THIS WARRANT AND THE SHARES OF SERIES B PREFERRED STOCK PURCHASABLE HEREUNDER
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER
THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION AND MAY NOT BE SOLD,
OFFERED FOR SALE OR OTHERWISE TRANSFERRED UNLESS REGISTERED OR QUALIFIED UNDER
SAID ACT AND APPLICABLE STATE SECURITIES LAWS OR UNLESS AN EXEMPTION IS
AVAILABLE AND AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO THE ISSUER IS
DELIVERED TO SUCH EFFECT.
Void after 5:00 p.m. New York, New York Time, on August 5, 2002.
WARRANT TO PURCHASE
SHARES OF
SERIES B PREFERRED STOCK
OF
CDNOW, INC.
This is to certify that, FOR VALUE RECEIVED, Alex.Xxxxx & Sons Incorporated
or its registered assigns pursuant to Section (d) hereof ("Holder"), is entitled
to purchase, subject to the provisions of this Warrant, from CDNOW, INC., a
Pennsylvania corporation (the "Company"), up to 103,211 fully paid, validly
issued and nonassessable shares of Series B Convertible Preferred Stock, no par
value per share (the "Series B Preferred Stock"), at the exercise price of $5.45
per share until August 5, 2002. The number of shares of Series B Preferred
Stock to be received upon the exercise of this Warrant and the price to be paid
for each share of Series B Preferred Stock are subject to adjustment from time
to time as hereinafter set forth. The shares of Series B Preferred Stock
deliverable upon such exercise, and as adjusted from time to time, are
hereinafter sometimes referred to as "Warrant Shares," and the exercise price
for a share of Series B Preferred Stock, as adjusted from time to time, is
hereinafter sometimes referred to as the "Exercise Price." In the event the
outstanding shares of Series B Preferred Stock are automatically converted into
shares of the Company's Common Stock in accordance with the terms of the Series
B Preferred Stock as set forth in the Company's Amended and Restated Articles of
Incorporation, as amended on August 5, 1997 ("Articles"), this Warrant shall
immediately become exercisable for shares of the Company's Common Stock on terms
identical to those applicable to the Series B Preferred Stock.
(a) EXERCISE OF WARRANT; NOTIFICATION OF EXPIRATION DATE OF WARRANT. The
---------------------------------------------------------------
Warrant may be exercised in whole or in part at any time or from time to time,
until 5:00 P.M. New York, New York Time on August 5, 2002 (the "Expiration
Date"), provided, however, that if such day is a day on which banking
institutions in the State of New York are authorized by law to close, then on
the next succeeding day which shall not be such a
day. The Warrant may be exercised by presentation and surrender hereof to the
Company at its principal office, or at the office of its stock transfer agent,
if any, with the purchase form annexed hereto duly executed (with signature
guaranteed if required by the Company or, if any, its stock transfer agent) and
accompanied by payment of the Exercise Price for the number of Warrant Shares
specified in such form and any applicable taxes. The purchase price for any
Warrant Shares purchased pursuant to the exercise of this Warrant shall be paid
in full upon such exercise in cash or by certified or bank check or by
cancellation by the Holder of indebtedness or other debt obligations of the
Company to the Holder. Alternatively, this Warrant may be exchanged for Warrant
Shares as described in Section (k) hereof. As soon as practicable after each
such exercise of this Warrant, but not later than seven (7) business days from
the date of such exercise, the Company shall issue and deliver to the Holder a
certificate or certificates for the Warrant Shares issuable upon such exercise,
registered in the name of the Holder or the Holder's designee (subject to the
terms of this Warrant). If the Warrant should be exercised in part only, the
Company shall, upon surrender of the Warrant for cancellation, execute and
deliver a new Warrant evidencing the rights of the Holder thereof to purchase
the balance of the Warrant Shares purchasable thereunder. Upon receipt by the
Company of the Warrant at its office, or by the stock transfer agent of the
Company at its office, in proper form for exercise, together with the exercise
price thereof and taxes as aforesaid in cash or certified or bank check and the
investment letter described below, the Holder shall be deemed to be the holder
of record of the Warrant Shares issuable upon such exercise, notwithstanding
that the stock transfer books of the Company shall then be closed or that
certificates representing such Warrant Shares shall not then be physically
delivered to the Holder. Each stock certificate so delivered shall be in such
denomination as may be reasonably requested by the Holder hereof and shall be
registered in the name of the Holder or such other name as shall be designated
by the Holder (subject to the terms of this Warrant). The Company shall pay all
expenses, taxes and other charges payable in connection with the preparation,
execution and delivery of stock certificates and new Warrants, pursuant to this
Section (a), except that, in case such stock certificates shall be registered in
a name or names other than the name of the Holder of this Warrant, funds
sufficient to pay all stock transfer taxes which shall be payable upon the
execution and delivery of such stock certificate or certificates shall be paid
by the Holder hereof to the Company.
In order to assure the availability of an exemption from registration under
the federal or applicable state securities laws, the Company may condition the
exercise of the Warrant upon the Holder delivering to the Company an investment
letter in the form as customarily used by the Company from time to time in
connection with the exercise of unregistered options and warrants issued by the
Company. It is further understood that certificates for the Warrant Shares, if
any, to be issued upon exercise of the Warrant may contain a restrictive legend
in accordance with Section (j) hereof.
Notwithstanding anything herein to the contrary, the Company shall use
reasonable efforts to mail to the original Holder, by certified mail, return
receipt requested, notice of the Expiration Date of this Warrant, no later than
15 days prior to the Expiration Date.
-2-
(b) RESERVATION OF SHARES. The Company shall at all times reserve for
---------------------
issuance and/or delivery upon exercise of this Warrant such number of shares of
its Series B Preferred Stock as shall be required for issuance and delivery upon
exercise of this Warrant. If any shares of the Series B Preferred Stock are or
become listed on any national securities exchange or The Nasdaq Stock Market,
the Company shall also list the Warrant Shares, as the case may be, on such
exchange or system, as the case may be, subject to notice of issuance.
(c) FRACTIONAL SHARES. Fractional shares or scrip representing fractional
-----------------
shares may be issued upon the exercise of this Warrant. Alternatively, the
Company may, at its option, with respect to any fraction of a share issuable
upon any exercise hereof, pay to the Holder an amount in cash equal to such
fraction multiplied by the greater of (i) the initial Exercise Price per share
or (ii) the current market value of the shares of the Company's Series B
Preferred Stock. The current market value of a share of Series B Preferred
Stock (or shares of Common Stock into which the Series B Preferred Stock may be
converted) shall be determined as follows:
(1) If the Series B Preferred Stock (or shares of Common Stock into
which the Series B Preferred Stock may be converted) is listed on a
national securities exchange or admitted to unlisted trading privileges
on such exchange or listed for trading on The Nasdaq Stock Market, the
current market value shall be the last reported sale price of the
Series B Preferred Stock (or shares of Common Stock into which the
Series B Preferred Stock may be converted) on such exchange or system
on the last business day prior to the date of exercise of this Warrant
or if no such sale is made on such day, the average closing bid and
asked prices for such day on such exchange or system;
(2) If the Series B Preferred Stock (or shares of Common Stock into
which the Series B Preferred Stock may be converted) is not so listed
or admitted to unlisted trading privileges, the current market value
shall be the mean of the last reported bid and asked prices for the
Series B Preferred Stock (or shares of Common Stock into which the
Series B Preferred Stock may be converted) reported by the National
Quotation Bureau, Inc., on the last business day prior to the date of
the exercise of this Warrant; or
(3) If the Series B Preferred Stock (or shares of Common Stock into
which the Series B Preferred Stock may be converted) is not so listed
or admitted to unlisted trading privileges and bid and asked prices are
not so reported, the current market value shall be an amount reasonably
determined by the Board of Directors of the Company.
(d) EXCHANGE, TRANSFER, ASSIGNMENT OR LOSS OF WARRANT. This Warrant is
-------------------------------------------------
exchangeable, without expense, at the option of the Holder, upon presentation
and surrender hereof to the Company or at the office of its stock transfer
agent, if any, for other warrants of different denomination (which may be
reasonably requested by the Holder) entitling
-3-
the Holder thereof to purchase in the aggregate the same number of shares of
Series B Preferred Stock purchasable hereunder. Subject to Section (j) hereof,
the Holder may transfer or assign this Warrant, in whole or in part and from
time to time. In addition to the rights of the Holder set forth in this
Warrant, the Holder has additional registration and other rights pursuant to the
Investors' Rights Agreement described in Section (1) hereof. To effect a
transfer of such registration rights, certain notice and assumption obligations
are imposed by the Investors' Rights Agreement. Upon surrender by the Holder of
this Warrant to the Company at its principal office or at the office of its
stock transfer agent, if any, with the Assignment Form annexed hereto duly
executed (with signature guaranteed, if required by the Company or its stock
transfer agent) and funds sufficient to pay any transfer tax, the Company shall,
without charge, execute and deliver a new Warrant in the name of the assignee or
assignees named in such instrument of assignment and this Warrant shall promptly
be canceled. This Warrant may be divided into or combined with other Warrants
which carry the same rights upon presentation hereof at the principal office of
the Company or at the office of its stock transfer agent, if any, together with
a written notice specifying the names and denominations in which new Warrants
are to be issued and signed by the Holder hereof. The term "Warrant" as used
herein includes any Warrants into which this Warrant may be divided or
exchanged, and the term "Holder" includes any subsequent holder or holders of
this Warrant or any warrant for which this Warrant is exchanged or into which it
is divided. Upon receipt by the Company of evidence satisfactory to it of the
loss, theft, destruction or mutilation of this Warrant, and in the case of loss,
theft or destruction, of reasonable satisfactory indemnification, and upon
surrender and cancellation of this Warrant, if mutilated, the Company will
execute and deliver a new Warrant of like tenor, date and amount. Any such new
Warrant executed and delivered shall constitute an additional contractual
obligation on the part of the Company, whether or not the original Warrant shall
be at any time enforceable by anyone.
(e) RIGHTS OF THE HOLDER. Subject to the provisions of Section (1), the
--------------------
Holder shall not, by virtue hereof, be entitled to any rights of a shareholder
in the Company, either at law or equity (including, without limitation, any
rights to dividends) and the rights of the Holder with respect to the shares of
Series B Preferred Stock purchasable pursuant to this Warrant are limited to
those expressed in the Warrant and are not enforceable against the Company
except to the extent set forth herein.
(f) ANTI-DILUTION PROVISIONS. So long as this Warrant shall be
------------------------
outstanding, the Exercise Price in effect at any time and the number and kind of
securities purchasable upon the exercise of this Warrant shall be subject to
adjustment from time to time upon the happening of certain events as follows:
(1) In case the Company shall: (i) declare a dividend or make a
distribution on its outstanding shares of Common Stock in shares of
Common Stock; (ii) issue shares of Common Stock or securities
convertible into Common Stock (other than shares of Common Stock issued
upon: (A) the conversion of outstanding shares of Series B Preferred
Stock, (B) the exercise of warrants to purchase Common Stock
outstanding prior
-4-
to July 15, 1997, or (C) the exercise of any option granted or
hereafter granted to any officer, director, employee, agent or
consultant of the Company pursuant to a stock option plan approved by a
majority of the independent directors of the Company's Board of
Directors) for consideration less than the Exercise Price of this
Warrant on the date of issuance of such shares of Common Stock; (iii)
subdivide or reclassify its outstanding shares of Common Stock into a
greater number of shares; or (iv) combine or reclassify its outstanding
shares of Common Stock into a smaller number of shares, then the
Exercise Price in effect at the time of the record date for such
dividend or distribution, the issuance of such shares of Common Stock
or the effective date of such subdivision, combination or
reclassification (such dividend or distribution, issuance of
securities, subdivision, combination or reclassification, collectively
a "Dilution Event") shall be proportionately adjusted as of the
effective date of such Dilution Event by multiplying such Exercise
Price by a fraction, the denominator of which shall be the outstanding
number of shares of Common Stock determined on a fully-diluted basis
immediately following such event and the numerator of which shall be
the outstanding number of shares of Common Stock determined on a fully-
diluted basis immediately prior thereto plus, in the case of an
adjustment pursuant to clause (ii), the number of shares of Common
Stock that would be purchasable at the Exercise Price for the
consideration being paid for the shares being issued. Such adjustment
shall be made successively whenever any Dilution Event shall occur.
(2) Whenever the Exercise Price payable upon exercise of this Warrant
is adjusted pursuant to subsection (1) above, the number of Warrant
Shares purchasable upon exercise of this Warrant shall simultaneously
be adjusted by multiplying the number of Warrant Shares issuable upon
exercise of this Warrant immediately prior to the Dilution Event by the
Exercise Price in effect immediately prior to the Dilution Event and
dividing the product so obtained by the Exercise Price, as adjusted
pursuant to subsection (1).
(3) No adjustment in the Exercise Price shall be required unless such
adjustment would require an increase or decrease of at least $.05 in
such price; provided, however, that any adjustments which by reason of
this Section (f)(3) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment required to
be made hereunder.
(4) Each computation required by this Section (f) for purposes of
determining whether the Exercise Price shall be adjusted shall be
performed by the Company's Chief Financial Officer or Controller and
shall be reasonably acceptable to the Holder.
-5-
(5) Whenever the Exercise Price is adjusted, as herein provided, the
Company shall promptly cause a notice (certified as correct by the
Company's Chief Financial Officer or Controller) setting forth the
adjusted Exercise Price and adjusted number of Warrant Shares issuable
upon exercise of this Warrant to be mailed to the Holder, at its
address appearing in the Company's Warrant Register, and shall cause a
certified copy thereof to be mailed to its transfer agent, if any.
(6) All calculations under this Section (f) shall be made to the
nearest cent or to the nearest Warrant Share, as the case may be.
(7) In the event that, as a result of application of Section (i) of
this Warrant, this Warrant shall become exercisable for securities
other than the Series B Preferred Stock, thereafter the number of
shares of Series B Preferred Stock receivable upon exercise of this
Warrant shall be subject to adjustment from time to time in a manner
and on terms as nearly equivalent as practicable to the provisions with
respect to the Common Stock contained in this Section (f).
(8) Irrespective of any adjustments in the Exercise Price or the number
kind of Warrant Shares purchasable upon exercise of this Warrant,
Warrants theretofore or thereafter issued may continue to express the
same price and number and kind of shares as are stated in this Warrant
initially issued.
(9) The adjustment provisions set forth in this Section (f) are
intended to preserve the relative equity interest in the Company which
the Holder is permitted to acquire upon conversion of this Warrant into
securities of the Company. The parties hereby acknowledge and agree
that, assuming no changes are made to the conversion rights of the
holders of Series B Preferred Stock (the "Series B Conversion Rights")
as set forth and described in the Articles, the provisions relating to
adjustment of the exercise price and the number and kind of securities
purchasable upon exercise of the Warrant contained in this Section (f)
(the "Antidilution Provisions") shall be deemed to apply to
distributions, issuances, subdivisions, reclassifications or other
changes with respect to the Series B Preferred Stock, but not to
distributions, issuances, subdivisions, reclassifications or other
changes with respect to the Company's Common Stock and that, in
particular, in the application of this Section (f)(1) respecting the
occurrence of a Dilution Event, the term "Series B Preferred Stock"
shall in each instance be substituted for the term "Common Stock." In
the event that any change to the Series B Conversion Rights is made
which affects the conversion rights of the Series B Preferred Stock,
the
-6-
parties agree that the Antidilution Provisions shall be deemed to apply
to distributions, issuances, subdivisions, reclassifications or other
changes with respect to both the Company's Series B Preferred stock and
Common Stock. In no event shall both the provisions of this Section (f)
and the Articles be applied concurrently to effect an increase in the
relative equity interest in the Company of the holder of this Warrant
over the amount of increase which would have occurred if the Holder had
acquired shares of Series B Preferred Stock rather than the Warrant on
August 5, 1997.
(g) OFFICER'S CERTIFICATE. Whenever the Exercise Price shall be adjusted
---------------------
as required by the provisions of the foregoing, the Company shall forthwith file
in the custody of its Secretary or an Assistant Secretary at its principal
office and with its stock transfer agent, if any, a certificate of the Company's
Chief Financial Officer or Controller showing the adjusted Exercise Price
determined as herein provided, setting forth in reasonable detail the facts
requiring such adjustment, including a statement of the number of additional
shares of Series B Preferred Stock, if any, and such other facts as shall be
necessary to show the reason for and the manner of computing such adjustment.
Each such officer's certificate shall be made available at all reasonable times
for inspection by the Holder or any holder of this Warrant, and the Company
shall, forthwith after each such adjustment, mail, by certified mail, a copy of
such certificate to the Holder or any such holder.
(h) NOTICES TO WARRANT HOLDERS. So long as this Warrant shall be
--------------------------
outstanding, (i) if the Company shall declare any dividend or make any
distribution upon the Common Stock, or (ii) if any capital reorganization of the
Company, reclassification of the capital stock of the Company, consolidation or
merger of the Company with or into another corporation, sale, lease or transfer
of all or substantially all of the property and assets of the Company to another
corporation, or voluntary or involuntary dissolution, liquidation or winding up
of the Company shall be effected, then in any such case, the Company shall cause
to be mailed by certified mail to the Holder of this Warrant, at least 10 days
prior to the date specified in (x) or (y) below, as the case may be, a notice
containing a brief description of the proposed action and stating the date on
which (x) a record is to be taken for the purpose of such dividend, distribution
or offer for subscription or purchase, or (y) such reorganization,
reclassification, consolidation, merger, sale, lease, transfer, dissolution,
liquidation or winding up is to take place and the date, if any is to be fixed,
as of which the holders of the Common Stock or other capital stock of the
Company shall receive cash or other property deliverable upon such
reclassification, reorganization, consolidation, merger, conveyance,
dissolution, liquidation or winding up.
(i) RECLASSIFICATION, REORGANIZATION OR MERGER. In case of any
------------------------------------------
reclassification, conversion or capital reorganization of outstanding shares of
either the Series B Preferred Stock or the Common Stock of the Company, or in
case of any consolidation or merger of the Company with or into another
corporation (other than a merger with another corporation in which merger the
Company is the continuing corporation and which does not result in any
reclassification or capital reorganization of outstanding shares of Series B
Preferred Stock of the series issuable upon exercise of this Warrant) or in case
of any sale, lease or conveyance
-7-
to another corporation of the property of the Company substantially as an
entirety, the Company shall, as a condition precedent to such transaction, cause
effective provisions to be made so that the Holder shall have the right
thereafter by exercising this Warrant at any time prior to the expiration of
this Warrant, to purchase the kind and amount of shares of stock and other
securities and property receivable upon such reclassification or capital
reorganization and consolidation, merger, sale or conveyance which would have
been deliverable to the Holder of this Warrant on the effective date of the
reclassification, reorganization or merger had the Holder exercised the Warrant
immediately prior to the event described in this Section (i). Any such
provision shall include provision for subsequent adjustments which shall be as
nearly equivalent as may be practicable to the adjustments provided for in this
Warrant. The foregoing provisions of this Section (i) shall similarly apply to
successive reclassifications or capital reorganizations of shares of either the
Series B Preferred Stock or the Common Stock and to successive consolidations,
mergers, sales or conveyances. In the event that in connection with any such
capital reorganization or reclassification, consolidation, merger, sale or
conveyance, additional shares of Series B Preferred Stock shall be issued in
exchange, conversion, substitution or payment, in whole or in part, for a
security of the Company other than Series B Preferred Stock, any such issue
shall be treated as an issue of Common Stock covered by the provisions of
Section (f)(1) hereof.
(j) SECURITIES LAW COMPLIANCE
-------------------------
(1) The Holder of this Warrant, by acceptance hereof, acknowledges
that this Warrant and the Warrant Shares 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, transfer, assign or otherwise dispose of
this Warrant or any Warrant Shares to be issued upon exercise hereof
except under circumstances that will not result in a violation of the
Securities Act of 1933, as amended (the "Act"), or any state
securities laws. Upon exercise of this Warrant, the Holder shall, if
requested by the Company, confirm in writing, in a form satisfactory
to the Company, that the shares of Series B Preferred Stock so
purchased are being acquired solely for the Holder's own account and
not as a nominee for any other party, for investment, and not with a
view toward distribution or resale.
(2) If deemed necessary by counsel to the Company, this Warrant, and
all Warrant Shares issued upon exercise hereof shall be stamped or
imprinted with legends setting forth the restrictions on transfer
arising under applicable federal and state securities laws.
-8-
(k) RIGHT TO CONVERT WARRANT INTO SERIES B PREFERRED STOCK.
------------------------------------------------------
(1) Right to Convert. As an alternative to payment of the Exercise
----------------
Price in cash, the Holder shall have the right, at any time and from
time to time, to convert this Warrant into shares of Series B
Preferred Stock (the "Conversion Right"). Upon exercise of the
Conversion Right, the Company shall deliver to the Holder (without
payment by the Holder of any Exercise Price or of any other cash or
other consideration) that number of shares of Series B Preferred Stock
equal to the quotient obtained by dividing (x) the value of this
Warrant at the time the Conversion Right is exercised (determined by
subtracting the aggregate Exercise Price in effect immediately prior
to the exercise of the Conversion Right from the aggregate fair market
value of the shares of Series B Preferred Stock issuable upon exercise
of this Warrant immediately prior to the exercise of the Conversion
Right) by (y) the fair market value of one share of Series B Preferred
Stock immediately prior to the exercise of the Conversion Right. For
purposes hereof, the fair market value of a share of Series B
Preferred Stock shall be the greater of (i) a price per share of
Series B Preferred Stock equal to the initial Exercise Price or (ii)
the current market value of the shares of the Company's Series B
Preferred Stock. The current market value of a share of Series B
Preferred Stock shall be determined as follows:
(a) If the Series B Preferred Stock (or shares of Common Stock
into which the Series B Preferred Stock may be converted) is listed on
a national securities exchange or admitted to unlisted trading
privileges on such exchange or listed for trading on The Nasdaq Stock
Market, the current market value shall be the last reported sale price
of the Series B Preferred Stock (or shares of Common Stock into which
the Series B Preferred Stock may be converted) on such exchange or
system on the last business day prior to the date of exercise of this
Warrant or if no such sale is made on such day, the average closing
bid and asked prices for such day on such exchange or system;
(b) If the Series B Preferred Stock (or shares of Common Stock
into which the Series B Preferred Stock may be converted) is not so
listed or admitted to unlisted trading privileges, the current market
value shall be the mean of the last reported bid and asked prices for
the Series B Preferred Stock (or shares of Common Stock into which the
Series B Preferred Stock may be converted) reported by the National
Quotation Bureau, Inc., on the last business day prior to the date of
the exercise of this Warrant; or
-9-
(c) If the Series B Preferred Stock (or shares of Common Stock
into which the Series B Preferred Stock may be converted) is not so
listed or admitted to unlisted trading privileges and bid and asked
prices are not so reported, the current market value shall be an
amount reasonably determined in such reasonable manner as may be
prescribed by the Board of Directors of the Company.
(2) Method of Exercise. The Conversion Right may be exercised by the
------------------
Holder by the surrender of this Warrant at the principal office of the
Company together with a written statement specifying that the Holder
thereby intends to exercise the Conversion Right. Certificates for the
shares of Series B Preferred Stock issuable upon exercise of the
Conversion Right shall be delivered to the Holder within five (5) days
following the Company's receipt of this Warrant together with the
aforesaid written statement.
(l) ADDITIONAL RIGHTS OF THE HOLDER. So long as this Warrant shall be
-------------------------------
outstanding, the Holder shall be entitled to (i) registration, co-sale and
similar rights with respect to the shares of Series B Preferred Stock
purchasable hereunder and (ii) the receipt of various financial and related
information from the Company, each to the same extent as those purchasers
purchasing shares of the Company's Series B Preferred Stock pursuant to the
Stock Purchase Agreement, as amended as of August 4, 1997 and the Investors'
Rights Agreement dated as of July 15, 1997 by and between the Company, the
purchasers listed therein and the other parties thereto.
(m) REPRESENTATION OF HOLDER.
------------------------
(i) The Holder hereby represents and warrants to the Company that it
has substantial knowledge, skill and experience in making investment
decisions of the type represented by this Warrant and the Warrant
Shares, it is capable of evaluating the risk of its investment in this
Warrant and the Warrant Shares and is able to bear the economic risk
of such investment, including the risk of losing the entire
investment, that it is acquiring this Warrant and the Warrant Shares
for its own account, and that this Warrant and the Warrant Shares are
being acquired by it for investment and not with a present view to any
distribution thereof in violation of applicable securities law. If the
Holder should in the future decide to dispose of any of this Warrant
and the Warrant Shares, it is understood that it may do so only in
compliance with the Act and applicable state securities laws. The
Holder represents and warrants that it is an "accredited investor" as
defined in Rule 501(a) under the Act.
(ii) The Holder understands that (i) this Warrant and the Warrant
Shares have not been registered under the Act by reason of their
issuance in a
-10-
transaction exempt from the registration requirements of the Act, (ii)
this Warrant and the Warrant Shares must be held indefinitely unless a
subsequent disposition thereof is registered under the Act and
applicable state securities laws or is exempt from such registrations
(and evidence satisfactory to the Company is provided by such Holder
of the availability of such exemptions, including the delivery to the
Company of opinions of counsel to such Holder, which opinions and
counsel is satisfactory to the Company), and (iii) this Warrant and
the Warrant Shares may bear a legend to such effect.
(n) AMENDMENTS. Neither the Warrant nor any term hereof may be changed,
----------
waived, discharged or terminated without the prior written consent of the
Holder.
(o) NO IMPAIRMENT. The Company will not avoid or seek to avoid the
-------------
observance or performance of any of the terms to be observed or performed
hereunder by the Company, but will at all times in good faith assist in the
carrying out of all the provisions of this Warrant and in the taking of all such
action as may be necessary or appropriate in order to protect the rights of any
Holder.
(p) GOVERNING LAW. This Agreement shall be governed by and construed
-------------
under the laws of the State of Maryland.
(q) NOTICES. All notices and other communications required or permitted
-------
hereunder shall be in writing and shall be mailed by first class mail, postage
prepaid, addressed (a) if to the Holder, to Alex.Xxxxx & Sons Incorporated, Xxx
Xxxxx Xxxxxx, Xxxxxxxxx, Xxxxxxxx 00000, Attention: Xxxxxx X. Xxxxxxxx, Managing
Director, or (b) if to the Company, to CDnow, Inc., 000 Xxx Xxxx Xxxx, Xxxxx
000, Xxxxxxxxxx, Xxxxxxxxxxxx 00000, Attention: Xxxxx Xxxx, President, or at
such other address as the Company shall have furnished to the Holder in writing.
IN WITNESS WHEREOF, CDnow, Inc. has caused this Warrant to be executed by
its officer thereunto duly authorized.
Dated: _______________, 1997
CDNOW, INC.
By: /s/ Xxxxx Xxxx
Name: Xxxxx Xxxx
Title: President
PURCHASE FORM
-------------
Dated _____________, 19__
The undersigned hereby irrevocably elects to exercise its rights pursuant
to this Warrant to the extent of purchasing ___________ shares of Series B
Preferred Stock of CDnow, Inc., and hereby makes payment of $_________________,
in cash or in satisfaction of indebtedness, in payment of the exercise price
thereof.
The undersigned hereby irrevocably elects to exercise its rights pursuant
to this Warrant to the extent of purchasing ____ shares of Series B Preferred
Stock and hereby authorizes you to deliver such shares of Series B Preferred
Stock for sale to ______________, and to retain from the proceeds of such sale
$_________________, in cash, in payment of the exercise price thereof and to
remit to the undersigned the balance of such proceeds.
--------------------------------
INSTRUCTIONS FOR REGISTRATION OF STOCK
Name
--------------------------------------------------------------------------------
(Please typewrite or print in block letters)
Address
-------------------------------------------------------------------------
Signature
-----------------------------------------------------------------------
-12-
ASSIGNMENT FORM
---------------
FOR VALUE RECEIVED, ________________________________ hereby sells, assigns
and transfers unto
Name
----------------------------------------------------------------------------
(Please typewrite or print in block letters)
Address
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the right to purchase Series B Preferred Stock of CDnow, Inc. (the "Company"),
represented by this Warrant to the extent of _________ shares as to which such
right is exercisable and does hereby irrevocably constitute and appoint
_______________________________ as Attorney, to transfer the same on the books
of the Company with full power of substitution in the premises.
Date _____________, 19__
Signature
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