-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FUfw82A/NoSUulbEH5q+q/DFtHoPoLW78wh+AARWcMIE7Bwgc7VO0HObyCHXuTn/ afxbfTGh1oNN1X/LdXQDmQ== 0000902561-99-000044.txt : 19990125 0000902561-99-000044.hdr.sgml : 19990125 ACCESSION NUMBER: 0000902561-99-000044 CONFORMED SUBMISSION TYPE: SC 13D/A PUBLIC DOCUMENT COUNT: 3 FILED AS OF DATE: 19990122 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: MATTHEWS STUDIO EQUIPMENT GROUP CENTRAL INDEX KEY: 0000855575 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-EQUIPMENT RENTAL & LEASING, NEC [7359] IRS NUMBER: 951447751 STATE OF INCORPORATION: CA FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: SC 13D/A SEC ACT: SEC FILE NUMBER: 005-48119 FILM NUMBER: 99511396 BUSINESS ADDRESS: STREET 1: 3111 N KENWOOD ST CITY: BURBANK STATE: CA ZIP: 91504 BUSINESS PHONE: 8185255200 MAIL ADDRESS: STREET 1: 2405 EMPIRE AVENUE CITY: BURBANK STATE: CA ZIP: 91504 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: ING EQUITY PARTNERS LP I CENTRAL INDEX KEY: 0000947481 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 133789789 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D/A BUSINESS ADDRESS: STREET 1: 520 MADISON AVENUE 33RD FLOOR CITY: NEW YORK STATE: NY ZIP: 10022-2101 MAIL ADDRESS: STREET 1: 135 E 57TH ST CITY: NEW YORK STATE: NY ZIP: 10022 SC 13D/A 1 AMENDMENT TO SCHEDULE 13D SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 SCHEDULE 13D (Rule 13d-101) INFORMATION TO BE INCLUDED IN STATEMENTS FILED PURSUANT TO RULE 13d-1(a) AND AMENDMENTS THERETO FILED PURSUANT TO RULE 13d-2(a) (Amendment No. 3 ) 1/ ------- Matthews Studio Equipment Group (Name of Issuer) Common Stock (Title of Class of Securities) 577140106 (CUSIP Number) Benjamin P. Giess ING Equity Partners, L.P. I 520 Madison Avenue New York, New York 10022 Copy to: James B. Carlson Mayer, Brown & Platt 1675 Broadway New York, New York 10019 (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications) January 12, 1999 (Date of Event which Requires Filing of this Statement) If the filing person has previously filed a statement on Schedule 13G to report the acquisition that is the subject of this Schedule 13D, and is filing this schedule because of Rule 13d-l(e), 13d-1(f) or 13d-1(g), check the following box [ ]. Note: Schedules filed in paper format shall include a signed original and five copies of the schedule, including all exhibits. See Rule 13d-7(b) for other parties to whom copies are to be sent. - ---------- 1 The remainder of this cover page shall be filled out for a reporting person's initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter disclosures provided in a prior cover page. The information required on the remainder of this cover page shall not be deemed to be "filed" for the purpose of Section 18 of the Securities Exchange Act of 1934 ("Act") or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes). SEC 1746 (12-91) SCHEDULE 13D CUSIP No. 577140106 Page 2 of 8 Pages 1 NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON ING Equity Partners, L.P. I 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [ ] (b) [ ] 3 SEC USE ONLY 4 SOURCE OF FUNDS* WC and OO (See Item 3) 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) [ ] 6 CITIZENSHIP OR PLACE OF ORGANIZATION Delaware 7 SOLE VOTING POWER NUMBER OF SHARES 4,589,964 (See Item 5) BENEFICIALLY OWNED BY 8 SHARED VOTING POWER EACH REPORTING None (See Item 5) PERSON WITH 9 SOLE DISPOSITIVE POWER 4,589,964 (See Item 5) 10 SHARED DISPOSITIVE POWER None (See Item 5) 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 4,589,964 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* [ ] 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 38.5% 14 TYPE OF REPORTING PERSON* PN *SEE INSTRUCTIONS BEFORE FILLING OUT! Page 3 of 8 Pages This Amendment No. 3 to Schedule 13D, which is being filed on behalf of ING Equity Partners, L.P. I, a Delaware limited partnership (the "Investment Partnership"), relates to the Common Stock, no par value (the "Common Stock") of Matthews Studio Equipment Group, a California corporation (the "Company"), which has its principal executive offices at 3111 North Kenwood Street, Burbank, California 91595. This Amendment No. 3 amends the Schedule 13D filed with the Securities and Exchange Commission by the Investment Partnership on June 30, 1995 (the "Original 13D"), as amended by Amendment No. 1 dated July 27, 1995, and Amendment No.2 dated January 24, 1997. Unless otherwise defined herein, all capitalized terms have the respective meanings ascribed to such terms in the Original 13D, as amended. Item 3. Source and Amount of Funds or Other Consideration. PARAGRAPH (c) OF ITEM 3 IS HEREBY AMENDED AND RESTATED IN ITS ENTIRETY AS FOLLOWS: (c) The Investment Partnership beneficially owns 17,500 options to purchase 17,500 shares of Common Stock, which options were issued as consideration for the services of the Invesetment Partnership's appointee to the Company's board of directors, Benjamin P. Giess. Such options are exercisable at the fair market value of the Common Stock at the grant date. Mr. Giess assigned his right to the options to the Investment Partnership pursuant to a letter agreement, dated November 17, 1995, to the Company and the Investment Partnership and a Waiver of Option Rights Under Matthews Studio Equipment Group 1994 Stock Option Plan for Directors. The options held by the Investment Partnership are governed by the Stock Option Agreement dated November 17, 1995, between the Company and the Investment Partnership (the "Option Agreement). ITEM 3 IS FURTHER AMENDED TO ADD THE FOLLOWING AS PARAGRAPH (f): (f) In connection with a January 1999 amendment to the Amended and Restated Credit Agreement between the Company and The Chase Manhattan Bank, as agent for the lenders (the "Chase Facility"), the Investment Partnership caused ING (U.S.) Capital LLC to issue in favor of such lenders a $3,000,000 standby letter of credit (the "Letter of Credit"), as further described below in Item 4. As consideration for the Investment Partnership's procurement of the Letter of Credit, the Company issued to the Investment Partnership warrants to purchase 450,000 shares of the Company's common stock, at an exercise price of $2.50 per share, at any time or from time to time from Page 4 of 8 Pages January 12, 1999 until 5:00 pm on January 12, 2009. Warrants to purchase 150,000 shares will be automatically canceled in the event the Letter of Credit is released prior to December 31, 1999. Item 4. Purpose of Transaction. PARAGRAPH (a) OF ITEM 4 IS HEREBY AMENDED TO ADD THE FOLLOWING LANGUAGE: In connection with a January 1999 amendment to the Amended and Restated Credit Agreement between the Company and The Chase Manhattan Bank, as agent for the lenders (the "Chase Facility"), the Investment Partnership caused ING (U.S.) Capital LLC to issue in favor of such lenders a $3,000,000 standby letter of credit (the "Letter of Credit"). The Letter of Credit expires December 31, 2000. The lenders may draw on the Letter of Credit in the event the Company files for bankruptcy protection or, due to a default under the Amended Chase Facility, the lenders elect to declare all outstanding terms and revolving credit loans immediately due and payable and to terminate the Chase Facility. If there is a draw on the Letter of Credit, the Investment Partnership is obligated to reimburse ING (U.S.) Capital LLC for any amounts paid. Accordingly, the Company and its subsidiaries entered into a Reimbursement Agreement in favor of the Investment Partnership which obligates the Company and its subsidiaries to reimburse the Investment Partnership for any amounts paid by the Investment Partnership to ING (U.S.) Capital LLC by reason of a draw on the Letter of Credit. The Company and its subsidiaries also granted the Investment Partnership a subordinated security interest in substantially all of their respective assets. As consideration for the Investment Partnership's procurement of the Letter of Credit, the Company issued to the Investment Partnership warrants to purchase 450,000 shares of the Company's common stock, at an exercise price of $2.50 per share, at any time or from time to time from January 12, 1999 until 5:00 pm on January 12, 2009. These warrants have antidilutive rights similar to these available to the Investment Partnership under the warrant to purchase 2,322,464 shares of the Company's common stock that was issued to the Investment Partnership in July 1995, but unlike the July 1995 warrant, the exercise price of these warrants is not subject to decrease if the Company does not complete a public offering of its common stock at a price of at least $2.50 per share with net proceeds to the Company of at least $10 million by December 31, 1999. Also, the one share of preferred stock issued to the Investment Partnership in July 1995 (as amended), which entitles the Investment Partnership to voting rights with respect to the number of shares underlying the July 1995 warrant, does not accord voting rights with Page 5 of 8 Pages respect to the number of shares underlying these new warrants. These warrants are entitled to the benefits of and subject to the restrictions under the Registration Rights Agreement and the Stockholders Agreement entered into by the Investment Partnership and the Company in July 1995. Of the warrants issued to the Investment Partnership in connection with its causing the issuance of the Letter of Credit, warrants to purchase 150,000 shares will be automatically canceled in the event the Letter of Credit is released prior to December 31, 1999. The Letter of Credit will be released if the Company and its consolidated subsidiaries achieve at the end of any fiscal quarter a leverage ratio of 4.50 or less and an availability for revolving credit loans under the Chase Facility of at least $2,000,000. PARAGRAPHS (b)-(j) OF ITEM 4 ARE HEREBY AMENDED AND RESTATED AS OF THE DATE OF THIS AMENDMENT NO. 3 AS FOLLOWS: (b) The Investment Partnership does not have any plans or proposals relating to an extraordinary corporate transaction as described in Item 4(b) of Schedule 13D. (c) The Investment Partnership does not have any plans or proposals relating to a sale or transfer of a material amount of assets as described in Item 4(c) of Schedule 13D. (d) The Investment Partnership does not have any plans or proposals relating to any change in the present board of directors or management of the Company, including any plans or proposals to change the number or term of directors or to fill any existing vacancies on the board. (e) Other than as set forth in Item 4(a) above, the Investment Partnership does not have any plans or proposals relating to a material change in the present capitalization or dividend policy of the Company. (f) The Investment Parties does not have any plans or proposals relating to a material change in the business or corporate structure of the Company. (g) Except as may be required in connection with the actions described in Item 4(a) above, the Investment Partnership does not have any plans or proposals to change the Company's charter or bylaws as described in Item 4(g) of Schedule 13D. (h) The Investment Partnership does not have any plans or proposals which would result in the delisting of the Company's securities from a national securities exchange, or as otherwise described in Item 4(h) of Schedule 13D. Page 6 of 8 Pages (i) The Investment Partnership does not have any plans or proposals that would have the effect described in Item 4(i) of Schedule 13D. (j) The Investment Partnership, other than as described above, does not have any plans or proposals for such action as described in Item 4(j) of Schedule 13D. Item 5. Interest in Securities of Issuer. PARAGRAPH (a) OF ITEM 5 IS HEREBY AMENDED AND RESTATED AS FOLLOWS: (a) As of the date hereof, the Investment Partnership beneficially owns 4,589,964 shares of Common Stock, which represents approximately 38.5% of the outstanding Common Stock as calculated in accordance with the provisions of this item. This amount consists of (i) 1,800,000 shares of Common Stock, (ii) the warrant to purchase 2,322,464 shares of Common Stock that was issued to the Investment Partnership in July 1995, (iii) the warrants to purchase 450,000 shares of Common Stock that were issued to the Investment Partnership in January 1999, and (iv) options to purchase 17,500 shares of Common Stock that were issued as consideration for the services of the Investment Partnership's appointee to the Company's board of directors. The other ING Persons do not own or hold any Common Stock or have the sole or shared power to vote or dispose of Common Stock other than through their affiliation with the Investment Partnership as described in Item 1. Item 6. Contracts, Arrangements, Understandings or Relationships with Respect to Securities of the Issuer. ITEM 6 IS HEREBY RESTATED AS OF THE DATE OF THIS AMENDMENT NO. 3 Other than as described in Items 3, 4 and 5, no such contracts, arrangements, understandings or relationships exist. Page 7 of 8 Pages Item 7. Material to Be Filed as Exhibits. The following documents are filed as additional exhibits (numbered as indicated below) to this statement on Schedule 13D: Exhibit 6- Warrant to Purchase 150,000 shares of Common Stock, issued to the Investment Partnership as of January 12, 1999. Exhibit 7- Warrant to Purchase 300,000 shares of Common Stock, issued to the Investment Partnership as of January 12, 1999. Page 8 of 8 Pages SIGNATURE After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. Date: January 22, 1999 ING EQUITY PARTNERS, L.P. I By: Lexington Partners, L.P., its general partner By: Lexington Partners, Inc., its general partner By: /s/ Benjamin P. Giess Benjamin P. Giess Authorized Signatory EX-99 2 EXHIBIT 6 Execution Copy THIS WARRANT CERTIFICATE AND THE SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE OF THIS WARRANT CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR FILED OR QUALIFIED UNDER THE STATE SECURITIES LAW OF CALIFORNIA OR ANY OTHER STATE AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED UNLESS THEY HAVE BEEN REGISTERED OR QUALIFIED UNDER SUCH LAWS OR AN EXEMPTION FROM REGISTRATION OR QUALIFICATION IS AVAILABLE. MATTHEWS STUDIO EQUIPMENT GROUP W-__ Warrant to Purchase 150,000 Shares of Common Stock January 12, 1999 Common Stock Purchase Warrant THIS Common Stock Purchase Warrant (the "Warrant") CERTIFIES that, for value received, ING Equity Partners, L.P. I, a Delaware limited partnership, or its registered assigns (the "Holder") is entitled to purchase from Matthews Studio Equipment Group, a California corporation (the "Company"), 150,000 shares of the Common Stock, no par value (the "Common Stock"), of the Company (representing 1.07% of the Common Stock outstanding on a Fully Diluted Basis at the date hereof) at the price (the "Exercise Price") of $2.50 per share (subject to certain adjustments as set forth in Section 3.3 hereof), at any time or from time to time during the period commencing on the date hereof and ending at 5:00 P.M. on the tenth anniversary of the date hereof (the "Expiration Date"). This Warrant is subject to the terms and conditions, and entitled to the benefits, of the following agreements, each dated as of July 27, 1995: (i) the Stockholders Agreement between, among others, the Company and ING, and (ii) the Registration Rights Agreement between, among others, the Company and ING (as amended, supplemented or altered from time to time, the "Stockholders Agreement," and the "Registration Rights Agreement," respectively). ARTICLE I DEFINITIONS SECTION 1.1. Definitions. Unless the context shall otherwise require, capitalized terms used and not defined herein shall have the meanings set forth in the Amended and Restated Credit Agreement, dated as of April 1, 1998, between, among others, the Company and The Chase Manhattan Bank (as amended or otherwise modified from time to time, the "Credit Agreement"). In addition, the following terms shall have the following meanings: "Affiliate" shall mean with respect to any Person, (a) any Person which directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, such Person, or (b) any Person who is a director or executive officer (i) of such Person, (ii) of any Subsidiary of such Person, or (iii) of any Person described in clause (a) above, or with respect to any Stockholder, the Company; provided, that any Affiliate of a corporation shall be deemed an Affiliate of such corporation's stockholders. For purposes of this definition, "control" of a Person shall mean the power, direct or indirect, (i) to vote or direct the voting of more than 5% of the outstanding shares of voting stock of such Person, or (ii) to direct or cause the direction of the management and policies of such Person, whether by contract or otherwise. "Assignment Form" shall mean the assignment form attached as Annex 2 hereto. "Business Day" shall mean any day other than a Saturday, Sunday or a day on which banks within New York, New York are authorized or required to be closed. "Closing Date" shall mean the date this Warrant was granted. "Common Stock" shall mean the Common Stock, no par value, of the Company, having the terms, conditions, rights and limitations described in the Articles of Incorporation of the Company attached as Exhibit A hereto. "Company" shall have the meaning given to such term in the Preamble. "Convertible Securities" shall have the meaning given to such term in Section 3.3.1(b). "Credit Agreement" shall have the meaning given to such term in the introduction to this Section 1.1. "Delivery Date" shall have the meaning given to such term in Section 3.2. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. -2- "Exchange Form" shall mean the exchange form attached as Annex 3 hereto. "Excluded Securities" shall mean: (i) shares of capital stock issued pursuant to a stock dividend or a stock split or other subdivision of shares; (ii) Common Stock issued upon exercise of the ING Warrants; (iii) Common Stock issued by the Company in any public offering registered under the Securities Act, which offering results in net proceeds to the Company of at least $10,000,000 and a price per share of Common Stock of not less than $2.50 (appropriately adjusted to reflect all recapitalization events); (iv) securities issued upon conversion, exercise or exchange of convertible securities, warrants, options, subscriptions, calls or other rights to acquire Common Stock, provided that the foregoing rights are (x) outstanding on the date hereof and are issued in conformity with such rights as issued and in effect at the date hereof, or (y) are issued hereafter in compliance with Section 4.2 hereof; or (v) Common Stock issued pursuant to the Company's Amended and Restated 1989 Stock Option Plan, the Company's 1994 Stock Option Plan, the Company's 1994 Stock Option Plan for Directors, options granted pursuant to the Amended and Restated Employment Agreement dated October 1, 1997 between the Company and Carlos D. DeMattos, the employment terms letter dated October 1, 1998 between the Company and John Murray and the Employment Agreement dated November 23, 1998 between the Company and Alan Unger, any other employee benefit plan (including any future adopted employee stock option plan), and pursuant to any acquisition permitted under the Purchase Agreement and the Credit Agreement. "Exercise Form" shall mean the exercise form attached as Annex 1 hereto. "Exercise Price" shall mean $2.50 per share of Common Stock, subject to adjustment from time to time in the manner provided in Section 3.3. "Expiration Date" shall mean January 12, 2009. "Fully Diluted Basis" means, as applied to the calculation of the number of shares of Common Stock outstanding at any time, after giving effect to (a) all shares of Common Stock outstanding at the time of determination, (b) all shares of Common Stock issuable upon the conversion, exercise or exchange of any convertible security, warrant, option, subscriptions, calls or other rights to acquire Common Stock outstanding at the time of determination, irrespective of whether such conversion, exercise or exchange is permitted, restricted or vested at the time of determination, and irrespective of the price or consideration required by such conversion, exercise or exchange, and (c) all other commitments, promises or understandings to -3- issue any shares of Common Stock or any convertible security, warrant, option, subscription, call or other rights outstanding at the time of determination. Such calculation will reflect the ING Warrants, and will not be made in accordance with the "treasury method in accordance with GAAP." "GAAP" shall mean generally accepted accounting principles in the United States of America in effect from time to time. "Governmental Authority" shall mean any federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, or any court, in each case whether of the United States of America or foreign. "Holder" shall have the meaning given to such term in the Preamble. "ING" shall mean ING Equity Partners, L.P. I, a Delaware limited partnership. "ING Security Agreement" shall mean the Security Agreement, dated as of the Closing Date, between the Company and ING, as amended, supplemented or altered from time to time. "ING Warrants" shall mean all Common Stock Purchase Warrants and all Options issued to ING by the Company as of the date hereof. "Market Price" shall mean, with respect to a share of Common Stock on any Business Day: (a) if the Common Stock is Publicly Traded at the time of determination, the average of the closing prices for the Common Stock on all domestic securities exchanges on which such security may at the time be listed, or, if there have been no sales on any such exchange on such day, the average of the highest bid and lowest asked prices on all such exchanges at the end of such day, or, if on any day such security is not so listed, the average of the representative bid and asked prices quoted on the Nasdaq Stock Market as of 4:00 P.M., New York time, on such day, or if on any day such security is not quoted on the Nasdaq Stock Market, the average of the highest bid and lowest asked prices on such day in the domestic over-the-counter market as reported by the National Quotation Bureau, Incorporated, or any similar successor organization, in each such case averaged over a period of twenty-one (21) days consisting of the day as of which "Market Price" is being determined and the twenty (20) consecutive Business Days prior to such day; or (b) if the Common Stock is not Publicly Traded at the time of determination then, solely for purposes of Section 3, then the Market Price shall be the Market Value Per Share. -4- "Market Value" shall mean the highest price that would be paid for all of the Common Stock of the Company on a going-concern basis in a single arm's-length transaction between a willing buyer and a willing seller (neither acting under compulsion), using valuation techniques then prevailing in the securities industry and always determined in accordance with the Valuation Procedures, and assuming full disclosure and understanding of all relevant information and a reasonable period of time for effectuating such sale. For the purposes of determining the Market Value, (i) the exercise price of options, warrants or rights to acquire Common Stock which are included for the purpose of determining the number of shares of Common Stock outstanding on a Fully Diluted Basis shall be deemed to have been received by the Company if and to the extent that the aggregate Market Value of such shares of Common Stock exceeds the aggregate exercise price of such options, warrants or rights, (ii) the liquidation preference or indebtedness, as the case may be, represented by securities which are included for the purpose of determining the number of shares of Common Stock outstanding on a Fully Diluted Basis shall be deemed to be converted or exchanged if and to the extent that the aggregate Market Value of such shares of Common Stock exceeds the aggregate amount of such liquidation preference or indebtedness, (iii) any contract or legal limitation in respect of the shares of Common Stock, including their transfer, voting and other rights shall be ignored, and (iv) any illiquidity arising by contract or law in respect of the shares of Common Stock and any voting rights or control rights amongst the Stockholders, shall be ignored. "Market Value Per Share" shall mean the price per share of Common Stock obtained by dividing (A) the Market Value by (B) the number of shares of Common Stock outstanding (on a Fully-Diluted Basis) at the time of determination. "Nasdaq Stock Market" shall mean the Nasdaq National Market or the Nasdaq SmallCap Market. "Options" shall have the meaning given to such term in Section 3.3.1(b) hereof. "Other Anti-Dilution Instruments" shall mean any option, warrant, convertible security, subscription, call or other rights to acquire Common Stock whether outstanding as of the date hereof or hereafter issued, together with any agreements relating thereto, which provide for anti-dilution or other adjustments in the number of shares of Common Stock and/or exercise, exchange or conversion price thereof. "Person" means any individual, sole proprietorship, partnership, joint venture, trust, unincorporated organization, association, corporation, institution, public benefit corporation, limited liability company, joint stock company, estate entity or Governmental Authority. "Proportionate Percentage" shall mean, with respect to any Holder at any time, the quotient obtained by dividing (a) the aggregate number of Warrant Shares and other shares of Common Stock then held by such Holder by (b) the total number of shares of Common Stock then outstanding (on a Fully-Diluted Basis). -5- "Publicly Traded" shall mean, with respect to any security, that such security is (a) listed on a domestic securities exchange, (b) quoted on the Nasdaq Stock Market or (c) traded in the domestic over-the-counter market, which trades are reported by the National Quotation Bureau, Incorporated, and in the cases of clauses (b) and (c), the average weekly trading volume on the 20 trading days preceding the time of determination equals or exceeds 1/2 of 1% of the outstanding Common Stock on a Fully Diluted Basis. "Purchase Agreement" shall mean the Purchase Agreement dated as of July 27, 1995 between the Company and ING, as amended from time to time. "Refused Securities" shall have the meaning given to such term in Section 4.2(c). "Registration Rights Agreement" shall have the meaning given to such term in the Preamble. "Reimbursement Agreement" means the Reimbursement Agreement, dated as of the Closing Date, between the Company and ING, as amended, supplemented or altered from time to time. "Requisite Holders" shall mean Holders holding ING Warrants or securities representing at least 51% of all securities issued or issuable upon exercise of the ING Warrants outstanding on the date of determination. "Section 4.2 Notice of Acceptance" shall have the meaning given to such term in Section 4.2 hereof. "Section 4.2 Offer" shall have the meaning given to such term in Section 4.2 hereof. "Section 4.2 Offer Notice" shall have the meaning given to such term in Section 4.2 hereof. "Section 4.2 Offered Securities" shall have the meaning given to such term in Section 4.2(a). "Securities Act" shall mean the Securities Act of 1933, as amended. "Standby Letter of Credit" shall mean the Standby Letter of Credit issued by ING (U.S.) Capital Corporation as of the date hereof for the account of the Company and in favor of The Chase Manhattan Bank, as agent for the Lenders. "Stockholders Agreement" shall have the meaning given to such term in the Preamble. -6- "Valuation Procedure" shall mean, with respect to the determination of any amount or value required to be determined in accordance with such procedure, a determination (which shall be final and binding on the Company and the Holders) made (i) by agreement among the Company and the Requisite Holders within thirty (30) days following the event requiring such determination or (ii) in the absence of such an agreement, by an Appraiser (as defined below) selected in accordance with the further provisions of this definition. If required, an Appraiser shall be selected within 10 days following the expiration of the 30-day period referred to above, either by agreement among the Company and the Requisite Holders or, in the absence of such agreement, by lot from a list of four potential Appraisers remaining after the Company nominates three, the Requisite Holders nominate three, and each side eliminates one potential Appraiser. The Appraiser shall be instructed by the Company and the Requisite Holders to make its determination within thirty (30) days of its selection. The fees and expenses of an Appraiser selected hereunder shall be borne fifty percent (50%) by the Company and fifty percent (50%) by the Holders (on a pro rata basis) participating in the transaction to which the determination relates. As used herein, "Appraiser" shall mean (a) with respect to a determination of Market Value, a nationally-recognized investment banking firm and (b) with respect to a determination of Liquidation Value (or any other valuation required hereunder), a firm of the type generally considered to be qualified in making determinations of the type required. "Warrant" shall have the meaning given to such term in the Preamble. "Warrant Register" shall have the meaning given to such term in Section 2.1. "Warrant Shares" shall mean (a) the shares of Common Stock issued or issuable upon exercise of a Warrant in accordance with Section 4.1 or upon exchange of a Warrant in accordance with Section 4.2 and (b) any securities of the Company distributed with respect to the securities referred to in the preceding clause (a). As used in this Warrant, the phrase "Warrant Shares then held" by any Holder or Holders shall mean Warrant Shares held at the time of determination by such Holder or Holders, and shall include Warrant Shares issuable upon exercise of ING Warrants held at the time of determination by such Holder or Holders. SECTION 1.2. Interpretation. Unless the context of this Warrant clearly requires otherwise, references to the plural include the singular, to the singular include the plural, and to the part include the whole. The term "including" is not limiting and the term "or" has the inclusive meaning represented by the term "and/or." The words "hereof," "herein," "hereunder," and similar terms in this Warrant refer to this Warrant as a whole and not to any particular provision of this Warrant. References to "Articles," "Sections," "Subsections," "Exhibits," and "Schedules" are to Articles, Sections, Subsections, Exhibits and Schedules, respectively, of this Warrant, unless otherwise specifically provided. Terms defined herein may be used in the singular or the plural. -7- ARTICLE II FORM; EXCHANGE FOR WARRANTS; TRANSFER; TAXES SECTION 2.1. Warrant Register. Each Warrant issued, exchanged or transferred in accordance with the terms hereof shall be registered in a warrant register (the "Warrant Register"). The Warrant Register shall set forth the number of each Warrant, the name and address of the Holder thereof, and the original number of Warrant Shares purchasable upon the exercise thereof. The Warrant Register will be maintained by the Company and will be available for inspection by any Holder at the principal office of the Company or such other location as the Company may designate to the Holders in the manner set forth in Section 5.1. The Company shall be entitled to treat the Holder of any Warrant as the owner in fact thereof for all purposes and shall not be bound to recognize any equitable or other claim to or interest in such Warrant on the part of any other Person. The Company shall not be liable for complying with a request by a fiduciary or nominee of a fiduciary to register a transfer of any Warrant which is registered in the name of such fiduciary or nominee, unless made with the actual knowledge that such fiduciary or nominee is committing a breach of trust in requesting such registration of transfer, or with knowledge of such facts that the Company's participation therein amounts to bad faith. SECTION 2.2. Exchange of Warrants for Warrants. (a) The Holder may exchange this Warrant for another Warrant or Warrants of like kind and tenor representing in the aggregate the right to purchase the same number of Warrant Shares which could be purchased pursuant to the Warrant being so exchanged. In order to effect an exchange permitted by this Section 2.2, the Holder shall deliver to the Company such Warrant accompanied by an Exchange Form in the form attached hereto as Annex 3 signed by the Holder thereof specifying the number and denominations of Warrants to be issued in such exchange and the names in which such Warrants are to be issued. Within ten (10) Business Days of receipt of such a request, the Company shall issue, register and deliver to the Holder thereof each Warrant to be issued in such exchange. (b) Upon receipt of evidence reasonably satisfactory to the Company (an affidavit of the Holder being satisfactory) of the ownership and the loss, theft, destruction or mutilation of any Warrant, and in the case of any such loss, theft or destruction, upon receipt of an indemnity reasonably satisfactory to the Company (if the Holder is a creditworthy financial institution or other creditworthy institutional investor its own agreement being satisfactory) or, in the case of any such mutilation, upon surrender of such Warrant, the Company shall (at its expense) execute and deliver in lieu of such Warrant a new Warrant of like kind representing the same rights represented by and dated the date of such lost, stolen, destroyed or mutilated Warrant. Any such new Warrant shall constitute an original contractual obligation of the Company, whether or not the allegedly lost, stolen, mutilated or destroyed Warrant shall be at any time enforceable by any Person. (c) The Company shall pay all taxes (other than any applicable income or similar taxes payable by a Holder of a Warrant) attributable to an exchange of a Warrant -8- pursuant to this Section 2.2; provided, however, that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance of any Warrant in a name other than that of the Holder of the Warrant being exchanged. SECTION 2.3. Transfer of Warrant. (a) Subject to Section 2.3(c) hereof, each Warrant may be transferred by the Holder thereof by delivering to the Company such Warrant accompanied by a properly completed Assignment Form in the form of Annex 2. Within ten (10) Business Days of receipt of such Assignment Form the Company shall issue, register and deliver to the Holder, subject to Section 2.3(c) hereof, a new Warrant or Warrants of like kind and tenor representing in the aggregate the right to purchase the same number of Warrant Shares which could be purchased pursuant to the Warrant being transferred. In all cases of transfer by an attorney, the original power of attorney, duly approved, or a copy thereof, duly certified, shall be deposited and remain with the Company. In case of transfer by executors, administrators, guardians or other legal representatives, duly authenticated evidence of their authority shall be produced and may be required to be deposited and remain with the Company in its discretion. (b) Each Warrant issued in accordance with this Section 2.3 shall bear the restrictive legend set forth on the face of this Warrant, unless the Holder or transferee thereof supplies to the Company an opinion of counsel, reasonably satisfactory to the Company, that the restrictions described in such legend are no longer applicable to such Warrant. (c) The transfer of Warrants and Warrant Shares shall be permitted, so long as such transfer is pursuant to a transaction that (i) complies with, or is exempt from, the provisions of the Securities Act, and the Company may require an opinion of counsel (which may be internal counsel to a Holder) in form and substance reasonably satisfactory to it to such effect prior to effecting any transfer of Warrants or Warrant Shares and (ii) complies with the applicable provisions of the Stockholders Agreement. ARTICLE III EXERCISE OF WARRANT; EXCHANGE FOR WARRANT SHARES SECTION 3.1. Exercise of Warrants. On any Business Day prior to the Expiration Date, a Holder may exercise a Warrant, in whole or in part, by delivering to the Company such Warrant accompanied by a properly completed Exercise Form in the form of Annex 1 and a check in an aggregate amount equal to the product obtained by multiplying (a) the Exercise Price by (b) the number of Warrant Shares being purchased; provided, however, in the event the Holder exercises this Warrant in connection with or immediately prior to a sale by the Holder of Warrant Shares, in lieu of paying the applicable Exercise Price therefor, the Holder may elect to receive that number of Warrant Shares which is equal to the number of shares for which this Warrant is being exercised less the number of shares having a Market Price equal to such applicable Exercise Price, where such Market Price per share shall be equal to the price per -9- share at which the Holder is selling Warrant Shares. Any partial exercise of a Warrant shall be for a whole number of Warrant Shares only. SECTION 3.2. Issuance of Common Stock. (a) Within ten (10) Business Days following the delivery date (the "Delivery Date") of (i) an Exercise Form or Exchange Form in accordance with Section 3.1 or 3.2, (ii) a Warrant and (iii) any required payments of the Exercise Price, the Company shall issue and deliver to the Holder a certificate or certificates, registered in the name or names set forth on such notice, representing the Warrant Shares being purchased or to be received upon such exchange. (b) If a Holder shall exercise or exchange a Warrant for less than all of the Warrant Shares which could be purchased or received thereunder, the Company shall issue to the Holder, within ten (10) Business Days of the Delivery Date, a new Warrant evidencing the right to purchase the remaining Warrant Shares. Each Warrant surrendered pursuant to Section 3.1 shall be canceled. (c) The Company shall not be required to issue fractional shares of Common Stock upon the exercise or exchange of a Warrant. If any fraction of a share of Common Stock would be issuable on the exercise or exchange of any Warrant, the Company may, in lieu of issuing such fractional share, pay to such Holder for any such fraction of a share an amount in cash equal to the product obtained by multiplying (i) such fraction by (ii) the Market Price in effect on the Delivery Date. (d) The Company shall pay all taxes (other than any applicable income or similar taxes payable by a Holder of a Warrant) attributable to the initial issuance of Warrant Shares upon the exercise or exchange of a Warrant; provided, however, that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance of any Warrant or any certificate for Warrant Shares in a name other than that of the Holder of the Warrant being exercised or exchanged. (e) The Person in whose name any certificate for shares of Common Stock is issued upon exercise or exchange of a Warrant shall for all purposes be deemed to have become the holder of record of such shares on the Delivery Date, irrespective of the date of delivery of such certificate, except that, if the Delivery Date is a date when the stock transfer books of the Company are closed, such Person shall be deemed to have become the holder of record of such shares at the close of business on the next succeeding date on which the stock transfer books are open. (f) Any Exercise Form or Exchange Form delivered under Section 3.1 or 2.2 may condition the exercise or exchange of any Warrant on the consummation of a sale of Warrant Shares pursuant to a public offering registered under the Securities Act, and such exercise or exchange shall not be deemed to have occurred except concurrently with the consummation of any such sale. -10- SECTION 3.3. Adjustment of Exercise Price and Number of Warrant Shares. The number and kind of Warrant Shares purchasable upon exercise of each Warrant shall be subject to adjustment from time to time in accordance with this Section 3.3. SECTION 3.3.1. Adjustment upon Issuance of Common Stock. (a) If, at any time after the Closing Date, the Company shall issue or sell (or, in accordance with Section 3.3.1(b), shall be deemed to have issued or sold) any shares of Common Stock without consideration or for a consideration per share less than either the Market Price determined as of the date of such issuance or sale or the Exercise Price in effect immediately prior to such issuance or sale, then, effective immediately upon such issuance or sale, the Exercise Price shall be reduced (without regard to any other provisions hereof) to an amount equal to the product obtained by multiplying (A) the Exercise Price in effect immediately prior to such issuance or sale, by (B) a fraction, the numerator of which shall be the sum of (x) the product obtained by multiplying (1) the number of shares of Common Stock outstanding (on a Fully-Diluted Basis) immediately prior to such issuance or sale by (2) the lesser of the Market Price as of the date of such issuance or sale and the Exercise Price in effect immediately prior to such issuance or sale, and (y) the consideration, if any, received by the Company upon such issuance or sale, and the denominator of which shall be the product obtained by multiplying (C) the number of shares of Common Stock outstanding (on a Fully-Diluted Basis) immediately after such issuance or sale, by (D) the lesser of the Market Price as of the date of issuance or sale and the Exercise Price in effect immediately prior to such issuance or sale. Upon each such adjustment of the Exercise Price hereunder, the number of Warrant Shares which may be obtained upon exercise of such Warrant shall be increased to the number of shares determined by multiplying (A) the number of Warrant Shares which could be obtained upon exercise of such Warrant immediately prior to such adjustment by (B) a fraction, the numerator of which shall be the Exercise Price in effect immediately prior to such adjustment and the denominator of which shall be the Exercise Price in effect immediately after such adjustment. (b) For the purpose of determining the adjusted Exercise Price under Section 3.3.1(a), the following shall be applicable: (i) Issuance of Rights or Options. If the Company in any manner issues or grants any rights or options to subscribe for or to purchase (A) Common Stock or (B) any stock or other securities convertible into or exchangeable for Common Stock (such rights or options being herein called "Options" and such convertible or exchangeable stock or securities being herein called "Convertible Securities"), and the price per share for which Common Stock is issuable upon the exercise of such Options or upon conversion or exchange of such Convertible Securities is less than either the Market Price determined as of the date of issuance or grant of such Options or the Exercise Price in effect immediately prior to such issuance or grant of such Options, then the total maximum number of shares of Common Stock issuable upon the exercise of such Options (or upon conversion or exchange of the total maximum amount of such Convertible Securities issuable upon the exercise of such Options) shall be deemed to be outstanding and to have been issued and sold by the Company for such price per share. For purposes of this -11- paragraph, the price per share for which Common Stock is issuable upon exercise of Options or upon conversion or exchange of Convertible Securities issuable upon exercise of Options shall be determined by dividing (A) the total amount, if any, received or receivable by the Company as consideration for the issuing or granting of such Options, plus the minimum aggregate amount of additional consideration payable to the Company upon the exercise of all such Options, plus in the case of such Options which relate to Convertible Securities, the minimum aggregate amount of additional consideration, if any, payable to the Company upon issuance or sale of such Convertible Securities and the conversion or exchange thereof, by (B) the total maximum number of shares of Common Stock issuable upon exercise of such Options or upon the conversion or exchange of all such Convertible Securities issuable upon the exercise of such Options. No further adjustment of the Exercise Price shall be made upon the actual issuance of such Common Stock or of such Convertible Securities upon the Exercise of such Options or upon the actual issuance of such Common Stock upon conversion or exchange of such Convertible Securities. (ii) Issuance of Convertible Securities. If the Company in any manner issues or sells any Convertible Securities having an exercise or conversion or exchange price per share of Common Stock which is less than either the Market Price determined as of the date of such issuance or sale or the Exercise Price in effect immediately prior to such issuance or sale, then the maximum number of shares of Common Stock issuable upon the conversion or exchange of such Convertible Securities shall be deemed to be outstanding and to have been issued and sold by the Company for such lower price per share. For purposes of this paragraph, the price per share for which Common Stock is issuable upon conversion or exchange of Convertible Securities is determined by dividing (A) the total amount received or receivable by the Company as consideration for the issuance or sale of such Convertible Securities, plus the minimum aggregate amount of additional consideration, if any, payable to the Company upon the conversion or exchange thereof, by (B) the total maximum number of shares of Common Stock issuable upon the conversion or exchange of all such Convertible Securities. No further adjustment of the Exercise Price shall be made upon the actual issuance of such Common Stock upon conversion or exchange of such Convertible Securities, and if any such issuance or sale of such Convertible Securities is made upon exercise of any Options for which adjustments of the Exercise Price had been or are required to be made pursuant to other provisions of this Section 3.4.1(b), no further adjustment of the Exercise Price shall be made by reason of such issuance or sale. (iii) Change in Option Price or Conversion Rate. If the purchase price provided for in any Options, the additional consideration, if any, payable upon the issuance, conversion or exchange of any Convertible Securities, or the rate at which any Convertible Securities are convertible into or exchangeable for Common Stock change at any time, then the Exercise Price in effect at the time of such change shall be readjusted to the Exercise Price which would have been in effect at such time had such Options or Convertible Securities still outstanding provided for such changed purchase price, -12- additional consideration or changed conversion rate, as the case may be, at the time initially granted, issued or sold and the number of Warrant Shares shall be correspondingly readjusted. (iv) Treatment of Expired Options and Unexercised Convertible Securities. Upon the expiration of any Option or the termination of any right to convert or exchange any Convertible Securities listed on Schedule 3.3.1(b)(iv) without the exercise of such Option or right, the Exercise Price then in effect and the number of Warrant Shares acquirable hereunder shall be adjusted to the Exercise Price and the number of shares which would have been in effect at the time of such expiration or termination had such Option or Convertible Securities, to the extent outstanding immediately prior to such expiration or termination, never been issued. (v) Calculation of Consideration Received. If any Common Stock, Options or Convertible Securities are issued or sold or deemed to have been issued or sold for cash, then the consideration received therefor shall be deemed to be the net amount received by the Company therefor. If any Common Stock, Options or Convertible Securities are issued or sold for consideration other than cash, then the amount of the consideration other than cash received by the Company shall be the fair value of such consideration determined by the Board of Directors of the Company. (vi) Treasury Shares. The number of shares of Common Stock outstanding at any given time does not include shares owned or held by or for the account of the Company or any Subsidiary of the Company, and the disposition of any shares so owned or held shall be considered an issue or sale of Common Stock. (vii) Record Date. If the Company takes a record of the holders of Common Stock for the purpose of entitling them (A) to receive a dividend or other distribution payable in Common Stock, Options or in Convertible Securities or (B) to subscribe for or purchase Common Stock, Options or Convertible Securities, then such record date shall be deemed to be the date of the issuance 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. SECTION 3.3.2. Subdivisions or Combinations of Common Stock. If, at any time after the Closing Date, (a) the number of shares of Common Stock outstanding is increased by a dividend or other distribution payable in shares of Common Stock or by a subdivision or split-up of shares of Common Stock or (b) the number of shares of Common Stock outstanding is decreased by a combination or reverse stock split of shares of Common Stock, then, in each case, effective as of the effective date of such event retroactive to the record date, if any, of such event, (i) the Exercise Price shall be adjusted to a price determined by multiplying (A) the Exercise Price in effect immediately prior to such event by (B) a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such -13- event and the denominator of which shall be the number of shares of Common Stock outstanding after giving effect to such event, and (ii) the number of Warrant Shares subject to purchase upon the exercise of any Warrant shall be adjusted effective at such time, to a number equal to the product of (A) the number of Warrant Shares subject to purchase upon the exercise of such Warrant immediately prior to such event by (B) a fraction, the numerator of which shall be the number of shares of Common Stock outstanding after giving effect to such event and the denominator of which shall be the number of shares of Common Stock outstanding immediately prior to such event. SECTION 3.3.3. Capital Reorganization or Capital Reclassifications. If, at any time after the Closing Date, there shall be any capital reorganization or any reclassification of the capital stock of the Company (other than a change in par value or from par value to no par value or from no par value to par value or as a result of a stock dividend or subdivision, split-up or combination of shares), then in each case the Company shall cause effective provision to be made so that each Warrant shall, effective as of the effective date of such event retroactive to the record date, if any, of such event, be exercisable or exchangeable for the kind and number of shares of stock, other securities, cash or other property to which a holder of the number of shares of Common Stock deliverable upon exercise or exchange of such Warrant would have been entitled upon such reorganization or reclassification and any such provision shall include adjustments in respect of such stock, securities or other property that shall be as nearly equivalent as may be practicable to the adjustments provided for in this Warrant with respect to such Warrant. SECTION 3.3.4. Consolidations and Mergers. If, at any time after the Closing Date, the Company shall consolidate with, merge with or into, or sell all or substantially all of its assets or property to, another corporation, then the Company shall cause effective provision to be made so that each Warrant shall, effective as of the effective date of such event retroactive to the record date, if any, of such event, be exercisable or exchangeable for the kind and number of shares of stock, other securities, cash or other property to which a holder of the number of shares of Common Stock deliverable upon exercise or exchange of such Warrant would have been entitled upon such event. SECTION 3.3.5. Notice; Calculations; Etc. Whenever the Exercise Price and the number of Warrant Shares shall be adjusted as provided in this Section 3.3, the Company shall provide to each Holder a statement, signed by the President or Chief Financial Officer/Treasurer of the Company, describing in detail the facts requiring such adjustment and setting forth a calculation of the Exercise Price and the number of Warrant Shares applicable to each Warrant after giving effect to such adjustment. All calculations under this Section 3.3 shall be made to the nearest one hundredth of a cent ($.0001) or to the nearest one-tenth of a share, as the case may be. Adjustments pursuant to Sections 3.3.1, 3.3.2 and 3.3.3 shall apply to successive events or transactions of the type covered thereby. -14- SECTION 3.3.6. Certain Adjustments. (a) Subject to the limitations set forth in Section 4.5, the Company may make such reductions in the Exercise Price or increase in the number of Warrant Shares to be received by any Holder upon the exercise or exchange of a Warrant, in addition to those adjustments required by this Section 3.3, as it in its sole discretion shall determine to be advisable in order that any consolidation or subdivision of the Common Stock, or any issuance wholly for cash of any shares of Common Stock, or any issuance wholly for cash or shares of Common Stock or securities which by their terms are convertible into or exchangeable for shares of Common Stock, or any stock dividend, or any issuance of rights, options or warrants hereinafter made by the Company to the holders of its Common Stock shall not be taxable to such holders. (b) In the event that the Company in any manner issues or grants Options or Convertible Securities, or any other transaction, circumstances or events occur which give rise to anti-dilution adjustments under Other Anti-Dilution Instruments, then the Company will promptly make proportional, equitable and corresponding adjustments in the number of shares of Common Stock issuable upon exercise of the Warrants to protect the Holders against dilution as a result of such events. SECTION 3.3.7. Excluded Transactions. Notwithstanding any other provision of this Warrant, no adjustment shall be made pursuant to this Section 3.3 in respect of the issuance of Excluded Securities. SECTION 3.3.8. Adjustment Rules. (a) Any adjustments pursuant to this Section 3.3 shall be made successively whenever an event referred to herein shall occur. (b) Notwithstanding any other provision of this Warrant, the actual amount payable by a Holder in connection with the exercise of a Warrant hereunder shall not be less than the par value per share of the Common Stock, unless and until the Exercise Price, as adjusted pursuant to this Section 3.3, has been reduced to an amount less than 1% of the par value per share of the Common Stock. Before taking any action which would cause an adjustment pursuant to this Section 3.3 which would reduce the Exercise Price below 1% of the par value per share, the Company shall be required to take any corporate action which may be necessary in order that the Company may validly and legally issue fully paid and nonassessable Warrant Shares at the Exercise Price as so adjusted. SECTION 3.4. Cancellation. If the Standby Letter of Credit is released prior to December 31, 1999, this Warrant shall be deemed to be automatically canceled, without further action required of the Company or the Holders. -15- ARTICLE IV CERTAIN OTHER RIGHTS SECTION 4.1. Payments in Respect of Dividends and Distributions. If, at any time prior to the Expiration Date, the Company pays any dividend, other than in the ordinary course of business and to the Company's public stockholders, or makes any distribution (whether in cash, property or securities of the Company) on its capital stock which does not result in an adjustment under Section 3.3 then the Company shall simultaneously pay to the Holder of each Warrant, the dividend or distribution which would have been paid to such Holder on the Warrant Shares receivable upon the exercise in full of such Warrant had such Warrant been fully exercised immediately prior to the record date for such dividend or distribution or, if no record is taken, the date as of which the record holders of Common Stock entitled to such dividend or distribution are to be determined. SECTION 4.2. Preemptive Rights. (a) The Company shall not issue, sell or exchange, agree to issue, sell or exchange, or reserve or set aside for issuance, sale or exchange, any (i) Common Stock, (ii) any other equity security of the Company, (iii) any debt security of the Company which by its terms are convertible into or exchangeable for any equity security of the Company or has any other equity feature, (iv) any security of the Company that is a combination of debt and equity or (v) any option, warrant or other right to subscribe for, purchase or otherwise acquire any equity security or any such debt security of the Company, unless, in each case, the Company shall have first offered (the "Section 4.2 Offer") to sell to each Holder its Proportionate Percentage of such securities (the "Section 4.2 Offered Securities") (and to sell thereto Section 4.2 Offered Securities not subscribed for by other Holders as hereinafter provided), at a price and on such other terms as shall have been specified by the Company in a written notice (the "Section 4.2 Offer Notice") delivered to such Holder, which Offer by its terms shall remain open and irrevocable for a period of ten (10) Business Days from the date it is delivered by the Company to the Holders. (b) Notice of each Holder's intention to accept, in whole or in part, a Section 4.2 Offer shall be evidenced by a writing signed by such Holder and delivered to the Company prior to the end of the 10-day period of such Section 4.2 Offer, setting forth such portion of the Section 4.2 Offered Securities as such Holder elects to purchase (the "Section 4.2 Notice of Acceptance"). If any Holder shall subscribe for less than its Proportionate Percentage of the Section 4.2 Offered Securities available to such Holder, the other subscribing Holders shall be entitled to purchase the balance of such Holder's Proportionate Percentage in the same proportion in which they were initially entitled to purchase the Section 4.2 Offered Securities (excluding for such purposes such Holder subscribing for less than its Proportionate Percentage). The Company shall notify each other Holder within five (5) Business Days following the expiration of the 10-day period described above of the amount of Section 4.2 Offered Securities which each Holder may purchase pursuant to the foregoing sentence, and each Holder shall then have five (5) Business Days from the delivery of such notice to indicate such additional amount, if any, that such Holder wishes to purchase. -16- (c) In the event that Section 4.2 Notices of Acceptance are not given by the Holders in respect of all the Section 4.2 Offered Securities, the Company shall have ninety (90) days from the expiration of the foregoing 10-day or 20-day period, as applicable, to sell all or any part of such Section 4.2 Offered Securities as to which Section 4.2 Notices of Acceptance have not been given by the Holders (the "Refused Securities") to any other Person or Persons, but only upon terms and conditions in all respects (including, without limitation, unit price and interest rates) which are no more favorable, in the aggregate, to such other Person or Persons or less favorable to the Company than those set forth in the Section 4.2 Offer. Upon the closing of the sale of the Refused Securities, the Holders shall purchase from the Company, and the Company shall sell to the Holders, the Section 4.2 Offered Securities in respect of which Section 4.2 Notices of Acceptance were delivered to the Company, at the terms specified in the Section 4.2 Offer. (d) The preemptive rights granted in this Section 4.2 shall not apply to the issuance or sale of Excluded Securities. (e) The preemptive rights granted in this Section 4.2 shall apply only to Holders who are not parties to the Stockholders Agreement. (f) The Holder hereof and any transferee shall have the benefit of the Registration Rights set forth in the Stockholders Agreement, whether or not the Holder or transferee is a party to the Stockholders Agreement or the Registration Rights Agreement. SECTION 4.3. Fiduciary Duties of the Company. The Company and its directors shall owe the Holders of the Warrants the same fiduciary duties that the Company and its directors would owe to the Warrant Shares underlying the Warrants. ARTICLE V MISCELLANEOUS SECTION 5.1. Notices. All notices, demands and requests of any kind to be delivered to any party hereto in connection with this Warrant shall be in writing (i) delivered personally, (ii) sent by nationally-recognized overnight courier, (iii) sent by first class, registered or certified mail, return receipt requested or (iv) sent by facsimile, in each case to such party at its address as follows: -17- (a) if to the Company, to: Matthews Studio Equipment Group 3111 North Kenwood Street Burbank, California 91505 Attention: Carlos DeMattos Telephone: (818) 525-5217 Facsimile: (818) 525-5216 with a copy to: Francis W. Costello Whitman Breed Abbott & Morgan 633 West Fifth Street Los Angeles, California 90071 Telephone: (213) 896-2452 Telecopier: (213) 896-2450 (b) if to ING, to: ING Equity Partners, L.P. I 520 Madison Avenue, 33rd Floor New York, New York 10022 Attention: Benjamin P. Giess Telephone: (212) 453-1708 Telecopier: (212) 750-2970 with a copy to: James B. Carlson, Esq. Mayer, Brown & Platt 1675 Broadway New York, New York 10019-5820 Telephone: (212) 506-2515 Telecopier: (212) 262-1910 Any notice, demand or request so delivered shall constitute valid notice under this Warrant and shall be deemed to have been received (i) on the day of actual delivery in the case of personal delivery, (ii) on the next Business Day after the date when sent in the case of delivery by -18- nationally-recognized overnight courier, (iii) on the fifth Business Day after the date of deposit in the U.S. mail in the case of mailing or (iv) upon receipt in the case of a facsimile transmission. Any party hereto may from time to time by notice in writing served upon the other as aforesaid designate a different mailing address or a different Person to which all such notices, demands or requests thereafter are to be addressed. SECTION 5.2. Voting Rights; Limitations of Liability. No Warrant shall entitle the Holder thereof to any voting rights or other rights of a stockholder of the Company, as such. No provision hereof, in the absence of affirmative action by the Holder to purchase Warrant Shares, and no enumeration herein of the rights or privileges of the Holder shall give rise to any liability of such Holder for the Exercise Price of Warrant Shares acquirable by exercise hereof or as a stockholder of the Company. Each Holder agrees this Warrant is not a warrant issued to ING pursuant to the Purchase Agreement, as amended to date. SECTION 5.3. Amendments and Waivers. Any provision of this Warrant may be amended or waived, but only pursuant to a written agreement signed by the Company and the Requisite Holders. SECTION 5.4. Severability. Any provision of this Warrant which is prohibited or unenforceable in any jurisdiction shall, as to such provision and such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Warrant affecting the validity or enforceability of such provision in any other jurisdiction. SECTION 5.5. Specific Performance. Each Holder shall have the right to specific performance by the Company of the provisions of this Warrant, in addition to any other remedies it may have at law or in equity. The Company hereby irrevocably waives, to the extent that it may do so under applicable law, any defense based on the adequacy of a remedy at law which may be asserted as a bar to the remedy of specific performance in any action brought against the Company for specific performance of this Warrant by the Holders of the Warrants or Warrant Shares. SECTION 5.6. Binding Effect. This Warrant shall be binding upon and inure to the benefit of the Company, each Holder and their respective successors and assigns. SECTION 5.7. Counterparts. This Warrant may be executed by the parties hereto in several counterparts, each of which shall be deemed to be an original and all of which shall constitute together but one and the same agreement. This Warrant shall become effective when counterparts hereof executed on behalf of the Company and each Holder shall have been received. SECTION 5.8. Governing Law; Entire Agreement. THIS WARRANT AND THE WARRANTS, SHALL EACH BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK. This -19- Warrant and the Warrants, constitute the entire understanding among the parties hereto with respect to the subject matter hereof and supersede any prior agreements, written or oral, with respect thereto. SECTION 5.9. Benefits of this Warrant. Nothing in this Warrant shall be construed to give to any Person other than the Company and each Holder of a Warrant or a Warrant Share any legal or equitable right, remedy or claim hereunder. SECTION 5.10. Headings. The various headings of this Warrant are inserted for convenience only and shall not affect the meaning or interpretation of this Warrant or any provisions hereof or thereof. SECTION 5.11. Expenses. The Company will promptly (and in any event within thirty (30) days of receiving any statement or invoice therefor) pay all reasonable fees, expenses and costs relating hereto, including, but not limited to, (i) the cost of reproducing this Warrant and the Warrants, (ii) the fees and disbursements of counsel to the Holder in preparing this Warrant, (iii) all transfer, stamp, documentary or other similar taxes, assessments or charges levied by any governmental or revenue authority in respect hereof or any other document referred to herein, (iv) fees and expenses (including, without limitation, reasonable attorneys' fees) incurred in respect of the enforcement by Holders of the rights granted to Holders under this Warrant, and (v) the expenses relating to the consideration, negotiation, preparation or execution of any amendments, waivers or consents requested by the Company pursuant to the provisions hereof, whether or not any such amendments, waivers or consents are executed. SECTION 5.12. Attorneys' Fees. In any action or proceeding brought by a party to enforce any provision of this Warrant, the prevailing party shall be entitled to recover the reasonable costs and expenses incurred by it in connection with that action or proceeding (including, but not limited to, attorneys' fees). SECTION 5.13. Filings. The Company shall, at its own expense, promptly execute and deliver, or cause to be executed and delivered, to any holder of Warrants all applications, certificates, instruments and all other documents and papers that such holder of Warrants may reasonably request in connection with the obtaining of any consent, approval, qualification, or authorization of any federal, provincial, state or local government (or any agency or commission thereof) necessary or appropriate in connection with, or for the effective exercise of, any Warrants then held by such holder. SECTION 5.14. Other Transactions. Nothing contained herein shall preclude the Holder from engaging in any transaction, in addition to those contemplated by this Warrant with the Company or any of its Affiliates in which the Company or such Affiliate is not restricted hereby from engaging with any other Person. SECTION 5.15. Forum Selection and Consent to Jurisdiction. ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN -20- CONNECTION WITH, THIS WARRANT OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF THE HOLDERS OR THE COMPANY SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY IN THE COURTS OF THE STATE OF NEW YORK OR IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK; THE COMPANY HEREBY EXPRESSLY AND IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK FOR THE PURPOSE OF ANY SUCH LITIGATION AS SET FORTH ABOVE AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH SUCH LITIGATION. THE COMPANY FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS BY REGISTERED MAIL, POSTAGE PREPAID, OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE STATE OF NEW YORK. THE COMPANY HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY HAVE OR HEREAFTER MAY HAVE TO THE LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. TO THE EXTENT THAT THE COMPANY HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY COURT OF FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, THE COMPANY HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER THIS WARRANT. SECTION 5.16. Jury Trial. THE COMPANY HEREBY KNOWINGLY, VOLUNTARILY, AND INTENTIONALLY WAIVES ANY RIGHTS IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS WARRANT. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE PARTIES HERETO CAUSING THE ISSUANCE OF THE LETTER OF CREDIT AND ENTERING INTO THE REIMBURSEMENT AGREEMENT AND THE ING SECURITY AGREEMENT. THE COMPANY ACKNOWLEDGES THAT IT HAS HAD THE ASSISTANCE OF COUNSEL IN THE REVIEW AND EXECUTION OF THIS WARRANT, INCLUDING THIS SECTION 5.16 HEREOF, AND FURTHER ACKNOWLEDGES THAT THE MEANING AND EFFECT OF THE FOREGOING WAIVER OF JURY TRIAL HAVE BEEN FULLY EXPLAINED TO THE COMPANY BY SUCH COUNSEL. -21- IN WITNESS WHEREOF, the parties hereto have caused this Warrant to be duly executed and delivered by their authorized officers, all as of the date and year first above written. MATTHEWS STUDIO EQUIPMENT GROUP By: Name: Title: [CORPORATE SEAL] ATTEST: By:_________________________ Name: Title: -22- EXHIBIT A ARTICLES OF INCORPORATION OF THE COMPANY ANNEX 1 ELECTION TO EXERCISE FORM (To Be Executed By The Holders of This Warrant In Order to Exercise This Warrant) The undersigned hereby irrevocably elects to exercise the right to purchase ______________ shares of Common Stock of Matthews Studio Equipment Group covered by this Warrant according to the conditions hereof and herewith makes payment of the Exercise Price of such shares in full. ----------------------------- Signature ----------------------------- ----------------------------- Address Dated: _________________________ ANNEX 2 ASSIGNMENT FORM (To Be Executed By The Holder of This Warrant In Order to Assign This Warrant Certificate) FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto _____________________________ this Warrant and all rights evidenced thereby and does irrevocably constitute and appoint __________________, attorney, to transfer the said Warrant on the books of the Company. ----------------------------- Signature ----------------------------- ----------------------------- Address Dated: _________________________ ANNEX 3 EXCHANGE FORM (To Be Executed By The Holder of This Warrant In Order to Assign This Warrant Certificate) The undersigned hereby irrevocably elects to exchange this Warrant to purchase ___________ shares of Common Stock of Matthews Studio Equipment Group (the "Company") covered by this Warrant for ___________ Warrants to purchase the denominations of shares of Common Stock set forth below to the persons named and hereby sells, assigns and transfers unto such persons that portion of this Warrant represented by such new Warrants and all rights evidenced thereby and does irrevocably constitute and appoint ____________________, attorney, to exchange and transfer this Warrant as aforesaid on the books of the Company. Number of Warrant Shares Assignee - ------------ ----------------------------- - ------------ ----------------------------- ----------------------------- Signature ----------------------------- ----------------------------- Address FOR USE BY THE COMPANY ONLY: This Warrant No. __ canceled (or transferred or exchanged) this ________ day of _____________, _____________ shares of Common Stock issued therefor in the name of _________________, Warrant No. ___ for __________ shares of Common Stock in the name of _______________________. Dated: ____________________________ SCHEDULE 3.31(b)(iv)
Description of Options or Convertible Securities Number of Shares - ------------------------------------------------ ---------------- Options outstanding pursuant to the Company's 1989 Stock Option Plan, the Company's 1994 Stock Option Plan and the Company's 1994 Stock Option Plan for Directors 1,483,400 Options granted pursuant to the Amended and Restated Employment Agreement dated October 1, 1997, between the Company and Carlos D. DeMattos, the employment terms letter dated October 1, 1998, between the Company and John D. Murray and the Employment Agreement dated November 23, 1998, between the Company and Alan Unger 545,000 ------------ Warrant issued to DR&A, Inc. dated June 27, 1996 50,000 ------------ Total 2,078,400 ============
EX-99 3 EXHIBIT 7 Execution Copy THIS WARRANT CERTIFICATE AND THE SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE OF THIS WARRANT CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR FILED OR QUALIFIED UNDER THE STATE SECURITIES LAW OF CALIFORNIA OR ANY OTHER STATE AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED UNLESS THEY HAVE BEEN REGISTERED OR QUALIFIED UNDER SUCH LAWS OR AN EXEMPTION FROM REGISTRATION OR QUALIFICATION IS AVAILABLE. MATTHEWS STUDIO EQUIPMENT GROUP W-__ Warrant to Purchase 300,000 Shares of Common Stock January 12, 1999 Common Stock Purchase Warrant THIS Common Stock Purchase Warrant (the "Warrant") CERTIFIES that, for value received, ING Equity Partners, L.P. I, a Delaware limited partnership, or its registered assigns (the "Holder") is entitled to purchase from Matthews Studio Equipment Group, a California corporation (the "Company"), 300,000 shares of the Common Stock, no par value (the "Common Stock"), of the Company (representing 2.13% of the Common Stock outstanding on a Fully Diluted Basis at the date hereof) at the price (the "Exercise Price") of $2.50 per share (subject to certain adjustments as set forth in Section 3.3 hereof), at any time or from time to time during the period commencing on the date hereof and ending at 5:00 P.M. on the tenth anniversary of the date hereof (the "Expiration Date"). This Warrant is subject to the terms and conditions, and entitled to the benefits, of the following agreements, each dated as of July 27, 1995: (i) the Stockholders Agreement between, among others, the Company and ING, and (ii) the Registration Rights Agreement between, among others, the Company and ING (as amended, supplemented or altered from time to time, the "Stockholders Agreement," and the "Registration Rights Agreement," respectively). ARTICLE I DEFINITIONS SECTION 1.1. Definitions. Unless the context shall otherwise require, capitalized terms used and not defined herein shall have the meanings set forth in the Amended and Restated Credit Agreement, dated as of April 1, 1998, between, among others, the Company and The Chase Manhattan Bank (as amended or otherwise modified from time to time, the "Credit Agreement"). In addition, the following terms shall have the following meanings: "Affiliate" shall mean with respect to any Person, (a) any Person which directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, such Person, or (b) any Person who is a director or executive officer (i) of such Person, (ii) of any Subsidiary of such Person, or (iii) of any Person described in clause (a) above, or with respect to any Stockholder, the Company; provided, that any Affiliate of a corporation shall be deemed an Affiliate of such corporation's stockholders. For purposes of this definition, "control" of a Person shall mean the power, direct or indirect, (i) to vote or direct the voting of more than 5% of the outstanding shares of voting stock of such Person, or (ii) to direct or cause the direction of the management and policies of such Person, whether by contract or otherwise. "Assignment Form" shall mean the assignment form attached as Annex 2 hereto. "Business Day" shall mean any day other than a Saturday, Sunday or a day on which banks within New York, New York are authorized or required to be closed. "Closing Date" shall mean the date this Warrant was granted. "Common Stock" shall mean the Common Stock, no par value, of the Company, having the terms, conditions, rights and limitations described in the Articles of Incorporation of the Company attached as Exhibit A hereto. "Company" shall have the meaning given to such term in the Preamble. "Convertible Securities" shall have the meaning given to such term in Section 3.3.1(b). "Credit Agreement" shall have the meaning given to such term in the introduction to this Section 1.1. "Delivery Date" shall have the meaning given to such term in Section 3.2. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. -2- "Exchange Form" shall mean the exchange form attached as Annex 3 hereto. "Excluded Securities" shall mean: (i) shares of capital stock issued pursuant to a stock dividend or a stock split or other subdivision of shares; (ii) Common Stock issued upon exercise of the ING Warrants; (iii) Common Stock issued by the Company in any public offering registered under the Securities Act, which offering results in net proceeds to the Company of at least $10,000,000 and a price per share of Common Stock of not less than $2.50 (appropriately adjusted to reflect all recapitalization events); (iv) securities issued upon conversion, exercise or exchange of convertible securities, warrants, options, subscriptions, calls or other rights to acquire Common Stock, provided that the foregoing rights are (x) outstanding on the date hereof and are issued in conformity with such rights as issued and in effect at the date hereof, or (y) are issued hereafter in compliance with Section 4.2 hereof; or (v) Common Stock issued pursuant to the Company's Amended and Restated 1989 Stock Option Plan, the Company's 1994 Stock Option Plan, the Company's 1994 Stock Option Plan for Directors, options granted pursuant to the Amended and Restated Employment Agreement dated October 1, 1997 between the Company and Carlos D. DeMattos, the employment terms letter dated October 1, 1998 between the Company and John Murray and the Employment Agreement dated November 23, 1998 between the Company and Alan Unger, any other employee benefit plan (including any future adopted employee stock option plan), and pursuant to any acquisition permitted under the Purchase Agreement and the Credit Agreement. "Exercise Form" shall mean the exercise form attached as Annex 1 hereto. "Exercise Price" shall mean $2.50 per share of Common Stock, subject to adjustment from time to time in the manner provided in Section 3.3. "Expiration Date" shall mean January 12, 2009. "Fully Diluted Basis" means, as applied to the calculation of the number of shares of Common Stock outstanding at any time, after giving effect to (a) all shares of Common Stock outstanding at the time of determination, (b) all shares of Common Stock issuable upon the conversion, exercise or exchange of any convertible security, warrant, option, subscriptions, calls or other rights to acquire Common Stock outstanding at the time of determination, irrespective of whether such conversion, exercise or exchange is permitted, restricted or vested at the time of determination, and irrespective of the price or consideration required by such conversion, exercise or exchange, and (c) all other commitments, promises or understandings to -3- issue any shares of Common Stock or any convertible security, warrant, option, subscription, call or other rights outstanding at the time of determination. Such calculation will reflect the ING Warrants, and will not be made in accordance with the "treasury method in accordance with GAAP." "GAAP" shall mean generally accepted accounting principles in the United States of America in effect from time to time. "Governmental Authority" shall mean any federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, or any court, in each case whether of the United States of America or foreign. "Holder" shall have the meaning given to such term in the Preamble. "ING" shall mean ING Equity Partners, L.P. I, a Delaware limited partnership. "ING Security Agreement" shall mean the Security Agreement, dated as of the Closing Date, between the Company and ING, as amended, supplemented or altered from time to time. "ING Warrants" shall mean all Common Stock Purchase Warrants and all Options issued to ING by the Company as of the date hereof. "Market Price" shall mean, with respect to a share of Common Stock on any Business Day: (a) if the Common Stock is Publicly Traded at the time of determination, the average of the closing prices for the Common Stock on all domestic securities exchanges on which such security may at the time be listed, or, if there have been no sales on any such exchange on such day, the average of the highest bid and lowest asked prices on all such exchanges at the end of such day, or, if on any day such security is not so listed, the average of the representative bid and asked prices quoted on the Nasdaq Stock Market as of 4:00 P.M., New York time, on such day, or if on any day such security is not quoted on the Nasdaq Stock Market, the average of the highest bid and lowest asked prices on such day in the domestic over-the-counter market as reported by the National Quotation Bureau, Incorporated, or any similar successor organization, in each such case averaged over a period of twenty-one (21) days consisting of the day as of which "Market Price" is being determined and the twenty (20) consecutive Business Days prior to such day; or (b) if the Common Stock is not Publicly Traded at the time of determination then, solely for purposes of Section 3, then the Market Price shall be the Market Value Per Share. -4- "Market Value" shall mean the highest price that would be paid for all of the Common Stock of the Company on a going-concern basis in a single arm's-length transaction between a willing buyer and a willing seller (neither acting under compulsion), using valuation techniques then prevailing in the securities industry and always determined in accordance with the Valuation Procedures, and assuming full disclosure and understanding of all relevant information and a reasonable period of time for effectuating such sale. For the purposes of determining the Market Value, (i) the exercise price of options, warrants or rights to acquire Common Stock which are included for the purpose of determining the number of shares of Common Stock outstanding on a Fully Diluted Basis shall be deemed to have been received by the Company if and to the extent that the aggregate Market Value of such shares of Common Stock exceeds the aggregate exercise price of such options, warrants or rights, (ii) the liquidation preference or indebtedness, as the case may be, represented by securities which are included for the purpose of determining the number of shares of Common Stock outstanding on a Fully Diluted Basis shall be deemed to be converted or exchanged if and to the extent that the aggregate Market Value of such shares of Common Stock exceeds the aggregate amount of such liquidation preference or indebtedness, (iii) any contract or legal limitation in respect of the shares of Common Stock, including their transfer, voting and other rights shall be ignored, and (iv) any illiquidity arising by contract or law in respect of the shares of Common Stock and any voting rights or control rights amongst the Stockholders, shall be ignored. "Market Value Per Share" shall mean the price per share of Common Stock obtained by dividing (A) the Market Value by (B) the number of shares of Common Stock outstanding (on a Fully-Diluted Basis) at the time of determination. "Nasdaq Stock Market" shall mean the Nasdaq National Market or the Nasdaq SmallCap Market. "Options" shall have the meaning given to such term in Section 3.3.1(b) hereof. "Other Anti-Dilution Instruments" shall mean any option, warrant, convertible security, subscription, call or other rights to acquire Common Stock whether outstanding as of the date hereof or hereafter issued, together with any agreements relating thereto, which provide for anti-dilution or other adjustments in the number of shares of Common Stock and/or exercise, exchange or conversion price thereof. "Person" means any individual, sole proprietorship, partnership, joint venture, trust, unincorporated organization, association, corporation, institution, public benefit corporation, limited liability company, joint stock company, estate entity or Governmental Authority. "Proportionate Percentage" shall mean, with respect to any Holder at any time, the quotient obtained by dividing (a) the aggregate number of Warrant Shares and other shares of Common Stock then held by such Holder by (b) the total number of shares of Common Stock then outstanding (on a Fully-Diluted Basis). -5- "Publicly Traded" shall mean, with respect to any security, that such security is (a) listed on a domestic securities exchange, (b) quoted on the Nasdaq Stock Market or (c) traded in the domestic over-the-counter market, which trades are reported by the National Quotation Bureau, Incorporated, and in the cases of clauses (b) and (c), the average weekly trading volume on the 20 trading days preceding the time of determination equals or exceeds 1/2 of 1% of the outstanding Common Stock on a Fully Diluted Basis. "Purchase Agreement" shall mean the Purchase Agreement dated as of July 27, 1995 between the Company and ING, as amended from time to time. "Refused Securities" shall have the meaning given to such term in Section 4.2(c). "Registration Rights Agreement" shall have the meaning given to such term in the Preamble. "Reimbursement Agreement" means the Reimbursement Agreement, dated as of the Closing Date, between the Company and ING, as amended, supplemented or altered from time to time. "Requisite Holders" shall mean Holders holding ING Warrants or securities representing at least 51% of all securities issued or issuable upon exercise of the ING Warrants outstanding on the date of determination. "Section 4.2 Notice of Acceptance" shall have the meaning given to such term in Section 4.2 hereof. "Section 4.2 Offer" shall have the meaning given to such term in Section 4.2 hereof. "Section 4.2 Offer Notice" shall have the meaning given to such term in Section 4.2 hereof. "Section 4.2 Offered Securities" shall have the meaning given to such term in Section 4.2(a). "Securities Act" shall mean the Securities Act of 1933, as amended. "Standby Letter of Credit" shall mean the Standby Letter of Credit issued by ING (U.S.) Capital Corporation as of the date hereof for the account of the Company and in favor of The Chase Manhattan Bank, as agent for the Lenders. "Stockholders Agreement" shall have the meaning given to such term in the Preamble. -6- "Valuation Procedure" shall mean, with respect to the determination of any amount or value required to be determined in accordance with such procedure, a determination (which shall be final and binding on the Company and the Holders) made (i) by agreement among the Company and the Requisite Holders within thirty (30) days following the event requiring such determination or (ii) in the absence of such an agreement, by an Appraiser (as defined below) selected in accordance with the further provisions of this definition. If required, an Appraiser shall be selected within 10 days following the expiration of the 30-day period referred to above, either by agreement among the Company and the Requisite Holders or, in the absence of such agreement, by lot from a list of four potential Appraisers remaining after the Company nominates three, the Requisite Holders nominate three, and each side eliminates one potential Appraiser. The Appraiser shall be instructed by the Company and the Requisite Holders to make its determination within thirty (30) days of its selection. The fees and expenses of an Appraiser selected hereunder shall be borne fifty percent (50%) by the Company and fifty percent (50%) by the Holders (on a pro rata basis) participating in the transaction to which the determination relates. As used herein, "Appraiser" shall mean (a) with respect to a determination of Market Value, a nationally-recognized investment banking firm and (b) with respect to a determination of Liquidation Value (or any other valuation required hereunder), a firm of the type generally considered to be qualified in making determinations of the type required. "Warrant" shall have the meaning given to such term in the Preamble. "Warrant Register" shall have the meaning given to such term in Section 2.1. "Warrant Shares" shall mean (a) the shares of Common Stock issued or issuable upon exercise of a Warrant in accordance with Section 4.1 or upon exchange of a Warrant in accordance with Section 4.2 and (b) any securities of the Company distributed with respect to the securities referred to in the preceding clause (a). As used in this Warrant, the phrase "Warrant Shares then held" by any Holder or Holders shall mean Warrant Shares held at the time of determination by such Holder or Holders, and shall include Warrant Shares issuable upon exercise of ING Warrants held at the time of determination by such Holder or Holders. SECTION 1.2. Interpretation. Unless the context of this Warrant clearly requires otherwise, references to the plural include the singular, to the singular include the plural, and to the part include the whole. The term "including" is not limiting and the term "or" has the inclusive meaning represented by the term "and/or." The words "hereof," "herein," "hereunder," and similar terms in this Warrant refer to this Warrant as a whole and not to any particular provision of this Warrant. References to "Articles," "Sections," "Subsections," "Exhibits," and "Schedules" are to Articles, Sections, Subsections, Exhibits and Schedules, respectively, of this Warrant, unless otherwise specifically provided. Terms defined herein may be used in the singular or the plural. -7- ARTICLE II FORM; EXCHANGE FOR WARRANTS; TRANSFER; TAXES SECTION 2.1. Warrant Register. Each Warrant issued, exchanged or transferred in accordance with the terms hereof shall be registered in a warrant register (the "Warrant Register"). The Warrant Register shall set forth the number of each Warrant, the name and address of the Holder thereof, and the original number of Warrant Shares purchasable upon the exercise thereof. The Warrant Register will be maintained by the Company and will be available for inspection by any Holder at the principal office of the Company or such other location as the Company may designate to the Holders in the manner set forth in Section 5.1. The Company shall be entitled to treat the Holder of any Warrant as the owner in fact thereof for all purposes and shall not be bound to recognize any equitable or other claim to or interest in such Warrant on the part of any other Person. The Company shall not be liable for complying with a request by a fiduciary or nominee of a fiduciary to register a transfer of any Warrant which is registered in the name of such fiduciary or nominee, unless made with the actual knowledge that such fiduciary or nominee is committing a breach of trust in requesting such registration of transfer, or with knowledge of such facts that the Company's participation therein amounts to bad faith. SECTION 2.2. Exchange of Warrants for Warrants. (a) The Holder may exchange this Warrant for another Warrant or Warrants of like kind and tenor representing in the aggregate the right to purchase the same number of Warrant Shares which could be purchased pursuant to the Warrant being so exchanged. In order to effect an exchange permitted by this Section 2.2, the Holder shall deliver to the Company such Warrant accompanied by an Exchange Form in the form attached hereto as Annex 3 signed by the Holder thereof specifying the number and denominations of Warrants to be issued in such exchange and the names in which such Warrants are to be issued. Within ten (10) Business Days of receipt of such a request, the Company shall issue, register and deliver to the Holder thereof each Warrant to be issued in such exchange. (b) Upon receipt of evidence reasonably satisfactory to the Company (an affidavit of the Holder being satisfactory) of the ownership and the loss, theft, destruction or mutilation of any Warrant, and in the case of any such loss, theft or destruction, upon receipt of an indemnity reasonably satisfactory to the Company (if the Holder is a creditworthy financial institution or other creditworthy institutional investor its own agreement being satisfactory) or, in the case of any such mutilation, upon surrender of such Warrant, the Company shall (at its expense) execute and deliver in lieu of such Warrant a new Warrant of like kind representing the same rights represented by and dated the date of such lost, stolen, destroyed or mutilated Warrant. Any such new Warrant shall constitute an original contractual obligation of the Company, whether or not the allegedly lost, stolen, mutilated or destroyed Warrant shall be at any time enforceable by any Person. (c) The Company shall pay all taxes (other than any applicable income or similar taxes payable by a Holder of a Warrant) attributable to an exchange of a Warrant -8- pursuant to this Section 2.2; provided, however, that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance of any Warrant in a name other than that of the Holder of the Warrant being exchanged. SECTION 2.3. Transfer of Warrant. (a) Subject to Section 2.3(c) hereof, each Warrant may be transferred by the Holder thereof by delivering to the Company such Warrant accompanied by a properly completed Assignment Form in the form of Annex 2. Within ten (10) Business Days of receipt of such Assignment Form the Company shall issue, register and deliver to the Holder, subject to Section 2.3(c) hereof, a new Warrant or Warrants of like kind and tenor representing in the aggregate the right to purchase the same number of Warrant Shares which could be purchased pursuant to the Warrant being transferred. In all cases of transfer by an attorney, the original power of attorney, duly approved, or a copy thereof, duly certified, shall be deposited and remain with the Company. In case of transfer by executors, administrators, guardians or other legal representatives, duly authenticated evidence of their authority shall be produced and may be required to be deposited and remain with the Company in its discretion. (b) Each Warrant issued in accordance with this Section 2.3 shall bear the restrictive legend set forth on the face of this Warrant, unless the Holder or transferee thereof supplies to the Company an opinion of counsel, reasonably satisfactory to the Company, that the restrictions described in such legend are no longer applicable to such Warrant. (c) The transfer of Warrants and Warrant Shares shall be permitted, so long as such transfer is pursuant to a transaction that (i) complies with, or is exempt from, the provisions of the Securities Act, and the Company may require an opinion of counsel (which may be internal counsel to a Holder) in form and substance reasonably satisfactory to it to such effect prior to effecting any transfer of Warrants or Warrant Shares and (ii) complies with the applicable provisions of the Stockholders Agreement. ARTICLE III EXERCISE OF WARRANT; EXCHANGE FOR WARRANT SHARES SECTION 3.1. Exercise of Warrants. On any Business Day prior to the Expiration Date, a Holder may exercise a Warrant, in whole or in part, by delivering to the Company such Warrant accompanied by a properly completed Exercise Form in the form of Annex 1 and a check in an aggregate amount equal to the product obtained by multiplying (a) the Exercise Price by (b) the number of Warrant Shares being purchased; provided, however, in the event the Holder exercises this Warrant in connection with or immediately prior to a sale by the Holder of Warrant Shares, in lieu of paying the applicable Exercise Price therefor, the Holder may elect to receive that number of Warrant Shares which is equal to the number of shares for which this Warrant is being exercised less the number of shares having a Market Price equal to such applicable Exercise Price, where such Market Price per share shall be equal to the price per -9- share at which the Holder is selling Warrant Shares. Any partial exercise of a Warrant shall be for a whole number of Warrant Shares only. SECTION 3.2. Issuance of Common Stock. (a) Within ten (10) Business Days following the delivery date (the "Delivery Date") of (i) an Exercise Form or Exchange Form in accordance with Section 3.1 or 3.2, (ii) a Warrant and (iii) any required payments of the Exercise Price, the Company shall issue and deliver to the Holder a certificate or certificates, registered in the name or names set forth on such notice, representing the Warrant Shares being purchased or to be received upon such exchange. (b) If a Holder shall exercise or exchange a Warrant for less than all of the Warrant Shares which could be purchased or received thereunder, the Company shall issue to the Holder, within ten (10) Business Days of the Delivery Date, a new Warrant evidencing the right to purchase the remaining Warrant Shares. Each Warrant surrendered pursuant to Section 3.1 shall be canceled. (c) The Company shall not be required to issue fractional shares of Common Stock upon the exercise or exchange of a Warrant. If any fraction of a share of Common Stock would be issuable on the exercise or exchange of any Warrant, the Company may, in lieu of issuing such fractional share, pay to such Holder for any such fraction of a share an amount in cash equal to the product obtained by multiplying (i) such fraction by (ii) the Market Price in effect on the Delivery Date. (d) The Company shall pay all taxes (other than any applicable income or similar taxes payable by a Holder of a Warrant) attributable to the initial issuance of Warrant Shares upon the exercise or exchange of a Warrant; provided, however, that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance of any Warrant or any certificate for Warrant Shares in a name other than that of the Holder of the Warrant being exercised or exchanged. (e) The Person in whose name any certificate for shares of Common Stock is issued upon exercise or exchange of a Warrant shall for all purposes be deemed to have become the holder of record of such shares on the Delivery Date, irrespective of the date of delivery of such certificate, except that, if the Delivery Date is a date when the stock transfer books of the Company are closed, such Person shall be deemed to have become the holder of record of such shares at the close of business on the next succeeding date on which the stock transfer books are open. (f) Any Exercise Form or Exchange Form delivered under Section 3.1 or 2.2 may condition the exercise or exchange of any Warrant on the consummation of a sale of Warrant Shares pursuant to a public offering registered under the Securities Act, and such exercise or exchange shall not be deemed to have occurred except concurrently with the consummation of any such sale. -10- SECTION 3.3. Adjustment of Exercise Price and Number of Warrant Shares. The number and kind of Warrant Shares purchasable upon exercise of each Warrant shall be subject to adjustment from time to time in accordance with this Section 3.3. SECTION 3.3.1. Adjustment upon Issuance of Common Stock. (a) If, at any time after the Closing Date, the Company shall issue or sell (or, in accordance with Section 3.3.1(b), shall be deemed to have issued or sold) any shares of Common Stock without consideration or for a consideration per share less than either the Market Price determined as of the date of such issuance or sale or the Exercise Price in effect immediately prior to such issuance or sale, then, effective immediately upon such issuance or sale, the Exercise Price shall be reduced (without regard to any other provisions hereof) to an amount equal to the product obtained by multiplying (A) the Exercise Price in effect immediately prior to such issuance or sale, by (B) a fraction, the numerator of which shall be the sum of (x) the product obtained by multiplying (1) the number of shares of Common Stock outstanding (on a Fully-Diluted Basis) immediately prior to such issuance or sale by (2) the lesser of the Market Price as of the date of such issuance or sale and the Exercise Price in effect immediately prior to such issuance or sale, and (y) the consideration, if any, received by the Company upon such issuance or sale, and the denominator of which shall be the product obtained by multiplying (C) the number of shares of Common Stock outstanding (on a Fully-Diluted Basis) immediately after such issuance or sale, by (D) the lesser of the Market Price as of the date of issuance or sale and the Exercise Price in effect immediately prior to such issuance or sale. Upon each such adjustment of the Exercise Price hereunder, the number of Warrant Shares which may be obtained upon exercise of such Warrant shall be increased to the number of shares determined by multiplying (A) the number of Warrant Shares which could be obtained upon exercise of such Warrant immediately prior to such adjustment by (B) a fraction, the numerator of which shall be the Exercise Price in effect immediately prior to such adjustment and the denominator of which shall be the Exercise Price in effect immediately after such adjustment. (b) For the purpose of determining the adjusted Exercise Price under Section 3.3.1(a), the following shall be applicable: (i) Issuance of Rights or Options. If the Company in any manner issues or grants any rights or options to subscribe for or to purchase (A) Common Stock or (B) any stock or other securities convertible into or exchangeable for Common Stock (such rights or options being herein called "Options" and such convertible or exchangeable stock or securities being herein called "Convertible Securities"), and the price per share for which Common Stock is issuable upon the exercise of such Options or upon conversion or exchange of such Convertible Securities is less than either the Market Price determined as of the date of issuance or grant of such Options or the Exercise Price in effect immediately prior to such issuance or grant of such Options, then the total maximum number of shares of Common Stock issuable upon the exercise of such Options (or upon conversion or exchange of the total maximum amount of such Convertible Securities issuable upon the exercise of such Options) shall be deemed to be outstanding and to have been issued and sold by the Company for such price per share. For purposes of this -11- paragraph, the price per share for which Common Stock is issuable upon exercise of Options or upon conversion or exchange of Convertible Securities issuable upon exercise of Options shall be determined by dividing (A) the total amount, if any, received or receivable by the Company as consideration for the issuing or granting of such Options, plus the minimum aggregate amount of additional consideration payable to the Company upon the exercise of all such Options, plus in the case of such Options which relate to Convertible Securities, the minimum aggregate amount of additional consideration, if any, payable to the Company upon issuance or sale of such Convertible Securities and the conversion or exchange thereof, by (B) the total maximum number of shares of Common Stock issuable upon exercise of such Options or upon the conversion or exchange of all such Convertible Securities issuable upon the exercise of such Options. No further adjustment of the Exercise Price shall be made upon the actual issuance of such Common Stock or of such Convertible Securities upon the Exercise of such Options or upon the actual issuance of such Common Stock upon conversion or exchange of such Convertible Securities. (ii) Issuance of Convertible Securities. If the Company in any manner issues or sells any Convertible Securities having an exercise or conversion or exchange price per share of Common Stock which is less than either the Market Price determined as of the date of such issuance or sale or the Exercise Price in effect immediately prior to such issuance or sale, then the maximum number of shares of Common Stock issuable upon the conversion or exchange of such Convertible Securities shall be deemed to be outstanding and to have been issued and sold by the Company for such lower price per share. For purposes of this paragraph, the price per share for which Common Stock is issuable upon conversion or exchange of Convertible Securities is determined by dividing (A) the total amount received or receivable by the Company as consideration for the issuance or sale of such Convertible Securities, plus the minimum aggregate amount of additional consideration, if any, payable to the Company upon the conversion or exchange thereof, by (B) the total maximum number of shares of Common Stock issuable upon the conversion or exchange of all such Convertible Securities. No further adjustment of the Exercise Price shall be made upon the actual issuance of such Common Stock upon conversion or exchange of such Convertible Securities, and if any such issuance or sale of such Convertible Securities is made upon exercise of any Options for which adjustments of the Exercise Price had been or are required to be made pursuant to other provisions of this Section 3.4.1(b), no further adjustment of the Exercise Price shall be made by reason of such issuance or sale. (iii) Change in Option Price or Conversion Rate. If the purchase price provided for in any Options, the additional consideration, if any, payable upon the issuance, conversion or exchange of any Convertible Securities, or the rate at which any Convertible Securities are convertible into or exchangeable for Common Stock change at any time, then the Exercise Price in effect at the time of such change shall be readjusted to the Exercise Price which would have been in effect at such time had such Options or Convertible Securities still outstanding provided for such changed purchase price, -12- additional consideration or changed conversion rate, as the case may be, at the time initially granted, issued or sold and the number of Warrant Shares shall be correspondingly readjusted. (iv) Treatment of Expired Options and Unexercised Convertible Securities. Upon the expiration of any Option or the termination of any right to convert or exchange any Convertible Securities listed on Schedule 3.3.1(b)(iv) without the exercise of such Option or right, the Exercise Price then in effect and the number of Warrant Shares acquirable hereunder shall be adjusted to the Exercise Price and the number of shares which would have been in effect at the time of such expiration or termination had such Option or Convertible Securities, to the extent outstanding immediately prior to such expiration or termination, never been issued. (v) Calculation of Consideration Received. If any Common Stock, Options or Convertible Securities are issued or sold or deemed to have been issued or sold for cash, then the consideration received therefor shall be deemed to be the net amount received by the Company therefor. If any Common Stock, Options or Convertible Securities are issued or sold for consideration other than cash, then the amount of the consideration other than cash received by the Company shall be the fair value of such consideration determined by the Board of Directors of the Company. (vi) Treasury Shares. The number of shares of Common Stock outstanding at any given time does not include shares owned or held by or for the account of the Company or any Subsidiary of the Company, and the disposition of any shares so owned or held shall be considered an issue or sale of Common Stock. (vii) Record Date. If the Company takes a record of the holders of Common Stock for the purpose of entitling them (A) to receive a dividend or other distribution payable in Common Stock, Options or in Convertible Securities or (B) to subscribe for or purchase Common Stock, Options or Convertible Securities, then such record date shall be deemed to be the date of the issuance 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. SECTION 3.3.2. Subdivisions or Combinations of Common Stock. If, at any time after the Closing Date, (a) the number of shares of Common Stock outstanding is increased by a dividend or other distribution payable in shares of Common Stock or by a subdivision or split-up of shares of Common Stock or (b) the number of shares of Common Stock outstanding is decreased by a combination or reverse stock split of shares of Common Stock, then, in each case, effective as of the effective date of such event retroactive to the record date, if any, of such event, (i) the Exercise Price shall be adjusted to a price determined by multiplying (A) the Exercise Price in effect immediately prior to such event by (B) a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such -13- event and the denominator of which shall be the number of shares of Common Stock outstanding after giving effect to such event, and (ii) the number of Warrant Shares subject to purchase upon the exercise of any Warrant shall be adjusted effective at such time, to a number equal to the product of (A) the number of Warrant Shares subject to purchase upon the exercise of such Warrant immediately prior to such event by (B) a fraction, the numerator of which shall be the number of shares of Common Stock outstanding after giving effect to such event and the denominator of which shall be the number of shares of Common Stock outstanding immediately prior to such event. SECTION 3.3.3. Capital Reorganization or Capital Reclassifications. If, at any time after the Closing Date, there shall be any capital reorganization or any reclassification of the capital stock of the Company (other than a change in par value or from par value to no par value or from no par value to par value or as a result of a stock dividend or subdivision, split-up or combination of shares), then in each case the Company shall cause effective provision to be made so that each Warrant shall, effective as of the effective date of such event retroactive to the record date, if any, of such event, be exercisable or exchangeable for the kind and number of shares of stock, other securities, cash or other property to which a holder of the number of shares of Common Stock deliverable upon exercise or exchange of such Warrant would have been entitled upon such reorganization or reclassification and any such provision shall include adjustments in respect of such stock, securities or other property that shall be as nearly equivalent as may be practicable to the adjustments provided for in this Warrant with respect to such Warrant. SECTION 3.3.4. Consolidations and Mergers. If, at any time after the Closing Date, the Company shall consolidate with, merge with or into, or sell all or substantially all of its assets or property to, another corporation, then the Company shall cause effective provision to be made so that each Warrant shall, effective as of the effective date of such event retroactive to the record date, if any, of such event, be exercisable or exchangeable for the kind and number of shares of stock, other securities, cash or other property to which a holder of the number of shares of Common Stock deliverable upon exercise or exchange of such Warrant would have been entitled upon such event. SECTION 3.3.5. Notice; Calculations; Etc. Whenever the Exercise Price and the number of Warrant Shares shall be adjusted as provided in this Section 3.3, the Company shall provide to each Holder a statement, signed by the President or Chief Financial Officer/Treasurer of the Company, describing in detail the facts requiring such adjustment and setting forth a calculation of the Exercise Price and the number of Warrant Shares applicable to each Warrant after giving effect to such adjustment. All calculations under this Section 3.3 shall be made to the nearest one hundredth of a cent ($.0001) or to the nearest one-tenth of a share, as the case may be. Adjustments pursuant to Sections 3.3.1, 3.3.2 and 3.3.3 shall apply to successive events or transactions of the type covered thereby. -14- SECTION 3.3.6. Certain Adjustments. (a) Subject to the limitations set forth in Section 4.5, the Company may make such reductions in the Exercise Price or increase in the number of Warrant Shares to be received by any Holder upon the exercise or exchange of a Warrant, in addition to those adjustments required by this Section 3.3, as it in its sole discretion shall determine to be advisable in order that any consolidation or subdivision of the Common Stock, or any issuance wholly for cash of any shares of Common Stock, or any issuance wholly for cash or shares of Common Stock or securities which by their terms are convertible into or exchangeable for shares of Common Stock, or any stock dividend, or any issuance of rights, options or warrants hereinafter made by the Company to the holders of its Common Stock shall not be taxable to such holders. (b) In the event that the Company in any manner issues or grants Options or Convertible Securities, or any other transaction, circumstances or events occur which give rise to anti-dilution adjustments under Other Anti-Dilution Instruments, then the Company will promptly make proportional, equitable and corresponding adjustments in the number of shares of Common Stock issuable upon exercise of the Warrants to protect the Holders against dilution as a result of such events. SECTION 3.3.7. Excluded Transactions. Notwithstanding any other provision of this Warrant, no adjustment shall be made pursuant to this Section 3.3 in respect of the issuance of Excluded Securities. SECTION 3.3.8. Adjustment Rules. (a) Any adjustments pursuant to this Section 3.3 shall be made successively whenever an event referred to herein shall occur. (b) Notwithstanding any other provision of this Warrant, the actual amount payable by a Holder in connection with the exercise of a Warrant hereunder shall not be less than the par value per share of the Common Stock, unless and until the Exercise Price, as adjusted pursuant to this Section 3.3, has been reduced to an amount less than 1% of the par value per share of the Common Stock. Before taking any action which would cause an adjustment pursuant to this Section 3.3 which would reduce the Exercise Price below 1% of the par value per share, the Company shall be required to take any corporate action which may be necessary in order that the Company may validly and legally issue fully paid and nonassessable Warrant Shares at the Exercise Price as so adjusted. -15- ARTICLE IV CERTAIN OTHER RIGHTS SECTION 4.1. Payments in Respect of Dividends and Distributions. If, at any time prior to the Expiration Date, the Company pays any dividend, other than in the ordinary course of business and to the Company's public stockholders, or makes any distribution (whether in cash, property or securities of the Company) on its capital stock which does not result in an adjustment under Section 3.3 then the Company shall simultaneously pay to the Holder of each Warrant, the dividend or distribution which would have been paid to such Holder on the Warrant Shares receivable upon the exercise in full of such Warrant had such Warrant been fully exercised immediately prior to the record date for such dividend or distribution or, if no record is taken, the date as of which the record holders of Common Stock entitled to such dividend or distribution are to be determined. SECTION 4.2. Preemptive Rights. (a) The Company shall not issue, sell or exchange, agree to issue, sell or exchange, or reserve or set aside for issuance, sale or exchange, any (i) Common Stock, (ii) any other equity security of the Company, (iii) any debt security of the Company which by its terms are convertible into or exchangeable for any equity security of the Company or has any other equity feature, (iv) any security of the Company that is a combination of debt and equity or (v) any option, warrant or other right to subscribe for, purchase or otherwise acquire any equity security or any such debt security of the Company, unless, in each case, the Company shall have first offered (the "Section 4.2 Offer") to sell to each Holder its Proportionate Percentage of such securities (the "Section 4.2 Offered Securities") (and to sell thereto Section 4.2 Offered Securities not subscribed for by other Holders as hereinafter provided), at a price and on such other terms as shall have been specified by the Company in a written notice (the "Section 4.2 Offer Notice") delivered to such Holder, which Offer by its terms shall remain open and irrevocable for a period of ten (10) Business Days from the date it is delivered by the Company to the Holders. (b) Notice of each Holder's intention to accept, in whole or in part, a Section 4.2 Offer shall be evidenced by a writing signed by such Holder and delivered to the Company prior to the end of the 10-day period of such Section 4.2 Offer, setting forth such portion of the Section 4.2 Offered Securities as such Holder elects to purchase (the "Section 4.2 Notice of Acceptance"). If any Holder shall subscribe for less than its Proportionate Percentage of the Section 4.2 Offered Securities available to such Holder, the other subscribing Holders shall be entitled to purchase the balance of such Holder's Proportionate Percentage in the same proportion in which they were initially entitled to purchase the Section 4.2 Offered Securities (excluding for such purposes such Holder subscribing for less than its Proportionate Percentage). The Company shall notify each other Holder within five (5) Business Days following the expiration of the 10-day period described above of the amount of Section 4.2 Offered Securities which each Holder may purchase pursuant to the foregoing sentence, and each Holder shall then have five (5) Business Days from the delivery of such notice to indicate such additional amount, if any, that such Holder wishes to purchase. -16- (c) In the event that Section 4.2 Notices of Acceptance are not given by the Holders in respect of all the Section 4.2 Offered Securities, the Company shall have ninety (90) days from the expiration of the foregoing 10-day or 20-day period, as applicable, to sell all or any part of such Section 4.2 Offered Securities as to which Section 4.2 Notices of Acceptance have not been given by the Holders (the "Refused Securities") to any other Person or Persons, but only upon terms and conditions in all respects (including, without limitation, unit price and interest rates) which are no more favorable, in the aggregate, to such other Person or Persons or less favorable to the Company than those set forth in the Section 4.2 Offer. Upon the closing of the sale of the Refused Securities, the Holders shall purchase from the Company, and the Company shall sell to the Holders, the Section 4.2 Offered Securities in respect of which Section 4.2 Notices of Acceptance were delivered to the Company, at the terms specified in the Section 4.2 Offer. (d) The preemptive rights granted in this Section 4.2 shall not apply to the issuance or sale of Excluded Securities. (e) The preemptive rights granted in this Section 4.2 shall apply only to Holders who are not parties to the Stockholders Agreement. (f) The Holder hereof and any transferee shall have the benefit of the Registration Rights set forth in the Stockholders Agreement, whether or not the Holder or transferee is a party to the Stockholders Agreement or the Registration Rights Agreement. SECTION 4.3. Fiduciary Duties of the Company. The Company and its directors shall owe the Holders of the Warrants the same fiduciary duties that the Company and its directors would owe to the Warrant Shares underlying the Warrants. ARTICLE V MISCELLANEOUS SECTION 5.1. Notices. All notices, demands and requests of any kind to be delivered to any party hereto in connection with this Warrant shall be in writing (i) delivered personally, (ii) sent by nationally-recognized overnight courier, (iii) sent by first class, registered or certified mail, return receipt requested or (iv) sent by facsimile, in each case to such party at its address as follows: -17- (a) if to the Company, to: Matthews Studio Equipment Group 3111 North Kenwood Street Burbank, California 91505 Attention: Carlos DeMattos Telephone: (818) 525-5217 Facsimile: (818) 525-5216 with a copy to: Francis W. Costello Whitman Breed Abbott & Morgan 633 West Fifth Street Los Angeles, California 90071 Telephone: (213) 896-2452 Telecopier: (213) 896-2450 (b) if to ING, to: ING Equity Partners, L.P. I 520 Madison Avenue, 33rd Floor New York, New York 10022 Attention: Benjamin P. Giess Telephone: (212) 453-1708 Telecopier: (212) 750-2970 with a copy to: James B. Carlson, Esq. Mayer, Brown & Platt 1675 Broadway New York, New York 10019-5820 Telephone: (212) 506-2515 Telecopier: (212) 262-1910 Any notice, demand or request so delivered shall constitute valid notice under this Warrant and shall be deemed to have been received (i) on the day of actual delivery in the case of personal delivery, (ii) on the next Business Day after the date when sent in the case of delivery by -18- nationally-recognized overnight courier, (iii) on the fifth Business Day after the date of deposit in the U.S. mail in the case of mailing or (iv) upon receipt in the case of a facsimile transmission. Any party hereto may from time to time by notice in writing served upon the other as aforesaid designate a different mailing address or a different Person to which all such notices, demands or requests thereafter are to be addressed. SECTION 5.2. Voting Rights; Limitations of Liability. No Warrant shall entitle the Holder thereof to any voting rights or other rights of a stockholder of the Company, as such. No provision hereof, in the absence of affirmative action by the Holder to purchase Warrant Shares, and no enumeration herein of the rights or privileges of the Holder shall give rise to any liability of such Holder for the Exercise Price of Warrant Shares acquirable by exercise hereof or as a stockholder of the Company. Each Holder agrees this Warrant is not a warrant issued to ING pursuant to the Purchase Agreement, as amended to date. SECTION 5.3. Amendments and Waivers. Any provision of this Warrant may be amended or waived, but only pursuant to a written agreement signed by the Company and the Requisite Holders. SECTION 5.4. Severability. Any provision of this Warrant which is prohibited or unenforceable in any jurisdiction shall, as to such provision and such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Warrant affecting the validity or enforceability of such provision in any other jurisdiction. SECTION 5.5. Specific Performance. Each Holder shall have the right to specific performance by the Company of the provisions of this Warrant, in addition to any other remedies it may have at law or in equity. The Company hereby irrevocably waives, to the extent that it may do so under applicable law, any defense based on the adequacy of a remedy at law which may be asserted as a bar to the remedy of specific performance in any action brought against the Company for specific performance of this Warrant by the Holders of the Warrants or Warrant Shares. SECTION 5.6. Binding Effect. This Warrant shall be binding upon and inure to the benefit of the Company, each Holder and their respective successors and assigns. SECTION 5.7. Counterparts. This Warrant may be executed by the parties hereto in several counterparts, each of which shall be deemed to be an original and all of which shall constitute together but one and the same agreement. This Warrant shall become effective when counterparts hereof executed on behalf of the Company and each Holder shall have been received. SECTION 5.8. Governing Law; Entire Agreement. THIS WARRANT AND THE WARRANTS, SHALL EACH BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK. This -19- Warrant and the Warrants, constitute the entire understanding among the parties hereto with respect to the subject matter hereof and supersede any prior agreements, written or oral, with respect thereto. SECTION 5.9. Benefits of this Warrant. Nothing in this Warrant shall be construed to give to any Person other than the Company and each Holder of a Warrant or a Warrant Share any legal or equitable right, remedy or claim hereunder. SECTION 5.10. Headings. The various headings of this Warrant are inserted for convenience only and shall not affect the meaning or interpretation of this Warrant or any provisions hereof or thereof. SECTION 5.11. Expenses. The Company will promptly (and in any event within thirty (30) days of receiving any statement or invoice therefor) pay all reasonable fees, expenses and costs relating hereto, including, but not limited to, (i) the cost of reproducing this Warrant and the Warrants, (ii) the fees and disbursements of counsel to the Holder in preparing this Warrant, (iii) all transfer, stamp, documentary or other similar taxes, assessments or charges levied by any governmental or revenue authority in respect hereof or any other document referred to herein, (iv) fees and expenses (including, without limitation, reasonable attorneys' fees) incurred in respect of the enforcement by Holders of the rights granted to Holders under this Warrant, and (v) the expenses relating to the consideration, negotiation, preparation or execution of any amendments, waivers or consents requested by the Company pursuant to the provisions hereof, whether or not any such amendments, waivers or consents are executed. SECTION 5.12. Attorneys' Fees. In any action or proceeding brought by a party to enforce any provision of this Warrant, the prevailing party shall be entitled to recover the reasonable costs and expenses incurred by it in connection with that action or proceeding (including, but not limited to, attorneys' fees). SECTION 5.13. Filings. The Company shall, at its own expense, promptly execute and deliver, or cause to be executed and delivered, to any holder of Warrants all applications, certificates, instruments and all other documents and papers that such holder of Warrants may reasonably request in connection with the obtaining of any consent, approval, qualification, or authorization of any federal, provincial, state or local government (or any agency or commission thereof) necessary or appropriate in connection with, or for the effective exercise of, any Warrants then held by such holder. SECTION 5.14. Other Transactions. Nothing contained herein shall preclude the Holder from engaging in any transaction, in addition to those contemplated by this Warrant with the Company or any of its Affiliates in which the Company or such Affiliate is not restricted hereby from engaging with any other Person. SECTION 5.15. Forum Selection and Consent to Jurisdiction. ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN -20- CONNECTION WITH, THIS WARRANT OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF THE HOLDERS OR THE COMPANY SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY IN THE COURTS OF THE STATE OF NEW YORK OR IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK; THE COMPANY HEREBY EXPRESSLY AND IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK FOR THE PURPOSE OF ANY SUCH LITIGATION AS SET FORTH ABOVE AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH SUCH LITIGATION. THE COMPANY FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS BY REGISTERED MAIL, POSTAGE PREPAID, OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE STATE OF NEW YORK. THE COMPANY HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY HAVE OR HEREAFTER MAY HAVE TO THE LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. TO THE EXTENT THAT THE COMPANY HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY COURT OF FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, THE COMPANY HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER THIS WARRANT. SECTION 5.16. Jury Trial. THE COMPANY HEREBY KNOWINGLY, VOLUNTARILY, AND INTENTIONALLY WAIVES ANY RIGHTS IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS WARRANT. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE PARTIES HERETO CAUSING THE ISSUANCE OF THE LETTER OF CREDIT AND ENTERING INTO THE REIMBURSEMENT AGREEMENT AND THE ING SECURITY AGREEMENT. THE COMPANY ACKNOWLEDGES THAT IT HAS HAD THE ASSISTANCE OF COUNSEL IN THE REVIEW AND EXECUTION OF THIS WARRANT, INCLUDING THIS SECTION 5.16 HEREOF, AND FURTHER ACKNOWLEDGES THAT THE MEANING AND EFFECT OF THE FOREGOING WAIVER OF JURY TRIAL HAVE BEEN FULLY EXPLAINED TO THE COMPANY BY SUCH COUNSEL. -21- IN WITNESS WHEREOF, the parties hereto have caused this Warrant to be duly executed and delivered by their authorized officers, all as of the date and year first above written. MATTHEWS STUDIO EQUIPMENT GROUP By: Name: Title: [CORPORATE SEAL] ATTEST: By:_________________________ Name: Title: -22- EXHIBIT A ARTICLES OF INCORPORATION OF THE COMPANY ANNEX 1 ELECTION TO EXERCISE FORM (To Be Executed By The Holders of This Warrant In Order to Exercise This Warrant) The undersigned hereby irrevocably elects to exercise the right to purchase ______________ shares of Common Stock of Matthews Studio Equipment Group covered by this Warrant according to the conditions hereof and herewith makes payment of the Exercise Price of such shares in full. ----------------------------- Signature ----------------------------- ----------------------------- Address Dated: _________________________ ANNEX 2 ASSIGNMENT FORM (To Be Executed By The Holder of This Warrant In Order to Assign This Warrant Certificate) FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto _____________________________ this Warrant and all rights evidenced thereby and does irrevocably constitute and appoint __________________, attorney, to transfer the said Warrant on the books of the Company. ----------------------------- Signature ----------------------------- ----------------------------- Address Dated: _________________________ ANNEX 3 EXCHANGE FORM (To Be Executed By The Holder of This Warrant In Order to Assign This Warrant Certificate) The undersigned hereby irrevocably elects to exchange this Warrant to purchase ___________ shares of Common Stock of Matthews Studio Equipment Group (the "Company") covered by this Warrant for ___________ Warrants to purchase the denominations of shares of Common Stock set forth below to the persons named and hereby sells, assigns and transfers unto such persons that portion of this Warrant represented by such new Warrants and all rights evidenced thereby and does irrevocably constitute and appoint ____________________, attorney, to exchange and transfer this Warrant as aforesaid on the books of the Company. Number of Warrant Shares Assignee - ------------ ----------------------------- - ------------ ----------------------------- ----------------------------- Signature ----------------------------- ----------------------------- Address FOR USE BY THE COMPANY ONLY: This Warrant No. __ canceled (or transferred or exchanged) this ________ day of _____________, _____________ shares of Common Stock issued therefor in the name of _________________, Warrant No. ___ for __________ shares of Common Stock in the name of _______________________. Dated: ____________________________ SCHEDULE 3.31(b)(iv)
Description of Options or Convertible Securities Number of Shares - ------------------------------------------------ ---------------- Options outstanding pursuant to the Company's 1989 Stock Option Plan, the Company's 1994 Stock Option Plan and the Company's 1994 Stock Option Plan for Directors 1,483,400 Options granted pursuant to the Amended and Restated Employment Agreement dated October 1, 1997, between the Company and Carlos D. DeMattos, the employment terms letter dated October 1, 1998, between the Company and John D. Murray and the Employment Agreement dated November 23, 1998, between the Company and Alan Unger 545,000 ------------ Warrant issued to DR&A, Inc. dated June 27, 1996 50,000 ------------ Total 2,078,400 ============
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