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Exhibit 10.2
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON
EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY STATE SECURITIES
LAWS AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF
UNLESS REGISTERED UNDER THE SECURITIES ACT AND UNDER APPLICABLE
STATE SECURITIES LAWS OR THE ISSUER SHALL HAVE RECEIVED AN OPINION
OF COUNSEL REASONABLY SATISFACTORY TO THE ISSUER THAT REGISTRATION
OF SUCH SECURITIES UNDER THE SECURITIES ACT AND UNDER THE
PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED.
WARRANTS TO PURCHASE
SHARES OF COMMON STOCK
OF
AMERICAN APPAREL, INC.
Expires December 19, 2013
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No.: W-A-08-1
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Number of Shares:
1,000,000
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Date of Issuance: December 19,
2008
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FOR VALUE RECEIVED, the undersigned, American
Apparel, Inc., a Delaware corporation (together with its successors
and assigns, the " Issuer "), hereby certifies that SOF
Investments, L.P. — Private IV or its registered assigns is
entitled to subscribe for and purchase, during the Term (as
hereinafter defined), up to one million (1,000,000) shares
(subject to adjustment as hereinafter provided) of duly authorized,
validly issued, fully paid and non-assessable Common Stock of the
Issuer, at an exercise price per share equal to the Warrant Price
then in effect, subject, however, to the provisions and upon the
terms and conditions hereinafter set forth. Capitalized terms used
in this Warrant and not otherwise defined herein shall have the
respective meanings specified in Section 7 hereof.
1. Term . The term of this Warrant shall commence on the
Original Issue Date and shall expire at 6:00 p.m., eastern time, on
December 19, 2013 (such period being the " Term ").
2. Method of Exercise; Payment; Issuance of New Warrant;
Transfer and Exchange .
(a) Time of Exercise . The purchase rights represented by
this Warrant may be exercised in whole at any time or in part
during the Term.
(b) Method of Exercise . The Holder hereof may exercise
this Warrant, in whole or in part, by the surrender of this Warrant
(with the exercise form attached hereto duly executed) at the
principal office of the Issuer, and by the payment to the Issuer of
an amount of consideration therefor equal to the Warrant Price in
effect on the date of such exercise multiplied by the
number of shares of Warrant Stock with respect to
which this Warrant is then being exercised, payable at such
Holder’s election (i) by certified or official bank
check or by wire transfer to an account designated by the Issuer,
(ii) by "cashless exercise" in accordance with the provisions
of subsection (c) of this Section 2, or (iii) by a
combination of the foregoing methods of payment selected by the
Holder of this Warrant.
(c) Cashless Exercise . Notwithstanding any provisions
herein to the contrary, if the Per Share Market Value of one share
of Common Stock on the date of exercise is greater than the Warrant
Price (at the date of calculation as set forth below), in lieu of
exercising this Warrant by payment of cash, the Holder may exercise
this Warrant by a cashless exercise and shall receive the number of
shares of Common Stock equal to an amount (as determined below) by
surrender of this Warrant at the principal office of the Issuer
together with the properly endorsed Notice of Exercise in which
event the Issuer shall issue to the Holder a number of shares of
Common Stock computed using the following formula:
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X = Y - (A)(Y)
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B
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Where
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X =
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the number of shares of Common Stock to be issued
to the Holder.
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Y =
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the number of shares of Common Stock purchasable
upon exercise of all of the Warrant or, if only a portion of the
Warrant is being exercised, the portion of the Warrant being
exercised.
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A =
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the Warrant Price.
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B =
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the Per Share Market Value on the date of
exercise of one share of Common Stock.
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(d) Issuance of Stock Certificates . In
the event of any exercise of this Warrant in accordance with and
subject to the terms and conditions hereof, certificates for the
shares of Warrant Stock so purchased shall be dated the date of
such exercise and delivered to the Holder hereof within a
reasonable time, not exceeding three (3) Trading Days after
such exercise (the " Delivery Date ") or, at the request of
the Holder (provided that the Warrant Stock is then freely
tradeable under Rule 144 under the Securities Act) issued and
delivered to the Depository Trust Company (" DTC ") account
of the Holder or its designee on the Holder’s behalf via the
Deposit Withdrawal Agent Commission System (" DWAC ") within
a reasonable time, not exceeding three (3) Trading Days after
such exercise, and the Holder hereof shall be deemed for all
purposes to be the holder of the shares of Warrant Stock so
purchased as of the date of such exercise. Notwithstanding the
foregoing to the contrary, the Issuer or its transfer agent shall
only be obligated to issue and deliver the shares to the DTC on a
holder’s behalf via DWAC if the Issuer and its transfer agent
are participating in DTC through the DWAC system. The Holder shall
deliver this original Warrant, or an indemnification undertaking
with respect to such Warrant in the case of its loss, theft or
destruction, at such time that this Warrant is fully exercised.
With respect to partial exercises of this Warrant, the Issuer shall
keep written records of the number of shares of Warrant Stock
exercised as of each date of exercise.
(e) Transferability of Warrant . Subject
to Section 2(g) hereof, this Warrant may be transferred by a
Holder, in whole or in part, without the consent of the Issuer. If
transferred pursuant to this paragraph, this Warrant may be
transferred on the books of the Issuer by the Holder hereof in
person or by duly authorized attorney, upon surrender of this
Warrant at the principal office of the Issuer, properly endorsed
(by the Holder executing an assignment in the form attached hereto)
and upon payment of any necessary transfer tax or other
governmental charge imposed upon such transfer. This Warrant is
exchangeable at the principal office of the Issuer for Warrants to
purchase the same aggregate number of shares of Warrant Stock, each
new Warrant to represent the right to purchase such number of
shares of Warrant Stock as the Holder hereof shall designate at the
time of such exchange. All Warrants issued on transfers or
exchanges shall be dated the Original Issue Date and shall be
identical to this Warrant except as to the number of shares of
Warrant Stock issuable pursuant thereto.
(f) Continuing Rights of Holder . The Issuer will, at the
time of or at any time after each exercise of this Warrant, upon
the request of the Holder hereof, acknowledge in writing the
extent, if any, of its continuing obligation to afford to such
Holder all rights to which such Holder shall continue to be
entitled after such exercise in accordance with the terms of this
Warrant, provided that if any such Holder shall fail to make
any such request, the failure shall not affect the continuing
obligation of the Issuer to afford such rights to such Holder.
(g) Compliance with Securities Laws.
(i) The Holder of this Warrant, by acceptance hereof,
acknowledges that this Warrant and the shares of Warrant Stock to
be issued upon exercise hereof are being acquired solely for the
Holder’s own account and not as a nominee for any other
party, and for investment, and that the Holder will not offer, sell
or otherwise dispose of this Warrant or any shares of Warrant Stock
to be issued upon exercise hereof except pursuant to an effective
registration statement, or an exemption from registration, under
the Securities Act and any applicable state securities laws.
(ii) Except as provided in paragraph (iii) below, this
Warrant and all certificates representing shares of Warrant Stock
issued upon exercise hereof shall be stamped or imprinted with a
legend in substantially the following form:
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON
EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY STATE SECURITIES
LAWS AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF
UNLESS REGISTERED UNDER THE SECURITIES ACT AND UNDER APPLICABLE
STATE SECURITIES LAWS OR THE ISSUER SHALL HAVE RECEIVED AN OPINION
OF COUNSEL REASONABLY SATISFACTORY TO THE ISSUER THAT REGISTRATION
OF SUCH SECURITIES UNDER THE SECURITIES ACT AND UNDER THE
PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED.
(iii) The Issuer agrees to reissue this Warrant
or certificates representing any of the Warrant Stock, without the
legend set forth above if at such time, prior to making any
transfer of any such securities, the Holder shall give written
notice to the Issuer describing the manner and terms of such
transfer. Such proposed transfer will not be effected until:
(a) either (i) the Issuer has received an opinion of
counsel reasonably satisfactory to the Issuer, to the effect that
the registration of such securities under the Securities Act is not
required in connection with such proposed transfer, (ii) a
registration statement under the Securities Act covering such
proposed disposition has been filed by the Issuer with the
Securities and Exchange Commission and has become effective under
the Securities Act and the Holder has represented that the Warrant
Stock has been or will be sold, (iii) the Issuer has received
other evidence reasonably satisfactory to the Issuer that such
registration and qualification under the Securities Act and state
securities laws are not required, or (iv) the Holder provides
the Issuer with reasonable assurances acceptable to the Issuer that
such security can be sold pursuant to Rule 144 under the Securities
Act; and (b) either (i) the Issuer has received an
opinion of counsel reasonably satisfactory to the Issuer, to the
effect that registration or qualification under the securities or
"blue sky" laws of any state is not required in connection with
such proposed disposition, or (ii) compliance with applicable
state securities or "blue sky" laws has been effected or a valid
exemption exists with respect thereto. The Issuer will respond to
any such notice from a Holder within three (3) Trading Days.
In the case of any proposed transfer under this Section 2(g),
the Issuer will use reasonable efforts, at the Holder’s
expense, to comply with any such applicable state securities or
"blue sky" laws, but shall in no event be required, (x) to
qualify to do business in any state where it is not then qualified,
(y) to take any action that would subject it to tax or to the
general service of process in any state where it is not then
subject, or (z) to comply with state securities or "blue sky"
laws of any state for which registration by coordination is
unavailable to the Issuer. The restrictions on transfer contained
in this Section 2(g) shall be in addition to, and not by way
of limitation of, any other restrictions on transfer contained in
any other section of this Warrant. Whenever a certificate
representing the Warrant Stock is required to be issued to the
Holder without a legend, in lieu of delivering physical
certificates representing the Warrant Stock, the Issuer shall use
its reasonable best efforts to cause its transfer agent to
electronically transmit the Warrant Stock to the Holder by
crediting the account of the Holder’s prime broker with DTC
through its DWAC system (to the extent not inconsistent with any
provisions of this Warrant). Notwithstanding the foregoing to the
contrary, the Issuer or its transfer agent shall only be obligated
to issue and deliver the shares to the DTC on a holder’s
behalf via DWAC if such exercise is in connection with a sale and
the Issuer and its transfer agent are participating in DTC through
the DWAC system.
(g) Accredited Investor Status . In no event may the
Holder exercise this Warrant in whole or in part unless the Holder
is an "accredited investor" as defined in Regulation D under the
Securities Act.
(h) No Rights as Stockholder . A Warrant
does not entitle the Holder thereof to any of the rights of a
stockholder of the Issuer, including, without limitation, the right
to receive dividends or other distributions, exercise any
preemptive rights to vote or to consent or to receive notice as
stockholders in respect of the meetings of stockholders or the
election of directors of the Issuer or any other matter.
3. Stock Fully Paid; Reservation and Listing of Shares;
Covenants .
(a) Stock Fully Paid . The Issuer represents, warrants,
covenants and agrees that all shares of Warrant Stock which may be
issued upon the exercise of this Warrant or otherwise hereunder
will, when issued in accordance with the terms of this Warrant, be
duly authorized, validly issued, fully paid and nonassessable and
free from all taxes, liens and charges created by or through the
Issuer, other than income taxes attributable to the issuance and
delivery of Common Stock upon exercise of this Warrant. The Issuer
further covenants and agrees that during the period within which
this Warrant may be exercised, the Issuer will at all times have
authorized and reserved for the purpose of issuance upon exercise
of this Warrant a number of shares of Common Stock equal to at
least the aggregate number of shares of Common Stock necessary to
provide for the exercise of this Warrant, as such necessary number
of shares of Common Stock may be adjusted from time to time
pursuant to Section 4 hereof.
(b) Reservation . If any shares of Common Stock required
to be reserved for issuance upon exercise of this Warrant or as
otherwise provided hereunder require registration or qualification
with any governmental authority under any federal or state law
before such shares may be so issued, the Issuer will in good faith
use its best efforts as expeditiously as possible at its expense to
cause such shares to be duly registered or qualified. If the Issuer
shall list any shares of Common Stock on any securities exchange or
market it will, at its expense, list thereon, maintain and increase
when necessary such listing, of, all shares of Warrant Stock from
time to time issued upon exercise of this Warrant or as otherwise
provided hereunder (provided that such Warrant Stock has been
registered pursuant to a registration statement under the
Securities Act then in effect), and, to the extent permissible
under the applicable securities exchange rules, all unissued shares
of Warrant Stock which are at any time issuable hereunder, so long
as any shares of Common Stock shall be so listed. The Issuer will
also so list on each securities exchange or market, and will
maintain such listing of, any other securities which the Holder of
this Warrant shall be entitled to receive upon the exercise of this
Warrant if at the time any securities of the same class shall be
listed on such securities exchange or market by the Issuer.
(c) Covenants . The Issuer shall not by any action
including, without limitation, amending the Articles of
Incorporation or the by-laws of the Issuer, or through any
reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other action, avoid
or seek to avoid the observance or performance of any of the terms
of this Warrant, but will at all times in good faith assist in the
carrying out of all such terms and in the taking of all such
actions as may be necessary or appropriate to protect the rights of
the Holder hereof against dilution (to the extent specifically
provided herein) or impairment. Without limiting the generality of
the foregoing, the Issuer will (i) not permit the par value,
if any, of its Common Stock to exceed the then effective Warrant
Price, (ii) not amend or modify any provision of the Articles
of Incorporation or by-laws of the Issuer in any manner that would
adversely affect the rights of the Holders of the Warrants,
(iii) take all such action as may be
reasonably necessary in order that the Issuer may
validly and legally issue fully paid and nonassessable shares of
Common Stock, free and clear of any liens, claims, encumbrances and
restrictions (other than as provided herein) upon the exercise of
this Warrant, and (iv) use its best efforts to obtain all such
authorizations, exemptions or consents from any public regulatory
body having jurisdiction thereof as may be reasonably necessary to
enable the Issuer to perform its obligations under this
Warrant.
(d) Loss, Theft, Destruction of Warrants . Upon receipt
of evidence satisfactory to the Issuer of the ownership of and the
loss, theft, destruction or mutilation of any Warrant and, in the
case of any such loss, theft or destruction, upon receipt of
indemnity or security satisfactory to the Issuer or, in the case of
any such mutilation, upon surrender and cancellation of such
Warrant, the Issuer will make and deliver, in lieu of such lost,
stolen, destroyed or mutilated Warrant, a new Warrant of like tenor
and representing the right to purchase the same number of shares of
Common Stock.
4. Adjustment of Warrant Price and Number of Shares Issuable
Upon Exercise . The Warrant Price and the Warrant Share Number
shall be subject to adjustment from time to time as set forth in
this Section 4. The Issuer shall give the Holder notice of any
event described below which requires an adjustment pursuant to this
Section 4 in accordance with the notice provisions set forth
in Section 5.
(a) Recapitalization, Reorganization, Reclassification,
Consolidation, Merger or Sale . In case the Issuer after the
Original Issue Date shall do any of the following (each, a "
Triggering Event "): (a) consolidate or merge with or
into any other Person and the Issuer shall not be the continuing or
surviving corporation of such consolidation or merger, or
(b) permit any other Person to consolidate with or merge into
the Issuer and the Issuer shall be the continuing or surviving
Person but, in connection with such consolidation or merger, any
Capital Stock of the Issuer shall be changed into or exchanged for
Securities of any other Person or cash or any other property, or
(c) transfer all or substantially all of its properties or
assets to any other Person, or (d) effect a capital
reorganization or reclassification of its Capital Stock, then, and
as a condition to each such Triggering Event, proper and adequate
provision shall be made so that, upon the basis and the terms and
in the manner provided in this Warrant, the Holder of this Warrant
shall be entitled upon the exercise hereof at any time after the
consummation of such Triggering Event, to the extent this Warrant
is not exercised prior to such Triggering Event, to receive at the
Warrant Price in effect at the time immediately prior to the
consummation of such Triggering Event in lieu of the Common Stock
issuable upon such exercise of this Warrant prior to such
Triggering Event, the Securities, cash and property to which such
Holder would have been entitled upon the consummation of such
Triggering Event if such Holder had exercised the rights
represented by this Warrant immediately prior thereto (including
the right of a shareholder to elect the type of consideration it
will receive upon a Triggering Event), subject to adjustments
(subsequent to such corporate action) as nearly equivalent as
possible to the adjustments provided for elsewhere in this
Section 4.
(b) Stock Dividends, Subdivisions and Combinations . If
at any time the Issuer shall:
(i) make or issue or set a record date for the holders of the
Common Stock for the purpose of entitling them to receive a
dividend payable in, or other distribution of, shares of Common
Stock,
(ii) subdivide its outstanding shares of Common
Stock into a larger number of shares of Common Stock, or
(iii) combine its outstanding shares of Common Stock into a
smaller number of shares of Common Stock,
then (1) the number of shares of Common Stock for which
this Warrant is exercisable immediately after the occurrence of any
such event shall be adjusted to equal the number of shares of
Common Stock which a record holder of the same number of shares of
Common Stock for which this Warrant is exercisable immediately
prior to the occurrence of such event would own or be entitled to
receive after the happening of such event, and (2) the Warrant
Price then in effect shall be adjusted to equal (A) the
Warrant Price then in effect multiplied by the number of shares of
Common Stock for which this Warrant is exercisable immediately
prior to the adjustment divided by (B) the number of shares of
Common Stock for which this Warrant is exercisable immediately
after such adjustment.
(c) Certain Other Distributions . If at any time the
Issuer shall make or issue or set a record date for the holders of
the Common Stock for the purpose of entitling them to receive any
dividend or other distribution of:
(i) cash (other than a cash dividend payable out of earnings or
earned surplus legally available for the payment of dividends under
the laws of the jurisdiction of incorporation of the Issuer),
(ii) any evidences of its indebtedness, any shares of stock of
any class or any other securities or property of any nature
whatsoever (other than cash, Common Stock Equivalents or Additional
Shares of Common Stock), or
(iii) any warrants or other rights to subscribe for or purchase
any evidences of its indebtedness, any shares of stock of any class
or any other securities or property of any nature whatsoever (other
than cash, Common Stock Equivalents or Additional Shares of Common
Stock),
then (1) the number of shares of Common Stock for which
this Warrant is exercisable shall be adjusted to equal the product
of the number of shares of Common Stock for which this Warrant is
exercisable immediately prior to such adjustment multiplied by a
fraction (A) the numerator of which shall be the Per Share
Market Value of Common Stock at the date of taking such record and
(B) the denominator of which shall be such Per Share Market
Value minus the amount allocable to one share of Common Stock of
any such cash so distributable and of the fair value (as determined
in good faith by the Board) of any and all such evidences of
indebtedness, shares of stock, other securities or property or
warrants or other subscription or purchase rights so distributable,
and (2) the Warrant Price then in effect shall be adjusted to
equal (A) the Warrant Price then in effect multiplied by the
number of shares of Common Stock for which this Warrant is
exercisable immediately prior to the adjustment divided by
(B) the number of shares of
Common Stock for which this Warrant is
exercisable immediately after such adjustment. A reclassification
of the Common Stock (other than a change in par value, or from par
value to no par value or from no par value to par value) into
shares of Common Stock and shares of
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