shares") of the Compan's Common
Stock, $0.001 par value (the "Common Stock") specified herein, at the purchase
price per share (the "Exercise Price") determined as set forth herein,
exercisable, subject to the restrictions set forth herein, during the period
(the "Exercise Period") set forth in Section 1.4 hereof, all subject to the
terms, conditions and adjustments herein set forth. This Warrant (the "Second
Warrant") is issued in connection with and pursuant to that certain Credit
Agreement (the "Credit Agreement"), dated as of June 10, 1999, by and between
the Company and S3. Another Warrant, dated as of June 10, 1999, has also been
issued to S3 in connection with the Credit Agreement (the "First Warrant").
Certain capitalized terms used herein are defined in Section 8 hereof.
Capitalized terms used herein not otherwise defined herein shall have the
meanings assigned to them in the Credit Agreement.
================================================================================
<PAGE>
1. Exercise of Warrant.
1.1 Duration and Exercise of Warrant.
(a) Cash Exercise. This Warrant may be exercised by the Warrantholder by
(i) the surrender of this Warrant to the Company, with a duly executed Exercise
Form specifying the number of Warrant Shares to be purchased, during normal
business hours on any Business Day during the Exercise Period and (ii) the
delivery of payment to the Company, for the account of the Company, of the
Exercise Price for the number of Warrant Shares specified in the Exercise Form,
(A) by wire transfer of immediately available funds to a bank account specified
by the Company; (B) by certified or bank cashier's check; (C) by cancellation of
indebtedness under the Credit Agreement, or (D) of any other amount due to the
Warrantholder under any other contract (including any purchase order) pursuant
to which the Warrantholder does business with the Company not paid within twenty
(20) days of when due, or as otherwise mutually agreed to between the parties.
The Company agrees that such Warrant Shares shall be deemed to be issued to the
Warrantholder as the record holder of such Warrant Shares as of the close of
business on the date on which this Warrant shall have been surrendered and
payment made for the Warrant Shares as aforesaid. A stock certificate or
certificates for the Warrant Shares specified in the Exercise Form shall be
delivered to the Warrantholder as promptly as practicable. If this Warrant shall
have been exercised only in part, the Company shall, at the time of delivery of
the stock certificate or certificates, deliver to the Warrantholder a new
Warrant evidencing the rights to purchase the remaining Warrant Shares, which
new Warrant shall in all other respects be identical with this Warrant. No
adjustments shall be made on Warrant Shares issuable on the exercise of this
Warrant for any cash dividends paid or payable to holders of record of Common
Stock prior to the date as of which the Warrantholder shall be deemed to be the
record holder of such Warrant Shares.
(b) Net Issue Exercise. In lieu of exercising this Warrant pursuant to
Section 1.1(a), this Warrant may be exercised by the Warrantholder by the
surrender of this Warrant to the Company, with a duly executed Exercise Form
marked to reflect Net Issue Exercise and specifying the number of Warrant Shares
to be purchased, during normal business hours on any Business Day during the
Exercise Period. The Company agrees that such Warrant Shares shall be deemed to
be issued to the Warrantholder as the record holder of such Warrant Shares as of
the close of business on the date on which this Warrant shall have been
surrendered as aforesaid. Upon such exercise, the Warrantholder shall be
entitled to receive shares equal to the value of this Warrant (or the portion
hereof being exercised) computed as of the date of surrender of this Warrant to
the Company using the following formula:
X = Y x (A-B)
---------
A
Where X = the number of shares of Common Stock to be issued to Warrantholder
under this Section 1.1(b);
Y = the number of shares of Common Stock otherwise purchasable under
this Warrant (at the date of such calculation);
-2-
<PAGE>
A = the fair market value of one share of Common Stock (at the
date of such calculation);
B = the Exercise Price (as adjusted to the date of such
calculation).
(c) Fair Market Value. For purposes of Section 1.1(b) "fair market value"
of one share of Common Stock shall mean:
(i) the average closing price per share of the Common Stock on the---
principal national securities exchange on which the Common Stock is listed
or admitted to trading for the ten (10) Trading Day period ending on the
date of exercise, or,
(ii) if not listed or traded on any such exchange, the average last
reported sales price per share of the Common Stock on the Nasdaq National
Market or The Nasdaq SmallCap Market (collectively, "Nasdaq") for the ten
(10) Trading Day period ending on the date of exercise, or,
(iii) if not listed or traded on any such exchange or Nasdaq, the
average of the mean of the bid and asked prices per share of the Common
Stock as reported in the OTC Bulletin Board or, if not so reported, in the
"pink sheets" published by the National Quotation Bureau, Inc. for the ten
(10) Trading Day period ending on the date of exercise, or,
(iv) if such quotations are not available, the fair market value per
share of the Common Stock on the date such notice was received by the
Company as reasonably determined by the Board of Directors of the Company.
1.2 Number of Warrant Shares. This Warrant shall entitle the Warrantholder
to purchase 1,196,172 shares of Common Stock.
1.3 Exercise Price. The Exercise Price shall be equal to $4.18 (the
"Exercise Price"). From and after the issuance of this Warrant, the Exercise
Price shall be adjusted in accordance with Section 6 hereof.
1.4 Term of Warrant and Exercisability.
(a) Term of Warrant. This Warrant shall terminate on the later of (i) June
15, 2000; (ii) the date on which the indebtedness of the Company to the
Warrantholder under the Credit Agreement is paid in full; provided, however,
that this Warrant shall terminate upon the consummation of an S3 Acquisition.
Nothing in this Section 1.4(a), however, shall require S3 or Diamond to
negotiate or enter into an agreement providing for the merger of Diamond with S3
(directly or indirectly), and neither party shall have any liability for failing
to do so. The parties' rights and obligations under Sections 2, 8 and 9 hereof
shall survive the termination of this Warrant.
(b) Exercisability. This Warrant shall be immediately exercisable, during
the Exercise Period, in whole or in part as to ninety-nine percent (99%) of the
Warrant Shares. This
-3-
<PAGE>
Warrant shall become exercisable, during the Exercise Period, as to the
remaining one percent (1%) of the Warrant Shares upon a Change of Control of
Diamond. Notwithstanding anything to the contrary herein, this Warrant may not
be exercised prior to June 15, 1999.
1.5 Payment of Taxes. The issuance of certificates for Warrant Shares shall
be made without charge to the Warrantholder for any stock transfer or other
issuance tax in respect thereto; provided, however, that the Warrantholder shall
be required to pay any and all taxes which may be payable in respect of any
transfer involved in the issuance and delivery of any certificate in a name
other than that of the then Warrantholder as reflected upon the books of the
Company.
1.6 Information. Upon receipt of a written request from a Warrantholder,
the Company agrees to deliver promptly to such Warrantholder a copy of its
current publicly available financial statements and to provide such other
publicly available information concerning the Company as such Warrantholder may
reasonably request (if electronic access to such information via EDGAR is not
then generally available to the public) in order to assist the Warrantholder in
evaluating the merits and risks of exercising the Warrant and to make an
informed investment decision in connection with such exercise.
2. Registration Under the Securities Act of 1933.
2.1 Piggyback Registration.
(a) Right to Include Registrable Securities. If at any time or from time to
time prior to the fifth anniversary of the date hereof, the Company proposes to
register any of its securities under the Securities Act on any form for the
registration of securities under such Act, whether or not for its own account
(other than by a registration statement on Form S-8 or other form which does not
include substantially the same information as would be required in a form for
the general registration of securities or would not be available for the
Registrable Securities) (a "Piggyback Registration"), it shall as expeditiously
as reasonably possible give written notice to all Holders of its intention to do
so and of such Holders' rights under this Section 2.1. Such rights are referred
to hereinafter as "Piggyback Registration Rights." All references to "Warrant
Shares" and "Warrants" for purposes of this Article 2 shall refer to any such
shares or warrants issued by Diamond to S3. Upon the written request of any such
Holder made within ten (10) days after receipt of any such notice (which request
shall specify the Registrable Securities intended to be disposed of by such
Holder), the Company shall include in the Registration Statement the Registrable
Securities which the Company has been so requested to register by the Holders
thereof and the Company shall keep such registration statement in effect and
maintain compliance with each federal and state law or regulation for the period
necessary for such Holder to effect the proposed sale or other disposition (but
in no event for a period greater than ninety (90) days).
(b) Withdrawal of Piggyback Registration by Company. If, at any time after
giving written notice of its intention to register any securities in a Piggyback
Registration but prior to the effective date of the related Registration
Statement, the Company shall determine for any reason not to register such
securities, the Company shall give notice of such determination to each Holder
and, thereupon, shall be relieved of its obligation to register any Registrable
Securi-
-4-
<PAGE>
ties in connection with such Piggyback Registration. All best efforts
obligations of the Company pursuant to Section 2.4 shall cease if the Company
determines to terminate prior to such effective date any registration where
Registrable Securities are being registered pursuant to this Section 2.1.
(c) Piggyback Registration of Underwritten Public Offerings. If a Piggyback
Regis-tration involves an offering by or through underwriters, then (i) all
Holders requesting to have their Registrable securities included in the
Company's Registration Statement must sell their Registrable Securities to the
underwriters selected by the Company on the same terms and conditions as apply
to other selling shareholders and (ii) any Holder requesting to have his or its
Registrable Securities included in such Registration Statement may elect in
writing, not later than seven (7) Business Days prior to the effectiveness of
the Registration Statement filed in connection with such registration, not to
have his or its Registrable Securities so included in connection with such
registration.
(d) Payment of Registration Expenses for Piggyback Registration. The
Company shall pay all Registration Expenses in connection with each registration
of Registrable Securities requested pursuant to a Piggyback Registration Right
contained in this Section 2.1.
(e) Priority in Piggyback Registration. If a Piggyback Registration
involves an offering by or through underwriters, the Company, except as
otherwise provided herein, shall not be required to include Registrable
Securities therein if and to the extent the underwriter managing the offering
reasonably believes in good faith and advises each Holder requesting to have
Registrable Securities included in the Company's Registration Statement that
such inclusion would materially adversely affect such offering; provided that
(i) if other selling shareholders who are employees, officers, directors or
other affiliates of the Company have requested registration of securities in the
proposed offering, the Company will reduce or eliminate such other selling
shareholders' securities before any reduction or elimination of Registrable
Securities; and (ii) any such reduction or elimination (after taking into
account the effect of clause (i)) shall be pro rata to all other holders of the
securities of the Company exercising "Piggyback Registration Rights" similar to
those set forth herein in proportion to the respective number of shares they
have requested to be registered.
2.2 Demand Registration.
(a) Request for Registration. Unless this Warrant is exercised pursuant to
Section 1.1(b) hereof, if, at any time prior to the fifth anniversary of the
date hereof, Holders holding the greater of (i) at least twenty-five percent
(25%) of the combined total of Warrant Shares issuable and Warrant Shares
outstanding pursuant to the Second Warrant and any prior or subsequent warrant
issued by Diamond to S3 or (ii) one hundred percent (100%) of such shares issued
or issuable pursuant to the First Warrant, at such time request that the Company
file a registration statement on Form S-3 (or Form S-1 if Form S-3 is not then
available to the Company) under the Securities Act, as soon as practicable
thereafter the Company shall use its commercially reasonable efforts to file a
registration statement with respect to all Warrant Shares that it has been so
requested to include (so long as such Warrant Shares represent the greater of
the amount set forth in clause (i) or clause (ii) above)(the "Demand
Registration") and obtain the effectiveness thereof, and to take all other
action necessary under any federal or state law or
-5-
<PAGE>
regulation to permit the Warrant Shares that are held and/or that may be
acquired upon the exercise of the Warrants specified in the notices of the
Holders or holders thereof to be sold or otherwise disposed of, and the Company
shall maintain such compliance with each such federal and state law and
regulation for the period necessary for such Holders or holders to effect the
proposed sale or other disposition, which period shall be not less than thirty
(30) days; provided, however, the Company shall be entitled to defer such
registration for a period of up to forty-five (45) days if and to the extent
that its Board of Directors shall determine that such registration would
interfere with a pending corporate transaction. The Company shall also promptly
give written notice to the Holders and the holders of any other Warrants and/or
the holders of any Warrant Shares who or that have not made a request to the
Company pursuant to the provisions of this Section 2.2(a) of its intention to
effect any required registration or qualification, and shall use its
commercially reasonable efforts to effect as expeditiously as possible such
registration or qualification of all such other Warrant Shares that are then
held and/or that may be acquired upon the exercise of the Warrants, the Holder
or holders of which have requested such registration or qualification within
fifteen (15) days after such notice has been given by the Company. The Company
shall be required to effect a registration or qualification pursuant to this
Section 2.2(a) on a total of one (1) occasion.
(b) Payment of Registration Expenses for Demand Registration. The Company
shall pay all Registration Expenses in connection with the Demand Registration.
(c) Selection of Underwriters. If the Demand Registration is requested to
be in the form of an underwritten offering, the managing underwriter shall be
selected by the Holders of a majority of the Warrant Shares to be registered.
Such selection shall be subject to the Company's consent, which consent shall
not be unreasonably withheld.
(d) Procedure for Requesting Demand Registration. Any request for a Demand
Registration shall specify the aggregate number of the Registrable Securities
proposed to be sold and the intended method of disposition. Within ten (10) days
after receipt of such a request the Company will give written notice of such
registration request to all Holders, and the Company will include in such
registration all Registrable Securities with respect to which the Company has
received written requests for inclusion therein within fifteen (15) Business
Days after the date on which such notice is given by the Company. Each such
request shall also specify the aggregate number of Registrable Securities to be
registered and the intended method of disposition thereof.
2.3 Registration Procedures. If and whenever the Company is required to use
its commercially reasonable efforts to take action pursuant to any federal or
state law or regulation to permit the sale or other disposition of any
Registrable Securities that are then held or that may be acquired upon exercise
of the Warrants in order to effect or cause the registration of any Registrable
Securities under the Securities Act as provided in this Article 2, the Company
shall, as expeditiously as practicable:
(a) prepare and file with the SEC, as soon as practicable within forty-five
(45) days after the end of the period within which requests for registration may
be given to the Company (but subject to the provision for deferral contained in
Section 2.2(a) hereof) a Registration Statement or Registration Statements
relating to the registration on any appropriate form under the Securities Act,
which form shall be available for the sale of the Registrable Securities in
-6-
<PAGE>
accordance with the intended method or methods of distribution thereof, subject
to Section 2.1(e) hereof, and use its commercially reasonable efforts to cause
such Registration Statements to become effective; provided that before filing a
Registration Statement or Prospectus or any amend-ment or supplements thereto,
including documents incorporated by reference after the initial filing of any
Registration Statement, the Company will furnish to the Holders of the
Regis-trable Securities covered by such Registration Statement and the
underwriters, if any, copies of all such documents provided to be filed, which
documents will be subject to the review of such Holders and underwriters;
(b) prepare and file with the SEC such amendments and post-effective
amendments to a Registration Statement as may be necessary to keep such
Registration Statement effective for a period of thirty (30) days; cause the
related Prospectus to be supplemented by any required Prospectus supplement, and
as so supplemented to be filed pursuant to Rule 424 under the Securities Act;
and comply with the provisions of the Securities Act with respect to the
disposition of all securities covered by such Registration Statement during
such period in accordance with the intended methods of disposition by the
sellers thereof set forth in such Registration Statement or supplement to such
Prospectus;
(c) notify the selling Holders of Registrable Securities and the managing
underwriters, if any, promptly, and (if requested by any such Person) confirm
such advice in writing, (i) when a Prospectus or any Prospectus supplement or
post-effective amendment has been filed, and, with respect to a Registration
Statement or any post-effective amendment, when the same has become effective;
(ii) of any request by the SEC for amendments or supplements to a Registration
Statement or related Prospectus or for additional information; (iii) of the
issuance by the SEC of any stop order suspending the effectiveness of a
Registration Statement or the initiation of any proceedings for that purpose;
(iv) if at any time the representations and warranties of the Company
contemplated by paragraph (m) below cease to be true and correct in all material
respects; (v) of the receipt by the Company of any notification with respect to
the suspension of the qualification of any of the Registrable Securities for
sale in any jurisdiction or the initiation or threatening of any proceeding for
such purpose, and (vi) of the happening of any event that makes any statement of
a material fact made in the Registration Statement, the Prospectus or any
document incorporated therein by reference untrue or which requires the making
of any changes in the Registration Statement or Prospectus so that they will not
contain any 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;
(d) make every reasonable effort to obtain the withdrawal of any order
suspending the effectiveness of a Registration Statement at the earliest
possible moment;
(e) if reasonably requested by the managing underwriters, immediately
incorporate in a Prospectus supplement or post-effective amendment such
information as the managing underwriters believe (on advice of counsel) should
be included therein as required by applicable law relating to such sale of
Registrable Securities, including, without limitation, information with respect
to the purchase price being paid for the Registrable Securities by such
underwriters and with respect to any other terms of the underwritten (or
"best-efforts" underwritten) offering; and make all required filings of such
Prospectus supplement or post-effective amendment as soon as
-7-
<PAGE>
notified of the matters to be incorporated in such Prospectus supplement or
post-effective amendment;
(f) furnish to each selling Holder of Registrable Securities and each
managing underwriter, without charge, at least one signed copy of the
Registration Statement and any post-effective amendment thereto, including
financial statements and schedules, all documents incorporated therein by
reference and all exhibits (including those incorporated by reference);
(g) deliver to each selling Holder of Registrable Securities and the
underwriters, if any, without charge, as many copies of the Prospectus or
Prospectuses (including each preliminary Prospectus) any amendment or supplement
thereto as such Persons may reasonably request; the Company consents to the use
of such Prospectus or any amendment or supplement thereto by each of the selling
Holders of Registrable Securities and the underwriters, if any, in connection
with the offering and sale of the Registrable Securities covered by such
Prospectus or any amendment or supplement thereto;
(h) prior to any public offering of Registrable Securities, cooperate with
the selling Holders of Registrable Securities, the underwriters, if any, and
their respective counsel in connection with the registration or qualification of
such Registrable Securities for offer and sale under the securities or Blue Sky
laws of such jurisdictions within the United States as any selling Holder or
underwriter reasonably requests in writing, keep each such registration or
qualification effective during the period such Registration Statement is
required to be kept effective and do any and all other acts or things necessary
or advisable to enable the disposition in such jurisdictions of the Registrable
Securities covered by the applicable Registration Statement; provided that the
Company will not be required to qualify to do business in any jurisdiction where
it is not then so qualified or to take any action which would subject the
Company to general service of process in any jurisdiction where it is not at the
time so subject;
(i) cooperate with the selling Holders of Registrable Securities and the
managing underwriters, if any, to facilitate the timely preparation and delivery
of certificates representing Registrable Securities to be sold and not bearing
any restrictive legends; and enable such Registrable Securities to be in such
denominations and registered in such names as the managing underwriters may
request at least two (2) Business Days prior to any sale of Registrable
Securities to the underwriters;
(j) use its commercially reasonable efforts to cause the Registrable
Securities covered by the applicable Registration Statement to be registered
with or approved by such other governmental agencies or authorities within the
United States as may be necessary to enable the seller or sellers thereof or the
underwriters, if any, to consummate the disposition of such Registrable
Securities;
(k) upon the occurrence of any event contemplated by Section 2.3(c)(vi)
above, prepare a supplement or post-effective amendment to the applicable
Registration Statement or related Prospectus or any document incorporated
therein by reference or file any other required document so that, as thereafter
delivered to the purchasers of the Registrable Securities being sold thereunder,
such that the Prospectus will not contain an untrue statement of a material fact
-8-
<PAGE>
or omit to state any material fact necessary to make the statements therein not
misleading in the light of the circumstances under which they were made;
(l) with respect to each issue or class of Registrable Securities, use its
commercially reasonable efforts to cause all Registrable Securities covered by
the Registration Statement to be listed on each securities exchange, if any, on
which similar securities issued by the Company are then listed if requested by
the Holders of a majority of such issue or class of Registrable Securities;
(m) enter into such agreements (including an underwriting agreement) and
take all such other action reasonably required in connection therewith in order
to expedite or facilitate the disposition of such Registrable Securities and in
such connection, if the registration is in connection with an underwritten
offering (i) make such representations and warranties to the underwriters, in
such form, substance and scope as are customarily made by issuers to
underwriters in underwritten offerings and confirm the same if and when
requested; (ii) obtain opinions of counsel to the Company and updates thereof
(which counsel and opinions in form, scope and substance shall be reasonably
satisfactory to the underwriters) addressed to the underwriters covering the
matters customarily covered in opinions requested in underwritten offerings and
such other matters as may be reasonably requested by such underwriters; (iii)
obtain "cold comfort" letters and updates thereof from the Company's accountants
addressed to the underwriters, such letters to be in customary form and covering
matters of the type customarily covered in "cold comfort" letters by
underwriters in connection with underwritten offerings; (iv) set forth in full
in any underwriting agreement entered into the indemnification provisions and
procedures of Section 2.4 hereof with respect to all parties to be indemnified
pursuant to said Section; and (v) deliver such documents and certificates as may
be reasonably requested by the underwriters to evidence compliance with clause
(i) above and with any customary conditions contained in the underwriting
agreement or other agreement entered into by the Company; the above shall be
done at each closing under such underwriting or similar agreement or as and to
the extent required hereunder;
(n) make available for inspection by one or more representatives of the
Holders of Registrable Securities being sold, any underwriter participating in
any disposition pursuant to such registration, and any attorney or accountant
retained by such Holders or underwriter, all financial and other records,
pertinent corporate documents and properties of the Company, and cause the
Company's officers, directors and employees to supply all information reasonably
requested by any such representatives, in connection with such; and
(o) otherwise use its commercially reasonable efforts to comply with all
applicable federal and state regulations; and take such other action as may be
reasonably necessary to or advisable to enable each such Holder and each such
underwriter to consummate the sale or disposition in such jurisdiction or
jurisdiction in which any such Holder or underwriter shall have requested that
the Registrable Securities be sold.
Except as otherwise provided in this Agreement, the Company shall have sole
control in connection with the preparation, filing, withdrawal, amendment or
supplementing of each Registration Statement, the selection of underwriters, and
the distribution of any preliminary Prospectus included in the Registration
Statement, and may include within the coverage thereof
-9-
<PAGE>
additional shares of Common Stock or other securities for its own account or for
the account of one or more of its other security holders.
The Company may require each seller of Registrable Securities
as to which any registration is being effected to furnish to the Company such
information regarding the distribution of such securities and such other
information as may otherwise be required by the Securities Act to be included in
such Registration Statement. 2.4 Indemnification.
(a) Indemnification by Company. In connection with each Registration
Statement relating to disposition of Registrable Securities, the Company shall
indemnify and hold harmless each Holder and each underwriter of Registrable
Securities and each Person, if any, who controls such Holder or underwriter
(within the meaning of section 15 of the Securities Act or section 20 of the
Exchange Act) against any and all losses, claims, damages and liabilities, joint
or several (including any reasonable investigation, legal and other expenses
incurred in connection with, and any amount paid in settlement of any action,
suit or proceeding or any claim asserted), to which they, or any of them, may
become subject under the Securities Act, the Exchange Act or other federal or
state law or regulation, at common law or otherwise, insofar as such losses,
claims, damages or liabilities arise out of or are based upon any untrue
statement or alleged untrue statement of a material fact contained in any
Registration Statement, Prospectus or preliminary Prospectus or any amendment
thereof or supplement thereto, or arise out of or are 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 not misleading; provided, however,
that such indemnity shall not inure to the benefit of any Holder or underwriter
(or any person controlling such Holder or underwriter within the meaning of
section 15 of the Securities Act or section 20 of the Exchange Act) on account
of any losses, claims, damages or liabilities arising from the sale of the
Registrable Securities if such untrue statement or omission or alleged untrue
statement or omission was made in such Registration Statement, Prospectus or
preliminary Prospectus, or such amendment or supplement, in reliance upon and in
conformity with information furnished in writing to the Company by such Holder
or underwriter specifically for use therein; provided, further, that the Company
shall not be liable to such Holder or any underwriter (or any person controlling
such Holder or underwriter) with respect to any such untrue statement or alleged
untrue statement or omission made in any preliminary Prospectus that is
corrected in the Prospectus (or any amendment or supplement thereto) if the
person asserting any such loss, claim, damage or liability purchased shares of
the Common Stock from such Holder or underwriter but was not given a copy of the
Prospectus (as amended or supplemented) in any case where such delivery of the
Prospectus (as amended or supplemented) was required by the Securities Act. The
Company shall also indemnify selling brokers, dealer managers and similar
securities industry professionals participating in the distribution, their
officers and directors and each Person who controls such Persons (within the
meaning of section 15 of the Securities Act or section 20 of the Exchange Act)
to the same extent as provided above with respect to the indemnification of the
Holders of Registrable Securities, if requested. This indemnity agreement shall
be in addition to any liability which the Company may otherwise have.
(b) Indemnification by Holder. In connection with each Registration
Statement, each Holder shall indemnify, to the same extent as the
indemnification provided by the Company in
-10-
<PAGE>
Section 2.4(a), the Company, its directors and each officer who signs the
Registration Statement and each Person who controls the Company (within the
meaning of section 15 of the Securities Act and section 20 of the Exchange Act)
but only insofar as such losses, claims, damages and liabilities arise out of or
are based upon any untrue statement or omission or alleged untrue statement or
omission which was made in the Registration Statement, the Prospectus or
preliminary Prospectus or any amendment thereof or supplement thereto, in
reliance upon and in con-formity with information furnished in writing by such
Holder to the Company specifically for use therein. In no event shall the
liability of any selling Holder of Registrable Securities hereunder be greater
in amount than the dollar amount of the net proceeds received by such Holder
upon the sale of the Registrable Securities giving rise to such indemnification
obligation. The Company shall be entitled to receive indemnities from
underwriters, selling brokers, dealer managers and similar securities industry
professionals participating in the distribution, to the same extent as provided
above, with respect to information so furnished in writing by such Persons
specifically for inclusion in any Prospectus, Registration Statement or
preliminary Prospectus or any amendment thereof or supplement thereto.
(c) Conduct of Indemnification Procedure. Any party that proposes to assert
the right to be indemnified hereunder will, promptly after receipt of notice of
commencement of any action, suit or proceeding against such party in respect of
which a claim is to be made against an indemnifying party or parties under this
Section, notify each such indemnifying party of the commencement of such action,
suit or proceeding, enclosing a copy of all papers served. No indemnification
provided for in Section 2.4(a) or 2.4(b) shall be available to any party who
shall fail to give notice as provided in this Section 2.4(c) if the party to
whom notice was not given was unaware of the proceeding to which such notice
would have related and was materially prejudiced by the failure to give such
notice, but the omission so to notify such indemnifying party of any such
action, suit or proceeding shall not relieve it from any liability that it may
have to any indemnified party for contribution otherwise than under this
Section. In case any such action, suit or proceeding shall be brought against
any indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate
in, and, to the extent that it shall wish, jointly with any other indemnifying
party similarly notified, to assume the defense thereof, with counsel
satisfactory to such indemnified party, and after notice from the indemnifying
party to such indemnified party of its election so to assume the defense thereof
and the approval by the indemnified party of such counsel, the indemnifying
party shall not be liable to such indemnified party for any legal or other
expenses, except as provided below and except for the reasonable costs of
investigation subsequently incurred by such indemnified party in connection with
the defense thereof. The indemnified party shall have the right to employ its
counsel in any such action, but the fees and expenses of such counsel shall be
at the expense of such indemnified party unless (i) the employment of counsel by
such indemnified party has been authorized in writing by the indemnifying
parties, (ii) the indemnified party shall have reasonably concluded that there
may be a conflict of interest between the indemnifying parties and the
indemnified party in the conduct of the defense of such action (in which case
the indemnifying parties shall not have the right to direct the defense of such
action on behalf of the indemnified party) or (iii) the indemnifying parties
shall not have employed counsel to assume the defense of such action within a
reasonable time after notice of the commencement thereof, in each of which cases
the fees and expenses of counsel shall be at
-11-
<PAGE>
the expense of the indemnifying parties. An indemnified party shall not be
liable for any settlement of any action, suit, proceeding or claim effected
without its written consent.
(d) Contribution. In connection with each Registration Statement relating
to the disposition of Registrable Securities, if the indemnification provided
for in Section 2.4(a) or 2.4(b) hereof is unavailable to an indemnified party
thereunder in respect to any losses, claims, damages or liabilities referred to
therein, then the indemnifying party shall contribute to the amount paid or
payable by such indemnified party as a result of the losses, claims, damages or
liabilities referred to in paragraphs (a) or (b) of this Section 2.4 in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party on the one hand and of the indemnified party on the other in connection
with the statements or omissions that resulted in such losses, claims, damages
or liabilities, or actions in respect thereof, as well as any other relevant
equitable con-siderations. Relative fault 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 the indemnified party and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such untrue statement or omission. The amount paid or payable
by an indemnified party as a result of the losses, claims, damages or
liabilities (or actions in respect thereof) referred to above in this paragraph
(d) shall be deemed to include any legal or other expenses reasonably incurred
by such indemnified party in connection with investigating or defending any such
action or claim.
(e) Underwriting Agreement to Control. Notwithstanding the foregoing
provisions of this Section 2.4, to the extent that the provisions on
indemnification and contribution contained in any underwriting agreement entered
into in connection with the underwritten public offering of the Registrable
Securities are in conflict with the foregoing provisions, the provisions in such
underwriting agreement shall control.
(f) Specific Performance. The Company and the Holder acknowledge that
remedies at law for the enforcement of this Section 2.4 may be inadequate and
intend that this Section 2.4 shall be specifically enforceable.
(g) Survival of Obligations. The obligations of the Company and the Holder
under this Section 2.4 shall survive the completion of any offering of
Registrable Securities pursuant to a Registration Statement under this Article
2, and otherwise.
2.5 Reports Under Securities Exchange Act of 1934. With a view to making
available to the Holders the benefits of Rule 144 promulgated under the
Securities Act and any other rule or regulation of the SEC that may at any time
permit a Holder to sell securities of the Company to the public without
registration or pursuant to a registration on Form S-3, the Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in SEC Rule 144, at all times;
(b) file with the SEC in a timely manner all reports and other documents
required of the Company under the Securi-ties Act and the Exchange Act; and
-12-
<PAGE>
(c) furnish to any Holder, so long as
the Holder owns any Registrable Securities, forthwith upon request (i) a written
statement by the Company that it has complied with the reporting requirements of
SEC Rule 144, the Securities Act and the Exchange Act, or that it qualifies as a
registrant whose securities may be resold pursuant to Form S-3 (at any time
after it so qualifies), (ii) a copy of the most recent annual or quarterly
report of the Company and such other reports and documents so filed by the
Company and (iii) such other information as may be reasonably requested in
availing any Holder of any rule or regulation of the SEC which permits the
selling of any such securities without registration or pursuant to such form.
2.6 Restrictions on Transfer; Compliance with Securities Laws. This Warrant
and the Warrant Shares issued upon the exercise of the Warrant may not be
transferred or assigned in whole or in part without compliance with all
applicable federal and state securities laws by the transferor and transferee
(including the delivery of investment representation letters and legal opinions
reasonably satisfactory to the Company, if such are requested by the Company).
The Warrantholder, by acceptance hereof, acknowledges that this Warrant and the
Warrant Shares to be issued upon exercise hereof are being acquired solely for
the Warrantholder's own account and not as a nominee for any other party, and
for investment, and that the Warrantholder will not offer, sell or otherwise
dispose of any Warrant Shares to be issued upon exercise hereof except under
circumstances that will not result in a violation of the Securities Act or any
state securities laws. Upon exercise of this Warrant, the Warrantholder shall,
if requested by the Company, confirm in writing, in a form satisfactory to the
Company, that the Warrant Shares so purchased are being acquired solely for the
Warrantholder's own account and not as a nominee for any other party, for
investment, and not with a view toward distribution or resale.
2.7 Restrictive Legends. This Warrant shall (and each Warrant issued upon
transfer in whole or in part of this Warrant pursuant to this Section 2 or
issued in substitution for this Warrant pursuant to Section 4 shall) be stamped
or otherwise imprinted with a legend in substantially the following form:
"THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS WARRANT
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND
MAY NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT FILED UNDER SUCH ACT OR PURSUANT TO AN EXEMPTION
FROM REGISTRATION UNDER SUCH ACT."
Except as otherwise permitted by this Section 2, each stock certificate for
Warrant Shares issued upon the exercise of any Warrant and each stock
certificate issued upon the direct or indirect transfer of any such Warrant
Shares shall be stamped or otherwise imprinted with a legend in substantially
the following form:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD OR OTHERWISE
TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT FILED
UNDER SUCH ACT OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER SUCH
ACT."
-13-
<PAGE>
Notwithstanding the foregoing, the Warrantholder may require the Company to
issue a stock certificate for Warrant Shares without a legend if (i) such
Warrant Shares, as the case may be, have been registered for resale under the
Securities Act or sold pursuant to Rule 144 under the Securities Act (or a
successor rule thereto) or (ii) the Warrantholder has received an opinion of
counsel reasonably satisfactory to the Company that such registration is not
required with respect to such Warrant Shares.
3. Representations and Warranties of the Company. The Company hereby
represents and warrants to the Warrantholder (except as otherwise may be
prohibited, restricted or limited by law or any rule or regulation of a
regulatory entity) as follows:
3.1 Organization; Authority Relative to this Warrant. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. The Company has all requisite corporate power and
authority to execute and deliver this Warrant, to perform its obligations
hereunder and to consummate the transactions contemplated hereby. The execution
and delivery of this Warrant by the Company and the consummation by the Company
of the transactions contemplated hereby have been duly and validly authorized by
all necessary corporate action on the part of the Company. This Warrant has been
duly and validly executed and delivered by the Company and constitutes a valid
and binding obligation of the Company enforceable against the Company in
accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting creditors' rights generally, and by general equitable principles.
3.2 Authority to Issue Shares. The Company has taken all necessary
corporate action to authorize and reserve and permit it to issue, and at all
times from the date hereof through the end of the Exercise Period shall have
reserved, all the Warrant Shares issuable pursuant to this Warrant. All of the
shares of Common Stock issuable under this Warrant, upon their issuance and
delivery in accordance with the terms of this Warrant, will be duly authorized,
validly issued, fully paid and nonassessable, will be delivered free and clear
of all security interests, liens, claims, pledges, options, rights of first
refusal, agreements, limitations on the Warrantholder's voting rights, charges,
adverse rights and other encumbrances of any nature whatsoever (other than this
Warrant) and will not be subject to any preemptive rights.
3.3 No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Warrant by the Company does not, and
the performance by the Company of its obligations hereunder and the consummation
of the trans-actions contemplated hereby will not, (i) conflict with or violate
the certificate of incorporation or bylaws of the Company, (ii) assuming that
all consents and filings described in Section 3.3(b) have been obtained or made,
conflict with or violate any law applicable to the Company or by which any
property or asset of the Company is bound or affected or (iii) result in any
violation pursuant to, any note, bond, mortgage, indenture, contract, agreement,
lease, license, permit, franchise or other instrument or obligation to which the
Company is a party or by which the Company or any of its properties may be bound
or affected.
(b) No consent of, or filing with, any governmental entity is required by
the Company in connection with the execution and delivery of this Warrant, the
performance by the Company
-14-
<PAGE>
of its obligations hereunder or the consummation by the Company of the
transactions contemplated hereby, except for (i) compliance with the
Hart-Scott-Rodino Act and (ii) consents or filings the failure of which to be
obtained or made would not, individually or in the aggregate, prevent or
materially delay the consummation of the transactions contemplated hereby or the
performance by the Company of any of its obligations hereunder.
3.4 Reservation and Registration of Shares, Etc. The Company covenants and
agrees that all Warrant Shares which are issuable upon the exercise of this
Warrant will, upon issuance, be validly issued, fully paid and nonassessable and
free from all taxes, liens, security interests, charges and other encumbrances
with respect to the issue thereof, other than taxes in respect of any transfer
occurring contemporaneously with such issue. The Company further covenants and
agrees that, during the Exercise Period, the Company will at all times have
authorized and reserved, and keep available free from preemptive rights, a
sufficient number of shares of Common Stock to provide for the exercise of the
rights represented by this Warrant and will, at its expense, upon each such
reservation of shares, procure such listing of such shares of Common Stock
(subject to issuance or notice of issuance) as then may be required on all stock
exchanges on which the Common Stock is then listed or on Nasdaq.
4. Exchange, Loss or Destruction of Warrant. Upon receipt by the Company of
evidence satisfactory to it of the loss, theft, destruction or mutilation of
this Warrant and, in the case of loss, theft or destruction, of such bond or
indemnification as the Company may require, and, in the case of such mutilation,
upon surrender and cancellation of this Warrant, the Company will execute and
deliver a new Warrant of like tenor. The term "Warrant" as used in this
Agreement shall be deemed to include any Warrants issued in substitution or
exchange for this Warrant.
5. Ownership of Warrant. The Company may deem and treat the person in whose
name this Warrant is registered as the holder and owner hereof (notwithstanding
any notations of ownership or writing hereon made by anyone other than the
Company) for all purposes and shall not be affected by any notice to the
contrary.
6. Certain Adjustments.
6.1 Adjustments. The number of Warrant Shares purchasable upon the exercise
of this Warrant and the Exercise Price shall be subject to adjustment as
follows:
(a) Stock Dividends. If at any time prior to the exercise of this Warrant
in full (i) the Company shall fix a record date for the issuance of any stock
dividend payable in shares of Common Stock or (ii) the number of shares of
Common Stock shall have been increased by a subdivision or split-up of shares of
Common Stock, then, on the record date fixed for the determination of holders
of Common Stock entitled to receive such dividend or immediately after the
effective date of subdivision or split-up, as the case may be, the number of
shares of Common Stock to be delivered upon exercise of this Warrant will be
increased so that the Warrantholder will be entitled to receive the number of
shares of Common Stock that such Warrantholder would have owned immediately
following such action had this Warrant been exercised immediately prior thereto,
and the Exercise Price will be adjusted as provided below in paragraph (f).
-15-
<PAGE>
(b) Combination of Stock. If at any time prior to the exercise of this
Warrant in full the number of shares of Common Stock outstanding shall have been
decreased by a combination of the outstanding shares of Common Stock, then,
immediately after the effective date of such combination, the number of shares
of Common Stock to be delivered upon exercise of this Warrant will be decreased
so that the Warrantholder thereafter will be entitled to receive the number of
shares of Common Stock that such Warrantholder would have owned immediately
following such action had this Warrant been exercised immediately prior thereto,
and the Exercise Price will be adjusted as provided below in paragraph (f).
(c) Reorganization, etc. If at any time prior to the exercise of this
Warrant in full any capital reorganization of the Company, or any
reclassifica-tion of the Common Stock, or any consolidation of the Company with
or merger of the Company with or into any other person or any sale, lease or
other transfer of all or substantially all of the assets of the Company to any
other person, shall be effected in such a way that the holders of Common Stock
shall be entitled to receive stock, other securities or assets (whether such
stock, other securities or assets are issued or distributed by the Company or
another person) with respect to or in exchange for Common Stock, then, upon
exercise of this Warrant the Warrantholder shall have the right to receive the
kind and amount of stock, other securities or assets receivable upon such
reorganization, reclassification, consolidation, merger or sale, lease or other
transfer by a holder of the number of shares of Common Stock that such
Warrantholder would have been entitled to receive upon exercise of this Warrant
had this Warrant been exercised immediately before such reorganization,
reclassification, consolidation, merger or sale, lease or other transfer,
subject to adjustments that shall be as nearly equivalent as may be practicable
to the adjustments provided for in this Section 6.
(d) Fractional Shares. No fractional shares of Common Stock or scrip shall
be issued to any Warrantholder in connection with the exercise of this Warrant.
Instead of any fractional shares of Common Stock that would otherwise be
issuable to such Warrant-holder, the Company will pay to such Warrantholder a
cash adjustment in respect of such fractional interest in an amount equal to
that fractional interest of the fair market value of one share of Common Stock
as of the date of exercise.
(e) Carryover. Notwithstanding any other provision of this Section 6, no
adjustment shall be made to the number of shares of Common Stock to be delivered
to the Warrantholder (or to the Exercise Price) if such adjustment represents
less than one percent (1%) of the number of shares to be so delivered, but any
lesser adjustment shall be carried forward and shall be made at the time and
together with the next subsequent adjustment which together with any adjustments
so carried forward shall amount to one percent (1%) or more of the number of
shares to be so delivered.
(f) Exercise Price Adjustment. Whenever the number of Warrant Shares
purchasable upon the exercise of the Warrant is adjusted, as herein provided,
the Exercise Price payable upon the exercise of this Warrant shall be adjusted
by multiplying such Exercise Price immediately prior to such adjustment by a
fraction, of which the numerator shall be the number of Warrant Shares
purchasable upon the exercise of the Warrant immediately prior to such
adjustment, and of which the denominator shall be the number of Warrant Shares
purchasable immediately thereafter.
-16-
<PAGE>
(g) No Duplicate Adjustments. Notwithstanding anything else to the contrary
contained herein, in no event will an adjustment be made under the provisions of
this Section 6 to the number of Warrant Shares issuable upon exercise of this
Warrant or the Exercise Price for any event if an adjustment having
substantially the same effect to the Warrantholder as any adjustment that
otherwise would be made under the provisions of this Section 6 is made by the
Company for any such event to the number of shares of Common Stock (or other
securities) issuable upon exercise of this Warrant.
6.2 No Adjustment for Dividends. Except as provided in Section 1 hereof or
Section 6.1 hereof, no adjustment in respect of any dividends shall be made
during the term of the Warrant or upon the exercise of this Warrant.
6.3 Notice of Adjustment. Whenever the number of Warrant Shares or the
Exercise Price of such Warrant Shares is adjusted, as herein provided, the
Company shall promptly mail by first class, postage prepaid, to the
Warrantholder, notice of such adjustment or adjustments and a certificate of the
chief financial officer of the Company setting forth the number of Warrant
Shares and the Exercise Price of such Warrant Shares after such adjustment,
setting forth a brief statement of the facts requiring such adjustment and
setting forth the computa-tion by which such adjustment was made.
7. Notices of Corporate Action. In the event of:
(a) any taking by the Company of a record of the holders of any class of
securities for the purpose of determining the holders thereof who are entitled
to receive any dividend or other distribution, or any right to subscribe for,
purchase or otherwise acquire any shares of stock of any class or any other
securities or property, or to receive any other right, or
(b) any capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company or any Change of Control,
or
(c) any voluntary or involuntary dissolution, liquidation or winding-up of
the Company,
the Company will mail to the Warrantholder a notice specifying (i) the date or
expected date on which any such record is to be taken for the purpose of such
dividend, distribution or right and the amount and character of any such
dividend, distribution or right, and (ii) the date or expected date on which any
such reorganization, reclassification, recapitalization, Change of Control,
dissolution, liquidation or winding-up is to take place and the time, if any
such time is to be fixed, as of which the holders of record of Common Stock (or
other securities) shall be entitled to exchange their shares of Common Stock (or
other securities) for the securities or other property deliverable upon such
reorganization, reclassification, recapitalization, Change of Control,
dissolution, liquidation or winding-up. Such notice shall be mailed at least
ten (10) days prior to the date therein specified, in the case of any date
referred to in the foregoing subdivision (i), and at least ten (10) days prior
to the date therein specified, in the case of the date referred to in the
foregoing subdivision (ii).
-17-
<PAGE>
8. Definitions. As used herein, unless the context otherwise requires, the
following terms have the following respective meanings:
Business Day: any day other than a Saturday, Sunday or a day on which
national banks are authorized by law to close in the City of San Francisco,
State of California.
Change of Control: shall mean (i) the consolidation of the Company with or
merger of the Company with or into any other person in which the Company is not
the surviving corpora-tion or in which the Company's stockholders prior to such
transaction do not own, directly or indirectly, immediately after such
transaction, fifty percent (50%) or more of the outstanding securities entitled
to vote generally for the election of directors or similar managing authority of
the surviving or resulting entity in such transaction, (ii) the sale of all or
substantially all of the assets of the Company to any other person or (iii) any
sale or transfer of any capital stock of the Company after the date of this
Warrant, following which forty (40%) or more of the combined voting power of the
Company becomes beneficially owned by one person or group acting together. For
purposes of this definition of Change of Control, "group" shall have the meaning
as such term is used in section 13(d) under the Exchange Act and the rules and
regulations thereunder.
Company: Diamond Multimedia Systems, Inc., a Delaware corporation.
Exchange Act: the Securities Exchange Act of 1934, as amended, or any
successor federal statute, and the rules and regulations of the SEC thereunder,
all as the same shall be in effect at the time. Reference to a particular
section of the Securities Exchange Act of 1934, as amended, shall include a
reference to a comparable section, if any, of any successor federal statute.
Exercise Form: an Exercise Form in the form annexed hereto as Exhibit
A.
Exercise Price: the meaning specified in Section 1.3, as such price may be
adjusted pursuant to Section 6 hereof.
Holder: shall mean a holder of
Registrable Securities.
Nasdaq: the meaning specified in Section 1.1(c)(ii).
Person: shall mean an individual, a corporation, a limited liability
company, a partnership, an association, a trust or any other entity or
organization, including a government or political subdivision or any agency or
instrumentality thereof.
Prospectus: shall mean any prospectus included in any Registration
Statement, as amended or supplemented by any prospectus supplement, with respect
to the terms of the offering of any portion of the Registrable Securities
covered by such Registration Statement and all other amendments and supplements
to the Prospectus, including post-effective amendments and all material
incorporated by reference in such Prospectus.
Registration Expenses: shall mean any and all expenses incurred in
connection with any registration or action incident to performance of or
compliance by the Company with Article 2,
-18-
<PAGE>
including, without limitation, (i) all SEC, national securities exchange and
NASD registration and filing fees; all listing fees and all transfer agent fees;
(ii) all fees and expenses of complying with state securities or blue sky laws
(including the fees and disbursements of counsel of the underwriters in
connection with blue sky qualifications of the Registrable Securities); (iii)
all printing, mailing, messenger and delivery expenses, (iv) all fees and
disbursements of counsel for the Company and of its accountants, including the
expenses of any special audits and/or "cold comfort" letters required by or
incident to such performance and compliance, and (v) any disbursements of
underwriters customarily paid by issuers or sellers of securities including the
reason-able fees and expenses of any special experts retained in connection with
the requested registration, but excluding underwriting discounts and
commissions, brokerage fees and transfer taxes, if any, and fees of counsel or
accountants retained by the Holders of Registrable Securities to advise them in
their capacity as Holders of Registrable Securities.
Registrable Securities: shall mean any Warrant Shares issued to the
Warrantholder, and/or other securities that may be or are issued by the Company
upon exercise of this Warrant, including those which may thereafter be issued by
the Company in respect of any such securities by means of any stock splits,
stock dividends, recapitalizations, reclassifications or the like, and as
adjusted pursuant to Article 6 hereof; provided, however, that as to any
particular security contained in Registrable Securities, such securities shall
cease to be Registrable Securities when (i) a Registration Statement with
respect to the sale of such securities shall have become effective under the
Securities Act and such securities shall have been disposed of in accordance
with such Registration Statement; or (ii) they shall have been sold to the
public pursuant to Rule 144 (or any successor provision) under the Securities
Act.
Registration Statement: shall mean any registration statement of the
Company filed or to be filed with the SEC which covers any of the Registrable
Securities pursuant to the provisions of this Warrant, including all amendments
(including post-effective amendments) and supplements thereto, all exhibits
thereto and all material incorporated therein by reference.
SEC: the Securities and Exchange Commission or any other federal agency at
the time administering the Securities Act or the Exchange Act, whichever is the
relevant statute for the particular purpose.
Securities Act: 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 at the time. Reference to a particular section of
the Securities Act of 1933, as amended, shall include a reference to the
comparable section, if any, of any successor federal statute.
S3 Acquisition: shall mean any transaction or series of related
transactions involving: (i) any purchase from S3 or acquisition by any Person or
"group" (as defined under section 13(d) of the Exchange Act and the rules and
regulations thereunder) of more than a fifty percent (50%) interest in the total
outstanding voting securities of S3 or any tender offer or exchange offer that
if consummated would result in any person or "group" (as defined under section
13(d) of the Exchange Act and the rules and regulations thereunder) beneficially
owning fifty percent (50%) or more of the total outstanding voting securities of
S3 or any merger, consolidation, business combination or similar transaction
involving S3 in which the stockholders of S3 immediately prior to such
transaction do not own, immediately after such transaction, at least a majority
of the
-19-
<PAGE>
outstanding securities entitled to vote generally for the election of directors
or similar managing authority of the surviving or resulting entity in such
transaction; or (ii) any sale, lease (other than in the ordinary course of
business), exchange, transfer, license (other than in the ordinary course of
business), acquisition or disposition of all or substantially all of the assets
of S3, other than to an entity of which at least a majority of the outstanding
securities entitled to vote generally for the election of directors or similar
managing authority are directly or indirectly owned or controlled by S3.
Trading Day: any day other than a day on which securities are not traded,
listed or reported on the principal securities exchange or securities market on
which the Common Stock is traded, listed or reported.
Warrantholder: the meaning specified on the cover of this Warrant.
Warrant Shares: the meaning specified on the cover of this Warrant, subject
to the provisions of Section 1 and Section 6 hereof.
9. Miscellaneous.
9.1 Entire Agreement. This Warrant constitutes the entire agreement between
the Company and the Warrantholder with respect to this Warrant.
9.2 Binding Effects; Benefits. This Warrant shall inure to the benefit of
and shall be binding upon the Company and the Warrantholder and their respective
successors. Nothing in this Warrant, expressed or implied, is intended to or
shall confer on any person other than the Company and the Warrantholder, or
their respective successors, any rights, remedies, obligations or liabilities
under or by reason of this Warrant.
9.3 Restrictions on Transferability. Subject to the terms and conditions of
this Warrant and compliance with all applicable securities laws, this Warrant
and all rights hereunder (and any shares of common stock acquired upon exercise
of this Warrant) may be transferred in whole or in part, only (a) to a wholly
owned subsidiary of the Warrantholder, or (b) in a sale effectuated pursuant to
Rule 144 promulgated under the Securities Act, or (c) in an offering registered
under section 5 of the Securities Act.
9.4 Amendments and Waivers. This Warrant may not be modified or amended
except by an instrument or instruments in writing signed by the Company and the
Warrantholder. Either the Company or the Warrantholder may, by an instrument in
writing, waive compliance by the other party with any term or provision of this
Warrant on the part of such other party hereto to be performed or complied with.
The waiver by any such party of a breach of any term or provision of this
Warrant shall not be construed as a waiver of any subsequent breach.
9.5 Section and Other Headings. The section and other headings contained in
this Warrant are for reference purposes only and shall not be deemed to be a
part of this Warrant or to affect the meaning or interpretation of this Warrant.
-20-
<PAGE>
9.6 Further Assurances. Each of the Company and the Warrantholder shall do
and perform all such further acts and things and execute and deliver all such
other certificates, instruments and documents as the Company or the
Warrantholder may, at any time and from time to time, reasonably request in
connection with the performance of any of the provisions of this Agreement.
9.7 Notices. All notices and other communications required or permitted
to be given under this Warrant shall be in writing and shall be deemed
to have been duly given if delivered personally or sent by United States mail,
postage prepaid, or by facsimile (with electronic confir-ma-tion of successful
transmission) to the parties hereto at the following addresses or to such other
address as any party hereto shall hereafter specify by notice to the other party
hereto:
(a) if to the Company, Diamond Multimedia Systems, Inc.
addressed to: 2880 Junction Avenue
San Jose, CA 95134
Attention: President and Chief
Executive Officer
Telecopier: ___________________
(b) if to the Warrantholder, S3 Incorporated
addressed to: 2801 Mission College Boulevard
Santa Clara, CA 95052-8058
Attention: President and Chief
Executive Officer
Telecopier: ___________________
Except as otherwise provided herein, all such notices and communications shall
be deemed to have been received on the date of delivery thereof, if delivered
personally, or on the third Business Day after the mailing thereof.
9.8 Separability. Any term or provision of this Warrant which is invalid
or unenforce-able in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the terms and provisions of this Warrant or
affecting the validity or enforceability of any of the terms or provisions of
this Warrant in any other jurisdiction.
9.9 Governing Law. This Warrant shall be deemed to be a contract made
under the laws of the State of California (irrespective of its choice of law
principles).
<PAGE>
9.10 No Rights or Liabilities as Stockholder. Nothing contained in this
Warrant shall be determined as conferring upon the Warrantholder any rights as
a stockholder of the Company or as imposing any liabilities on the Warrantholder
to purchase any securities whether such liabilities are asserted by the Company
or by creditors or stockholders of the Company or otherwise.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer.
Dated: June 15, 1999.
DIAMOND MULTIMEDIA SYSTEMS, INC.
By /s/ William J. Schroeder
--------------------------------------
William J. Schroeder
President and Chief Executive Officer
<PAGE>
EXHIBIT A
---------
THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS WARRANT
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY
NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT FILED UNDER SUCH ACT OR PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER SUCH ACT.
EXERCISE FORM
-------------
(To be executed upon exercise of this Warrant)
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant, to purchase Warrant Shares and (check one):
____ herewith tenders payment for _______ of the Warrant Shares to
the order of Diamond Multimedia Systems, Inc. in the amount of
$_________ in accordance with the terms of this Warrant; or
____ herewith tenders this Warrant for _______ Warrant Shares
pursuant to the Net Issue Exercise provisions of Section 1.1(b)
of the Warrant.
The undersigned requests that a certificate (or certificates) for such
Warrant Shares be registered in the name of the undersigned and that such
certificate (or certificates) be delivered to the undersigne's address below.
In exercising this Warrant, the undersigned hereby confirms and
acknowledges that the Warrant Shares are being acquired solely for the account
of the undersigned and not as a nominee for any other party, or for investment,
and that the undersigned will not offer, sell or otherwise dispose of any such
Warrant Shares except under circumstances that will not result in a violation
of the Securities Act of 1933, as amended, or any state securities laws.
Dated: ___________________.
______________________________________
Signature
______________________________________
(Print Name)
______________________________________
(Street Address)
______________________________________
(City) (State) (Zip Code)
If said number of shares shall not be all the shares purchasable under the
within Warrant, a new Warrant is to be issued in the name of said undersigned
for the balance remaining of the shares purchasable thereunder.
<PAGE>
================================================================================
THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE
SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT FILED UNDER SUCH ACT OR PURSUANT TO AN EXEMPTION FROM REGISTRATION
UNDER SUCH ACT.
***********************************************
DIAMOND MULTIMEDIA SYSTEMS, INC.
THIRD COMMON STOCK PURCHASE WARRANT
***********************************************
This certifies that, for good and valuable consideration, Diamond
Multimedia Systems, Inc., a Delaware corporation ("Diamond" or the "Company"),
grants to S3 Incorporated, a Delaware corporation ("S3" or the "Warrantholder"),
the right to subscribe for and purchase from the Company the number of fully
paid and nonassessable shares (the "Warrant Shares") of the Company's Common
Stock, $0.001 par value (the "Common Stock") specified herein, at the purchase
price per share (the "Exercise Price") determined as set forth herein,
exercisable, subject to the restrictions set forth herein, during the period
(the "Exercise Period") set forth in Section 1.4 hereof, all subject to the
terms, conditions and adjustments herein set forth. This Warrant (the "Third
Warrant") is issued in connection with (i) that certain Credit Agreement, as
amended (the "Credit Agreement"), dated as of June 11, 1999, by and between the
Company and S3 and (ii) that certain Agreement and Plan of Merger (the "Merger
Agreement"), dated as of June 21, 1999, by and between the Company and S3. Two
other Warrants, dated as of June 10, 1999, and June 15, 1999, respectively, have
also been issued to S3 in connection with the Credit Agreement (respectively,
the "First Warrant" and the "Second Warrant"). Certain capitalized terms used
herein are defined in Section 8 hereof. Capitalized terms used herein not
otherwise defined herein shall have the meanings assigned to them in the Credit
Agreement.
================================================================================
<PAGE>
1. Exercise of Warrant.
--------------------
1.1 Duration and Exercise of Warrant.
---------------------------------
(a) Cash Exercise. This Warrant may be exercised by the Warrantholder by
-------------
(i) the surrender of this Warrant to the Company, with a duly
executed Exercise Form specifying the number of Warrant Shares to be purchased,
during normal business hours on any Business Day during the Exercise Period and
(ii) the delivery of payment to the Company, for the account of the Company, of
the Exercise Price for the number of Warrant Shares specified in the Exercise
Form, (A) by wire transfer of immediately available funds to a bank account
specified by the Company; (B) by certified or bank cashier's check; (C) by
cancellation of indebtedness under the Credit Agreement, or (D) of any other
amount due to the Warrantholder under any other contract (including any purchase
order) pursuant to which the Warrantholder does business with the Company not
paid within twenty (20) days of when due, or as otherwise mutually agreed to
between the parties. The Company agrees that such Warrant Shares shall be deemed
to be issued to the Warrantholder as the record holder of such Warrant Shares as
of the close of business on the date on which this Warrant shall have been
surrendered and payment made for the Warrant Shares as aforesaid. A stock
certificate or certificates for the Warrant Shares specified in the Exercise
Form shall be delivered to the Warrantholder as promptly as practicable. If this
Warrant shall have been exercised only in part, the Company shall, at the time
of delivery of the stock certificate or certificates, deliver to the
Warrantholder a new Warrant evidencing the rights to purchase the remaining
Warrant Shares, which new Warrant shall in all other respects be identical with
this Warrant. No adjustments shall be made on Warrant Shares issuable on the
exercise of this Warrant for any cash dividends paid or payable to holders of
record of Common Stock prior to the date as of which the Warrantholder shall be
deemed to be the record holder of such Warrant Shares.
(b) Net Issue Exercise. In lieu of exercising this Warrant pursuant to
-------------------
Section 1.1(a), this Warrant may be exercised by the
Warrantholder by the surrender of this Warrant to the Company, with a duly
executed Exercise Form marked to reflect Net Issue Exercise and specifying the
number of Warrant Shares to be purchased, during normal business hours on any
Business Day during the Exercise Period. The Company agrees that such Warrant
Shares shall be deemed to be issued to the Warrantholder as the record holder of
such Warrant Shares as of the close of business on the date on which this
Warrant shall have been surrendered as aforesaid. Upon such exercise, the
Warrantholder shall be entitled to receive shares equal to the value of this
Warrant (or the portion hereof being exercised) computed as of the date of
surrender of this Warrant to the Company using the following formula:
X = Y x (A-B)
---------
A
Where X = the number of shares of Common Stock to be issued to Warrantholder
under this Section 1.1(b);
Y = the number of shares of Common Stock otherwise purchasable under
this Warrant (at the date of such calculation);
-2-
<PAGE>
A = the fair market value of one share of Common Stock (at the date of
such calculation);
B = the Exercise Price (as adjusted to the date of such calculation).
(c) Fair Market Value. For purposes of Section 1.1(b) "fair market
--------------------
value" of one share of Common Stock shall mean:
(i) the average closing price per share of the Common Stock on the
principal national securities exchange on which the Common Stock is listed or
admitted to trading for the ten (10) Trading Day period ending on the date of
exercise, or,
(ii) if not listed or traded on any such exchange, the average last
reported sales price per share of the Common Stock on the Nasdaq National Market
or The Nasdaq SmallCap Market (collectively, "Nasdaq") for the ten (10) Trading
Day period ending on the date of exercise, or,
(iii) if not listed or traded on any such exchange or Nasdaq, the average
of the mean of the bid and asked prices per share of the Common Stock as
reported in the OTC Bulletin Board or, if not so reported, in the "pink sheets"
published by the National Quotation Bureau, Inc. for the ten (10) Trading Day
period ending on the date of exercise, or,
(iv) if such quotations are not available, the fair market value per share
of the Common Stock on the date such notice was received by the Company as
reasonably determined by the Board of Directors of the Company.
1.2 Number of Warrant Shares. This Warrant shall entitle the Warrantholder
------------------------
to purchase 2,236,198 shares of Common Stock.
1.3 Exercise Price. The Exercise Price shall be equal to $4.471875 (the
---------------
"Exercise Price"). From and after the issuance of this Warrant,
the Exercise Price shall be adjusted in accordance with Section 6 hereof.
1.4 Term of Warrant and Exercisability.
-----------------------------------
(a) Term of Warrant. This Warrant shall terminate on the later of (i) June
---------------
21, 2000; (ii) the date on which the indebtedness of the Company to the
Warrantholder under the Credit Agreement is paid in full; provided, however,
-----------------
that this Warrant shall terminate upon the
consummation of an S3 Acquisition. Nothing in this Section 1.4(a), however,
shall require S3 to advance any portion of the third Loan pursuant to Section
3.4 of the Credit Agreement, and S3 shall not have any liability for failing to
do so. The parties' rights and obligations under Sections 2, 8 and 9 hereof
shall survive the termination of this Warrant.
(b) Exercisability. Notwithstanding anything to the contrary herein, this
--------------
Warrant shall become immediately exercisable, in whole or in part, as to one
hundred percent (100%) of the Warrant Shares concurrently with the advance by S3
of the third Loan to Diamond pursuant
-3-
<PAGE>
to Section 3.4 of the Credit Agreement. This Warrant shall also become
immediately exercisable, in whole or in part, as to one hundred percent (100%)
of the Warrant Shares if (i) Diamond materially breaches its obligations under
the Credit Agreement for so long as such breach shall be continuing; (ii) S3
does not advance the third Loan to Diamond on July 1, 1999 pursuant to Section
3.4 of the Credit Agreement, because any one of the conditions to the third Loan
set forth in Section 3.4(b), Section 3.4(c), Section 3.4(d) (unless such failure
is due to a failure by Finova to consent to the terms of the Credit Agreement),
or Section 3.4(e), of the Credit Agreement is not satisfied on or prior to such
date, or (iii) prior to the time that S3 advances the third Loan to Diamond
pursuant to Section 3.4 of the Credit Agreement, Diamond receives a Superior
Proposal (as defined in the Merger Agreement) in respect of Diamond from a third
party Person and executes a definitive agreement for a transaction that, if
consummated, would constitute a Change of Control of Diamond. If this Warrant
has become exercisable as to one hundred percent (100%) of the Warrant Shares
pursuant to the provisions of this Section 1.4(b), and S3 receives a Superior
Proposal (as defined in the Merger Agreement) in respect of S3 from a third
party Person for a transaction that, if consummated, would constitute an S3
Acquisition, then this Warrant shall cease to be exercisable as to one hundred
percent (100%) of the Warrant Shares until and unless S3 terminates discussions
with such third party Person (without consummation of the transaction that would
constitute an S3 Acquisition), irrespective of whether S3 has executed a
definitive agreement with such third party Person for a transaction that would
constitute an S3 Acquisition; provided, however, that if prior to the time S3
receives a Superior Proposal (as ----------------- defined in the Merger
Agreement) in respect of S3 from a third party Person for a transaction that, if
consummated, would constitute an S3 Acquisition, Diamond has already received a
Superior Proposal (as defined in the Merger Agreement) in respect of Diamond
from a third party Person for a transaction that, if consummated, would
constitute a Change of Control of Diamond, this sentence shall not apply, and
this Warrant shall remain exercisable as to one hundred percent (100%) of the
Warrant Shares unless and until Diamond terminates discussions with such third
party Person (without consummation of the transaction that would constitute a
Change in Control of Diamond) irrespective of whether Diamond has executed a
definitive agreement with such third party Person for a transaction that would
constitute a Diamond Change in Control. Unless this Warrant has become
exercisable as to the Warrant Shares pursuant to the provisions of this Section
1.4(b), this Warrant shall not be exercisable as to the Warrant Shares.
1.5 Payment of Taxes. The issuance of certificates for Warrant Shares shall
----------------
be made without charge to the Warrantholder for any stock
transfer or other issuance tax in respect thereto; provided, however, that the
------------------
Warrantholder shall be required to pay any and all taxes which
may be payable in respect of any transfer involved in the issuance and delivery
of any certificate in a name other than that of the then Warrantholder as
reflected upon the books of the Company.
1.6 Information. Upon receipt of a written request from a Warrantholder,
-----------
the Company agrees to deliver promptly to such Warrantholder a copy of its
current publicly available financial statements and to provide such other
publicly available information concerning the Company as such Warrantholder may
reasonably request (if electronic access to such information via EDGAR is not
then generally available to the public) in order to assist the Warrantholder in
evaluating the merits and risks of exercising the Warrant and to make an
informed investment decision in connection with such exercise.
-4-
<PAGE>
2. Registration Under the Securities Act of 1933.
----------------------------------------------
2.1 Piggyback Registration.
-----------------------
(a) Right to Include Registrable Securities. If at any time or from time to
---------------------------------------
time prior to the fifth anniversary of the date hereof, the Company proposes to
register any of its securities under the Securities Act on any form for the
registration of securities under such Act, whether or not for its own account
(other than by a registration statement on Form S-8 or other form which does not
include substantially the same information as would be required in a form for
the general registration of securities or would not be available for the
Registrable Securities) (a "Piggyback Registration"), it shall as expeditiously
as reasonably possible give written notice to all Holders of its intention to do
so and of such Holders' rights under this Section 2.1. Such rights are referred
to hereinafter as "Piggyback Registration Rights." All references to "Warrant
Shares" and "Warrants" for purposes of this Article 2 shall refer to any such
shares or warrants issued by Diamond to S3. Upon the written request of any such
Holder made within ten (10) days after receipt of any such notice (which request
shall specify the Registrable Securities intended to be disposed of by such
Holder), the Company shall include in the Registration Statement the Registrable
Securities which the Company has been so requested to register by the Holders
thereof and the Company shall keep such registration statement in effect and
maintain compliance with each federal and state law or regulation for the period
necessary for such Holder to effect the proposed sale or other disposition (but
in no event for a period greater than ninety (90) days).
(b) Withdrawal of Piggyback Registration by Company. If, at any time after
-----------------------------------------------
giving written notice of its intention to register any securities in a Piggyback
Registration but prior to the effective date of the related Registration
Statement, the Company shall determine for any reason not to register such
securities, the Company shall give notice of such determination to each Holder
and, thereupon, shall be relieved of its obligation to register any Registrable
Securities in connection with such Piggyback Registration. All best efforts
obligations of the Company pursuant to Section 2.4 shall cease if the Company
determines to terminate prior to such effective date any registration where
Registrable Securities are being registered pursuant to this Section 2.1.
(c) Piggyback Registration of Underwritten Public Offerings. If a Piggyback
-------------------------------------------------------
Registration involves an offering by or through underwriters, then (i) all
Holders requesting to have their Registrable securities included in the
Company's Registration Statement must sell their Registrable Securities to the
underwriters selected by the Company on the same terms and conditions as apply
to other selling shareholders and (ii) any Holder requesting to have his or its
Registrable Securities included in such Registration Statement may elect in
writing, not later than seven (7) Business Days prior to the effectiveness of
the Registration Statement filed in connection with such registration, not to
have his or its Registrable Securities so included in connection with such
registration.
(d) Payment of Registration Expenses for Piggyback Registration. The
-----------------------------------------------------------
Company shall pay all Registration Expenses in connection with each registration
of Registrable Securities requested pursuant to a Piggyback Registration Right
contained in this Section 2.1.
-5-
<PAGE>
(e) Priority in Piggyback Registration. If a Piggyback Registration
----------------------------------
involves an offering by or through underwriters, the Company, except as
otherwise provided herein, shall not be required to include Registrable
Securities therein if and to the extent the underwriter managing the offering
reasonably believes in good faith and advises each Holder requesting to have
Registrable Securities included in the Company's Registration Statement that
such inclusion would materially adversely affect such offering; provided that
(i) if other selling shareholders who are employees, officers, directors or
other affiliates of the Company have requested registration of securities in the
proposed offering, the Company will reduce or eliminate such other selling
shareholders' securities before any reduction or elimination of Registrable
Securities; and (ii) any such reduction or elimination (after taking into
account the effect of clause (i)) shall be pro rata to all other holders of the
securities of the Company exercising "Piggyback Registration Rights" similar to
those set forth herein in proportion to the respective number of shares they
have requested to be registered.
2.2 Demand Registration.
--------------------
(a) Request for Registration. Unless this Warrant is exercised pursuant to
------------------------
Section 1.1(b) hereof, if, at any time prior to the fifth anniversary of the
date hereof, Holders holding the greater of (i) at least twenty-five percent
(25%) of the combined total of Warrant Shares issuable and Warrant Shares
outstanding pursuant to the Second Warrant and any prior or subsequent warrant
issued by Diamond to S3 or (ii) one hundred percent (100%) of such shares issued
or issuable pursuant to the First Warrant, at such time request that the Company
file a registration statement on Form S-3 (or Form S-1 if Form S-3 is not then
available to the Company) under the Securities Act, as soon as practicable
thereafter the Company shall use its commercially reasonable efforts to file a
registration statement with respect to all Warrant Shares that it has been so
requested to include (so long as such Warrant Shares represent the greater of
the amount set forth in clause (i) or clause (ii) above)(the "Demand
Registration") and obtain the effectiveness thereof, and to take all other
action necessary under any federal or state law or regulation to permit the
Warrant Shares that are held and/or that may be acquired upon the exercise of
the Warrants specified in the notices of the Holders or holders thereof to be
sold or otherwise disposed of, and the Company shall maintain such compliance
with each such federal and state law and regulation for the period necessary for
such Holders or holders to effect the proposed sale or other disposition, which
period shall be not less than thirty (30) days; provided, however, the Company
shall be entitled to defer such registration for a period of up to forty-five
(45) days if and to the extent that its Board of Directors shall determine that
such registration would interfere with a pending corporate transaction. The
Company shall also promptly give written notice to the Holders and the holders
of any other Warrants and/or the holders of any Warrant Shares who or that have
not made a request to the Company pursuant to the provisions of this Section
2.2(a) of its intention to effect any required registration or qualification,
and shall use its commercially reasonable efforts to effect as expeditiously as
possible such registration or qualification of all such other Warrant Shares
that are then held and/or that may be acquired upon the exercise of the
Warrants, the Holder or holders of which have requested such registration or
qualification within fifteen (15) days after such notice has been given by the
Company. The Company shall be required to effect a registration or qualification
pursuant to this Section 2.2(a) on a total of one (1) occasion.
-6-
<PAGE>
(b) Payment of Registration Expenses for Demand Registration. The Company
---------------------------------------------------------
shall pay all Registration Expenses in connection with the Demand Registration.
(c) Selection of Underwriters. If the Demand Registration is requested to
--------------------------
be in the form of an underwritten offering, the managing underwriter shall be
selected by the Holders of a majority of the Warrant Shares to be registered.
Such selection shall be subject to the Company's consent, which consent shall
not be unreasonably withheld.
(d) Procedure for Requesting Demand Registration. Any request for a Demand
---------------------------------------------
Registration shall specify the aggregate number of the Registrable Securities
proposed to be sold and the intended method of disposition. Within ten (10) days
after receipt of such a request the Company will give written notice of such
registration request to all Holders, and the Company will include in such
registration all Registrable Securities with respect to which the Company has
received written requests for inclusion therein within fifteen (15) Business
Days after the date on which such notice is given by the Company. Each such
request shall also specify the aggregate number of Registrable Securities to be
registered and the intended method of disposition thereof.
2.3 Registration Procedures. If and whenever the Company is required to
------------------------
use its commercially reasonable efforts to take action pursuant to any federal
or state law or regulation to permit the sale or other disposition of any
Registrable Securities that are then held or that may be acquired upon exercise
of the Warrants in order to effect or cause the registration of any Registrable
Securities under the Securities Act as provided in this Article 2, the Company
shall, as expeditiously as practicable:
(a) prepare and file with the SEC, as soon as practicable within forty-five
(45) ays after the end of the period within which requests for registration may
be iven to the Company (but subject to the provision for deferral contained in
ection 2.2(a) hereof) a Registration Statement or Registration Statements
elating to the registration on any appropriate form under the Securities Act,
whch form shall be available for the sale of the Registrable Securities in
acordance with the intended method or methods of distribution thereof, subject
to Section 2.1(e) hereof, and use its commercially reasonable efforts to cause
such Registration Statements to become effective; provided that before filing a
Registration Statement or Prospectus or any amendment or supplements thereto,
including documents incorporated by reference after the initial filing of any
Registration Statement, the Company will furnish to the Holders of the
Registrable Securities covered by such Registration Statement and the
underwriters, if any, copies of all such documents provided to be filed, which
documents will be subject to the review of such Holders and underwriters;
(b) prepare and file with the SEC such amendments and post-effective
amendments to a Registration Statement as may be necessary to keep such
Registration Statement effective for a period of thirty (30) days; cause the
related Prospectus to be supplemented by any required Prospectus supplement, and
as so supplemented to be filed pursuant to Rule 424 under the Securities Act;
and comply with the provisions of the Securities Act with respect to the
disposition of all securities covered by such Registration Statement during such
period in accordance with the intended methods of disposition by the sellers
thereof set forth in such Registration Statement or supplement to such
Prospectus;
-7-
<PAGE>
(c) notify the selling Holders of Registrable Securities and the managing
underwriters, if any, promptly, and (if requested by any such Person) confirm
such advice in writing, (i) when a Prospectus or any Prospectus supplement or
post-effective amendment has been filed, and, with respect to a Registration
Statement or any post-effective amendment, when the same has become effective;
(ii) of any request by the SEC for amendments or supplements to a Registration
Statement or related Prospectus or for additional information; (iii) of the
issuance by the SEC of any stop order suspending the effectiveness of a
Registration Statement or the initiation of any proceedings for that purpose;
(iv) if at any time the representations and warranties of the Company
contemplated by paragraph (m) below cease to be true and correct in all material
respects; (v) of the receipt by the Company of any notification with respect to
the suspension of the qualification of any of the Registrable Securities for
sale in any jurisdiction or the initiation or threatening of any proceeding for
such purpose, and (vi) of the happening of any event that makes any statement of
a material fact made in the Registration Statement, the Prospectus or any
document incorporated therein by reference untrue or which requires the making
of any changes in the Registration Statement or Prospectus so that they will not
contain any 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;
(d) make every reasonable effort to obtain the withdrawal of any order
suspending the effectiveness of a Registration Statement at the earliest
possible moment;
(e) if reasonably requested by the managing underwriters, immediately
incorporate in a Prospectus supplement or post-effective amendment such
information as the managing underwriters believe (on advice of counsel) should
be included therein as required by applicable law relating to such sale of
Registrable Securities, including, without limitation, information with respect
to the purchase price being paid for the Registrable Securities by such
underwriters and with respect to any other terms of the underwritten (or
"best-efforts" underwritten) offering; and make all required filings of such
Prospectus supplement or post-effective amendment as soon as notified of the
matters to be incorporated in such Prospectus supplement or post-effective
amendment;
(f) furnish to each selling Holder of Registrable Securities and each
managing underwriter, without charge, at least one signed copy of the
Registration Statement and any post-effective amendment thereto, including
financial statements and schedules, all documents incorporated therein by
reference and all exhibits (including those incorporated by reference);
(g) deliver to each selling Holder of Registrable Securities and the
underwriters, if any, without charge, as many copies of the Prospectus or
Prospectuses (including each preliminary Prospectus) any amendment or supplement
thereto as such Persons may reasonably request; the Company consents to the use
of such Prospectus or any amendment or supplement thereto by each of the selling
Holders of Registrable Securities and the underwriters, if any, in connection
with the offering and sale of the Registrable Securities covered by such
Prospectus or any amendment or supplement thereto;
(h) prior to any public offering of Registrable Securities, cooperate with
the selling Holders of Registrable Securities, the underwriters, if any, and
their respective counsel in connection with the registration or qualification of
such Registrable Securities for offer and sale
-8-
<PAGE>
under the securities or Blue Sky laws of such jurisdictions within the United
States as any selling Holder or underwriter reasonably requests in writing, keep
each such registration or qualification effective during the period such
Registration Statement is required to be kept effective and do any and all other
acts or things necessary or advisable to enable the disposition in such
jurisdictions of the Registrable Securities covered by the applicable
Registration Statement; provided that the Company will not be required to
qualify to do business in any jurisdiction where it is not then so qualified or
to take any action which would subject the Company to general service of process
in any jurisdiction where it is not at the time so subject;
(i) cooperate with the selling Holders of Registrable Securities and the
managing underwriters, if any, to facilitate the timely preparation and delivery
of certificates representing Registrable Securities to be sold and not bearing
any restrictive legends; and enable such Registrable Securities to be in such
denominations and registered in such names as the managing underwriters may
request at least two (2) Business Days prior to any sale of Registrable
Securities to the underwriters;
(j) use its commercially reasonable efforts to cause the Registrable
Securities covered by the applicable Registration Statement to be registered
with or approved by such other governmental agencies or authorities within the
United States as may be necessary to enable the seller or sellers thereof or the
underwriters, if any, to consummate the disposition of such Registrable
Securities;
(k) upon the occurrence of any event contemplated by Section 2.3(c)(vi)
above, prepare a supplement or post-effective amendment to the applicable
Registration Statement or related Prospectus or any document incorporated
therein by reference or file any other required document so that, as thereafter
delivered to the purchasers of the Registrable Securities being sold thereunder,
such that the Prospectus will not contain an untrue statement of a material fact
or omit to state any material fact necessary to make the statements therein not
misleading in the light of the circumstances under which they were made;
(l) with respect to each issue or class of Registrable Securities, use its
commercially reasonable efforts to cause all Registrable Securities covered by
the Registration Statement to be listed on each securities exchange, if any, on
which similar securities issued by the Company are then listed if requested by
the Holders of a majority of such issue or class of Registrable Securities;
(m) enter into such agreements (including an underwriting agreement) and
take all such other action reasonably required in connection therewith in order
to expedite or facilitate the disposition of such Registrable Securities and in
such connection, if the registration is in connection with an underwritten
offering (i) make such representations and warranties to the underwriters, in
such form, substance and scope as are customarily made by issuers to
underwriters in underwritten offerings and confirm the same if and when
requested; (ii) obtain opinions of counsel to the Company and updates thereof
(which counsel and opinions in form, scope and substance shall be reasonably
satisfactory to the underwriters) addressed to the underwriters covering the
matters customarily covered in opinions requested in underwritten offerings and
such other matters as may be reasonably requested by such underwriters; (iii)
obtain "cold comfort" letters and updates thereof from the Company's accountants
addressed to the underwriters,
-9-
<PAGE>
such letters to be in customary form and covering matters of the type
customarily covered in "cold comfort" letters by underwriters in connection with
underwritten offerings; (iv) set forth in full in any underwriting agreement
entered into the indemnification provisions and procedures of Section 2.4 hereof
with respect to all parties to be indemnified pursuant to said Section; and (v)
deliver such documents and certificates as may be reasonably requested by the
underwriters to evidence compliance with clause (i) above and with any customary
conditions contained in the underwriting agreement or other agreement entered
into by the Company; the above shall be done at each closing under such
underwriting or similar agreement or as and to the extent required hereunder;
(n) make available for inspection by one or more representatives of the
Holders of Registrable Securities being sold, any underwriter participating in
any disposition pursuant to such registration, and any attorney or accountant
retained by such Holders or underwriter, all financial and other records,
pertinent corporate documents and properties of the Company, and cause the
Company's officers, directors and employees to supply all information reasonably
requested by any such representatives, in connection with such; and
(o) otherwise use its commercially reasonable efforts to comply with all
applicable federal and state regulations; and take such other action as may be
reasonably necessary to or advisable to enable each such Holder and each such
underwriter to consummate the sale or disposition in such jurisdiction or
jurisdiction in which any such Holder or underwriter shall have requested that
the Registrable Securities be sold.
Except as otherwise provided in this Agreement, the Company shall have sole
control in connection with the preparation, filing, withdrawal, amendment or
supplementing of each Registration Statement, the selection of underwriters, and
the distribution of any preliminary Prospectus included in the Registration
Statement, and may include within the coverage thereof additional shares of
Common Stock or other securities for its own account or for the account of one
or more of its other security holders.
The Company may require each seller of Registrable Securities as to which
any registration is being effected to furnish to the Company such information
regarding the distribution of such securities and such other information as may
otherwise be required by the Securities Act to be included in such Registration
Statement.
2.4 Indemnification.
----------------
(a) Indemnification by Company. In connection with each Registration
---------------------------
Statement relating to disposition of Registrable Securities, the Company shall
indemnify and hold harmless each Holder and each underwriter of Registrable
Securities and each Person, if any, who controls such Holder or underwriter
(within the meaning of section 15 of the Securities Act or section 20 of the
Exchange Act) against any and all losses, claims, damages and liabilities, joint
or several (including any reasonable investigation, legal and other expenses
incurred in connection with, and any amount paid in settlement of any action,
suit or proceeding or any claim asserted), to which they, or any of them, may
become subject under the Securities Act, the Exchange Act or other federal or
state law or regulation, at common law or otherwise, insofar as such losses,
claims, damages or liabilities arise out of or are based upon any untrue
statement or alleged
-11-
<PAGE>
untrue statement of a material fact contained in any Registration Statement,
Prospectus or preliminary Prospectus or any amendment thereof or supplement
thereto, or arise out of or are 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 not misleading; provided, however, that such indemnity
shall not inure to the benefit of any Holder or underwriter (or any person
controlling such Holder or underwriter within the meaning of section 15 of the
Securities Act or section 20 of the Exchange Act) on account of any losses,
claims, damages or liabilities arising from the sale of the Registrable
Securities if such untrue statement or omission or alleged untrue statement or
omission was made in such Registration Statement, Prospectus or preliminary
Prospectus, or such amendment or supplement, in reliance upon and in conformity
with information furnished in writing to the Company by such Holder or
underwriter specifically for use therein; provided, further, that the Company
shall not be liable to such Holder or any underwriter (or any person controlling
such Holder or underwriter) with respect to any such untrue statement or alleged
untrue statement or omission made in any preliminary Prospectus that is
corrected in the Prospectus (or any amendment or supplement thereto) if the
person asserting any such loss, claim, damage or liability purchased shares of
the Common Stock from such Holder or underwriter but was not given a copy of the
Prospectus (as amended or supplemented) in any case where such delivery of the
Prospectus (as amended or supplemented) was required by the Securities Act. The
Company shall also indemnify selling brokers, dealer managers and similar
securities industry professionals participating in the distribution, their
officers and directors and each Person who controls such Persons (within the
meaning of section 15 of the Securities Act or section 20 of the Exchange Act)
to the same extent as provided above with respect to the indemnification of the
Holders of Registrable Securities, if requested. This indemnity agreement shall
be in addition to any liability which the Company may otherwise have.
(b) Indemnification by Holder. In connection with each Registration
--------------------------
Statement, each Holder shall indemnify, to the same extent as the
indemnification provided by the Company in Section 2.4(a), the Company, its
directors and each officer who signs the Registration Statement and each Person
who controls the Company (within the meaning of section 15 of the Securities Act
and section 20 of the Exchange Act) but only insofar as such losses, claims,
damages and liabilities arise out of or are based upon any untrue statement or
omission or alleged untrue statement or omission which was made in the
Registration Statement, the Prospectus or preliminary Prospectus or any
amendment thereof or supplement thereto, in reliance upon and in conformity with
information furnished in writing by such Holder to the Company specifically for
use therein. In no event shall the liability of any selling Holder of
Registrable Securities hereunder be greater in amount than the dollar amount of
the net proceeds received by such Holder upon the sale of the Registrable
Securities giving rise to such indemnification obligation. The Company shall be
entitled to receive indemnities from underwriters, selling brokers, dealer
managers and similar securities industry professionals participating in the
distribution, to the same extent as provided above, with respect to information
so furnished in writing by such Persons specifically for inclusion in any
Prospectus, Registration Statement or preliminary Prospectus or any amendment
thereof or supplement thereto.
(c) Conduct of Indemnification Procedure. Any party that proposes to assert
-------------------------------------
the right to be indemnified hereunder will, promptly after receipt of notice of
commencement of any action, suit or proceeding against such party in respect of
which a claim is to be made against an
-11-
<PAGE>
indemnifying party or parties under this Section, notify each such indemnifying
party of the commencement of such action, suit or proceeding, enclosing a copy
of all papers served. No indemnification provided for in Section 2.4(a) or
2.4(b) shall be available to any party who shall fail to give notice as provided
in this Section 2.4(c) if the party to whom notice was not given was unaware of
the proceeding to which such notice would have related and was materially
prejudiced by the failure to give such notice, but the omission so to notify
such indemnifying party of any such action, suit or proceeding shall not relieve
it from any liability that it may have to any indemnified party for contribution
otherwise than under this Section. In case any such action, suit or proceeding
shall be brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate in, and, to the extent that it shall wish, jointly with
any other indemnifying party similarly notified, to assume the defense thereof,
with counsel satisfactory to such indemnified party, and after notice from the
indemnifying party to such indemnified party of its election so to assume the
defense thereof and the approval by the indemnified party of such counsel, the
indemnifying party shall not be liable to such indemnified party for any legal
or other expenses, except as provided below and except for the reasonable costs
of investigation subsequently incurred by such indemnified party in connection
with the defense thereof. The indemnified party shall have the right to employ
its counsel in any such action, but the fees and expenses of such counsel shall
be at the expense of such indemnified party unless (i) the employment of counsel
by such indemnified party has been authorized in writing by the indemnifying
parties, (ii) the indemnified party shall have reasonably concluded that there
may be a conflict of interest between the indemnifying parties and the
indemnified party in the conduct of the defense of such action (in which case
the indemnifying parties shall not have the right to direct the defense of such
action on behalf of the indemnified party) or (iii) the indemnifying parties
shall not have employed counsel to assume the defense of such action within a
reasonable time after notice of the commencement thereof, in each of which cases
the fees and expenses of counsel shall be at the expense of the indemnifying
parties. An indemnified party shall not be liable for any settlement of any
action, suit, proceeding or claim effected without its written consent.
(d) Contribution. In connection with each Registration Statement relating
-------------
to the disposition of Registrable Securities, if the indemnification provided
for in Section 2.4(a) or 2.4(b) hereof is unavailable to an indemnified party
thereunder in respect to any losses, claims, damages or liabilities referred to
therein, then the indemnifying party shall contribute to the amount paid or
payable by such indemnified party as a result of the losses, claims, damages or
liabilities referred to in paragraphs (a) or (b) of this Section 2.4 in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party on the one hand and of the indemnified party on the other in connection
with the statements or omissions that resulted in such losses, claims, damages
or liabilities, or actions in respect thereof, as well as any other relevant
equitable considerations. Relative fault 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 the indemnified party and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such untrue statement or omission. The amount paid or payable
by an indemnified party as a result of the losses, claims, damages or
liabilities (or actions in respect thereof) referred to above in this paragraph
(d) shall be deemed to include any legal or other expenses
-12-
<PAGE>
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim.
(e) Underwriting Agreement to Control. Notwithstanding the foregoing
----------------------------------
provisions of this Section 2.4, to the extent that the provisions on
indemnification and contribution contained in any underwriting agreement entered
into in connection with the underwritten public offering of the Registrable
Securities are in conflict with the foregoing provisions, the provisions in such
underwriting agreement shall control.
(f) Specific Performance. The Company and the Holder acknowledge that
---------------------
remedies at law for the enforcement of this Section 2.4 may be inadequate and
intend that this Section 2.4 shall be specifically enforceable.
(g) Survival of Obligations. The obligations of the Company and the Holder
------------------------
under this Section 2.4 shall survive the completion of any offering of
Registrable Securities pursuant to a Registration Statement under this Article
2, and otherwise.
2.5 Reports Under Securities Exchange Act of 1934. With a view to making
----------------------------------------------
available to the Holders the benefits of Rule 144 promulgated under the
Securities Act and any other rule or regulation of the SEC that may at any time
permit a Holder to sell securities of the Company to the public without
registration or pursuant to a registration on Form S-3, the Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in SEC Rule 144, at all times;
(b) file with the SEC in a timely manner all reports and other documents
required of the Company under the Securities Act and the Exchange Act; and
(c) furnish to any Holder, so long as the Holder owns any Registrable
Securities, forthwith upon request (i) a written statement by the Company that
it has complied with the reporting requirements of SEC Rule 144, the Securities
Act and the Exchange Act, or that it qualifies as a registrant whose securities
may be resold pursuant to Form S-3 (at any time after it so qualifies), (ii) a
copy of the most recent annual or quarterly report of the Company and such other
reports and documents so filed by the Company and (iii) such other information
as may be reasonably requested in availing any Holder of any rule or regulation
of the SEC which permits the selling of any such securities without registration
or pursuant to such form.
2.6 Restrictions on Transfer; Compliance with Securities Laws. This Warrant
----------------------------------------------------------
and the Warrant Shares issued upon the exercise of the Warrant may not be
transferred or assigned in whole or in part without compliance with all
applicable federal and state securities laws by the transferor and transferee
(including the delivery of investment representation letters and legal opinions
reasonably satisfactory to the Company, if such are requested by the Company).
The Warrantholder, by acceptance hereof, acknowledges that this Warrant and the
Warrant Shares to be issued upon exercise hereof are being acquired solely for
the Warrantholder's own account and not as a nominee for any other party, and
for investment, and that the Warrantholder will not offer, sell or otherwise
dispose of any Warrant Shares to be issued upon exercise hereof except
-13-
<PAGE>
under circumstances that will not result in a violation of the Securities Act or
any state securities laws. Upon exercise of this Warrant, the Warrantholder
shall, if requested by the Company, confirm in writing, in a form satisfactory
to the Company, that the Warrant Shares so purchased are being acquired solely
for the Warrantholder's own account and not as a nominee for any other party,
for investment, and not with a view toward distribution or resale.
2.7 Restrictive Legends. This Warrant shall (and each Warrant issued upon
--------------------
transfer in whole or in part of this Warrant pursuant to this Section 2 or
issued in substitution for this Warrant pursuant to Section 4 shall) be stamped
or otherwise imprinted with a legend in substantially the following form:
"THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS WARRANT
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND
MAY NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT FILED UNDER SUCH ACT OR PURSUANT TO AN EXEMPTION
FROM REGISTRATION UNDER SUCH ACT."
Except as otherwise permitted by this Section 2, each stock certificate for
Warrant Shares issued upon the exercise of any Warrant and each stock
certificate issued upon the direct or indirect transfer of any such Warrant
Shares shall be stamped or otherwise imprinted with a legend in substantially
the following form:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD OR OTHERWISE
TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT FILED
UNDER SUCH ACT OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER SUCH
ACT."
Notwithstanding the foregoing, the Warrantholder may require the Company to
issue a stock certificate for Warrant Shares without a legend if (i) such
Warrant Shares, as the case may be, have been registered for resale under the
Securities Act or sold pursuant to Rule 144 under the Securities Act (or a
successor rule thereto) or (ii) the Warrantholder has received an opinion of
counsel reasonably satisfactory to the Company that such registration is not
required with respect to such Warrant Shares.
3. Representations and Warranties of the Company. The Company hereby
----------------------------------------------
represents and warrants to the Warrantholder (except as otherwise may be
prohibited, restricted or limited by law or any rule or regulation of a
regulatory entity) as follows:
3.1 Organization; Authority Relative to this Warrant. The Company is a
-------------------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. The Company has all requisite corporate power and
authority to execute and deliver this Warrant, to perform its obligations
hereunder and to consummate the transactions contemplated hereby. The execution
and delivery of this Warrant by the Company and the consummation by the Company
of the transactions contemplated hereby have been duly and validly authorized by
all
-14-
<PAGE>
necessary corporate action on the part of the Company. This Warrant has been
duly and validly executed and delivered by the Company and constitutes a valid
and binding obligation of the Company enforceable against the Company in
accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting creditors' rights generally, and by general equitable principles.
3.2 Authority to Issue Shares. The Company has taken all necessary
--------------------------
corporate action to authorize and reserve and permit it to issue, and at all
times from the date hereof through the end of the Exercise Period shall have
reserved, all the Warrant Shares issuable pursuant to this Warrant. All of the
shares of Common Stock issuable under this Warrant, upon their issuance and
delivery in accordance with the terms of this Warrant, will be duly authorized,
validly issued, fully paid and nonassessable, will be delivered free and clear
of all security interests, liens, claims, pledges, options, rights of first
refusal, agreements, limitations on the Warrantholder's voting rights, charges,
adverse rights and other encumbrances of any nature whatsoever (other than this
Warrant) and will not be subject to any preemptive rights.
3.3 No Conflict; Required Filings and Consents.
-------------------------------------------
(a) The execution and delivery of this Warrant by the Company does not, and
the performance by the Company of its obligations hereunder and the consummation
of the transactions contemplated hereby will not, (i) conflict with or violate
the certificate of incorporation or bylaws of the Company, (ii) assuming that
all consents and filings described in Section 3.3(b) have been obtained or made,
conflict with or violate any law applicable to the Company or by which any
property or asset of the Company is bound or affected or (iii) result in any
violation pursuant to, any note, bond, mortgage, indenture, contract, agreement
, lease, license, permit, franchise or other instrument or obligation to which
the Company is a party or by which the Company or any of its properties may be
bound or affected.
(b) No consent of, or filing with, any governmental entity is required by
the Company in connection with the execution and delivery of this Warrant, the
performance by the Company of its obligations hereunder or the consummation by
the Company of the transactions contemplated hereby, except for (i) compliance
with the Hart-Scott-Rodino Act and (ii) consents or filings the failure of which
to be obtained or made would not, individually or in the aggregate, prevent or
materially delay the consummation of the transactions contemplated hereby or the
performance by the Company of any of its obligations hereunder.
3.4 Reservation and Registration of Shares, Etc. The Company covenants and
--------------------------------------------
agrees that all Warrant Shares which are issuable upon the exercise of this
Warrant will, upon issuance, be validly issued, fully paid and nonassessable and
free from all taxes, liens, security interests, charges and other encumbrances
with respect to the issue thereof, other than taxes in respect of any transfer
occurring contemporaneously with such issue. The Company further covenants and
agrees that, during the Exercise Period, the Company will at all times have
authorized and reserved, and keep available free from preemptive rights, a
sufficient number of shares of Common Stock to provide for the exercise of the
rights represented by this Warrant and will, at its expense, upon each such
reservation of shares, procure such listing of such shares of Common Stock
(subject to issuance or notice of issuance) as then may be required on all stock
exchanges on which the Common Stock is then listed or on Nasdaq.
-15-
<PAGE>
4. Exchange, Loss or Destruction of Warrant. Upon receipt by the Company of
-----------------------------------------
evidence satisfactory to it of the loss, theft, destruction or mutilation of
this Warrant and, in the case of loss, theft or destruction, of such bond or
indemnification as the Company may require, and, in the case of such mutilation,
upon surrender and cancellation of this Warrant, the Company will execute and
deliver a new Warrant of like tenor. The term "Warrant" as used in this
Agreement shall be deemed to include any Warrants issued in substitution or
exchange for this Warrant.
5. Ownership of Warrant. The Company may deem and treat the person in whose
---------------------
name this Warrant is registered as the holder and owner hereof (notwithstanding
any notations of ownership or writing hereon made by anyone other than the
Company) for all purposes and shall not be affected by any notice to the
contrary.
6. Certain Adjustments.
--------------------
6.1 Adjustments. The number of Warrant Shares purchasable upon the exercise
------------
of this Warrant and the Exercise Price shall be subject to adjustment as
follows:
(a) Stock Dividends. If at any time prior to the exercise of this Warrant
----------------
in full (i) the Company shall fix a record date for the issuance of any stock
dividend payable in shares of Common Stock or (ii) the number of shares of
Common Stock shall have been increased by a subdivision or split-up of shares of
Common Stock, then, on the record date fixed for the determination of holders of
Common Stock entitled to receive such dividend or immediately after the
effective date of subdivision or split-up, as the case may be, the number of
shares of Common Stock to be delivered upon exercise of this Warrant will be
increased so that the Warrantholder will be entitled to receive the number of
shares of Common Stock that such Warrantholder would have owned immediately
following such action had this Warrant been exercised immediately prior thereto,
and the Exercise Price will be adjusted as provided below in paragraph (f).
(b) Combination of Stock. If at any time prior to the exercise of this
---------------------
Warrant in full the number of shares of Common Stock outstanding shall have been
decreased by a combination of the outstanding shares of Common Stock, then,
immediately after the effective date of such combination, the number of shares
of Common Stock to be delivered upon exercise of this Warrant will be decreased
so that the Warrantholder thereafter will be entitled to receive the number of
shares of Common Stock that such Warrantholder would have owned immediately
following such action had this Warrant been exercised immediately prior thereto,
and the Exercise Price will be adjusted as provided below in paragraph (f).
(c) Reorganization, etc. If at any time prior to the exercise of this
--------------------
Warrant in full any capital reorganization of the Company, or any
reclassification of the Common Stock, or any consolidation of the Company with
or merger of the Company with or into any other person or any sale, lease or
other transfer of all or substantially all of the assets of the Company to any
other person, shall be effected in such a way that the holders of Common Stock
shall be entitled to receive stock, other securities or assets (whether such
stock, other securities or assets are issued or distributed by the Company or
another person) with respect to or in exchange for Common Stock, then, upon
exercise of this Warrant the Warrantholder shall have the right to receive the
kind and amount of stock, other securities or assets receivable upon such
reorgani-
-16-
<PAGE>
zation, reclassification, consolidation, merger or sale, lease or other transfer
by a holder of the number of shares of Common Stock that such Warrantholder
would have been entitled to receive upon exercise of this Warrant had this
Warrant been exercised immediately before such reorganization, reclassification,
consolidation, merger or sale, lease or other transfer, subject to adjustments
that shall be as nearly equivalent as may be practicable to the adjustments
provided for in this Section 6.
(d) Fractional Shares. No fractional shares of Common Stock or scrip shall
------------------
be issued to any Warrantholder in connection with the exercise of this Warrant.
Instead of any fractional shares of Common Stock that would otherwise be
issuable to such Warrantholder, the Company will pay to such Warrantholder a
cash adjustment in respect of such fractional interest in an amount equal to
that fractional interest of the fair market value of one share of Common Stock
as of the date of exercise.
(e) Carryover. Notwithstanding any other provision of this Section 6, no
----------
adjustment shall be made to the number of shares of Common Stock to be delivered
to the Warrantholder (or to the Exercise Price) if such adjustment represents
less than one percent (1%) of the number of shares to be so delivered, but any
lesser adjustment shall be carried forward and shall be made at the time and
together with the next subsequent adjustment which together with any adjustments
so carried forward shall amount to one percent (1%) or more of the number of
shares to be so delivered.
(f) Exercise Price Adjustment. Whenever the number of Warrant Shares
--------------------------
purchasable upon the exercise of the Warrant is adjusted, as herein provided,
the Exercise Price payable upon the exercise of this Warrant shall be adjusted
by multiplying such Exercise Price immediately prior to such adjustment by a
fraction, of which the numerator shall be the number of Warrant Shares
purchasable upon the exercise of the Warrant immediately prior to such
adjustment, and of which the denominator shall be the number of Warrant Shares
purchasable immediately thereafter.
(g) No Duplicate Adjustments. Notwithstanding anything else to the contrary
-------------------------
contained herein, in no event will an adjustment be made under the provisions of
this Section 6 to the number of Warrant Shares issuable upon exercise of this
Warrant or the Exercise Price for any event if an adjustment having
substantially the same effect to the Warrantholder as any adjustment that
otherwise would be made under the provisions of this Section 6 is made by the
Company for any such event to the number of shares of Common Stock (or other
securities) issuable upon exercise of this Warrant.
6.2 No Adjustment for Dividends. Except as provided in Section 1 hereof or
----------------------------
Section 6.1 hereof, no adjustment in respect of any dividends shall be made
during the term of the Warrant or upon the exercise of this Warrant.
6.3 Notice of Adjustment. Whenever the number of Warrant Shares or the
---------------------
Exercise Price of such Warrant Shares is adjusted, as herein provided, the
Company shall promptly mail by first class, postage prepaid, to the
Warrantholder, notice of such adjustment or adjustments and a certificate of the
chief financial officer of the Company setting forth the number of Warrant
Shares and the Exercise Price of such Warrant Shares after such adjustment,
setting forth a brief
-17-
<PAGE>
statement of the facts requiring such adjustment and setting forth the
computation by which such adjustment was made.
7. Notices of Corporate Action. In the event of:
----------------------------
(a) any taking by the Company of a record of the holders of any class of
securities for the purpose of determining the holders thereof who are entitled
to receive any dividend or other distribution, or any right to subscribe for,
purchase or otherwise acquire any shares of stock of any class or any other
securities or property, or to receive any other right, or
(b) any capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company or any Change of Control,
or
(c) any voluntary or involuntary dissolution, liquidation or winding-up of
the Company,
the Company will mail to the Warrantholder a notice specifying (i) the date or
expected date on which any such record is to be taken for the purpose of such
dividend, distribution or right and the amount and character of any such
dividend, distribution or right, and (ii) the date or expected date on which any
such reorganization, reclassification, recapitalization, Change of Control,
dissolution, liquidation or winding-up is to take place and the time, if any
such time is to be fixed, as of which the holders of record of Common Stock (or
other securities) shall be entitled to exchange their shares of Common Stock (or
other securities) for the securities or other property deliverable upon such
reorganization, reclassification, recapitalization, Change of Control,
dissolution, liquidation or winding-up. Such notice shall be mailed at least ten
(10) days prior to the date therein specified, in the case of any date referred
to in the foregoing subdivision (i), and at least ten (10) days prior to the
date therein specified, in the case of the date referred to in the foregoing
subdivision (ii).
8. Definitions. As used herein, unless the context otherwise requires, the
------------
following terms have the following respective meanings:
Business Day: any day other than a Saturday, Sunday or a day on which
------------
national banks are authorized by law to close in the City of San Francisco,
State of California.
Change of Control: shall mean (i) the consolidation of the Company with or
-----------------
merger of the Company with or into any other person in which the Company is not
the surviving corporation or in which the Company's stockholders prior to such
transaction do not own, directly or indirectly, immediately after such
transaction, fifty percent (50%) or more of the outstanding securities entitled
to vote generally for the election of directors or similar managing authority of
the surviving or resulting entity in such transaction, (ii) the sale of all or
substantially all of the assets of the Company to any other person or (iii) any
sale or transfer of any capital stock of the Company after the date of this
Warrant, following which forty (40%) or more of the combined voting power of the
Company becomes beneficially owned by one person or group acting together. For
purposes of this definition of Change of Control, "group" shall have the meaning
as such term is used in section 13(d) under the Exchange Act and the rules and
regulations thereunder.
-18-
<PAGE>
Company: Diamond Multimedia Systems, Inc., a Delaware corporation.
-------
Exchange Act: the Securities Exchange Act of 1934, as amended, or any
------------
successor federal statute, and the rules and regulations of the SEC thereunder,
all as the same shall be in effect at the time. Reference to a particular
section of the Securities Exchange Act of 1934, as amended, shall include a
reference to a comparable section, if any, of any successor federal statute.
Exercise Form: an Exercise Form in the form annexed hereto as Exhibit A.
-------------
Exercise Price: the meaning specified in Section 1.3, as such price may be
--------------
adjusted pursuant to Section 6 hereof.
Holder: shall mean a holder of Registrable Securities.
------
Nasdaq: the meaning specified in Section 1.1(c)(ii).
------
Person: shall mean an individual, a corporation, a limited liability
------
company, a partnership, an association, a trust or any other entity or
organization, including a government or political subdivision or any agency or
instrumentality thereof.
Prospectus: shall mean any prospectus included in any Registration
----------
Statement, as amended or supplemented by any prospectus supplement, with respect
to the terms of the offering of any portion of the Registrable Securities
covered by such Registration Statement and all other amendments and supplements
to the Prospectus, including post-effective amendments and all material
incorporated by reference in such Prospectus.
Registration Expenses: shall mean any and all expenses incurred in
---------------------
connection with any registration or action incident to performance of or
compliance by the Company with Article 2, including, without limitation, (i) all
SEC, national securities exchange and NASD registration and filing fees; all
listing fees and all transfer agent fees; (ii) all fees and expenses of
complying with state securities or blue sky laws (including the fees and
disbursements of counsel of the underwriters in connection with blue sky
qualifications of the Registrable Securities); (iii) all printing, mailing,
messenger and delivery expenses, (iv) all fees and disbursements of counsel for
the Company and of its accountants, including the expenses of any special audits
and/or "cold comfort" letters required by or incident to such performance and
compliance, and (v) any disbursements of underwriters customarily paid by
issuers or sellers of securities including the reasonable fees and expenses of
any special experts retained in connection with the requested registration, but
excluding underwriting discounts and commissions, brokerage fees and transfer
taxes, if any, and fees of counsel or accountants retained by the Holders of
Registrable Securities to advise them in their capacity as Holders of
Registrable Securities.
Registrable Securities: shall mean any Warrant Shares issued to the
----------------------
Warrantholder, and/or other securities that may be or are issued by the Company
upon exercise of this Warrant, including those which may thereafter be issued by
the Company in respect of any such securities by means of any stock splits,
stock dividends, recapitalizations, reclassifications or the like, and as
adjusted pursuant to Article 6 hereof; provided, however, that as to any
particular security
-19-
<PAGE>
contained in Registrable Securities, such securities shall cease to be
Registrable Securities when (i) a Registration Statement with respect to the
sale of such securities shall have become effective under the Securities Act and
such securities shall have been disposed of in accordance with such Registration
Statement; or (ii) they shall have been sold to the public pursuant to Rule 144
(or any successor provision) under the Securities Act.
Registration Statement: shall mean any registration statement of the
----------------------
Company filed or to be filed with the SEC which covers any of the Registrable
Securities pursuant to the provisions of this Warrant, including all amendments
(including post-effective amendments) and supplements thereto, all exhibits
thereto and all material incorporated therein by reference.
SEC: the Securities and Exchange Commission or any other federal agency at
---
the time administering the Securities Act or the Exchange Act, whichever is the
relevant statute for the particular purpose.
Securities Act: 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 at the time. Reference to a particular section of
the Securities Act of 1933, as amended, shall include a reference to the
comparable section, if any, of any successor federal statute.
S3 Acquisition: shall mean any transaction or series of related
--------------
transactions involving: (i) any purchase from S3 or acquisition by any Person or
"group" (as defined under section 13(d) of the Exchange Act and the rules and
regulations thereunder) of more than a fifty percent (50%) interest in the total
outstanding voting securities of S3 or any tender offer or exchange offer that
if consummated would result in any person or "group" (as defined under section
13(d) of the Exchange Act and the rules and regulations thereunder) beneficially
owning fifty percent (50%) or more of the total outstanding voting securities of
S3 or any merger, consolidation, business combination or similar transaction
involving S3 in which the stockholders of S3 immediately prior to such
transaction do not own, immediately after such transaction, at least a majority
of the outstanding securities entitled to vote generally for the election of
directors or similar managing authority of the surviving or resulting entity in
such transaction; or (ii) any sale, lease (other than in the ordinary course of
business), exchange, transfer, license (other than in the ordinary course of
business), acquisition or disposition of all or substantially all of the assets
of S3, other than to an entity of which at least a majority of the outstanding
securities entitled to vote generally for the election of directors or similar
managing authority are directly or indirectly owned or controlled by S3.
Trading Day: any day other than a day on which securities are not traded,
-----------
listed or reported on the principal securities exchange or securities market on
which the Common Stock is traded, listed or reported.
Warrantholder: the meaning specified on the cover of this Warrant.
-------------
Warrant Shares: the meaning specified on the cover of this Warrant, subject
--------------
to the provisions of Section 1 and Section 6 hereof.
-20-
<PAGE>
9. Miscellaneous.
9.1 Entire Agreement. This Warrant constitutes the entire agreement between
----------------
the Company and the Warrantholder with respect to this Warrant.
9.2 Binding Effects; Benefits. This Warrant shall inure to the benefit of
-------------------------
and shall be binding upon the Company and the Warrantholder and their respective
successors. Nothing in this Warrant, expressed or implied, is intended to or
shall confer on any person other than the Company and the Warrantholder, or
their respective successors, any rights, remedies, obligations or liabilities
under or by reason of this Warrant.
9.3 Restrictions on Transferability. Subject to the terms and conditions of
-------------------------------
this Warrant and compliance with all applicable securities laws, this Warrant
and all rights hereunder (and any shares of common stock acquired upon exercise
of this Warrant) may be transferred in whole or in part, only (a) to a wholly
owned subsidiary of the Warrantholder, or (b) in a sale effectuated pursuant to
Rule 144 promulgated under the Securities Act, or (c) in an offering registered
under section 5 of the Securities Act.
9.4 Amendments and Waivers. This Warrant may not be modified or amended
----------------------
except by an instrument or instruments in writing signed by the Company and the
Warrantholder. Either the Company or the Warrantholder may, by an instrument in
writing, waive compliance by the other party with any term or provision of this
Warrant on the part of such other party hereto to be performed or complied with.
The waiver by any such party of a breach of any term or provision of this
Warrant shall not be construed as a waiver of any subsequent breach.
9.5 Section and Other Headings. The section and other headings contained in
--------------------------
this Warrant are for reference purposes only and shall not be deemed to be a
part of this Warrant or to affect the meaning or interpretation of this Warrant.
9.6 Further Assurances. Each of the Company and the Warrantholder shall do
-------------------
and perform all such further acts and things and execute and deliver all such
other certificates, instruments and documents as the Company or the
Warrantholder may, at any time and from time to time, reasonably request in
connection with the performance of any of the provisions of this Agreement.
9.7 Notices. All notices and other communications required or permitted to
--------
be given under this Warrant shall be in writing and shall be deemed to have been
duly given if delivered personally or sent by United States mail, postage
prepaid, or by facsimile (with electronic confirmation of successful
transmission) to the parties hereto at the following addresses or to such other
address as any party hereto shall hereafter specify by notice to the other party
hereto:
(a) if to the Company, Diamond Multimedia Systems, Inc.
addressed to: 2880 Junction Avenue
San Jose, CA 95134
Attention: President and Chief Executive Officer
Telecopier: (408) 325-7145
-21-
<PAGE>
(b) if to the Warrantholder, S3 Incorporated
addressed to: 2801 Mission College Boulevard
Santa Clara, CA 95052-8058
Attention: President and Chief Executive Officer
Telecopier: (408) 588-8050
Except as otherwise provided herein, all such notices and communications shall
be deemed to have been received on the date of delivery thereof, if delivered
personally, or on the third Business Day after the mailing thereof.
9.8 Separability. Any term or provision of this Warrant which is invalid or
-------------
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such invalidity or unenforceability without rendering invalid
or unenforceable the terms and provisions of this Warrant or affecting the
validity or enforceability of any of the terms or provisions of this Warrant in
any other jurisdiction.
9.9 Governing Law. This Warrant shall be deemed to be a contract made under
--------------
the laws of the State of California (irrespective of its choice of law
principles).
9.10 No Rights or Liabilities as Stockholder. Nothing contained in this
---------------------------------------
Warrant shall be determined as conferring upon the Warrantholder any rights as a
stockholder of the Company or as imposing any liabilities on the Warrantholder
to purchase any securities whether such liabilities are asserted by the Company
or by creditors or stockholders of the Company or otherwise.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its
duly authorized officer.
Dated: June 21, 1999.
DIAMOND MULTIMEDIA SYSTEMS, INC.
By /s/ William J. Schroeder
--------------------------------------
William J. Schroeder
President and Chief Executive Officer
-22-
<PAGE>
EXHIBIT A
---------
THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE
SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT FILED UNDER SUCH ACT OR PURSUANT TO AN EXEMPTION FROM REGISTRATION
UNDER SUCH ACT.
EXERCISE FORM
-------------
(To be executed upon exercise of this Warrant)
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant, to purchase Warrant Shares and (check one):
|_| herewith tenders payment for _______ of the Warrant Shares to the
order of Diamond Multimedia Systems, Inc. in the amount of $_________
in accordance with the terms of this Warrant; or
|_| herewith tenders this Warrant for _______ Warrant Shares pursuant to
the Net Issue Exercise provisions of Section 1.1(b) of the Warrant.
The undersigned requests that a certificate (or certificates) for such
Warrant Shares be registered in the name of the undersigned and that such
certificate (or certificates) be delivered to the undersigned's address below.
In exercising this Warrant, the undersigned hereby confirms and
acknowledges that the Warrant Shares are being acquired solely for the account
of the undersigned and not as a nominee for any other party, or for investment,
and that the undersigned will not offer, sell or otherwise dispose of any such
Warrant Shares except under circumstances that will not result in a violation of
the Securities Act of 1933, as amended, or any state securities laws.
Dated: ___________________.
-------------------------------------------
Signature
-------------------------------------------
(Print Name)
-------------------------------------------
(Street Address)
-------------------------------------------
(City) (State) (Zip Code)
If said number of shares shall not be all the shares purchasable under the
within Warrant, a new Warrant is to be issued in the name of said undersigned
for the balance remaining of the shares purchasable thereunder.
A-1
