Exhibit 10.10
WARRANT AGREEMENT
BETWEEN
AV ALARM, INC.
AND
HELLER FINANCIAL, INC.
November 10, 1994
THIS AGREEMENT AND THE RIGHTS CONFERRED HEREUNDER HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 OR QUALIFIED UNDER APPLICABLE STATE SECURITIES LAWS.
THE RIGHTS CONFERRED HEREUNDER MAY BE OFFERED, SOLD OR TRANSFERRED ONLY IN
COMPLIANCE WITH THE REQUIREMENTS OF SUCH ACT AND OF ANY APPLICABLE STATE
SECURITIES LAWS.
WARRANT AGREEMENT
THIS WARRANT AGREEMENT (the "Agreement") is dated as of the 10th day of
November, 1994, between AV ALARM, INC., a Texas corporation having its principal
place of business at 12801 Stemmons Freeway, Suite 821, Farmers Branch, Texas
75234 (the "Company"), and HELLER FINANCIAL, INC., a Delaware corporation having
its principal place of business at 500 West Monroe Street, Chicago, Illinois
60661 ("Heller").
WHEREAS, the Company and Heller have entered into that certain Credit
Agreement (as defined herein) pursuant to which Heller has agreed to extend an
aggregate principal amount of $15,000,000 to the Company to fund the on-going
acquisition of alarm monitoring accounts and to provide working capital
financing for the Company; and
WHEREAS, as an inducement to extend funds under the Credit Agreement,
Heller has requested, and the Company has agreed to issue to Heller, warrants
representing the right to purchase at the Exercise Price (as defined herein)
shares of the Company's a~ B Stock (as defined herein), upon the terms and
conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein set forth, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
The terms defined in this ARTICLE I, whenever used in this Agreement, shall have
the respective meanings hereinafter specified.
"Accredited Investor" has the meaning given such term in Rule 501(a) promulgated
under the Securities Act.
"Affiliate" of any entity means a Person which directly or directly through one
or more intermediaries controls, or is controlled by, or is under common control
with, such entity. The term "control," as used with respect to any Person, means
the possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise.
"Agreement" has the meaning set forth in the introductory paragraphs hereof.
"Applicable Rate" means eight percent (8%) per annum.
"Assignment" means the form of Assignment attached hereto as Exhibit C.
"Austin Ventures" means Austin Ventures, Ill-A, L.P. and Austin Ventures III-B,
LP., each a Delaware limited partnership of which AV Partners III, LP., a
Delaware limited partnership, is the sole general partner.
"Austin Ventures Ill-A" means Austin Ventures III-A, L.P., a Delaware limited
partnership.
1
"Call Options" means any of the options described in Sections 8.1 or 8.2.
"Call Period" means the period commencing on the earliest of (a) the fourth
anniversary of the Closing Date, (b) payment of the Loans and the termination of
the Commitments as such terms are defined in the Credit Agreement, other than
payment of the Loans solely from the proceeds of income generated from the
business operations of the Company, (c) the occurrence of a Value Event, and
terminating upon the earlier to occur of (1) the closing of a Qualified Public
Offering, or (ii) at 5:00 p.m. Dallas, Texas Time on the last day of the
Exercise Period.
"Call Price" has the meaning set forth in Section 8.3.
"Cash Transaction" has the meaning assigned to such term in the definition of
"Fair Value".
"Change in Control" (1) Any person or group of related persons for purposes of
Section 13(d) of the Exchange Act (a "Group") other than Austin Ventures has
"beneficial ownership" (within the meaning of Section 13(d) under the Exchange
Act) in excess of 33-1/3% of the issued and outstanding Borrower Preferred
Stock, if any, or in excess of 50% of the total voting power of all classes of
capital stock then outstanding of Company entitled (without regarding to the
occurrence of any contingency) to vote for the elections of directors of Company
unless Austin Ventures continues, directly or indirectly, through proxy or
otherwise, to control, or have the power to elect, a majority of the members of
the board of directors of Company or (2) Austin Ventures ceases to
beneficially-own and control, directly or indirectly, at least 66-2/3% of the
issued and outstanding Borrower Preferred Stock, if any, and at least 50% of the
shares of capital stock, whether as Series A Preferred Stock or as a~ A Stock,
of Company which were owned by Austin Ventures on the Closing Date (with the
number of shares owned by Austin Ventures on the Closing Date being adjusted for
purposes of this clause (2) for any stock splits, stock dividends or other
issuance of stock of Company issued without additional consideration); or (3)
any person or group of related persons for purposes of Section 13(d) of the
Exchange Act shall otherwise acquire (in one transaction of a series of related
transactions) all or substantially all of the assets of Company except as
permitted by subsection 7.7(c) of the Credit Agreement.
"Class A Stock" means shares of the Company's voting Class A Common Stock, $0.01
par value, any stock into which such stock shall have been changed or any stock
resulting from any reclassification of such stock.
"Class B Stock" means shares of the Company's convertible nonvoting Class B
Common Stock, $0.01 par value, convertible into Class A Stock on a
share-for-share basis, any stock into which such stock shall have been changed
or any stock resulting from any reclassification of such stock.
"Closing Date" means November 10, 1994.
"Commission" means the Securities and Exchange Commission or an other Federal
agency from time to time administering the Securities Act.
"Common Stock" means a~ A Stock, Class B Stock and any class of capital stock of
the Company now or hereafter authorized having the right to share in
distributions either of earnings
2
or assets of the Company without limit as to amount or percentage other than the
Preferred Stock which has not been converted or changed into Class A Stock.
"Company" has the meaning set forth in the introductory paragraphs hereof.
"Convertible Securities" means evidences of indebtedness, shares of stock (other
than Class B Stock) or other securities which are convertible into or
exchangeable for, with or without payment of additional consideration,
additional shares of Common Stock, either immediately or upon the arrival of a
specified date or the happening of a specified event, including, without
limitation, the Preferred Stock.
"Credit Agreement" means the Credit Agreement dated as of November 10, 1994,
between Heller and the Company, as the same may be amended from time to time
together with all of the other "Loan Documents" (as defined in the Credit
Agreement), each as the same may be amended from time to time.
"Current Market Price" as to any security on any date specified herein means the
average of the daily closing prices for the ten (10) consecutive trading days
before such date excluding any trades which are not bona fide arm's length
transactions. The closing price for each day shall be (i) the mean between the
closing high bid and low asked quotations of any such security in the
over-the-counter market as shown by the National Association of Securities
Dealers, Inc. Automated Quotation System, or any similar system of automated
dissemination of quotations of securities prices then in common use, if so
quoted, as reported by any member firm of the New York Stock Exchange selected
by the Company, or (ii) if not quoted as described in clause (i), the mean
between the high bid and low asked quotations for any such security as reported
by the National Quotation Bureau Incorporated or any similar successor
organization, as reported by any member firm of the New York Stock Exchange
selected by the Company, or (iii) if any such security is listed or admitted for
trading on any national securities exchange, the last sale price of any such
security, regular way, or the mean of the closing bid and asked prices thereof
if no such sale occurred, in each case as officially reported on the principal
securities exchange on which any such security is listed. If any such security
is quoted on a national securities or central market system in lieu of a market
or quotation system described above, the closing price shall be determined in
the manner set forth in clause (i) of the preceding sentence if bid and asked
quotations are reported but actual transactions are not, and in the manner set
forth in clause (ii) of the preceding sentence if actual transactions are
reported.
"Dallas, Texas Time" shall mean, with respect to any determination of the time
for performance hereunder, the time of day determined by the local time in
Dallas, Texas.
"Distribution" has the meaning set forth in Section 6.1.
"Event of Default" means (a) the breach of any warranty, or the inaccuracy of
any representation, made by the Company herein if such breach or inaccuracy
could reasonably be expected to have a Material Adverse Effect, or (b) the
failure by the Company to comply with any covenant contained herein if the
failure to comply with such covenant could reasonably be expected to have a
Material Adverse Effect.
3
"Exercise Period" means the period commencing on the Closing Date and
terminating on November 10, 2004.
"Exercise Price" has the meaning set forth in Section 2.4, as such price may be
adjusted pursuant to ARTICLE IV or Section 10.4.
"Fair Value" means the fair value of the appropriate security, property, assets,
business or entity as determined in accordance with the following procedure:
(A) Upon the occurrence of any event hereunder that gives rise to a
requirement to determine "Fair Value" pursuant to the provisions hereof, (i) if
"Fair Value" is being determined for purposes of Article IV and the
consideration being received by the Company is exclusively cash and such cash
consideration is being paid by a Person who is not an Affiliate of the Company
or Austin Ventures, "Fair Value" shall be the aggregate amount of such cash
consideration determined in accordance with subsection 4.7(a) (a "Cash
Transaction") unless the board of directors of the Company, in good faith and in
its sole and reasonable discretion, elects to have "Fair Value" determined in
accordance with the following clause (A)(ii), (ii) in all instances, other than
a Cash Transaction, including for purposes of Article IV, the board of
directors, in good faith and in its reasonable discretion, shall submit to
Heller its proposed determination of "Fair Value," and unless Heller notifies
the Company within thirty (30) days of its receipt of such proposed "Fair Value"
that, in good faith and in its reasonable discretion, it does not accept the
board of directors proposed "Fair Value," the board of directors proposed
determination of "Fair Value" shall be "Fair Value." If Heller notifies the
Company within such thirty (30) day period that, in good faith and in its
reasonable discretion, it does not accept the board of director's proposed
determination of Fair Value or the parties are otherwise unable to agree upon
"Fair Value" within such thirty (30) day period, the parties shall have an
additional ten (10) days to select an Independent Investment Banking Firm that
they shall mutually agree upon to determine "Fair Value." If Heller and the
Company cannot mutually agree upon an Independent Investment Banking Firm within
such period, each of them shall have an additional fifteen (15) days to select
an Independent Investment Banking Firm and the two Independent Investment
Banking Firms selected by the parties shall then have fifteen (15) days to
select a third Independent Investment Banking Firm. If no third Independent
Investment Banking Firm can be agreed upon by the first two Independent
Investment Banking Firms, such third Independent Investment Banking Firm shall
be an Independent Investment Banking Firm selected by an arbitrator chosen in
accordance with the rules for commercial arbitration of the American Arbitration
Association then in effect. (The Independent Investment Banking Firm selected by
mutual agreement or as provided in the preceding two sentences is referred to
herein as the "Arbiter").
(B) If no determination as to Fair Value is made pursuant to paragraph (A)
of this definition, the Arbiter shall determine the fair value of the entity,
security, property or services (as applicable), and deliver its opinion in
writing to the Company and to Heller. The terms of engagement of the Arbiter
shall require the Arbiter to deliver such written opinion to the Company and
Heller within thirty (30) days following submission of such value determination
to the Arbiter. Fair Value shall be determined based upon the Arbiter's opinion
as follows: (X) if such opinion expressed fair value in terms of a range of
values, the mean of such range shall be
4
deemed to be Fair Value, or (Y) if such opinion expresses fair value as an
absolute number, such number shall be deemed to be Fair Value.
(C) Any determination of Fair Value made in accordance with clauses (A)
and/or (B) above shall be conclusive and binding on the Company and Heller and
all other holders of Warrants or Issued Warrant Shares for the purposes of the
event that gave rise to the requirement hereunder to make such determination of
Fair Value.
(D) The out-of-pocket fees and expenses to Heller and the Company in
retaining the investment banking firms to select the Arbiter and all fees, costs
and expenses of the Arbiter shall be borne equally by the Company and Heller to
the extent such fees, costs and expenses do not exceed $50,000 and to the extent
such fees, costs and expenses exceed $50,000 such fees, costs and expenses shall
be borne solely by the Company.
(E) In the event of any determination of "Fair Value" for purposes of
Article IV, other than a Cash Transaction, the Company may consummate the
transaction which causes the need to determine "Fair Value" prior to, but
otherwise subject to, the determination of "Fair Value" in accordance with the
terms of this Agreement. Any adjustment caused by such an event shall be
effective, nunc pro tunc, upon the determination of "Fair Value".
In determining Fair Value, no discount shall be imposed by reason of a minority
ownership interest or the illiquidity of the stock interest being valued.
Notwithstanding the foregoing, if the Company shall have effected a public
offering of any class of Common Stock and the Common Stock is actively traded on
a public market, Fair Value means, with reference to the Warrant Shares, the
Current Market Price of the publicly traded class of Common Stock as of any date
of determination.
"fully diluted capital stock" and "fully diluted basis" have the meaning
assigned to such term in Section 2.3.
"Heller" has the meaning set forth in the introductory paragraphs hereof.
"Independent Investment Banking Firm" shall mean an investment banking firm of
nationally recognized standing with experience in valuing businesses selected by
the Company and reasonably acceptable to the holders of a majority of the
Warrant Shares.
"Issuable Warrant Shares" means the number of shares of Class B Stock issuable
from time to time upon exercise of a Warrant.
"Issued Class A Warrant Shares" means (a) any shares of Class A Stock issued
upon conversion of Issued Class B Warrant Shares plus (b) any shares of Class A
Stock issued as a stock dividend with respect to any shares of the type
described in (a) or as part of a stock split affecting such shares.
"Issued Class B Warrant Shares" means (a) the cumulative total of the shares of
Class B Stock issued from time to time upon exercise of the Warrants, plus (b)
any shares of Class B Stock issued as a stock dividend with respect to such
shares or as part of a stock split affecting such
5
shares, less (c) any shares described in (a) or (b) that were subsequently
converted into shares of Class A Stock.
"Issued Warrant Shares" means the Issued Class A Warrant Shares plus the Issued
Class B Warrant Shares.
"Liabilities" means the Borrower's "Obligations" as defined in the Credit
Agreement.
"Material Adverse Effect" means (a) a material adverse effect on the value of
any Warrants or Warrant Shares, (b) the material impairment of the ability of
Company to perform, in all material respects, any of its obligations under any
Warrant Document to which it is a party, (c) the material impairment of Holder
or any holder of any Warrants or Warrant Shares to enforce, in all material
respects, any of the duties and obligations of the Company under any Warrant
Document. In determining whether any individual event would result in a Material
Adverse Effect, notwithstanding that such event does not itself have such
effect, a Material Adverse Effect shall be deemed to have occurred if the
cumulative effect of such event and all other then existing events would result
in a Material Adverse Effect.
"Notice of Exercise" means the form of Notice of Exercise attached hereto as
Exhibit B.
"Opinion of Counsel" means an opinion of counsel experienced in Securities Act
or bank regulatory matters, as the case may be, chosen by the holder of a
Warrant or the holder of Issued Warrant Shares, which counsel may be counsel to
such holder.
"Other Securities" means any stock and other securities of the Company (other
than Common Stock, Convertible Securities or Stock Purchase Rights) or any other
Person which shall become subject to issue or sale upon the conversion or
exchange of any stock or other securities of the Company.
"Person" means any unincorporated organization, association, corporation,
individual, sole proprietorship, partnership, joint venture, trust institution,
entity, party or government (including any instrumentality, division, agency,
body or department thereof).
"Piggy-Back Shares" has the meaning set forth in Section 5.3.
"Preferred Stock" means Borrower's 4,000,000 authorized shares of Series A
Preferred Stock of the Company, par value $0.01 per share.
"Proposed Purchase Price" has the meaning set forth in ARTICLE V.
"Put Options" means either of the options described in Sections 7.1 or 7.2.
"Qualified Public Offering" means the sale of the Common Stock or the Preferred
Stock in a firm commitment, underwritten public offering registered under the
Securities Act.
"Repurchase Period" means the period commencing on the earliest of (a) the
fourth anniversary of the Closing Date, (b) payment of the Loans and the
termination of the Commitments as such terms are defined in the Credit
Agreement, other than payment of the Loans solely from the
6
proceeds of income generated from the business operations of the Company, (c)
the occurrence of an Event of Default or (d) the occurrence of a Value Event,
and terminating upon the earlier to occur of (i) the closing of a Qualified
Public Offering or (ii) at 5:00 p.m. Dallas, Texas Time on the last day of the
Exercise Period.
"Repurchase Price" has the meaning set forth in Section 7.3.
"Revolving Loan" has the meaning set forth in the Credit Agreement.
"Securities Act" means the Securities Act of 1933, as amended, or any Successor
Federal statute, and the rules and regulations of the Commission promulgated
thereunder, all as the same shall be in effect from time to time.
"Stock Option Plan" means the Borrower Incentive Stock Compensation Plan dated
as of October 21, 1994, among Borrower and certain of Borrower's officers and
employees.
"Stock Purchase Agreement" means that certain Stock Purchase Agreement dated as
of October 21, 1994, among Borrower, Austin Ventures and other Persons
identified therein.
"Stock Purchase Rights" means any warrants, options or other rights to subscribe
for, purchase or otherwise acquire any shares of Common Stock or any Convertible
Securities including the Stock Option Agreement.
"Subsidiary" means any corporation or association (a) more than 50% (by number
of votes) of the Voting Stock of which is at the time owned by the Company or by
one or more Subsidiaries or by the Company and one or more Subsidiaries, or any
other business entity in which the Company or one or more Subsidiaries or the
Company and one or more Subsidiaries owns more than a 50% interest either in the
profits or capital of such business entity or (b) whose net earnings, or
portions thereof, are consolidated with the net earnings of the Company and are
recorded on the books of the Company for financial reporting purposes in
accordance with generally accepted accounting principles.
"Suspense Period" means a period commencing, on or after November 10, 1998, upon
(A) the earlier to occur of (i) the execution or acceptance by Company of a bona
fide letter of intent from an Independent Investment Banking Firm to commence an
attempt to conduct a public offering or (ii) the preparation by Company of a
reasonably complete draft of a registration statement for the purpose of
attempting to conduct a public offering and (B) ending on the earlier to occur
of (i) the termination of the attempt to consummate any public offering
contemplated by such letter of intent or draft registration statement, (ii) the
occurrence of a Value Event, (iii) a date which is 180 days from the
commencement of such period, or (iv) August 10, 2004.
"Underlying Common Stock" has the meaning assigned to such term in the Stock
Purchase Agreement.
"Value Event" means any of the following events: (a) any merger or consolidation
of the Company or any Subsidiary with or into any corporation that is not the
Company or a wholly-owned Subsidiary of the Company which results in a Change in
Control, (b) any sale or disposition of all or substantially all the assets of
the Company or any Subsidiary to a Person
7
other than the Company or a wholly-owned Subsidiary of the Company, or (c) any
sale or other disposition by the Company or an Affiliate of the Company of
shares of Common Stock constituting (on a cumulative basis) more than 33.33% of
the number of shares of Common Stock on a fully diluted basis plus shares of
capital stock issued after the Closing Date then outstanding (other than to an
Affiliate of the Company) calculated without including the sale, if any of the
Warrant Shares.
"Voting Stock" means securities of any class or series of a corporation or
association the holders of which are ordinarily, in the absence of
contingencies, entitled to participate in the election of a majority of the
directors or persons performing similar functions of such corporation or
association.
"Warrant" or "Warrants" means the Warrants to be issued to Heller pursuant to
this Agreement, Warrants transferred to any holder, and all Warrants issued upon
the partial exercise, transfer or division of or in substitution for any
Warrant.
"Warrant Documents" means the Warrant Agreement, the Warrants, and all other
instruments, documents and agreements executed by or on behalf of Company and
delivered concurrently herewith or at any time hereafter to or for the benefit
of Heller or any holder of the Warrant in connection with the Warrant Agreement
and the transactions contemplated thereby.
"Warrant Shares" means the Issuable Warrant Shares plus the Issued Warrant
Shares.
Whenever used in this Agreement, any noun or pronoun shall be deemed to include
both the singular and plural and to cover all genders, and the words "herein,"
"hereof," and "hereunder" and words of similar import shall refer to this
instrument as a whole, including any amendments hereto.
ARTICLE II
EXERCISE OF WARRANT
2.1 Form of Warrants. The Warrants are being issued in the form attached
hereto as Exhibit A. Heller and each other holder of the Warrants, if
applicable, shall have the rights and obligations provided for in the form of
Warrant and in this Agreement.
2.2 Initial Warrants. At Closing, Warrants shall be issued to Heller (the
"Initial Warrants") which shall entitle Heller to acquire 136,095 shares of
Class B Stock. The right to subscribe for and purchase shares of Class B Stock
pursuant to the Warrants shall commence on the date hereof and shall expire at
5:00 p.m. Dallas, Texas time, on November 10, 2004.
2.3 Additional Warrants.
(a) On or before ten (10) days after the end of each calendar month,
beginning with the month of November, 1994, in which additional shares of
Preferred Stock are issued by the Company pursuant to the Stock Purchase
Agreement until 4,000,000 shares of Preferred Stock are issued and outstanding,
warrants shall be issued to Heller (the "First Additional Warrants") which shall
entitle Heller to acquire an additional number of shares of Class B Stock
sufficient to result in Heller having the right to acquire pursuant thereto 3.5%
of the fully diluted
8
capital stock of the Company on the Closing Date after giving effect to (i) such
issuances of Preferred Stock in the preceding calendar month as if such
issuances had occurred on the Closing Date, and (ii) all increases in the
maximum number of shares of Class A Stock that may be subject to options or
awards granted under the Stock Option Plan corresponding to the issuances of
Preferred Stock referred to in the preceding clause (i).
(b) If and when the outstanding balance of the Revolving Loan first
equals or exceeds $5,000,000, Heller will receive warrants (the "Second
Additional Warrants") to acquire a number of additional shares of Class B Stock
equal to 1.5% of the fully diluted capital stock of the Company on the Closing
Date after giving effect to any issuances of Preferred Stock (and corresponding
increases in Class A Stock subject to the Stock Option Plan) described in
subsection 2.3(a) as if such issuances had occurred on the Closing Date.
(c) If and when the outstanding balance of the Revolving Loan first
equals or exceeds $10,000,000, Heller will receive warrants (the `"Third
Additional Warrants") to acquire a number of additional shares of Class B Stock
equal to 1.5% of the fully diluted capital stock of the Company after giving
effect to any issuances of Preferred Stock (and corresponding increases in Class
A Stock subject to the Stock Option Plan) described in subsection 2.3(a) as if
such issuances had occurred on the Closing Date.
(d) If and when the outstanding balance of the Revolving Loan first
equals or exceeds $15,000,000, Heller will receive warrants (the "Fourth
Additional Warrants") to acquire a number of additional shares of Class B Stock
equal to 0.5% of the fully diluted capital stock of the Company after giving
effect to any issuances of Preferred Stock (and corresponding increases in Class
A Stock subject to the Stock Option Plan) described in subsection 2.3(a) as if
such issuances had occurred on the Closing Date.
For the purposes of this Agreement, "fully diluted capital stock" of the
Company on the Closing Date and "fully diluted basis" shall mean, without
duplication, (a) all issued and outstanding shares of capital stock of the
Company on the Closing Date, (b) all options, warrants or other rights
outstanding on the Closing Date that are exercisable to acquire shares of
capital stock of the Company, (c) all debt and equity outstanding on the Closing
Date that are convertible or exchangeable to acquire shares of capital stock of
the Company, and (d) all shares of capital stock of the Company subject to
future issuance (whether or not upon the satisfaction of certain conditions)
under contractual obligations of the Company effective on the Closing Date.
2.4 Exercise Price. The term "Exercise Price" shall mean, initially, $0.01
per share. For purposes of this Section 2.4, the initial Exercise Price shall be
deemed to have become effective at the close of business on the date of this
Agreement but shall be subject to adjustment as set forth in ARTICLE IV or
Section 10.4.
2.5 Right to Exercise. On the terms and subject to the conditions of this
ARTICLE II. the holder of a Warrant shall (i) have the right, at its option, to
exercise the Warrant in whole or in part at any time during the Exercise Period
and (ii) shall exercise the Warrant in the event the Company conducts a
Qualified Public Offering during the Exercise Period immediately prior to the
closing of or in conjunction with the closing of such offering.
9
2.6 Manner of Exercise; Issuance of Class B Stock. To exercise a Warrant,
the holder of the Warrant shall deliver to the Company (a) a Notice of Exercise
in the form attached hereto as Exhibit B duly executed by the holder specifying
the number of shares of Class B Stock to be purchased, (b) an amount equal to
the aggregate Exercise Price for all shares of Class B Stock as to which the
Warrant is then being exercised and (c) the Warrant. At the option of the holder
of the Warrant, payment of the Exercise Price shall be made by (a) wire transfer
of funds to an account in a bank located in the United States designated by the
Company for such purpose, (b) certified or official bank check payable to the
order of the Company, (c) by application of the Liabilities as provided in
Section 2.10 hereof, (d) by deducting from the number of shares delivered upon
exercise of the Warrant a number of shares which has an aggregate Current Market
Price on the date of exercise equal to the aggregate Exercise Price for all
shares as to which the Warrant is then being exercised or (e) by any combination
of such methods.
Upon receipt of the required deliveries, the Company shall, within five
days thereafter, cause to be issued and delivered to the holder of the Warrant
(or its nominee) or, subject to ARTICLE V, the transferee designated in the
Notice of Exercise, a certificate or certificates representing shares of Class B
Stock equal in the aggregate to the number of shares of Class B Stock specified
in the Notice of Exercise (but not exceeding the maximum number of shares
issuable upon exercise of the Warrant). Such certificate or certificates shall
be registered in the name of the holder of the Warrant (or its nominee) or in
the name of such transferee, as the case may be.
If a Warrant is exercised in part, the Company shall, at the time of
delivery of such certificate or certificates, unless the Exercise Period has
expired, issue and deliver to the holder of the Warrant or, subject to ARTICLE
V, the transferee so designated in the Notice of Exercise, a new Warrant
evidencing the right of the holder or such transferee to purchase the aggregate
number of shares of Class B Stock for which the Warrant shall not have been
exercised, and the Warrant shall be canceled.
2.7 Effectiveness of Exercise. Unless otherwise requested by the holder of
the Warrant, a Warrant shall be deemed to have been exercised and such
certificate or certificates shall be deemed to have been issued, and the holder
of such Warrant or transferee so designated in the Notice of Exercise shall be
deemed to have become the holder of record of such shares for all purposes, as
of the close of business on the date the Notice of Exercise, together with
payment of the Exercise Price and the Warrant, is received by the Company.
2.8 Fractional Shares. The Company shall not issue fractional shares of
Class B Stock o. scrip representing fractional shares of Class B Stock upon any
exercise of a Warrant. As to any fractional share of Class B Stock which the
holder of a Warrant would otherwise be entitled to purchase from the Company
upon such exercise, the Company shall purchase from the holder such fractional
share at a price equal to an amount calculated by multiplying such fractional
share (calculated to the nearest .001 of a share) by the Repurchase Price
(determined without regard to whether the Warrant or any Warrant Shares are then
subject to repurchase hereunder) calculated as of the date of the Notice of
Exercise. Payment of such amount shall be made at the time of delivery of any
certificate or certificates deliverable upon such exercise in cash or by check
payable to the order of the holder of the Warrant or, subject to ARTICLE V, the
transferee designated in the Notice of Exercise, as the case may be.
10
2.9 Continued Validity. A holder of shares of Class B Stock issued upon the
exercise of a Warrant, in whole or in part, shall continue to be entitled to all
rights to which a holder of a Warrant is entitled pursuant to the provisions of
this Agreement except such rights as by their terms apply solely to the holder
of a Warrant. The Company will, at the time of any exercise of a Warrant, upon
the request of the holder of the shares of Class B Stock issued upon the
exercise hereof, acknowledge in writing, in form reasonably satisfactory to such
holder, its continuing obligation to afford to such holder all rights to which
such holder shall continue to be entitled after such exercise in accordance with
the provisions of this Agreement; provided, however, that if such holder shall
fail to make any such request, such failure shall not affect the continuing
obligation of the Company to afford to such holder all such rights.
2.10 Payment by Application of Liabilities. Upon any exercise of a Warrant,
the holder, if such holder is Heller or an Affiliate, may, at its option,
instruct the Company, by so specifying in the form of Notice of Exercise
submitted therewith, to apply to the payment of the Exercise Price all or any
part of the principal amount of the Liabilities, in such order as Heller may
determine.
ARTICLE III
REGISTRATION, TRANSFER AND EXCHANGE
3.1 Maintenance of Registration Books. The Company shall keep at its
principal office in Farmers Branch, Texas a register in which, subject to such
reasonable regulations as it may prescribe, the Company shall provide for the
registration, transfer and exchange of the Warrants. The Company shall not at
any time, except upon the dissolution, liquidation or winding up of the Company,
close such register so as to result in preventing or delaying the exercise or
transfer of the Warrants.
3.2 Transfer and Exchange. Upon surrender for registration of transfer of a
Warrant at such office, the Company shall execute and deliver, subject to
ARTICLE V, in the name of the designated transferee or transferees, one or more
new Warrants representing the right to purchase a like aggregate number of
shares of Class B Stock. At the option of any holder of a Warrant, a Warrant may
be exchanged for other Warrants representing the right to purchase a like
aggregate number of shares of Class B Stock upon surrender of such Warrant at
such office. Whenever a Warrant is so surrendered for exchange, the Company
shall execute and deliver the Warrants which the holder making the exchange is
entitled to receive.
Every Warrant presented or surrendered for registration of transfer or
exchange shall be accompanied by an Assignment duly executed by the holder
thereof or its attorney duly authorized in writing.
All Warrants issued upon any registration of transfer or exchange of
Warrants shall be the valid obligations of the Company, evidencing the same
rights, and entitled to the same benefits, as the Warrants surrendered upon such
registration of transfer or exchange.
3.3 Replacement. Upon receipt of evidence reasonably satisfactory to the
Company of the loss, theft, destruction or mutilation of a Warrant and (a) in
the case of any such loss, theft or destruction upon delivery of indemnity
reasonably satisfactory to the Company in form and
11
amount or (b) in the case of any such mutilation, upon surrender of such Warrant
for cancellation at the principal office of the Company, the Company, at its
expense, will execute and deliver, in lieu thereof, a new Warrant.
3.4 Ownership. The Company and any agent of the Company may treat the
Person in whose name a Warrant is registered on the register kept at the
principal office of the Company as the owner and holder thereof for all
purposes, notwithstanding any notice to the contrary, except that, if and when a
Warrant is properly assigned in blank, the Company may (but shall not be
obligated to) treat the bearer thereof as the owner of the Warrant for all
purposes, notwithstanding any notice to the contrary. A Warrant, if properly
assigned, may be exercised by a new holder without first having a new Warrant
issued.
ARTICLE IV
ANTIDILUTION PROVISIONS
4.1 Adjustment of Number of Shares Purchasable. Upon any adjustment of the
Exercise Price as provided in Section 4.2 or Section 4.4, the holders of the
Warrants shall thereafter be entitled to purchase, at the Exercise Price
resulting from such adjustment, the number of shares of Class B Stock
(calculated to the nearest 1/100th of a share) obtained by multiplying the
Exercise Price in effect immediately prior to such adjustment by the number of
shares of Class B Stock purchasable under the Warrants immediately prior to such
adjustment and dividing the product thereof by the Exercise Price resulting from
such adjustment. It is the intent of the parties hereto that (i) the holders of
the Initial Warrants, taken together, shall have on the date hereof the right to
acquire pursuant thereto 3.5% of the fully diluted capital stock of the Company
on the Closing Date; (ii) if the First Additional Warrants were issued as of the
date hereof~, the holders of the Initial Warrants and the First Additional
Warrants, taken together, would have the right to acquire 3.5% of the fully
diluted capital stock of the Company, (iii) if the Second Additional Warrants
were issued on the date hereof~ the holders of the Initial Warrants, the First
Additional Warrants and the Second Additional Warrants, taken together, would
have the right to acquire 5% of the fully diluted capital stock of the Company',
(iv) if the First Additional Warrants, the Second Additional Warrants and the
Third Additional Warrants were issued on the date hereof~ the holders of the
Initial Warrants, the First Additional Warrants, the Second Additional Warrants
and the Third Additional Warrants, taken together, would have the right to
acquire 6.5% of the fully diluted capital stock of the Company', and (v) if the
First Additional Warrants, the Second Additional Warrants, the Third Additional
Warrants and the Fourth Additional Warrants were issued on the date hereof~ the
holders of the Initial Warrants and the First Additional Warrants, the Second
Additional Warrants, the Third Additional Warrants and the Fourth Additional
Warrants, taken together, would have the right to acquire 7.0% of the fully
diluted capital stock of the Company.
4.2 Adjustment of Exercise Price. In addition to any adjustment required
under the provisions of Section 10.3 below, the Exercise Price shall be subject
to adjustment from time to time as hereinafter set forth.
(a) Stock Dividends. Subdivisions and Combinations. In the event that
the Company subsequent to the Closing Date shall:
12
(i) declare a dividend upon, or make any distribution in respect
of~ any of its stock, payable in Common Stock, Convertible Securities or Stock
Purchase Rights in excess of any such dividend or distribution made solely in
substitution of the eight percent (8%) per annum cash dividend on the Preferred
Stock provided by the articles of incorporation of the Company in effect on the
Closing Date, based on the Fair Value of such Common Stock, Convertible
Securities or Stock Purchase Rights, or
(ii) subdivide its outstanding shares of Common Stock into a
larger number of shares of Common Stock, or
(iii) combine its outstanding shares of Common Stock into a
smaller number of shares of Common Stock,
then the Exercise Price shall be adjusted to that price determined by
multiplying the Exercise Price per share of Class B Stock immediately prior to
such event by a fraction (A) the numerator of which shall be the total number of
outstanding shares of Common Stock of the Company immediately prior to such
event, and (B) the denominator of which shall be the total number of outstanding
shares of Common Stock of the Company immediately after such event, assuming for
purposes of this Subsection (a) that there are outstanding in each case all
shares of Common Stock issuable upon conversions or exchanges of such
Convertible Securities and exercises of such Stock Purchase Rights and assuming
that antidilution adjustments made to all Convertible Securities and Stock
Purchase Rights are made concurrently.
(b) Issuance of Additional Shares of Common Stock. In case the Company
shall issue or sell any shares of Common Stock (other than as permitted under
Section 4.13 below) after the Closing Date for a consideration less than the
greater of (1) the Exercise Price per share then in effect or (ii) the then Fair
Value per share of Common Stock, the Exercise Price upon each such issuance or
sale shall be adjusted (to the nearest one-thousandth of a cent) to the lower
price calculated pursuant to clauses (i) and (ii) of this Subsection (b) and
shall be determined by
(i) dividing (A) an amount equal to the sum of (1) the number of
shares of Common Stock outstanding immediately prior to such issue or sale
multiplied by the then existing Exercise Price plus (2) the aggregate
consideration, if any, received by the Company upon such issue or sale, by (B)
the total number of shares of Common Stock outstanding immediately after such
issue or sale; or
(ii) multiplying the then existing Exercise Price by a fraction
(A) the numerator of which is (1) the sum of (a) the product of the number of
shares of Common Stock outstanding immediately prior to such issue or sale times
the Fair Value per share of Common Stock immediately prior to such issue or sale
plus (b) the consideration received by the Company upon such issue or sale,
divided by (2) the total number of shares of Common Stock outstanding
immediately after such issue or sale, and (B) the denominator of which shall be
the Fair Value per share of Common Stock immediately prior to such issue or
sale, assuming for purposes of this Subsection (b)that there are outstanding in
each case all shares of Common Stock issuable upon conversions or exchanges of
such Convertible Securities and exercises of such Stock
13
Purchase Rights and assuming that antidilution adjustments made to all
Convertible Securities and Stock Purchase Rights are made concurrently.
For purposes of this Subsection (b), the date as of which the Fair Value
per share of Common Stock shall be computed shall be the last day of the most
recently completed fiscal period of the Company for which financial statements
have been delivered pursuant to ARTICLE X prior to which the Company shall first
(i) enter into a firm contract for the issuance of such shares or (ii) issue
such shares.
The provisions of this Subsection (b) shall not apply to any additional
shares of Common Stock which are distributed to holders of Common Stock pursuant
to a stock dividend or subdivision for which an adjustment is provided for under
Subsection (a) of this Section 4.2. No adjustment of the Exercise Price shall be
made under this subsection upon the issuance of any additional shares of Common
Stock which are issued pursuant to the exercise of any Stock Purchase Rights or
pursuant to the conversion or exchange of any Convertible Securities to the
extent that such adjustment shall previously have been made upon the issuance of
such Stock Purchase Rights or Convertible Securities pursuant to Subsection (a),
(c) or (d) of this Section 4.2. (For illustrative purposes, but without limiting
the requirements set forth above, there are attached hereto as Exhibit 4.2 the
mathematical formulas that would be used to calculate the adjusted Exercise
Price in the case of an issuance of Common Stock for less than the greater of
(i) the Exercise Price per share then in effect or (ii) the then Fair Value per
share).
(c) Issuance of Stock Purchase Rights. In case the Company shall issue
or sell any Stock Purchase Rights and the consideration per share for which
additional shares of Common Stock may at any time thereafter be issuable upon
exercise thereof (or, in the case of Stock Purchase Rights exercisable for the
purchase of Convertible Securities, upon the subsequent conversion or exchange
of such Convertible Securities) shall be less than the greater of (i) the
Exercise Price per share in effect or (ii) the then Fair Value per share, the
Exercise Price shall be adjusted as provided in Subsection (b) of this Section
4.2 on the basis that (i) the maximum number of additional shares of Common
Stock issuable upon exercise of such Stock Purchase Rights (or upon conversion
or exchange of such Convertible Securities following such exercise) shall be
deemed to have been issued as of the date of the determination of the Exercise
Price or Fair Value, as hereinafter provided, and (ii) the aggregate
consideration received for such additional shares of Common Stock shall be
deemed to be the minimum consideration received and receivable by the Company in
connection with the issuance and exercise of such Stock Purchase Rights (or upon
conversion or exchange of such Convertible Securities). For the purposes of this
Subsection, (i) the date as of which the Exercise Price shall be computed shall
be the earlier of (A) the date on which the Company shall enter into a firm
contract for the issuance of such Stock Purchase Rights, or (B) the date of
actual issuance of such Stock Purchase Rights, and (ii) the date as of which the
Fair Value per share of Common Stock shall be computed shall be the last day of
the most recently completed fiscal period of the Company for which financial
statements have been delivered pursuant to ARTICLE X prior to the earlier of the
dates determined pursuant to (A) and (B) above.
(d) Issuance of Convertible Securities. In case the Company shall
issue or sell any Convertible Securities and the consideration per share for
which additional shares of Common Stock may at any time thereafter be issuable
pursuant to the terms of such Convertible
14
Securities shall be less than the greater of (1) the Exercise price per share
then in effect or (ii) the Fair Value per share, the Exercise Price shall be
adjusted as provided in Subsection (b) of this Section 4.2 on the basis that (i)
the maximum number of additional shares of Common Stock necessary to effect the
conversion or exchange of all such Convertible Securities shall be deemed to
have been issued as of the date for the determination of the Exercise Price or
Fair Value, as hereinafter provided, and (ii) the aggregate consideration
received for such additional shares of Common Stock shall be deemed to be equal
to the minimum consideration received and receivable by the Company in
connection with the issuance and exercise of such Convertible Securities. For
the purposes of this Subsection, (i) the date as of which the Exercise Price per
share shall be computed shall be the earlier of (A) the date on which the
Company shall enter into a firm contract for the issuance of such Convertible
Securities, or (B) the date of actual issuance of such Convertible Securities,
and (ii) the date as of which the Fair Value per share of Common Stock shall be
computed shall be the last day of the most recently completed fiscal period of
the Company for which financial statements have been delivered pursuant to
ARTICLE X prior to the earlier of the dates determined pursuant to (A) and (B)
above. No adjustment of the Exercise Price shall be made under this Subsection
upon the issuance of any Convertible Securities which are issued pursuant to the
exercise of any Stock Purchase Rights, if an adjustment shall previously have
been made upon the issuance of such Stock Purchase Rights pursuant to Subsection
(c) of this Section 4.2.
4.3 Minimum Adjustment. In the event any adjustment of the Exercise Price
pursuant to Section 4.2 shall result in an adjustment of less than $.01 per
share of Class B Stock, no such adjustment shall be made, but any such lesser
adjustment shall be carried forward and shall be made at the time and together
with the next subsequent adjustment which, together with any adjustments so
carried forward, shall amount to $.01 or more per share of Class B Stock,
provided, however, that upon any adjustment of the Exercise Price resulting from
(i) the declaration of a dividend upon, or the making of any distribution in
respect of, any stock of the Company payable in Common Stock or Convertible
Securities or (ii) the reclassification by subdivision, combination or
otherwise, of the Common Stock into a greater or smaller number of shares, the
foregoing figure of $.01 per share (or such figure as last adjusted) shall be
proportionately adjusted, and provided, further, upon the exercise of a Warrant,
the Company shall make all necessary adjustments (to the nearest .001 of a cent)
not theretofore made to the Exercise Price up to and including the date upon
which the Warrant is exercised.
4.4 Readjustment of Exercise Price. In the event (i) the purchase price
payable for any Stock Purchase Rights or Convertible Securities referred to in
Subsection (c) or (d) of Section 4.2 above, (ii) the additional consideration,
if any, payable upon exercise of such Stock Purchase Rights or upon the
conversion or exchange of such Convertible Securities or (iii) the rate at which
any Convertible Securities above are convertible into or exchangeable for
additional shares of Common Stock shall change, the Exercise Price in effect at
the time of such event shall forthwith be readjusted to the Exercise Price which
would have been in effect at such time had such Stock Purchase Rights or
Convertible Securities provided for such changed purchase price, additional
consideration or conversion rate, as the case may be, at the time initially
granted, issued or sold. On the expiration of any such Stock Purchase Rights not
exercised or of any such right to convert or exchange under any such Convertible
Securities not exercised, the Exercise Price then in effect hereunder shall
forthwith be increased to the Exercise Price which would have been in effect at
the time of such expiration or termination had such unexercised Stock
15
Purchase Rights or unconverted Convertible Securities never been issued. No
readjustment of the Exercise Price pursuant to this Section 4.4 shall have the
effect of increasing the Exercise Price by an amount in excess of the adjustment
originally made to the Exercise Price in respect of the issue, sale or grant of
the applicable Stock Purchase Rights or Convertible Securities.
4.5 Reorganization. Reclassification or Recapitalization of Company. In
case of any capital reorganization or reclassification or recapitalization of
the capital stock of the Company (other than in the cases referred to in
Subsection (a) of Section 4.2), or in case of the consolidation or merger of the
Company with or into another corporation which results in a Change in Control,
or in case of the sale or transfer of the property of the Company as an entirety
or substantially as an entirety, there shall thereafter be deliverable upon the
exercise of a Warrant or any portion thereof (in lieu of or in addition to the
number of shares of Class B Stock theretofore deliverable, as appropriate) the
number of shares of stock or other securities or property to which the holder of
the number of shares of Class B Stock which would otherwise have been
deliverable upon the exercise of such Warrant or any portion thereof at the time
would have been entitled to upon such capital reorganization or reclassification
or recapitalization of capital stock, consolidation, merger, sale, or transfer
and at the same aggregate Exercise Price.
The Company shall make equitable, written adjustments in the application of
the provisions herein set forth reasonably satisfactory to the holders of
Warrants entitled to purchase not less than 66213% of the Issuable Warrant
Shares at such time with respect to the rights and interests of such holders so
that the provisions set forth herein shall thereafter be applicable, as nearly
as possible, in relation to any shares of stock or other securities or other
property thereafter deliverable upon exercise of a Warrant. Any such adjustment
shall be made by and set forth in a supplemental agreement between the Company
and/or the successor entity, as applicable, which agreement shall bind each such
entity, shall be accompanied by an opinion of counsel as to the enforceability
of such agreement and shall be approved by the holders of Warrants entitled to
purchase not less than 66 213% of the shares of Class B Stock issuable upon the
exercise thereof.
4.6 Dilution in Case of Other Securities. In case any Other Securities
shall be issued or sold or shall become subject to issuance or sale upon the
conversion or exchange of any stock (or Other Securities) of the Company (or any
issuer of Other Securities or any other Person referred to in Section 4.5) or
become subject to subscription, purchase or other acquisition pursuant to any
options or rights issued or granted by the Company (or by any such other issuer
or Person) for a consideration such as to dilute, within the standards
established in the other provisions of this ARTICLE IV, the purchase rights
granted by this Agreement, then, and in each such case, the computations,
adjustments and readjustments provided for in this ARTICLE IV with respect to
the Exercise Price shall be made as nearly as possible in the manner so provided
and applied to determine the amount of Other Securities from time to time
receivable upon the exercise of a Warrant, so as to protect the holders of the
Warrants against the effect of such dilution.
4.7 Determination of Consideration. For purposes of this ARTICLE IV, the
consideration received or receivable by the Company for the issuance, sale,
grant or assumption of additional shares of Common Stock, Stock Purchase Rights
or Convertible Securities, irrespective of the accounting treatment of such
consideration, shall be valued as follows:
16
(a) Cash Payment. In the case of cash, the net amount of cash received
by the Company after deduction of any accrued interest or dividends, but without
deduction of expenses paid or incurred or any underwriting commissions or
concessions paid or allowed by the Company.
(b) Securities or Other Property. In the case of securities or other
property, at the lesser of (i) the Current Market Price of the security for
which such consideration was received, and (ii) the Fair Value of such
consideration (in both cases as of the date immediately preceding the issuance,
sale or grant in question).
(c) Allocation Related to Common Stock. In the event additional shares
of Common Stock are issued or sold together with other securities or other
assets of the Company for a consideration which covers both, the consideration
received (computed as provided in (a) and (b) above) shall be allocable to such
additional shares of Common Stock as determined in good faith by the Board of
Directors of the Company.
(d) Allocation Related to Stock Purchase Rights and Convertible
Securities. In case any Stock Purchase Rights or Convertible Securities shall be
issued or sold together with other securities or other assets of the Company,
together comprising one integral transaction in which no specific consideration
is allocated to the Stock Purchase Rights or Convertible Securities, such Stock
Purchase Rights or Convertible Securities shall be deemed to have been issued
without consideration.
(e) Dividends in Securities. In case the Company shall declare a
dividend or make any other distribution upon any stock of the Company (other
than Common Stock) payable in either case in Common Stock, Convertible
Securities or Stock Purchase Rights, such Common Stock, Convertible Securities
or Stock Purchase Rights, as the case may be, issuable in payment of such
dividend or distribution shall be deemed to have been issued or sold without
consideration.
(f) Stock Purchase Rights and Convertible Securities. The
consideration for which shares of Common Stock shall be deemed to be issued upon
the issuance of any Stock Purchase Rights or Convertible Securities shall be
determined by dividing (i) the total consideration, if any, received or
receivable by the Company as consideration for the granting of such Stock
Purchase Rights or the issuance of such Convertible Securities, plus the minimum
aggregate amount of additional consideration payable to the Company upon the
exercise of such Stock Purchase Rights, or, in the case of such Convertible
Securities, the minimum aggregate amount of additional consideration, if any,
payable upon the conversion or exchange thereof, in each case after deducting
any expenses actually paid or incurred or any underwriting commissions or
concessions actually paid or allowed by the Company, by (ii) the maximum number
of shares of Common Stock issuable upon the exercise of such Stock Purchase
Rights or upon the conversion or exchange of all such Convertible Securities.
(g) Merger, Consolidation or Sale of Assets. In case any shares of
Common Stock or Convertible Securities or any Stock Purchase Rights shall be
issued in connection with any merger or consolidation in which the Company is
the surviving corporation, the amount of consideration therefor shall be deemed
to be the Fair Value of such portion of the assets and
17
business of the non-surviving corporation as shall be attributable to such
Common Stock, Convertible Securities or Stock Purchase Rights, as the case may
be. In the event of any merger or consolidation of the Company in which the
Company is not the surviving corporation or in the event of any sale of all or
substantially all of the assets of the Company for stock or other securities of
any corporation, the Company shall be deemed to have issued a number of shares
of its Common Stock for stock, securities or other property of the other
corporation computed on the basis of the actual exchange ratio on which the
transaction was predicated and for a consideration equal to the Fair Value on
the date of such transaction of such stock, securities and other property of the
other corporation, and if any such calculation results in adjustment of the
Exercise Price, the determination of the number of shares of Class B Stock
issuable upon exercise of a Warrant immediately prior to such merger,
consolidation or sale, for the purposes of Section 4.5 above, shall be made
after giving effect to such adjustment of the Exercise Price.
4.8 Record Date. In case the Company shall take a record of the holders of
the Common Stock for the purpose of entitling them (i) to receive a dividend or
other distribution payable in Common Stock or in Convertible Securities or (ii)
to subscribe for or purchase Common Stock or Convertible Securities, then all
references in this ARTICLE IV to the date of the issue or sale of the shares of
Common Stock deemed to have been issued or sold upon the declaration of such
dividend or the making of such other distribution or the date of the granting of
such right of subscription or purchase, as the case may be, shall be deemed to
be references to such record date.
4.9 Shares Outstanding. The number of shares of Common Stock deemed to be
outstanding at any given time shall not include shares of Common Stock in the
treasury of the Company or held by any Subsidiary.
4.10 Maximum Exercise Price. At no time shall the Exercise Price exceed the
amount set forth in Section 2.4 of this Agreement except as provided in Section
4.2(a) or Section 4.5.
4.11 Application. Except as otherwise provided herein, all Sections and
Subsections of this ARTICLE IV are intended to operate independently of one
another. If an event occurs that requires the application of more than one
Section or Subsection, all applicable Sections and Subsections shall be given
independent effect.
4.12 No Adjustments under Certain Circumstances. Anything herein to the
contrary notwithstanding, the Company shall not be required to make any
adjustment of the Exercise Price in the case of:
(a) the issuance of shares of Class A Stock pursuant to any option to
purchase or otherwise acquire any shares of Class A Stock granted by the
Company, after the Closing Date; provided, that the maximum number of shares of
capital stock of the Company to be issued pursuant to such options does not
exceed, in the aggregate, five percent (5%) of the fully diluted capital stock
of the Company on the Closing Date.
(b) the issuance of shares of Class B Stock upon the exercise in whole
or part of a Warrant; or
(c) the issuance of Class A Stock upon the conversion of Class B
Stock;
18
(d) the issuance of Class A Stock upon the conversion of the Preferred
Stock,
(e) the issuance of Class A Stock under the Stock Option Plan; or
(f) the issuance of Class A Stock in substitution of cash dividends on
the Preferred' Stock but only to the extent such dividends are in substitution
for the cash dividends provided by the articles of incorporation in affect on
the Closing Date as provided in subsection 4.2(a)(i).
4.13 Certificates and Notices.
(a) Adjustments to Exercise Price. Upon any adjustment under this
ARTICLE IV of the number of Issuable Warrant Shares or of the Exercise Price, a
certificate, signed (i) by the President or a Vice President and by the
Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary
of the Company, or (ii) by any independent firm of certified public accountants
of recognized national standing selected by, and at the expense of, the Company,
setting forth in reasonable detail the events requiring the adjustment and the
method by which such adjustment was calculated, shall be mailed to each holder
of a Warrant specifying the adjusted Exercise Price and the number of shares of
a~ B Stock purchasable upon exercise of such holder's Warrant after giving
effect to such adjustment.
The certificate of any independent firm of certified public accountants of
recognized national standing selected the Board of Directors of the Company
shall be conclusive evidence of the correctness of any computation made under
ARTICLE IV.
(b) Extraordinary Corporate Events. In case the Company after the date
hereof shall propose to (i) pay any dividend payable in stock to the holders of
shares of Common Stock or to make any other Distribution to the holders of
shares of Common Stock, (ii) offer to the holders of shares of Common Stock
rights to subscribe for or purchase any additional shares of any class of stock
or any other rights or options or (iii) effect any reclassification of the
Common Stock (other than a reclassification involving merely the subdivision or
combination of outstanding shares of Common Stock), or any capital
reorganization or any consolidation or merger (other than a merger in which no
distribution of securities or other property is to be made to holders of shares
of Common Stock), or any sale, transfer or other disposition of its property,
assets and business as an entirety or substantially as an entirety, or the
liquidation, dissolution or winding up of the Company, then, in each such case,
the Company shall mail to each holder of a Warrant notice of such proposed
action, which shall specify the date on which the stock transfer books of the
Company shall close, or a record shall be taken, for determining the holders of
Common Stock entitled to receive such stock dividends or other Distribution or
such rights or options, or the date on which such reclassification,
reorganization, consolidation, merger, sale, transfer, other disposition,
liquidation, dissolution or winding up shall take place or commence, as the case
may be, and the date as of which it is expected that holders of Common Stock of
record shall be entitled to receive securities or other property deliverable
upon such action, if any such date is to be fixed. Such notice shall be mailed
in the case of any action covered by clause (i) or (ii) above at least ten (10)
days prior to the record date for determining holders of Common Stock for
purposes of receiving such payment or offer, or in the case of any action
covered by clause (iii) above at least thirty (30) days prior to the date upon
which such action takes place
19
and ten (10) days prior to any record date to determine holders of Common Stock
entitled to receive such securities or other property.
(c) Effect of Failure. Failure to file any certificate or notice or to
mail any notice, or any defect in any certificate or notice pursuant to this
Section 4.14 shall not affect the legality or validity of the adjustment of the
Exercise Price or the number of shares purchasable upon exercise of a Warrant,
or any transaction giving rise thereto.
ARTICLE V
RESTRICTIONS ON TRANSFER
Neither the Warrants nor the shares of Common Stock issuable upon the
exercise thereof shall be transferable without the prior written consent of the
Company except (a) to an Affiliate of the holder of a Warrant, (b) to a
successor corporation to the holder of a Warrant as a result of a merger or
consolidation with, or sale of all or substantially all of the assets of, such
holder, (c) as is or may be required by the holder of a Warrant to comply with
any Federal or state law or any rule or regulation of any governmental or public
body or authority, (d) on thirty (30) days prior written notice to the Company
for a period of ninety (90) days immediately following the date of such notice,
to any other Person who, together with its Affiliates, shall acquire in such
transfer Warrants exercisable as to, or shares of Common Stock representing, not
more than two percent (2%) of the then outstanding Common Stock or such greater
percentage as may then be permitted in accordance with any applicable policy of
the Federal Reserve Board relating to equity investments by bank holding
companies, provided, that such Person is not in the business of providing alarm
monitoring services, (e) in a public offering pursuant to an effective
registration statement under the Securities Act, or (i) pursuant to ARTICLE VII
or ARTICLE VIII.
Any notice given pursuant to Subsection (d) of this preamble to ARTICLE V
by a holder of a Warrant or of any shares issuable pursuant thereto shall
contain (i) the name and address of the proposed bona fide purchaser of the
Warrant or portion thereof or of any shares issuable pursuant thereto, (ii) the
proposed purchase price per share of Common Stock subject to or issuable
pursuant to the Warrant (`Proposed Purchase Price"), (iii) the number of shares
of Common Stock subject to or issuable pursuant to the Warrant proposed to be
sold and (iv) a brief description of such proposed transfer. At any time during
the twenty (20) days following the receipt of such notice, the Company shall
have the right to acquire the Warrant (or portion thereof) or the shares of
Common Stock described in such notice for an amount equal to the Proposed
Purchase Price. In order to exercise its option, the Company must purchase all
and not less than all of the securities proposed to be sold.
Whenever and as often as any holder of a Warrant desires to sell all or any
portion of a Warrant (other than a sale permitted under clause (a) or clauses
(c)-(f) of the initial paragraph of this ARTICLE V), pursuant to a bona fide
written offer to purchase such Warrant or any portion of such Warrant, such
holder (for purposes of the preamble of this Section 5, the "Selling Holder")
shall give written notice (the "Notice") to the Company, Austin Ventures III-A
and Austin Ventures III-B (each, an "Offeree") to such effect, enclosing a copy
of such offer and specifying the Warrant or any portion thereof which the
Selling Holder desires to sell, the name of the Person or Persons to whom the
Selling Holder desires to make such sale and the
20
consideration which has been offered in connection with such offer. Upon receipt
of the Notice, the Company shall have the right and option to purchase the
Warrant proposed to be sold for cash at the purchase price specified in the
Notice, exercisable for 20 days after receipt of the notice. Failure of the
Company to respond to such Notice within such 20-day period shall be deemed to
constitute a notification to the Selling Holder of the Company's decision not to
exercise its first right and option, the Selling Holder shall give written
notice to each of the Offerees. The Offerees, pro rata in accordance with their
ownership of Underlying Common Stock shall have the right and option to purchase
the remaining shares proposed to be sold for cash at the purchase price per
share specified in the Notice, exercisable for. 10 days after the expiration of
the Company's 20-day option period. Failure of any Offeree to respond to such
Notice within such 10-day period shall be deemed to constitute a notification to
the Selling Holder of such Offeree's decision not to exercise the right and
option to purchase such shares under this paragraph. In the event such
consideration includes non-cash consideration, the dollar value of such non-cash
consideration shall be its Fair Value.
The Company and/or the Offerees may exercise the right and option provided
above by giving written notice of exercise to the Selling Holder within such
10-day period, specifying the date (not later than five days from the date of
expiration of all applicable first right and options to purchase shares under
this paragraph) upon which payment of the purchase price for the shares
purchased pursuant to this paragraph shall be made. The Selling Holder shall
deliver to the Offeree(s) at the Company's principal office, at least one day
prior to the payment date, wire transfer instructions, and on the payment date
specified in such notice, the Warrant representing such shares, properly
endorsed for transfer, against payment of the purchase price therefor by the
Offeree(s) in immediately available funds.
If all the shares proposed to be transferred are not purchased by the
Offerees in accordance with this paragraph, the Selling Holder shall not be
required to sell any of the shares proposed to be transferred to the Offerees or
to the Company, and during the 90-day period commencing on the expiration of the
rights and options provided for in this paragraph, may sell all (but not less
than all) of such Warrants to the transferee named in the Notice for a
consideration equal to or greater than the consideration specified in the
Notice, free of the restrictions contained in the preamble of this Section 5 of
this Agreement (but subject to the other terms and conditions hereof).
The conditions contained in the following sections of this ARTICLE V are
intended to ensure compliance with the Securities Act in respect of the transfer
of the Warrants or Common Stock issuable upon the exercise thereof. Reference in
this ARTICLE V to shares of Common Stock issuable upon the exercise of the
Warrants includes shares of Common Stock theretofore issued upon the exercise of
the Warrants or upon conversion of the Issued Class B Warrant Shares or
otherwise which are then evidenced by certificates required to bear the legend
set forth in Section 5.7.
5.1 Notice of Proposed Transfer; Registration Not Required. The holder of
any Warrant or the holder of any shares of Common Stock issuable upon the
exercise of a Warrant, by acceptance hereof or thereof, agrees to give written
notice to the Company, prior to any transfer under Subsections (a) through (d)
of the preamble of this ARTICLE V, of the Warrant or such shares of Common Stock
or any portion thereof, of its intention to make such transfer.
21
Such holder shall request an Opinion of Counsel (which shall be rendered by
counsel reasonably acceptable to the Company and shall be in form and substance
reasonably acceptable to the Company) that the proposed transfer may be effected
without registration or qualification under any Federal or state securities or
blue sky law. Counsel shall, as promptly as practicable, notify the Company and
such holder of such opinion and of the terms and conditions, if any, to be
observed in such transfer, whereupon the holder shall be entitled to transfer
the Warrant or such shares of Common Stock (or portion thereof), in the event
the Company does not exercise its option to purchase the Warrant or such shares,
after the expiration of a twenty (20) day period in accordance with the terms of
the notice delivered to the Company. In the event the Warrant shall be exercised
as an incident to such transfer, such exercise shall relate back and for all
purposes of the Warrant be deemed to have occurred as of the date of such notice
regardless of delays incurred by reason of the provisions of this ARTICLE V
which may result in the actual exercise on any later date.
Notwithstanding the provisions of the foregoing paragraph, the holder of
any Warrant or the holder of any shares of Common Stock issuable upon the
exercise thereof shall be permitted to transfer the Warrant or any such shares
of Common Stock to a limited number of institutional holders which are
Accredited Investors, provided that (i) each such holder represents in writing
that it is acquiring such securities for investment and not with a view to the
distribution thereof (subject, however, to any requirement of law that the
disposition thereof shall at all times be within the control of such holder) and
(ii) each such holder agrees in writing to be bound by all the restrictions on
transfer contained in this ARTICLE V.
5.2 Incidental Registration and Qualification. If the Company or any
security holder of the Company other than a holder of Warrants or a holder of
Issued Warrant Shares proposes to register any securities of the Company under
the Securities Act on any registration form (otherwise than for the registration
of securities to be offered and sold by the Company pursuant to (a) an employee
benefit plan, (b)a dividend or interest reinvestment plan, (c) other similar
plans or (d) reclassifications of securities, mergers, consolidations, share
exchanges and acquisitions of assets) permitting a secondary offering or
distribution, not less than thirty (30) days prior to each such registration the
Company shall give to the holder of any Warrant and the holders of Issued
Warrant Shares bearing the legend required by Section 5.7 written notice of such
proposal which shall describe in detail the proposed registration and
distribution (including those jurisdictions where registration or qualification
under the securities or blue sky laws is intended) and, upon the written request
of the holder of a Warrant or a holder of Issued Warrant Shares furnished within
thirty (30) days after the date of any such notice, proceed to include in such
registration such Warrant Shares ("Piggy-Back Shares") as have been requested by
any such holder to be included in such registration. The holder of any Warrant
or any holder of such Issued Warrant Shares shall in its request describe
briefly the proposed disposition of such shares of Common Stock. The Company
will in each instance use its best efforts to cause all such Piggy-Back Shares
to be registered under the Securities Act and qualified under the securities or
blue sky laws of any jurisdiction requested by a prospective seller, all to the
extent necessary to permit the sale or other disposition thereof (in the manner
stated in such request) by a prospective seller of the securities so registered,
provi~c4, however, the Company shall not be required to use such best efforts on
more than three occasions for all Warrants or Issued Warrant Shares.
22
If the managing underwriter, who shall be an Independent Investment Banking
Firm, advises the Company in writing that, in its opinion, the aggregate number
of Piggy-Back Shares to be sold in the proposed distribution and other shares of
Common Stock, if any, requested to be registered by other holders of
registration rights or proposed to be included in such registration by the
Company should be less than the number of Piggy-Back Shares and other shares of
Common Stock requested or proposed to be registered, the number of Warrant
Shares and other shares of Common Stock to be sold by each prospective seller
(excluding the Company) shall be reduced as follows: first, each prospective
seller, other than the holders of the Piggy-Back Shares, shall be reduced in
accordance with any agreement among such holders regarding such matters, second
the number of shares of Common Stock proposed to be registered by any holder of
Common Stock which is not party to any such agreement, shall be reduced pro
rata, so that each such prospective seller may sell that portion of the shares
of Common Stock be sold in the proposed distribution which the number of shares
of Common Stock proposed to be sold by such prospective seller bears to the
aggregate number of shares of Common Stock proposed to be sold by all such
prospective sellers, and third, the number of Piggy-Back Shares to be sold in
the distribution which number of Piggy-Back Shares proposed to be sold by such
holder of Warrant Shares bears to the aggregate number of Piggy-Back Shares
proposed to be sold by all holders of Piggy-Back Shares.
The holder of any Warrant and any holder of Issued Warrant Shares who has
requested shares of Common Stock to be included in a registration pursuant to
this Section 5.2, by acceptance hereof or thereof, agrees to (a) the selection
by the Company or such other security holder of the underwriter to manage such
registration and (b) execute an underwriting agreement with such underwriter
that is (i) reasonably satisfactory to such holder and (ii) in customary form.
Nothing in this Section 5.2 shall be deemed to require the Company to
proceed with any registration of its securities after giving the notice as
provided herein; provided, however, that the Company shall pay all expenses
incurred pursuant to such notice in accordance with Section 5.5.
5.3 Registration and Qualification Procedures. Whenever the Company is
required by the provisions of Section 5.2 to use its best efforts to effect the
registration of any of its securities under the Securities Act, the Company
will, as expeditiously as is possible:
(a) prepare and file with the Commission a registration statement with
respect to such securities in connection with which the Company will give the
sellers, their underwriters, if any, their respective counsel and accountants
the opportunity to participate in the preparation of such registration
statement, each prospectus included therein or filed with the Commission, and
each amendment thereof or supplement thereto, and will give each of them such
access to its books and records and such opportunities to discuss the business
of the Company with its officers and the independent public accountants who have
certified its financial statements as shall be necessary, in the opinion of such
sellers' and such underwriters' respective counsel, to conduct a reasonable
investigation within the meaning of the Securities Act;
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be
23
necessary to keep such registration statement effective and the prospectus
current and to comply with the provisions of the Securities Act with respect to
the sale of all securities covered by such registration statement whenever the
seller of such securities shall desire to sell the same; provided, however, the
Company shall have no obligation to file any amendment or supplement at its own
expense more than nine (9) months after the effective date of such registration
statement;
(c) furnish to each seller such numbers of copies of preliminary
prospectuses and prospectuses and each supplement or amendment thereto and such
other documents as each seller may reasonably request in order to facilitate the
sale or other disposition of the securities owned by such seller in conformity
with (i) the requirements of the Securities Act and (ii) the seller's proposed
method of distribution;
(d) register or qualify the securities covered by such registration
statement under the securities or blue sky laws of such jurisdictions within the
United States as each seller shall request, and do such other reasonable acts
and things as may be required of it to enable each seller to consummate the sale
or other disposition in such jurisdictions of the securities owned by such
seller; provided, however, that the Company shall not be required to (i) qualify
as a foreign corporation or consent to a general and unlimited service of
process in any such jurisdiction, or (ii) qualify as a dealer in securities;
(e) furnish, at the request of any seller on the date such securities
are delivered to the underwriters for sale pursuant to such registration or, if
such securities are not being sold through underwriters, on the date the
registration statement with respect to such securities becomes effective, (i) an
opinion, dated such date, of counsel representing the Company for the purposes
of such registration, addressed to the underwriters, if any, and to the seller
making such request, covering such legal matters with respect to the
registration in respect of which such opinion is being given as the seller of
such securities may reasonably request. and are customarily included in such
opinions and (ii) letters, dated, respectively, (1) the effective date of the
registration statement and (2) the date such securities are delivered to the
underwriters, if any, for sale pursuant to such registration, from a firm of
independent certified public accountants of recognized national standing
selected by the Company, addressed to the underwriters, if any, and to the
sellers making such request, covering such financial, statistical and accounting
matters with respect to the registration in respect of which such letters are
being given as the seller of such securities may reasonably request and are
customarily included in such letters;
(f) otherwise use its best efforts to comply with all applicable rules
and regulations of the Commission, and make available to its security holders as
soon as reasonably practicable, but not later than sixteen (16) months after the
effective date of the registration statement, an earnings statement covering a
period of at least twelve (12) months beginning after the effective date of the
registration statement, which earnings statement shall satisfy the provisions of
Section 11(a) of the Securities Act;
(g) enter into and perform an underwriting agreement with the managing
underwriter, if any, selected as provided in Section 5.2, containing customary
(i) terms of offer and sale of the securities, payment provisions, underwriting
discounts and commissions, and (ii)
24
representations, warranties, covenants, indemnities, terms and conditions; the
sellers may, at their option, require that any or all of the representations and
warranties by, and the other agreements on the part of, the Company to and for
the benefit of such underwriters shall also be made to and for the benefit of
such sellers and that any or all of the conditions precedent to the obligations
of such underwriters under such underwriting agreement be conditions precedent
to the obligations of such sellers; such sellers shall not be required to make
any representations or warranties to or agreements with the Company or the
underwriters other than representations, warranties or agreements regarding such
sellers and such sellers' intended method of distribution and only such other
representations as may be required by law;
(h) notify each seller at any time when a prospectus relating to the
registration is required to be delivered under the Securities Act, upon
discovery that, or upon the happening of any event as a result of which, the
prospectus included in such registration statement, as then in effect, includes
an untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances under which they were made, at the
request of any such seller promptly prepare and furnish to such seller a
reasonable number of copies of a supplement to or an amendment of such
prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such securities, such prospectus shall not include 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 under which they were made; and
(i) keep each seller advised in writing as to the initiation and
progress of any registration under Section 5.2.
5.4 Holdback Agreements. The Company agrees not to effect any public sale
or distribution of its equity securities or securities convertible into or
exchangeable or exercisable for any of such securities during the seven (7) days
prior to or ninety (90) days after any underwritten registration pursuant to
Section 5.2 has become effective, except as part of such underwritten
registration and except pursuant to registrations on Form S-8 or S-4 or any
successor or similar forms thereto, and to cause each Person who purchases its
equity securities or any securities convertible into or exchangeable or
exercisable for any of such securities at any time after the date of this
Agreement (other than in a public offering) to agree not to effect any such
public sale or distribution of such securities, during such period.
If any registration pursuant to Section 5.2 is in connection with an
underwritten public offering, each holder of a Warrant and each holder of Issued
Warrant Shares, if so required by the managing underwriter, agrees not to effect
any public sale or distribution of Issued Warrant Shares (other than as part of
such underwritten public offering) during the period beginning seven (7) days
prior to the effective date of such registration statement and ending on the
ninetieth (90th) day after the effective date of such registration statement;
provided, however, that each Person that is an officer, director, or beneficial
owner of five percent (5%) or more of the outstanding shares of any class of
Common Stock, Convertible Securities or Stock Purchase Rights enters into such
an agreement on similar terms.
25
5.5 Allocation of Expenses. If the Company is required by the provisions of
Section 5.2 to use its best efforts to effect the registration or qualification
under the Securities Act or any state securities or blue sky laws of any of the
Warrant Shares, the Company shall pay all expenses in connection therewith,
including, without limitation, (a) all expenses incident to filing with the
National Association of Securities Dealers, Inc., (b) registration fees, (c)
printing expenses, (d) accounting and legal fees and expenses, (e) expenses of
any special audits incident to or required by any such registration or
qualification, (f) premiums for insurance in such amount, if any, deemed
appropriate by the managing underwriter and (g) expenses of complying with the
securities or blue sky laws of any jurisdictions in connection with such
registration or qualification; provided, however. the Company shall not be
liable for (1) any discounts or commissions to any underwriter attributable to
Warrant Shares being sold; (2) any stock transfer taxes incurred in respect of
the Warrant Shares being sold; (3) the reasonable legal fees of any holder of a
Warrant or Warrant Shares being sold provided, however, if registration is
pursuant to Section 5.2 and the registration is withdrawn, the Company shall pay
the legal fees of the holders of the Warrant and Warrant Shares; or (4) the
amounts described in Subsection 5.5(f) above applicable to Warrant Shares being
registered if the registration is being made other than at the request of the
holder of a Warrant or a holder of Issued Warrant Shares.
5.6 Indemnification. In connection with any registration or qualification
of securities under Section 5.2 the Company agrees to indemnify the holder of
any Warrant and the holders of shares of Common Stock issuable upon the exercise
thereof and each underwriter thereof, including each Person, if any, who
controls the holder of a Warrant or such stockholder or underwriter within the
meaning of Section 15 of the Securities Act, against all losses, claims,
damages, liabilities and expenses (including reasonable costs of investigation)
caused by any untrue, or alleged untrue, statement of a material fact contained
in any registration statement, preliminary prospectus, prospectus or
notification or offering circular (as amended or supplemented if the Company
shall have furnished any amendments or supplements thereto) or caused by any
omission, or alleged omission, to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
except insofar as such losses, claims, damages, liabilities or expenses are
caused by any untrue statement or alleged untrue statement or omission or
alleged omission based upon information furnished in writing to the Company by
the holder of a Warrant or any such stockholder or underwriter expressly for use
therein. The Company and each officer, director and controlling Person of the
Company shall be indemnified by the holder of a Warrant and by the holders of
any Issued Warrant Shares for all such losses, claims, damages, liabilities and
expenses (including the costs of reasonable investigation) caused by any such
untrue, or alleged untrue, statement or any such omission or alleged omission,
based upon information furnished in writing to the Company by such holder or any
such stockholder expressly for use therein.
Promptly upon receipt by a party indemnified under this Section 5.6 of
notice of the commencement of any action against such indemnified party in
respect of which indemnity or reimbursement may be sought against any
indemnifying party under this Section 5.6, such indemnified party shall notify
the indemnifying party in writing of the commencement of such action, but the
failure so to notify the indemnifying party shall not relieve it of any
liability which it may have to any indemnified party otherwise than under this
Section 5.6 unless such failure shall materially adversely affect the defense of
such action. In case notice of commencement of any such action shall be given to
the indemnifying party as above provided,
26
the indemnifying party shall be entitled to participate in and, to the extent it
may wish, jointly with any other indemnifying party similarly notified, to
assume the defense of such action at its own expense, with counsel chosen by it
and satisfactory to such indemnified party. The indemnified party shall have the
right to employ separate counsel in any such action and participate in the
defense thereof, but the fees and expenses of such counsel (other than
reasonable costs of investigation) shall be paid by the indemnified party unless
(a) the indemnifying party agrees to pay the same, (b) the indemnifying party
fails to assume the defense of such action with counsel reasonably satisfactory
to the indemnified party or (c) the named parties to any such action (including
any impleaded parties) have been advised by such counsel that representation of
such indemnified party and the indemnifying party by the same counsel would be
inappropriate under applicable standards of professional conduct (in which case
the indemnifying party shall not have the right to assume the defense of such
action on behalf of such indemnified party). No indemnifying party shall be
liable for any settlement entered into without its consent.
If the indemnification provided for in this Section is unavailable or
insufficient to hold harmless an indemnified party in respect of any losses,
claims, damages, liabilities or expenses in respect thereof referred to therein,
then each indemnifying party shall in lieu of indemnifying such indemnified
party 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, on the one hand, and the indemnified party, on the other, in connection
with the statements or omissions which resulted in such losses, claims, damages,
liabilities or expenses as well as any other relevant equitable considerations,
including the failure to give the notice required hereunder. The relative fault
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact relates to information supplied by
the indemnifying party, on the one hand, or the indemnified party, on the other
hand, and the parties' relative intent, knowledge, access to information and
opportunity to correct o. prevent such statement or omission. The Company and
the holder of any Warrant agree that it. would not be just and equitable if
contribution pursuant to this Section were determined by pro rata allocation
(even if all of the sellers of such Common Stock were treated as one entity for
such purpose) or by any other method of allocation which did not take account of
the equitable considerations referred to above. The amount paid or payable by an
indemnified party as a result of the losses, claims, damages, liabilities or
expenses in respect thereof referred to above shall be deemed to include any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim.
Notwithstanding the contribution provisions of this Section, in no event shall
the amount contributed by any seller of Common Stock (other than the Company)
exceed the aggregate gross offering proceeds received by such seller from the
sale of Common Stock to which such contribution claim relates. No person guilty
of fraudulent misrepresentations (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who is not
guilty of such fraudulent misrepresentation.
Each holder of a Warrant and each holder of shares of Issued Warrant Shares
bearing the legend required by Section 5.7, by acceptance thereof, as the case
may be, agrees to the indemnification and contribution provisions of this
Section 5.6.
27
5.7 Legend on Warrants and Certificates. Each Warrant shall bear a legend
in substantially the following form:
"This Warrant and any shares of Class B Nonvoting Common Stock issuable
upon the exercise of this Warrant have not been registered under the
Securities Act of 1933, as amended, and neither this Warrant nor any such
shares may be transferred in the absence of such registration or an
exemption therefrom under such Act."
In case any shares are issued upon the exercise in whole or in part of a
Warrant or are thereafter transferred, in either case under such circumstances
that no registration under the Securities Act is required, each certificate
representing such shares shall bear on the face thereof the following legend:
"The shares represented by this certificate have not been registered under
the Securities Act of 1933, as amended, and any transfer thereof is subject
to the conditions specified in the Warrant Agreement dated as of November
10, 1994 between AV Alarm, Inc. (the "Company") and Heller Financial, Inc.
providing for the purchase of warrants exercisable for shares of Class B
Nonvoting Common Stock, $0.01 par value, of the Company. In addition, the
shares represented by this certificate are also subject to the conditions
specified in the Take-Along/Drag-Along Rights Agreement dated as of
November 10, 1994 among Austin Ventures III-A, LP., a Delaware limited
partnership, and Austin Ventures III-B, LP., a Delaware limited
partnership, and the holders defined therein. Copies of such agreements are
on file with the Secretary of the Company at 12801 Stemmons Freeway, Suite
821, Farmers Branch, Texas 75234, and will be furnished without charge by
the Company to the holder of this certificate upon written request to the
Secretary of the Company at such address."
5.8 Termination of Restrictions. The restrictions imposed under this
AR11CLE V upon the transferability of the Warrants, or of Warrant Shares, shall
cease when (a) a registration statement covering such Issuable Warrant Shares or
Issued Warrant Shares becomes effective under the Securities Act or (b) the
Company receives an Opinion of Counsel that such restrictions are no longer
required in order to ensure compliance with the Securities Act. When such
restrictions terminate, the Company shall, or shall instruct its transfer agent
and registrar to, issue new certificates in the names of the holders of the
Warrant not bearing the legends required under Section 5.7.
5.9 Supplying Information. The Company, the holders of the Warrants and
each holder of Issued Warrant Shares shall cooperate with each other in
supplying such information as may be necessary for any of such parties to
complete and file any information reporting forms presently or hereafter
required by the Commission or any commissioner or other authority administering
the blue sky or securities laws of any jurisdiction where shares of Common Stock
are proposed to be sold pursuant to Section 5.2.
5.10 Alternative Purchase by the Company. Notwithstanding anything to the
contrary contained above, the Company, in its sole discretion, shall have the
right, in lieu of filing a registration statement to register Common Stock under
Section 5.2, to instead purchase the
28
Common Stock or, if any Warrants have not yet been exercised, such Warrants
owned by the parties requesting registration, on the following basis:
(i) If the Company wishes to exercise this right, it shall so
advise the parties requesting registration within 10 business days after the
request date;
(ii) The purchase price for the Issued Warrant Shares shall be as
determined by Section 7.3 of this Agreement;
(iii) The purchase price for any Warrants which have not been
exercised shall be as determined by Section 7.3 of this Agreement less the
applicable Exercise Price per share; and
(iv) The closing of such sale and purchase shall take place at
the principal office of the Company on the ninetieth business day after the
purchase price is determined as provided in clause (ii) or (iii) above.
ARTICLE VI
PARTICIPATION IN CORPORATE DISTRIBUTIONS AND
TAKE-ALONG/DRAG-ALONG
6.1 Company's Obligation to Make Payments.
(a) The Company shall not declare, make or pay any dividend or other
distribution, whether in cash, securities other than Common Stock, Convertible
Securities or Stock Purchase Rights or other property, with respect to its
Common Stock (a "Distribution") unless it (i) provides not less than ten (10)
days prior written notice to Heller and all holders of any Warrants of its
intention to declare, make or pay a dividend or other distribution with respect
to its Common Stock and (ii) such dividend is payable to shareholders of record
on a date no earlier than ten (10) days after the end of such notice period. In
the event the Company pays any dividend without providing the required notice
set forth in the immediately preceding clause (i) each holder of any warrant
upon the exercise of the Warrant, shall receive a cash payment equal to (1) the
amount of cash plus the Fair Value of any property or securities distributed
with respect to each outstanding share of Common Stock multiplied by (2) the
number of Issuable Warrant Shares, plus interest at the Applicable Rate in the
aggregate amount described in the immediately preceding clause (i) from the date
of payment of such dividend to the date of payment of such sum to the holder of
the Issued Warrant Shares.
(b) Except for repurchases of Warrant Shares upon the exercise of the
Put Options or Call Options herein contained, the Company shall not repurchase
or redeem any of its equity securities or any securities convertible into or
exchangeable for such equity securities or any warrants or other rights to
purchase such equity securities unless it concurrently makes a cash payment to
each holder of a Warrant equal to the remainder of (1)(i) the aggregate amount
of cash and the aggregate Fair Value of any property paid out by the Company in
connection with any such repurchase or redemption, minus aggregate Fair Value of
the securities repurchased or redeemed by the Company determined as if such cash
or property were paid to an Affiliate, divided by (ii) the number of shares of
Common Stock outstanding on a fully diluted basis (including shares of capital
stock issued after the Closing Date and Issuable Warrant
29
Shares), multiplied by (2) the number of Issuable Warrant Shares, provided, that
a holder of Warrants shall not be entitled to receive any payments under this
paragraph 6.1(b) if any Issued Warrant Shares of such holder of Warrants are
redeemed or repurchased by the Company in such redemption or repurchase.
6.2 Take-Along/Drag-Along Rights. Each holder of Warrants and each holder
of any Issued Warrant Shares shall have the right to be taken along in the sale
of any Class A Stock or any Preferred Stock by Austin Ventures 111-A or Austin
Ventures Ill-B, in accordance with the Take-Along/Drag-Along Rights Agreement, a
form of which is attached as Exhibit D hereto.
ARTICLE VII
PUT OPTIONS
7.1 Company's Obligation to Repurchase Warrants. Upon written notice from
the holder of a Warrant, from time to time, and at any time during the
Repurchase Period, the Company shall, within sixty (60) days after the date
designated in such notice, repurchase from such holder all or the portion of the
Warrants designated in such notice for an amount determined by multiplying (a)
the Repurchase Price per share of Common Stock as of the date of such notice,
less the Exercise Price per share in effect on such date, by (b) the number of
Issuable Warrant Shares as of such date that are designated for repurchase in
such notice. Upon such date designated for the repurchase of Warrants pursuant
to this Section 7.1, the holder of each such Warrant shall surrender the Warrant
to the Company, without being required to make any representation or warranty
(other than that the holder has good and valid title to the Warrant free and
clear of liens, claims, encumbrances and restrictions of any kind), against
payment therefor by (at the option of the holder) (i) wire transfer to an
account in a bank located in the United States designated by such holder of the
Warrant for such purposes or (ii) delivery of a certified or official bank
check. If less than all of the Warrants are being repurchased, the Company shall
cancel the Warrants and issue in the name of, and deliver to, the holders new
Warrants for the portion of the Issuable Warrant Shares not being repurchased.
Notwithstanding anything to the contrary contained herein, the Company (i) shall
not have any obligation to repurchase all or any portion of the Issued Warrant
Shares; (ii) subject to the provisions of Section 5.2 shall not have any
obligation to repurchase all or any portion of the Warrants during any Suspense
Period commenced before the receipt by the Company of the written notice
described in the first sentence of this Section 7.1; provided, however, there
shall not be two consecutive Suspense Periods nor shall there be more than two
Suspense Periods in any period of eighteen (18) consecutive calendar months; and
(iii) shall not have any obligation to repurchase any portion of the Warrants or
Issuable Warrant Shares if the Company is, in the good faith and reasonable sole
discretion of the Company's board of directors, legally prohibited from
repurchasing such Warrants or Issuable Warrant Shares; and in the event of such
legal prohibition, the holder's right to have such Warrants or Issuable Warrant
Shares repurchased shall be extended until such time as the Company can legally
repurchase them, whereupon the Company shall be obligated to promptly repurchase
such remaining Warrants or Issuable Warrant Shares.
7.2 Determination of the Repurchase Price. The Repurchase Price per share
of the Issuable Warrant Shares as of a date specified herein (the "Repurchase
Price") shall be equal to the greater of:
30
(a) the Current Market Price per share of any publicly traded class of
Common Stock as of the date of such determination, if determinable; and
(b) the Fair Value of the Company, as of the date of such
determination; divided by the number of shares of Common Stock outstanding on a
fully diluted basis (including the Issuable Warrant Shares, after giving effect
to the payment of the Exercise Price therefor and shares of capital stock issued
after the Closing Date), as of such dated.
ARTICLE VIII
CALL OPTIONS
8.1 Company's Option to Repurchase Warrants. By giving written notice of
its intention to repurchase all or any portion of the Warrants (a "Call Notice")
to the holders thereof (which Call Notice must be accompanied by similar Call
Notices to the holders of all other Warrants and Issued Warrant Shares), the
Company shall have the right during the Call Period to repurchase all or any
portion of the Warrants from the holders thereof for an amount determined by
multiplying (a) the Call Price per share of Common Stock less the Exercise Price
per share of Class B Stock in effect on the date of such Call Notice by (b) the
number of Issuable Warrant Shares. The Call Notice (which shall be irrevocable)
shall (i) designate the date of repurchase, which date shall be not more than
thirty (30) days from the date of such notice, (ii) state the Call Price per
share of Common Stock and the Exercise Price per share of Class B Stock, (iii)
state the number of shares of Class B Stock issuable upon exercise of the
Warrants and the number of such shares to be repurchased and (iv) indicate the
method by which the Call Price per share of Common Stock was calculated. On the
date so designated, the holders of the Warrants shall surrender the Warrants to
the Company without any representation or warranty (other than that the holder
has good and valid title thereto free and clear of liens, claims, encumbrances
and restrictions of any kind), against payment therefor by (at the option of the
holder of the Warrant) (1) wire transfer to an account in a bank located in the
United States designated by the holder of the Warrant for such purpose or (2) a
certified or official bank check payable to the order of the holder of such
Warrants. if less than all of the Warrants are being repurchased, the Company
shall cancel the Warrants and issue in the name of, and deliver to, the holder
of such Warrant a new Warrant for that portion of Issuable Warrant Shares not
being repurchased. Any exercise of the Company's rights under this Section 8.1
shall be effected pro rata among all holders of the Warrants. Notwithstanding
anything to the contrary contained herein, the Company (i) shall not have any
right to repurchase all or any portion of the Issued Warrant Shares, and (ii)
shall not have any right to repurchase all or any portion of the Warrants during
a Suspense Period.
8.2 Determination of Call Price. For the purposes of this ARTICLE VIII, the
Call Price per share of Common Stock as of a date specified herein (the "Call
Price") shall be equal to the Repurchase Price as of such date.
8.3 Adjustment for Subsequent Value Events. If a Value Event shall occur
within one hundred eighty (180) days after the date of the exercise of the
Company's Call Option pursuant to Section 8.1 above evidencing a Fair Value per
share of Common Stock greater than the Call Price per share of Common Stock in
effect on the date of the Call Notice, then the Company shall pay to each holder
of the Warrants or the Issued Warrant Shares at the time of each Notice an
amount equal to (x) (i) the Fair Value per share of Common Stock evidenced by
such Value
31
Event multiplied by (ii) the number of shares of Class B Stock issuable upon the
exercise of the Warrants or portion thereof repurchased pursuant to this Section
8.1 minus (y) the aggregate Call Price in effect at the time of such repurchase
paid or payable to such holder.
ARTICLE IX
CHARTER PROVISIONS
9.1 Charter Provisions. So long as any Warrants or Issued Class B Warrant
Shares are outstanding, the Company's articles or certificate of incorporation
shall contain the following provisions regarding the Class A Stock and Class B
Stock set forth in the Company's Articles of Amendment attached as Exhibit 9.1:
ARTICLE X
FINANCIAL AND BUSINESS INFORMATION
10.1 Information. The Company shall deliver to the holders of Warrants to
acquire not less than two percent (2%) of the fully diluted capital stock of the
Company on the Closing Date:
(a) as soon as practicable after the end of each of the first three
quarterly fiscal periods in each fiscal year of the Company, and in any event
within forty-five (45) days thereafter, a copy of:
(i) a consolidated balance sheet of the Company and its
Subsidiaries as at the end of such quarter; and
(ii) consolidated statements of income, retained earnings and
changes in financial position of the Company and its Subsidiaries for such
quarter and (in the case of the second and third quarters) for the portion of
the fiscal year ending with such quarter;
setting forth in each case in comparative form the figures for the corresponding
dates and periods in the previous fiscal year. Such statements shall be (1)
prepared in accordance with generally accepted accounting principles
consistently applied, (2) in reasonable detail and (3) certified as complete and
correct by the chief financial or accounting officer of the Company;
(b) as soon as practicable after the end of each fiscal year of the
Company (commencing with the end of the 1995 fiscal year) and in any event
within one hundred (100) days thereafter, a copy of:
(i) a consolidated balance sheet of the Company and its
Subsidiaries as at the end of such year; and
(ii) consolidated statements of income, retained earnings and
changes in financial position of the Company and its Subsidiaries for such year;
setting forth in each case in comparative form the figures for the previous
fiscal year, all in reasonable detail and accompanied by a report thereon by a
firm of independent certified public accountants of recognized national standing
selected by the Company, which report shall state that (1) such financial
statements fairly present the financial position of the entities being
32
reported upon at the end of such year and the results of their operations and
changes in accounting principles consistently applied (except for changes in
accounting principles with which such accountants concur), and (2) its
examination of such financial statements has been made in accordance with
generally accepted auditing standards and included such tests of the accounting
records and other auditing procedures as they considered necessary in the
circumstances;
(c) copies of all monthly and annual financial statements and reports
of or relating to the Company required to be delivered to Heller pursuant to the
Credit Agreement;
(d) promptly upon their becoming available, one copy of each report,
notice or proxy statement sent by the Company to its stockholders generally and
of each regular or periodic report or registration statement, prospectus or
written communication (other than transmittal letters) filed by the Company with
the Commission or any securities exchange on which shares of Common Stock are
listed;
(e) promptly upon the occurrence thereof or upon the Company's
obtaining knowledge thereof, notice of the existence of an Event of Default,
describing such Event of Default in reasonable detail; and
(f) with reasonable promptness, such other information as from time to
time may be reasonably requested by the holders of the Warrants.
10.2 Payments During Pendency of Dispute. Any amount due and payable to the
holders of the Warrants under this Agreement shall, notwithstanding a dispute
under Section 10.1, be payable when due in the amount calculated based on the
financial statements delivered under Section 10.1. Interest shall be payable at
the Applicable Rate on any further amount payable pursuant to an adjustment made
under Section 10.1. Whenever any dispute shall exist under any provision of this
Agreement, the Exercise Period shall be automatically extended for a period of
time equal to the period of time which it takes to resolve such dispute, and if
any other rights benefiting the holder of a Warrant would expire during the
period of time which it takes to resolve such dispute, then the relevant time
period for the exercise of such rights shall be similarly extended so that such
holder is not prejudiced by any delay in resolving the dispute.
10.3 Adjustments for Restatements of Certain Financial Data. The Company
hereby acknowledges that the initial number of shares issuable upon exercise of
the Warrants and the initial exercise price were calculated based upon the
representation of the Company that the number of shares of Common Stock
outstanding on a fully diluted basis as of the Closing Date (including the
Issuable Warrant Shares) was 136,095 shares. if for any reason it shall
hereafter be determined by any holder of the Warrants that the actual number of
shares of Common Stock outstanding on a fully diluted basis as of the Closing
Date was different from the foregoing, such holder or the Company, as the case
may be, may notify the Company of such determination and if the Company does not
dispute the same, the Company shall forthwith reissue the Warrants with
appropriate adjustments in the initial number of shares issuable upon the
exercise thereof and the applicable Exercise Price. if the Company or the
holders of the Warrants shall dispute such determination, the Company and such
holder shall each have the right to submit the disputed financial statements to
separate firms of independent accountants of recognized national
33
standing for a joint resolution of the objection of the holder (which firm of
independent accountants may, in either case, be the firm of accountants
regularly retained by the Company or such holder). If such firms cannot jointly
resolve the objection of the holder, then, unless otherwise directed by
agreement of the Company and such holder, such firms shall in their sole
discretion choose another firm of independent certified public accountants of
recognized national standing not the regular auditor of such holder or the
Company, which firm shall resolve such objection. In either case, the
determination so made shall be conclusive and binding on the Company, the holder
and all persons claiming under or through either of them, and any adjustment in
the disputed financial statements resulting from such determination shall be
made. The cost of any such determinations shall be borne by the Company if' it
results in an increase in the number of shares exercisable upon the exercise of
the Warrant or by the holder if it results in no change or a decrease in the
number of shares exercisable upon the exercise of the Warrant.
10.4 Rule 144 Information Requirements. So long as the Company is subject
to the reporting requirements of the Securities Exchange Act of 1934, the
Company will take all necessary actions to comply with the public information
requirements of Rule 144 under the Securities Act.
ARTICLE XI
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Heller and each subsequent
holder of a Warrant or Issued Warrant Shares that as of the Closing Date or as
of the date of any subsequent issuance of Warrants:
11.1 Organization and Capitalization of the Company. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Texas. The authorized capital of the Company consists of
7,700,000 shares of Common Stock, par value $0.01 per share, comprised of
7,000,000 shares of Class A Stock and 700,000 shares of Class B Stock, and
4,000,000 shares of Preferred Stock, par value $0.01 per share. As of the date
hereof there are 399,835 shares of Class A Stock, no shares of Class B Stock and
2,602,021 shares of Preferred Stock, issued and outstanding on a fully-diluted
basis, and no shares of the Company's capital stock are held in its treasury.
Except as set forth on Schedule 11.1 hereto, no unissued shares of Class A Stock
or Class B Stock are reserved for any purpose other than for issuance upon the
exercise of the Warrants. The Company has not issued or agreed to issue any
Stock Purchase Rights or Convertible Securities except as set forth on Schedule
4.1(B) of the Credit Agreement, and there are no preemptive rights in effect
with respect to the issuance of any shares of Common Stock except as set forth
on Schedule 4.1(B1 of the Credit Agreement. All the outstanding shares of the
Company's capital stock have been validly issued without violation of any
preemptive or similar rights and are fully paid and nonassessable.
11.2 Authority. The Company has full corporate power and authority to
execute and deliver this Agreement and to perform all of its obligations
hereunder, and the execution, delivery and performance hereof have been duly
authorized by all necessary corporate action on its part. This Agreement has
been duly executed on behalf of the Company and constitutes the legal, valid and
binding obligation of the Company enforceable in accordance with its terms.
34
11.3 No Legal Bar. Neither the execution, delivery or performance of this
Agreement will (a) conflict with or result in a violation of the certificate of
incorporation or bylaws of the Company, (b) conflict with or result in a
violation of any law, statute, regulation, order or decree applicable to the
Company or any Affiliate thereof (except that the Company's ability to honor its
obligations with respect to the Put Options is subject to the availability of
sufficient capital), (c) require any consent or authorization or filing with, or
other act by or in respect of, any governmental authority other than the filing
of a certificate of amendment to the Company's certificate of incorporation with
the Secretary of State of the State of Texas, or (d) result in a breach of,
constitute a default under or constitute an event creating rights of
acceleration, termination or cancellation under any mortgage, lease, contract,
franchise, instrument or other agreement to which the Company is a party or by
which it is bound.
11.4 Validity of Shares. When issued upon the exercise of the Warrants as
contemplated herein, shares of Common Stock will have been validly issued and
will be fully paid and nonassessable.
ARTICLE XII
VARIOUS COVENANTS OF THE COMPANY
12.1 No Impairment or Amendment. The Company shall not by any action
including, without limitation, amending its certificate or articles of
incorporation, any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary action, avoid or
seek to avoid the observance or performance of any of the terms of this
Agreement or the Warrants, 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 to protect the rights of the holder of any Warrants or
Issued Warrant Shares against impairment. Without limiting the generality of the
foregoing, the Company will (a) not increase the par value of any shares of
Common Stock issuable upon the exercise of the Warrants above the amount payable
therefor upon such exercise, (b) take all such action as may be necessary or
appropriate in order that the Company may validly issue fully paid and
nonassessable shares of Common Stock upon the exercise of the Warrants, (c)
obtain all such authorizations, exemptions or consents from any public
regulatory body having jurisdiction thereof as may be necessary to enable the
Company to perform its obligations under this Agreement, (d) not undertake any
reverse stock split, combination, reorganization or other reclassification of
its capital stock which would have the effect of making the Warrants exercisable
for less than that percentage of the outstanding shares of Common Stock to which
it related immediately prior to such corporate action, (e) not, without the
written consent of the holders of a majority of the Warrants and the Issued
Warrant Shares, amend, modify or waive any term or provision of the articles of
incorporation or bylaws of the Company if the effect of any such amendment,
modification or waiver is to directly or indirectly alter, amend or modify the
voting rights per share of any capital stock of the Company or the percentage of
shares required to approve any matter, and (t) not, without the written consent
of the holders of a majority of the Warrants and the Issued Warrant Shares, as
the case may be, amend the Stock Option Plan if the effect of any such amendment
is to increase the maximum number of shares of capital stock of the Company to
be issued pursuant to such Stock Option Plan in excess of, in the aggregate, 5%
of the fully diluted capital stock of the Company on the Closing Date as
provided in subsection 4.13(a).
35
Upon the request of any holder of the Warrants the Company will at any time
during the period the Warrants are outstanding acknowledge in writing, in form
satisfactory to such holder, the continued validity of the Warrants and the
Company's obligations hereunder.
12.2 Reservation of Common Stock. The Company will at all times reserve and
keep available, solely for issuance, sale and delivery upon the exercise of the
Warrants or the conversion of Class B Stock, a number of shares of Class B Stock
equal to the number of shares of Class B Stock issuable upon the exercise of the
Warrants and a number of shares of Class A Stock equal to the number of shares
of Class A Stock issuable upon conversion of such Class B Stock. All such shares
of Class B Stock shall be duly authorized and, when issued upon exercise of the
Warrants, shall be validly issued and fully paid and non-assessable with no
liability on the part of the holders thereof. All such shares of Class A Stock
shall be duly authorized and, when issued upon conversion of such Class B Stock,
shall be validly issued and fully paid and non-assessable with no liability on
the part of the holders thereof The Company shall not at any time while the
Warrants remain outstanding allow the par value of its Common Stock to exceed
the then effective Exercise Price.
12.3 Listing on Securities Exchange. If the Company shall list any shares
of Common Stock on any securities exchange it will, at its expense, list
thereon, maintain and increase when necessary such listing of, all Issued
Warrant Shares and, to the extent permissible under the applicable securities
exchange rules, all Issuable Warrant Shares, so long as any shares of Common
Stock shall be so listed. The Company will also so list on each securities
exchange, and will maintain such listing of, any other securities which the
holders of the Warrants shall be entitled to receive upon the exercise thereof
if at the time any securities of the same class shall be listed on such
securities exchange by the Company.
12.4 Availability of Information. The Company will cooperate with the
holders of Warrants and of Issued Warrant Shares in supplying such information
as may be necessary for such holder to complete and file any information
reporting forms presently or hereafter required by the Commission as a condition
to the availability of an exemption from the Securities Act for the sale of the
Warrants or such Issued Warrant Shares.
12.5 Interested Transactions. Without the prior written consent of Heller,
the Company shall not:
(a) unless permitted in the Credit Agreement, merge, consolidate with,
or otherwise acquire all or any portion of the business, assets or securities of
any Affiliate of the Company;
(b) unless permitted in the Credit Agreement, make any loans or other
advances of money to officers, directors or stockholders or the Company or any
Affiliate of the Company; or
(c) unless permitted in the Credit Agreement, otherwise enter into, or
be a party to, any transaction with any officer, director, stockholder of the
Company or any Affiliate of the Company or of such officer, director or
stockholder;
36
except in each case pursuant to the reasonable requirements of the Company's
business and upon fair and reasonable terms which are no less favorable to the
Company than would obtain in a comparable arm's length transaction with a Person
not an officer, director, stockholder or Affiliate of the Company.
12.6 Indemnification. If the Company fails to make when due any payments
provided for in this Agreement, the Company shall pay to the holders of the
Warrants and the Issued Warrant Shares (a) interest at the Applicable Rate on
any amounts due and owing to such holders and (b) such further amounts as shall
be sufficient to cover any costs and expenses including, but not limited to,
reasonable attorneys' fees and expenses incurred by such holder in collecting
any amounts due hereunder; provided, however, that it shall not constitute an
Event of Default if the Company's failure to pay any such amounts is solely the
result of the Company not having funds legally available to pay such amounts
pursuant to applicable law.
The Company shall indemnify, save and hold harmless the holders of the
Warrants and the Issued Warrant Shares from and against any and all liability,
loss, cost, damage, reasonable attorneys' and accountants' fees and expenses,
court costs and all other out-of-pocket expenses incurred in connection with or
arising from an Event of Default.
12.7 Certain Expenses. Except as specifically provided to the contrary in
Sections 5.5 and 10.2, the Company shall pay all expenses in connection with,
and all taxes (other than stock transfer taxes) and other governmental charges
that may be imposed in respect of, the issue, sale and delivery of (a) the
Warrants, (b) the Issuable Warrant Shares, or (c) the Issued Warrant Shares.
12.8 Regulatory Compliance Cooperation. Notwithstanding any other provision
of this Agreement, in the event the Company redeems, purchases or otherwise
acquires, directly or indirectly, or converts or takes any action with respect
to the voting rights of, any shares of any class of its capital stock or any
securities convertible into or exchangeable for any shares of any class of its
capital stock, so as to increase the proportion of the Company's Voting Stock
which the Warrants entitle the holders to purchase or which the holders of
Issued Warrant Shares then owns which, after giving effect to such action, the
holder would have a "Regulatory Problem" (as defined below) or (ii) the Company
is or becomes a party to any merger, consolidation, recapitalization or other
transaction pursuant to which the holder of a Warrant or a holder of Issued
Warrant Shares would be required to take any voting securities, or any
securities convertible into voting securities, which might reasonably be
expected to cause such holder to have a Regulatory Problem, the Company shall,
within thirty (30) days of the request of any holder of a Warrant or Issued
Warrant Shares which has a Regulatory Problem and in the Company's discretion,
either issue to such holder a substitute security of a Fair Value equal to the
Fair Value of the Warrant or the Issued Warrant Shares, as the case may be, of a
type determined in the sole and reasonable discretion of the board of directors
of the Company, or (ii) pay to such holder cash equal to the Fair Value of the
Warrant or the Issued Warrant Shares, as the case may be. In addition to any
other applicable provisions regarding the determination of Fair Value set forth
herein, no discount shall be imposed by reason of the Regulatory Problem and
Fair Value shall be determined assuming consummation of the event which caused
the Regulatory Problem. For purposes of this paragraph, a Person will be deemed
to have a "Regulatory Problem" when such Person or such Person's affiliates
would own, control or have
37
power, directly or indirectly, over a greater quantity of securities of any kind
issued by the Company than is permitted under any requirement of any
governmental authority binding on such Person.
ARTICLE XIII
MISCELLANEOUS
13.1 Nonwaiver. No course of dealing or any delay or failure to exercise
any right, power or remedy hereunder on the part of any holder of a Warrant
shall operate as a waiver of or otherwise prejudice such holder's rights, powers
or remedies.
13.2 Holder Not a Stockholder. Prior to the exercise of the Warrants as
hereinbefore provided, the holders thereof shall not be entitled to any of the
rights of a stockholder of the Company including, without limitation, the right
as a stockholder to (a) vote on or consent to any proposed action of the Company
or (b) receive (i) dividends or any other distributions made to stockholders
(except as provided in ARTICLE VI hereof), (ii) notice of or attend any meetings
of stockholders of the Company (except as provided in ARTICLE IV) or (iii)
notice of any other proceedings of the Company (except as provided in ARTICLE
IV).
13.3 Notices. Any notice, demand or delivery to be made pursuant to the
provisions of this Agreement shall be sufficiently given or made if sent by
first class mail, postage prepaid, addressed to (a) the holders of the Warrants
or Issued Warrant Shares at its last known address appearing on the books of the
Company maintained for such purpose or (b) the Company at its principal office
at 12801 Stemmons Freeway, Suite 821, Farmers Branch, Texas 75234, Attention:
President. The holders of the Warrants, the holders of the Issued Warrant Shares
and the Company may each designate a different address by notice to the other
pursuant to this Section 13.3.
13.4 Remedies. Except as set forth in Section 5.11, the Company and the
holders of the Warrants and the Issued Warrant Shares stipulates that the
remedies at law of the Company and the holders of the Warrants and the holders
of Issued Warrant Shares in the event of any default or threatened default by
the Company in the performance of or compliance with any of the terms of this
Agreement are not and will not be adequate and that, to the fullest extent
permitted by law, such terms may be specifically enforced by a decree for the
specific performance of any agreement contained herein or by an injunction
against a violation of any of the terms hereof or otherwise.
13.5 Successors and Assigns. This Agreement and the rights evidenced hereby
shall inure to the benefit of and be binding upon the successors and assigns of
the Company, the holders of the Warrants and (to the extent provided herein) the
holders of Issued Warrant Shares, and shall be enforceable by any such holders.
13.6 Modification and Severability. If, in any action before any court or
agency legally empowered to enforce any provision contained herein, any
provision hereof is found to be unenforceable, then such provision shall be
deemed modified to the extent necessary to make it enforceable by such court or
agency. if any such provision is not enforceable as set forth in the preceding
sentence, the unenforceability of such provision shall not affect the other
provisions of
38
this Agreement, but this Agreement shall be construed as if such unenforceable
provision had never been contained herein.
13.7 Integration. This Agreement replaces all prior agreements, supersedes
all prior negotiations and constitutes the entire agreement of the parties with
respect to the transactions contemplated herein.
13.8 Amendment. This Agreement may not be modified or amended except by
written agreement of the Company and the holders of the Warrants.
13.9 Headings. The headings of the Articles and Sections of this Agreement
are for the convenience of reference only and shall not, for any purpose, be
deemed a part of this Agreement.
13.10 Governing Law. This Agreement shall be governed by the internal laws
(as opposed to conflicts of laws provisions) of the State of Illinois.
39
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.
AV ALARM, INC.
By: /s/ James R. Hull
----------------------------
Name: James R. Hull
Title: President
HELLER FINANCIAL, INC.
By: /s/ Timothy P. Costello
----------------------------
Name: Timothy P. Costello
Title: Senior Vice President
WARRANT AGREEMENT - SIGNATURE PAGE
EXHIBIT A
THIS WARRANT AND ANY SHARES OF CLASS B NONVOTING COMMON STOCK ISSUABLE UPON THE
EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACF OF
1933, AS AMENDED, AND NEITHER THIS WARRANT NOR ANY SUCH SHARES MAY BE
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER
SUCH ACT.
THIS WARRANT AND THE SECURITIES ISSUABLE UPON THE EXERCISE HEREOF ARE SUBJECT TO
THE TERMS AND PROVISIONS OF A WARRANT AGREEMENT DATED AS OF NOVEMBER 10, 1994,
BETWEEN AV ALARM, INC. (THE "COMPANY"), AND KELLER FINANCIAL, INC. (AS THE SAME
MAY BE SUPPLEMENTED, MODIFIED, AMENDED, EXTENDED, OR RESTATED FROM TIME TO TIME
(THE "WARRANT AGREEMENT)). IN ADDITION, THE SHARES REPRESENTED BY THIS
CERTIFICATE ARE ALSO SUBJECT TO THE CONDITIONS SPECIFIED IN THE
TAKE-ALONG/DRAG-ALONG RIGHTS AGREEMENT DATED AS OF NOVEMBER 10, 1994 AMONG
AUSTIN VENTURES III-A, LP. AND AUSTIN VENTURES III-B, LP., EACH A DELAWARE
LIMITED PARTNERSHIP, AND THE HOLDERS AS DEFINED THEREIN. COPIES OF THESE
AGREEMENTS ARE AVAILABLE AT THE EXECUTIVE OFFICES OF THE COMPANY.
WARRANT
To Purchase Class B Nonvoting Common Stock of
AV ALARM, INC
THIS IS TO CERTIFY that , a corporation,
----------------------- --------------
having its principal place of business at , or
----------------------------------
its registered assigns permitted by that certain Warrant Agreement dated as of
the 10th day of November, 1994, between AV Alarm, Inc., a Texas corporation (the
"Company") and (the "Warrant Agreement"), is entitled to
--------------------
purchase at any time or from time to time on and after November 10, 1994 until
5:00 p.m., Dallas, Texas time, on November 10, 2004, up to
----------------
shares of Class B Nonvoting Common Stock, $0.01 par value, of the Company
("Class B Stock"), at an Exercise Price of $0.01 per share as set forth in the
Warrant Agreement (such Exercise Price and the number of shares of Class B Stock
purchasable hereunder being subject to adjustment as provided in the Warrant
Agreement), and to exercise the other rights, powers and privileges provided in
the Warrant Agreement, all on the terms and subject to the conditions and other
provisions set forth in the Warrant Agreement.
AV ALARM, INC.
By:
----------------------------
Name:
--------------------------
Title:
-------------------------
Exhibit "A" - Warrant Form
EXHIBIT B
NOTICE OF EXERCISE FORM
(To be executed only upon partial or full
exercise of a Warrant)
The undersigned registered holder of this Warrant irrevocably exercises this
Warrant for the purchase of shares of a~ B Nonvoting Common Stock, par value
$0.01 per share ("Class B Stock"), of AV Alarm, Inc. and herewith makes payment
therefor in the amount of $ , all at the price and on the terms and
---------
conditions specified in the Warrant Agreement, dated as of November 10, 1994
between the Company and Heller Financial, Inc., and requests that a certificate
(or certificates in denominations of shares) for the
--------- -----------
shares of Class B Stock hereby purchased be issued in the name of and delivered
to (choose one) (a) the undersigned or (b) , whose
------------------------
address is , and whose taxpayer identification
-----------------------------
number is and, if such shares of Class B Stock shall not include all
----------
the shares of Class B Stock issuable as provided in the Warrant, that a new
Warrant of like tenor for the number of shares of Class B Stock not being
purchased hereunder be issued in the name of and delivered to (choose one) (a)
the undersigned or (b) , whose address is
------------------------------
.
- ----------------------------
Dated: .
--------------, -------
By:
----------------------------
(Signature of Registered Holder)
Exhibit "B" - Notice of Exercise Form
EXHIBIT C
ASSIGNMENT FORM
(To be executed only upon the assignment
of a Warrant as permitted under Article V
of the Warrant Agreement referred to below)
FOR VALUE RECEIVED, the undersigned registered holder of a Warrant hereby
sells, assigns and transfers unto , whose address is
--------------------------
all of the rights of the undersigned under
- --------------------------------
such Warrant and the Warrant Agreement, dated as of November 10, 1994, between
AV Alarm, Inc. (the "Company") and Heller Financial, Inc. with respect to
------
shares of Class B Nonvoting Stock, par value $0.01 per share ("Class B Stock"),
of the Company and, if such shares of Class B Stock shall not include all the
shares of Class B Stock issuable as provided in the Warrant, that a new Warrant
of like tenor for the number of shares of Class B Stock not being transferred
hereunder be issued in the name of and delivered to the undersigned, and does
hereby irrevocably constitute and appoint
---------------------------------
Attorney to register such transfer on the books of the Company maintained for
the purpose, with full power of substitution in the premises.
Dated: , .
-------------------- -------
By:
----------------------------
(Signature of Registered Holder)
Exhibit "C" - Assignment Form