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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report Pursuant
to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report: June 23, 1999
VIDEO UPDATE, INC.
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(Exact Name of Registrant as Specified in Its Charter)
Delaware
(State or Other Jurisdiction of Incorporation)
0-24346 41-1461110
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(Commission File Number) (I.R.S. Employer Identification No.)
3100 World Trade Center, 30 East Seventh Street, St. Paul, Minnesota 55101
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(Address of Principal Executive Offices) (Zip Code)
(651) 312-2222
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(Registrant's Telephone Number, Including Area Code)
Not Applicable
(Former Name or Former Address, if Changed Since Last Report)
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TABLE OF CONTENTS
FORM 8-K
Date of Report: June 23, 1999
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Item Page
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<S> <C>
Item 5. Other Events 1
Item 7. Financial Statements and Exhibits 1
Signature 2
Exhibits E-1
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Item 5. Other Events.
Video Update, Inc. (the "Company") has entered into amendments to its existing
credit facility with lending institutions and Banque Paribas, as agent. The
amendments provide for a new C Term Loan Commitment of $10.5 million with
principal maturing June 2006, as well as the deferral of approximately $17.5
million of certain principal payments previously due by April 30, 2000 to April
30, 2002.
Assisting in the arrangement of the C Term Loan as financial advisor and agent
was U.S. Bancorp Libra, a division of U.S. Bancorp Investments, Inc. ("Libra").
C Term Loan participants will receive an aggregate of 3,937,500 warrants to
purchase Class A Common Stock ("Common Stock") at market price (based on a
trailing 30 trading day average); Libra will receive 1,575,000 warrants also at
market price; and institutions in the existing credit facility will receive an
aggregate of 1,968,750 warrants also at market price. The warrants expire on
June 16, 2006 and may be redeemed by the Company, upon the occurrence of certain
events, on or after June 23, 2001. The holders of the warrants have certain
registration rights as to the Common Stock issuable upon exercise of the
warrants.
Item 7. Financial Statements and Exhibits.
a. Financial Statements of Businesses Acquired.
Not Applicable
b. Pro Forma Financial Information.
Not Applicable
c. Exhibits.
The following exhibits are filed with this report:
Exhibit No. Description
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4a Form of Warrant for Libra
4b Form of Warrant for Existing Lenders
4c Form of Warrant for C Term Loan Participants
4d Registration Rights Agreement
10a Sixth Amendment and Waiver
10b Seventh Amendment and Waiver
99 Press Release
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
Video Update, Inc.
Dated: July 1, 1999 By: /s/ Daniel A. Potter
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Daniel A. Potter
Chairman and Chief Executive Officer
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EXHIBIT INDEX
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Exhibit No. Description
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4a Form of Warrant for Libra
4b Form of Warrant for Existing Lenders
4c Form of Warrant for C Term Loan Participants
4d Registration Rights Agreement
10a Sixth Amendment and Waiver
10b Seventh Amendment and Waiver
99 Press Release
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Exhibit 4a
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WARRANT AGREEMENT
THIS WARRANT AND THE SHARES OF CLASS A COMMON STOCK ISSUABLE UPON EXERCISE
THEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), OR ANY STATE SECURITIES LAWS, AND MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED UNLESS THERE IS (i) AN
EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT RELATED THERETO, (ii) AN OPINION
OF COUNSEL FOR THE HOLDER, REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH
REGISTRATION IS NOT REQUIRED, (iii) RECEIPT OF A NO-ACTION LETTER(S) FROM THE
APPROPRIATE GOVERNMENTAL AUTHORITY(IES), OR (iv) UNLESS PURSUANT TO AN EXEMPTION
THEREFROM UNDER RULE 144 (OR ANY SUCCESSOR PROVISION) OF THE ACT.
VIDEO UPDATE, INC.
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WARRANT TO PURCHASE [___________] SHARES
OF CLASS A COMMON STOCK
VIDEO UPDATE, INC., a Delaware corporation (the "Company"), hereby certifies
that, for value received, [USBL AND RAVICH] (the "Initial Holder"), or its
registered transferees, successors or assigns (collectively, together with the
Initial Holder, the "holder"), is the registered holder of warrants (the
"Warrants") to subscribe for and purchase [___________________________
(_________)] shares of the fully paid and nonassessable Class A Common Stock (as
adjusted pursuant to Section 4 hereof, the "Warrant Shares") of the Company, at
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a purchase price per share equal to $0.8719 (such price, as adjusted pursuant to
Section 4 hereof, the "Warrant Price"), subject to the provisions and upon the
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terms and conditions hereinafter set forth. As used herein, (a) the term
"Common Stock" shall mean the Company's presently authorized Class A Common
Stock, par value $.01 per share, and any stock into or for which such Class A
Common Stock may hereafter be converted or exchanged, and (b) the term "Date of
Grant" shall mean June __, 1999. The term "Warrant" as used herein shall be
deemed to include any warrant issued upon transfer or partial exercise of this
Warrant, unless the context clearly requires otherwise. This Warrant is being
issued pursuant to (i) that certain Seventh Amendment and Waiver (the
"Amendment") of even date herewith by and among the Company, the persons or
institutions named as Banks on Schedule I to such Amendment, and Paribas, as
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Agent, and (ii) that certain Engagement Letter, by and between the Company and
U.S. Bancorp Libra, a division of U.S. Bancorp Investments, Inc., a Minnesota
corporation ("USBL"). The holders are entitled to the benefits of the
Registration Rights Agreement (the "Registration Rights Agreement") of even date
herewith by and among the Company and the investors name therein (each an
"Investor"). This Warrant, together with other similar warrants
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issued to the other Investors as of the date hereof, are referred to herein as
the "Investor Warrants".
1. Term. The purchase right represented by this Warrant is exercisable,
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in whole or in part, at any time and from time to time from the Date of Grant
through and including the close of business on June 16, 2006 (the "Expiration
Date"); provided, however, that in the event that any portion of this Warrant is
unexercised as of the Expiration Date, the terms of Section 2(b) below shall
apply.
2. Exercise.
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a. Method of Exercise; Payment; Issuance of New Warrant. Subject to
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Section 1 hereof, the purchase right represented by this Warrant may be
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exercised by the holder hereof, in whole or in part and from time to time, by
the surrender of this Warrant (with the notice of exercise form attached hereto
as Exhibit A duly executed) at the principal office of the Company, and, except
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as otherwise provided for herein, by the payment to the Company of an amount
equal to the then applicable Warrant Price multiplied by the number of Warrant
Shares then being purchased (the "Warrant Shares Purchase Price"). The Warrant
Shares Purchase Price shall be payable (i) in cash, or (ii) by cancellation of
such amount of loans made pursuant to the Amendment in a principal amount plus
accrued interest thereon equal to the Warrant Shares Purchase Price. The person
or persons in whose name(s) any certificate(s) representing shares of Common
Stock shall be issuable upon exercise of this Warrant shall be deemed to have
become the holder(s) of record of, and shall be treated for all purposes as the
record holder(s) of, the shares represented thereby (and such shares shall be
deemed to have been issued) immediately prior to the close of business on the
date or dates upon which this Warrant is exercised if exercised prior to the
close of business on such date; otherwise, the date of record shall be the next
business day. In the event of any exercise of the rights represented by this
Warrant, certificates for the shares of Common Stock so purchased shall be
delivered to the holder hereof as soon as possible and in any event within
thirty (30) days after such exercise and, unless this Warrant has been fully
exercised (including without limitation, exercise pursuant to Section 2(b)
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below), a new Warrant representing the portion of the Warrant Shares, if any,
with respect to which this Warrant shall not then have been exercised shall also
be issued to the holder hereof as soon as possible and in any event within such
thirty (30)-day period.
Notwithstanding any other provision of this Warrant, this Warrant may
only be exercised, fully or partially, if (i) the total number of shares of
Common Stock held by USBL, aggregated with any shares of Common Stock held by
any affiliate of USBL, and after giving effect to the proposed exercise, shall
be less than 5.00% of the total shares of Common Stock outstanding immediately
after such conversion; or (ii) a change in federal law permits a registered bank
holding company and its affiliates to acquire in excess of 5.00% of the voting
shares of the Company. For purposes of calculating the total number of shares
of Common Stock held by USBL or its affiliates, shares of Common Stock
previously held by USBL or its affiliates shall be added to the sum of shares
currently held by USBL and its affiliates unless those shares were sold through
a widely dispersed public offering, sales in the public secondary market or
through a private placement in which no purchaser acquired, individually or in
concert
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with others, more than 2% of the shares of Common Stock then outstanding. No
Default Event (as defined below) shall be triggered as a result of the inability
of USBL to exercise any portion of this Warrant pursuant to this paragraph. Upon
an automatic exercise as contemplated in Section 2(b) below, if, as a result of
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this paragraph, the Warrant may not be exercised in full, then this Warrant
shall be deemed to be exercised partially in such maximum amount that would
comply with this paragraph.
b. Automatic Exercise. In the event that any portion of this Warrant
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remains unexercised as of the Expiration Date and the fair market value
(determined in accordance with Section 4(h) below) of one share of Common Stock
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as of the Expiration Date is greater than the applicable Warrant Price as of the
Expiration Date, then this Warrant shall be deemed to have been exercised
automatically immediately prior to the close of business on the Expiration Date
(or, in the event that the Expiration Date is not a business day, the
immediately preceding business day) (the "Automatic Exercise Date"), and the
person entitled to receive the shares of Common Stock issuable upon such
exercise shall be treated for all purposes as the holder of record of such
Warrant Shares as of the close of business on such Automatic Exercise Date.
This Warrant shall be deemed to be surrendered to the Company on the Automatic
Exercise Date by virtue of this Section 2(b) and without any action by the
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holder of this Warrant or any other person, and payment to the Company of the
then applicable Warrant Price multiplied by the number of Warrant Shares then
being purchased shall be deemed to be made as of the Automatic Exercise Date
pursuant to the conversion provisions of Section 2(c) below (without payment by
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the holder of any cash exercise price). As promptly as practicable on or after
the Automatic Exercise Date and in any event within thirty (30) days thereafter,
the Company at its expense shall issue and deliver to the person or persons
entitled to receive the same a certificate or certificates for the number of
Warrant Shares issuable upon such exercise.
c. Cashless Right to Convert Warrant into Common Stock; Net Issuance.
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(1) Right to Convert. In addition to and without limiting the
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rights of the holder hereof under the terms of this Warrant, the holder shall
have the right to convert this Warrant or any portion thereof (the "Conversion
Right") into shares of Common Stock as provided in this Section 2(c) at any time
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or from time to time during the term of this Warrant, including upon the
Automatic Exercise Date. Upon exercise of the Conversion Right with respect to
all or a specified portion of Warrant Shares subject to this Warrant (the
"Converted Warrant Shares"), the Company shall deliver to the holder (without
payment by the holder of any cash or other cash consideration) that number of
shares of fully paid and nonassessable Common Stock equal to the quotient
obtained by dividing (i) the value of this Warrant (or the specified portion
hereof) on the Conversion Date (as defined in Section 2(c)(2) hereof), which
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value shall be equal to (A) the aggregate fair market value of the Converted
Warrant Shares issuable upon exercise of this Warrant (or the specified portion
hereof) on the Conversion Date less (B) the aggregate Warrant Price of the
Converted Warrant Shares immediately prior to the exercise of the Conversion
Right by (ii) the fair market value of one (1) share of Common Stock on the
Conversion Date.
Expressed as a formula, such conversion shall be computed as follows:
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X = A - B
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Y
Where: X = the number of shares of Common Stock to be issued
to the holder
Y = the fair market value ("FMV") of one (1) share of
Common Stock
A = the aggregate FMV (i.e., FMV x Converted Warrant
Shares)
B = the aggregate Warrant Price (i.e., Converted
Warrant Shares x Warrant Price)
No fractional shares shall be issuable upon exercise of the Conversion
Right, and, if the number of shares to be issued determined in accordance with
the foregoing formula is other than a whole number, the Company shall pay to the
holder an amount in cash equal to the fair market value of the resulting
fractional share on the Conversion Date. For purposes of the Registration
Rights Agreement, shares issued pursuant to the Conversion Right shall be
treated as if they were issued upon the exercise of this Warrant.
(2) Method of Exercise. The Conversion Right may be exercised by
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the holder by the surrender of this Warrant at the principal office of the
Company together with a written statement specifying that the holder thereby
intends to exercise the Conversion Right and indicating the number of shares
subject to this Warrant which are being surrendered (referred to in Section
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2(c)(1) hereof as the Converted Warrant Shares) in exercise of the Conversion
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Right. Such conversion shall be effective upon receipt by the Company of this
Warrant together with the aforesaid written statement, or on such later date as
is specified therein (the "Conversion Date"). Certificates for the shares
issuable upon exercise of the Conversion Right and, if applicable, a new warrant
evidencing the balance of the shares remaining subject to this Warrant, shall be
issued as of the Conversion Date and shall be delivered to the holder within
thirty (30) days following the Conversion Date.
(3) Determination of Fair Market Value. For purposes of this
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Section 2(c), "fair market value" of a share of Common Stock shall have the
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meaning set forth in Section 4(h) below.
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3. Stock Fully Paid; Reservation of Shares. All Warrant Shares that
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may be issued upon the exercise of the rights represented by this Warrant will,
upon issuance pursuant to the terms and conditions herein, be fully paid and
nonassessable, and free from all taxes, liens, charges, and pre-emptive rights
with respect to the issue thereof. The Company shall pay all transfer taxes, if
any, attributable to the issuance of the Warrant Shares upon the exercise of
this Warrant. During the period within which the rights represented by this
Warrant may be exercised, the Company will at all times have authorized, and
reserved for the purpose of the issue upon exercise of the purchase rights
evidenced by this Warrant, a sufficient number of shares of its Common Stock to
provide for the exercise of the rights represented by this Warrant.
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4. Adjustment of Warrant Price and Number of Shares. The number and
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kind of securities purchasable upon the exercise of this Warrant and the Warrant
Price shall be subject to adjustment from time to time upon the occurrence of
certain events, as follows:
a. Merger, Sale, Reclassification. In case of any (i)
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consolidation or merger of the Company with or into another entity (other than a
merger in which the Company is the continuing corporation (A) and which does not
result in any reclassification or change of the then outstanding shares of
Common Stock or issuance of any dividend or other distribution of cash,
securities or property to holders of the then outstanding shares of Common
Stock, or (B) resulting solely in a change in par value, or from par value to no
par value, or from no par value to par value, or in a stock split, subdivision
or combination which is the subject of another paragraph in this Section 4),
(ii) sale or other disposition of all or substantially all of the Company's
assets or distribution of property to stockholders (other than distributions
payable out of earnings or retained earnings), or (iii) reclassification, change
or conversion of securities of the class issuable upon exercise of this Warrant
(other than a change in par value, or from par value to no par value, or from no
par value to par value, or as a result of any stock split, subdivision or
combination which is the subject of another paragraph in this Section 4), then
the Company shall take all necessary actions (including but not limited to
executing and delivering to the holder of this Warrant an additional Warrant or
other instrument, in form and substance mutually agreeable to the Company and
the holder of this Warrant) to ensure that the holder of this Warrant shall
thereafter have the right to receive, at a total purchase price not to exceed
that payable upon the exercise of the unexercised portion of this Warrant, and
in lieu of the shares of Common Stock theretofore issuable upon exercise of this
Warrant, the kind and amount of shares of stock, other securities, money and
property receivable upon such consolidation, merger, sale or other disposition,
reclassification, change or conversion by a holder of the number of shares of
Common Stock then purchasable under this Warrant (which, in the case of such a
transaction in which holders of Common Stock were entitled to elect between
different forms of consideration, shall be deemed to be the form of
consideration received by a plurality of the electing holders of Common Stock).
Such new Warrant shall provide for adjustments that shall be as nearly
equivalent as may be practicable to the adjustments provided for in this Section
4. The provisions of this Section 4(a) shall similarly apply to successive
reclassifications, changes and conversions.
b. Subdivision or Combination of Shares. If the Company at any
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time while this Warrant remains outstanding and unexpired shall subdivide or
combine its outstanding shares of Common Stock, the Warrant Price shall be
proportionately decreased in the case of a subdivision or increased in the case
of a combination, effective at the close of business on the date the subdivision
or combination becomes effective.
c. Stock Dividends and Other Distributions. If the Company at
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any time while this Warrant is outstanding and unexpired shall (i) pay a
dividend with respect to Common Stock payable in Common Stock, or (ii) make any
other distribution with respect to Common Stock (except any distribution
specifically provided for in Section 4(a) or Section 4(b) hereof) of Common
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Stock, then the Warrant Price shall be adjusted, from and after the date of
determination of stockholders entitled to receive such dividend or distribution,
to that price
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determined by multiplying the Warrant Price in effect immediately prior to such
date of determination by a fraction (i) the numerator of which shall be the
total number of shares of Common Stock outstanding immediately prior to such
dividend or distribution, and (ii) the denominator of which shall be the total
number of shares of Common Stock outstanding immediately after such dividend or
distribution.
d. Rights Offerings. In case the Company shall, at any time after
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the Date of Grant, issue to holders of shares of the capital stock of the
Company (solely as a result of such holders' status as stockholders of the
Company) any rights, options or warrants entitling them to subscribe for or
purchase shares of Common Stock (or securities convertible or exchangeable into
Common Stock) at a price per share of Common Stock (or having a conversion or
exchange price per share of Common Stock if a security convertible or
exchangeable into Common Stock) less than the fair market value per share of
Common Stock on the record date for such issuance (or the date of issuance, if
there is no record date), the Warrant Price to be in effect on and after such
record date (or issuance date, as the case may be) shall be adjusted so that it
shall equal the price determined by multiplying the Warrant Price in effect
immediately prior to such record date (or issuance date, as the case may be) by
a fraction (i) the numerator of which shall be the number of Fully Diluted
Shares of Common Stock outstanding on such record date (or issuance date, as the
case may be) plus the number of shares of Common Stock which the aggregate
offering price of the total number of shares of such Common Stock so to be
offered (or the aggregate initial exchange or conversion price of the
exchangeable or convertible securities so to be offered) would purchase at such
fair market value on such record date (or issuance date, as the case may be) and
(ii) the denominator of which shall be the number of Fully Diluted Shares of
Common Stock outstanding on such record date (or issuance date, as the case may
be) plus the number of additional shares of Common Stock to be offered for
subscription or purchase (or into which the convertible securities to be offered
are initially exchangeable or convertible). For purposes of this Warrant,
"Fully Diluted Shares" shall mean the number of shares of Common Stock deemed to
be outstanding calculated pursuant to the treasury stock method as contemplated
by the Accounting Principles Board Opinion No. 15 (as referred to in Statement
of Financial Accounting Standards No. 128). In case such subscription price may
be paid in part or in whole in a form other than cash, the fair market value of
such consideration shall be determined by the Board of Directors of the Company
in good faith as set forth in a duly adopted board resolution certified by the
Company's Secretary or Assistant Secretary, provided, that in the event the
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Board of Directors is unable to make such a determination or holders of at least
fifty-one percent (51%) of the Warrant Shares issuable under outstanding
Investor Warrants disagree in writing with such determination, then the fair
market value of such consideration shall be determined in the same manner as a
Valuation Procedure under Section 4(h) below. Such adjustment shall be made
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successively whenever such an issuance occurs; and in the event that such
rights, options, warrants, or convertible or exchangeable securities are not so
issued or are canceled, expire or cease to be convertible or exchangeable before
they are exercised, converted, or exchanged (as the case may be), then the
Warrant Price shall again be adjusted to be the Warrant Price that would then be
in effect if such issuance had not occurred, but such subsequent adjustment
shall not affect the number of Warrant Shares issued upon any exercise of this
Warrant prior to the date such subsequent adjustment is made.
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<PAGE>
e. Other Special Distributions. In case the Company shall fix a
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record date for the making of a distribution (other than dividends,
distributions or issuances referred to in Section 4(b), Section 4(c) or Section
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4(d) above, and other than cash dividends to the extent paid out of the
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consolidated net income of the Company, as determined in accordance with
generally accepted accounting principles consistently applied, after the date
hereof) to all holders of shares of Common Stock (including any such
distribution made in connection with a consolidation or merger in which the
Company is the surviving corporation) of cash, evidences of indebtedness, assets
or subscription rights, options, warrants, or exchangeable or convertible
securities containing the right to subscribe for or purchase shares of any class
of equity securities of the Company, the Warrant Price to be in effect on and
after such record date shall be adjusted by multiplying the Warrant Price in
effect immediately prior to such record date by a fraction (i) the numerator of
which shall be the fair market value per share of Common Stock on such record
date (determined in accordance with Section 4(h) below), less the cash and/or
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the fair market value (as determined by the Board of Directors of the Company in
good faith as set forth in a duly adopted board resolution certified by the
Company's Secretary or Assistant Secretary) of the portion of the assets or
evidences of indebtedness so to be distributed or of such subscription rights,
options, warrants, or exchangeable or convertible securities applicable to one
(1) share of the Common Stock outstanding as of such record date, provided, that
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in the event the Board of Directors is unable to make such a determination or
holders of at least fifty-one percent (51%) of the Warrant Shares issuable under
outstanding Investor Warrants disagree in writing with such determination, then
the fair market value of such consideration shall be determined in the same
manner as a Valuation Procedure under Section 4(h) below, and (ii) the
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denominator of which shall be such fair market value per share of Common Stock
as determined in the manner set forth under Section 4(h) below. Such adjustment
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shall be made successively whenever such a record date is fixed; and in the
event that such distribution is not so made, the Warrant Price shall again be
adjusted to be the Warrant Price which would then be in effect if such record
date had not been fixed, but such subsequent adjustment shall not affect the
number of Warrant Shares issued upon any exercise of this Warrant prior to the
date such subsequent adjustment was made.
f. Other Issuances and Adjustments.
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(1) In case the Company or any subsidiary thereof shall, at any
time after the Date of Grant, issue shares of Common Stock, or rights, options,
warrants or convertible or exchangeable securities containing the right to
subscribe for or acquire shares of Common Stock (excluding (i) shares, rights,
options, warrants, or convertible or exchangeable securities outstanding on the
Date of Grant, or issued in any of the transactions described in Sections 4(b),
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4(c), 4(d) or 4(e) above, (ii) shares issued upon the exercise of such rights,
- ---- ---- ----
options or warrants or upon conversion or exchange of such convertible or
exchangeable securities, and (iii) up to Three Million Nine Hundred Fourteen
Thousand Eight Hundred Thirty Six (3,914,836) (subject to adjustment for splits,
recapitalizations, or similar events) shares of Common Stock issued or issuable
to directors, officers, employees or consultants of the Company or any
subsidiary in connection with their service as directors, officers, employees or
consultants pursuant to any stock grant, stock option, warrant or other right
issued by the Company and approved by the Board of Directors of the Company
under a duly adopted stock
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<PAGE>
option or incentive plan in existence on the date hereof), at a price per share
of Common Stock (determined in the case of such rights, options, warrants, or
convertible or exchangeable securities by dividing (x) the total amount received
and/or receivable by the Company in consideration of the sale and issuance of
such rights, options, warrants, or convertible or exchangeable securities, plus
the total minimum consideration payable to the Company upon exercise,
conversion, or exchange thereof by (y) the total maximum number of shares of
Common Stock covered by such rights, options, warrants, or convertible or
exchangeable securities) less than the higher of (A) the Warrant Price and (B)
the fair market value per share of Common Stock (determined in accordance with
Section 4(h) below and in the case of rights, options, warrants or convertible
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or exchangeable securities, determined at the time of issuance of such
securities rather than upon exercise thereof), in each case on the date the
Company fixes the offering price of such shares, rights, options, warrants, or
convertible or exchangeable securities, then the Warrant Price shall be adjusted
so that it shall equal the price determined by multiplying the Warrant Price in
effect immediately prior thereto by a fraction (i) the numerator of which shall
be the sum of (A) the number of Fully Diluted Shares outstanding immediately
prior to such sale and issuance plus (B) the number of shares of Common Stock
which the aggregate consideration received or receivable (determined as provided
herein) in connection with such sale or issuance would purchase at such higher
price, and (ii) the denominator of which shall be the total number of Fully
Diluted Shares outstanding immediately after such sale and issuance. Such
adjustment shall be made successively whenever such an issuance is made. In the
event that any of the rights, options, warrants or convertible or exchangeable
securities referred to in this paragraph (1) are not so issued or are canceled,
expire or cease to be convertible or exchangeable before they are exercised,
converted, or exchanged (as the case may be), then the Warrant Price shall again
be adjusted to be the Warrant Price that would then be in effect if the issuance
of such rights, options, warrants or securities had not occurred, but such
subsequent adjustment shall not affect the number of Warrant Shares issued upon
any exercise of this Warrant prior to the date such subsequent adjustment is
made. If the Warrant Price is adjusted pursuant to this subsection, no further
adjustment shall be made upon the exercise of such rights, options or warrants
or upon the conversion or exchange of such convertible or exchangeable
securities, or upon the conversion or exchange of convertible securities issued
upon the exercise of such rights, options or warrants.
(2) In case the Company or any subsidiary thereof shall, at any
time after the Date of Grant, make or agree to (i) any downward adjustment in
the exercise, exchange or conversion price of, (ii) any increase in the number
of shares of Common Stock issuable upon the exercise, conversion or exchange of,
or (iii) any change in the consideration payable for the exercise, conversion or
exchange of, any rights, options, warrants or convertible or exchangeable
securities containing the right to subscribe for or acquire shares of Common
Stock, other than such adjustment that is specifically contemplated and required
under the terms of any such instrument as of the Date of Grant, then the Warrant
Price shall be adjusted so that it shall equal the price determined by
multiplying the Warrant Price in effect immediately prior thereto by a fraction
the numerator of which shall be the sum of (A) the number of shares of Common
Stock outstanding immediately prior thereto, plus (B) the number of shares of
Common Stock to be issued upon such exercise, conversion or exchange immediately
prior thereto, multiplied by the aggregate amount of the fair market value of
the consideration to be
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<PAGE>
received by the Company upon such exercise, conversion or exchange immediately
thereafter, and the denominator shall be the sum of (X) the number of shares of
Common Stock outstanding immediately thereafter, plus (Y) the number of shares
of Common Stock to be issued upon such exercise, conversion or exchange
immediately thereafter, multiplied by the aggregate amount of the fair market
value of the consideration to be received by the Company upon such exercise,
conversion or exchange immediately prior thereto. Such adjustment shall be made
successively whenever such an issuance is made.
(3) For the purposes of an adjustment under this Section 4(f),
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the maximum number of shares of Common Stock which the holder of any right,
option, warrant or convertible or exchangeable security shall be entitled to
subscribe for or purchase shall be deemed to be issued and outstanding;
furthermore, the consideration received by the Company therefor shall be deemed
to be equal to the price per share of Common Stock (determined in the case of
such rights, options, warrants, or convertible or exchangeable securities by
dividing (x) the total amount received and/or receivable by the Company in
consideration of the sale and issuance of such rights, options, warrants, or
convertible or exchangeable securities, plus the total minimum consideration
payable to the Company upon exercise, conversion, or exchange thereof by (y) the
total maximum number of shares of Common Stock covered by such rights, options,
warrants, or convertible or exchangeable securities) multiplied by the number of
shares deemed issued and outstanding in the previous sentence. In case the
Company shall issue shares of Common Stock, or issue or make an adjustment to
the exercise, exchange or conversion price of rights, options, warrants, or
convertible or exchangeable securities containing the right to subscribe for or
acquire shares of Common Stock for a consideration consisting, in whole or in
part, of consideration other than cash or its equivalent, then in determining
the price per share of Common Stock and the consideration received by the
Company, the Board of Directors of the Company shall determine, in good faith,
the fair market value of said property, and such determination shall be
described in a duly adopted board resolution certified by the Company's
Secretary or Assistant Secretary, provided, that in the event the Board of
--------
Directors is unable to make such a determination or holders of at least fifty-
one percent (51%) of the Warrant Shares issuable under outstanding Investor
Warrants disagree in writing with such determination, then the fair market value
of such consideration shall be determined in the same manner as a Valuation
Procedure under Section 4(h) below. In case the Company shall issue shares of
------------
Common Stock, or issue or make an adjustment to the exercise or conversion price
of rights, options, warrants, or convertible or exchangeable securities
containing the right to subscribe for or acquire shares of Common Stock,
together with one (1) or more other security as a part of a unit at a price per
unit, then in determining the price per share of Common Stock and the
consideration received or to be by the Company, the Board of Directors of the
Company shall determine, in good faith, which determination shall be described
in a duly adopted board resolution certified by the Company's Secretary or
Assistant Secretary, the fair market value of the rights, options, warrants, or
convertible or exchangeable securities then being sold as part of such unit,
provided, that in the event the Board of Directors is unable to make such a
- --------
determination or holders of at least fifty-one percent (51%) of the Warrant
Shares issuable under outstanding Investor Warrants disagree in writing with
such determination, then the fair market value of such consideration shall be
determined in the same manner as a Valuation Procedure under Section 4(h) below.
------------
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<PAGE>
g. Adjustment of Number of Shares. Upon each adjustment in the
------------------------------
Warrant Price, the number of Warrant Shares purchasable hereunder shall be
adjusted, to the nearest whole share, to the product obtained by multiplying the
number of Warrant Shares purchasable immediately prior to such adjustment in the
Warrant Price by a fraction, the numerator of which shall be the Warrant Price
immediately prior to such adjustment and the denominator of which shall be the
Warrant Price immediately thereafter.
h. Determination of Fair Market Value. For purposes of those
----------------------------------
provisions of this Warrant requiring a determination in accordance with this
Section 4(h), "fair market value" as of a particular date (the "Determination
- ------------
Date") shall mean (i) if the Common Stock is publicly traded at the time of
determination, the average of the closing prices on such day of the Common Stock
on all domestic securities exchanges on which the Common Stock is then listed,
or, if there have been no sales on any such exchange on such day, the average of
the highest bid and lowest asked prices on all such exchanges at the end of such
day or, if on any such day the Common Stock is not so listed, the average of the
representative bid and asked prices quoted on the NASDAQ system as of 4:00 P.M.,
New York time, on such day, or if on any day such security is not quoted on the
NASDAQ system, the average of the highest bid and lowest asked prices on such
day in the domestic over-the-counter market as reported by the National
Quotation Bureau, Incorporated, or any similar successor organization, in each
such case averaged over a period of 30 days consisting of the day as of which
"fair market value" is being determined and the twenty-nine consecutive business
days prior to such day (provided that, if fair market value is being determined
--------
as of the date of a firm commitment public offering of the Common Stock, fair
market value as of such date shall be the offering price for the Common Stock
subject to such public offering); or (ii) if the Common Stock is not publicly
traded at the time of determination, the Common Stock price per share determined
by dividing Market Value (as defined below) by the outstanding number of Fully-
Diluted Shares of Common Stock. "Market Value" means the highest price that
would be paid for the entire common equity of the Company on a going-concern
basis in an arm's-length transaction between a willing buyer and a willing
seller (neither acting under compulsion), using valuation techniques then
prevailing in the securities industry (but without giving effect to any discount
in respect of a minority interest) and determined in accordance with the
"Valuation Procedure" (as defined below) and assuming full disclosure and
understanding of all relevant information and a reasonable period of time for
effectuating such sale. For the purposes of determining the Market Value, (a)
the exercise price of options or warrants to acquire Common Stock which are
deemed to have been exercised for the purpose of determining the outstanding
number of Fully-Diluted Shares of Common Stock, shall be deemed to have been
received by the Company, (b)(i) the liquidation preference or indebtedness, as
the case may be, represented by securities which are deemed exercised for or
converted into Common Stock for the purpose of determining the outstanding
number of Fully-Diluted Shares of Common Stock and (ii) any contractual
limitation in respect of the shares of Common Stock relating to voting rights,
shall be deemed to have been eliminated or canceled and (c) full effect shall be
given to any discount that may arise as the result of the fact that the shares
of Common Stock are not publicly traded.
E-10
<PAGE>
"Valuation Procedure" means, with respect to the determination of any
amount or value required to be determined in accordance with such procedure, a
determination (which shall be final and binding on the Company and the holders)
made (i) by agreement among the Company and the holders of at least 51% of the
Warrant Shares issuable under outstanding Investor Warrants (collectively, the
"Requesting Holders") within twenty (20) days following the event requiring such
determination or (ii) in the absence of such an agreement, by an Independent
Financial Expert selected in accordance with the further provisions of this
definition. If required, an Independent Financial Expert shall be selected
within five days following the expiration of the 20-day period referred to
above, either by agreement among the Company and the Requesting Holders or, in
the absence of such agreement, by lot from a list of four potential Independent
Financial Experts remaining after the Company nominates three, the Requesting
Holders nominate three, and each side eliminates one potential Independent
Financial Expert. The Independent Financial Expert shall be instructed by the
Company and the Requesting Holders to make its determination within 20 days of
its selection. The fees and expenses of an Independent Financial Expert
selected hereunder shall be paid by the Company.
"Independent Financial Expert" means a nationally-recognized
investment banking firm (a) that does not (and whose directors, officers,
employees and Affiliates do not) have a direct or indirect material financial
interest in the Company or any holder, (b) that has not been, and, at the time
it is called upon to serve as an Independent Financial Expert under this
Agreement, is not (and none of whose directors, officers, employees or
Affiliates is not), a promoter, director or officer of the Company or any
Holder, (c) that has not been retained during the preceding two years by the
Company or the holder for any purpose, and (d) that is otherwise qualified to
serve as an Independent Financial Advisor. Any such person or entity may
receive customary compensation and indemnification by the Company for opinions
or services it provides as an Independent Financial Expert.
5. Notice of Adjustments. Whenever the Warrant Price or the number
---------------------
of Warrant Shares purchasable hereunder shall be adjusted pursuant to Section 4
---------
hereof, the Company shall make a certificate signed by its chief financial
officer setting forth, in reasonable detail, the event requiring the adjustment,
the amount of the adjustment, the method by which such adjustment was
calculated, and the Warrant Price and the number of Warrant Shares purchasable
hereunder after giving effect to such adjustment, which shall be mailed (without
regard to Section 14 hereof, by first class mail, postage prepaid) to the holder
----------
of this Warrant.
6. Fractional Shares. No fractional shares of Common Stock will be
-----------------
issued in connection with any exercise hereunder, but in lieu of such fractional
shares the Company shall make a cash payment therefor based on the fair market
value (as determined in accordance with Section 4(h) above) of a share of Common
------------
Stock on the date of exercise.
7. Compliance with Securities Act; Disposition of Warrant or Warrant
-----------------------------------------------------------------
Shares.
- ------
a. Compliance with Securities Act. The holder of this Warrant,
------------------------------
by acceptance hereof, agrees that this Warrant and the shares of Common Stock to
be issued upon
E-11
<PAGE>
exercise hereof, are being acquired for investment and that such holder will not
offer, sell or otherwise dispose of this Warrant, or any shares of Common Stock
to be issued upon exercise hereof except under circumstances which will not
result in a violation of the Securities Act of 1933, as amended (the "Act").
Upon exercise of this Warrant, unless the Warrant Shares to be received upon
such exercise are intended to be included in a registration statement under the
Act, the holder hereof shall confirm in writing, by executing the form attached
as Schedule 1 to Exhibit A hereto, that the shares of Common Stock so purchased
---------
are being acquired for investment and not with a view toward distribution or
resale in violation of the Act. All shares of Common Stock issued upon exercise
of this Warrant (unless registered under the Act) shall be stamped or imprinted
with a legend in substantially the following form:
"THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. NO
SALE OR DISPOSITION MAY BE EFFECTED WITHOUT (i) AN EFFECTIVE
REGISTRATION STATEMENT RELATED THERETO, (ii) AN OPINION OF COUNSEL FOR
THE HOLDER, REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH
REGISTRATION IS NOT REQUIRED, (iii) RECEIPT OF A NO-ACTION LETTER(S)
FROM THE APPROPRIATE GOVERNMENTAL AUTHORITY(IES), OR (iv) OTHERWISE
COMPLYING WITH THE PROVISIONS OF SECTION 7 OF THE WARRANT UNDER WHICH
---------
THESE SECURITIES WERE ISSUED DIRECTLY OR INDIRECTLY."
In addition, in connection with the issuance of this Warrant, the
holder specifically represents to the Company by acceptance of this Warrant as
follows:
(1) The holder is aware of the Company's business affairs and
financial condition, and has acquired information about the Company sufficient
to reach an informed and knowledgeable decision to acquire this Warrant. The
holder is acquiring this Warrant for its own account for investment purposes
only and not with a view to, or for resale in connection with any "distribution"
thereof for purposes of the Act in violation of the Act. Each of the holders
acknowledges that such holder, or such holder's representatives, if any, has
been given access to information about the Company, through written material
provided in or attached to the Amendment, and through meetings with
representatives of the Company, and has had an opportunity to verify the
accuracy of such information, to ask questions of the Company's officers and
directors, and has received answers to such holder's satisfaction. Each of the
holders understands that the valuation and terms of the Warrant has been made
solely through and upon negotiations between the Company and the holders, and
not by an independent accountant, auditor, investment banker or third party.
Each of the holders represents that such holder has evaluated the fairness of
the terms and conditions of the Warrant to the extent he, she or it has deemed
necessary. In making a decision to purchase the Warrant, each of the holders has
relied solely on the information contained or referred to herein and upon
independent investigations made by such holder in his, her or its discretion. In
addition, none of the holders is purchasing any Warrant as a result or
subsequent to: (1) any advertisement, article, notice, or other publication
published in any newspaper, magazine, or similar broadcast media over the
internet,
E-12
<PAGE>
television, or radio; or (2) any seminar or meeting whose attendees, including
the holders, were invited as a result of, subsequent to, or pursuant to, any
general solicitation.
(2) The holder understands that this Warrant and the Warrant
Shares have not been registered under the Act in reliance upon a specific
exemption therefrom, which exemption depends upon, among other things, the bona
fide nature of the holder's investment intent as expressed herein, and the
assumption that holder resides at the address corresponding to him, her, or it
on Schedule A to the Registration Rights Agreement.
----------
(3) The holder further understands that this Warrant and the
Warrant Shares must be held indefinitely unless subsequently registered under
the Act and any applicable state securities laws, or unless exemptions from
registration are otherwise available.
(4) The holder is aware of the provisions of Rule 144
promulgated under the Act, which, in substance, permit limited public resale of
"restricted securities" acquired, directly or indirectly, from the issuer
thereof (or from an affiliate of such issuer), in a non-public offering subject
to the satisfaction of certain conditions, if applicable, including, among other
things: the availability of certain public information about the Company, the
resale occurring not less than one (1) year after the party has purchased and
paid for the securities to be sold; the sale being made through a broker in an
unsolicited "broker's transaction" or in transactions directly with a market
maker (as said term is defined under the Securities Exchange Act of 1934, as
amended) and the amount of securities being sold during any three-month period
not exceeding the specified limitations stated therein.
(5) The holder further understands that at the time it wishes to
sell this Warrant and the Warrant Shares there may be no public market upon
which to make such a sale, and that, even if such a public market then exists,
the Company may not be satisfying the current public information requirements of
Rule 144, and that, in such event, the holder may be precluded from selling this
Warrant and the Warrant Shares under Rule 144 even if the one (1)-year minimum
holding period had been satisfied.
b. Disposition of Warrant or Warrant Shares. This Warrant
----------------------------------------
and the Warrant Shares may be detached and sold or otherwise transferred, in
whole or in part, separately from the loans made pursuant to the Amendment,
except that the holder may not transfer the Warrant or the Warrant Shares in a
transaction not effected on any securities exchange to any entity that is known
at the time of such transfer to be a direct competitor of, or that controls or
is controlled by or is under common control with an entity known to be a direct
competitor of, the Company or any of its material subsidiaries. With respect to
any offer, sale or other disposition of this Warrant, or any Warrant Shares
acquired pursuant to the exercise of this Warrant prior to registration of such
Warrant or Warrant Shares, the holder hereof and each subsequent holder of this
Warrant agrees to deliver, prior to the registration of any such transfer, a
written opinion of such holder's counsel (which may be in-house counsel for such
holder), if reasonably requested by the Company, to the effect that such offer,
sale or other disposition may be effected without registration or qualification
(under the Act as then in effect or any federal or state law then in effect) of
this Warrant or such Warrant Shares and indicating whether or not
E-13
<PAGE>
under the Act certificates for this Warrant or such Warrant Shares to be sold or
otherwise disposed of require any restrictive legend as to applicable
restrictions on transferability in order to ensure compliance with applicable
law. If a determination has been made pursuant to this Section 7(b) that the
------------
opinion of counsel for the holder is not reasonably satisfactory to the Company,
the Company shall so notify the holder promptly after such determination has
been made. The foregoing notwithstanding, this Warrant or such Warrant Shares
may, as to such federal laws, be offered, sold or otherwise disposed of in
accordance with Rule 144 under the Act, provided that the Company shall have
been furnished with such information as the Company may reasonably request to
provide a reasonable assurance that the provisions of Rule 144 have been
satisfied. Each certificate representing this Warrant or the Warrant Shares thus
transferred (except a transfer pursuant to Rule 144) shall bear a legend as to
the applicable restrictions on transferability in order to ensure compliance
with such laws, unless in the aforesaid opinion of counsel for the holder
satisfactory to the Company, such legend is not required in order to ensure
compliance with such laws. The Company may issue stop transfer instructions to
its transfer agent or, if acting as its own transfer agent, the Company may stop
transfer on its corporate books, in connection with such restrictions.
8. Rights as Stockholders; Information. No holder of this
-----------------------------------
Warrant, as such, shall be entitled to vote or receive dividends or be deemed
the holder of Common Stock or any other securities of the Company which may at
any time be issuable on the exercise hereof for any purpose, nor shall anything
contained herein be construed to confer upon the holder of this Warrant, as
such, any of the rights of a stockholder of the Company or any right to vote for
the election of the directors or upon any matter submitted to stockholders at
any meeting thereof, or to receive notice of meetings, or to receive dividends
or subscription rights or otherwise, until this Warrant shall have been
exercised and the Warrant Shares purchasable upon the exercise hereof shall have
become deliverable, as provided herein. The foregoing notwithstanding, the
Company will transmit to the holder of this Warrant such information, documents
and reports as are generally distributed to the holders of any class or series
of the securities of the Company concurrently with the distribution thereof to
the stockholders.
9. Representations and Warranties. The Company represents and
------------------------------
warrants to the holder of this Warrant, except as otherwise disclosed in the
Amendment or any schedule or exhibit thereto, as follows:
a. This Warrant has been duly authorized and executed by
the Company and is a valid and binding obligation of the Company enforceable in
accordance with its terms, subject to laws of general application relating to
bankruptcy, insolvency and the relief of debtors and the rules of law or
principles at equity governing specific performance, injunctive relief and other
equitable remedies;
b. The Warrant Shares have been duly authorized and
reserved for issuance by the Company and, when issued in accordance with the
terms hereof, will be validly issued, fully paid and nonassessable and are not
subject to any preemptive right of any stockholder of the Company;
E-14
<PAGE>
c. The rights, preferences, privileges and restrictions
granted to or imposed upon the Common Stock and the holders thereof are as set
forth in the certificate of incorporation of the Company, as amended to the Date
of Grant (as so amended, the "Charter"), a true and complete copy of which has
been delivered to the original holder of this Warrant;
d. The execution and delivery of this Warrant are not, and
the issuance of the Warrant Shares upon exercise of this Warrant in accordance
with the terms hereof will not be, inconsistent with the Charter or by-laws of
the Company, do not and will not contravene, in any material respect, any
governmental rule or regulation, judgment or order applicable to the Company, do
not and will not conflict with or contravene any provision of, or constitute a
default under, any indenture, mortgage, contract or other instrument of which
the Company is a party or by which it is bound or require the consent or
approval of, the giving of notice to, the registration or filing with or the
taking of any action in respect of or by, any Federal, state or local government
authority or agency or other person, except for the filing of notices pursuant
to federal and state securities laws, which filings will be effected by the time
required thereby, and are not and will not, with the exception of the Amendment
and the Registration Rights Agreement, be subject to any voting trust agreement
or other contract, agreement, arrangement, commitment or understanding to which
the Company is a party, including such agreement, arrangement, commitment or
understanding restricting or otherwise relating to the voting or disposition
thereof;
e. There are no actions, suits, audits, investigations or
proceedings pending or, to the knowledge of the Company, threatened against the
Company in any court or before any governmental commission, board or authority
which, if adversely determined, will have a material adverse effect on the
ability of the Company to perform its obligations under this Warrant;
f. As of the Date of Grant, the authorized capital stock
of the Company (of all classes and series, including Common Stock and preferred
stock), the par value thereof, and the issued and outstanding amounts thereof,
are as set forth on Schedule 9(f) hereof. The issuance and sale of all such
-------------
interests was in compliance with all applicable federal and state securities
laws, and all issued and outstanding shares of capital stock of the Company are
duly authorized, validly issued, fully paid, and non-assessable. Other than the
Warrants, and other than as specified on Schedule 9(f) hereof, as of the Date of
-------------
Grant there are no preemptive rights or any outstanding subscriptions, options,
warrants, rights, convertible securities, calls or other agreements,
arrangements or commitments (including, without limitation, registration rights
agreements) relating to the issued or unissued shares of the Company's capital
stock or other securities, including any right of conversion or exchange under
any outstanding security or other instrument. Other than the Registration Rights
Agreement, the Warrants and any shares of Common Stock issued upon exercise of
the Warrants are not and will not be subject to any voting trust agreement or
other contract, agreement, arrangement, commitment or understanding to which the
Company is a party, including any such agreement, arrangement, commitment or
understanding restricting or otherwise relating to the voting or disposition
thereof. There are not any outstanding bonds, debentures, notes or other
indebtedness of the Company having the right to vote (or convertible into, or
exchangeable for, securities having the right to vote) on any
E-15
<PAGE>
matters on which stockholders of the Company may vote. Except as set forth on
Schedule 9(f), as of the Date of Grant, there are not any securities, options,
- -------------
warrants, calls, rights, convertible or exchangeable securities or commitments,
agreements, arrangements or undertakings of any kind to which the Company or any
of its subsidiaries is a party or by which any of them is bound obligating the
Company or any of its subsidiaries to issue, deliver or sell or create, or cause
to be issued, delivered or sold or created, additional shares of capital stock
or other voting securities or stock equivalents of the Company or any of its
subsidiaries or obligating the Company or any of its subsidiaries to issue,
grant, extend or enter into any such security, option, warrant, call, right,
commitment, agreement, arrangement or understanding. As of the Date of Grant,
other than as specified on Schedule 9(f) hereof, the Company is not subject to
-------------
any obligation (contingent or otherwise) to repurchase or otherwise acquire or
retire any shares of its capital stock or any security convertible into or
exchangeable for any of its capital stock.
10. Additional Rights of the Holders.
--------------------------------
10.1 Default Event. Subject to the other provisions of this
-------------
Warrant, there shall have occurred a "Default Event" under this Agreement if:
(i) at any time after December 31, 1999 the Company fails for any reason to
honor any request for exercise of this Warrant by the holder hereof, provided
--------
that such request is validly and properly made in accordance with the provisions
of Section 2 hereof; (ii) at any time after December 31, 1999 the Company does
---------
not have a sufficient number of authorized and unissued shares of Common Stock
in order to permit the exercise in full of all of the then-outstanding Warrants;
(iii) the Company has not caused a Registration Statement (as defined in the
Registration Rights Agreement) to become effective by December 31, 1999 in
accordance with Section 2(a) of the Registration Rights Agreement; (iv) at any
------------
time after a Registration Statement has been declared effective during the term
of the Warrant, the effectiveness of such Registration Statement is suspended
for any reason other than in accordance with Section 4(c) of the Registration
------------
Rights Agreement; (v) at any time after a Registration Statement has been
declared effective during the term of the Warrant, the effectiveness of such
Registration Statement is suspended for any period which, when added to the
length of any previous such period of suspension, exceeds sixty (60) days; or
(vi) at any time after December 31, 1999 the shares of Common Stock of the
Company are not listed on the NASDAQ National Market System, the Nasdaq Small
Cap Market, or any national securities exchange.
Upon the happening of one or more Default Events, the Warrant Price
shall be reduced by five percent (5%) for each continuous 30-day period (pro-
rated for portions thereof) in which each such Default Event exists, but in no
event shall the Warrant Price be reduced below $0.45 per share. Such reduction
shall be cumulative upon the happening of multiple simultaneous Default Events.
In the event that the Investors elect to undertake an underwritten
offering of Warrant Shares pursuant to Section 2(d) of the Registration Rights
------------
Agreement and/or a Default Event has occurred that resulted in material part
from the failure of any Investor, or any underwriter selected by the Investor,
to comply in a timely manner with the reasonable requests
E-16
<PAGE>
of the Company in effecting a registration pursuant to the Registration Rights
Agreement, then the occurrence of a Default Event shall be delayed during the
period of such noncompliance.
10.2 Protective Provisions. Until the Expiration Date, the
---------------------
Company shall not, without the prior written consent of the holders of a
majority of the then-outstanding Warrants, amend or modify the terms of the
Company's outstanding Class B Warrants or the Unit Purchase Options issued to
D.H. Blair Investment Banking Company (the "Derivative Securities") so as to (i)
reduce the exercise prices of any of the Derivative Securities, (ii) extend the
expiration dates of any of the Derivative Securities, (iii) increase the number
of shares of capital stock issuable upon exercise of the Derivative Securities,
or (iv) change the forms of consideration payable to the Company upon exercise
of any of the Derivative Securities.
10.3 Observer Rights. The Company shall invite a
---------------
representative of USBL and a single representative appointed by the Agent (as
such term is defined in the Amendment) to attend all meetings of its Board of
Directors in a nonvoting observer capacity (collectively, the "Designated
Observers") and, in this respect, shall give the Designated Observers copies of
all notices, minutes, consents, and other materials that it provides to its
directors; provided, however, that the Designated Observers shall agree to hold
-------- -------
in confidence and trust all information so provided; and provided further, that
-------- -------
the Company reserves the right to withhold any information and to exclude the
Designated Observers from any meeting or portion thereof if access to such
information or attendance at such meeting could adversely affect the attorney-
client privilege between the Company and its counsel or would result in
disclosure of trade secrets to the Designated Observers or if such Investors or
their representatives are direct competitors of the Company. In the case of
telephonic meetings conducted in accordance with the Company's Certificate of
Incorporation and bylaws, and applicable law, the Designated Observers shall be
given the opportunity to listen to such telephonic meetings. The Designated
Observers shall be given reasonable notice of each meeting of the Board of
Directors (including telephonic Board meetings). The Company shall reimburse the
Designated Observers for the reasonable out-of-pocket expenses incurred by such
individuals in connection with attendance at meetings of the Board of Directors.
The Company shall notify USBL and the Agent, as promptly as practicable, of the
proposed taking of any material action by written consent of its Board of
Directors in lieu of a meeting thereof and a copy of such written consent shall
be provided to the Designated Observers as soon as possible.
11. Redemption.
----------
11.1 At any time after two (2) years from the date hereof, if
the Common Stock is at such time traded on an Exchange or quoted on NASDAQ and
the last reported sales price per share of the Common Stock on the principal
Exchange for such Common Stock (or, if the Common Stock is not then traded on an
Exchange, on NASDAQ) is greater than Four Dollars ($4.00) (such price, as
adjusted as contemplated in this Section 11, the "Target Price") on each of the
----------
twenty (20) consecutive trading days ending on the trading day immediately prior
to the day on which the notice referred to in this sentence is given, then, upon
not less than thirty (30) nor more than sixty (60) days' notice, the Company
shall have the right, in its sole discretion, to repurchase ("Call") all, but
not less than all, of the Warrants at a
E-17
<PAGE>
purchase price per share of Common Stock equal to $1.7438 in cash (such price,
as adjusted as contemplated in this Section 11, the "Call Purchase Price");
----------
provided, however, that in the event of any adjustment in the Warrant Price
contemplated by Sections 4(b) or 4(c) hereof, the Target Price and the Call
------------- ----
Purchase Price shall each be simultaneously adjusted by multiplying it by the
same fraction used for such adjustment in Section 4(b) or 4(c), as applicable.
11.2 The Call right shall be exercisable by written notice (the "Call
Notice") given to the holder (and any applicable assigns). The Company shall
effect the repurchase of the Warrant pursuant to the Call Notice by paying the
purchase price therefor in cash to the holder not less than thirty (30) nor more
than ninety (90) days after delivery by the Company of the Call Notice; and at
such time each holder shall deliver to the Company the Warrant to be repurchased
(but not any Warrant Shares which have been issued under the Warrant) properly
endorsed for transfer; provided, however, that at any time prior to such cash
-------- -------
payment, the holder shall be entitled to exercise or convert this Warrant
pursuant to Section 2, and in the event of such exercise or conversion, the Call
---------
right shall be of no force and effect.
11.3 Recapture Provisions Upon Call.
------------------------------
a. If the Company purchases Warrants pursuant to this Section
and subsequently, at any time up to the date twelve (12) months after the
completion of such purchase (the "Resale Date") there occurs:
(1) a sale of assets or stock, reorganization,
recapitalization or other transaction the result of which is that following such
sale, reorganization, recapitalization or other transaction, there shall be a
change of control, whether in one or a series of transactions; or
(2) a sale of all or substantially all of the Company's
assets (determined on a consolidated basis) or sale of the Company's assets
(determined on a consolidated basis) that represented at least 50% of the gross
revenues of the Company (determined on a consolidated basis) for the most
recently ended twelve (12) month period; and the consideration involved in such
sale, reorganization, recapitalization or other transaction reflects a Warrant
Share value which is greater than the Call Purchase Price of a Warrant, then the
Company shall remit to the Holders from whom such Warrants were repurchased an
amount equal to the product of:
(x) the difference of:
(i) the actual fair market value of the consideration
on a per Warrant Share basis involved in such subsequent sale, reorganization,
recapitalization or other transaction; less
(ii) the Call Purchase Price;
multiplied by
-------------
E-18
<PAGE>
(y) the number of Warrants purchased by the Company
pursuant to this Section 11 pro rata according to the quantity of the Warrants
---------- --- ----
sold by such Holders.
b. If all or any portion of the consideration involved in
any sale, reorganization, recapitalization or other transaction described in
Section 11.3(a) hereof is non-cash consideration, a determination of the fair
market value of such consideration shall be made in good faith by the Board or
as otherwise provided in the Valuation Procedure.
12. Allocated Purchase Price. The Company and the holder hereby
------------------------
acknowledge that for the purposes of Section 1273(c)(2) of the Internal Revenue
Code, this Warrant is a part of an investment unit with the loans being made by
the holder to the Company under the Amendment and that the allocated purchase
price of the Warrant is Five cents ($0.05). The Company and the holder agree to
use the foregoing allocated purchase price as the purchase price of the Warrant
for all income tax purposes.
13. Modification and Waiver. Subject to Section 23, this Warrant and
----------------------- ----------
any provision hereof may be changed, waived, discharged or terminated only by an
instrument in writing signed by the party against which enforcement of the same
is sought.
14. Notices. Unless otherwise specifically provided herein, all
--------
communications under this Warrant shall be in writing and shall be deemed to
have been duly given (i) on the date of service if served personally on the
party to whom notice is to be given, (ii) on the day of transmission if sent by
facsimile transmission to a number provided to a party specifically for such
purposes, and telephonic confirmation of receipt is obtained promptly after
completion of transmission, (iii) on the day after delivery to Federal Express
or similar overnight courier, or (iv) on the fifth day after mailing, if mailed
to the party to whom notice is to be given, by first class mail, registered or
certified, postage prepaid, and properly addressed, return receipt requested, to
each such holder at the address for notice called for under Section 11(d) of the
-------------
Registration Rights Agreement, or to the Company at the address indicated
therefor on the signature page of this Warrant. Any party hereto may change its
address for purposes of this Section 14 by giving the other party written notice
----------
of the new address in the manner set forth herein.
15. Binding Effect on Successors. This Warrant shall be binding upon
-----------------------------
any corporation succeeding the Company by merger, consolidation or acquisition
of all or substantially all of the Company's assets, and all of the obligations
of the Company relating to the Common Stock issuable upon the exercise or
conversion of this Warrant shall survive the exercise, conversion and
termination of this Warrant and all of the covenants and agreements of the
Company shall inure to the benefit of the successors and assigns of the holder
hereof. The Company will, at the time of the exercise or conversion of this
Warrant, in whole or in part, upon request of the holder hereof but at the
Company's expense, acknowledge in writing its continuing obligation to the
holder hereof in respect of any rights to which the holder hereof shall continue
to be entitled after such exercise or conversion in accordance with this
Warrant; provided, that
--------
E-19
<PAGE>
the failure of the holder hereof to make any such request shall not affect the
continuing obligation of the Company to the holder hereof in respect of such
rights.
16. Lost Warrants or Stock Certificates. The Company covenants to
------------------------------------
the holder hereof that, upon receipt of evidence reasonably satisfactory to the
Company of the loss, theft, destruction or mutilation of this Warrant or any
stock certificate and, in the case of any loss, theft or destruction, upon
receipt of an executed lost securities bond or indemnity reasonably satisfactory
to the Company, or in the case of any such mutilation upon surrender and
cancellation of such Warrant or stock certificate, the Company will make and
deliver a new Warrant or stock certificate, of like tenor, in lieu of the lost,
stolen, destroyed or mutilated Warrant or stock certificate.
17. Descriptive Headings. The descriptive headings of the several
---------------------
paragraphs of this Warrant are inserted for convenience only and do not
constitute a part of this Warrant.
18. Governing Law. The validity, interpretation and performance of
--------------
this Warrant shall be governed by, and construed in accordance with, the laws of
the State of New York applicable to contracts made and to be performed entirely
within such State, regardless of the law that might be applied under principles
of conflicts of law.
19. Survival of Representations, Warranties and Agreements. Each of
-------------------------------------------------------
the respective representations and warranties of the Company and the holder
hereof contained herein shall survive the Date of Grant, the exercise or
conversion of this Warrant (or any part hereof) and the termination or
expiration of any rights hereunder. Each of the respective agreements of each
of the Company and the holder hereof contained herein shall survive indefinitely
until, by their respective terms, they are no longer operative.
20. Remedies. In case any one (1) or more of the covenants and
---------
agreements contained in this Warrant shall have been breached, the holders
hereof (in the case of a breach by the Company), or the Company (in the case of
a breach by a holder), may proceed to protect and enforce their or its rights
either by suit in equity and/or by action at law, including, but not limited to,
an action for damages as a result of any such breach and/or an action for
specific performance of any such covenant or agreement contained in this
Warrant.
21. Acceptance. Receipt of this Warrant by the holder hereof shall
-----------
constitute acceptance of and agreement to the foregoing terms and conditions.
22. No Impairment of Rights. The Company will not, by amendment of
------------------------
its Charter or through any other means, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times in good
faith assist in the carrying out of all such terms and in the taking of all such
action as may be necessary or appropriate in order to protect the rights of the
holder of this Warrant against material impairment.
23. Amendment. This Warrant may be amended by written agreement of
----------
the Company and holders of 51% of the Investor Warrants, collectively on an as-
exercised basis, and such amendment shall be binding on all holders of this
Warrant or Warrant Shares; provided,
--------
E-20
<PAGE>
however, the consent of any holder of Warrants affected by any amendment will be
- -------
required for an amendment pursuant to which (i) the Warrant Price is increased,
(ii) the number of Warrant Shares purchasable upon exercise of the Warrant is
decreased (other than pursuant to any adjustments provided herein), (iii) the
Expiration Date is changed, or (iv) any right of a holder under the Warrant is
adversely impacted in a manner different than the other holders.
24. Registration Rights Agreement. The Company shall provide to the
-----------------------------
holder hereof, upon written request, a true copy of the Registration Rights
Agreement, as amended and modified to date.
25. Counterparts. This Warrant Agreement may be executed in any
------------
number of counterparts and by the parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement.
IN WITNESS WHEREOF the parties hereto have executed this Warrant
Agreement as of the day and year first above written.
COMPANY: VIDEO UPDATE, INC.,
a Delaware corporation
By: _____________________________________
Name: Daniel A. Potter
Title: Chairman and Chief Executive Officer
SIGNATURES OF INITIAL HOLDERS
E-21
<PAGE>
EXHIBIT A
---------
NOTICE OF EXERCISE
------------------
To: Video Update, Inc.
1. The undersigned hereby elects to purchase _____ shares of Common
Stock of ______________________ pursuant to the terms of the attached Warrant,
and tenders herewith payment of the purchase price of such shares in full.
2. Please issue a certificate or certificates representing said
shares in the name of the undersigned or in such other name or names as are
specified below:
__________________________ ______________________________
(Name)
______________________________
(Address)
3. The undersigned represents that the aforesaid shares are being
acquired for the account of the undersigned for investment and not with a view
to, or for resale in connection with, the distribution thereof and that the
undersigned has no present intention of distributing or reselling such shares.
In support thereof, the undersigned has executed an Investment Representation
Statement attached hereto as Schedule 1.
_________________________ (Signature) __________________(Date)
4. Please issue a new Warrant for the unexercised portion of the
attached Warrant in the name of the undersigned or in such other name as is
specified below:
______________________________________________
5. I elect to convert this Warrant pursuant to the cashless
Conversion Right described in Section 2(c) of the Warrant Agreement for
------------
____________ Warrant Shares (as such term is defined therein). [_] (check here)
Date:_____________________
By: (Warrantholder)_____________________
Name: (Print)___________________________
Its: __________________________________
E-22
<PAGE>
Schedule 1
----------
INVESTMENT REPRESENTATION STATEMENT
Purchaser:
Company: Video Update, Inc.
Security: Class A Common Stock
Amount:
Date:
In connection with the purchase of the above-listed securities (the
"Registrable Securities"), the undersigned (the "Purchaser") represents to the
Company as follows:
(a) The Purchaser is aware of the Company's business affairs and
financial condition, and has acquired sufficient information about the Company
to reach an informed and knowledgeable decision to acquire the Registrable
Securities. The Purchaser is purchasing the Registrable Securities for its own
account for investment purposes only and not with a view to, or for the resale
in connection with, any "distribution" thereof for purposes of the Securities
Act of 1933, as amended (the "Act").
(b) The Purchaser understands that the Registrable Securities have
not been registered under the Act in reliance upon a specific exemption
therefrom, which exemption depends upon, among other things, the bona fide
nature of the Purchaser's investment intent as expressed herein.
(c) The Purchaser further understands that the Registrable Securities
must be held indefinitely unless subsequently registered under the Act or unless
an exemption from registration is otherwise available. In addition, the
Purchaser understands that the certificate evidencing the Registrable Securities
will be imprinted with the legend referred to in the Warrant under which the
Registrable Securities are being purchased.
(d) The Purchaser is aware of the provisions of Rule 144 and 144A,
promulgated under the Act, which, in substance, permit limited public resale of
"restricted securities" acquired, directly or indirectly, from the issuer
thereof (or from an affiliate of such issuer), in a non-public offering subject
to the satisfaction of certain conditions, if applicable, including, among other
things: The availability of certain public information about the Company, the
resale occurring not less than one (1) year after the party has purchased and
paid for the securities to be sold; the sale being made through a broker in an
unsolicited "broker's transaction" or in transactions directly with a market
maker (as said term is defined under the
E-23
<PAGE>
Securities Exchange Act of 1934, as amended) and the amount of securities being
sold during any three-month period not exceeding the specified limitations
stated therein.
(e) The Purchaser further understands that at the time it wishes to
sell the Registrable Securities there may be no public market upon which to make
such a sale, and that, even if such a public market then exists, the Company may
not be satisfying the current public information requirements of Rule 144, and
that, in such event, the Purchaser may be precluded from selling the Registrable
Securities under Rule 144 even if the one-year minimum holding period had been
satisfied.
Purchaser:______________________________
E-24
<PAGE>
SCHEDULE 9(f)
-------------
Capital Stock
-------------
VIDEO UPDATE CLASS A COMMON STOCK, $.01 par value per share ("Class A Shares")
Class A Shares Authorized 60,000,000
Total Class A Shares issued and outstanding 29,278,457
Warrants and Options
<TABLE>
<S> <C>
Class A Shares underlying the Company's Class B Warrants (exercisable @
$8.75, expiring July 19, 1999). 8,504,825
Class A Shares underlying the Unit Purchase Option ("UPO") granted to the
underwriter of the Company's initial public offering ("IPO")(exercisable
@$6.25 for 117,500 units, each unit consisting of (i) one share of Class A
Common Stock, (ii) one Class A Warrant, (which in turn is exercisable
@$6.50 until July 19, 1999, for one share of Class A Stock and one Class B
Warrant, exercisable @8.75 until July 19, 1999, for one share of Class A
Common Stock), and (iii) one Class B Warrant). The UPO expires July 19,
1999. 470,000
Class A Shares underlying the second Unit Purchase Option ("2UPO") granted
to the underwriter of the Company's secondary offering (exercisable
@$1,300 for 795 units, each unit consisting of (i) 290 Class A shares,
(ii) 290 Class A Warrants, and (iii) 290 Class B Warrants--each unit
consisting only of 290 shares of Class A Stock after July 19, 1999). The
2UPO expires April 7, 2000. 922,200
Class A Shares underlying the Warrants issued to Banque Paribas (1,000,000
warrants @ $1.37, expiring March 6, 2003; 500,000 warrants to purchase
.75 shares @$1.37, expiring March 14, 2007). 1,375,000
Class A Shares underlying the Video Update Stock Option Plans-(1994
Plan-146,150 (after exercise of 3,850), 1995 Plan-425,000 (after exercise
of 425,000), 1996 Plan-820,000, 1998 Plan-1,750,000, 1994 Formula Stock
Option Plan for Directors-50,000). 3,191,150
Class A Shares underlying the Moovies Stock Option Plans-(approximately
719,836 at exercise prices ranging from approx. $5.41 to $16.84). 719,836
</TABLE>
E-25
<PAGE>
<TABLE>
<S> <C>
Class A Shares underlying conversion of Moovies Warrants (exercisable at
prices ranging from $.01 to $19.83). 378,719
Class A Shares underlying the Ingram Entertainment Inc. Warrants
(1,000,000 warrants @ $0.81, expiring May 11, 2004). 1,000,000
Class A Shares underlying the Warrants contemplated by the USBL Investors 3,937,500
June 1999 Warrant Agreements.
Class A Shares underlying the Warrants contemplated by the USBL June 1999 1,575,000
Warrant Agreement.
Class A Shares underlying the Warrants contemplated by the Banque Paribas 1,968,750
June 1999 Warrant Agreement.
Total Class A Shares underlying Options and Warrants 24,042,980
Total Shares Available on a Fully Diluted Basis 6,678,563
</TABLE>
Registration Rights
1. Registration rights assumed under any registration rights or similar
agreement of Moovies, Inc., acquired by the Company in March 1998.
2. Registration rights relating to 50,000 shares of Class A Common Stock
issued in connection with the Company's acquisition of Video View, in January
1997.
3. Registration rights relating to 25,000 shares Class A Common Stock issued
in connection with the Company's acquisition of Video Warehouse, in January
1997.
4. Registration rights relating to 11,500 shares Class A Common Stock issued
in connection with the Company's acquisition of Tigre Holdings in March 1997.
5. Registration rights relating to 50,000 shares Class A Common Stock issued
in connection with the Company's acquisition of Superior Video, in April 1997.
6. Registration rights relating to the Unit Purchase Options granted by the
Company to D.H. Blair Investment Banking Corp. and its designees on July 27,
1994.
7. Registration rights relating to the Unit Purchase Options granted by the
Company to D.H. Blair Investment Corp. and its designees on April 17, 1995.
E-26
<PAGE>
8. Registration rights relating to Warrants issued pursuant to the Warrant
Agreement between the Company, American Stock Transfer & Trust Company and D.H.
Blair Investment Banking Corp., dated as of July 20, 1994.
9. Registration rights relating to Warrants issued in connection with the
Credit Agreement.
10. Registration rights relating to Warrants issued to Ingram Entertainment
Inc., dated May 11, 1999.
11. Registration rights relating to Warrants contemplated by the Seventh
Amendment and Waiver to the Credit Agreement to: (i) USBL Investors; (ii) USBL;
and (iii) Banque Paribas.
12. Registration rights, right of first refusal and other rights granted to
USBL pursuant to the Engagement Letter, between USBL and the Company, dated
March 30, 1999 as amended by amendments on March 30, 1999 and May 7, 1999 (the
"Engagement Letter").
Rights Plans
Rights Agreement by and between the Company and American Stock Transfer &
Trust Company, as Rights Agent, dated April 13, 1998 (the "Rights Agreement"),
conferring upon each outstanding share of Class A Common Stock and each
outstanding Class B Warrant the right to purchase from the Company one one-
hundredth of a share of Series A Junior Participating Preferred Stock, par value
$.01 per share, of the Company at a price of $20.00 per one one-hundredth of a
share.
401(k) Plan
Video Update, Inc. 401(k) Plan, allowing for the purchase of the Company's
Class A Common Stock on the open market.
Class B Common Stock, $.01 par value per share
Two million (2,000,000) shares authorized, all previously issued shares of
which have been either converted into Class A Common Stock or cancelled.
Preferred Stock, $.01 par value per share
Five million (5,000,000) shares authorized, 400,000 shares of which have
been designated as "Series A Junior Participating Preferred Stock" in connection
with the Rights Plan.
E-27
<PAGE>
Exhibit 4b
----------
WARRANT AGREEMENT
THIS WARRANT AND THE SHARES OF CLASS A COMMON STOCK ISSUABLE UPON EXERCISE
THEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), OR ANY STATE SECURITIES LAWS, AND MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED UNLESS THERE IS (i) AN
EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT RELATED THERETO, (ii) AN OPINION
OF COUNSEL FOR THE HOLDER, REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH
REGISTRATION IS NOT REQUIRED, (iii) RECEIPT OF A NO-ACTION LETTER(S) FROM THE
APPROPRIATE GOVERNMENTAL AUTHORITY(IES), OR (iv) UNLESS PURSUANT TO AN EXEMPTION
THEREFROM UNDER RULE 144 (OR ANY SUCCESSOR PROVISION) OF THE ACT.
VIDEO UPDATE, INC.
------------------
WARRANT TO PURCHASE [___________] SHARES
OF CLASS A COMMON STOCK
VIDEO UPDATE, INC., a Delaware corporation (the "Company"), hereby
certifies that, for value received, [PARIBAS BANK GROUP] (the "Initial Holder"),
or its registered transferees, successors or assigns (collectively, together
with the Initial Holder, the "holder"), is the registered holder of warrants
(the "Warrants") to subscribe for and purchase [___________________________
(_________)] shares of the fully paid and nonassessable Class A Common Stock (as
adjusted pursuant to Section 4 hereof, the "Warrant Shares") of the Company, at
---------
a purchase price per share equal to $0.8719 (such price, as adjusted pursuant to
Section 4 hereof, the "Warrant Price"), subject to the provisions and upon the
- ---------
terms and conditions hereinafter set forth. As used herein, (a) the term
"Common Stock" shall mean the Company's presently authorized Class A Common
Stock, par value $.01 per share, and any stock into or for which such Class A
Common Stock may hereafter be converted or exchanged, and (b) the term "Date of
Grant" shall mean June __, 1999. The term "Warrant" as used herein shall be
deemed to include any warrant issued upon transfer or partial exercise of this
Warrant, unless the context clearly requires otherwise. This Warrant is being
issued pursuant to (i) that certain Seventh Amendment and Waiver (the
"Amendment") of even date herewith by and among the Company, the persons or
institutions named as Banks on Schedule I to such Amendment, and Paribas, as
----------
Agent, and (ii) that certain Engagement Letter, by and between the Company and
U.S. Bancorp Libra, a division of U.S. Bancorp Investments, Inc., a Minnesota
corporation ("USBL"). The holders are entitled to the benefits of the
Registration Rights Agreement (the "Registration Rights Agreement") of even date
herewith by and among the Company and the investors name therein (each an
"Investor"). This Warrant, together with other similar warrants issued to the
other Investors as of the date hereof, are referred to herein as the "Investor
Warrants".
E-28
<PAGE>
1. Term. The purchase right represented by this Warrant is exercisable,
----
in whole or in part, at any time and from time to time from the Date of Grant
through and including the close of business on June 16, 2006 (the "Expiration
Date"); provided, however, that in the event that any portion of this Warrant is
-------- -------
unexercised as of the Expiration Date, the terms of Section 2(b) below shall
------------
apply.
2. Exercise.
--------
a. Method of Exercise; Payment; Issuance of New Warrant. Subject to
----------------------------------------------------
Section 1 hereof, the purchase right represented by this Warrant may be
- ---------
exercised by the holder hereof, in whole or in part and from time to time, by
the surrender of this Warrant (with the notice of exercise form attached hereto
as Exhibit A duly executed) at the principal office of the Company, and, except
---------
as otherwise provided for herein, by the payment to the Company of an amount
equal to the then applicable Warrant Price multiplied by the number of Warrant
Shares then being purchased (the "Warrant Shares Purchase Price"). The Warrant
Shares Purchase Price shall be payable (i) in cash, or (ii) by cancellation of
such amount of loans made pursuant to the Amendment in a principal amount plus
accrued interest thereon equal to the Warrant Shares Purchase Price. The person
or persons in whose name(s) any certificate(s) representing shares of Common
Stock shall be issuable upon exercise of this Warrant shall be deemed to have
become the holder(s) of record of, and shall be treated for all purposes as the
record holder(s) of, the shares represented thereby (and such shares shall be
deemed to have been issued) immediately prior to the close of business on the
date or dates upon which this Warrant is exercised if exercised prior to the
close of business on such date; otherwise, the date of record shall be the
next business day. In the event of any exercise of the rights represented by
this Warrant, certificates for the shares of Common Stock so purchased shall be
delivered to the holder hereof as soon as possible and in any event within
thirty (30) days after such exercise and, unless this Warrant has been fully
exercised (including without limitation, exercise pursuant to Section 2(b)
------------
below), a new Warrant representing the portion of the Warrant Shares, if any,
with respect to which this Warrant shall not then have been exercised shall also
be issued to the holder hereof as soon as possible and in any event within such
thirty (30)-day period.
b. Automatic Exercise. In the event that any portion of this Warrant
------------------
remains unexercised as of the Expiration Date and the fair market value
(determined in accordance with Section 4(h) below) of one share of Common Stock
------------
as of the Expiration Date is greater than the applicable Warrant Price as of the
Expiration Date, then this Warrant shall be deemed to have been exercised
automatically immediately prior to the close of business on the Expiration Date
(or, in the event that the Expiration Date is not a business day, the
immediately preceding business day) (the "Automatic Exercise Date"), and the
person entitled to receive the shares of Common Stock issuable upon such
exercise shall be treated for all purposes as the holder of record of such
Warrant Shares as of the close of business on such Automatic Exercise Date.
This Warrant shall be deemed to be surrendered to the Company on the Automatic
Exercise Date by virtue of this Section 2(b) and without any action by the
------------
holder of this Warrant or any other person, and payment to the Company of the
then applicable Warrant Price multiplied by the number of Warrant Shares then
being purchased shall be deemed to be made as
E-29
<PAGE>
of the Automatic Exercise Date pursuant to the conversion provisions of Section
-------
2(c) below (without payment by the holder of any cash exercise price). As
- ----
promptly as practicable on or after the Automatic Exercise Date and in any event
within thirty (30) days thereafter, the Company at its expense shall issue and
deliver to the person or persons entitled to receive the same a certificate or
certificates for the number of Warrant Shares issuable upon such exercise.
c. Cashless Right to Convert Warrant into Common Stock; Net
--------------------------------------------------------
Issuance.
- --------
(1) Right to Convert. In addition to and without limiting
----------------
the rights of the holder hereof under the terms of this Warrant, the holder
shall have the right to convert this Warrant or any portion thereof (the
"Conversion Right") into shares of Common Stock as provided in this Section 2(c)
------------
at any time or from time to time during the term of this Warrant, including upon
the Automatic Exercise Date. Upon exercise of the Conversion Right with respect
to all or a specified portion of Warrant Shares subject to this Warrant (the
"Converted Warrant Shares"), the Company shall deliver to the holder (without
payment by the holder of any cash or other cash consideration) that number of
shares of fully paid and nonassessable Common Stock equal to the quotient
obtained by dividing (i) the value of this Warrant (or the specified portion
hereof) on the Conversion Date (as defined in Section 2(c)(2) hereof), which
---------------
value shall be equal to (A) the aggregate fair market value of the Converted
Warrant Shares issuable upon exercise of this Warrant (or the specified portion
hereof) on the Conversion Date less (B) the aggregate Warrant Price of the
Converted Warrant Shares immediately prior to the exercise of the Conversion
Right by (ii) the fair market value of one (1) share of Common Stock on the
Conversion Date.
Expressed as a formula, such conversion shall be computed as follows:
X = A - B
-----
Y
Where: X = the number of shares of Common Stock to be issued
to the holder
Y = the fair market value ("FMV") of one (1) share of
Common Stock
A = the aggregate FMV (i.e., FMV x Converted Warrant
Shares)
B = the aggregate Warrant Price (i.e., Converted
Warrant Shares x Warrant Price)
No fractional shares shall be issuable upon exercise of the
Conversion Right, and, if the number of shares to be issued determined in
accordance with the foregoing formula is other than a whole number, the Company
shall pay to the holder an amount in cash equal to the fair market value of the
resulting fractional share on the Conversion Date. For purposes of the
E-30
<PAGE>
Registration Rights Agreement, shares issued pursuant to the Conversion Right
shall be treated as if they were issued upon the exercise of this Warrant.
(2) Method of Exercise. The Conversion Right may be
------------------
exercised by the holder by the surrender of this Warrant at the principal office
of the Company together with a written statement specifying that the holder
thereby intends to exercise the Conversion Right and indicating the number of
shares subject to this Warrant which are being surrendered (referred to in
Section 2(c)(1) hereof as the Converted Warrant Shares) in exercise of the
- ---------------
Conversion Right. Such conversion shall be effective upon receipt by the Company
of this Warrant together with the aforesaid written statement, or on such later
date as is specified therein (the "Conversion Date"). Certificates for the
shares issuable upon exercise of the Conversion Right and, if applicable, a new
warrant evidencing the balance of the shares remaining subject to this Warrant,
shall be issued as of the Conversion Date and shall be delivered to the holder
within thirty (30) days following the Conversion Date.
(3) Determination of Fair Market Value. For purposes of
----------------------------------
this Section 2(c), "fair market value" of a share of Common Stock shall have the
------------
meaning set forth in Section 4(h) below.
------------
3. Stock Fully Paid; Reservation of Shares. All Warrant Shares that
---------------------------------------
may be issued upon the exercise of the rights represented by this Warrant will,
upon issuance pursuant to the terms and conditions herein, be fully paid and
nonassessable, and free from all taxes, liens, charges, and pre-emptive rights
with respect to the issue thereof. The Company shall pay all transfer taxes, if
any, attributable to the issuance of the Warrant Shares upon the exercise of
this Warrant. During the period within which the rights represented by this
Warrant may be exercised, the Company will at all times have authorized, and
reserved for the purpose of the issue upon exercise of the purchase rights
evidenced by this Warrant, a sufficient number of shares of its Common Stock to
provide for the exercise of the rights represented by this Warrant.
4. Adjustment of Warrant Price and Number of Shares. The number and
------------------------------------------------
kind of securities purchasable upon the exercise of this Warrant and the Warrant
Price shall be subject to adjustment from time to time upon the occurrence of
certain events, as follows:
a. Merger, Sale, Reclassification. In case of any (i)
------------------------------
consolidation or merger of the Company with or into another entity (other than a
merger in which the Company is the continuing corporation (A) and which does not
result in any reclassification or change of the then outstanding shares of
Common Stock or issuance of any dividend or other distribution of cash,
securities or property to holders of the then outstanding shares of Common
Stock, or (B) resulting solely in a change in par value, or from par value to no
par value, or from no par value to par value, or in a stock split, subdivision
or combination which is the subject of another paragraph in this Section 4),
---------
(ii) sale or other disposition of all or substantially all of the Company's
assets or distribution of property to stockholders (other than distributions
payable out of earnings or retained earnings), or (iii) reclassification, change
or conversion of securities of the class issuable upon exercise of this Warrant
(other than a change in par value, or from par value to no par value, or from no
par value to par value, or as a result of any stock split, subdivision or
combination
E-31
<PAGE>
which is the subject of another paragraph in this Section 4), then the Company
----------
shall take all necessary actions (including but not limited to executing and
delivering to the holder of this Warrant an additional Warrant or other
instrument, in form and substance mutually agreeable to the Company and the
holder of this Warrant) to ensure that the holder of this Warrant shall
thereafter have the right to receive, at a total purchase price not to exceed
that payable upon the exercise of the unexercised portion of this Warrant, and
in lieu of the shares of Common Stock theretofore issuable upon exercise of this
Warrant, the kind and amount of shares of stock, other securities, money and
property receivable upon such consolidation, merger, sale or other disposition,
reclassification, change or conversion by a holder of the number of shares of
Common Stock then purchasable under this Warrant (which, in the case of such a
transaction in which holders of Common Stock were entitled to elect between
different forms of consideration, shall be deemed to be the form of
consideration received by a plurality of the electing holders of Common Stock).
Such new Warrant shall provide for adjustments that shall be as nearly
equivalent as may be practicable to the adjustments provided for in this Section
-------
4. The provisions of this Section 4(a) shall similarly apply to successive
- - ------------
reclassifications, changes and conversions.
b. Subdivision or Combination of Shares. If the Company at any time
------------------------------------
while this Warrant remains outstanding and unexpired shall subdivide or combine
its outstanding shares of Common Stock, the Warrant Price shall be
proportionately decreased in the case of a subdivision or increased in the case
of a combination, effective at the close of business on the date the subdivision
or combination becomes effective.
c. Stock Dividends and Other Distributions. If the Company at any
---------------------------------------
time while this Warrant is outstanding and unexpired shall (i) pay a dividend
with respect to Common Stock payable in Common Stock, or (ii) make any other
distribution with respect to Common Stock (except any distribution specifically
provided for in Section 4(a) or Section 4(b) hereof) of Common Stock, then the
------------ ------------
Warrant Price shall be adjusted, from and after the date of determination of
stockholders entitled to receive such dividend or distribution, to that price
determined by multiplying the Warrant Price in effect immediately prior to such
date of determination by a fraction (i) the numerator of which shall be the
total number of shares of Common Stock outstanding immediately prior to such
dividend or distribution, and (ii) the denominator of which shall be the total
number of shares of Common Stock outstanding immediately after such dividend or
distribution.
d. Rights Offerings. In case the Company shall, at any time after
----------------
the Date of Grant, issue to holders of shares of the capital stock of the
Company (solely as a result of such holders' status as stockholders of the
Company) any rights, options or warrants entitling them to subscribe for or
purchase shares of Common Stock (or securities convertible or exchangeable into
Common Stock) at a price per share of Common Stock (or having a conversion or
exchange price per share of Common Stock if a security convertible or
exchangeable into Common Stock) less than the fair market value per share of
Common Stock on the record date for such issuance (or the date of issuance, if
there is no record date), the Warrant Price to be in effect on and after such
record date (or issuance date, as the case may be) shall be adjusted so that it
shall equal the price determined by multiplying the Warrant Price in effect
immediately prior to such record date (or issuance date, as the case may be) by
a fraction (i) the numerator of which shall be the number of
E-32
<PAGE>
Fully Diluted Shares of Common Stock outstanding on such record date (or
issuance date, as the case may be) plus the number of shares of Common Stock
which the aggregate offering price of the total number of shares of such Common
Stock so to be offered (or the aggregate initial exchange or conversion price of
the exchangeable or convertible securities so to be offered) would purchase at
such fair market value on such record date (or issuance date, as the case may
be) and (ii) the denominator of which shall be the number of Fully Diluted
Shares of Common Stock outstanding on such record date (or issuance date, as the
case may be) plus the number of additional shares of Common Stock to be offered
for subscription or purchase (or into which the convertible securities to be
offered are initially exchangeable or convertible). For purposes of this
Warrant, "Fully Diluted Shares" shall mean the number of shares of Common Stock
deemed to be outstanding calculated pursuant to the treasury stock method as
contemplated by the Accounting Principles Board Opinion No. 15 (as referred to
in Statement of Financial Accounting Standards No. 128). In case such
subscription price may be paid in part or in whole in a form other than cash,
the fair market value of such consideration shall be determined by the Board of
Directors of the Company in good faith as set forth in a duly adopted board
resolution certified by the Company's Secretary or Assistant Secretary,
provided, that in the event the Board of Directors is unable to make such a
- --------
determination or holders of at least fifty-one percent (51%) of the Warrant
Shares issuable under outstanding Investor Warrants disagree in writing with
such determination, then the fair market value of such consideration shall be
determined in the same manner as a Valuation Procedure under Section 4(h) below.
------------
Such adjustment shall be made successively whenever such an issuance occurs; and
in the event that such rights, options, warrants, or convertible or exchangeable
securities are not so issued or are canceled, expire or cease to be convertible
or exchangeable before they are exercised, converted, or exchanged (as the case
may be), then the Warrant Price shall again be adjusted to be the Warrant Price
that would then be in effect if such issuance had not occurred, but such
subsequent adjustment shall not affect the number of Warrant Shares issued upon
any exercise of this Warrant prior to the date such subsequent adjustment is
made.
e. Other Special Distributions. In case the Company shall fix a
---------------------------
record date for the making of a distribution (other than dividends,
distributions or issuances referred to in Section 4(b), Section 4(c) or Section
------------ ------------ -------
4(d) above, and other than cash dividends to the extent paid out of the
- ----
consolidated net income of the Company, as determined in accordance with
generally accepted accounting principles consistently applied, after the date
hereof) to all holders of shares of Common Stock (including any such
distribution made in connection with a consolidation or merger in which the
Company is the surviving corporation) of cash, evidences of indebtedness, assets
or subscription rights, options, warrants, or exchangeable or convertible
securities containing the right to subscribe for or purchase shares of any class
of equity securities of the Company, the Warrant Price to be in effect on and
after such record date shall be adjusted by multiplying the Warrant Price in
effect immediately prior to such record date by a fraction (i) the numerator of
which shall be the fair market value per share of Common Stock on such record
date (determined in accordance with Section 4(h) below), less the cash and/or
------------
the fair market value (as determined by the Board of Directors of the Company in
good faith as set forth in a duly adopted board resolution certified by the
Company's Secretary or Assistant Secretary) of the portion of the assets or
evidences of indebtedness so to be distributed or of such subscription rights,
options, warrants, or exchangeable or convertible securities applicable to one
(1) share of the Common
E-33
<PAGE>
Stock outstanding as of such record date, provided, that in the event the Board
--------
of Directors is unable to make such a determination or holders of at least
fifty-one percent (51%) of the Warrant Shares issuable under outstanding
Investor Warrants disagree in writing with such determination, then the fair
market value of such consideration shall be determined in the same manner as a
Valuation Procedure under Section 4(h) below, and (ii) the denominator of which
------------
shall be such fair market value per share of Common Stock as determined in the
manner set forth under Section 4(h) below. Such adjustment shall be made
------------
successively whenever such a record date is fixed; and in the event that such
distribution is not so made, the Warrant Price shall again be adjusted to be the
Warrant Price which would then be in effect if such record date had not been
fixed, but such subsequent adjustment shall not affect the number of Warrant
Shares issued upon any exercise of this Warrant prior to the date such
subsequent adjustment was made.
f. Other Issuances and Adjustments.
-------------------------------
(1) In case the Company or any subsidiary thereof shall, at any
time after the Date of Grant, issue shares of Common Stock, or rights, options,
warrants or convertible or exchangeable securities containing the right to
subscribe for or acquire shares of Common Stock (excluding (i) shares, rights,
options, warrants, or convertible or exchangeable securities outstanding on the
Date of Grant, or issued in any of the transactions described in Sections 4(b),
-------------
4(c), 4(d) or 4(e) above, (ii) shares issued upon the exercise of such rights,
- ------------------
options or warrants or upon conversion or exchange of such convertible or
exchangeable securities, and (iii) up to Three Million Nine Hundred Fourteen
Thousand Eight Hundred Thirty Six (3,914,836) (subject to adjustment for splits,
recapitalizations, or similar events) shares of Common Stock issued or issuable
to directors, officers, employees or consultants of the Company or any
subsidiary in connection with their service as directors, officers, employees or
consultants pursuant to any stock grant, stock option, warrant or other right
issued by the Company and approved by the Board of Directors of the Company
under a duly adopted stock option or incentive plan in existence on the date
hereof), at a price per share of Common Stock (determined in the case of such
rights, options, warrants, or convertible or exchangeable securities by dividing
(x) the total amount received and/or receivable by the Company in consideration
of the sale and issuance of such rights, options, warrants, or convertible or
exchangeable securities, plus the total minimum consideration payable to the
Company upon exercise, conversion, or exchange thereof by (y) the total maximum
number of shares of Common Stock covered by such rights, options, warrants, or
convertible or exchangeable securities) less than the higher of (A) the Warrant
Price and (B) the fair market value per share of Common Stock (determined in
accordance with Section 4(h) below and in the case of rights, options, warrants
------------
or convertible or exchangeable securities, determined at the time of issuance of
such securities rather than upon exercise thereof), in each case on the date the
Company fixes the offering price of such shares, rights, options, warrants, or
convertible or exchangeable securities, then the Warrant Price shall be adjusted
so that it shall equal the price determined by multiplying the Warrant Price in
effect immediately prior thereto by a fraction (i) the numerator of which shall
be the sum of (A) the number of Fully Diluted Shares outstanding immediately
prior to such sale and issuance plus (B) the number of shares of Common Stock
which the aggregate consideration received or receivable (determined as provided
herein) in connection with such sale or issuance would purchase at such higher
price, and (ii) the denominator of which shall be the total number of Fully
Diluted Shares outstanding immediately
E-34
<PAGE>
after such sale and issuance. Such adjustment shall be made successively
whenever such an issuance is made. In the event that any of the rights, options,
warrants or convertible or exchangeable securities referred to in this paragraph
(1) are not so issued or are canceled, expire or cease to be convertible or
exchangeable before they are exercised, converted, or exchanged (as the case may
be), then the Warrant Price shall again be adjusted to be the Warrant Price that
would then be in effect if the issuance of such rights, options, warrants or
securities had not occurred, but such subsequent adjustment shall not affect the
number of Warrant Shares issued upon any exercise of this Warrant prior to the
date such subsequent adjustment is made. If the Warrant Price is adjusted
pursuant to this subsection, no further adjustment shall be made upon the
exercise of such rights, options or warrants or upon the conversion or exchange
of such convertible or exchangeable securities, or upon the conversion or
exchange of convertible securities issued upon the exercise of such rights,
options or warrants.
(2) In case the Company or any subsidiary thereof shall, at any time
after the Date of Grant, make or agree to (i) any downward adjustment in the
exercise, exchange or conversion price of, (ii) any increase in the number of
shares of Common Stock issuable upon the exercise, conversion or exchange of, or
(iii) any change in the consideration payable for the exercise, conversion or
exchange of, any rights, options, warrants or convertible or exchangeable
securities containing the right to subscribe for or acquire shares of Common
Stock, other than such adjustment that is specifically contemplated and required
under the terms of any such instrument as of the Date of Grant, then the Warrant
Price shall be adjusted so that it shall equal the price determined by
multiplying the Warrant Price in effect immediately prior thereto by a fraction
the numerator of which shall be the sum of (A) the number of shares of Common
Stock outstanding immediately prior thereto, plus (B) the number of shares of
Common Stock to be issued upon such exercise, conversion or exchange immediately
prior thereto, multiplied by the aggregate amount of the fair market value of
the consideration to be received by the Company upon such exercise, conversion
or exchange immediately thereafter, and the denominator shall be the sum of (X)
the number of shares of Common Stock outstanding immediately thereafter, plus
(Y) the number of shares of Common Stock to be issued upon such exercise,
conversion or exchange immediately thereafter, multiplied by the aggregate
amount of the fair market value of the consideration to be received by the
Company upon such exercise, conversion or exchange immediately prior thereto.
Such adjustment shall be made successively whenever such an issuance is made.
(3) For the purposes of an adjustment under this Section 4(f), the
------------
maximum number of shares of Common Stock which the holder of any right, option,
warrant or convertible or exchangeable security shall be entitled to subscribe
for or purchase shall be deemed to be issued and outstanding; furthermore, the
consideration received by the Company therefor shall be deemed to be equal to
the price per share of Common Stock (determined in the case of such rights,
options, warrants, or convertible or exchangeable securities by dividing (x) the
total amount received and/or receivable by the Company in consideration of the
sale and issuance of such rights, options, warrants, or convertible or
exchangeable securities, plus the total minimum consideration payable to the
Company upon exercise, conversion, or exchange thereof by (y) the total maximum
number of shares of Common Stock covered by such rights, options, warrants, or
convertible or exchangeable securities) multiplied by the number of shares
deemed issued and
E-35
<PAGE>
outstanding in the previous sentence. In case the Company shall issue shares of
Common Stock, or issue or make an adjustment to the exercise, exchange or
conversion price of rights, options, warrants, or convertible or exchangeable
securities containing the right to subscribe for or acquire shares of Common
Stock for a consideration consisting, in whole or in part, of consideration
other than cash or its equivalent, then in determining the price per share of
Common Stock and the consideration received by the Company, the Board of
Directors of the Company shall determine, in good faith, the fair market value
of said property, and such determination shall be described in a duly adopted
board resolution certified by the Company's Secretary or Assistant Secretary,
provided, that in the event the Board of Directors is unable to make such a
- --------
determination or holders of at least fifty-one percent (51%) of the Warrant
Shares issuable under outstanding Investor Warrants disagree in writing with
such determination, then the fair market value of such consideration shall be
determined in the same manner as a Valuation Procedure under Section 4(h) below.
------------
In case the Company shall issue shares of Common Stock, or issue or make an
adjustment to the exercise or conversion price of rights, options, warrants, or
convertible or exchangeable securities containing the right to subscribe for or
acquire shares of Common Stock, together with one (1) or more other security as
a part of a unit at a price per unit, then in determining the price per share of
Common Stock and the consideration received or to be by the Company, the Board
of Directors of the Company shall determine, in good faith, which determination
shall be described in a duly adopted board resolution certified by the Company's
Secretary or Assistant Secretary, the fair market value of the rights, options,
warrants, or convertible or exchangeable securities then being sold as part of
such unit, provided, that in the event the Board of Directors is unable to make
--------
such a determination or holders of at least fifty-one percent (51%) of the
Warrant Shares issuable under outstanding Investor Warrants disagree in writing
with such determination, then the fair market value of such consideration shall
be determined in the same manner as a Valuation Procedure under Section 4(h)
------------
below.
g. Adjustment of Number of Shares. Upon each adjustment in the
------------------------------
Warrant Price, the number of Warrant Shares purchasable hereunder shall be
adjusted, to the nearest whole share, to the product obtained by multiplying the
number of Warrant Shares purchasable immediately prior to such adjustment in the
Warrant Price by a fraction, the numerator of which shall be the Warrant Price
immediately prior to such adjustment and the denominator of which shall be the
Warrant Price immediately thereafter.
h. Determination of Fair Market Value. For purposes of those
----------------------------------
provisions of this Warrant requiring a determination in accordance with this
Section 4(h), "fair market value" as of a particular date (the "Determination
- ------------
Date") shall mean (i) if the Common Stock is publicly traded at the time of
determination, the average of the closing prices on such day of the Common Stock
on all domestic securities exchanges on which the Common Stock is then listed,
or, if there have been no sales on any such exchange on such day, the average of
the highest bid and lowest asked prices on all such exchanges at the end of such
day or, if on any such day the Common Stock is not so listed, the average of the
representative bid and asked prices quoted on the NASDAQ system as of 4:00 P.M.,
New York time, on such day, or if on any day such security is not quoted on the
NASDAQ system, the average of the highest bid and lowest asked prices on such
day in the domestic over-the-counter market as reported by the National
Quotation Bureau, Incorporated, or any similar successor organization, in each
such case averaged over a period of
E-36
<PAGE>
30 days consisting of the day as of which "fair market value" is being
determined and the twenty-nine consecutive business days prior to such day
(provided that, if fair market value is being determined as of the date of a
--------
firm commitment public offering of the Common Stock, fair market value as of
such date shall be the offering price for the Common Stock subject to such
public offering); or (ii) if the Common Stock is not publicly traded at the time
of determination, the Common Stock price per share determined by dividing Market
Value (as defined below) by the outstanding number of Fully-Diluted Shares of
Common Stock. "Market Value" means the highest price that would be paid for the
entire common equity of the Company on a going-concern basis in an arm's-length
transaction between a willing buyer and a willing seller (neither acting under
compulsion), using valuation techniques then prevailing in the securities
industry (but without giving effect to any discount in respect of a minority
interest) and determined in accordance with the "Valuation Procedure" (as
defined below) and assuming full disclosure and understanding of all relevant
information and a reasonable period of time for effectuating such sale. For the
purposes of determining the Market Value, (a) the exercise price of options or
warrants to acquire Common Stock which are deemed to have been exercised for the
purpose of determining the outstanding number of Fully-Diluted Shares of Common
Stock, shall be deemed to have been received by the Company, (b)(i) the
liquidation preference or indebtedness, as the case may be, represented by
securities which are deemed exercised for or converted into Common Stock for the
purpose of determining the outstanding number of Fully-Diluted Shares of Common
Stock and (ii) any contractual limitation in respect of the shares of Common
Stock relating to voting rights, shall be deemed to have been eliminated or
canceled and (c) full effect shall be given to any discount that may arise as
the result of the fact that the shares of Common Stock are not publicly traded.
"Valuation Procedure" means, with respect to the determination of any
amount or value required to be determined in accordance with such procedure, a
determination (which shall be final and binding on the Company and the holders)
made (i) by agreement among the Company and the holders of at least 51% of the
Warrant Shares issuable under outstanding Investor Warrants (collectively, the
"Requesting Holders") within twenty (20) days following the event requiring such
determination or (ii) in the absence of such an agreement, by an Independent
Financial Expert selected in accordance with the further provisions of this
definition. If required, an Independent Financial Expert shall be selected
within five days following the expiration of the 20-day period referred to
above, either by agreement among the Company and the Requesting Holders or, in
the absence of such agreement, by lot from a list of four potential Independent
Financial Experts remaining after the Company nominates three, the Requesting
Holders nominate three, and each side eliminates one potential Independent
Financial Expert. The Independent Financial Expert shall be instructed by the
Company and the Requesting Holders to make its determination within 20 days of
its selection. The fees and expenses of an Independent Financial Expert
selected hereunder shall be paid by the Company.
"Independent Financial Expert" means a nationally-recognized
investment banking firm (a) that does not (and whose directors, officers,
employees and Affiliates do not) have a direct or indirect material financial
interest in the Company or any holder, (b) that has not been, and, at the time
it is called upon to serve as an Independent Financial Expert under this
Agreement, is not (and none of whose directors, officers, employees or
Affiliates is not), a
E-37
<PAGE>
promoter, director or officer of the Company or any Holder, (c) that has not
been retained during the preceding two years by the Company or the holder for
any purpose, and (d) that is otherwise qualified to serve as an Independent
Financial Advisor. Any such person or entity may receive customary compensation
and indemnification by the Company for opinions or services it provides as an
Independent Financial Expert.
5. Notice of Adjustments. Whenever the Warrant Price or the number
---------------------
of Warrant Shares purchasable hereunder shall be adjusted pursuant to Section 4
---------
hereof, the Company shall make a certificate signed by its chief financial
officer setting forth, in reasonable detail, the event requiring the adjustment,
the amount of the adjustment, the method by which such adjustment was
calculated, and the Warrant Price and the number of Warrant Shares purchasable
hereunder after giving effect to such adjustment, which shall be mailed (without
regard to Section 14 hereof, by first class mail, postage prepaid) to the holder
----------
of this Warrant.
6. Fractional Shares. No fractional shares of Common Stock will be
-----------------
issued in connection with any exercise hereunder, but in lieu of such fractional
shares the Company shall make a cash payment therefor based on the fair market
value (as determined in accordance with Section 4(h) above) of a share of Common
------------
Stock on the date of exercise.
7. Compliance with Securities Act; Disposition of Warrant or Warrant
-----------------------------------------------------------------
Shares.
- ------
a. Compliance with Securities Act. The holder of this Warrant,
------------------------------
by acceptance hereof, agrees that this Warrant and the shares of Common Stock to
be issued upon exercise hereof, are being acquired for investment and that such
holder will not offer, sell or otherwise dispose of this Warrant, or any shares
of Common Stock to be issued upon exercise hereof except under circumstances
which will not result in a violation of the Securities Act of 1933, as amended
(the "Act"). Upon exercise of this Warrant, unless the Warrant Shares to be
received upon such exercise are intended to be included in a registration
statement under the Act, the holder hereof shall confirm in writing, by
executing the form attached as Schedule 1 to Exhibit A hereto, that the shares
---------
of Common Stock so purchased are being acquired for investment and not with a
view toward distribution or resale in violation of the Act. All shares of Common
Stock issued upon exercise of this Warrant (unless registered under the Act)
shall be stamped or imprinted with a legend in substantially the following form:
"THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. NO
SALE OR DISPOSITION MAY BE EFFECTED WITHOUT (i) AN EFFECTIVE
REGISTRATION STATEMENT RELATED THERETO, (ii) AN OPINION OF COUNSEL FOR
THE HOLDER, REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH
REGISTRATION IS NOT REQUIRED, (iii) RECEIPT OF A NO-ACTION LETTER(S)
FROM THE APPROPRIATE GOVERNMENTAL AUTHORITY(IES), OR (iv) OTHERWISE
COMPLYING WITH THE
E-38
<PAGE>
PROVISIONS OF SECTION 7 OF THE WARRANT UNDER WHICH THESE SECURITIES
---------
WERE ISSUED DIRECTLY OR INDIRECTLY."
In addition, in connection with the issuance of this Warrant, the
holder specifically represents to the Company by acceptance of this Warrant as
follows:
(1) The holder is aware of the Company's business affairs and
financial condition, and has acquired information about the Company sufficient
to reach an informed and knowledgeable decision to acquire this Warrant. The
holder is acquiring this Warrant for its own account for investment purposes
only and not with a view to, or for resale in connection with any "distribution"
thereof for purposes of the Act in violation of the Act. Each of the holders
acknowledges that such holder, or such holder's representatives, if any, has
been given access to information about the Company, through written material
provided in or attached to the Amendment, and through meetings with
representatives of the Company, and has had an opportunity to verify the
accuracy of such information, to ask questions of the Company's officers and
directors, and has received answers to such holder's satisfaction. Each of the
holders understands that the valuation and terms of the Warrant has been made
solely through and upon negotiations between the Company and the holders, and
not by an independent accountant, auditor, investment banker or third party.
Each of the holders represents that such holder has evaluated the fairness of
the terms and conditions of the Warrant to the extent he, she or it has deemed
necessary. In making a decision to purchase the Warrant, each of the holders has
relied solely on the information contained or referred to herein and upon
independent investigations made by such holder in his, her or its discretion. In
addition, none of the holders is purchasing any Warrant as a result or
subsequent to: (1) any advertisement, article, notice, or other publication
published in any newspaper, magazine, or similar broadcast media over the
internet, television, or radio; or (2) any seminar or meeting whose attendees,
including the holders, were invited as a result of, subsequent to, or pursuant
to, any general solicitation.
(2) The holder understands that this Warrant and the Warrant
Shares have not been registered under the Act in reliance upon a specific
exemption therefrom, which exemption depends upon, among other things, the bona
fide nature of the holder's investment intent as expressed herein, and the
assumption that holder resides at the address corresponding to him, her, or it
on Schedule A to the Registration Rights Agreement.
----------
(3) The holder further understands that this Warrant and the
Warrant Shares must be held indefinitely unless subsequently registered under
the Act and any applicable state securities laws, or unless exemptions from
registration are otherwise available.
(4) The holder is aware of the provisions of Rule 144
promulgated under the Act, which, in substance, permit limited public resale of
"restricted securities" acquired, directly or indirectly, from the issuer
thereof (or from an affiliate of such issuer), in a non-public offering subject
to the satisfaction of certain conditions, if applicable, including, among other
things: the availability of certain public information about the Company, the
resale occurring not less than one (1) year after the party has purchased and
paid for the securities to be sold; the sale being made through a broker in an
unsolicited "broker's transaction" or in transactions directly
E-39
<PAGE>
with a market maker (as said term is defined under the Securities Exchange Act
of 1934, as amended) and the amount of securities being sold during any three-
month period not exceeding the specified limitations stated therein.
(5) The holder further understands that at the time it wishes to
sell this Warrant and the Warrant Shares there may be no public market upon
which to make such a sale, and that, even if such a public market then exists,
the Company may not be satisfying the current public information requirements of
Rule 144, and that, in such event, the holder may be precluded from selling this
Warrant and the Warrant Shares under Rule 144 even if the one (1)-year minimum
holding period had been satisfied.
b. Disposition of Warrant or Warrant Shares. This Warrant and
----------------------------------------
the Warrant Shares may be detached and sold or otherwise transferred, in whole
or in part, separately from the loans made pursuant to the Amendment, except
that the holder may not transfer the Warrant or the Warrant Shares in a
transaction not effected on any securities exchange to any entity that is known
at the time of such transfer to be a direct competitor of, or that controls or
is controlled by or is under common control with an entity known to be a direct
competitor of, the Company or any of its material subsidiaries. With respect to
any offer, sale or other disposition of this Warrant, or any Warrant Shares
acquired pursuant to the exercise of this Warrant prior to registration of such
Warrant or Warrant Shares, the holder hereof and each subsequent holder of this
Warrant agrees to deliver, prior to the registration of any such transfer, a
written opinion of such holder's counsel (which may be in-house counsel for such
holder), if reasonably requested by the Company, to the effect that such offer,
sale or other disposition may be effected without registration or qualification
(under the Act as then in effect or any federal or state law then in effect) of
this Warrant or such Warrant Shares and indicating whether or not under the Act
certificates for this Warrant or such Warrant Shares to be sold or otherwise
disposed of require any restrictive legend as to applicable restrictions on
transferability in order to ensure compliance with applicable law. If a
determination has been made pursuant to this Section 7(b) that the opinion of
------------
counsel for the holder is not reasonably satisfactory to the Company, the
Company shall so notify the holder promptly after such determination has been
made. The foregoing notwithstanding, this Warrant or such Warrant Shares may, as
to such federal laws, be offered, sold or otherwise disposed of in accordance
with Rule 144 under the Act, provided that the Company shall have been furnished
with such information as the Company may reasonably request to provide a
reasonable assurance that the provisions of Rule 144 have been satisfied. Each
certificate representing this Warrant or the Warrant Shares thus transferred
(except a transfer pursuant to Rule 144) shall bear a legend as to the
applicable restrictions on transferability in order to ensure compliance with
such laws, unless in the aforesaid opinion of counsel for the holder
satisfactory to the Company, such legend is not required in order to ensure
compliance with such laws. The Company may issue stop transfer instructions to
its transfer agent or, if acting as its own transfer agent, the Company may stop
transfer on its corporate books, in connection with such restrictions.
8. Rights as Stockholders; Information. No holder of this Warrant,
-----------------------------------
as such, shall be entitled to vote or receive dividends or be deemed the holder
of Common Stock or any other securities of the Company which may at any time be
issuable on the exercise hereof for any
E-40
<PAGE>
purpose, nor shall anything contained herein be construed to confer upon the
holder of this Warrant, as such, any of the rights of a stockholder of the
Company or any right to vote for the election of the directors or upon any
matter submitted to stockholders at any meeting thereof, or to receive notice of
meetings, or to receive dividends or subscription rights or otherwise, until
this Warrant shall have been exercised and the Warrant Shares purchasable upon
the exercise hereof shall have become deliverable, as provided herein. The
foregoing notwithstanding, the Company will transmit to the holder of this
Warrant such information, documents and reports as are generally distributed to
the holders of any class or series of the securities of the Company concurrently
with the distribution thereof to the stockholders.
9. Representations and Warranties. The Company represents and
------------------------------
warrants to the holder of this Warrant, except as otherwise disclosed in the
Amendment or any schedule or exhibit thereto, as follows:
a. This Warrant has been duly authorized and executed by the
Company and is a valid and binding obligation of the Company enforceable in
accordance with its terms, subject to laws of general application relating to
bankruptcy, insolvency and the relief of debtors and the rules of law or
principles at equity governing specific performance, injunctive relief and other
equitable remedies;
b. The Warrant Shares have been duly authorized and reserved
for issuance by the Company and, when issued in accordance with the terms
hereof, will be validly issued, fully paid and nonassessable and are not subject
to any preemptive right of any stockholder of the Company;
c. The rights, preferences, privileges and restrictions granted
to or imposed upon the Common Stock and the holders thereof are as set forth in
the certificate of incorporation of the Company, as amended to the Date of Grant
(as so amended, the "Charter"), a true and complete copy of which has been
delivered to the original holder of this Warrant;
d. The execution and delivery of this Warrant are not, and the
issuance of the Warrant Shares upon exercise of this Warrant in accordance with
the terms hereof will not be, inconsistent with the Charter or by-laws of the
Company, do not and will not contravene, in any material respect, any
governmental rule or regulation, judgment or order applicable to the Company, do
not and will not conflict with or contravene any provision of, or constitute a
default under, any indenture, mortgage, contract or other instrument of which
the Company is a party or by which it is bound or require the consent or
approval of, the giving of notice to, the registration or filing with or the
taking of any action in respect of or by, any Federal, state or local government
authority or agency or other person, except for the filing of notices pursuant
to federal and state securities laws, which filings will be effected by the time
required thereby, and are not and will not, with the exception of the Amendment
and the Registration Rights Agreement, be subject to any voting trust agreement
or other contract, agreement, arrangement, commitment or understanding to which
the Company is a party, including such agreement, arrangement, commitment or
understanding restricting or otherwise relating to the voting or disposition
thereof;
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<PAGE>
e. There are no actions, suits, audits, investigations or
proceedings pending or, to the knowledge of the Company, threatened against the
Company in any court or before any governmental commission, board or authority
which, if adversely determined, will have a material adverse effect on the
ability of the Company to perform its obligations under this Warrant;
f. As of the Date of Grant, the authorized capital stock of the
Company (of all classes and series, including Common Stock and preferred stock),
the par value thereof, and the issued and outstanding amounts thereof, are as
set forth on Schedule 9(f) hereof. The issuance and sale of all such interests
-------------
was in compliance with all applicable federal and state securities laws, and all
issued and outstanding shares of capital stock of the Company are duly
authorized, validly issued, fully paid, and non-assessable. Other than the
Warrants, and other than as specified on Schedule 9(f) hereof, as of the Date of
-------------
Grant there are no preemptive rights or any outstanding subscriptions, options,
warrants, rights, convertible securities, calls or other agreements,
arrangements or commitments (including, without limitation, registration rights
agreements) relating to the issued or unissued shares of the Company's capital
stock or other securities, including any right of conversion or exchange under
any outstanding security or other instrument. Other than the Registration Rights
Agreement, the Warrants and any shares of Common Stock issued upon exercise of
the Warrants are not and will not be subject to any voting trust agreement or
other contract, agreement, arrangement, commitment or understanding to which the
Company is a party, including any such agreement, arrangement, commitment or
understanding restricting or otherwise relating to the voting or disposition
thereof. There are not any outstanding bonds, debentures, notes or other
indebtedness of the Company having the right to vote (or convertible into, or
exchangeable for, securities having the right to vote) on any matters on which
stockholders of the Company may vote. Except as set forth on Schedule 9(f), as
-------------
of the Date of Grant, there are not any securities, options, warrants, calls,
rights, convertible or exchangeable securities or commitments, agreements,
arrangements or undertakings of any kind to which the Company or any of its
subsidiaries is a party or by which any of them is bound obligating the Company
or any of its subsidiaries to issue, deliver or sell or create, or cause to be
issued, delivered or sold or created, additional shares of capital stock or
other voting securities or stock equivalents of the Company or any of its
subsidiaries or obligating the Company or any of its subsidiaries to issue,
grant, extend or enter into any such security, option, warrant, call, right,
commitment, agreement, arrangement or understanding. As of the Date of Grant,
other than as specified on Schedule 9(f) hereof, the Company is not subject to
-------------
any obligation (contingent or otherwise) to repurchase or otherwise acquire or
retire any shares of its capital stock or any security convertible into or
exchangeable for any of its capital stock.
10. Additional Rights of the Holders.
--------------------------------
10.1 Default Event. Subject to the other provisions of this
-------------
Warrant, there shall have occurred a "Default Event" under this Agreement if:
(i) at any time after December 31, 1999 the Company fails for any reason to
honor any request for exercise of this Warrant by the holder hereof, provided
--------
that such request is validly and properly made in accordance with the provisions
of Section 2 hereof; (ii) at any time after December 31, 1999 the Company does
---------
not have a sufficient number of authorized and unissued shares of Common Stock
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<PAGE>
in order to permit the exercise in full of all of the then-outstanding Warrants;
(iii) the Company has not caused a Registration Statement (as defined in the
Registration Rights Agreement) to become effective by December 31, 1999 in
accordance with Section 2(a) of the Registration Rights Agreement; (iv) at any
------------
time after a Registration Statement has been declared effective during the term
of the Warrant, the effectiveness of such Registration Statement is suspended
for any reason other than in accordance with Section 4(c) of the Registration
------------
Rights Agreement; (v) at any time after a Registration Statement has been
declared effective during the term of the Warrant, the effectiveness of such
Registration Statement is suspended for any period which, when added to the
length of any previous such period of suspension, exceeds sixty (60) days; or
(vi) at any time after December 31, 1999 the shares of Common Stock of the
Company are not listed on the NASDAQ National Market System, the Nasdaq Small
Cap Market, or any national securities exchange.
Upon the happening of one or more Default Events, the Warrant Price
shall be reduced by five percent (5%) for each continuous 30-day period (pro-
rated for portions thereof) in which each such Default Event exists, but in no
event shall the Warrant Price be reduced below $0.45 per share. Such reduction
shall be cumulative upon the happening of multiple simultaneous Default Events.
In the event that the Investors elect to undertake an underwritten
offering of Warrant Shares pursuant to Section 2(d) of the Registration Rights
------------
Agreement and/or a Default Event has occurred that resulted in material part
from the failure of any Investor, or any underwriter selected by the Investor,
to comply in a timely manner with the reasonable requests of the Company in
effecting a registration pursuant to the Registration Rights Agreement, then the
occurrence of a Default Event shall be delayed during the period of such
noncompliance.
10.2 Protective Provisions. Until the Expiration Date, the Company
---------------------
shall not, without the prior written consent of the holders of a majority of the
then-outstanding Warrants, amend or modify the terms of the Company's
outstanding Class B Warrants or the Unit Purchase Options issued to D.H. Blair
Investment Banking Company (the "Derivative Securities") so as to (i) reduce the
exercise prices of any of the Derivative Securities, (ii) extend the expiration
dates of any of the Derivative Securities, (iii) increase the number of shares
of capital stock issuable upon exercise of the Derivative Securities, or (iv)
change the forms of consideration payable to the Company upon exercise of any of
the Derivative Securities.
10.3 Observer Rights. The Company shall invite a representative of
---------------
USBL and a single representative appointed by the Agent (as such term is defined
in the Amendment) to attend all meetings of its Board of Directors in a
nonvoting observer capacity (collectively, the "Designated Observers") and, in
this respect, shall give the Designated Observers copies of all notices,
minutes, consents, and other materials that it provides to its directors;
provided, however, that the Designated Observers shall agree to hold in
- -------- -------
confidence and trust all information so provided; and provided further, that the
-------- -------
Company reserves the right to withhold any information and to exclude the
Designated Observers from any meeting or portion thereof if access to such
information or attendance at such meeting could adversely affect the attorney-
client privilege between the Company and its counsel or would result in
disclosure of trade secrets to the
E-43
<PAGE>
Designated Observers or if such Investors or their representatives are direct
competitors of the Company. In the case of telephonic meetings conducted in
accordance with the Company's Certificate of Incorporation and bylaws, and
applicable law, the Designated Observers shall be given the opportunity to
listen to such telephonic meetings. The Designated Observers shall be given
reasonable notice of each meeting of the Board of Directors (including
telephonic Board meetings). The Company shall reimburse the Designated Observers
for the reasonable out-of-pocket expenses incurred by such individuals in
connection with attendance at meetings of the Board of Directors. The Company
shall notify USBL and the Agent, as promptly as practicable, of the proposed
taking of any material action by written consent of its Board of Directors in
lieu of a meeting thereof and a copy of such written consent shall be provided
to the Designated Observers as soon as possible.
11. Redemption.
----------
11.1 At any time after two (2) years from the date hereof, if the
Common Stock is at such time traded on an Exchange or quoted on NASDAQ and the
last reported sales price per share of the Common Stock on the principal
Exchange for such Common Stock (or, if the Common Stock is not then traded on an
Exchange, on NASDAQ) is greater than Four Dollars ($4.00) (such price, as
adjusted as contemplated in this Section 11, the "Target Price") on each of the
----------
twenty (20) consecutive trading days ending on the trading day immediately prior
to the day on which the notice referred to in this sentence is given, then, upon
not less than thirty (30) nor more than sixty (60) days' notice, the Company
shall have the right, in its sole discretion, to repurchase ("Call") all, but
not less than all, of the Warrants at a purchase price per share of Common Stock
equal to $1.7438 in cash (such price, as adjusted as contemplated in this
Section 11, the "Call Purchase Price"); provided, however, that in the event of
- ----------
any adjustment in the Warrant Price contemplated by Sections 4(b) or 4(c)
hereof, the Target Price and the Call Purchase Price shall each be
simultaneously adjusted by multiplying it by the same fraction used for such
adjustment in Section 4(b) or 4(c), as applicable.
------------ ----
11.2 The Call right shall be exercisable by written notice (the "Call
Notice") given to the holder (and any applicable assigns). The Company shall
effect the repurchase of the Warrant pursuant to the Call Notice by paying the
purchase price therefor in cash to the holder not less than thirty (30) nor more
than ninety (90) days after delivery by the Company of the Call Notice; and at
such time each holder shall deliver to the Company the Warrant to be repurchased
(but not any Warrant Shares which have been issued under the Warrant) properly
endorsed for transfer; provided, however, that at any time prior to such cash
-------- -------
payment, the holder shall be entitled to exercise or convert this Warrant
pursuant to Section 2, and in the event of such exercise or conversion, the Call
---------
right shall be of no force and effect.
11.3 Recapture Provisions Upon Call.
------------------------------
If the Company purchases Warrants pursuant to this Section and
subsequently, at any time up to the date twelve (12) months after the completion
of such purchase (the "Resale Date") there occurs:
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<PAGE>
(1) a sale of assets or stock, reorganization,
recapitalization or other transaction the result of which is that following such
sale, reorganization, recapitalization or other transaction, there shall be a
change of control, whether in one or a series of transactions; or
(2) a sale of all or substantially all of the Company's
assets (determined on a consolidated basis) or sale of the Company's assets
(determined on a consolidated basis) that represented at least 50% of the gross
revenues of the Company (determined on a consolidated basis) for the most
recently ended twelve (12) month period; and the consideration involved in such
sale, reorganization, recapitalization or other transaction reflects a Warrant
Share value which is greater than the Call Purchase Price of a Warrant, then the
Company shall remit to the Holders from whom such Warrants were repurchased an
amount equal to the product of:
(x) the difference of:
(i) the actual fair market value of the consideration
on a per Warrant Share basis involved in such subsequent sale, reorganization,
recapitalization or other transaction; less
(ii) the Call Purchase Price;
multiplied by
-------------
(y) the number of Warrants purchased by the Company
pursuant to this Section 11 pro rata according to the quantity of the Warrants
---------- ----
sold by such Holders.
b. If all or any portion of the consideration involved in any
sale, reorganization, recapitalization or other transaction described in Section
11.3(a) hereof is non-cash consideration, a determination of the fair market
value of such consideration shall be made in good faith by the Board or as
otherwise provided in the Valuation Procedure.
12. Allocated Purchase Price. The Company and the holder hereby
------------------------
acknowledge that for the purposes of Section 1273(c)(2) of the Internal Revenue
Code, this Warrant is a part of an investment unit with the loans being made by
the holder to the Company under the Amendment and that the allocated purchase
price of the Warrant is Five cents ($0.05). The Company and the holder agree to
use the foregoing allocated purchase price as the purchase price of the Warrant
for all income tax purposes.
13. Modification and Waiver. Subject to Section 23, this Warrant and
----------------------- ----------
any provision hereof may be changed, waived, discharged or terminated only by an
instrument in writing signed by the party against which enforcement of the same
is sought.
14. Notices. Unless otherwise specifically provided herein, all
-------
communications under this Warrant shall be in writing and shall be deemed to
have been duly given (i) on the date of service if served personally on the
party to whom notice is to be given, (ii)
E-45
<PAGE>
on the day of transmission if sent by facsimile transmission to a number
provided to a party specifically for such purposes, and telephonic confirmation
of receipt is obtained promptly after completion of transmission, (iii) on the
day after delivery to Federal Express or similar overnight courier, or (iv) on
the fifth day after mailing, if mailed to the party to whom notice is to be
given, by first class mail, registered or certified, postage prepaid, and
properly addressed, return receipt requested, to each such holder at the address
for notice called for under Section 11(d) of the Registration Rights Agreement,
-------------
or to the Company at the address indicated therefor on the signature page of
this Warrant. Any party hereto may change its address for purposes of this
Section 14 by giving the other party written notice of the new address in the
- ----------
manner set forth herein.
15. Binding Effect on Successors. This Warrant shall be binding upon
----------------------------
any corporation succeeding the Company by merger, consolidation or acquisition
of all or substantially all of the Company's assets, and all of the obligations
of the Company relating to the Common Stock issuable upon the exercise or
conversion of this Warrant shall survive the exercise, conversion and
termination of this Warrant and all of the covenants and agreements of the
Company shall inure to the benefit of the successors and assigns of the holder
hereof. The Company will, at the time of the exercise or conversion of this
Warrant, in whole or in part, upon request of the holder hereof but at the
Company's expense, acknowledge in writing its continuing obligation to the
holder hereof in respect of any rights to which the holder hereof shall continue
to be entitled after such exercise or conversion in accordance with this
Warrant; provided, that the failure of the holder hereof to make any such
--------
request shall not affect the continuing obligation of the Company to the holder
hereof in respect of such rights.
16. Lost Warrants or Stock Certificates. The Company covenants to the
-----------------------------------
holder hereof that, upon receipt of evidence reasonably satisfactory to the
Company of the loss, theft, destruction or mutilation of this Warrant or any
stock certificate and, in the case of any loss, theft or destruction, upon
receipt of an executed lost securities bond or indemnity reasonably satisfactory
to the Company, or in the case of any such mutilation upon surrender and
cancellation of such Warrant or stock certificate, the Company will make and
deliver a new Warrant or stock certificate, of like tenor, in lieu of the lost,
stolen, destroyed or mutilated Warrant or stock certificate.
17. Descriptive Headings. The descriptive headings of the several
--------------------
paragraphs of this Warrant are inserted for convenience only and do not
constitute a part of this Warrant.
18. Governing Law. The validity, interpretation and performance of
-------------
this Warrant shall be governed by, and construed in accordance with, the laws of
the State of New York applicable to contracts made and to be performed entirely
within such State, regardless of the law that might be applied under principles
of conflicts of law.
19. Survival of Representations, Warranties and Agreements. Each of
------------------------------------------------------
the respective representations and warranties of the Company and the holder
hereof contained herein shall survive the Date of Grant, the exercise or
conversion of this Warrant (or any part hereof) and the termination or
expiration of any rights hereunder. Each of the respective agreements of each
E-46
<PAGE>
of the Company and the holder hereof contained herein shall survive indefinitely
until, by their respective terms, they are no longer operative.
20. Remedies. In case any one (1) or more of the covenants and
--------
agreements contained in this Warrant shall have been breached, the holders
hereof (in the case of a breach by the Company), or the Company (in the case of
a breach by a holder), may proceed to protect and enforce their or its rights
either by suit in equity and/or by action at law, including, but not limited to,
an action for damages as a result of any such breach and/or an action for
specific performance of any such covenant or agreement contained in this
Warrant.
21. Acceptance. Receipt of this Warrant by the holder hereof shall
----------
constitute acceptance of and agreement to the foregoing terms and conditions.
22. No Impairment of Rights. The Company will not, by amendment of
-----------------------
its Charter or through any other means, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times in good
faith assist in the carrying out of all such terms and in the taking of all such
action as may be necessary or appropriate in order to protect the rights of the
holder of this Warrant against material impairment.
23. Amendment. This Warrant may be amended by written agreement of
---------
the Company and holders of 51% of the Investor Warrants, collectively on an
as-exercised basis, and such amendment shall be binding on all holders of this
Warrant or Warrant Shares; provided, however, the consent of any holder of
-------- -------
Warrants affected by any amendment will be required for an amendment pursuant to
which (i) the Warrant Price is increased, (ii) the number of Warrant Shares
purchasable upon exercise of the Warrant is decreased (other than pursuant to
any adjustments provided herein), (iii) the Expiration Date is changed, or (iv)
any right of a holder under the Warrant is adversely impacted in a manner
different than the other holders.
24. Registration Rights Agreement. The Company shall provide to the
-----------------------------
holder hereof, upon written request, a true copy of the Registration Rights
Agreement, as amended and modified to date.
25. Counterparts. This Warrant Agreement may be executed in any
------------
number of counterparts and by the parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement.
26. Limitations on Certain Holders.
------------------------------
26.1 Limitation on Certain Transactions; Notice to Regulated
-------------------------------------------------------
Holders. The Company shall not convert or directly or indirectly redeem,
- -------
purchase or otherwise acquire or take any other action affecting the outstanding
voting capital stock of the Company or take any other action affecting the
outstanding voting capital stock of the Company or take any other action
affecting the voting rights of such shares, if, after giving effect to such
redemption, purchase, acquisition or other action, any Regulated Holder,
together with its Affiliates and transferees, would own more voting shares of
the Company than are permitted to such Regulated Holder,
E-47
<PAGE>
Affiliate or transferee under the Bank Holding Company Act (12 U.S.C. (S) 1841
et seq.) other than any class of voting securities which is (or is made prior to
any such redemption, purchase, acquisition or other action) convertible into a
class of non-voting securities which are otherwise identical to the voting
securities and convertible into such voting securities on terms reasonably
acceptable to such Regulated Holder), determined by assuming such Regulated
Holder and its Affiliates and transferees (but no other holder) has exercised
all of its Warrants and other convertible or exchangeable securities (each
Regulated Holder being an "Affected Regulated Holder"), unless the Company first
gives each Affected Regulated Holder advance written notice (the "Deferral
Notice") of such action. The Company shall defer making any such conversion,
redemption, purchase or other acquisition, or taking any such other action for a
period of twenty (20) Business Days (the "Deferral Period") after delivering the
Deferral Notice. The Company shall promptly take such actions as reasonably
requested by each Affected Regulated Holder including, but not limited to,
cooperating with each Affected Regulated Holder in any efforts by such Regulated
Holder to dispose of its Excess Shares in a prompt and orderly manner, including
providing (and authorizing such Regulated Holder to provide) financial and other
information concerning the Company to any prospective purchaser of such
Restricted Shares.
26.2 For purposes of this Section 26, the following definitions shall
----------
apply:
a. "Affiliate" shall mean, as applied to any Person, any other
Person directly or indirectly controlling (including, but not limited to, all
directors and officers of such Person), controlled by, or under direct or
indirect common control with, such Person. A Person shall be deemed to "control"
another Person if such Person possesses, directly or indirectly, the power to
direct or cause the direction of the management policies of such other Person,
whether through the ownership of voting securities, by contract or otherwise.
b. "Conversion Event," with respect to the exercise of a Warrant by
a Regulated Holder or its Affiliate that will result in such Regulated Holder or
Affiliate owning more than 4.9% of the outstanding shares of the Company, shall
mean (a) any public offering or public sale of securities of the Company
(including a public offering registered under the 1933 Act and a public sale
pursuant to Rule 144 of the Commission or any similar rule then in force), (b)
any sale of securities of the Company to a person or group of persons (within
the meaning of the 1934 Act) if, after such sale, such person or group of
persons in the aggregate would own or control securities which possess in the
aggregate the ordinary voting power to elect a majority of the Company's
directors (provided that such sale has been approved by the Company's Board of
Directors of a committee thereof), (c) any sale of securities of the Company to
a person or group of persons (within the meaning of the 1934 Act) if, after such
sale, such person or group of persons in the aggregate would own or control
securities of the Company (excluding any Warrant Shares disposed of in
connection with such Conversion Event) which possess in the aggregate the
ordinary voting power to elect a majority of the Company's directors, (d) any
sale of securities of the Company to a person or group of persons (within the
meaning of the 1934 Act) if, after such sale, such person or group of persons
would not, in the aggregate, own, control or have the right to acquire more than
two percent (2%) of the outstanding securities of any class of voting securities
of the Company and (e) a merger, consolidation or similar transaction involving
the Company if, after such transaction, a person or group of persons (within the
meaning of the 1934 Act) in the
E-48
<PAGE>
aggregate would own or control securities which possess in the aggregate the
ordinary voting power to elect a majority of the surviving company's directors
(provided that the transaction has been approved by the Company's Board of
Directors of a committee thereof).
c. "Excess Shares" shall mean the number of shares of any class of
voting securities of the Company held by an Affected Regulated Holder, together
with its Affiliates and transferees (other than any class of voting securities
which is (or is made prior to any redemption, purchase, acquisition or other
action) convertible into a class of non-voting securities which are otherwise
identical to the voting securities and convertible into such voting securities
on terms reasonably acceptable to such Regulated Holder), determined by assuming
such Affected Regulated Holder and its Affiliates and transferees (but no other
holder) has exercised all of its Warrants and other convertible or exchangeable
securities, in excess of the ownership threshold set forth above.
d. "Person" shall mean an individual, corporation, partnership,
limited liability company, joint venture, trust, unincorporated organization or
any other entity of whatever nature or any governmental authority, including but
not limited to, any federal, state, local or other governmental department,
commission, board, bureau, agency, central bank, court, tribunal or other
instrumentality or authority, domestic or foreign, exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.
e. "Regulated Holder" means any stockholder of the Company (i) that,
directly or indirectly because of its ownership by an entity that is subject to
Regulation Y, is subject to Regulation Y, and (ii) that holds Common Stock or
warrants to purchase Common Stock.
f. "Regulation Y" means Regulation Y of the Board of Governors of
the Federal Reserve System, 12 C.F.R. Part 225 (or any successor to such
Regulation).
g. "Restricted Shares" means the shares of Common Stock issued upon
exercise of the Restricted Warrants.
h. "Restricted Warrant" means, with respect to any Regulated Holder,
any outstanding Warrant ever held of record by such Regulated Holder or its
Affiliates which, upon the exercise of such Warrant, would cause such Regulated
Holder to own more than 4.9% of any class of voting securities of the Company;
provided, that any Warrant that is a Restricted Warrant shall cease to be a
- --------
Restricted Warrant if it is exercised in connection with a Conversion Event and
the Warrant Share(s) issued upon the exercise of such Warrant(s) are transferred
in connection with such Conversion Event.
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<PAGE>
IN WITNESS WHEREOF the parties hereto have executed this Warrant Agreement
as of the day and year first above written.
COMPANY: VIDEO UPDATE, INC.,
a Delaware corporation
By: ______________________________________
Name: Daniel A. Potter
Title: Chairman and Chief Executive Officer
SIGNATURES OF INITIAL HOLDERS
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<PAGE>
Exhibit 4c
----------
WARRANT AGREEMENT
THIS WARRANT AND THE SHARES OF CLASS A COMMON STOCK ISSUABLE UPON EXERCISE
THEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), OR ANY STATE SECURITIES LAWS, AND MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED UNLESS THERE IS (i) AN
EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT RELATED THERETO, (ii) AN OPINION
OF COUNSEL FOR THE HOLDER, REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH
REGISTRATION IS NOT REQUIRED, (iii) RECEIPT OF A NO-ACTION LETTER(S) FROM THE
APPROPRIATE GOVERNMENTAL AUTHORITY(IES), OR (iv) UNLESS PURSUANT TO AN EXEMPTION
THEREFROM UNDER RULE 144 (OR ANY SUCCESSOR PROVISION) OF THE ACT.
VIDEO UPDATE, INC.
------------------
WARRANT TO PURCHASE [___________] SHARES
OF CLASS A COMMON STOCK
VIDEO UPDATE, INC., a Delaware corporation (the "Company"), hereby certifies
that, for value received, [LIBRA INVESTORS AND INDIVIDUALS WARRANTS] (the
"Initial Holder"), or its registered transferees, successors or assigns
(collectively, together with the Initial Holder, the "holder"), is the
registered holder of warrants (the "Warrants") to subscribe for and purchase
[___________________________ (_________)] shares of the fully paid and
nonassessable Class A Common Stock (as adjusted pursuant to Section 4 hereof,
---------
the "Warrant Shares") of the Company, at a purchase price per share equal to
$0.8719 (such price, as adjusted pursuant to Section 4 hereof, the "Warrant
---------
Price"), subject to the provisions and upon the terms and conditions hereinafter
set forth. As used herein, (a) the term "Common Stock" shall mean the Company's
presently authorized Class A Common Stock, par value $.01 per share, and any
stock into or for which such Class A Common Stock may hereafter be converted or
exchanged, and (b) the term "Date of Grant" shall mean June __, 1999. The term
"Warrant" as used herein shall be deemed to include any warrant issued upon
transfer or partial exercise of this Warrant, unless the context clearly
requires otherwise. This Warrant is being issued pursuant to (i) that certain
Seventh Amendment and Waiver (the "Amendment") of even date herewith by and
among the Company, the persons or institutions named as Banks on Schedule I to
----------
such Amendment, and Paribas, as Agent, and (ii) that certain Engagement Letter,
by and between the Company and U.S. Bancorp Libra, a division of U.S. Bancorp
Investments, Inc., a Minnesota corporation ("USBL"). The holders are entitled
to the benefits of the Registration Rights Agreement (the "Registration Rights
Agreement") of even date herewith by and among the Company and the investors
name therein (each an "Investor"). This Warrant, together with
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<PAGE>
other similar warrants issued to the other Investors as of the date hereof, are
referred to herein as the "Investor Warrants".
1. Term. The purchase right represented by this Warrant is
-----
exercisable, in whole or in part, at any time and from time to time from the
Date of Grant through and including the close of business on June 16, 2006 (the
"Expiration Date"); provided, however, that in the event that any portion of
-------- -------
this Warrant is unexercised as of the Expiration Date, the terms of Section 2(b)
------------
below shall apply.
2. Exercise.
---------
a. Method of Exercise; Payment; Issuance of New Warrant.
----------------------------------------------------
Subject to Section 1 hereof, the purchase right represented by this Warrant may
---------
be exercised by the holder hereof, in whole or in part and from time to time, by
the surrender of this Warrant (with the notice of exercise form attached hereto
as Exhibit A duly executed) at the principal office of the Company, and, except
---------
as otherwise provided for herein, by the payment to the Company of an amount
equal to the then applicable Warrant Price multiplied by the number of Warrant
Shares then being purchased (the "Warrant Shares Purchase Price"). The Warrant
Shares Purchase Price shall be payable (i) in cash, or (ii) by cancellation of
such amount of loans made pursuant to the Amendment in a principal amount plus
accrued interest thereon equal to the Warrant Shares Purchase Price. The person
or persons in whose name(s) any certificate(s) representing shares of Common
Stock shall be issuable upon exercise of this Warrant shall be deemed to have
become the holder(s) of record of, and shall be treated for all purposes as the
record holder(s) of, the shares represented thereby (and such shares shall be
deemed to have been issued) immediately prior to the close of business on the
date or dates upon which this Warrant is exercised if exercised prior to the
close of business on such date; otherwise, the date of record shall be the
next business day. In the event of any exercise of the rights represented by
this Warrant, certificates for the shares of Common Stock so purchased shall be
delivered to the holder hereof as soon as possible and in any event within
thirty (30) days after such exercise and, unless this Warrant has been fully
exercised (including without limitation, exercise pursuant to Section 2(b)
------------
below), a new Warrant representing the portion of the Warrant Shares, if any,
with respect to which this Warrant shall not then have been exercised shall also
be issued to the holder hereof as soon as possible and in any event within such
thirty (30)-day period.
b. Automatic Exercise. In the event that any portion of this
------------------
Warrant remains unexercised as of the Expiration Date and the fair market value
(determined in accordance with Section 4(h) below) of one share of Common Stock
------------
as of the Expiration Date is greater than the applicable Warrant Price as of the
Expiration Date, then this Warrant shall be deemed to have been exercised
automatically immediately prior to the close of business on the Expiration Date
(or, in the event that the Expiration Date is not a business day, the
immediately preceding business day) (the "Automatic Exercise Date"), and the
person entitled to receive the shares of Common Stock issuable upon such
exercise shall be treated for all purposes as the holder of record of such
Warrant Shares as of the close of business on such Automatic Exercise Date.
This Warrant shall be deemed to be surrendered to the Company on the Automatic
Exercise Date by virtue of this Section 2(b) and without any action by the
------------
holder of this Warrant
E-52
<PAGE>
or any other person, and payment to the Company of the then applicable Warrant
Price multiplied by the number of Warrant Shares then being purchased shall be
deemed to be made as of the Automatic Exercise Date pursuant to the conversion
provisions of Section 2(c) below (without payment by the holder of any cash
------------
exercise price). As promptly as practicable on or after the Automatic Exercise
Date and in any event within thirty (30) days thereafter, the Company at its
expense shall issue and deliver to the person or persons entitled to receive the
same a certificate or certificates for the number of Warrant Shares issuable
upon such exercise.
c. Cashless Right to Convert Warrant into Common Stock; Net
--------------------------------------------------------
Issuance.
- --------
(1) Right to Convert. In addition to and without limiting
----------------
the rights of the holder hereof under the terms of this Warrant, the holder
shall have the right to convert this Warrant or any portion thereof (the
"Conversion Right") into shares of Common Stock as provided in this Section 2(c)
------------
at any time or from time to time during the term of this Warrant, including upon
the Automatic Exercise Date. Upon exercise of the Conversion Right with respect
to all or a specified portion of Warrant Shares subject to this Warrant (the
"Converted Warrant Shares"), the Company shall deliver to the holder (without
payment by the holder of any cash or other cash consideration) that number of
shares of fully paid and nonassessable Common Stock equal to the quotient
obtained by dividing (i) the value of this Warrant (or the specified portion
hereof) on the Conversion Date (as defined in Section 2(c)(2) hereof), which
---------------
value shall be equal to (A) the aggregate fair market value of the Converted
Warrant Shares issuable upon exercise of this Warrant (or the specified portion
hereof) on the Conversion Date less (B) the aggregate Warrant Price of the
Converted Warrant Shares immediately prior to the exercise of the Conversion
Right by (ii) the fair market value of one (1) share of Common Stock on the
Conversion Date.
Expressed as a formula, such conversion shall be computed as follows:
X = A - B
-----
Y
Where: X = the number of shares of Common Stock to be issued
to the holder
Y = the fair market value ("FMV") of one (1) share of
Common Stock
A = the aggregate FMV (i.e., FMV x Converted Warrant
Shares)
B = the aggregate Warrant Price (i.e., Converted
Warrant Shares x Warrant Price)
No fractional shares shall be issuable upon exercise of the Conversion
Right, and, if the number of shares to be issued determined in accordance with
the foregoing formula is other than a whole number, the Company shall pay to the
holder an amount in cash equal to the fair market value of the resulting
fractional share on the Conversion Date. For purposes of the
E-53
<PAGE>
Registration Rights Agreement, shares issued pursuant to the Conversion Right
shall be treated as if they were issued upon the exercise of this Warrant.
(2) Method of Exercise. The Conversion Right may be exercised
------------------
by the holder by the surrender of this Warrant at the principal office of the
Company together with a written statement specifying that the holder thereby
intends to exercise the Conversion Right and indicating the number of shares
subject to this Warrant which are being surrendered (referred to in Section
-------
2(c)(1) hereof as the Converted Warrant Shares) in exercise of the Conversion
- -------
Right. Such conversion shall be effective upon receipt by the Company of this
Warrant together with the aforesaid written statement, or on such later date as
is specified therein (the "Conversion Date"). Certificates for the shares
issuable upon exercise of the Conversion Right and, if applicable, a new warrant
evidencing the balance of the shares remaining subject to this Warrant, shall be
issued as of the Conversion Date and shall be delivered to the holder within
thirty (30) days following the Conversion Date.
(3) Determination of Fair Market Value. For purposes of this
----------------------------------
Section 2(c), "fair market value" of a share of Common Stock shall have the
- ------------
meaning set forth in Section 4(h) below.
------------
3. Stock Fully Paid; Reservation of Shares. All Warrant Shares
---------------------------------------
that may be issued upon the exercise of the rights represented by this Warrant
will, upon issuance pursuant to the terms and conditions herein, be fully paid
and nonassessable, and free from all taxes, liens, charges, and pre-emptive
rights with respect to the issue thereof. The Company shall pay all transfer
taxes, if any, attributable to the issuance of the Warrant Shares upon the
exercise of this Warrant. During the period within which the rights represented
by this Warrant may be exercised, the Company will at all times have authorized,
and reserved for the purpose of the issue upon exercise of the purchase rights
evidenced by this Warrant, a sufficient number of shares of its Common Stock to
provide for the exercise of the rights represented by this Warrant.
4. Adjustment of Warrant Price and Number of Shares. The number and
------------------------------------------------
kind of securities purchasable upon the exercise of this Warrant and the Warrant
Price shall be subject to adjustment from time to time upon the occurrence of
certain events, as follows:
a. Merger, Sale, Reclassification. In case of any (i)
------------------------------
consolidation or merger of the Company with or into another entity (other than a
merger in which the Company is the continuing corporation (A) and which does not
result in any reclassification or change of the then outstanding shares of
Common Stock or issuance of any dividend or other distribution of cash,
securities or property to holders of the then outstanding shares of Common
Stock, or (B) resulting solely in a change in par value, or from par value to no
par value, or from no par value to par value, or in a stock split, subdivision
or combination which is the subject of another paragraph in this Section 4),
---------
(ii) sale or other disposition of all or substantially all of the Company's
assets or distribution of property to stockholders (other than distributions
payable out of earnings or retained earnings), or (iii) reclassification, change
or conversion of securities of the class issuable upon exercise of this Warrant
(other than a change in par value, or from par value to no par value, or from no
par value to par value, or as a result of any stock split,
E-54
<PAGE>
subdivision or combination which is the subject of another paragraph in this
Section 4), then the Company shall take all necessary actions (including but not
- ---------
limited to executing and delivering to the holder of this Warrant an additional
Warrant or other instrument, in form and substance mutually agreeable to the
Company and the holder of this Warrant) to ensure that the holder of this
Warrant shall thereafter have the right to receive, at a total purchase price
not to exceed that payable upon the exercise of the unexercised portion of this
Warrant, and in lieu of the shares of Common Stock theretofore issuable upon
exercise of this Warrant, the kind and amount of shares of stock, other
securities, money and property receivable upon such consolidation, merger, sale
or other disposition, reclassification, change or conversion by a holder of the
number of shares of Common Stock then purchasable under this Warrant (which, in
the case of such a transaction in which holders of Common Stock were entitled to
elect between different forms of consideration, shall be deemed to be the form
of consideration received by a plurality of the electing holders of Common
Stock). Such new Warrant shall provide for adjustments that shall be as nearly
equivalent as may be practicable to the adjustments provided for in this Section
-------
4. The provisions of this Section 4(a) shall similarly apply to successive
- - ------------
reclassifications, changes and conversions.
b. Subdivision or Combination of Shares. If the Company at any time
------------------------------------
while this Warrant remains outstanding and unexpired shall subdivide or combine
its outstanding shares of Common Stock, the Warrant Price shall be
proportionately decreased in the case of a subdivision or increased in the case
of a combination, effective at the close of business on the date the subdivision
or combination becomes effective.
c. Stock Dividends and Other Distributions. If the Company at any
---------------------------------------
time while this Warrant is outstanding and unexpired shall (i) pay a dividend
with respect to Common Stock payable in Common Stock, or (ii) make any other
distribution with respect to Common Stock (except any distribution specifically
provided for in Section 4(a) or Section 4(b) hereof) of Common Stock, then the
------------ ------------
the Warrant Price shall be adjusted, from and after the date of determination of
stockholders entitled to receive such dividend or distribution, to that price
determined by multiplying the Warrant Price in effect immediately prior to such
date of determination by a fraction (i) the numerator of which shall be the
total number of shares of Common Stock outstanding immediately prior to such
dividend or distribution, and (ii) the denominator of which shall be the total
number of shares of Common Stock outstanding immediately after such dividend or
distribution.
d. Rights Offerings. In case the Company shall, at any time after
----------------
the Date of Grant, issue to holders of shares of the capital stock of the
Company (solely as a result of such holders' status as stockholders of the
Company) any rights, options or warrants entitling them to subscribe for or
purchase shares of Common Stock (or securities convertible or exchangeable into
Common Stock) at a price per share of Common Stock (or having a conversion or
exchange price per share of Common Stock if a security convertible or
exchangeable into Common Stock) less than the fair market value per share of
Common Stock on the record date for such issuance (or the date of issuance, if
there is no record date), the Warrant Price to be in effect on and after such
record date (or issuance date, as the case may be) shall be adjusted so that it
shall equal the price determined by multiplying the Warrant Price in
E-55
<PAGE>
effect immediately prior to such record date (or issuance date, as the case may
be) by a fraction (i) the numerator of which shall be the number of Fully
Diluted Shares of Common Stock outstanding on such record date (or issuance
date, as the case may be) plus the number of shares of Common Stock which the
aggregate offering price of the total number of shares of such Common Stock so
to be offered (or the aggregate initial exchange or conversion price of the
exchangeable or convertible securities so to be offered) would purchase at such
fair market value on such record date (or issuance date, as the case may be) and
(ii) the denominator of which shall be the number of Fully Diluted Shares of
Common Stock outstanding on such record date (or issuance date, as the case may
be) plus the number of additional shares of Common Stock to be offered for
subscription or purchase (or into which the convertible securities to be offered
are initially exchangeable or convertible). For purposes of this Warrant, "Fully
Diluted Shares" shall mean the number of shares of Common Stock deemed to be
outstanding calculated pursuant to the treasury stock method as contemplated by
the Accounting Principles Board Opinion No. 15 (as referred to in Statement of
Financial Accounting Standards No. 128). In case such subscription price may be
paid in part or in whole in a form other than cash, the fair market value of
such consideration shall be determined by the Board of Directors of the Company
in good faith as set forth in a duly adopted board resolution certified by the
Company's Secretary or Assistant Secretary, provided, that in the event the
--------
Board of Directors is unable to make such a determination or holders of at least
fifty-one percent (51%) of the Warrant Shares issuable under outstanding
Investor Warrants disagree in writing with such determination, then the fair
market value of such consideration shall be determined in the same manner as a
Valuation Procedure under Section 4(h) below. Such adjustment shall be made
------------
successively whenever such an issuance occurs; and in the event that such
rights, options, warrants, or convertible or exchangeable securities are not so
issued or are canceled, expire or cease to be convertible or exchangeable before
they are exercised, converted, or exchanged (as the case may be), then the
Warrant Price shall again be adjusted to be the Warrant Price that would then be
in effect if such issuance had not occurred, but such subsequent adjustment
shall not affect the number of Warrant Shares issued upon any exercise of this
Warrant prior to the date such subsequent adjustment is made.
e. Other Special Distributions. In case the Company shall fix a
---------------------------
record date for the making of a distribution (other than dividends,
distributions or issuances referred to in Section 4(b), Section 4(c) or Section
------------ ------------ -------
4(d) above, and other than cash dividends to the extent paid out of the
- ----
consolidated net income of the Company, as determined in accordance with
generally accepted accounting principles consistently applied, after the date
hereof) to all holders of shares of Common Stock (including any such
distribution made in connection with a consolidation or merger in which the
Company is the surviving corporation) of cash, evidences of indebtedness, assets
or subscription rights, options, warrants, or exchangeable or convertible
securities containing the right to subscribe for or purchase shares of any class
of equity securities of the Company, the Warrant Price to be in effect on and
after such record date shall be adjusted by multiplying the Warrant Price in
effect immediately prior to such record date by a fraction (i) the numerator of
which shall be the fair market value per share of Common Stock on such record
date (determined in accordance with Section 4(h) below), less the cash and/or
------------
the fair market value (as determined by the Board of Directors of the Company in
good faith as set forth in a duly adopted board resolution certified by the
Company's Secretary or Assistant Secretary) of
E-56
<PAGE>
the portion of the assets or evidences of indebtedness so to be distributed or
of such subscription rights, options, warrants, or exchangeable or convertible
securities applicable to one (1) share of the Common Stock outstanding as of
such record date, provided, that in the event the Board of Directors is unable
--------
to make such a determination or holders of at least fifty-one percent (51%) of
the Warrant Shares issuable under outstanding Investor Warrants disagree in
writing with such determination, then the fair market value of such
consideration shall be determined in the same manner as a Valuation Procedure
under Section 4(h) below, and (ii) the denominator of which shall be such fair
------------
market value per share of Common Stock as determined in the manner set forth
under Section 4(h) below. Such adjustment shall be made successively whenever
------------
such a record date is fixed; and in the event that such distribution is not so
made, the Warrant Price shall again be adjusted to be the Warrant Price which
would then be in effect if such record date had not been fixed, but such
subsequent adjustment shall not affect the number of Warrant Shares issued upon
any exercise of this Warrant prior to the date such subsequent adjustment was
made.
f. Other Issuances and Adjustments.
-------------------------------
(1) In case the Company or any subsidiary thereof shall, at
any time after the Date of Grant, issue shares of Common Stock, or rights,
options, warrants or convertible or exchangeable securities containing the right
to subscribe for or acquire shares of Common Stock (excluding (i) shares,
rights, options, warrants, or convertible or exchangeable securities outstanding
on the Date of Grant, or issued in any of the transactions described in Sections
4(b), 4(c), 4(d) or 4(e) above, (ii) shares issued upon the exercise options or
- ---- ---- ---- ----
of such rights, warrants or upon conversion or exchange of such convertible or
exchangeable securities, and (iii) up to Three Million Nine Hundred Fourteen
Thousand Eight Hundred Thirty Six (3,914,836) (subject to adjustment for splits,
recapitalizations, or similar events) shares of Common Stock issued or issuable
to directors, officers, employees or consultants of the Company or any
subsidiary in connection with their service as directors, officers, employees or
consultants pursuant to any stock grant, stock option, warrant or other right
issued by the Company and approved by the Board of Directors of the Company
under a duly adopted stock option or incentive plan in existence on the date
hereof), at a price per share of Common Stock (determined in the case of such
rights, options, warrants, or convertible or exchangeable securities by dividing
(x) the total amount received and/or receivable by the Company in consideration
of the sale and issuance of such rights, options, warrants, or convertible or
exchangeable securities, plus the total minimum consideration payable to the
Company upon exercise, conversion, or exchange thereof by (y) the total maximum
number of shares of Common Stock covered by such rights, options, warrants, or
convertible or exchangeable securities) less than the higher of (A) the Warrant
Price and (B) the fair market value per share of Common Stock (determined in
accordance with Section 4(h) below and in the case of rights, options, warrants
------------
or convertible or exchangeable securities, determined at the time of issuance of
such securities rather than upon exercise thereof), in each case on the date the
Company fixes the offering price of such shares, rights, options, warrants, or
convertible or exchangeable securities, then the Warrant Price shall be adjusted
so that it shall equal the price determined by multiplying the Warrant Price in
effect immediately prior thereto by a fraction (i) the numerator of which shall
be the sum of (A) the number of Fully Diluted Shares outstanding immediately
prior to such sale and issuance plus (B) the number of shares of Common Stock
which the aggregate
E-57
<PAGE>
consideration received or receivable (determined as provided herein) in
connection with such sale or issuance would purchase at such higher price, and
(ii) the denominator of which shall be the total number of Fully Diluted Shares
outstanding immediately after such sale and issuance. Such adjustment shall be
made successively whenever such an issuance is made. In the event that any of
the rights, options, warrants or convertible or exchangeable securities referred
to in this paragraph (1) are not so issued or are canceled, expire or cease to
be convertible or exchangeable before they are exercised, converted, or
exchanged (as the case may be), then the Warrant Price shall again be adjusted
to be the Warrant Price that would then be in effect if the issuance of such
rights, options, warrants or securities had not occurred, but such subsequent
adjustment shall not affect the number of Warrant Shares issued upon any
exercise of this Warrant prior to the date such subsequent adjustment is made.
If the Warrant Price is adjusted pursuant to this subsection, no further
adjustment shall be made upon the exercise of such rights, options or warrants
or upon the conversion or exchange of such convertible or exchangeable
securities, or upon the conversion or exchange of convertible securities issued
upon the exercise of such rights, options or warrants.
(2) In case the Company or any subsidiary thereof shall, at any time
after the Date of Grant, make or agree to (i) any downward adjustment in the
exercise, exchange or conversion price of, (ii) any increase in the number of
shares of Common Stock issuable upon the exercise, conversion or exchange of, or
(iii) any change in the consideration payable for the exercise, conversion or
exchange of, any rights, options, warrants or convertible or exchangeable
securities containing the right to subscribe for or acquire shares of Common
Stock, other than such adjustment that is specifically contemplated and required
under the terms of any such instrument as of the Date of Grant, then the Warrant
Price shall be adjusted so that it shall equal the price determined by
multiplying the Warrant Price in effect immediately prior thereto by a fraction
the numerator of which shall be the sum of (A) the number of shares of Common
Stock outstanding immediately prior thereto, plus (B) the number of shares of
Common Stock to be issued upon such exercise, conversion or exchange immediately
prior thereto, multiplied by the aggregate amount of the fair market value of
the consideration to be received by the Company upon such exercise, conversion
or exchange immediately thereafter, and the denominator shall be the sum of (X)
the number of shares of Common Stock outstanding immediately thereafter, plus
(Y) the number of shares of Common Stock to be issued upon such exercise,
conversion or exchange immediately thereafter, multiplied by the aggregate
amount of the fair market value of the consideration to be received by the
Company upon such exercise, conversion or exchange immediately prior thereto.
Such adjustment shall be made successively whenever such an issuance is made.
(3) For the purposes of an adjustment under this Section 4(f), the
------------
maximum number of shares of Common Stock which the holder of any right, option,
warrant or convertible or exchangeable security shall be entitled to subscribe
for or purchase shall be deemed to be issued and outstanding; furthermore, the
consideration received by the Company therefor shall be deemed to be equal to
the price per share of Common Stock (determined in the case of such rights,
options, warrants, or convertible or exchangeable securities by dividing (x) the
total amount received and/or receivable by the Company in consideration of the
sale and issuance of such rights, options, warrants, or convertible or
exchangeable securities, plus the total
E-58
<PAGE>
minimum consideration payable to the Company upon exercise, conversion, or
exchange thereof by (y) the total maximum number of shares of Common Stock
covered by such rights, options, warrants, or convertible or exchangeable
securities) multiplied by the number of shares deemed issued and outstanding in
the previous sentence. In case the Company shall issue shares of Common Stock,
or issue or make an adjustment to the exercise, exchange or conversion price of
rights, options, warrants, or convertible or exchangeable securities containing
the right to subscribe for or acquire shares of Common Stock for a consideration
consisting, in whole or in part, of consideration other than cash or its
equivalent, then in determining the price per share of Common Stock and the
consideration received by the Company, the Board of Directors of the Company
shall determine, in good faith, the fair market value of said property, and such
determination shall be described in a duly adopted board resolution certified by
the Company's Secretary or Assistant Secretary, provided, that in the event the
--------
Board of Directors is unable to make such a determination or holders of at least
fifty-one percent (51%) of the Warrant Shares issuable under outstanding
Investor Warrants disagree in writing with such determination, then the fair
market value of such consideration shall be determined in the same manner as a
Valuation Procedure under Section 4(h) below. In case the Company shall issue
------------
shares of Common Stock, or issue or make an adjustment to the exercise or
conversion price of rights, options, warrants, or convertible or exchangeable
securities containing the right to subscribe for or acquire shares of Common
Stock, together with one (1) or more other security as a part of a unit at a
price per unit, then in determining the price per share of Common Stock and the
consideration received or to be by the Company, the Board of Directors of the
Company shall determine, in good faith, which determination shall be described
in a duly adopted board resolution certified by the Company's Secretary or
Assistant Secretary, the fair market value of the rights, options, warrants, or
convertible or exchangeable securities then being sold as part of such unit,
provided, that in the event the Board of Directors is unable to make such a
- --------
determination or holders of at least fifty-one percent (51%) of the Warrant
Shares issuable under outstanding Investor Warrants disagree in writing with
such determination, then the fair market value of such consideration shall be
determined in the same manner as a Valuation Procedure under Section 4(h) below.
------------
g. Adjustment of Number of Shares. Upon each adjustment in the
------------------------------
Warrant Price, the number of Warrant Shares purchasable hereunder shall be
adjusted, to the nearest whole share, to the product obtained by multiplying the
number of Warrant Shares purchasable immediately prior to such adjustment in the
Warrant Price by a fraction, the numerator of which shall be the Warrant Price
immediately prior to such adjustment and the denominator of which shall be the
Warrant Price immediately thereafter.
h. Determination of Fair Market Value. For purposes of those
----------------------------------
provisions of this Warrant requiring a determination in accordance with this
Section 4(h), "fair market value" as of a particular date (the "Determination
- ------------
Date") shall mean (i) if the Common Stock is publicly traded at the time of
determination, the average of the closing prices on such day of the Common Stock
on all domestic securities exchanges on which the Common Stock is then listed,
or, if there have been no sales on any such exchange on such day, the average of
the highest bid and lowest asked prices on all such exchanges at the end of such
day or, if on any such day the Common Stock is not so listed, the average of the
representative bid and asked
E-59
<PAGE>
prices quoted on the NASDAQ system as of 4:00 P.M., New York time, on such day,
or if on any day such security is not quoted on the NASDAQ system, the average
of the highest bid and lowest asked prices on such day in the domestic over-the-
counter market as reported by the National Quotation Bureau, Incorporated, or
any similar successor organization, in each such case averaged over a period of
30 days consisting of the day as of which "fair market value" is being
determined and the twenty-nine consecutive business days prior to such day
(provided that, if fair market value is being determined as of the date of a
--------
firm commitment public offering of the Common Stock, fair market value as of
such date shall be the offering price for the Common Stock subject to such
public offering); or (ii) if the Common Stock is not publicly traded at the time
of determination, the Common Stock price per share determined by dividing Market
Value (as defined below) by the outstanding number of Fully-Diluted Shares of
Common Stock. "Market Value" means the highest price that would be paid for the
entire common equity of the Company on a going-concern basis in an arm's-length
transaction between a willing buyer and a willing seller (neither acting under
compulsion), using valuation techniques then prevailing in the securities
industry (but without giving effect to any discount in respect of a minority
interest) and determined in accordance with the "Valuation Procedure" (as
defined below) and assuming full disclosure and understanding of all relevant
information and a reasonable period of time for effectuating such sale. For the
purposes of determining the Market Value, (a) the exercise price of options or
warrants to acquire Common Stock which are deemed to have been exercised for the
purpose of determining the outstanding number of Fully-Diluted Shares of Common
Stock, shall be deemed to have been received by the Company, (b)(i) the
liquidation preference or indebtedness, as the case may be, represented by
securities which are deemed exercised for or converted into Common Stock for the
purpose of determining the outstanding number of Fully-Diluted Shares of Common
Stock and (ii) any contractual limitation in respect of the shares of Common
Stock relating to voting rights, shall be deemed to have been eliminated or
canceled and (c) full effect shall be given to any discount that may arise as
the result of the fact that the shares of Common Stock are not publicly traded.
"Valuation Procedure" means, with respect to the determination of any
amount or value required to be determined in accordance with such procedure, a
determination (which shall be final and binding on the Company and the holders)
made (i) by agreement among the Company and the holders of at least 51% of the
Warrant Shares issuable under outstanding Investor Warrants (collectively, the
"Requesting Holders") within twenty (20) days following the event requiring such
determination or (ii) in the absence of such an agreement, by an Independent
Financial Expert selected in accordance with the further provisions of this
definition. If required, an Independent Financial Expert shall be selected
within five days following the expiration of the 20-day period referred to
above, either by agreement among the Company and the Requesting Holders or, in
the absence of such agreement, by lot from a list of four potential Independent
Financial Experts remaining after the Company nominates three, the Requesting
Holders nominate three, and each side eliminates one potential Independent
Financial Expert. The Independent Financial Expert shall be instructed by the
Company and the Requesting Holders to make its determination within 20 days of
its selection. The fees and expenses of an Independent Financial Expert
selected hereunder shall be paid by the Company.
E-60
<PAGE>
"Independent Financial Expert" means a nationally-recognized
investment banking firm (a) that does not (and whose directors, officers,
employees and Affiliates do not) have a direct or indirect material financial
interest in the Company or any holder, (b) that has not been, and, at the time
it is called upon to serve as an Independent Financial Expert under this
Agreement, is not (and none of whose directors, officers, employees or
Affiliates is not), a promoter, director or officer of the Company or any
Holder, (c) that has not been retained during the preceding two years by the
Company or the holder for any purpose, and (d) that is otherwise qualified to
serve as an Independent Financial Advisor. Any such person or entity may
receive customary compensation and indemnification by the Company for opinions
or services it provides as an Independent Financial Expert.
5. Notice of Adjustments. Whenever the Warrant Price or the number
---------------------
of Warrant Shares purchasable hereunder shall be adjusted pursuant to Section 4
hereof, the Company shall make a certificate signed by its chief financial
officer setting forth, in reasonable detail, the event requiring the adjustment,
the amount of the adjustment, the method by which such adjustment was
calculated, and the Warrant Price and the number of Warrant Shares purchasable
hereunder after giving effect to such adjustment, which shall be mailed (without
regard to Section 14 hereof, by first class mail, postage prepaid) to the holder
----------
of this Warrant.
6. Fractional Shares. No fractional shares of Common Stock will be
-----------------
issued in connection with any exercise hereunder, but in lieu of such fractional
shares the Company shall make a cash payment therefor based on the fair market
value (as determined in accordance with Section 4(h) above) of a share of Common
-----------
Stock on the date of exercise.
7. Compliance with Securities Act; Disposition of Warrant or
---------------------------------------------------------
Warrant Shares.
- --------------
a. Compliance with Securities Act. The holder of this Warrant,
------------------------------
by acceptance hereof, agrees that this Warrant and the shares of Common Stock to
be issued upon exercise hereof, are being acquired for investment and that such
holder will not offer, sell or otherwise dispose of this Warrant, or any shares
of Common Stock to be issued upon exercise hereof except under circumstances
which will not result in a violation of the Securities Act of 1933, as amended
(the "Act"). Upon exercise of this Warrant, unless the Warrant Shares to be
received upon such exercise are intended to be included in a registration
statement under the Act, the holder hereof shall confirm in writing, by
executing the form attached as Schedule 1 to Exhibit A hereto, that the shares
---------
of Common Stock so purchased are being acquired for investment and not with a
view toward distribution or resale in violation of the Act. All shares of
Common Stock issued upon exercise of this Warrant (unless registered under the
Act) shall be stamped or imprinted with a legend in substantially the following
form:
"THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. NO
SALE OR DISPOSITION MAY BE EFFECTED WITHOUT (i) AN EFFECTIVE
REGISTRATION STATEMENT RELATED THERETO, (ii) AN OPINION OF COUNSEL FOR
THE HOLDER,
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<PAGE>
REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS NOT
REQUIRED, (iii) RECEIPT OF A NO-ACTION LETTER(S) FROM THE APPROPRIATE
GOVERNMENTAL AUTHORITY(IES), OR (iv) OTHERWISE COMPLYING WITH THE
PROVISIONS OF SECTION 7 OF THE WARRANT UNDER WHICH THESE SECURITIES
---------
WERE ISSUED DIRECTLY OR INDIRECTLY."
In addition, in connection with the issuance of this Warrant, the
holder specifically represents to the Company by acceptance of this Warrant as
follows:
(1) The holder is aware of the Company's business affairs
and financial condition, and has acquired information about the Company
sufficient to reach an informed and knowledgeable decision to acquire this
Warrant. The holder is acquiring this Warrant for its own account for investment
purposes only and not with a view to, or for resale in connection with any
"distribution" thereof for purposes of the Act in violation of the Act. Each of
the holders acknowledges that such holder, or such holder's representatives, if
any, has been given access to information about the Company, through written
material provided in or attached to the Amendment, and through meetings with
representatives of the Company, and has had an opportunity to verify the
accuracy of such information, to ask questions of the Company's officers and
directors, and has received answers to such holder's satisfaction. Each of the
holders understands that the valuation and terms of the Warrant has been made
solely through and upon negotiations between the Company and the holders, and
not by an independent accountant, auditor, investment banker or third party.
Each of the holders represents that such holder has evaluated the fairness of
the terms and conditions of the Warrant to the extent he, she or it has deemed
necessary. In making a decision to purchase the Warrant, each of the holders has
relied solely on the information contained or referred to herein and upon
independent investigations made by such holder in his, her or its discretion. In
addition, none of the holders is purchasing any Warrant as a result or
subsequent to: (1) any advertisement, article, notice, or other publication
published in any newspaper, magazine, or similar broadcast media over the
internet, television, or radio; or (2) any seminar or meeting whose attendees,
including the holders, were invited as a result of, subsequent to, or pursuant
to, any general solicitation.
(2) The holder understands that this Warrant and the
Warrant Shares have not been registered under the Act in reliance upon a
specific exemption therefrom, which exemption depends upon, among other things,
the bona fide nature of the holder's investment intent as expressed herein, and
the assumption that holder resides at the address corresponding to him, her, or
it on Schedule A to the Registration Rights Agreement.
----------
(3) The holder further understands that this Warrant and
the Warrant Shares must be held indefinitely unless subsequently registered
under the Act and any applicable state securities laws, or unless exemptions
from registration are otherwise available.
(4) The holder is aware of the provisions of Rule 144
promulgated under the Act, which, in substance, permit limited public resale of
"restricted securities" acquired, directly or indirectly, from the issuer
thereof (or from an affiliate of such
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<PAGE>
issuer), in a non-public offering subject to the satisfaction of certain
conditions, if applicable, including, among other things: the availability of
certain public information about the Company, the resale occurring not less than
one (1) year after the party has purchased and paid for the securities to be
sold; the sale being made through a broker in an unsolicited "broker's
transaction" or in transactions directly with a market maker (as said term is
defined under the Securities Exchange Act of 1934, as amended) and the amount of
securities being sold during any three-month period not exceeding the specified
limitations stated therein.
(5) The holder further understands that at the time it
wishes to sell this Warrant and the Warrant Shares there may be no public market
upon which to make such a sale, and that, even if such a public market then
exists, the Company may not be satisfying the current public information
requirements of Rule 144, and that, in such event, the holder may be precluded
from selling this Warrant and the Warrant Shares under Rule 144 even if the one
(1)-year minimum holding period had been satisfied.
b. Disposition of Warrant or Warrant Shares. This Warrant and
----------------------------------------
the Warrant Shares may be detached and sold or otherwise transferred, in whole
or in part, separately from the loans made pursuant to the Amendment, except
that the holder may not transfer the Warrant or the Warrant Shares in a
transaction not effected on any securities exchange to any entity that is known
at the time of such transfer to be a direct competitor of, or that controls or
is controlled by or is under common control with an entity known to be a direct
competitor of, the Company or any of its material subsidiaries. With respect to
any offer, sale or other disposition of this Warrant, or any Warrant Shares
acquired pursuant to the exercise of this Warrant prior to registration of such
Warrant or Warrant Shares, the holder hereof and each subsequent holder of this
Warrant agrees to deliver, prior to the registration of any such transfer, a
written opinion of such holder's counsel (which may be in-house counsel for such
holder), if reasonably requested by the Company, to the effect that such offer,
sale or other disposition may be effected without registration or qualification
(under the Act as then in effect or any federal or state law then in effect) of
this Warrant or such Warrant Shares and indicating whether or not under the Act
certificates for this Warrant or such Warrant Shares to be sold or otherwise
disposed of require any restrictive legend as to applicable restrictions on
transferability in order to ensure compliance with applicable law. If a
determination has been made pursuant to this Section 7(b) that the opinion of
------------
counsel for the holder is not reasonably satisfactory to the Company, the
Company shall so notify the holder promptly after such determination has been
made. The foregoing notwithstanding, this Warrant or such Warrant Shares may, as
to such federal laws, be offered, sold or otherwise disposed of in accordance
with Rule 144 under the Act, provided that the Company shall have been furnished
with such information as the Company may reasonably request to provide a
reasonable assurance that the provisions of Rule 144 have been satisfied. Each
certificate representing this Warrant or the Warrant Shares thus transferred
(except a transfer pursuant to Rule 144) shall bear a legend as to the
applicable restrictions on transferability in order to ensure compliance with
such laws, unless in the aforesaid opinion of counsel for the holder
satisfactory to the Company, such legend is not required in order to ensure
compliance with such laws. The Company may issue stop transfer instructions to
its transfer agent or, if acting as its own transfer agent, the Company may stop
transfer on its corporate books, in connection with such restrictions.
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8. Rights as Stockholders; Information. No holder of this Warrant,
-----------------------------------
as such, shall be entitled to vote or receive dividends or be deemed the holder
of Common Stock or any other securities of the Company which may at any time be
issuable on the exercise hereof for any purpose, nor shall anything contained
herein be construed to confer upon the holder of this Warrant, as such, any of
the rights of a stockholder of the Company or any right to vote for the election
of the directors or upon any matter submitted to stockholders at any meeting
thereof, or to receive notice of meetings, or to receive dividends or
subscription rights or otherwise, until this Warrant shall have been exercised
and the Warrant Shares purchasable upon the exercise hereof shall have become
deliverable, as provided herein. The foregoing notwithstanding, the Company will
transmit to the holder of this Warrant such information, documents and reports
as are generally distributed to the holders of any class or series of the
securities of the Company concurrently with the distribution thereof to the
stockholders.
9. Representations and Warranties. The Company represents and
------------------------------
warrants to the holder of this Warrant, except as otherwise disclosed in the
Amendment or any schedule or exhibit thereto, as follows:
a. This Warrant has been duly authorized and executed by the
Company and is a valid and binding obligation of the Company enforceable in
accordance with its terms, subject to laws of general application relating to
bankruptcy, insolvency and the relief of debtors and the rules of law or
principles at equity governing specific performance, injunctive relief and other
equitable remedies;
b. The Warrant Shares have been duly authorized and reserved
for issuance by the Company and, when issued in accordance with the terms
hereof, will be validly issued, fully paid and nonassessable and are not subject
to any preemptive right of any stockholder of the Company;
c. The rights, preferences, privileges and restrictions granted
to or imposed upon the Common Stock and the holders thereof are as set forth in
the certificate of incorporation of the Company, as amended to the Date of Grant
(as so amended, the "Charter"), a true and complete copy of which has been
delivered to the original holder of this Warrant;
d. The execution and delivery of this Warrant are not, and the
issuance of the Warrant Shares upon exercise of this Warrant in accordance with
the terms hereof will not be, inconsistent with the Charter or by-laws of the
Company, do not and will not contravene, in any material respect, any
governmental rule or regulation, judgment or order applicable to the Company, do
not and will not conflict with or contravene any provision of, or constitute a
default under, any indenture, mortgage, contract or other instrument of which
the Company is a party or by which it is bound or require the consent or
approval of, the giving of notice to, the registration or filing with or the
taking of any action in respect of or by, any Federal, state or local government
authority or agency or other person, except for the filing of notices pursuant
to federal and state securities laws, which filings will be effected by the time
required thereby, and are not and will not, with the exception of the Amendment
and the Registration Rights Agreement, be subject to any voting trust agreement
or other contract,
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<PAGE>
agreement, arrangement, commitment or understanding to which the Company is a
party, including such agreement, arrangement, commitment or understanding
restricting or otherwise relating to the voting or disposition thereof;
e. There are no actions, suits, audits, investigations or
proceedings pending or, to the knowledge of the Company, threatened against the
Company in any court or before any governmental commission, board or authority
which, if adversely determined, will have a material adverse effect on the
ability of the Company to perform its obligations under this Warrant;
f. As of the Date of Grant, the authorized capital stock of the
Company (of all classes and series, including Common Stock and preferred stock),
the par value thereof, and the issued and outstanding amounts thereof, are as
set forth on Schedule 9(f) hereof. The issuance and sale of all such interests
-------------
was in compliance with all applicable federal and state securities laws, and all
issued and outstanding shares of capital stock of the Company are duly
authorized, validly issued, fully paid, and non-assessable. Other than the
Warrants, and other than as specified on Schedule 9(f) hereof, as of the Date of
-------------
Grant there are no preemptive rights or any outstanding subscriptions, options,
warrants, rights, convertible securities, calls or other agreements,
arrangements or commitments (including, without limitation, registration rights
agreements) relating to the issued or unissued shares of the Company's capital
stock or other securities, including any right of conversion or exchange under
any outstanding security or other instrument. Other than the Registration
Rights Agreement, the Warrants and any shares of Common Stock issued upon
exercise of the Warrants are not and will not be subject to any voting trust
agreement or other contract, agreement, arrangement, commitment or understanding
to which the Company is a party, including any such agreement, arrangement,
commitment or understanding restricting or otherwise relating to the voting or
disposition thereof. There are not any outstanding bonds, debentures, notes or
other indebtedness of the Company having the right to vote (or convertible into,
or exchangeable for, securities having the right to vote) on any matters on
which stockholders of the Company may vote. Except as set forth on Schedule
--------
9(f), as of the Date of Grant, there are not any securities, options, warrants,
- ----
calls, rights, convertible or exchangeable securities or commitments,
agreements, arrangements or undertakings of any kind to which the Company or any
of its subsidiaries is a party or by which any of them is bound obligating the
Company or any of its subsidiaries to issue, deliver or sell or create, or cause
to be issued, delivered or sold or created, additional shares of capital stock
or other voting securities or stock equivalents of the Company or any of its
subsidiaries or obligating the Company or any of its subsidiaries to issue,
grant, extend or enter into any such security, option, warrant, call, right,
commitment, agreement, arrangement or understanding. As of the Date of Grant,
other than as specified on Schedule 9(f) hereof, the Company is not subject to
-------------
any obligation (contingent or otherwise) to repurchase or otherwise acquire or
retire any shares of its capital stock or any security convertible into or
exchangeable for any of its capital stock.
10. Additional Rights of the Holders.
--------------------------------
10.1 Default Event. Subject to the other provisions of this
-------------
Warrant, there shall have occurred a "Default Event" under this Agreement if:
(i) at any time after
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<PAGE>
December 31, 1999 the Company fails for any reason to honor any request for
exercise of this Warrant by the holder hereof, provided that such request is
--------
validly and properly made in accordance with the provisions of Section 2 hereof;
---------
(ii) at any time after December 31, 1999 the Company does not have a sufficient
number of authorized and unissued shares of Common Stock in order to permit the
exercise in full of all of the then-outstanding Warrants; (iii) the Company has
not caused a Registration Statement (as defined in the Registration Rights
Agreement) to become effective by December 31, 1999 in accordance with Section
-------
2(a) of the Registration Rights Agreement; (iv) at any time after a Registration
- ----
Statement has been declared effective during the term of the Warrant, the
effectiveness of such Registration Statement is suspended for any reason other
than in accordance with Section 4(c) of the Registration Rights Agreement; (v)
------------
at any time after a Registration Statement has been declared effective during
the term of the Warrant, the effectiveness of such Registration Statement is
suspended for any period which, when added to the length of any previous such
period of suspension, exceeds sixty (60) days; or (vi) at any time after
December 31, 1999 the shares of Common Stock of the Company are not listed on
the NASDAQ National Market System, the Nasdaq Small Cap Market, or any national
securities exchange.
Upon the happening of one or more Default Events, the Warrant Price
shall be reduced by five percent (5%) for each continuous 30-day period (pro-
rated for portions thereof) in which each such Default Event exists, but in no
event shall the Warrant Price be reduced below $0.45 per share. Such reduction
shall be cumulative upon the happening of multiple simultaneous Default Events.
In the event that the Investors elect to undertake an underwritten
offering of Warrant Shares pursuant to Section 2(d) of the Registration Rights
------------
Agreement and/or a Default Event has occurred that resulted in material part
from the failure of any Investor, or any underwriter selected by the Investor,
to comply in a timely manner with the reasonable requests of the Company in
effecting a registration pursuant to the Registration Rights Agreement, then the
occurrence of a Default Event shall be delayed during the period of such
noncompliance.
10.2 Protective Provisions. Until the Expiration Date, the
---------------------
Company shall not, without the prior written consent of the holders of a
majority of the then-outstanding Warrants, amend or modify the terms of the
Company's outstanding Class B Warrants or the Unit Purchase Options issued to
D.H. Blair Investment Banking Company (the "Derivative Securities") so as to (i)
reduce the exercise prices of any of the Derivative Securities, (ii) extend the
expiration dates of any of the Derivative Securities, (iii) increase the number
of shares of capital stock issuable upon exercise of the Derivative Securities,
or (iv) change the forms of consideration payable to the Company upon exercise
of any of the Derivative Securities.
10.3 Observer Rights. The Company shall invite a representative
---------------
of USBL and a single representative appointed by the Agent (as such term is
defined in the Amendment) to attend all meetings of its Board of Directors in a
nonvoting observer capacity (collectively, the "Designated Observers") and, in
this respect, shall give the Designated Observers copies of all notices,
minutes, consents, and other materials that it provides to its directors;
provided, however, that the Designated Observers shall agree to hold in
- -------- -------
confidence and
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<PAGE>
trust all information so provided; and provided further, that the Company
-------- -------
reserves the right to withhold any information and to exclude the Designated
Observers from any meeting or portion thereof if access to such information or
attendance at such meeting could adversely affect the attorney-client privilege
between the Company and its counsel or would result in disclosure of trade
secrets to the Designated Observers or if such Investors or their
representatives are direct competitors of the Company. In the case of telephonic
meetings conducted in accordance with the Company's Certificate of Incorporation
and bylaws, and applicable law, the Designated Observers shall be given the
opportunity to listen to such telephonic meetings. The Designated Observers
shall be given reasonable notice of each meeting of the Board of Directors
(including telephonic Board meetings). The Company shall reimburse the
Designated Observers for the reasonable out-of-pocket expenses incurred by such
individuals in connection with attendance at meetings of the Board of Directors.
The Company shall notify USBL and the Agent, as promptly as practicable, of the
proposed taking of any material action by written consent of its Board of
Directors in lieu of a meeting thereof and a copy of such written consent shall
be provided to the Designated Observers as soon as possible.
11. Redemption.
----------
11.1 At any time after two (2) years from the date hereof, if the
Common Stock is at such time traded on an Exchange or quoted on NASDAQ and the
last reported sales price per share of the Common Stock on the principal
Exchange for such Common Stock (or, if the Common Stock is not then traded on an
Exchange, on NASDAQ) is greater than Four Dollars ($4.00) (such price, as
adjusted as contemplated in this Section 11, the "Target Price") on each of the
----------
twenty (20) consecutive trading days ending on the trading day immediately prior
to the day on which the notice referred to in this sentence is given, then, upon
not less than thirty (30) nor more than sixty (60) days' notice, the Company
shall have the right, in its sole discretion, to repurchase ("Call") all, but
not less than all, of the Warrants at a purchase price per share of Common Stock
equal to $1.7438 in cash (such price, as adjusted as contemplated in this
Section 11, the "Call Purchase Price"); provided, however, that in the event of
- ----------
any adjustment in the Warrant Price contemplated by Sections 4(b) or 4(c)
hereof, the Target Price and the Call Purchase Price shall each be
simultaneously adjusted by multiplying it by the same fraction used for such
adjustment in Section 4(b) or 4(c), as applicable.
------------ ----
11.2 The Call right shall be exercisable by written notice (the
"Call Notice") given to the holder (and any applicable assigns). The Company
shall effect the repurchase of the Warrant pursuant to the Call Notice by paying
the purchase price therefor in cash to the holder not less than thirty (30) nor
more than ninety (90) days after delivery by the Company of the Call Notice; and
at such time each holder shall deliver to the Company the Warrant to be
repurchased (but not any Warrant Shares which have been issued under the
Warrant) properly endorsed for transfer; provided, however, that at any time
-------- -------
prior to such cash payment, the holder shall be entitled to exercise or convert
this Warrant pursuant to Section 2, and in the event of such exercise or
---------
conversion, the Call right shall be of no force and effect.
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<PAGE>
11.3 Recapture Provisions Upon Call.
------------------------------
a. If the Company purchases Warrants pursuant to this
Section and subsequently, at any time up to the date twelve (12) months after
the completion of such purchase (the "Resale Date") there occurs:
(1) a sale of assets or stock, reorganization,
recapitalization or other transaction the result of which is that following such
sale, reorganization, recapitalization or other transaction, there shall be a
change of control, whether in one or a series of transactions; or
(2) a sale of all or substantially all of the
Company's assets (determined on a consolidated basis) or sale of the Company's
assets (determined on a consolidated basis) that represented at least 50% of the
gross revenues of the Company (determined on a consolidated basis) for the most
recently ended twelve (12) month period; and the consideration involved in such
sale, reorganization, recapitalization or other transaction reflects a Warrant
Share value which is greater than the Call Purchase Price of a Warrant, then the
Company shall remit to the Holders from whom such Warrants were repurchased an
amount equal to the product of:
(x) the difference of:
(i) the actual fair market value of the
consideration on a per Warrant Share basis involved in such subsequent sale,
reorganization, recapitalization or other transaction; less
(ii) the Call Purchase Price;
multiplied by
-------------
(y) the number of Warrants purchased by the Company
pursuant to this Section 11 pro rata according to the quantity of the Warrants
------- --- ----
sold by such Holders.
b. If all or any portion of the consideration involved in
any sale, reorganization, recapitalization or other transaction described in
Section 11.3(a) hereof is non-cash consideration, a determination of the fair
market value of such consideration shall be made in good faith by the Board or
as otherwise provided in the Valuation Procedure.
12. Allocated Purchase Price. The Company and the holder hereby
------------------------
acknowledge that for the purposes of Section 1273(c)(2) of the Internal Revenue
Code, this Warrant is a part of an investment unit with the loans being made by
the holder to the Company under the Amendment and that the allocated purchase
price of the Warrant is Five cents ($0.05). The Company and the holder agree to
use the foregoing allocated purchase price as the purchase price of the Warrant
for all income tax purposes.
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<PAGE>
13. Modification and Waiver. Subject to Section 23, this
----------------------- ----------
Warrant and any provision hereof may be changed, waived, discharged or
terminated only by an instrument in writing signed by the party against which
enforcement of the same is sought.
14. Notices. Unless otherwise specifically provided herein, all
-------
communications under this Warrant shall be in writing and shall be deemed to
have been duly given (i) on the date of service if served personally on the
party to whom notice is to be given, (ii) on the day of transmission if sent by
facsimile transmission to a number provided to a party specifically for such
purposes, and telephonic confirmation of receipt is obtained promptly after
completion of transmission, (iii) on the day after delivery to Federal Express
or similar overnight courier, or (iv) on the fifth day after mailing, if mailed
to the party to whom notice is to be given, by first class mail, registered or
certified, postage prepaid, and properly addressed, return receipt requested, to
each such holder at the address for notice called for under Section 11(d) of the
-------------
Registration Rights Agreement, or to the Company at the address indicated
therefor on the signature page of this Warrant. Any party hereto may change its
address for purposes of this Section 14 by giving the other party written notice
----------
of the new address in the manner set forth herein.
15. Binding Effect on Successors. This Warrant shall be binding
----------------------------
upon any corporation succeeding the Company by merger, consolidation or
acquisition of all or substantially all of the Company's assets, and all of the
obligations of the Company relating to the Common Stock issuable upon the
exercise or conversion of this Warrant shall survive the exercise, conversion
and termination of this Warrant and all of the covenants and agreements of the
Company shall inure to the benefit of the successors and assigns of the holder
hereof. The Company will, at the time of the exercise or conversion of this
Warrant, in whole or in part, upon request of the holder hereof but at the
Company's expense, acknowledge in writing its continuing obligation to the
holder hereof in respect of any rights to which the holder hereof shall continue
to be entitled after such exercise or conversion in accordance with this
Warrant; provided, that the failure of the holder hereof to make any such
--------
request shall not affect the continuing obligation of the Company to the holder
hereof in respect of such rights.
16. Lost Warrants or Stock Certificates. The Company covenants
-----------------------------------
to the holder hereof that, upon receipt of evidence reasonably satisfactory to
the Company of the loss, theft, destruction or mutilation of this Warrant or any
stock certificate and, in the case of any loss, theft or destruction, upon
receipt of an executed lost securities bond or indemnity reasonably satisfactory
to the Company, or in the case of any such mutilation upon surrender and
cancellation of such Warrant or stock certificate, the Company will make and
deliver a new Warrant or stock certificate, of like tenor, in lieu of the lost,
stolen, destroyed or mutilated Warrant or stock certificate.
17. Descriptive Headings. The descriptive headings of the
--------------------
several paragraphs of this Warrant are inserted for convenience only and do not
constitute a part of this Warrant.
18. Governing Law. The validity, interpretation and performance
-------------
of this Warrant shall be governed by, and construed in accordance with, the laws
of the State of New
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<PAGE>
York applicable to contracts made and to be performed entirely within such
State, regardless of the law that might be applied under principles of conflicts
of law.
19. Survival of Representations, Warranties and Agreements.
------------------------------------------------------
Each of the respective representations and warranties of the Company and the
holder hereof contained herein shall survive the Date of Grant, the exercise or
conversion of this Warrant (or any part hereof) and the termination or
expiration of any rights hereunder. Each of the respective agreements of each
of the Company and the holder hereof contained herein shall survive indefinitely
until, by their respective terms, they are no longer operative.
20. Remedies. In case any one (1) or more of the covenants and
--------
agreements contained in this Warrant shall have been breached, the holders
hereof (in the case of a breach by the Company), or the Company (in the case of
a breach by a holder), may proceed to protect and enforce their or its rights
either by suit in equity and/or by action at law, including, but not limited to,
an action for damages as a result of any such breach and/or an action for
specific performance of any such covenant or agreement contained in this
Warrant.
21. Acceptance. Receipt of this Warrant by the holder hereof
----------
shall constitute acceptance of and agreement to the foregoing terms and
conditions.
22. No Impairment of Rights. The Company will not, by amendment
-----------------------
of its Charter or through any other means, avoid or seek to avoid the observance
or performance of any of the terms of this Warrant, but will at all times in
good faith assist in the carrying out of all such terms and in the taking of all
such action as may be necessary or appropriate in order to protect the rights of
the holder of this Warrant against material impairment.
23. Amendment. This Warrant may be amended by written agreement
---------
of the Company and holders of 51% of the Investor Warrants, collectively on an
as-exercised basis, and such amendment shall be binding on all holders of this
Warrant or Warrant Shares; provided, however, the consent of any holder of
-------- -------
Warrants affected by any amendment will be required for an amendment pursuant to
which (i) the Warrant Price is increased, (ii) the number of Warrant Shares
purchasable upon exercise of the Warrant is decreased (other than pursuant to
any adjustments provided herein), (iii) the Expiration Date is changed, or (iv)
any right of a holder under the Warrant is adversely impacted in a manner
different than the other holders.
24. Registration Rights Agreement. The Company shall provide to
-----------------------------
the holder hereof, upon written request, a true copy of the Registration Rights
Agreement, as amended and modified to date.
25. Counterparts. This Warrant Agreement may be executed in any
------------
number of counterparts and by the parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement.
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<PAGE>
IN WITNESS WHEREOF the parties hereto have executed this Warrant Agreement
as of the day and year first above written.
COMPANY: VIDEO UPDATE, INC.,
a Delaware corporation
SIGNATURES OF INITIAL HOLDERS
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<PAGE>
Exhibit 4d
----------
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT dated as of June 23, 1999 (this
"Agreement"), by and among Video Update, Inc., a Delaware corporation (the
"Company"), U.S. Bancorp Libra, a division of U.S. Bancorp Investments, Inc., a
Minnesota corporation, and the Investors named on the signature page hereof
(each, an "Investor" and collectively, the "Investors").
RECITALS
WHEREAS, this Agreement is being entered into pursuant to that certain
Seventh Amendment and Waiver (the "Amendment") of even date herewith by and
among the Company, the persons or institutions named as Banks on Schedule I to
such Amendment, and Paribas, as agent; and
WHEREAS, in connection with the Amendment, the Company has agreed to
issue to the Investors warrants (the "Warrants") to purchase in the aggregate
Seven Million Four Hundred Eighty One Thousand Two Hundred Fifty (7,481,250)
shares of Class A Common Stock of the Company (the "Common Stock").
NOW, THEREFORE, in consideration of the premises and of the
representations, warranties, covenants and agreements contained herein and for
other good and valuable consideration, the sufficiency and receipt of which are
hereby acknowledged, the parties hereto hereby agree as follows:
1. Certain Definitions.
-------------------
(a) The term "Exchange Act" shall mean the Securities Exchange
Act of 1934, as amended.
(b) The term "Registrable Securities" shall refer to the Common
Stock issued or issuable upon exercise or conversion of the Warrants and any
Common Stock or securities of the Company issued in exchange for or in respect
of such Common Stock or securities, whether as the result of any stock split or
reclassification of, or stock dividend on, such Common Stock or otherwise. For
the purposes of this Agreement, Registrable Securities will cease to be
Registrable Securities when (i) a registration statement filed with the
Commission under the Securities Act, covering such Registrable Securities has
been declared effective and they have been disposed of pursuant to such
effective registration statement, or (ii) such Registrable Securities are sold
pursuant to Rule 144 under the Securities Act.
(c) The term "Registration Deadline" shall mean December 31,
1999.
(d) The term "Securities Act" shall mean the Securities Act of
1933, as amended.
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2. Registration Rights.
-------------------
(a) Shelf Registration. The Company covenants and agrees that it
------------------
will (i) use its best efforts to file with the SEC a registration statement on
Form S-1 or Form S-3, or any successor form or registration to either such
forms, for an offering to be made on a continuous basis pursuant to Rule 415
(the "Registration Statement"), covering all the Registrable Securities, and
cause such registration statement to be declared effective on or prior to the
Registration Deadline, and (ii) use its best efforts, including but not limited
to the filing of any and all supplements and amendments to the Registration
Statement required under applicable rules, regulations or instructions or
reasonably requested by the holders of a majority of the shares then registered
under the Registration Statement, to keep such Registration Statement
continuously effective under the Securities Act until the earlier of (i) the
Expiration Date of the Warrants (as such term is defined therein) or (ii) the
date on which all the Registrable Securities have been sold pursuant to such
Registration Statement.
(b) Supplements; Amendments. The Company agrees, if necessary in
-----------------------
the judgment of the Company, to supplement or amend the Registration Statement,
as required by the rules, regulations or instructions applicable to the
registration form used by the Company for such Registration Statement or by the
Securities Act or as requested (which request may result in the filing of a
supplement or amendment) by the Investors, and the Company agrees to furnish to
the Investors and their counsel and any managing underwriter copies of any such
supplement or amendment prior to its being used and/or filed with the
Commission.
(c) Effective Registration. A registration will not be deemed to
----------------------
have been effected as a Registration Statement unless the Registration Statement
with respect thereto has been declared effective by the Commission and the
Company has complied in all material respects with its obligations under this
Agreement with respect thereto; provided, however, that if after it has been
-------- -------
declared effective, the offering of Registrable Securities pursuant to a
Registration Statement is interfered with by any stop order, injunction or other
order or requirement directed at the Company by the Commission or any other
governmental agency or court, such Registration Statement will be deemed not to
have become effective during the period of such interference until the offering
of Registrable Securities pursuant to such Registration Statement may legally
resume. If a registration requested pursuant to this Section 2 is deemed not to
---------
have been effected then the Company shall continue to be obligated to effect a
registration pursuant to this Section 2.
---------
(d) Selection of Underwriter. If the Investors so elect, upon
------------------------
thirty (30) days' written notice to the Company, the offering of Registrable
Securities pursuant to a Registration Statement of Registrable Securities under
this Section 2 shall be in the form of an underwritten offering. If the
---------
Investors so elect, the Investors shall select one or more nationally recognized
firms of investment bankers reasonably acceptable to the Company to act as the
book-running managing underwriter or underwriters in connection with such
offering and shall select any additional investment bankers and managers
reasonably acceptable to the Company to be used in connection with the offering.
Any election by the Investors under this Section 2(d) shall be made by the
------------
holders of a majority of the outstanding Registrable Securities.
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3. Incidental Registration.
-----------------------
(a) Subject to Section 3(b) below, the Company covenants and
------------
agrees that in the event the Company proposes to file a registration statement
under the Securities Act with respect to any of its Common Stock (other than
pursuant to registration statements on Form S-4 or Form S-8 or any successor or
similar forms and other than registrations pursuant to Section 2 hereof),
---------
whether or not for its own account, then the Company shall give written notice
of such proposed filing to all of the Investors promptly (and in any event at
least thirty (30) days before the anticipated filing date). Such notice shall
offer to the Investors, together with others who have similar rights, the
opportunity to include in such registration statement such number of Registrable
Securities as they may request (whether or not the Registrable Securities have
been included in a shelf registration statement). The Company shall direct and
use its reasonable best efforts to cause the managing underwriter of any
proposed underwritten offering (unless the offering is an underwritten offering
of a class of the Company's equity securities other than the Common Stock and
the managing underwriter has advised the Company in writing that, in its
opinion, the inclusion in such offering of Common Stock would materially
adversely affect the distribution of such offering) to permit the holders of
Registrable Securities requested to be included in the registration to include
such Registrable Securities in the proposed offering and the Company shall
include such Registrable Securities in such proposed offering on the same terms
and conditions as any similar securities of the Company included therein. If the
offering of which the Company gives notice is a public offering involving an
underwriter, the right of an Investor to registration pursuant to this Section
-------
3(a) shall be conditioned upon (i) such Investor's participation in such
- ----
underwriting and the inclusion of the Registrable Securities to be sold by such
Investor in the underwriting and (ii) such Investor executing an underwriting
agreement entered into by the Company which includes customary terms and
conditions relating to sales by shareholders, but containing representations and
warranties limited solely to ownership of the Registrable Securities, the right
to transfer the Registrable Securities, and customary representations regarding
material misstatements in information supplied by the holders of Registrable
Securities and included in the registration statement. The foregoing
notwithstanding, in the case of a firm commitment offering on underwriting terms
appropriate for such a transaction, if any such managing underwriter of
recognized standing shall advise the Company and the Investors in writing that,
in its opinion, the distribution of all or a specified portion of the
Registrable Securities requested to be included in the registration concurrently
with the securities being registered by the Company would materially adversely
affect the distribution of such securities by increasing the aggregate amount of
the offering in excess of the maximum amount of securities which such managing
underwriter believes can reasonably be sold in the contemplated distribution,
then the securities to be included in a registration which is a primary
underwritten offering on behalf of the Company shall be reduced in the following
order: (i) first, Registrable Securities and, to the extent consistent with
registration rights already afforded to holders of such other securities, such
other securities requested to be included by holders of such other securities
shall be excluded pro rata based upon the number sought to be included in the
Company's registration statement, and (ii) second, the securities the Company
proposes to include therein shall be excluded.
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<PAGE>
(b) In the event that a holder or holders of the Company's
securities (other than an Investor) requests, pursuant to rights granted to such
holder or holders, that the Company file a registration statement for the public
offering of securities and the Company and the other holders of the Company's
securities (including the Investors) who have rights to be included in such
registration, request to be included in such registration and the managing
underwriter of such offering, if any, shall advise the Company and the holders
requesting inclusion in the offering that, in its opinion, the distribution of a
specified portion of the securities requested to be included in the registration
would materially adversely affect the distribution of such securities by
increasing the aggregate amount of the offering in excess of the maximum amount
of securities which such managing underwriter believes can reasonably be sold in
the contemplated distribution then, the securities to be included in the
registration shall be reduced in the following order: (i) first, any securities
requested to be included therein by the holders of such other securities in such
a manner as determined by the Company, (ii) second, securities proposed to be
included by the Company shall be excluded, (iii) third, Registrable Securities
shall be excluded pro rata, (iv) fourth, to the extent consistent with
registration rights already granted to such holders, securities requested to be
included therein by the holder or holders making the initial request for the
registration. For purposes of this Section 3(b), the Company agrees to request
-----------------
for inclusion in the registration only that number of securities that the
Company intends, in good faith, to sell, if all such securities so requested by
the Company were permitted to be included by the managing underwriter in such
registration and sold pursuant thereto.
4. Holdback Agreement.
------------------
If reasonably requested by the managing underwriter or underwriters for any
public offering of Registrable Securities being made pursuant to a Registration
Statement, the Company will (i) not publicly sell or distribute any securities
similar to those being registered, or any securities convertible into or
exchangeable or exercisable for such securities (other than any such sale or
distribution of such securities in connection with any merger or consolidation
by the Company or any subsidiary thereof, or the acquisition by the Company or a
subsidiary thereof of the capital stock or substantially all of the assets of
any other person, or by reason of the existence of previously issued and
outstanding convertible securities, options or warrants), during the time
reasonably requested by the underwriter, not to exceed fourteen (14) business
days prior to, and not to exceed one hundred twenty (120) days following (or
such shorter period allowed by such underwriters), the effective date of any
Registration Statement in which the Investors are participating or the
commencement of a public distribution of the Registrable Securities pursuant to
such Registration Statement; provided, however, that in no event shall this
-------- -------
clause prevent the Company from selling or distributing any securities
registered under the Securities Act on Form S-4 or Form S-8 or any successor
form, and (ii) use reasonable best efforts to cause each other holder of
privately placed securities similar to those being registered to agree not to
effect any public sale or distribution of any such securities during the periods
described in clause (i) above, in each case including a sale pursuant to Rule
144 or Rule 144A under the Securities Act (except as part of any such
registration, if permitted).
5. Registration Procedures.
-----------------------
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<PAGE>
(a) In connection with any sale of Registrable Securities
pursuant to a Registration Statement, the Company will as promptly as
practicable:
(i) prepare and file with the Commission a Registration
Statement on the appropriate form under the Securities Act, which form shall
comply as to form in all material respects with the requirements of the
applicable form and include all financial statements required by the Commission
to be filed therewith, and use its best efforts to have such Registration
Statement declared effective and remain effective in accordance with the
provisions of this Agreement; provided, however, that, prior to filing a
-------- -------
Registration Statement or prospectus relating to Registrable Securities or any
amendments or supplements thereto, the Company shall furnish to the Investors,
the Investors' counsel and the underwriters, if any, copies of all such
documents proposed to be filed, which documents will be subject to the review of
the Investors' counsel and the underwriters, if any, and the Company will not,
unless required by law, file any Registration Statement or amendment thereto or
any prospectus or any supplement thereto relating to Registrable Securities to
which the Investors or the underwriters with respect to such Registrable
Securities, if any, shall object; provided, however, that any such objection to
-------- -------
the filing of any Registration Statement or amendment thereto or any prospectus
or supplement thereto shall be made by written notice (the "Objection Notice")
delivered to the Company no later than ten (10) business days after the party or
parties asserting such objection (the "Objecting Party") receives copies of the
documents that the Company proposes to file. The Objection Notice shall set
forth the objections and the specific areas in the documents where such
objections arise. The Company shall have a reasonable time after receipt of the
Objection Notice to correct such deficiencies to the reasonable satisfaction of
the objecting Party; provided, however, that nothing contained herein shall
-------- -------
prevent the Company from filing documents within the time periods specified
under the Securities Act or the terms of this Agreement;
(ii) prepare and file with the Commission such amendments
and post-effective amendments to the Registration Statement as may be necessary
to keep such Registration Statement effective for as long as such registration
is required to remain effective pursuant to the terms hereof; cause the
prospectus contained in the Registration Statement 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 applicable to it with respect to the disposition of all
Registrable Securities covered by such Registration Statement during the
applicable period in accordance with the intended methods of disposition set
forth in such Registration Statement or supplement to the prospectus;
(iii) promptly notify the Investors, counsel to the
Investors and any underwriter and (if requested by any such person) confirm such
notice 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 Commission or any state securities authority for amendments and
supplements to a Registration Statement and prospectus or for additional
information after the Registration Statement has become effective, (iii) of the
issuance by the Commission of any stop order suspending the effectiveness of a
Registration Statement or the initiation or threatening of any proceedings for
that purpose, (iv) of the issuance by any state securities
E-76
<PAGE>
commission or other regulatory authority of any order suspending the
qualification or exemption from qualification of any of the Registrable
Securities under state securities or "blue sky" laws or the initiation of any
proceedings for that purpose, and (v) if, between the effective date of a
Registration Statement and the closing of any sale of Registrable Securities
covered thereby, the representations and warranties of the Company contained in
any underwriting agreement, securities sales agreement or other similar
agreement, if any, relating to the offering cease to be true and correct in all
material respects;
(iv) use its best efforts to prevent the issuance of any
order suspending the effectiveness of a Registration Statement, and if one is
issued use its best efforts to obtain the withdrawal of any order suspending the
effectiveness of a Registration Statement at the earliest possible moment;
(v) if requested by the managing underwriter or
underwriters, if any, by the Investors or their counsel, incorporate in a
prospectus supplement or post-effective amendment such information as such
managing underwriter or underwriters request, or the Investors' counsel
reasonably requests, to be included therein, including, without limitation, with
respect to the Registrable Securities being sold by the Investors to such
underwriter or underwriters, the purchase price being paid therefor by such
underwriter or underwriters and with respect to any other terms of an
underwritten offering of the Registrable Securities to be sold in such offering,
and make all required filings of such prospectus supplement or posteffective
amendment; provided, however, that the Company need not include such information
-------- -------
if it deems it misleading or inappropriate or does not receive an indemnity with
respect to such information;
(vi) as promptly as practicable after filing with the
Commission of any document which is incorporated by reference into a
Registration Statement (in the form in which it was incorporated), deliver a
copy of each such document to the Investors and the counsel to the Investors
identified in writing;
(vii) cooperate with the Investors and the managing
underwriter or underwriters, if any, to facilitate the timely preparation and
delivery of certificates (which shall not bear any restrictive legends unless
required under applicable law) representing securities sold under a Registration
Statement, and enable such securities to be in such denominations and registered
in such names as the managing underwriter or underwriters, if any, or the
Investors may request and keep available and make available to the Company's
transfer agent or depositary prior to the effectiveness of such Registration
Statement a supply of such certificates;
(viii) provide a CUSIP number for all Registrable Securities
covered by a Registration Statement not later than the effective date of such
Registration Statement;
(ix) cooperate with the Investors and each underwriter,
participating in the disposition of Registrable Securities and their respective
counsel in connection with any filings required to be made with the National
Association of Securities Dealers, Inc. ("NASD");
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<PAGE>
(x) during the period when the prospectus is required to
be delivered under the Securities Act, promptly file all documents required to
be filed with the Commission pursuant to Sections 13(a), 13(c), 14 or 15(d) of
the Exchange Act;
(xi) appoint a transfer agent and registrar or depositary
for all Registrable Securities covered by a Registration Statement not later
than the effective date of such Registration Statement;
(xii) in connection with an underwritten offering,
participate, to the extent reasonably requested by the managing underwriter for
the offering or the Investors, in customary efforts to sell the securities under
the offering, including without limitation, participating in "road shows";
(xiii) use its best efforts to register or qualify such
Registrable Securities under such other securities or blue sky laws of such
jurisdictions as the Investors shall reasonably request, use its best efforts to
keep each such registration or qualification (or exemption therefrom) effective
during the period in which the Registration Statement is required to be kept
effective, and do any and all other acts and things that may be necessary or
advisable to enable such sellers to consummate the disposition in such
jurisdictions of the Registrable Securities owned by the Investors; provided,
however, that the Company will not be required to (i) qualify generally to do
business in any jurisdiction where it would not otherwise be required to qualify
but for this Section 5(a)(xiii), (ii) subject itself to general taxation in any
------------------
such jurisdiction where it is not then so subject, or (iii) consent to general
service of process in any such jurisdiction;
(xiv) use its best efforts to cause the Registrable
Securities covered by the Registration Statement to be registered with or
approved by such other governmental agencies or authorities as may be necessary
by virtue of the business and operations of the Company to enable the Investors
to consummate the disposition of such Registrable securities;
(xv) notify the Investors at any time when a prospectus
relating thereto is required to be delivered under the Securities Act, of the
happening of any event as a result of which the prospectus included in the
Registration Statement contains an untrue statement of a material fact required
to be stated therein or necessary to make the statements therein not misleading,
and the Company will prepare and file with the Commission a supplement or
amendment to such prospectus so that, as thereafter delivered to the purchasers
of such Registrable Securities, such prospectus will not contain an untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading;
(xvi) enter into customary agreements (including an
underwriting agreement in customary form) and take such other actions as are
reasonably required in order to expedite or facilitate the disposition of such
Registrable Securities (the Investors may, at their option, require that any or
all of the representations, warranties and covenants of the Company to or for
the benefit of any underwriters also be made to and for the benefit of the
Investors);
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<PAGE>
(xvii) make reasonably available for inspection by the
Investors, any underwriter participating in any disposition pursuant to such
Registration Statement, and any attorney, accountant or other agent retained by
the managing underwriter (collectively, the "Inspectors"), all pertinent
financial and other records, pertinent corporate documents and properties of the
Company (collectively, the "Records"), as shall be reasonably necessary to
enable them to exercise their due diligence responsibility, and cause the
Company's officers, directors and employees to supply all information reasonably
requested by any such inspector in connection with the Registration Statement;
provided, however, that records and other information that the Company
determines, in good faith, to be confidential shall be identified as
confidential prior to delivery of such records or information to the Inspectors,
and if the Company so notifies the Inspectors that such records and information
are confidential, such records and information shall not be disclosed by the
Inspectors unless (i) the disclosure of such Records in the opinion of counsel
reasonably acceptable to the Company is necessary to avoid or correct a
misstatement or omission in the Registration Statement, (ii) the release of such
Records is ordered pursuant to a subpoena or other order from a court of
competent jurisdiction, or (iii) such disclosure is required by law, rule,
regulation or order of any court or governmental authority having jurisdiction;
and the Investors agree that they will, upon learning that disclosure of such
Records is sought in a court of competent jurisdiction, give notice to the
Company and allow the Company, at the Company's expense, to undertake
appropriate action to prevent disclosure of the Records deemed confidential;
(xviii) if the offering is an underwritten public offering, use
its best efforts to obtain a "cold comfort" letter from the Company's
independent public accountants in customary form and covering such matters of
the type customarily covered by "cold comfort" letters as the Investors or the
managing underwriter reasonably request;
(xix) use its best efforts to obtain an opinion or opinions
from counsel for the Company in customary form and covering such matters of the
type customarily covered by opinions as the Investors or the managing
underwriter reasonably request; and
(xx) otherwise comply with all applicable rules and
regulations of the Commission and any other governmental, quasi-governmental or
private body to which the Company or the transactions contemplated by this
Agreement is subject, and make available to its security holders, as soon as
reasonably practicable, an earning statement, which earning statement shall
satisfy the provisions of Section 11(a) of the Securities Act.
(b) The Company may require the Investors to furnish to the Company,
and the registration rights of the Investors hereunder shall be subject to the
Investors furnishing, such information regarding the plan of distribution of
such Registrable Securities, and such other information as may be reasonably
requested by the Company, as the Company may from time to time reasonably
request in writing.
(c) The Investors agree that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 5(a)(xv)
----------------
hereof, the Investors will forthwith discontinue disposition of Registrable
Securities pursuant to the Registration Statement
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<PAGE>
until the Investors' receipt of the copies of the supplemented or amended
prospectus contemplated by Section 5(a)(xv) hereof; provided, that the Investors
---------------- --------
shall not be required to discontinue the disposition of Registrable Securities
pursuant to the Registration Statement for longer than sixty (60) days;
provided, further, the Company may not suspend the disposition of Registrable
- -------- -------
Securities pursuant to the Registration Statement unless such disposition would
result in a violation of Federal or state securities laws. If the Investors are
so directed by the Company, they will deliver to the Company (at the Company's
expense) all copies, other than permanent file copies then in the Investors'
possession, of the prospectus covering such Registrable Securities current at
the time of receipt of such notice. In the event the Company shall give any such
notice, the Company shall extend the period during which the Registration
Statement shall be maintained effective pursuant to this Agreement by the number
of days during the period from and including the date of the giving of such
notice pursuant to Section 5(a)(xv) hereof to and including the date when the
----------------
Investors shall have received the copies of the supplemented or amended
prospectus contemplated by Section 5(a)(xv) hereof.
----------------
(d) All underwriting discounts, selling commissions and expenses of
underwriters will be borne by the Investors pro rata in proportion to their
respective interests in the securities being underwritten.
(e) If any Registration Statement refers to the Investors by name or
otherwise as the holder of any securities of the Company, then the Investors
shall have the right to require (i) the insertion therein of language, in form
and substance satisfactory to the Investors, to the effect that the holding by
the Investors of such securities is not to be construed as a recommendation by
the Investors of the investment quality of the Company's securities covered
thereby and that such holding does not imply that the Investors will assist in
meeting any future financial requirements of the Company, or (ii) in the event
that such reference to the Investors by name or otherwise is not required by the
Securities Act or any similar Federal or state "blue sky" statute and the rules
and regulations thereunder then in force, the deletion of the reference to the
Investors.
6. Registration Expenses.
---------------------
The Company will pay all expenses incident to the Company's performance of
or compliance with this Agreement, including, without limitation, all costs and
expenses of registration hereunder, all registration and filing fees, fees and
expenses of compliance with securities or blue sky laws (including reasonable
fees and disbursements of one counsel in connection with blue sky qualifications
of the Registrable Securities), fees and expenses in connection with the listing
or trading of the Registrable Securities (excluding discounts, commissions or
fees of underwriters, selling brokers, dealer managers or similar securities
industry professionals relating to distribution of the Registrable Securities) ,
fees and expenses of the counsel and accountants for the Company (including the
reasonable expenses of any special audit and "cold comfort" letters required by
or incident to such performance), opinions of counsel and all other costs and
expenses of the Company incident to the preparation, printing and filing under
the Securities Act of the Registration Statement (and all amendments and
supplements thereto) and furnishing copies thereof and of the prospectus
included therein. In
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<PAGE>
addition, the Company will reimburse the Investors for the reasonable fees and
expenses of not more than one counsel chosen by the Investors holding a majority
of the Registrable Securities.
7. Representations and Warranties.
------------------------------
The Company represents and warrants to, and agrees with, each of the
Investors that:
(a) Each registration statement covering Registrable Securities and
each prospectus (including any preliminary or summary prospectus) contained
therein or furnished pursuant to Section 5 hereof and any further amendments or
---------
supplements to any such registration statement or prospectus, when it becomes
effective or is filed, with the Commission, as the case may be, and, in the case
of an underwritten offering of Registrable Securities at the time of the closing
under the underwriting agreement relating thereto will conform in all material
respects to the requirements of the Securities Act and will not contain an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading;
and at all times subsequent to the effective date of registration statement when
a prospectus would be required to be delivered under the Securities Act, each
such registration statement, and each prospectus (including any summary
prospectus) contained therein or furnished pursuant to Section 5 hereof, as then
---------
amended or supplemented, will conform in all material respects to the
requirements of the Securities Act and will not contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of the
circumstances then existing; provided, however, that this representation and
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warranty shall not apply to any statements or omissions made in reliance upon
and in conformity with information furnished in writing to the Company by the
Investors expressly for use therein.
(b) Any documents incorporated by reference in any prospectus
referred to in Section 5 hereof, when they become or became effective or are or
---------
were filed with the Commission, as the case may be, as then amended or
supplemented, will conform or conformed in all material respects to the
requirements of the Securities Act or the Exchange Act, as applicable, and none
of such documents will contain or contained an untrue statement of a material
fact or will omit or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading; provided,
--------
however, that this representation and warranty shall not apply to any statements
- -------
or omissions made in reliance upon and in conformity with information furnished
in writing to the Company by the Investors expressly for use therein.
(c) The compliance by the Company with all of the provisions of this
Agreement and the consummation of the transactions herein contemplated will not
conflict with or result in a breach of any of the terms or provisions of, or
constitute a default under, any indenture, mortgage, deed of trust, loan
agreement or other agreement or instrument to which the Company or any
subsidiary is or hereafter becomes a party or by which the Company or any
subsidiary is or hereafter becomes bound or to which any of the property or
assets of the Company or any subsidiary is or hereafter becomes subject, except
for such conflicts, breaches,
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<PAGE>
and defaults as, individually and in the aggregate, do not have a material
adverse effect on the financial condition, results of operations, business or
prospects of the Company and its subsidiaries and do not materially hinder or
delay the rights of the Investors hereunder, nor will such action result in any
violation of the provisions of the Articles of Incorporation or the Bylaws of
the Company or any statute or any order specifically applicable to the Company,
rule or regulation of any court or governmental agency or body having
jurisdiction over the Company or any Subsidiary or any of their properties; and
no consent, approval, authorization, order, registration or qualification of or
with any such court or governmental agency or body is required for the
consummation by the Company of the transactions contemplated by this Agreement,
except the registration under the Securities Act of the Registrable Securities
and such consents, approvals, authorizations, registrations or qualifications as
may be required under state securities or Blue Sky laws in connection with the
offering and distribution of the Registrable Securities.
8. Indemnification and Contribution.
--------------------------------
(a) Indemnification by the Company. The Company agrees to indemnify
------------------------------
and hold harmless, to the full extent permitted by law, each Investor, its
partners, officers, directors, trustees, employees, agents and investment
advisers, and each person who controls each Investor within the meaning of
either Section 15 of the Securities Act or Section 20 of the Exchange Act, or is
under common control with, or is controlled by, any Investor, together with the
partners, officers, directors, trustees, stockholders, employees and agents of
such controlling persons (collectively, the "Investor Controlling Persons"),
from and against all losses, claims, damages, liabilities and expenses
(including without limitation any legal or other fees and expenses incurred by
the Investors or any such Investor Controlling Person in connection with
defending or investigating any action or claim in respect thereof)
(collectively, the "Investor Damages") to which the Investors, their respective
officers, directors, trustees, employees, agents and investment advisers, and
any such Investor Controlling Person may become subject under the Securities Act
or otherwise, insofar as such Investor Damages (or proceedings in respect
thereof) arise out of or are based upon (i) any untrue statement or alleged
untrue statement of material fact or any omission or alleged omission of a
material fact required to be stated in the Registration Statement or prospectus
or any amendment thereof or supplement thereto or necessary to make the
statements therein (in the case of a prospectus, in the light of the
circumstances under which they were made) not misleading, except insofar as such
Investor Damages arise out of or are caused by any untrue statement or alleged
untrue statement or omission or alleged omission contained in any information or
affidavit with respect to such Investor so furnished in writing by such Investor
expressly for use therein (or any amendment or supplement thereto) or except
insofar as such Investor Damages arise out of statements or omissions made in
any preliminary prospectus that is corrected in a final prospectus or (ii) the
breach or inaccuracy of any representation or warranty made by the Company, or
the breach of, or failure to comply with, any covenant or agreement of the
Company, in this Agreement. In connection with an underwritten offering, the
Company shall agree to indemnify the underwriters thereof, their officers and
directors and each person who controls such underwriters (within the meaning of
either Section 15 of the Securities Act or Section 20 of the Exchange Act) on
similar terms as provided above with respect to the indemnification of the
Investors; provided, however, if pursuant to an underwritten public offering of
-------- -------
Registrable Securities, the Company and any underwriters enter
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<PAGE>
into an underwriting agreement or purchase agreement relating to such offering
that contains provisions relating to indemnification between the Company and
such underwriters such provision shall be deemed to govern indemnification as
between the Company and the underwriters.
(b) Indemnification by the Investors. Each Investor, severally and
--------------------------------
not jointly, or jointly and severally, will furnish to the Company in writing
such information and affidavits with respect to such Investor as the Company
reasonably requests for use in connection with the Registration Statement or any
prospectus or any amendment thereof and/or supplement thereto and agrees to
indemnify and hold harmless, to the full extent permitted by law, the Company,
its officers, directors, stockholders, employees, agents and investment
advisors, and each person who controls the Company within the meaning of either
Section 15 of the Securities Act or Section 20 of the Exchange Act, or is under
common control with, or is controlled by, the Company, together with the
officers, directors, stockholders, employees and agents of such controlling
person (the "Company Controlling Person") from and against all losses, claims,
damages, liabilities and expenses (including without limitation any legal or
other fees and expenses incurred by the Company or any such Company Controlling
Person in connection with defending or investigating any action or claim in
respect thereof) (collectively, the "Company Damages") to which the Company, its
officers, directors, stockholders, employees, agents and investment advisers,
and any such Company Controlling Person may become subject under the Securities
Act or otherwise, insofar as such Company Damages (or proceedings in respect
thereof) arise out of or are caused by any untrue statement or alleged untrue
statement of material fact or any omission or alleged omission of a material
fact required to be stated in the Registration Statement or prospectus or any
amendment thereof or supplement thereto or necessary to make the statements
therein (in the case of a prospectus, in the light of the circumstances under
which they were made) not misleading, to the extent, but only to the extent,
that such the Company Damages arise out of or are caused by any untrue statement
or alleged untrue statement or omission or alleged omission contained in any
information or affidavit with respect to such Investor so furnished in writing
by such Investor expressly for use therein (or any amendment or supplement
thereto); provided, however, that such Investor shall not be obligated to the
-------- -------
Company under this Section 8(b) to the extent that such Company Damages were
------------
caused by the failure of the Company to promptly amend or take action to correct
or supplement any such Registration Statement or prospectus on the basis of
corrected or supplemental information timely provided in writing by such
Investor to the Company expressly for such purpose. In no event shall the
liability of any Investor hereunder be greater in amount than the lesser of (i)
the allocable share of the proceeds (net of underwriting commissions and fees)
received by such Investor upon the sale of the Registrable Securities giving
rise to such indemnification obligation, or (ii) the allocable share of such
indemnification obligation.
(c) Conduct of Indemnification Proceedings. Any person entitled to
--------------------------------------
indemnification hereunder agrees to give prompt written notice to the
indemnifying party after the receipt by such person of any written notice of the
commencement of any action, suit, proceeding or investigation or threat thereof
made in writing for which such person will claim indemnification or contribution
pursuant to this Agreement and permit the indemnifying party to assume the
defense thereof and retain counsel reasonably satisfactory to the parties to
represent
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<PAGE>
the indemnified party and shall pay the reasonable fees and disbursements of
such counsel relating to such proceeding; provided, however, that failure by
-------- -------
such person entitled to indemnification to give prompt written notice shall not
prejudice such person's right of indemnification granted hereunder, except to
the extent the indemnifying party is prejudiced thereby. In any such proceeding,
any indemnified party shall have the right to retain its own counsel, but the
reasonable fees and expenses of such counsel shall be at the expense of such
indemnified party unless (i) the indemnifying party shall have agreed to pay
such expenses, or (ii) the indemnifying party fails promptly to assume the
defense of such proceeding or fails to employ counsel reasonably satisfactory to
such indemnified party, or (iii) the named parties to any such proceeding
(including any impleaded parties) include both such indemnified party and the
indemnifying parties or an affiliate of the indemnifying party or such
indemnified party, and there may be one or more defenses available to such
indemnified party that are different from or additional to the indemnifying
party, in which case, if such indemnified party notified the indemnifying party
in writing that it elects to employ separate counsel of its choice at the
expense of the indemnifying party, the indemnifying party shall not have the
right to assume the defense thereof and such counsel shall be at the expense of
the indemnifying party, it being understood, however, that unless there exists a
conflict among indemnified parties, the indemnifying party shall not, in
connection with any one such proceeding or separate but substantially similar or
related proceedings in the same jurisdiction, arising out of the same general
allegations or circumstances, be liable for the fees and expenses of more than
one separate firm of attorneys (together with appropriate local counsel) at any
time for such indemnified party. The indemnifying party will not be subject to
any liability for any settlement made without its consent, which shall not be
unreasonably withheld but, if settled with such consent or if there be a final
judgment for the plaintiff, the indemnifying party agrees to indemnify the
indemnified party from and against any loss or liability set forth in such
settlement or judgment. No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement of any pending or
threatened proceeding in respect of which any indemnified party is a party and
indemnity could have been sought hereunder by such indemnified party, unless
such settlement includes an unconditional release of such indemnified party from
all liability on claims that are the subject matter of such proceeding and the
indemnified party is not giving, by such settlement, any unconditional release
of any other party.
(d) Contribution. If the indemnification provided for in this Section
------------ -------
8 from an indemnifying party is unavailable to an indemnified party hereunder in
- -
respect of any losses, claims, damages, liabilities or expenses referred to
therein, then the indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages, liabilities or expenses in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party and indemnified parties in connection with the actions that resulted in
such losses, claims, damages, liabilities or expenses, as well as any other
relevant equitable considerations. The relative fault of such indemnifying party
and indemnified parties shall be determined by reference to, among other things,
whether any action in question, including any untrue or alleged untrue statement
of a material fact or omission or alleged omission to state a material fact, has
been made by, or relates to information supplied by, such indemnifying party or
indemnified parties, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such
E-84
<PAGE>
action. The amount paid or payable by a party as a result of the losses,
claims, damages, liabilities and expenses referred to above shall be deemed to
include, subject to the limitations set forth in Section 8(c), any legal or
------------
other fees or expenses reasonably incurred by such party in connection with any
investigation or proceeding.
Notwithstanding the provisions of this Section 8(d) no Investor shall
------------
be required to contribute any amount in excess of the amount by which the total
price at which the Registrable Securities of such Investor were offered to the
public less underwriting discounts and commissions exceeds the amount of any
damages which such Investor has otherwise been required to pay by reason of such
untrue statement or omission.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 8(d) were determined by pro rata
------------
allocation or by any other method of allocation that does not take account of
the equitable considerations referred to in the second preceding paragraph. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
If indemnification is available under this Section 8, the indemnifying
---------
parties shall indemnify each indemnified party to the full extent provided in
Sections 8(a) and (b) without regard to the relative fault of said indemnifying
- ------------- ---
party or indemnified party or any other equitable consideration provided for in
this Section 8(d).
------------
The remedies provided for in this Section 8 are not exclusive and
---------
shall not limit any rights or remedies which may otherwise be available to any
indemnified party at law or in equity.
9. Limitations on Subsequent Registration Rights. The Company shall not,
---------------------------------------------
without the prior written consent of the Investors holding a majority of the
outstanding Registrable Securities, grant any registration rights after the date
hereof that would permit the inclusion of any securities of the Company, other
than Registrable Securities, in any registration filed pursuant to Section 2
---------
hereof.
10. Rule 144.
--------
The Company covenants that it will file the reports required to be
filed by the Company under the Securities Act and the Exchange Act and the rules
and regulations adopted by the Commission thereunder (or, if the Company is not
required to file such reports, it will, upon the request of any Investor, make
publicly available other information so long as necessary to permit sales under
Rule 144 under the Securities Act), and it will take such further action as the
Investors may reasonably request, all to the extent required from time to time
to enable the Investors to sell Registrable Securities without registration
under the Securities Act within the limitation of the exemptions provided by
Rule 144 under the Securities Act, as such Rule may be amended from time to
time, and any similar rule or regulation hereafter adopted by the Commission.
Upon the request of any Investor, the Company will deliver to such Investor a
written statement as to filings made by the Company with the Commission.
E-85
<PAGE>
11. Miscellaneous.
-------------
(a) No Inconsistent Agreement. The Company has not and will not
-------------------------
hereafter enter into any agreement with respect to its securities that is
materially inconsistent with the rights granted to the Investors in this
Agreement or otherwise materially conflicts with the provisions hereof.
(b) Remedies. The Company and the Investors, in addition to being
--------
entitled to exercise all rights granted by law, including recovery of damages,
will be entitled to specific performance of its or their rights under this
Agreement. The Company and the Investors agree that monetary damages would not
be adequate compensation for any loss incurred by reason of a breach by any of
them of the provisions of this Agreement and hereby agree to waive the defense
in any action for specific performance that a remedy at law would be adequate.
(c) Amendments and Waivers. This Agreement may not be amended except
----------------------
by an instrument in writing signed by the Company and Investors holding a
majority of the outstanding Registrable Securities; provided, however, that the
-------- -------
consent to any such amendment will be required by any Investor whose rights
under this Agreement are adversely affected by such amendment.
(d) Notices. All notices, requests, claims, demands and other
-------
communications hereunder shall be in writing (and shall be deemed to have been
duly given upon receipt) by delivery in person, by cable, facsimile
transmission, telegram or by registered or certified mail (postage prepaid,
return receipt requested) to the respective parties at the following addresses
(or at such other address for a party as shall be specified in a notice given in
accordance with this Section 11(d)),
--------------
If to the Company: VIDEO UPDATE, INC.
3100 World Trade Center
30 East Seventh Street
St. Paul, MN 55101
Attn.: Daniel A. Potter
Chief Executive Officer
Fax: 651.312.2680
with copies to: GADSBY & HANNAH LLP
225 Franklin Street
Boston, MA 02110
Attn.: Lawrence H. Gennari, Esq.
Fax: 617.345.7050
If to an Investor: To the address set forth opposite
each Investor's name on Schedule A hereto.
----------
E-86
<PAGE>
with copies to: BROBECK, PHLEGER & HARRISON LLP
550 South Hope Street, Suite 2100
Los Angeles, California 90071
Attn: Jeffrey S. Turner, Esq.
Fax.: 213.239.1324
(e) Successors and Assigns. This Agreement shall inure to the benefit
----------------------
of and be binding upon the successors and assigns of each of the parties hereto
including, without limitation and without the need for an express assignment,
subsequent holders of Registrable Securities. If any transferee of any holder of
Registrable Securities shall acquire Registrable Securities in any lawful
manner, whether by operation of law or otherwise, such Registrable Securities
shall be held subject to all of the terms of this Agreement, and by taking and
holding such Registrable Securities, such person shall be conclusively deemed to
have agreed to be bound by and to perform all of the terms and provisions of
this Agreement and such person shall be entitled to receive the benefits hereof.
(f) Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(g) Headings. The headings in this Agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
(h) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED
-------------
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO
CONFLICTS OF LAW PRINCIPLES.
(i) Severable. If any one or more of the provisions contained herein,
---------
or the application thereof in any circumstances, is held invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be in any way affected or impaired
thereby, it being intended that all of the rights and privileges of the parties
hereto shall be enforceable to the fullest extent permitted by law.
(j) Entire Agreement. This Agreement is intended by the parties to be
----------------
a final expression of their agreement and intended to be a complete and
exclusive statement of the agreement and understanding of the parties hereto in
respect of the subject matter contained herein and therein. There are no
restrictions, promises, warranties or undertakings, other than those set forth
or referred to herein and therein. This Agreement supersedes all prior
agreements and understandings between the parties with respect to such subject
matter.
(k) Attorneys' Fees. In any action or proceeding brought to enforce
---------------
any provision of this Agreement or where any provision hereof is validly
asserted as a defense, the successful party shall, to the extent permitted by
applicable law, be entitled to recover all
E-87
<PAGE>
reasonable costs and expenses, including without limitation reasonable
attorneys, fees and disbursements, in addition to any other available remedy.
Such costs, expenses, fees and disbursements shall be included in and made a
part of the judgment recovered by the successful party, if any.
(l) Further Assurances. Each party shall cooperate and take such
------------------
action as may be reasonably requested by another party in order to carry out the
provisions and purposes of this Agreement and the transactions contemplated
hereby.
/s/ VIDEO UPDATE, INC.
SIGNATURES OF INVESTORS
E-88
<PAGE>
SCHEDULE A
----------
INVESTOR ADDRESS LIST
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Investor Contact and Address
- -----------------------------------------------------------------------------------------------
<S> <C>
AIG Special Situations Holding Fund Ltd. Attn: Victor Consoli
1281 East Main Street
Stamford, CT 06902
- -----------------------------------------------------------------------------------------------
Ares Leveraged Investment Fund, L.P. Attn: Jeff Serota
1999 Avenue of the Stars
Ares Leveraged Investment Fund II, L.P. Suite 1900
Los Angeles, CA 90067
- -----------------------------------------------------------------------------------------------
Continental Casualty Company Attn: Lynne Gugenheim
CNA Plaza, 23 South
Chicago, IL 60685
- -----------------------------------------------------------------------------------------------
The Jay Goldman Master L.P. Attn: Jay Goldman
745 Fifth Avenue
Suite 1103
New York, NY 10151
- -----------------------------------------------------------------------------------------------
The Ravich Children Permanent Trust Attn: Keenan & Orna Wolens
814 No. Roxbury Drive
Beverly Hills, CA 90210
- -----------------------------------------------------------------------------------------------
The Ravich Revocable Trust of 1989 Attn: Jess Ravich
11766 Wilshire Boulevard
Suite 870
Los Angeles, CA 90025
- -----------------------------------------------------------------------------------------------
Value Partners, L.P. Attn: Tim Ewing
4514 Cole Avenue
Suite 808
Dallas, Texas 75205
- -----------------------------------------------------------------------------------------------
The Progressive/Windigo Fund, LLC Attn: Lynn Young
3 Parklands Drive
Darien, CT 06820
- -----------------------------------------------------------------------------------------------
David and Lynn Young 958 Hillside
Fairfield, CT 06430
- -----------------------------------------------------------------------------------------------
</TABLE>
E-89
<PAGE>
<TABLE>
- -----------------------------------------------------------------------------------------------
Investor Contact and Address
- -----------------------------------------------------------------------------------------------
<S> <C>
- -----------------------------------------------------------------------------------------------
U.S. Bancorp Investements, Inc. 11766 Wilshire Blvd.
Suite 870
Los Angeles, CA 90025
- -----------------------------------------------------------------------------------------------
Jeff Benjamin 21 East 66th Street
New York, NY 10021
- -----------------------------------------------------------------------------------------------
Robert Okun 49 Lakeview Avenue
Short Hills, NY 07078
- -----------------------------------------------------------------------------------------------
Upchurch Living Trust U/A/D 12/14/90 c/o James B. Upchurch
215 Georgina Avenue
Santa Monica, CA 90402
- -----------------------------------------------------------------------------------------------
Mark Fein 340 East 34th Street, #15K
New York, NY 10016
- -----------------------------------------------------------------------------------------------
Community Property Trust dated 4/15/98, 1709 Milan Avenue
Robert Gordon Morrish and Kristin Tuite So. Pasadena, CA 91030
Morrish, TTEES
- -----------------------------------------------------------------------------------------------
Eben Paul Perison 2529 Via Carrillo
Palos Verdes Estates, CA 90274
- -----------------------------------------------------------------------------------------------
Jean Smith 130 East 12th Street, #5B
New York, NY 10003
- -----------------------------------------------------------------------------------------------
Forbes Burtt 751 Teakwood Road
Los Angeles, CA 90049
- -----------------------------------------------------------------------------------------------
Steve Mayer 10981 Bellagio Road
Los Angeles, CA 90077
- -----------------------------------------------------------------------------------------------
Carolina First Bank Charles Chamberlain
102 South Main St.
Greenville, SC 29602
- -----------------------------------------------------------------------------------------------
Bank Austria Creditanstalt Corporate Finance, John Taylor
Inc. Two Ravina Drive
Atlanta, GA 30346
- -----------------------------------------------------------------------------------------------
</TABLE>
E-90
<PAGE>
<TABLE>
- -----------------------------------------------------------------------------------------------
Investor Contact and Address
- -----------------------------------------------------------------------------------------------
<S> <C>
- -----------------------------------------------------------------------------------------------
First Source Financial LLP Michael Danehl
2850 West Golf Road
Rolling Meadows, IL 60008
- -----------------------------------------------------------------------------------------------
Fleet National Bank 50 Kennedy Plaza
Providence, RI 02903
- -----------------------------------------------------------------------------------------------
Merrill Lynch Senior Floating Rate Fund, Inc. 800 Scudder Mill Road
Merrill Lynch Prime Rate Portfolio, Inc. Plainsboro, NJ 08356
- -----------------------------------------------------------------------------------------------
Paribas Capital Funding Michael Weinberg
787 Seventh Ave.
32nd Floor
New York, NY 10019
- -----------------------------------------------------------------------------------------------
PPM America Inc. Michael DiRe
Mike King
225 West Wacker Drive
Chicago, IL 60606-1228
- -----------------------------------------------------------------------------------------------
Boeing Capital David Nelson
4060 Lakewood Blvd.
Blvd., 801, 6th Floor
Long Beach, CA 90808
- -----------------------------------------------------------------------------------------------
Key Corporate Capital Inc. Marvin Kodish
Mail Code: OH-01-27-0504
127 Public Square
Cleveland, Ohio 44114
- -----------------------------------------------------------------------------------------------
Bank of Nova Scotia John Malloy
Tom Myhre
181 West Madison Street
Suite 3700
Chicago, IL 60602
- -----------------------------------------------------------------------------------------------
ML CLO XIX Sterling (Cayman) Ltd. Kevin Stubey
KZH Sterling LLC 40 Fulton Street
10th Floor
New York, NY 10038
- -----------------------------------------------------------------------------------------------
</TABLE>
E-91
<PAGE>
<TABLE>
- -----------------------------------------------------------------------------------------------
Investor Contact and Address
- -----------------------------------------------------------------------------------------------
<S> <C>
- -----------------------------------------------------------------------------------------------
Paribas, Grand Cayman Branch David Evcole
787 Seventh Avenue
New York, NY 10015
- -----------------------------------------------------------------------------------------------
</TABLE>
E-92
<PAGE>
EXHIBIT 10a
-----------
SIXTH AMENDMENT AND WAIVER
--------------------------
SIXTH AMENDMENT AND WAIVER (this "Amendment"), dated as of April 28,
1999, among VIDEO UPDATE, INC., a Delaware corporation (the "Borrower"), the
lending institutions party to the Credit Agreement referred to below (the
"Banks") and PARIBAS, as Agent (in such capacity, the "Agent"). Unless
otherwise indicated, all capitalized terms used herein and not otherwise defined
shall have the respective meanings provided such terms in the Credit Agreement
referred to below.
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Borrower, the Banks and the Agent are parties to a Credit
Agreement, dated as of March 6, 1998 (as amended, modified or supplemented to
the date hereof, the "Credit Agreement"); and
WHEREAS, subject to and on the terms and conditions set forth in this
Amendment, the parties hereto wish to amend the Credit Agreement and the Banks
wish to grant certain waivers to the Credit Agreement, in each case as herein
provided;
NOW, THEREFORE, it is agreed:
I. Amendments to Credit Agreement.
------------------------------
1. Notwithstanding anything to the contrary contained in Section
4.02(A)(b) of the Credit Agreement, the mandatory repayment of A Term Loans
otherwise required to be made on April 30, 1999 pursuant to said Section (as
modified by the Fifth Amendment) shall instead be required to be made on May 31,
1999.
2. Notwithstanding anything to the contrary contained in Section
4.02(A)(c) of the Credit Agreement, the mandatory repayment of B Term Loans
otherwise required to be made on April 30, 1999 pursuant to said Section (as
modified by the Fifth Amendment) shall instead be required to be made on May 31,
1999.
3. Section 8.20 of the Credit Agreement is hereby amended by (i)
deleting the text "the Second Amendment" appearing in the heading of said
--------------------
Section and inserting the text "Amendments" in lieu thereof and (ii) inserting
----------
the following new clause (d) at the end of said Section:
"(d) On or prior to the earlier to occur of (i) May 15, 1999 and
(ii) the date of the termination of the Total Commitment, the Borrower
shall pay to the Agent for the pro rata distribution to each of the
--- ----
Banks which has consented to the Sixth Amendment prior to 5:00 P.M. on
April 30, 1999 (based upon the aggregate Commitments and outstanding
Term Loans of each such Bank on April 30, 1999), a consent fee, which
fee shall be deemed earned on the Sixth Amendment Effective Date,
equal to
E-93
<PAGE>
0.05% on the sum of (x) the aggregate Commitments of such Bank as in
effect on such date plus (y) the aggregate principal amount of all
----
outstanding Term Loans of such Bank on such date, it being understood
that this consent fee is separate from and in addition to the consent
fee required to be paid under Part II Paragraph 5 of the Sixth
Amendment."
4. Section 8.21 of the Credit Agreement is hereby amended by deleting
said Section in its entirety and inserting the following new Section 8.21 in
lieu thereof:
"8.21 Forecasts and Other Analyses. On or prior to May 15,
----------------------------
1999, the Borrower shall deliver to the Agent and each of the Banks
(x) a comprehensive four-year forecast of the businesses of the
Borrower and its Subsidiaries and (y) an analysis and forecast for
each store of the Borrower and each of its Subsidiaries, all of which
forecasts and analyses shall be in form and substance satisfactory to
the Agent and the Required Banks."
5. Section 9.05 of the Credit Agreement is hereby amended by deleting
clause (v) of said Section in its entirety and inserting the following new
clause (v) in lieu thereof:
"(v) Indebtedness of the Borrower incurred under (x) the Moovies
Seller Note in an aggregate principal amount not to exceed $2,000,000
(as reduced by any repayments of principal thereof), (y) the Ingram
Note in an aggregate principal amount not to exceed $14,000,000 (as
reduced by any repayments of principal thereof) and (z) the Persona
Note in an aggregate principal amount not to exceed $825,000 (as
reduced by any repayments of principal thereof); and".
6. The definition of "Fees" appearing in Section 11.01 of the Credit
Agreement is hereby amended by inserting the text "and (d)" immediately
following the text "and 8.20(a)" appearing in said definition.
7. Section 11.01 of the Credit Agreement is hereby further amended by
inserting the following new definitions in said Section in appropriate
alphabetical order::
"April 1999 Bank Group Update" shall mean the Senior Facility Bank
Group Update, dated April 16, 1999, furnished by the Borrower to the Agent and
the Banks.
"Ingram Note" shall mean the 3-year 12% promissory note issued by the
Borrower in favor of Ingram Entertainment, Inc. on the terms described in the
April 1999 Bank Group Update or otherwise on terms acceptable to the Agent and
the Required Banks.
"Persona Note" shall mean the 1-year 10% promissory note issued by the
Borrower in favor of Persona on the terms described in the April 1999 Bank Group
Update
E-94
<PAGE>
(except for the initial principal amount of such note specified therein which
shall instead be $825,000) or otherwise on terms acceptable to the Agent and the
Required Banks.
"Sixth Amendment" shall mean the Sixth Amendment to this Agreement,
dated as of April 30, 1999.
"Sixth Amendment Effective Date" shall have the meaning provided in
the Fifth Amendment.
8. Each of the Credit Parties, on its own behalf and on behalf of its
successors and assigns, hereby waives, releases and discharges the Agent and
each Bank and all of the affiliates of the Agent and each Bank, and all of the
directors, officers, employees, attorneys and agents of the Agent, each Bank and
such affiliates, from any and all claims, demands, actions or causes of action
(known and unknown) arising out of or in any way relating to the Credit
Documents and any documents, agreements, dealings or other matters connected
with the Credit Documents, in each case to the extent arising (x) on or prior to
the Sixth Amendment Effective Date or (y) out of, or relating to, actions,
dealings or matters occurring on or prior to the Sixth Amendment Effective Date.
The waivers, releases, and discharges in this Section 8 shall be effective
regardless of whether the conditions to this Amendment are satisfied and
regardless of any other event that may occur or not occur after the Sixth
Amendment Effective Date.
II. Miscellaneous.
-------------
1. In order to induce the Banks to enter into this Amendment, the
Borrower hereby (i) makes each of the representations, warranties and agreements
contained in Section 7 of the Credit Agreement, in each case on the Sixth
Amendment Effective Date, both before and after giving effect to this Amendment,
and (ii) represents and warrants that no Default or Event of Default is in
existence on the Sixth Amendment Effective Date, both before and after giving
effect to this Amendment.
2. This Amendment is limited as specified and shall not constitute a
modification, acceptance or waiver of any other provision of the Credit
Agreement or any other Credit Document.
3. This Amendment may be executed in any number of counterparts and
by the different parties hereto on separate counterparts, each of which
counterparts when executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument. A complete set of
counterparts shall be lodged with the Borrower and the Agent.
4. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE
STATE OF NEW YORK.
5. This Amendment shall become effective on the date (the "Sixth
Amendment Effective Date") when (i) the Borrower shall have paid to the Agent
and the Banks
E-95
<PAGE>
all costs, fees and expenses (including, without limitation, legal fees and
expenses of White & Case LLP) payable to the Agent and the Banks to the extent
then due, (ii) each of the Borrower and the Agent shall have executed and
delivered a side letter relating to this Amendment in form and substance
satisfactory to the Agent and the Banks, (iii) each of the Borrower and each of
the Banks shall have signed a copy hereof (whether the same or different copies)
and shall have delivered (including by way of facsimile transmission) the same
to White & Case LLP, 1155 Avenue of the Americas, New York, New York 10036
Attention: David Kizner (facsimile number 212-354-8113) and (iv) the Borrower
shall have paid to the Agent for the pro rata distribution to each of the Banks
--- ----
which has consented to the Sixth Amendment prior to 5:00 PM on April 30, 1999
(based upon the aggregate Commitments and outstanding Term Loans of each such
Bank on April 30, 1999), a consent fee, which is separate from and in addition
to the consent fee required under Section 8.20 (d) of the Credit Agreement,
equal to 0.05% on the sum of (x) the aggregate Commitments of such Bank as in
effect on such date plus (y) the aggregate principal amount of all outstanding
----
Term Loans of such Bank on such date.
6. By executing and delivering a copy hereof, each Credit Party
hereby agrees that all Loans shall be fully guaranteed pursuant to the
Subsidiaries Guaranty in accordance with the terms and provisions thereof and
shall be (and are) fully secured pursuant to the Security Documents.
7. From and after the Sixth Amendment Effective Date, all references
to the Credit Agreement in the Credit Agreement and each of the other Credit
Documents shall be deemed to be references to the Credit Agreement as modified
hereby.
* * *
E-96
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of
this Amendment to be duly executed and delivered as of the date first above
written.
/s/ VIDEO UPDATE, INC.
/s/ PARIBAS,
Individually and as Agent
/s/ CAROLINA FIRST BANK
/s/ BANK AUSTRIA CREDITANSTALT CORPORATE
FINANCE, INC.
/s/ FIRST SOURCE FINANCIAL LLP
By: First Source Financial, Inc., its
Agent/Manager
/s/ FLEET NATIONAL BANK
/s/ MERRILL LYNCH PRIME RATE PORTFOLIO
By: Merrill Lynch Asset Management, L.P., as
Investment Advisor
/s/ PPM AMERICA, INC. as attorney in fact,
on behalf of Jackson National Life
Insurance Company
/s/ BOEING CAPITAL CORPORATION
/s/ KEY CORPORATE CAPITAL INC.
/s/ PARIBAS CAPITAL FUNDING LLC
/s/ THE BANK OF NOVA SCOTIA
/s/ ML CLO XIX STERLING (CAYMAN) LTD.
By: Sterling Asset Manager, L.L.C. as its
Investment
Advisor
/s/ KZH STERLING LLC
E-97
<PAGE>
Each of the undersigned, each being a Subsidiary Guarantor under, and
as defined in, the Credit Agreement referenced in the foregoing Sixth Amendment,
hereby consents to the entering into of the Sixth Amendment, and agrees to the
provisions thereof (including without limitation, Sections 6 and 7 of Part III
thereof).
/s/ MOOVIES, INC.
/s/ TINSELTOWN VIDEO, INC.
/s/ WILLIAMS VIDEO, INC.
/s/ MOOVIES OF THE CAROLINAS, INC.
/s/ MOOVIES OF GEORGIA, INC.
/s/ MOOVIES OF IOWA, INC.
/s/ MOOVIES OF MICHIGAN, INC.
/s/ MOVIE WAREHOUSE FRANCHISE SYSTEMS, INC.
/s/ E.C.6., INC.
/s/ SONI, INC.
/s/ PQ3, INC.
/s/ SNO, INC.
/s/ GBO, INC.
/s/ D-SKIPPY, INC.
/s/ DCO, INC.
/s/ PTO, INC.
/s/ THE MOVIE STORE, INC. #2
/s/ THE MOVIE STORE III, INC.
/s/ ALPHARETTA MEDIA ASSOCIATES, INC.
/s/ VIDEO UPDATE CANADA INC.
E-98
<PAGE>
/s/ 24 HOUR ENTERTAINMENT GROUP LTD.
/s/ 24 HOUR ENTERTAINMENT LEASING LTD.
/s/ 1137239 ONTARIO LIMITED
/s/ RIO MEDIA ASSOCIATES, INC.
/s/ PIC-A-FLICK OF GREENVILLE, INC.
E-99
<PAGE>
Exhibit 10b
-----------
SEVENTH AMENDMENT AND WAIVER
----------------------------
SEVENTH AMENDMENT AND WAIVER (this "Amendment"), dated as of May 28,
1999, among VIDEO UPDATE, INC., a Delaware corporation (the "Borrower"), the
lending institutions party to the Credit Agreement referred to below (the
"Banks") and PARIBAS, as Agent (in such capacity, the "Agent"). Unless
otherwise indicated, all capitalized terms used herein and not otherwise defined
shall have the respective meanings provided such terms in the Credit Agreement
referred to below.
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Borrower, the Banks and the Agent are parties to a Credit
Agreement, dated as of March 6, 1998 (as amended, modified or supplemented to,
but not including, the date hereof, the "Credit Agreement"); and
WHEREAS, subject to and on the terms and conditions set forth in this
Amendment, the parties hereto wish to amend the Credit Agreement and the Banks
wish to grant certain waivers to the Credit Agreement, in each case as herein
provided;
NOW, THEREFORE, it is agreed:
III. Amendments to Credit Agreement.
------------------------------
1. Section 1.01 of the Credit Agreement is hereby amended by
inserting the following clause (g) immediately following clause (f) of said
Section:
"(g) Subject to and upon the terms and conditions set forth herein,
each Bank with a C Term Loan Commitment severally agrees to make a term
loan (each, a "C Term Loan" and, collectively, the "C Term Loans") to the
Borrower, which C Term Loans (i) shall be incurred by the Borrower pursuant
to a single drawing on the C Term Loan Borrowing Date for the purposes
described in Section 7.08(e), (ii) shall be made and maintained as Fixed
Rate Loans and (iii) shall not exceed for any Bank, in initial aggregate
principal amount for the C Term Loans being made by such Bank that amount
which equals the C Term Loan Commitment of such Bank as in effect on the C
Term Loan Borrowing Date (before giving effect to any reductions thereto on
such date pursuant to Section 3.03(h)(i) but after giving effect to any
reductions thereto on or prior to such date pursuant to Section
3.03(h)(ii)). Once repaid, C Term Loans incurred here may not be
reborrowed."
2. Section 1.02 of the Credit Agreement is hereby amended by
inserting the phrase "and more than one Borrowing of Fixed Rate Loans"
immediately following the phrase "Eurodollar Loans" appearing in said Section.
E-100
<PAGE>
3. Section 1.03(a) of the Credit Agreement is hereby amended by (i)
inserting the text "and Fixed Rate Loans" immediately following the text "each
Borrowing of Base Rate Loans" appearing in said Section and (ii) inserting the
phrase ", C Term Loans" immediately following the phrase "B Term Loans"
appearing in said Section.
4. Section 1.05(a) of the Credit Agreement is hereby amended by (i)
deleting the word "and" appearing at the end of clause (iv) of said Section and
inserting a comma in lieu thereof and (ii) inserting the following new clause
(vi) immediately after clause (v) appearing in said Section:
"and (vi) if C Term Loans, by a promissory note duly executed and
delivered by the Borrower substantially in the form of Exhibit B-6,
with blanks appropriately completed in conformity herewith (each, a
"C Term Note" and, collectively, the "C Term Notes").".
5. Section 1.05 of the Credit Agreement is hereby further amended by
(i) redesignating clause (g) thereof as clause (h) and (ii) inserting the
following new clause (g) immediately following clause (f) thereof:
"(g) The C Term Note issued to each Bank with a C Term Loan
Commitment shall (i) be executed by the Borrower, (ii) be payable to the
order of such Bank and its registered assigns and be dated the Seventh
Amendment Effective Date, (iii) be in a stated principal amount equal to
the C Term Loan Commitment of such Bank on the Seventh Amendment Effective
Date (or, in the case of any C Term Note issued after the Seventh Amendment
Effective Date, the greater of the C Term Loan Commitment of such Bank on
the date of issuance thereof or the outstanding principal amount of the C
Term Loan of such Bank on the date of issuance thereof) and be payable in
the principal amount of the C Term Loan evidenced thereby, (iv) mature on
the C Term Loan Maturity Date, (v) bear interest as provided in the
appropriate clause of Section 1.08 in respect of the Fixed Rate Loans
evidenced thereby, (vi) be subject to voluntary repayment as provided in
Section 4.01 and mandatory repayment as provided in Section 4.02 and (vii)
be entitled to the benefits of this Agreement and the Guaranties and be
secured by the Security Documents."
6. Section 1.06 of the Credit Agreement is hereby amended by (i)
inserting the text "and Fixed Rate Loans" immediately following the text "other
than Swingline Loans" appearing in said Section and (ii) deleting the text "the
other Type of Loan" appearing in said Section and inserting the text "another
Type of Loan (other than a Fixed Rate Loan)" in lieu thereof.
7. Section 1.07 of the Credit Agreement is hereby amended by
inserting the phrase ", C Term Loan Commitments," immediately following the
phrase "B Term Loan Commitments," appearing in said Section.
E-101
<PAGE>
8. Section 1.08 of the Credit Agreement is hereby amended by (i)
inserting the phrase "and each Fixed Rate Loan" immediately following the phrase
"each Base Rate Loan" appearing in clause (d) of said Section, and (ii)
inserting the following clause (g) immediately following clause (f) of said
Section:
"(g) The Borrower agrees to pay interest in respect of the unpaid
principal amount of each Fixed Rate Loan made to it from the date of the
Borrowing thereof until the maturity thereof (whether by acceleration or
otherwise) at a rate per annum equal to twelve percent."
9. Section 1.12 of the Credit Agreement is hereby amended by (i)
deleting clause (c) of Section 1.12(i) of the Credit Agreement in its entirety
and inserting the text "(c) the outstanding Term Loans and Term Loan Commitments
of any Tranche of Term Loans, the outstanding Term Loans and/or Term Loan
Commitments of the respective Tranche or Tranches of Term Loans" in lieu
thereof, (ii) deleting the third parenthetical appearing in Section 1.12(i) in
its entirety and inserting the text "(except for the replacement of only the
outstanding Term Loans and/or Term Loan Commitments of one or more Tranches of
Term Loans or Capital Expenditure Loans of the respective Bank)" in lieu
thereof, (iii) deleting clause (IV) of Section 1.12(i) in its entirety and
inserting the text "(IV) Term Loans and/or Term Loan Commitments of one or more
Tranches of Term Loans, the outstanding Term Loans and/or Term Loan Commitments
of the respective Tranche or Tranches of Term Loans of the Replaced Bank" in
lieu thereof, (iv) deleting the text "of only the outstanding Term Loans of one
or both Tranches of Term Loans," in each place said text appears in Section
1.12(i) and inserting the text "of only the outstanding Term Loans and/or Term
Loan Commitments of one or more Tranches of Term Loans," in lieu thereof and (v)
deleting the text "(of one or both Tranches of Term Loans)" appearing in the
last sentence of said Section in its entirety and inserting the text "and/or
Term Loan Commitments of one or more Tranches of Term Loans" in lieu thereof.
10. Section 3.01(a) of the Credit Agreement is hereby amended by
inserting the text ", a C Term Loan Commitment" immediately following the text
"a Revolving Loan Commitment" appearing in said Section.
11. Section 3.02(a) of the Credit Agreement is hereby amended by
inserting the following sentence at the end of said Section: "The Borrower
shall have no right to terminate the Total C Term Loan Commitment, in whole or
in part, pursuant to this Section 3.02(a).".
12. Section 3.02(b) of the Credit Agreement is hereby amended by (i)
inserting the text "subject to obtaining the consents required by Section
13.12(b)," immediately following the text "the Borrower shall have the right,"
appearing in said Section, (ii) inserting the text ", the C Term Loan
Commitment" immediately after the text "terminate all of the Capital Expenditure
Loan Commitment" appearing in said Section and (iii) inserting the text ", a C
Term Loan Commitment" immediately following the text "has a Revolving Loan
Commitment" appearing in said Section.
13. Section 3.03 of the Credit Agreement is hereby amended by (i)
inserting the text "in effect on the Effective Date" immediately after the text
"with such a Commitment)"
E-102
<PAGE>
appearing in clause (a) of said Section, (ii) redesignating clause (h) of said
Section as clause (i) thereof and inserting the text "the Total C Term Loan
Commitment," immediately after the text "the Total B Term Loan Commitment," in
each place such text appears in said clause (i) of such Section (as so
redesignated) and (iii) inserting the following new clause (h) immediately after
clause (g) appearing in said Section:
"(h) In addition to any other mandatory commitment reductions
pursuant to this Section 3.03, the Total C Term Loan Commitment (and the C
Term Loan Commitment of each Bank with such a Commitment) shall (i)
terminate in its entirety (to the extent not theretofore terminated) on the
C Term Loan Borrowing Date (after giving effect to the making of C Term
Loans on such date) and (ii) prior to the termination of the Total C Term
Loan Commitment as provided in clause (i) above, shall be reduced at the
time any payment is required to be made on the principal amount of C Term
Loans (or would be required to be made if C Term Loans were then
outstanding) pursuant to Section 4.02(B)(a), by the amount equal to the
maximum amount of C Term Loans that would be required to be repaid pursuant
to said Section 4.02(B)(a) assuming that C Term Loans were outstanding in
an aggregate principal amount equal to the Total C Term Loan Commitment.".
14. Section 4.01(a) of the Credit Agreement is hereby amended by (i)
inserting the text "C Term Loans," immediately following the text "B Term
Loans," appearing in clause (i) of said Section, (ii) deleting clause (v) of
said Section in its entirety and inserting the following new clause (v) in lieu
thereof:
"(v) each prepayment of A Term Loans, B Term Loans, C Term Loans or
Capital Expenditure Loans pursuant to this Section 4.01 must consist of a
prepayment of A Term Loans (in an amount equal to the A TL Percentage of
such prepayment), B Term Loans (in an amount equal to the B TL Percentage
of such prepayment), C Term Loans (in an amount equal to the C TL
Percentage of such prepayment) and Capital Expenditure Loans (in an amount
equal to the CapEx TL Percentage of such prepayment), provided, that prior
to the Capital Expenditure Loan Conversion Date, a prepayment of Capital
Expenditure Loans shall not be required to be accompanied by a prepayment
of A Term Loans, B Term Loans and/or C Term Loans and a prepayment of A
Term Loans, B Term Loans and/or C Term Loans shall not be required to be
accompanied by a prepayment of Capital Expenditure Loans; and".
15. Section 4.02(A)(b) of the Credit Agreement is hereby amended by
deleting the table appearing in said Section in its entirety and inserting the
following new table in lieu thereof:
<TABLE>
<CAPTION>
"Scheduled A Term Loan Repayment Date Amount
------------------------------------ ------
<S> <C>
June [-], 1999 $ 308,815.50
July 31, 1999 $ 154,407.75
</TABLE>
E-103
<PAGE>
<TABLE>
<S> <C>
October 31, 1999 $ 154,407.75
January 31, 2000 $ 154,407.75
April 30, 2000 $ 2,661,776.75
July 31, 2000 $ 3,750,000.00
October 31, 2000 $ 3,750,000.00
January 31, 2001 $ 3,750,000.00
April 30, 2001 $ 3,750,000.00
July 31, 2001 $ 4,125,000.00
October 31, 2001 $ 4,125,000.00
January 31, 2002 $ 4,125,000.00
A Term Loan Maturity Date $21,691,184.50".
</TABLE>
16. Section 4.02(B)(a) of the Credit Agreement is hereby amended by
deleting said Section in its entirety and inserting in lieu thereof the
following new Section 4.02(B)(a):
"(a) Each mandatory repayment of Loans pursuant to Section 4.02(A)(e)
through (h), inclusive, shall be applied:
(i) first, (A) prior to the Capital Expenditure Loan Conversion
-----
Date, to prepay the principal of outstanding A Term Loans, B Term Loans and
C Term Loans on a pro rata basis, with the A Term Facility to receive the A
--- ----
TL Percentage, the B Term Facility to receive the B TL Percentage and the C
Term Facility to receive the C TL Percentage, in each case of the total
amount to be applied as a mandatory repayment of A Term Loans, B Term Loans
and C Term Loans pursuant to this Section 4.02(B), and which prepayments of
A Term Loans and B Term Loans shall be applied to reduce the then remaining
Scheduled A Term Loan Repayments and Scheduled B Term Loan Repayments on a
pro rata basis (based on the then remaining amounts of such Scheduled A
--- ----
Term Loan Repayments and Scheduled B Term Loan Repayments) and (B) after
the Capital Expenditure Loan Conversion Date, to prepay the principal of
outstanding A Term Loans, B Term Loans, C Term Loans and Capital
Expenditure Loans on a pro rata basis, with the A Term Loan Facility to
--- ----
receive the A TL Percentage, the B Term Loan Facility to receive the B TL
Percentage, the C Term Facility to receive the C TL Percentage and the
Capital Expenditure Loan Facility to receive the CapEx TL Percentage, in
each case of the total amount to be applied as a mandatory repayment of A
Term Loans, B Term Loans, C Term Loans and Capital Expenditure Loans
pursuant to this Section 4.02(B), and which prepayments of such Term Loans
and Capital Expenditure Loans shall be applied to reduce the then remaining
Scheduled Repayments of the respective Tranche on a pro rata basis (based
--- ----
on the then remaining amounts of such Scheduled Repayments);
E-104
<PAGE>
(ii) second, prior to the C Term Loan Commitment Termination
Date, to reduce the Total C Term Loan Commitment (with a corresponding
reduction to the C Term Loan Commitment of each Bank) (it being understood
and agreed that the amount of such reduction shall be deemed to be an
application of proceeds for purposes of this Section 4.02(B)(a)(ii) even
though cash is not actually applied);
(iii) third, prior to the Capital Expenditure Loan Conversion
Date, to prepay the principal of outstanding Capital Expenditure Loans
(with a corresponding reduction to the Total Capital Expenditure Loan
Commitment);
(iv) fourth, prior to the Capital Expenditure Loan Conversion
Date, to reduce the Total Capital Expenditure Loan Commitment (with a
corresponding reduction to the Capital Expenditure Loan Commitment of each
Bank)(it being understood and agreed that the amount of such reduction
shall be deemed to be an application of proceeds for purposes of this
Section 4.02(B)(a)(iv) even through cash is not actually applied);
(v) fifth, to prepay the principal of outstanding Swingline
Loans (with a corresponding reduction to the Total Revolving Loan
Commitment);
(vi) sixth, to prepay the principal of outstanding Revolving
Loans (with a corresponding reduction to the Total Revolving Loan
Commitment);
(vii) seventh, to cash collateralize Letter of Credit
Outstandings by depositing cash in a letter of credit cash collateral
account on terms satisfactory to the Agent in an amount equal to such
Letter of Credit Outstandings (it being understood that the Total Revolving
Loan Commitment shall be reduced by the amount of cash collateral required
to be deposited by this clause (vii)); and
(viii) eighth, to reduce the remaining (i.e., after giving
effect to all prior reductions thereto, including, without limitation, to
the reductions theretofore effected pursuant to the preceding clauses (v),
(vi) and (vii)), Total Revolving Loan Commitment (it being understood and
agreed that the amount of such reduction shall be deemed to be an
application of proceeds for purposes of this Section 4.02(B)(a)(viii) even
though cash is not actually applied).".
17. Section 7.08 of the Credit Agreement is hereby amended by (i)
deleting the text "Term Loans" appearing in clause (a) of said Section and
inserting the text "A Term Loans and B Term Loans" in lieu thereof and (ii)
inserting the following new clause (e) at the end of said Section:
"(e) All proceeds of the C Term Loans incurred by the Borrower on the
C Term Loan Borrowing Date shall be utilized to (i) make payment of the
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<PAGE>
amounts set forth on Schedule XVI attached hereto, (ii) pay legal and
consulting fees and expenses (including the fees and expenses of White &
Case LLP, Brobeck Phleger & Harrison LLP and Arthur Andersen LLP) in an
aggregate amount not to exceed $1,600,000.00 and (iii) pay trade debt and
other ordinary course working capital expenditures of the Borrower and its
Subsidiaries."
18. Section 7 of the Credit Agreement is hereby further amended by
(i) inserting the text "(a)" immediately prior to the text "The updated
schedules" appearing in Section 7.30 of said Section, (ii) inserting the
following new clause (b) at the end of Section 7.30:
"(b) The updated schedules to the Credit Documents delivered pursuant
to Section 5(xi) of Part II of the Seventh Amendment are true and correct
in all material respects as of the Seventh Amendment Effective Date and
accurately present in all material respects all information which was
originally required to be scheduled pursuant to the relevant Credit
Document on the Initial Borrowing Date, but modified to reflect the
addition of any Credit Parties, and any changes thereto which occurred,
after the Initial Borrowing Date and on or prior to the Seventh Amendment
Effective Date."
and (iii) inserting the following new Section 7.31 at the end of said Section:
"7.31 Special Representations and Warranties in Connection with the
-------------------------------------------------------------
Seventh Amendment. (a) Financial Condition. (I) The Banks have been
----------------- -------------------
furnished with (i) an audited consolidated balance sheet of the Borrower as
of April 30, 1998, and a related audited consolidated statement of income
and cash flows for the 12 month period ended on such date (the "April `98
Audited Financial Statements"), copies of which are annexed hereto as part
of Schedule XVII, and (ii) an unaudited consolidated balance sheet of the
Borrower as of January 31, 1999, and a related unaudited consolidated
statement of income and cash flows for the 3 and 9 month periods ended on
such date (the "January '99 Unaudited Financial Statements"), copies of
which are annexed hereto as part of Schedule XVII. The April '98 Audited
Financial Statements were prepared in accordance with GAAP, consistently
applied, have been audited by accountants to the Borrower and its
Subsidiaries, and fairly present the financial position, results of
operations and cash flows of the Borrower and its Subsidiaries as of the
dates and for the periods reflected thereon. The January '99 Unaudited
Financial Statements were prepared in accordance with GAAP, consistently
applied, and fairly present the financial condition, results of operations
and cash flows of the Borrower and its Subsidiaries as of the dates and for
the periods reflected thereon, subject to normal, recurring year-end
adjustments that will not be material in amount, except as specifically
described on Schedule XVII.
(II) Since January 31, 1999, and except as set forth in Schedule
XVIII hereof, there has not been: (i) any incurrence or imposition of any
Lien on any of the assets of the Borrower or any Subsidiary or any other
material change in the
E-106
<PAGE>
condition (financial or otherwise) of their respective assets, liabilities
or business, except for Permitted Liens and except for changes in the
ordinary course of business; (ii) any damage, destruction or loss (whether
or not covered by insurance) adversely affecting in any material respect
the business or the operations, financial condition, results of operations,
assets or prospects of the Borrower or any Subsidiary; (iii) any change in
the accounting methods or practices followed by the Borrower or any
Subsidiary, including without limitation any change in its policies
relating to capitalization of fixed assets, bad debts, inventories or
expenses, any change in depreciation or amortization policies heretofore
adopted by the Borrower or any Subsidiary or any revaluation by the
Borrower or any Subsidiary of any of their respective assets; (iv) any
acquisition, transfer, conveyance, sale, lease, abandonment or other
disposition involving any material assets or rights of the Borrower or any
Subsidiary other than in the ordinary course of business; (v) any
termination, amendment, modification or waiver of, or any breaches,
violations or defaults (whether or not cured or waived) by any party under
any material contract; (vi) any forgiveness, waiver or agreement to extend
repayment of any Indebtedness or other obligation owed to the Borrower or
any Subsidiary; (vii) any disposition or lapse of any rights to the use of
any intellectual property owned or used by the Borrower or any Subsidiary;
(viii) any written or oral contract outside of the ordinary course of
business with any Affiliate of the Borrower; (ix) any issue, purchase or
redemption of any shares of stock of the Borrower or its Subsidiaries
(including any security convertible or exchangeable into stock), or issue,
grant or creation of any option or right to acquire any such stock; (x) any
liability, obligation or any contract entered into (including, without
limitation, liabilities, obligations or contracts relating to any borrowing
or capital expenditure) which provides for performance on the part of the
Borrower or any Subsidiary, the value of which in the aggregate exceeds
$250,000; (xi) any negotiations or contracts to accomplish any of the items
described in the preceding clauses (i) through (x); or (xii) any material
adverse change in the assets, business, profits, or financial condition of
the Borrower or any Subsidiary.
(III) Except as and to the extent set forth in the January '99
Unaudited Financial Statements or Schedule XVIII, neither the Borrower nor
any of its Subsidiaries has any material debts, liabilities or obligations
of any nature (whether accrued, absolute, contingent, liquidated,
unliquidated, matured, unmatured or otherwise) other than debts,
liabilities and obligations incurred in the ordinary course of business
consistent with prior practice.
(b) Termination of Contracts, etc. During the 12 month period prior
------------------------------
to the Seventh Amendment Effective Date, except as disclosed on updated
Schedule X delivered pursuant to Part II, Section 5(xi) of the Seventh
Amendment, neither the Borrower nor its Subsidiaries has received any
notice of termination of any material contract, lease, or other agreement
or suffered any material damage, destruction, or loss, (whether covered by
insurance).
E-107
<PAGE>
(c) Disclosure. No (i) representation or warranty of the Borrower or
----------
any Subsidiary to the Banks contained in this Agreement, the other Credit
Documents, or any other document, certificate, or written statement
furnished to the Banks by or on behalf of the Borrower or any Subsidiary in
connection with the transactions contemplated by this Agreement and the
Seventh Amendment (including the warrant agreement executed in connection
therewith but excluding the AA Review and the Kagan Study), when taken as a
whole, (ii) statement contained in the PPM, when taken as a whole, except
that the representations and warranties contained in this clause (ii) shall
not apply to statements in or omissions from the PPM made in reliance upon
and in conformity with information relating to the Banks furnished to the
Borrower in writing by the Banks expressly for use therein, or (iii)
statement contained in any filing made by the Borrower with the SEC on or
after April 30, 1998, taking each such SEC filing as a whole, in each case
contains an untrue statement of a material fact or omits to state a
material fact (known to any such Person in the case of any document not
furnished by it) necessary in order to make the statements contained herein
or therein not misleading in light of the circumstances in which the same
were made. The financial projections that have been delivered to the Banks
as part of the PPM were prepared in good faith, there is a reasonable basis
for such projections, and such projections represent the Borrower's good
faith best estimates of its and its Subsidiaries' future performance.
(d) Debt Instruments. Schedule XIX attached hereto contains a
-----------------
complete list of all loan agreements, promissory notes, letters of credit,
security agreements, or other financing documents (other than trade
accounts payable) to which the Borrower or any of its Subsidiaries is a
party as the debtor, account party, guarantor, or co-obligor, as the case
may be, or by which the Borrower or any of its Subsidiaries or any of their
assets (including equipment subject to any equipment lease), is bound, in
each case, in respect of amounts owing of $250,000, or more, together with
a description of the salient terms thereof. True and complete copies of
each such agreement, document or instrument, as amended and as in effect on
the Seventh Amendment Effective Date, have been delivered to the Banks
making C Term Loans on the C Term Loan Borrowing Date on or before the
Seventh Amendment Effective Date. After giving effect to the Seventh
Amendment, there are no existing defaults by the Borrower or its
Subsidiaries under or with respect to any such debt instrument set forth on
Schedule XIX and no event has occurred with respect thereto which (whether
with notice, lapse of time, or both, or the happening or occurrence of any
other event) would constitute a default by the Borrower or its Subsidiaries
under or with respect to any such debt instrument.
(e) Revenue-Sharing Agreements. The Borrower has entered into
--------------------------
revenue-sharing agreements (the "Revenue-Sharing Agreements") with various
motion picture production companies, studios, or distribution Affiliates
thereof, as previously described to the Banks. Any written information
previously delivered
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<PAGE>
by the Borrower to the Banks with respect thereto is accurate in all
material respects. With respect to each such Revenue-Sharing Agreement, (i)
it is valid, legally binding and enforceable against the Borrower and, to
the Borrower's knowledge, each other party thereto, in accordance with its
terms, (ii) neither the Borrower nor any of its Subsidiaries, nor, to the
Borrower's knowledge, any other party to such Revenue-Sharing Agreement, is
in material breach thereof or material default thereunder, (iii) there does
not exist any event that, with the giving of notice or the lapse of time or
both, would constitute a material breach of or a material default under
such Revenue-Sharing Agreement, and (iv) neither the Borrower nor any of
its Subsidiaries has received or given notice of any such breach, default
or event. To the Borrower's knowledge, after due inquiry, except as
otherwise specifically disclosed in any written information previously
delivered by the Borrower to the Banks with respect to the Revenue-Sharing
Agreements, each Revenue-Sharing Agreement contains terms that, taken as a
whole, are not materially less favorable to the Borrower than the
respective revenue-sharing agreements currently in effect between such
motion picture productions companies, studios, or distribution Affiliates
thereof, on the one hand, and either Blockbuster Inc. or Hollywood
Entertainment Corp., on the other.
(f) Rentrak Agreement. Prior to the Seventh Amendment Effective
-----------------
Date, the Borrower provided to the Agent a complete and accurate copy of
the agreement between Rentrak Corporation ("Rentrak"), the Borrower and
Moovies entered into in or about March 1998 with respect to the resolution
of the liabilities of Moovies to Rentrak in connection with the Merger.
There are no other agreements with respect to such liabilities that have
not been provided to the Agent. The Borrower has disclosed to the Agent
and the Banks the pending litigation between the Borrower and Rentrak,
including the counter-claims made therein, the Borrower has asserted and
believes that all amounts due from Moovies or the Borrower or any
Subsidiary pursuant to such agreement or otherwise have been paid in full,
and there are no further amounts due from Moovies or the Borrower or any
Subsidiary to Rentrak. Since the consummation of the Merger, neither the
Borrower nor its Subsidiaries have purchased, leased or otherwise acquired
any products or services from, or in any other way engaged in any material
transaction with, Rentrak.
(g) Accounts Payable. Subject to the disclosures concerning
----------------
litigation and disputes of claims therein, the accounts payable aging
schedules of the Borrower and its Subsidiaries provided to the Agent and
the Banks prior to the Seventh Amendment Effective Date are complete and
accurate in all material respects and accurately set forth the information
purported to be contained therein concerning the respective amounts of the
Borrower's and its Subsidiaries' consolidated accounts payable due for the
periods indicated. As of May 31, 1999, except as set forth on Schedule XX,
the Borrower's and its Subsidiaries' consolidated accounts payable did not
exceed $27,250,000, which amount includes less than $500,000 owed to Ingram
and does not include any amounts due under the Ingram Note.
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The accounts payable shown on the Borrower's and its Subsidiaries'
consolidated balance sheets as of January 31, 1999, February 28, 1999, and
March 31, 1999, and on the accounts payable aging schedule as of May 31,
1999 provided to the Agent and the Banks include all amounts claimed by
Sight & Sound to have been owed by the Borrower and its Subsidiaries to
Sight & Sound as of such respective dates, without deduction or offset for
any cooperative advertising, rebates or volume discounts claimed by the
Borrower and its Subsidiaries, and such amount included in the accounts
payable on such aging schedule is $7,504,000. The Borrower and its
Subsidiaries have asserted and currently believe are entitled to no less
than $3,000,000 in cooperative advertising funds, rebates and volume
discounts from Sight & Sound offsetting such account payable.
19. Section 8.01(a) of the Credit Agreement is hereby amended by
deleting said Section in its entirety and inserting a new Section 8.01(a) in
lieu thereof:
"(a) Monthly Reports. Within 30 days after the end of each fiscal
---------------
month other than the last such month of any fiscal quarter of the Borrower,
the consolidated and consolidating balance sheets of the Borrower and its
Subsidiaries as at the end of such month and the related consolidated and
consolidating statements of earnings, stockholders' equity and cash flows,
in each case for such month and for the elapsed portion of the fiscal year
ended with the last day of such month setting forth comparative figures for
the corresponding month and elapsed portion of such fiscal year for the
prior fiscal year and comparable budgeted figures for such period, and
schedules detailing (u) earnings statement expense items, (v) all new lease
commitments entered into, and new video stores opened, by the Borrower and
its Subsidiaries during such month, (w) components of purchases of net
videocassette and other rental inventory including tape purchases for
existing stores, tape purchases for new stores and the book value of
previously viewed tapes which have been sold by the Borrower and its
Subsidiaries, (x) Capital Expenditures other than Maintenance Capital
Expenditures, (y) Maintenance Capital Expenditures and (z) aggregate
expenditures for new store merchandise inventory, all of which shall be
certified by the chief financial officer or controller of the Borrower,
subject to normal year-end audit adjustments."
20. Section 8.01 of the Credit Agreement is hereby further amended by
(i) redesignating clause (k) of said Section as clause (l) and (ii) inserting
the following new clause (k) after clause (j) appearing in said Section:
"(k) At the time of the delivery of the financial statements pursuant
to Section 8.01(a), (w) a sales report for the Borrower and its
Subsidiaries for the monthly period covered by such financial statements
and for then current fiscal year of the Borrower through such monthly
period, in total, by division, and showing "comparable store sales,"
including comparisons to the equivalent periods for the prior fiscal year
of the Borrower and to the Borrower's budget; (x)
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<PAGE>
a store-level sales and profit contribution report for the Borrower and its
Subsidiaries, store by store, and by division, in each case before general
corporate overhead; (y) a store opening and closing report for the Borrower
and its Subsidiaries for the monthly period covered by such financial
statements, with appropriate levels of detail as to cost and status; and
(z) a report on the aging of the trade payables of the Borrower and its
Subsidiaries; in each case, such reports to be in form and detail
reasonably satisfactory to the Agent and the Required Banks."
21. Section 8.21 of the Credit Agreement is hereby amended by
deleting said Section in its entirety and inserting a new Section 8.21 in lieu
thereof:
"8.21 Forecasts, etc. (a) On or prior to July 15, 1999, the Borrower
---------------
shall deliver to the Agent and each of the Banks a comprehensive forecast
of the businesses of the Borrower and its Subsidiaries (reflecting
anticipated store closings), which forecast shall be reviewed by Arthur
Anderson LLP and be in form and substance satisfactory to the Agent and the
Required Banks.
(b) On or prior to August 15, 1999, (i) the Borrower shall, and
shall have caused each of the other U.S. Credit Parties to, have duly
authorized, executed and delivered a U.S. Concentration Account Consent
Letter with a U.S. Concentration Account Bank or have transferred its cash
management business to an existing U.S. Concentration Account Bank, in
either case so to ensure compliance with Section 9.04 of the Credit
Agreement and (ii) the Borrower shall have caused each of the Canadian
Credit Parties to have duly authorized, executed and delivered a Canadian
Concentration Account Consent Letter with the Canadian Concentration
Account Bank and to have taken all such other actions as may be required to
ensure compliance with Sections 8.18(ii) and 9.04.
(c) The Borrower shall, and shall cause it Subsidiaries to, close
no fewer than fifty (50) stores of the Borrower and its Subsidiaries in the
aggregate prior to January 31, 2000, at an average cost per store closing
not to exceed $100,000."
22. Section 8 of the Credit Agreement is hereby further amended by
inserting the following new Section 8.22 at the end of said Section:
"8.22 Year 2000 Compliance. The Borrower shall perform such acts as
--------------------
may be reasonably necessary to ensure that the Borrower and each of its
Subsidiaries and any business in which the Borrower or its Subsidiaries
owns a substantial interest become Year 2000 Compliant on or before
September 30, 1999. Such acts shall include, without limitation, the
Borrower's performance of a review and assessment of the material systems
of the Borrower and its Subsidiaries. With respect to the Borrower, its
Subsidiaries, and each of their customers, suppliers and vendors that are
material to their business, the Borrower shall make a reasonable effort to
(i) assess the risks posed to their business by the failure of any such
Person to become Year 2000 Compliant within a reasonable period of time,
(ii) make reasonable inquiries or other reasonable assessments
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<PAGE>
of such Persons as to whether they will become Year 2000 Compliant within a
reasonable period of time, and (iii) develop a plan for dealing with such
Persons which do not become Year 2000 Compliant within a reasonable period
of time. As used in this paragraph, "Year 2000 Compliant" shall mean, in
regard to any Person, that all software, hardware, firmware, equipment,
goods or systems material to the business operations or financial condition
of such Person will properly perform date sensitive functions before,
during, and after the year 2000. The Borrower shall, within 30 days after
written request by the Agent, provide to the Banks a written report
summarizing in reasonable detail the Borrower's actions to comply with this
covenant and the results of such actions; provided, however, that neither
-------- -------
the Borrower nor any of its Subsidiaries shall be obligated to respond to
more than two such requests per 6 month period.".
23. Section 9.05 of the Credit Agreement is hereby amended by (I)
redesignating sub-clauses (x), (y) and (z) appearing in clause (v) of said
Section as clauses (w), (x) and (y), respectively, (II) deleting the text "and"
appearing immediately following the text "(as reduced by any repayments of
principal thereof)" and inserting a comma in lieu thereof, and (III) deleting
the text "; and" appearing at the end of clause (v) of said Section and
inserting the text "and (z) the ADVO Note in an aggregate principal amount not
to exceed $355,397.07 (as reduced by any repayments of principal thereof);" in
lieu thereof.
24. Section 9.09 of the Credit Agreement is hereby amended by (i)
deleting the date "November 1, 1998" appearing in the parenthetical in said
Section and inserting the date "May 1, 1999" in lieu thereof, (ii) deleting the
date "January 31, 1999" appearing in the parenthetical in said Section and
inserting the date "July 31, 1999" in lieu thereof and (iii) deleting the table
appearing in said Section in its entirety and inserting the following new table
in lieu thereof:
"July 31, 1999 0.50:1.0
October 31, 1999 0.60:1.0
January 31, 2000 1.00:1.0
April 30, 2000 1.00:1.0
July 31, 2000 0.90:1.0
October 31, 2000 0.80:1.0
January 31, 2001 0.70:1.0
April 30, 2001 0.70:1.0
July 31, 2001 0.70:1.0
October 31, 2001 0.70:1.0
January 31, 2002 0.70:1.0
April 30, 2002 0.50:1.0
July 31, 2002 0.50:1.0
October 31, 2002 0.50:1.0
January 31, 2003 0.50:1.0
April 30, 2003 0.50:1.0".
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<PAGE>
25. Section 9.10 of the Credit Agreement is hereby amended by (i)
deleting the date "November 1, 1998" appearing in the parenthetical in said
Section and inserting the date "May 1, 1999" in lieu thereof, (ii) deleting the
date "January 31, 1999" appearing in the parenthetical in said Section and
inserting the date "July 31, 1999" in lieu thereof and (iii) deleting the table
appearing in said Section in its entirety and inserting the following new table
in lieu thereof:
"July 31, 1999 1.00:1.0
October 31, 1999 1.00:1.0
January 31, 2000 1.50:1.0
April 30, 2000 1.50:1.0
July 31, 2000 1.70:1.0
October 31, 2000 1.80:1.0
January 31, 2001 1.90:1.0
April 30, 2001 2.10:1.0
July 31, 2001 2.20:1.0
October 31, 2001 2.30:1.0
January 31, 2002 2.50:1.0
April 30, 2002 3.00:1.0
July 31, 2002 3.50:1.0
October 31, 2002 4.20:1.0
January 31, 2003 5.40:1.0
April 30, 2003 5.50:1.0".
26. Section 9.11 of the Credit Agreement is hereby amended by (i)
deleting the date "November 1, 1998" appearing in the parenthetical in said
Section and inserting the date "May 1, 1999" in lieu thereof, (ii) deleting the
date "January 31, 1999" appearing in the parenthetical in said Section and
inserting the date "July 31, 1999" in lieu thereof, (iii) deleting the text
"Consolidated Indebtedness as at the end of any fiscal quarter ended on a date
set forth below to" and inserting the text "(x) the remainder of Consolidated
Indebtedness as at the end of any fiscal quarter ended on a date set forth below
less the amount of cash of the Borrower and its Subsidiaries as reflected on the
- ----
balance sheet of the Borrower at the end of any fiscal quarter ended on a date
set forth below to (y)" in lieu thereof and (iv) deleting the table appearing in
said Section in its entirety and inserting the following new table in lieu
thereof:
"July 31, 1999 10.50:1.0
October 31, 1999 10.50:1.0
January 31, 2000 6.25:1.0
April 30, 2000 6.25:1.0
July 31, 2000 5.25:1.0
October 31, 2000 4.75:1.0
January 31, 2001 4.50:1.0
April 30, 2001 4.00:1.0
July 31, 2001 3.75:1.0
October 31, 2001 3.50:1.0
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<PAGE>
January 31, 2002 3.25:1.0
April 30, 2002 2.00:1.0
July 31, 2002 1.75:1.0
October 31, 2002 1.50:1.0
January 31, 2003 1.25:1.0
April 30, 2003 1.00:1.0".
27. Section 9.12 of the Credit Agreement is hereby amended by
deleting said Section in its entirety and inserting the text "9.12
[Intentionally Deleted]" in lieu thereof.
28. Section 9.13 of the Credit Agreement is hereby amended by
deleting said Section in its entirety and inserting the text "9.13
[Intentionally Deleted]" in lieu thereof.
29. Section 9.14 of the Credit Agreement is hereby amended by (i)
deleting the date "November 1, 1998" appearing in the parenthetical in said
Section and inserting the date "May 1, 1999" in lieu thereof, (ii) deleting the
date "January 31, 1999" appearing in the parenthetical in said Section and
inserting the date "July 31, 1999" in lieu thereof and (iii) deleting the table
appearing in said Section in its entirety and inserting the following new table
in lieu thereof:
"July 31, 1999 $ 5,500
October 31, 1999 $11,000
January 31, 2000 $27,500
April 30, 2000 $40,000
July 31, 2000 $45,000
October 31, 2000 $47,500
January 31, 2001 $47,500
April 30, 2001 $50,000
July 31, 2001 $50,000
October 31, 2001 $50,000
January 31, 2002 $50,000
April 30, 2002 $55,000
July 31, 2002 $55,000
October 31, 2002 $55,000
January 31, 2003 $55,000
April 30, 2003 $55,000".
30. Section 9.15 of the Credit Agreement is hereby amended by (i)
inserting the text "the ADVO Note, the Ingram Note, the Persona Note,"
immediately prior to the text "any Existing Indebtedness, the Moovies Seller
Note," appearing in clause (i) of said Section, (ii) inserting the text "the
ADVO Note, the Ingram Note, the Persona Note," immediately prior to the text
"any Merger Document, the Existing Indebtedness," appearing in clause (ii) of
said Section, (iii) deleting the word "or" appearing at the end of clause (vi)
of said Section, and (iv) inserting the text ", the ADVO Note, the Ingram Note,
the Persona Note" immediately after the text "any Permitted Earn-Out Debt"
appearing in clause (vii) of said Section.
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<PAGE>
31. The definition of "A TL Percentage" appearing in Section 11.01 of
the Credit Agreement is hereby amended by inserting the phrase ", C Term Loans"
immediately following the phrase "B Term Loans" appearing in said definition.
32. The definition of "Aggregate Unutilized Commitment" appearing in
Section 11.01 of the Credit Agreement is hereby amended by inserting the text
"plus (iii) such Bank's Unutilized C Term Loan Commitment at such time" at the
----
end of said definition.
33. The definition of "B TL Percentage" appearing in Section 11.01 of
the Credit Agreement is hereby amended by inserting the phrase ", C Term Loans"
immediately following the phrase "A Term Loans, B Term Loans" appearing in said
definition.
34. The definition of "Canadian Concentration Account Bank" appearing
in Section 11.01 of the Credit Agreement is hereby amended by inserting the
phrase "or The Bank of Nova Scotia" immediately after the text "Canadian
Imperial Bank of Commerce" in each place such text appears in said definition.
35. The definition of "CapEx TL Percentage" appearing in Section
11.01 of the Credit Agreement is hereby amended by inserting the phrase ", C
Term Loans" immediately following the phrase "B Term Loans" appearing in said
definition.
36. The definition of "Commitment" appearing in Section 11.01 of the
Credit Agreement is hereby amended by inserting the phrase ", C Term Loan
Commitment" immediately following the phrase "B Term Loan Commitment," appearing
in said definition.
37. The definition of "Consolidated EBITDA" appearing in Section
11.01 of the Credit Agreement is hereby amended by (x) inserting the text "(i)"
immediately following the text "adjusted by adding thereto" appearing in said
definition and (y) inserting the text, "(ii) Initial Licensing Expenses to the
extent same were deducted in determining Consolidated Net Income for such period
and (iii) Revenue Sharing Expenses to the extent same were deducted in
determining Consolidated Net Income for such period" immediately following the
text "for such period" appearing in said definition.
38. The definition of "Consolidated Free Cash Flow" appearing in
Section 11.01 of the Credit Agreement is hereby amended by deleting each
reference to "Net Tape Replacement Cash Expenditures" appearing in said
definition and inserting the text "Free Cash Flow Adjustment" in lieu thereof.
39. The definition of "Eligible Transferee" appearing in Section
11.01 of the Credit Agreement is hereby amended by deleting the text "other than
individuals," appearing in said definition.
40. The definition of "Loan" appearing in Section 11.01 of the Credit
Agreement is hereby amended by inserting the phrase "each C Term Loan,"
immediately following the phrase "each B Term Loan," appearing in said
definition.
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<PAGE>
41. The definition of "Maturity Date" appearing in Section 11.01 of
the Credit Agreement is hereby amended by inserting the phrase "the C Term Loan
Maturity Date," immediately following the phrase "B Term Loan Maturity Date,"
appearing in said definition.
42. The definition of "Note" appearing in Section 11.01 of the Credit
Agreement is hereby amended by inserting the phrase "each C Term Note,"
immediately following the phrase "each B Term Note," appearing in said
definition.
43. The definition of "Pro Forma Basis" appearing in Section 11.01 of
the Credit Agreement is hereby amended by deleting each reference to "November
1, 1998" appearing in clause (iii) of said definition and inserting the date
"May 1, 1999" in lieu thereof.
44. The definition of "Required Banks" appearing in Section 11.01 of
the Credit Agreement is hereby amended by (i) inserting the phrase "C Term Loans
(or, if prior to the C Term Loan Commitment Termination Date, C Term Loan
Commitments)," immediately after the phrase "B Term Loans," in the first place
such phrase appears in said definition and (ii) inserting the phrase "C Term
Loans (or, if prior to the C Term Loan Commitment Termination Date, the Total C
Term Loan Commitment then in effect)" immediately after the phrase "B Term
Loans," in the second place such phrase appears in said definition.
45. The definition of "Supermajority Banks" appearing in Section
11.01 of the Credit Agreement is hereby amended by (i) inserting the phrase "C
Term Loans (or, if prior to the C Term Loan Commitment Termination Date, C Term
Loan Commitments)," immediately following the phrase "B Term Loans," in the
first place such phrase appears in said definition and (ii) inserting the phrase
"C Term Loans (or, if prior to the C Term Loan Commitment Termination Date, the
Total C Term Loan Commitment then in effect)" immediately after the phrase "B
Term Loans," in the second place such phrase appears in said definition.
46. The definition of "Tranche" appearing in Section 11.01 of the
Credit Agreement is hereby amended by (i) deleting the word "five" appearing in
said definition and inserting the word "six" in lieu thereof and (ii) inserting
the phrase "C Term Loans," immediately following the phrase "B Term Loans,"
appearing in said definition.
47. The definition of "Type" appearing in Section 11.01 of the Credit
Agreement is hereby amended by (i) deleting the word "or" appearing in said
definition and inserting a comma in lieu thereof and (ii) inserting the text "or
a Fixed Rate Loan" immediately after the text "Eurodollar Loan" appearing in
said definition.
48. The definition of "U.S. Concentration Account" appearing in
Section 11.01 of the Credit Agreement is hereby amended by inserting the phrase
"or accounts" immediately after the text "the separate account" appearing in
said definition.
49. The definition of "U.S. Concentration Account Bank" appearing in
Section 11.01 of the Credit Agreement is hereby amended by (i) deleting the text
"Bank of America National Trust and Savings or" appearing in said definition and
inserting the text ", collectively, Bank of America Trust and Savings," in lieu
thereof, (ii) inserting the phrase
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"and/or any other financial institution acceptable to the Agent" immediately
after the text "Carolina First Bank" appearing in said definition and (iii)
deleting the text "either such bank" appearing in said definition and inserting
the text "any such financial institution" in lieu thereof.
50. Section 11.01 of the Credit Agreement is hereby amended by (i)
deleting the definitions of "Capital Expenditure Loan Conversion Date",
"Consolidated Net Worth", "Net Tape Replacement Cash Expenditures", "Term Loan"
and "Term Loan Commitment" appearing in said Section and (ii) inserting the
following new definitions in said Section in appropriate alphabetical order:
"AA Review" means that certain "Review of FY 1999 and FY 2000 Plans
and Financial Projections" dated February, 1999, prepared by Arthur
Andersen LLP, and a copy of which was attached as Exhibit A to the PPM.
"ADVO Note" shall mean the six-month 12% subordinated promissory note
issued by the Borrower in favor of ADVO, Inc., all of the terms of which
shall be acceptable to the Agent and the Required Banks.
"April '98 Audited Financial Statements" shall have the meaning
provided in Section 7.31(a).
"Capital Expenditure Loan Conversion Date" shall mean (i) for purposes
of Section 4.02(A)(f) and the definition of Excess Cash Flow Stub Payment
Period, the 24 month anniversary of the Initial Borrowing Date, (ii) for
purposes of the table appearing in Section 4.02(A)(d), May 1, 2000 and
(iii) for all other purposes under this Agreement, June 21, 1999.
"C TL Percentage" shall mean, at any time, a fraction (expressed as a
percentage), the numerator of which is equal to the aggregate principal
amount of all C Term Loans outstanding at such time, and the denominator of
which is equal to the aggregate principal amount of all A Term Loans, B
Term Loans, C Term Loans and, after the Capital Expenditure Loan Conversion
Date, Capital Expenditure Loans outstanding at such time.
"C Term Loan" shall have the meaning provided in Section 1.01(g).
"C Term Loan Borrowing Date" shall mean the date occurring prior to
June 25, 1999 on which the C Term Loans are incurred.
"C Term Loan Commitment" shall mean, with respect to each Bank, the
amount set forth opposite such Bank's name in Schedule I directly below the
column entitled "C Term Loan Commitment," as the same may be reduced or
terminated pursuant to Section 3.02, 3.03, 4.02 and/or 10.
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<PAGE>
"C Term Loan Commitment Termination Date" shall mean the date on which
the Total C Term Loan Commitment is reduced to zero pursuant to Sections
3.03, 4.02 and/or 10.
"C Term Loan Facility" shall mean the facility evidenced by the Total
C Term Loan Commitment.
"C Term Loan Maturity Date" shall mean June 24, 2006.
"C Term Note" shall have the meaning provided in Section 1.05(a).
"Fixed Rate Loan" shall mean each C Term Loan bearing interest as
provided in Section 1.08(g).
"Free Cash Flow Adjustment" shall mean, for any period, the sum of (i)
the amount of expenditures made by the Borrower and its Subsidiaries to
purchase videocassette and other rental inventory from movie and production
studios pursuant to revenue sharing agreements during such period, (ii) the
amount of expenditures made by the Borrower and its Subsidiaries to
purchase videocassette and other rental inventory to the extent not
otherwise included in clause (i) above during such period and (iii) Revenue
Sharing Expenses incurred during such period.
"Initial Licensing Expenses" shall mean, for any period, the amount of
initial fees expensed by the Borrower and its Subsidiaries under revenue
sharing agreements during such period.
"January '99 Unaudited Financial Statements" shall have the meaning
provided in Section 7.31(a).
"Kagan Study" shall mean the study and materials prepared by Paul
Kagan Associates, Inc., excerpts of which were attached to the PPM.
"PPM" means the Confidential Private Placement Memorandum dated April,
1999, with respect to the Borrower that was previously submitted to the
Banks making C Term Loans on the C Term Loan Borrowing Date (excluding the
AA Review and the Kagan Study).
"Rentrak" shall have the meaning provided in Section 7.31(f)
"Required C Term Facility Banks" shall mean Banks the sum of whose
outstanding C Term Loans (or, if prior to the C Term Loan Commitment
Termination Date, C Term Loans Commitments) represent an amount greater
than 50% of the sum of all outstanding C Term Loans (or, if prior to the C
Term Loan Commitment Termination Date, the Total C Term Loan Commitment
then in effect).
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"Revenue Sharing Agreements" shall have the meaning provided in
Section 7.31(e).
"Revenue Sharing Expenses" shall mean, for any period, the amount of
revenue sharing percentages or per unit minimums expensed by the Borrower
and its Subsidiaries under revenue sharing agreements during such period.
"Seventh Amendment" shall mean the Seventh Amendment to this
Agreement, dated as of May 28, 1999.
"Seventh Amendment Effective Date" shall have the meaning provided in
the Seventh Amendment.
"Sight & Sound" shall mean Sight & Sound Distributors, Inc., a
Delaware corporation.
"Term Loan" shall mean each A Term Loan, each B Term Loan and each C
Term Loan.
"Term Loan Commitment" shall mean, with respect to each Bank, the sum
of the A Term Loan Commitment, the B Term Loan Commitment and the C Term
Loan Commitment of such Bank at such time.
"Total C Term Loan Commitment" shall mean, at any time, the sum of the
C Term Loan Commitments of each of the Banks.
"Unutilized C Term Loan Commitment" for any Bank, at any time, shall
mean the C Term Loan Commitment of such Bank at such time less the
----
aggregate principal amount of C Term Loans made by such Bank and then
outstanding.
51. Section 13.01 of the Credit Agreement is hereby amended by
inserting the text "; or (f) any breach or inaccuracy of, or failure by the
Borrower to comply with any representation, warranty, covenant or agreement of
the Borrower contained in this Agreement, any other Credit Document or any
Related Document (as defined in the Seventh Amendment)" immediately after the
text "misconduct of any Indemnitee" appearing at the end of said Section.
52. Section 13.04(b) of the Credit Agreement is hereby amended by (i)
inserting the text "(or, in the case of an assignment of C Term Loans, at least
$100,000 of such C Term Loans)" immediately after the text "$5,000,000, of such
Loans or Commitments and related outstanding Obligations hereunder" appearing in
the first sentence of said Section, (ii) inserting the text "(which consent
shall not be unreasonably withheld or delayed)" immediately following the text
"with any assignment" appearing in clause (iii) of the proviso to the first
sentence of said Section and (iii) inserting the text "(or, in the case of an
assignment of C Term Loans, $1,500)" immediately after the text "$3,000"
appearing in clause (iv) of the proviso to said Section.
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53. Section 13 of the Credit Agreement is hereby further amended by
inserting the following new Section 13.17 immediately after Section 13.16
appearing therein:
"13.17 Agreement for Benefit of Banks Making C Term Loans and
------------------------------------------------------
Holding Capital Expenditure Loans. To induce the Banks with C Term Loan
---------------------------------
Commitments to make the C Term Loans on the C Term Loan Borrowing Date and
the Banks holding Capital Expenditure Loans to execute and deliver the
Seventh Amendment, and for the benefit of such Banks and their successors
and assigns, each Bank which executes the Seventh Amendment agrees for
itself, and its successors and assigns, that such Bank (including for this
purpose its successors and assigns) will not in the future agree (i)
without the consent of the Required C Term Facility Banks at such time, to
any amendment, modification or waiver to Section 4.01(v) or 4.02(B)(a)(i)
or (ii) or this Section 13.17 or the definitions of A TL Percentage, B TL
Percentage, C TL Percentage or CapEx TL Percentage to the extent that, in
any such case, such amendment, modification or waiver would alter the
application of prepayments or repayments as between A Term Loans, B Term
Loans, C Term Loans and Capital Expenditure Loans in a manner adverse to
the C Term Loans, (ii) without the consent of the Required C Term Facility
Banks at such time, to any amendment or modification to any Scheduled
Repayment which would require all or any portion of such Scheduled
Repayment to be paid prior to the scheduled date of repayment therefor as
provided in this Agreement (as in effect on the Seventh Amendment Effective
Date), except to the extent that any such amendment or modification
requires a mandatory repayment of C Term Loans on each such earlier date of
scheduled repayment in an amount equal to the C TL Percentage of the amount
of each such foreshortened Scheduled Repayment, (iii) without the consent
of the Required C Term Facility Banks at such time, to any amendment,
modification, waiver or consent to any other provision of the Credit
Agreement or the other Credit Documents to the extent that, in any such
case, such amendment, modification, waiver or consent would have a
materially disproportionate adverse effect on the Banks holding C Term
Loans vis-a-vis the other Banks holding Revolving Loans, Capital
Expenditure Loans, A Term Loans or B Term Loans, as the case may be (it
being understood, for purposes of clarification, that any amendment,
consent or waiver fee payable in connection with a proposed amendment,
consent or waiver may be paid on a non-ratable basis to the extent such fee
is payable to all Banks (i.e., Banks with Obligations under each Tranche)
----
which approve same on the basis of their respective Commitments and/or
outstanding Loans), (iv) during the period commencing on the Seventh
Amendment Effective Date and ending on the B Term Loan Maturity Date, to
any amendment, waiver, modification, consent or supplement to this
Agreement or the other Credit Documents which by its terms shall be
effective for any period after (but not before) the B Term Loan Maturity
Date and (v) without the consent of each Bank with outstanding Capital
Expenditure Loans, amend, modify or waive the definition of Capital
Expenditure Loan Conversion Date."
E-120
<PAGE>
54. Schedule I to the Credit Agreement is hereby amended by deleting
same in its entirety and inserting in lieu thereof the new Schedule I as it
appears as attached hereto.
55. The Credit Agreement is hereby amended by adding new Schedules
XVI, XVII, XVIII, XIX and XX thereto in the forms of Schedule XVI, XVII, XVIII,
XIX, and XX, respectively, as attached hereto.
56. The Credit Agreement is hereby further amended by inserting a new
Exhibit B-6 thereto in the form of Exhibit B-6 attached hereto.
57. Exhibit A-1 to the Credit Agreement is hereby amended by (i)
inserting the text "[C Term Loans]" immediately following the text "[B Term
Loans]" appearing in clause (iii) of said Exhibit, (ii) inserting the text
"[Fixed Rate Loans]" immediately following the text "[Eurodollar Loans]"
appearing in clause (iv) of said Exhibit and (iii) inserting the text "Fixed
Rate Loans may only be incurred in connection with a Proposed Borrowing of C
Term Loans." at the end of footnote 2 appearing in said Exhibit.
58. Exhibit K to the Credit Agreement is hereby amended by deleting
such Exhibit K in its entirety and by inserting in lieu thereof a new Exhibit K
in the form of Exhibit K attached hereto.
59. Each of the Credit Parties, on its own behalf and on behalf of
its successors and assigns, hereby waives, releases and discharges the Agent and
each Bank and all of the affiliates of the Agent and each Bank, and all of the
directors, officers, employees, attorneys and agents of the Agent, each Bank and
such affiliates, from any and all claims, demands, actions or causes of action
(known and unknown) arising out of or in any way relating to the Credit
Documents and any documents, agreements, dealings or other matters connected
with the Credit Documents, in each case to the extent arising (x) on or prior to
the Seventh Amendment Effective Date or (y) out of, or relating to, actions,
dealings or matters occurring on or prior to the Seventh Amendment Effective
Date. The waivers, releases, and discharges in this Section 58 shall be
effective regardless of whether the conditions to this Amendment are satisfied
and regardless of any other event that may occur or not occur after the Seventh
Amendment Effective Date.
60. Notwithstanding anything to the contrary contained in the Credit
Agreement, (i) the Agent and the Banks hereby waive any Default or Event of
Default that may arise under the Credit Agreement as a result of the non-
compliance by the Borrower with Sections 9.09, 9.10, 9.11 and 9.14 of the Credit
Agreement and any other financial covenant contained in the Credit Agreement for
the period from and after the Seventh Amendment Effective Date to but excluding
September 15, 1999 and (ii) the Agent and the Banks hereby waive on the Seventh
Amendment Effective Date any Default or Event of Default that may exist under
the Credit Agreement on and as of the Seventh Amendment Effective Date
immediately prior to giving effect to the Seventh Amendment.
61. Each Bank hereby represents and warrants that it has not relied
upon, and will not rely on, the AA Review, or any information, analysis, or
conclusions contained therein, in
E-121
<PAGE>
connection with its decision to make C Term Loans, its decision to enter into
this Amendment, or otherwise in connection with the transactions contemplated by
the Credit Agreement and this Amendment.
62. The Agent and the Banks hereby waive the requirement contained in
clause (ii) of the second paragraph of the Side Letter, dated as of March 11,
1999, between the Borrower and the Agent, that the Borrower obtain the
Additional Junior Financing referred to therein, it being understood and agreed,
however, that the provisions of the third paragraph of said Side Letter remain
applicable and in full force and effect.
II. Miscellaneous.
-------------
1. In order to induce the Banks to enter into this Amendment, the
Borrower hereby makes each of the representations, warranties and agreements
contained in Section 7 of the Credit Agreement, in each case on the Seventh
Amendment Effective Date, both before and after giving effect to this Amendment.
2. This Amendment is limited as specified and shall not constitute
a modification, acceptance or waiver of any other provision of the Credit
Agreement or any other Credit Document.
3. This Amendment may be executed in any number of counterparts and
by the different parties hereto on separate counterparts, each of which
counterparts when executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument. A complete set of
counterparts shall be lodged with the Borrower and the Agent.
4. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE
STATE OF NEW YORK.
5. This Amendment shall become effective on the date (the "Seventh
Amendment Effective Date") when the following conditions have been met to the
satisfaction of the Agent, the Required Banks (determined immediately after the
occurrence of the Seventh Amendment Effective Date) and each Bank with a Tranche
C Term Loan Commitment:
(i) the Agent shall have received for the account of each
Bank with a C Term Loan Commitment, the appropriate C Term Note
in the amount, maturity and as otherwise provided in this
Amendment and Section 1.05 of the Credit Agreement;
(ii) the Agent shall have received from each Credit Party
certified copies of resolutions of the Board of Directors of
such Credit Party with respect to the matters set forth in this
Amendment and such resolutions shall be satisfactory to the
Agent;
E-122
<PAGE>
(iii) each Bank with a C Term Loan Commitment (each, a "C
Term Loan Bank") shall have received true and correct copies of
the Certificate of Incorporation and By-laws of the Borrower,
certified as such by appropriate officer of the Borrower, and
each of such documents shall be in form and substance
satisfactory to the C Term Loan Banks;
(iv) the Agent (on behalf of the Banks) shall have
received all information and copies of all documents and papers,
including records of corporate proceedings, governmental
approvals, good standing certificates and bring down facsimiles,
if any, which the Agent or any Bank may have requested in
connection with the transactions contemplated by this Amendment,
such documents and papers where appropriate to be certified by
proper corporate or governmental authorities;
(v) there shall have been delivered to each C Term Loan
Bank true and correct copies of the Credit Documents, certified
as such by an appropriate officer of the Borrower;
(vi) the Agent shall have received from Gadsby & Hannah
LLP, special counsel to the U.S. Credit Parties, an opinion
addressed to the Agent, the Collateral Agent and each of the
Banks and dated the Seventh Amendment Effective Date, which
opinion shall be in form and substance satisfactory to the Agent
and the Required Banks;
(vii) the Banks shall have received a solvency certificate
meeting the requirements of Section 5.14(i) of the Credit
Agreement, except that such certificate shall be dated the
Seventh Amendment Effective Date and shall be modified (to the
satisfaction of the Agent) to provide that such certificate is
being furnished after giving effect to this Amendment and the
incurrence of C Term Loans;
(viii) the Agent shall have received a certificate, dated
the Seventh Amendment Effective Date and signed on behalf of the
Borrower by the President or any Vice President of the Borrower,
stating all of the conditions in clauses (ii), (iii), (iv) and
(v) of this Part II, Section 5 and Sections 6.01, 6.03, and 6.04
of the Credit Agreement have been satisfied on such date;
(ix) the Agent and each of the Banks which have consented
to this Seventh Amendment shall have received true and correct
copies of all warrants, warrant documents and registration
rights agreements entered into by the Borrower and the Banks in
connection with the Seventh Amendment (collectively, the
"Related Documents"), certified as such by an officer of the
Borrower, and all terms and conditions of the Related Documents
shall be in form and substance satisfactory to the Agent and the
Banks;
E-123
<PAGE>
(x) the Borrower shall have paid to the Agent and the
Banks all costs, fees and expenses (including, without
limitation, the fees and expenses of White & Case LLP, Brobeck,
Phleger & Harrison LLP and Arthur Anderson LLP) payable to the
Agent and the Banks to the extent then due;
(xi) the Borrower shall have delivered updated Schedules
VIII, X and XV to the Credit Agreement, in each case modified to
reflect the addition of any Credit Parties and any changes
thereto which occurred after the Initial Borrowing Date and on
or prior to the Seventh Amendment Effective Date; and
(xii) each of the Borrower, the Banks constituting the
Required Banks (determined immediately prior to the occurrence
of the Seventh Amendment Effective Date), each of the Banks
with outstanding A Term Loans, each of the Banks with C Term
Loan Commitments aggregating $10,500,000 and the Required
Capital Expenditure Facility Banks shall have signed a copy
hereof (whether the same or different copies) and shall have
delivered (including by way of facsimile transmission) the same
to White & Case LLP, 1155 Avenue of the Americas, New York,
New York 10036 Attention: David Kizner (facsimile number
212-354-8113).
6. By executing and delivering a copy hereof, each Credit Party
hereby agrees that all Loans (including, without limitation, the C Term Loans)
shall be fully guaranteed pursuant to the Subsidiaries Guaranty in accordance
with the terms and provisions thereof and shall be (and are) fully secured
pursuant to the Security Documents.
7. From and after the Seventh Amendment Effective Date, all
references to the Credit Agreement in the Credit Agreement and each of the other
Credit Documents shall be deemed to be references to the Credit Agreement as
modified hereby.
* * *
COMMITMENTS
-----------
<TABLE>
<CAPTION>
Capital
A Term B Term C Term Expenditure Revolving
Loan Loan Loan Loan Loan
Bank Commitment Commitment Commitment Commitment Commitment Total
---- ---------- ---------- ---------- ----------- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
Paribas 0 0 0 0 0 0
Merrill Lynch 0 0 0 0 0 0
Senior
Floating Rate
Fund, Inc.
Merrill Lynch 0 0 0 0 0 0
Prime Rate
</TABLE>
E-124
<PAGE>
<TABLE>
<CAPTION>
Capital
A Term B Term C Term Expenditure Revolving
Loan Loan Loan Loan Loan
Bank Commitment Commitment Commitment Commitment Commitment Total
---- ---------- ---------- ---------- ----------- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
Portfolio
Jackson 0 0 0 0 $1,175,000.00 $ 1,175,000.00
National Life
Insurance Co.
(PPM America,
Inc.)
Boeing Capital 0 0 0 0 0 0
Corporation
Key Corporate 0 0 0 0 $ 400,000.00 $ 400,000.00
Capital Inc.
Creditanstalt- 0 0 0 0 $ 925,000.00 $ 925,000.00
Bankverein
The Bank of 0 0 0 0 $ 400,000.00 $ 400,000.00
Nova Scotia
First Source 0 0 0 0 $ 925,000.00 $ 925,000.00
Financial LLP
Carolina First 0 0 0 0 0 0
Bank
Paribas 0 0 0 0 0 0
Capital Funding
Fleet National 0 0 0 0 $1,175,000.00 $ 1,175,000.00
Bank
U.S. Bancorp 0 0 $ 1,000,000.00 0 0 $ 1,000,000.00
Libra
AIG Special 0 0 $ 400,000.00 0 0 $ 400,000.00
Situations
Holding Fund
Ltd.
Ares Leveraged $ 500,000.00 $ 500,000.00
Investment
Fund, L.P.
Ares Leveraged 0 0 $ 1,000,000.00 0 0 $ 1,000,000.00
Investment
Fund II, L.P.
Continental 0 0 $ 1,500,000.00 0 0 $ 1,500,000.00
Casualty
</TABLE>
E-125
<PAGE>
<TABLE>
<CAPTION>
Capital
A Term B Term C Term Expenditure Revolving
Loan Loan Loan Loan Loan
Bank Commitment Commitment Commitment Commitment Commitment Total
---- ---------- ---------- ---------- ----------- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
Company
The Jay 0 0 $ 500,000.00 0 0 $ 500,000.00
Goldman Master
L.P.
The Ravich 0 0 $ 500,000.00 0 0 $ 500,000.00
Children
Permanent Trust
The Ravich 0 0 $ 1,500,000.00 0 0 $ 1,500,000.00
Revocable
Trust of 1989
Value 0 0 $ 1,000,000.00 0 0 $ 1,000,000.00
Partners, Ltd.
The 0 0 $ 2,300,000.00 0 0 $ 2,300,000.00
Progressive/
Windig Fund,
LLC
David and Lynn 0 0 $ 300,000.00 0 0 $ 300,000.00
Young
-------- -------- -------------- -------- ------------- --------------
Totals: 0 0 $10,500,000.00 0 $5,000,000.00 $15,500,000.00
- ------
</TABLE>
E-126
<PAGE>
C TERM NOTE
-----------
$________________ New York, New York
____________, ____
FOR VALUE RECEIVED, VIDEO UPDATE, INC., a Delaware corporation (the
"Borrower"), hereby promises to pay to the order of _________________________
(the "Bank") or its registered assigns, in lawful money of the United States of
America in immediately available funds, at the office of Paribas (the "Agent")
located at 787 Seventh Avenue, New York, New York 10019, on the C Term Loan
Maturity Date (as defined in the Agreement referred to below) the principal sum
of _______________ DOLLARS ($____________) or, if less, the then unpaid
principal amount of all C Term Loans (as defined in the Agreement) made by the
Bank pursuant to the Agreement.
The Borrower promises also to pay interest on the unpaid principal
amount hereof in like money at said office from the date hereof until paid at
the rates and at the times provided in Section 1.08 of the Agreement referred to
below.
This Note is one of the C Term Notes referred to in the Credit
Agreement, dated as of March 6, 1998, among the Borrower, the financial
institutions from time to time party thereto (including the Bank) and the Agent
(as amended, modified or supplemented from time to time, the "Agreement") and is
entitled to the benefits thereof. This Note is also entitled to the benefits of
the Guaranties (as defined in the Agreement) and is secured by and entitled to
the benefits of the Security Documents (as defined in the Agreement). As
provided in the Agreement, this Note is subject to voluntary prepayment and
mandatory repayment prior to the C Term Loan Maturity Date, in whole or in part.
In case an Event of Default (as defined in the Agreement) shall occur
and be continuing, the principal of and accrued interest on this Note may be
declared to be due and payable in the manner and with the effect provided in the
Agreement.
The Borrower hereby waives presentment, demand, protest or notice of
any kind in connection with this Note.
THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE
LAW OF THE STATE OF NEW YORK.
VIDEO UPDATE, INC.
E-127
<PAGE>
ASSIGNMENT AND ASSUMPTION AGREEMENT
-----------------------------------
Date __________,____
Reference is made to the Credit Agreement described in Item 2 of Annex
I hereto (as such Credit Agreement may hereafter be amended, supplemented or
otherwise modified from time to time, the "Credit Agreement"). Unless defined in
Annex I hereto, terms defined in the Credit Agreement are used herein as therein
defined. ___________ (the "Assignor") and __________ (the "Assignee") hereby
agree as follows:
1. The Assignor hereby sells and assigns to the Assignee without
recourse and without representation or warranty (other than as expressly
provided herein), and the Assignee hereby purchases and assumes from the
Assignor, that interest in and to all of the Assignor's rights and obligations
under the Credit Agreement as of the date hereof which represents the percentage
interest specified in Item 4 of Annex I hereto (the "Assigned Share") of all of
the outstanding rights and obligations under the Credit Agreement relating to
the Tranches listed in Item 4 of Annex I hereto, including, without limitation,
(t) in the case of any assignment of outstanding A Term Loans, all rights and
obligations with respect to the Assigned Share of all then outstanding A Term
Loans, (u) in the case of any assignment of outstanding B Term Loans, all rights
and obligations with respect to the Assigned Share of all then outstanding B
Term Loans, (v) [in the case of any assignment of all or any portion of the
Total C Term Loan Commitment, all rights and obligations with respect to the
Assigned Share of the Total C Term Loan Commitment, (w)]/1/ in the case of any
assignment of outstanding C Term Loans, all rights and obligations with respect
to the Assigned Share of all then outstanding C Term Loans, (x) in the case of
any assignment of all or any portion of the Total Capital Expenditure Loan
Commitment, all rights and obligations with respect to the Assigned Share of the
Total Capital Expenditure Loan Commitment and of the Capital Expenditure Loans
relating thereto, (y) in the case of any assignment of outstanding Capital
Expenditure Loans not accompanied by an assignment of a Capital Expenditure Loan
Commitment (which may only occur after the termination of the Total Capital
Expenditure Loan Commitment), all rights and obligations with respect to the
Assigned Share of all then outstanding Capital Expenditure Loans, and (z) in the
case of any assignment of all or any portion of the Total Revolving Loan
Commitment, all rights and obligations with respect to the Assigned Share of the
Total Revolving Loan Commitment and of the Revolving Loans and Letters of Credit
Outstandings relating thereto. After giving effect to such sale and assignment,
the Assignee's [C Term Loan Commitment,] [Revolving Loan Commitment,] [Capital
Expenditure Loan Commitment,] [and the amount of the outstanding A Term Loans, B
Term Loans, C Term Loans and Capital Expenditure Loans owing to the Assignee]
will be as set forth in Item 4 of Annex I hereto.
________________________
/1/ Include bracketed language only in Assignment and Assumption Agreements
entered into prior to the termination of the Total C Term Loan Commitment.
E-128
<PAGE>
2. The Assignor (i) represents and warrants that it is the legal and
beneficial owner of the interest being assigned by it hereunder and that such
interest is free and clear of any adverse claim; (ii) makes no representation or
warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with the Credit Agreement
or the other Credit Documents or the execution, legality, validity,
enforceability, genuineness, sufficiency or value of the Credit Agreement or the
other Credit Documents or any other instrument or document furnished pursuant
thereto; and (iii) makes no representation or warranty and assumes no
responsibility with respect to the financial condition of any of the Credit
Parties or the performance or observance by the Credit Parties of any of their
obligations under the Credit Agreement or the other Credit Documents to which
they are a party or any other instrument or document furnished pursuant thereto.
3. The Assignee (i) confirms that it has received a copy of the
Credit Agreement and the other Credit Documents, together with copies of the
financial statements referred to therein and such other documents and
information as it has deemed appropriate to make its own credit analysis and
decision to enter into this Assignment and Assumption Agreement; (ii) agrees
that it will, independently and without reliance upon the Agent, the Assignor or
any other Bank and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under the Credit Agreement; (iii) confirms that it is an
Eligible Transferee under the Credit Agreement; (iv) appoints and authorizes the
Agent and the Collateral Agent to take such action as agent and collateral agent
on its behalf and to exercise such powers under the Credit Agreement and the
other Credit Documents as are delegated to the Agent and the Collateral Agent by
the terms thereof, together with such powers as are reasonably incidental
thereto; [and] (v) agrees that it will perform in accordance with their terms
all of the obligations which by the terms of the Credit Agreement are required
to be performed by it as a Bank; [and (vi) to the extent legally entitled to do
so, attaches the forms described in Section 13.04(b) of the Credit
Agreement.]/2/
4. Following the execution of this Assignment and Assumption
Agreement by the Assignor and the Assignee, an executed original hereof
(together with all attachments) will be delivered to the Agent. The effective
date of this Assignment and Assumption Agreement shall be the first date upon
which each of the following conditions shall have been satisfied: (i) the
execution hereof by the Assignor and the Assignee, (ii) the receipt of the
consent of the Agent pursuant to Section 13.04(b) of the Credit Agreement and
(iii) receipt by the Agent of the assignment fee referred to in such Section
13.04(b) (the "Settlement Date").
5. Upon the delivery of a fully executed original hereof to the
Agent, as of the Settlement Date, (i) the Assignee shall be a party to the
Credit Agreement and, to the extent provided in this Assignment and Assumption
Agreement, have the rights and obligations of a Bank thereunder and under the
other Credit Documents and (ii) the Assignor shall, to the extent provided in
this Assignment and Assumption Agreement, relinquish its rights and be released
from its obligations under the Credit Agreement and the other Credit Documents.
______________________
/2/ If the Assignee is organized under the laws of a jurisdiction outside the
United States.
E-129
<PAGE>
6. It is agreed that the Assignee shall be entitled to (x) all
interest on the Assigned Share of the Loans at the rates specified in Item 6 of
Annex I; (y) all Commitment Commission (if applicable) on the Assigned Share of
the Aggregate Unutilized Commitment at the rate specified in Item 7 of Annex I
hereto; and (z) all Letter of Credit Fees (if applicable) on the Assignee's
participation in all Letters of Credit at the rate specified in Item 8 of Annex
I hereto, which, in each case, accrue on and after the Settlement Date, such
interest and, if applicable, Commitment Commission and Letter of Credit Fees, to
be paid by the Agent directly to the Assignee. It is further agreed that all
payments of principal made on the Assigned Share of the Loans which occur on and
after the Settlement Date will be paid directly by the Agent to the Assignee.
Upon the Settlement Date, the Assignee shall pay to the Assignor an amount
specified by the Assignor in writing which represents the Assigned Share of the
principal amount of the respective Loans made by the Assignor, and the
Assignee's share of any Letter of Credit Outstanding incurred pursuant to the
Credit Agreement which are outstanding on the Settlement Date, net of any
closing costs, and which are being assigned hereunder. The Assignor and the
Assignee shall make all appropriate adjustments in payments under the Credit
Agreement for periods prior to the Settlement Date directly between themselves
on the Settlement Date.
7. THIS ASSIGNMENT AND ASSUMPTION AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
IN WITNESS WHEREOF, the parties hereto have caused their duly
authorized officers to execute and deliver this Assignment and Assumption
Agreement, as of the date first above written, such execution also being made on
Annex I hereto.
Accepted this _____ day [NAME OF ASSIGNOR],
of _______, ____ as
Assignor
[NAME OF ASSIGNEE],
as Assignee
Acknowledged and Agreed:
PARIBAS, as Agent
E-130
<PAGE>
ANNEX TO ASSIGNMENT AND ASSUMPTION AGREEMENT
--------------------------------------------
1. Borrower: Video Update, Inc.
2. Name and Date of Credit Agreement:
Credit Agreement, dated as of March 6, 1998, among the Borrower, the
Banks from time to time party thereto and Paribas, as Agent.
3. Date of Assignment Agreement:
4. Amounts (as of date of item #3 above):
<TABLE>
<CAPTION>
Outstanding
Total Total Capital Principal of
Outstanding Outstanding Outstanding Total Revolving Expenditure Capital
Principal of Principal of Principal of C Term Loan Loan Loan Expenditure
A Term Loans B Term Loans C Term Loans Commitment/3/ Commitment Commitment Loans
------------ ------------ ------------ ------------- ----------- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
a. Aggre-
gate
Amount
for
all
Banks $___________ $___________ $___________ $___________ $__________ $_________ $___________
b. Assigned
Share
/4/ ____________% ____________% ____________% ____________% ___________% __________% ____________%
c. Amount
of
Assigned
Share $___________ $___________ $___________ $___________ $__________ $_________ $___________
</TABLE>
5. Settlement Date:
6. Rate of Interest As set forth in Section 1.08 of the Credit
to the Assignee: Agreement (unless otherwise agreed to by the
Assignor and the Assignee)/5/
___________________________
/3/ Insert column in the case of Assignment and Assumption Agreements
executed prior to the termination of the Total C Term Loan
Commitment.
/4/ Percentage taken to 12 decimal places.
/5/ The Borrower and the Agent shall direct the entire amount of the
interest to the Assignee at the rate set forth in Section 1.08 of the
Credit Agreement, with the Assignor and Assignee effecting the agreed
upon sharing of the interest through payments by the Assignee to the
Assignor.
E-131
<PAGE>
7. Commitment Commission As set forth in Section 3.01(a) of the Credit
to the Assignee: Agreement (unless otherwise agreed to by the
Assignor and the Assignee)/6/
8. Letter of Credit As set forth in Section 3.01(c) of the Credit
Fees to the Assignee: Agreement (unless otherwise agreed to by the
Assignor and the Assignee)/7/
9. Notice:
10. Payment Instructions:
Accepted and Agreed:
[NAME OF ASSIGNEE] [NAME OF ASSIGNOR]
By_______________________ By______________________
_______________________ ______________________
(Print Name and Title) (Print Name and Title)
_______________________
/6/ Insert "Not Applicable" in lieu of text if no portion of the Total Revolving
Loan Commitment, the Total Capital Expenditure Loan Commitment or the Total
C Term Loan Commitment is being assigned. Otherwise, the Borrower and the
Agent shall direct the entire amount of the Commitment Commission to the
Assignee at the rate set forth in Section 3.01(a) of the Credit Agreement,
with the Assignor and the Assignee effecting the agreed upon sharing of
Commitment Commission through payment by the Assignee to the Assignor.
/7/ Insert "Not Applicable" in lieu of text if no portion of the Total Revolving
Loan Commitment is being assigned. Otherwise, the Borrower and the Agent
shall direct the entire amount of the Letter of Credit Fees to the Assignee
at the rate set forth in Section 3.01(c) of the Credit Agreement, with the
Assignor and the Assignee effecting the agreed upon sharing of Letter of
Credit Fees through payment by the Assignee to the Assignor.
E-132
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of
this Amendment to be duly executed and delivered as of the date first above
written.
VIDEO UPDATE, INC.
PARIBAS,
Individually and as Agent
/s/ CAROLINA FIRST BANK
/s/ BANK AUSTRIA CREDITANSTALT CORPORATE FINANCE, INC.
/s/ FIRST SOURCE FINANCIAL LLP
By: First Source Financial, Inc., its
Agent/Manager
/s/ FLEET NATIONAL BANK
/s/ MERRILL LYNCH PRIME RATE PORTFOLIO
By: Merrill Lynch Asset Management,
L.P., as Investment Advisor
/s/ PPM AMERICA, INC. as attorney in fact,
on behalf of Jackson National Life Insurance
Company
/s/ BOEING CAPITAL CORPORATION
/s/ KEY CORPORATE CAPITAL INC.
/s/ PARIBAS CAPITAL FUNDING LLC
/s/ THE BANK OF NOVA SCOTIA
/s/ ML CLO XIX STERLING (CAYMAN) LTD.
By: Sterling Asset Manager, L.L.C. as its
Investment Advisor
/s/ KZH STERLING LLC
E-133
<PAGE>
Each of the undersigned, each being a Subsidiary Guarantor under, and
as defined in, the Credit Agreement referenced in the foregoing Seventh
Amendment, hereby consents to the entering into of the Seventh Amendment, and
agrees to the provisions thereof (including without limitation, Sections 6 and 7
of Part II thereof).
/s/ MOOVIES, INC.
/s/ TINSELTOWN VIDEO, INC.
/s/ WILLIAMS VIDEO, INC.
/s/ MOOVIES OF THE CAROLINAS, INC.
/s/ MOOVIES OF GEORGIA, INC.
/s/ MOOVIES OF IOWA, INC.
/s/ MOOVIES OF MICHIGAN, INC.
/s/ MOVIE WAREHOUSE FRANCHISE SYSTEMS, INC.
/s/ E.C.6., INC.
/s/ SONI, INC.
/s/ PQ3, INC.
/s/ SNO, INC.
/s/ GBO, INC.
/s/ D-SKIPPY, INC.
/s/ DCO, INC.
/s/ PTO, INC.
/s/ THE MOVIE STORE, INC. #2
/s/ THE MOVIE STORE III, INC.
/s/ ALPHARETTA MEDIA ASSOCIATES, INC.
/s/ VIDEO UPDATE CANADA INC.
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<PAGE>
/s/ 24 HOUR ENTERTAINMENT GROUP LTD.
/s/ 24 HOUR ENTERTAINMENT LEASING LTD.
/s/ 1137239 ONTARIO LIMITED
/s/ RIO MEDIA ASSOCIATES, INC.
/s/ PIC-A-FLICK OF GREENVILLE, INC.
E-135
<PAGE>
EXHIBIT 99
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PRESS RELEASE
Video Update, Inc. Announces Amendments to Credit Agreement
ST. PAUL, Minn.--(BUSINESS WIRE)--June 24, 1999
Credit Facility Amended to Provide Approximately $28 Million in a Combination of
New Financing and Principal Payment Deferrals
Video Update, Inc. (NASDAQ: VUPDA), an international video chain, announced
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today that it has entered into amendments to its existing credit facility with
lending institutions and Banque Paribas, as agent. The amendments provide for a
new C Term Loan Commitment of $10.5 million with principal maturing June 2006 as
well as deferral of approximately $17.5 million of certain principal payments
previously due by April 30, 2000 to April 30, 2002.
The Company's Chairman and CEO Daniel A. Potter stated: "I am pleased that we
have been able to obtain these amendments to our existing bank facility. I
welcome the new C Term Loan participants to our credit facility and appreciate
their vote of confidence in the Company." Assisting in the arrangement of the C
Term Loan as financial advisor and agent was U.S. Bancorp Libra, a division of
U.S. Bancorp Investments, Inc. ("Libra"). C Term Loan participants will receive
an aggregate of 3,937,500 warrants to purchase Common Stock at market price
(based on a trailing 30 trading day average); Libra will receive 1,575,000
warrants also at market price; and institutions in the existing credit facility
will receive an aggregate of 1,968,750 warrants also at market price.
Matters discussed in this news release, including expectations express or
implied, as to the Company's future operating results contain forward-looking
statements that involve risks and uncertainties. Future operating results or
other events may differ materially and significantly from such forward-looking
statements and can be impacted by many of the risk factors and concerns
described in the Company's SEC reports, including but not limited to
competition, weather, limited cash flow, and consumer acceptance of then
available new release movie titles. These and other risks related to the
Company's operations are detailed from time to time in the Company's SEC
reports, including Form 10-K for the year ended April 30, 1998 and its most
recent quarterly report for the period ended January 31, 1999.
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