EXHIBIT 10.1
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SECURITIES PURCHASE AGREEMENT
Among
K-TEL INTERNATIONAL, INC.,
STRONG RIVER INVESTMENTS, INC.,
and
CATHARINE STREET LLC
April 21, 1999
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SECURITIES PURCHASE AGREEMENT, dated as of April 21, 1999 (this
"Agreement"), among K-Tel International, Inc., a Minnesota corporation (the
"Company"), Strong River Investments Inc. ("Strong River"), a corporation
organized under the laws of the British Virgin Islands and Catharine Street LLC
("Catharine"), a limited liability company organized under the laws of the
Cayman Islands. Strong River and Catharine are each referred to herein as a
"Purchaser" and are collectively referred to herein as the "Purchasers".
WHEREAS, subject to the terms and conditions set forth in this
Agreement, the Company desires to issue and the Purchasers desire to purchase
shares (the "Shares") of the Company's common stock, par value $.01 per share
(the "Common Stock").
NOW THEREFORE, the Company and the Purchasers hereby agree as follows:
ARTICLE I
PURCHASE AND SALE OF SECURITIES
1.1 Purchase of Shares. Subject to the terms and conditions set forth
herein, the Company shall issue and sell to the Purchasers and the Purchasers
shall purchase the Shares.
For purposes of this Agreement, "Business Day", "Per Share Market
Value" shall have the meanings set forth in Exhibit A. Each of the Tranche 1
Closing and the Tranche 2 Closing are sometimes individually referred to herein
as a "Closing". Each of the First Tranche 1 Warrant, Second Tranche 1 Warrant,
First Tranche 2 Warrant and Second Tranche 2 Warrant are sometimes collectively
referred to herein as the "Warrants".
1.2 The First Tranche 1 Closing. (a) Subject to the terms and
conditions set forth herein, the Company shall issue and sell to the Purchasers
and the Purchasers shall purchase 465,794 Shares (the "First Tranche 1 Shares")
for a purchase price of $4,000,000. The closing of the purchase and sale of the
First Tranche 1 Shares (the "First Tranche 1 Closing") shall take place at the
offices of Xxxxxxxx Xxxxxxxxx Xxxxxx Xxxxxxxx & Xxxxxx LLP ("RSPAB"), 0000
Xxxxxx xx xxx Xxxxxxxx, Xxx Xxxx, Xxx Xxxx 00000, immediately following the
execution hereof or such later date as the parties shall agree. The date of the
Tranche 1 Closing is hereinafter referred to as the "First Tranche 1 Closing
Date."
(b) At the Tranche 1 Closing, (i) the Company shall deliver to
or cause to be delivered to (A) Strong River (1) a stock certificate, registered
in the name of Strong River representing 232,897 Tranche 1 Shares to be acquired
at the Tranche 1 Closing by it, (2) a common stock purchase warrant (the "First
Tranche 1 Warrant"), in the form of Exhibit D-1, registered in the name of
Strong River, entitling the holder thereof to acquire shares of Common Stock
upon the terms set forth therein, (3) a common stock purchase warrant (the
"Second Tranche 1 Warrant"; and together with the First Tranche 1 Warrant, the
"Tranche 1 Warrant"), in the form of Exhibit D-2, registered in the name of
Strong River, entitling the holder thereof to acquire shares of Common Stock
upon the terms set forth therein, (4) the legal opinion of Xxxxxx and Xxxxxx
P.A. outside counsel to the Company, addressed to the
Strong River, substantially in the form attached hereto as Exhibit C, and (5)
all other documents, instruments and writings required to have been delivered at
or prior to the Tranche 1 Closing by the Company pursuant to this Agreement,
including without limitation, executed originals of each of the Registration
Rights Agreement, dated the date hereof, between the Company and the Purchasers
in the form of Exhibit A attached hereto (the "Registration Rights Agreement")
and the Irrevocable Transfer Agent Instructions, in the form of Exhibit B
attached hereto (the "Transfer Agent Instructions"), delivered to and
acknowledged by the Company and the Company's transfer agent, and to (B)
Catharine (1) a stock certificate, registered in the name of Catharine
representing 232,897 Tranche 1 Shares to be acquired at the Tranche 1 Closing by
it, (2) a First Tranche 1 Warrant registered in the name of Catharine, entitling
the holder thereof to acquire shares of Common Stock upon the terms set forth
therein, (3) a Second Tranche 1 Warrant registered in the name of Catharine,
entitling the holder thereof to acquire shares of Common Stock upon the terms
set forth therein, (4) the legal opinion of Xxxxxx and Xxxxxx P.A. outside
counsel to the Company, addressed to Catharine, substantially in the form
attached hereto as Exhibit C, and (5) all other documents, instruments and
writings required to have been delivered at or prior to the Tranche 1 Closing by
the Company pursuant to this Agreement, including without limitation, executed
originals of each of the Registration Rights Agreement and the Irrevocable
Transfer Agent Instructions, delivered to and acknowledged by the Company and
the Company's transfer agent, (b) the Purchasers shall deliver or cause to be
delivered to the Company (1) $4,000,000 (the "First Tranche 1 Purchase Price")
in immediately available funds by wire transfer to an account designated in
writing by the Company for such purpose on or prior to the Tranche 1 Closing
Date, and (2) all documents, instruments and writings required to have been
delivered at or prior to the Tranche 1 Closing by the Purchasers pursuant to
this Agreement, including, without limitation, an executed Registration Rights
Agreement.
1.3 The Second Tranche 1 Closing. (a) The Company shall issue and sell
to the Purchasers and the Purchasers shall purchase 465,792 Shares (the "Second
Tranche 1 Shares"; and together with the First Tranche 1 Shares, the "Tranche 1
Shares") for a purchase price of $4,000,000 (the "Second Tranche 1 Purchase
Price"), provided, however that in the event that (i) the Common Stock shall be
delisted from NASDAQ (as defined in Section 2.1(f)) or any other national
securities exchange or market, (ii) the Company or any of its Subsidiaries (as
defined in Section 2.1(a)) shall commence, or there shall be commenced against
the Company or any such Subsidiary a case under any applicable bankruptcy or
insolvency laws or (iii) the Company shall fail to comply with the eligibility
requirements for use of Form S-3 as set forth in the General Instructions of
Form S-3, Part I, A, as promulgated by the Securities Act of 1933, as amended,
the Purchasers shall not be obligated to purchase the Second Tranche 1 Shares.
The closing of the purchase and sale of the Second Tranche 1 Shares (the "Second
Tranche 1 Closing"; and together with the First Tranche 1 Closing, the "Tranche
1 Closing") shall take place at the offices of Xxxxxxxx Xxxxxxxxx Xxxxxx
Xxxxxxxx & Xxxxxx LLP ("RSPAB"), 0000 Xxxxxx xx xxx Xxxxxxxx, Xxx Xxxx, Xxx Xxxx
00000, immediately following the date the registration statement (the "Tranche 1
Registration Statement") covering the resale of the Tranche 1 Shares and the
shares of Common Stock issuable upon exercise of the Tranche 1 Warrants becomes
effective. The date of the Second Tranche 1 Closing is hereinafter referred to
as the "Second Tranche 1 Closing Date."
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(b) At the Second Tranche 1 Closing, (i) the Company shall
deliver to or cause to be delivered to each Purchaser a stock certificate,
registered in the name of such Purchaser or such Purchaser's Designee
representing such number of Second Tranche 1 Shares equal to the Second Tranche
1 Purchase Price paid by such Purchaser or such Purchaser's Designee divided by
the average Per Share Market Value of the Common Stock on the five (5) trading
days immediately preceding the First Tranche 1 Closing Date, and (ii) the
Purchasers shall deliver or cause to be delivered to the Company the Second
Tranche 1 Purchase Price, in immediately available funds by wire transfer to an
account designated in writing by the Company for such purpose on or prior to the
Second Tranche 1 Closing Date.
1.4 The Tranche 2 Closing. (a) Subject to the terms and conditions set
forth in this Agreement, the Company shall have the right to deliver a written
notice to the Purchasers (a "Subsequent Financing Notice") and require the
Purchasers or any other fund under common management with any of the Purchasers
(a "Designee") to purchase such number of shares of Common Stock, for an
aggregate purchase price of no less than $4,000,000 and no more than $10,000,000
(the "Tranche 2 Purchase Price"), equal to the Tranche 2 Purchase Price divided
by the average Per Share Market Value of the Common Stock on the five (5)
trading days immediately preceding the Tranche 2 Closing Date (the "Tranche 2
Shares"), provided, however that the Tranche 2 Purchase Price shall not be in
excess of (i) $4,000,000 if the average Per Share Market Value on the five (5)
trading days immediately preceding the Tranche 2 Closing Date is less than
$8.00, (ii) $6,000,000 if the average Per Share Market Value on the five (5)
trading days immediately preceding the Tranche 2 Closing Date is greater than or
equal to $8.00 but less than $10.00, (iii) $8,000,000 if the average Per Share
Market Value on the five (5) trading days immediately preceding the Tranche 2
Closing Date is greater than or equal to $10.00 but less than $12.00, and (iv)
$10,000,000 if the average Per Share Market Value on the five (5) trading days
immediately preceding the Tranche 2 Closing Date is greater than or equal to
$12.00. The Company may not deliver the Subsequent Financing Notice relating to
the Tranche 2 Shares earlier than three (3) Business Days after the Second
Vesting Date or, if such day is not a Business Day, the next succeeding Business
Day. The closing of the purchase and sale of all of the Tranche 2 Shares (the
"Tranche 2 Closing") shall take place at the offices of RSPAB on the fifth (5th)
Business Day after the Subsequent Financing Notice requiring the purchase of
such Shares is deemed delivered hereunder or on such other date as otherwise
agreed to by the parties; provided, however, that in no case shall the Tranche 2
Closing take place unless and until the conditions listed in Section 4.1 have
been satisfied by the Company or waived by the Purchasers and in no event shall
the Tranche 2 Closing occur subsequent to the 180th day after the Second Tranche
1 Closing Date or, if such day is not a Business Day, the next succeeding
Business Day (such date, the "Tranche 2 Closing Expiration Date"). The date of
the Tranche 2 Closing is hereinafter referred to as the "Tranche 2 Closing
Date."
(b) At the Tranche 2 Closing, (i) the Company shall deliver to
or cause to be delivered to each Purchaser (1) a stock certificate, registered
in the name of such Purchaser or such Purchaser's Designee representing such
number of Tranche 2 Shares equal to the Tranche 2 Purchase Price paid by such
Purchaser or such Purchaser's Designee divided by the average Per Share Market
Value of the Common Stock on the five (5) trading days immediately preceding the
Tranche 2 Closing Date, (2) a common stock purchase warrant (the "First Tranche
2 Warrant"), in the form of Exhibit E-1,
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registered in the name of each Purchaser, entitling the holder thereof to
acquire shares of Common Stock upon the terms set forth therein, (3) a common
stock purchase warrant (the "Second Tranche 2 Warrant"), in the form of Exhibit
E-2, registered in the name of each Purchaser or the name of each Purchaser's
Designee, entitling the Purchasers to acquire an aggregate number of shares of
Common Stock equal to 15% of the quotient obtained by dividing (A) (1) the sum
of (i) the Tranche 1 Purchase Price and (ii) the Tranche 2 Purchase Price less
(2) $12,000,000, by (B) the average Per Share Market Value of the Common Stock
on the five (5) trading days immediately preceding the Tranche 2 Closing Date,
at an exercise price equal to 125% of the average Per Share Market Value of the
Common Stock on the five trading days immediately preceding the Tranche 2
Closing Date, upon the terms set forth therein, (3) the legal opinion referred
to in Section 4.1(xi), and (4) all other documents, instruments and writings
required to have been delivered at or prior to the Tranche 2 Closing Date by the
Company pursuant to this Agreement, including the Transfer Agent Instructions
referenced in Section 4.1(xvi), and (ii) the Purchasers shall deliver or cause
to be delivered to the Company (1) the Tranche 2 Purchase Price, in immediately
available funds by wire transfer to an account designated in writing by the
Company for such purpose on or prior to the Tranche 2 Closing Date, and (2) all
documents, instruments and writings required to have been delivered at or prior
to the Tranche 2 Closing Date by the Purchasers pursuant to this Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1 Representations, Warranties and Agreements of the Company. The
Company hereby makes the following representations and warranties to the
Purchasers:
(a) Organization and Qualification. The Company is a
corporation, duly incorporated, validly existing and in good standing under the
laws of the jurisdiction of its incorporation, with the requisite corporate
power and authority to own and use its properties and assets and to carry on its
business as currently conducted. The Company has no subsidiaries other than
those set forth on Schedule 2.1(a) (collectively the "Subsidiaries"). Each of
the Subsidiaries is an entity, duly incorporated or otherwise organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation or organization (as applicable), with the requisite power and
authority to own and use its properties and assets and to carry on its business
as currently conducted. Each of the Company and the Subsidiaries is duly
qualified to do business and is in good standing as a foreign corporation in
each jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary, except where the failure to be
so qualified or in good standing, as the case may be, could not, individually or
in the aggregate, (x) adversely affect the legality, validity or enforceability
of the Securities (as defined below) or any of this Agreement, the Registration
Rights Agreement or the Warrants (collectively, the "Transaction Documents"),
(y) have or result in a material adverse effect on the results of operations,
assets, prospects, or condition (financial or otherwise) of the Company and the
Subsidiaries, taken as a whole, or (z) adversely impair the Company's ability to
perform fully on a timely basis its obligations under any of the Transaction
Documents (any of (x), (y) or (z), a "Material Adverse Effect").
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(b) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and to consummate the transactions
contemplated by each of the Transaction Documents, and otherwise to carry out
its obligations thereunder. The execution and delivery of each of the
Transaction Documents by the Company and the consummation by it of the
transactions contemplated thereby have been duly authorized by all necessary
action on the part of the Company. Each of the Transaction Documents has been
duly executed by the Company and, when delivered (or filed, as the case may be)
in accordance with the terms hereof, will constitute the valid and binding
obligation of the Company enforceable against the Company in accordance with its
terms. Neither the Company nor any Subsidiary is in violation of any of the
provisions of its respective articles of incorporation, by-laws or other charter
documents.
(c) Capitalization. The number of authorized, issued and
outstanding capital stock of the Company is set forth in Schedule 2.1(c). No
shares of Common Stock are entitled to preemptive or similar rights, nor is any
holder of the Common Stock entitled to preemptive or similar rights arising out
of any agreement or understanding with the Company by virtue of any of the
Transaction Documents. Except as disclosed in Schedule 2.1(c), there are no
outstanding options, warrants, script rights to subscribe to, calls or
commitments of any character whatsoever relating to, or, except as a result of
the purchase and sale of the Securities, rights or obligations convertible into
or exchangeable for, or giving any Person any right to subscribe for or acquire
any shares of Common Stock, or contracts, commitments, understandings, or
arrangements by which the Company or any Subsidiary is or may become bound to
issue additional shares of Common Stock, or securities or rights convertible or
exchangeable into shares of Common Stock. To the knowledge of the Company,
except as specifically disclosed in the SEC Reports (as defined below) or
Schedule 2.1(c), no Person or group of related Persons beneficially owns (as
determined pursuant to Rule 13d-3 promulgated under the Securities Exchange Act
of 1934, as amended (the "Exchange Act")) or has the right to acquire by
agreement with or by obligation binding upon the Company beneficial ownership of
in excess of 5% of the Common Shares. A "Person" means an individual or
corporation, partnership, trust, incorporated or unincorporated association,
joint venture, limited liability company, joint stock company, government (or an
agency or subdivision thereof) or other entity of any kind.
(d) Issuance of the Securities The Securities are duly
authorized, and, when issued and paid for in accordance with the terms hereof,
shall have been validly issued, fully paid and nonassessable, free and clear of
all liens, encumbrances and rights of first refusal of any kind (collectively,
"Liens"). The Company has on the date hereof and will on each Closing Date, at
all times while the Warrants are outstanding, maintain an adequate reserve of
duly authorized Common Stock, to enable it to perform its exercise and other
obligations under this Agreement and the Warrants on each such Closing Date.
With respect to the Securities to be issued at or in connection with each
Closing hereunder, such number of reserved and available shares of Common Stock
is not less than the sum (i) the number of shares of Common Stock which shall be
issued to the Purchasers pursuant to Section 1.3, (ii) the maximum number of
Warrant Shares which may be issued to the Purchasers pursuant to the First
Tranche 1 Warrants and First Tranche 2 Warrants at any time after the Tranche 1
Closing Date and the Tranche 2 Closing Date, respectively, assuming that the Per
Share Market Value of the Common Stock utilized to determine any
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such number of Warrant Shares on each such date is 50% of the average Per Share
Market Value on the five (5) trading days immediately preceding the Tranche 1
Closing Date and (iii) the number of shares of Common Stock issuable upon
exercise of the Second Tranche 1 Warrants and Second Tranche 2 Warrants (such
number of shares of Common Stock to be reserved prior to each Closing Date shall
be referred to as the "Initial Minimum"). All such authorized shares of Common
Stock shall be duly reserved for issuance to the holders of the Shares and the
Warrants. The shares of Common Stock issuable upon exercise of the Warrants are
referred to herein as the "Underlying Shares". The Shares, the Warrants and the
Underlying Shares are collectively referred to as, the "Securities."
(e) No Conflicts. The execution, delivery and performance of
the Transaction Documents by the Company and the consummation by the Company of
the transactions contemplated thereby do not and will not (i) conflict with or
violate any provision of its Articles of Incorporation (as amended through the
date hereof), or (ii) subject to obtaining the Required Approvals (as defined
below), conflict with, or constitute a default (or an event which with notice or
lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation (with or without
notice, lapse of time or both) of, any agreement, credit facility, indenture or
instrument (evidencing a Company debt or otherwise) to which the Company or any
Subsidiary is a party or by which any property or asset of the Company or any
Subsidiary is bound or affected, or (iii) result in a violation of any law,
rule, regulation, order, judgment, injunction, decree or other restriction of
any court or governmental authority to which the Company is subject (including
federal and state securities laws and regulations and the rules and regulations
of the principal market or exchange on which the Common Stock is listed or
traded), or by which any property or asset of the Company is bound or affected,
except in the case of each of clauses (ii) and (iii), as could not, individually
or in the aggregate, have or result in a Material Adverse Effect. The business
of the Company is not being conducted in violation of any law, ordinance or
regulation of any governmental authority, except for violations which,
individually or in the aggregate, could not have or result in a Material Adverse
Effect.
(f) Filings, Consents and Approvals. Neither the Company nor
any Subsidiary is required to obtain any consent, waiver, authorization or order
of, give any notice to, or make any filing or registration with, any court or
other federal, state, local or other governmental authority or other Person in
connection with the execution, delivery and performance by the Company of the
Transaction Documents, other than (i) the filing of the registration statements
with the Commission meeting the requirements set forth in the Registration
Rights Agreement and covering the resale of the Shares and the Underlying Shares
by the Purchasers, (ii) the application(s) to the Nasdaq National Market (the
"NASDAQ") for the listing of the Shares and the Underlying Shares with NASDAQ
(and with any other national securities exchange or market on which the Common
Stock is then listed), (iii) applicable Blue Sky filings, (iv) the filing of
Current Reports on Form 8-K with the Commission disclosing the transaction
contemplated hereby, (v) the filing of Forms D with the Commission as required
by Regulation D promulgated under the Securities Act and (vi) in all other cases
where the failure to obtain such consent, waiver, authorization or order, or to
give such notice or make such filing or registration could not have or result
in, individually or in the aggregate, a Material Adverse Effect (the consents,
waivers, authorizations, orders, notices and filings referred to in (i)-(iv) of
this Section are, collectively, the "Required Approvals").
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(g) Litigation; Proceedings. Except as set forth in Schedule
2.1(g), there is no action, suit, notice of violation, proceeding or
investigation pending or, to the knowledge of the Company, threatened against or
affecting the Company or any of its Subsidiaries or any of their respective
properties before or by any court, governmental or administrative agency or
regulatory authority (federal, state, county, local or foreign) which (i)
adversely affects or challenges the legality, validity or enforceability of any
of the Transaction Documents or the Securities or (ii) could, individually or in
the aggregate, have or result in a Material Adverse Effect.
(h) No Default or Violation. Neither the Company nor any
Subsidiary (i) is in default under or in violation of (and no event has occurred
which has not been waived which, with notice or lapse of time or both, would
result in a default by the Company or any Subsidiary under), nor has the Company
or any Subsidiary received notice of a claim that it is in default under or that
it is in violation of, any indenture, loan or credit agreement or any other
agreement or instrument to which it is a party or by which it or any of its
properties is bound, (ii) is in violation of any order of any court, arbitrator
or governmental body, or (iii) is in violation of any statute, rule or
regulation of any governmental authority, except, as could not individually or
in the aggregate, have or result in a Material Adverse Effect.
(i) Private Offering. Assuming the accuracy of the
representations and warranties of the Purchasers set forth in Sections
2.2(b)-(g), the offer, issuance and sale of the Securities to the Purchasers as
contemplated hereby are exempt from the registration requirements of the
Securities Act of 1933, as amended (the "Securities Act"). Neither the Company
nor any Person acting on its behalf has taken any action which could subject the
offering, issuance or sale of the Securities to the registration requirements of
the Securities Act. Neither the Company nor any Person acting on the Company's
behalf has solicited any offer to buy or sell the Securities by means of any
form of general solicitation or advertising.
(j) SEC Reports; Financial Statements. The Company has filed
all reports required to be filed by it under the Exchange Act, including
pursuant to Section 13(a) or 15(d) thereof, for the three years preceding the
date hereof (or such shorter period as the Company was required by law to file
such material) (the foregoing materials being collectively referred to herein as
the "SEC Reports" and, together with the Schedules to this Agreement the
"Disclosure Materials") on a timely basis or has received a valid extension of
such time of filing and has filed any such SEC Reports prior to the expiration
of any such extension. As of their respective dates, the SEC Reports complied in
all material respects with the requirements of the Securities Act and the
Exchange Act and, the rules and regulations promulgated thereunder, and none of
the SEC Reports, when filed, contained any untrue statement of a material fact
or omitted to state a material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances under
which they were made, not misleading. All material agreements to which the
Company is a party or to which the property or assets of the Company are subject
have been filed as exhibits to the SEC Reports to the extent required. The
financial statements of the Company included in the SEC Reports comply in all
material respects with applicable accounting requirements and the rules and
regulations of the Commission with respect thereto as in effect at the time of
filing. Such financial statements have been prepared in accordance with
generally accepted accounting principles
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("GAAP") applied on a consistent basis during the periods involved, except as
may be otherwise specified in such financial statements or the notes thereto,
and fairly present in all material respects the financial position of the
Company and its consolidated subsidiaries as of and for the dates thereof and
the results of operations and cash flows for the periods then ended, subject, in
the case of unaudited statements, to normal, immaterial, year-end audit
adjustments. Except as set forth on Schedule 2.1 (j), since December 31, 1998,
except as specifically disclosed in the SEC Reports, (a) there has been no
event, occurrence or development that has had or that could have or result in a
Material Adverse Effect, (b) the Company has not incurred any liabilities
(contingent or otherwise) other than (x) liabilities incurred in the ordinary
course of business consistent with past practice and (y) liabilities not
required to be reflected in the Company's financial statements pursuant to GAAP
or required to be disclosed in filings made with the Commission, (c) the Company
has not altered its method of accounting or the identity of its auditors and (d)
the Company has not declared or made any payment or distribution of cash or
other property to its stockholders or officers or directors (other than in
compliance with existing Company stock option plans) with respect to its capital
stock, or purchased, redeemed (or made any agreements to purchase or redeem) any
shares of its capital stock. The Company last filed audited financial statements
with the Commission on October 12, 1998, and has not received any comments from
the Commission in respect thereof.
(k) Investment Company. The Company is not, and is not an
Affiliate (as defined in Rule 405 under the Securities Act) of, an "investment
company" within the meaning of the Investment Company Act of 1940, as amended.
(l) Certain Fees. Except for fees paid and payable to RAM
Capital Resources, LLC ("RAM"), no fees or commissions will be payable by the
Company to any broker, financial advisor or consultant, finder, placement agent,
investment banker, or bank with respect to the transactions contemplated by this
Agreement. The Purchasers shall have no obligation with respect to any fees or
with respect to any claims made by or on behalf of other Persons for fees of a
type contemplated in this Section that may be due in connection with the
transactions contemplated by this Agreement. The Company shall indemnify and
hold harmless the Purchaser, its employees, officers, directors, agents, and
partners, and their respective Affiliates, from and against all claims, losses,
damages, costs (including the costs of preparation and attorney's fees) and
expenses suffered in respect of any such claimed or existing fees, as such fees
and expenses are incurred.
(m) Form S-3 Eligibility. The Company is eligible to register
securities for resale with the Commission under Form S-3 promulgated under the
Securities Act.
(n) Listing and Maintenance Requirements Compliance. Except as
set forth in Schedule 2.1(n), the Company has not, in the two years preceding
the date hereof, received notice (written or oral) from the NASDAQ or any other
stock exchange, market or trading facility on which the Common Stock is or has
been listed (or on which it has been quoted) to the effect that the Company is
not in compliance with the listing or maintenance requirements of such exchange
or market. Upon the consummation of this transaction, the Company will be in
compliance with all such maintenance
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requirements and no fact or circumstances currently exist which could reasonably
be expected to result in noncompliance with such maintenance requirements in the
foreseeable future.
(o) Patents and Trademarks. The Company has, or has rights to
use, all patents, patent applications, trademarks, trademark applications,
service marks, trade names, copyrights, licenses and rights (collectively, the
"Intellectual Property Rights") which are necessary or material for use in
connection with its business, and which the failure to so have would have a
Material Adverse Effect. To the best knowledge of the Company, all such
Intellectual Property Rights are enforceable and there is no existing
infringement by another Person of any of the Intellectual Property Rights.
(p) Registration Rights; Rights of Participation. Except as
set forth on Schedule 6(b) to the Registration Rights Agreement, (i) the Company
has not granted or agreed to grant to any Person any rights (including
"piggy-back" registration rights) to have any securities of the Company
registered with the Commission or any other governmental authority which has not
been satisfied and (ii) no Person, has any right of first refusal, preemptive
right, right of participation, or any similar right to participate in the
transactions contemplated by the Transaction Documents.
(q) Regulatory Permits. The Company and its Subsidiaries
possess all certificates, authorizations and permits issued by the appropriate
Federal, state or foreign regulatory authorities necessary to conduct their
respective businesses as described in the SEC Reports, except where the failure
to possess such permits could not, individually or in the aggregate, have or
result in a Material Adverse Effect ("Material Permits"), and neither the
Company nor any such Subsidiary has received any notice of proceedings relating
to the revocation or modification of any Material Permit.
(r) Title. Except as set forth in Schedule 2.1(r) or in the
SEC Reports, the Company and the Subsidiaries have good and marketable title in
fee simple to all real property and personal property owned by them which is
material to the business of the Company and its Subsidiaries, in each case free
and clear of all Liens, except for liens, claims or encumbrances as do not
materially affect the value of such property and do not interfere with the use
made and proposed to be made of such property by the Company and its
Subsidiaries. Any real property and facilities held under lease by the Company
and its Subsidiaries are held by them under valid, subsisting and enforceable
leases with such exceptions as are not material and do not interfere with the
use made and proposed to be made of such property and buildings by the Company
and its Subsidiaries.
(s) Disclosure. Except as set forth in Section 2.1(j), the
Company confirms that it has not provided the Purchasers or their respective
agents or counsel with any information that constitutes or might constitute
material non-public information. The Company understands and confirms that the
Purchasers shall be relying on the foregoing representations in effecting
transactions in securities of the Company. All disclosure provided to the
Purchasers regarding the Company, its business and the transactions contemplated
hereby, including the Schedules to this Agreement, furnished by or on behalf of
the Company are true and correct and do not contain any untrue statement of a
material fact or omit to
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state any material fact necessary in order to make the statements made therein,
in light of the circumstances under which they were made, not misleading.
2.2 Representations and Warranties of the Purchasers. The Purchasers
hereby jointly and severally represent and warrant to the Company as follows:
(a) Organization; Authority. Such Purchaser is duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
organization with the requisite corporate power and authority, to enter into and
to consummate the transactions contemplated by the Transaction Documents and
otherwise to carry out its obligations thereunder. The purchase by each
Purchaser of the Securities hereunder has been duly authorized by all necessary
action on the part of such Purchaser. Each of this Agreement and the
Registration Rights Agreement has been duly executed and delivered by such
Purchaser and constitutes the valid and legally binding obligation of such
Purchaser, enforceable against it in accordance with its terms.
(b) Investment Intent. Such Purchaser is acquiring the
Securities as principal for its own account for investment purposes only and not
with a view to or for distributing or reselling such Securities or any part
thereof or interest therein, without prejudice, however, to such Purchaser's
right, subject to the provisions of this Agreement and the Registration Rights
Agreement, at all times to sell or otherwise dispose of all or any part of such
Securities pursuant to an effective registration statement under the Securities
Act and in compliance with applicable state securities laws or under an
exemption from such registration.
(c) Purchaser Status. At the time such Purchaser was offered
the Securities, it was, and at the date hereof, it is, and at each Closing Date,
Adjustment Date and each exercise date under its Warrant, it will be, an
"accredited investor" as defined in Rule 501(a) under the Securities Act.
(d) Experience of the Purchaser. Such Purchaser, either alone
or together with its representatives, has such knowledge, sophistication and
experience in business and financial matters so as to be capable of evaluating
the merits and risks of the prospective investment in the Securities, and has so
evaluated the merits and risks of such investment.
(e) Ability of Purchaser to Bear Risk of Investment. Such
Purchaser is able to bear the economic risk of an investment in the Securities
and, at the present time, is able to afford a complete loss of such investment.
(f) Access to Information. Such Purchaser acknowledges receipt
of the Disclosure Materials and further acknowledges that it has reviewed and
read the Disclosure Materials and has been afforded (i) the opportunity to ask
such questions as it has deemed necessary of, and to receive answers from,
representatives of the Company concerning the terms and conditions of the
offering of the Securities and the merits and risks of investing in the
Securities; (ii) access to information about the Company and the Company's
financial condition, results of operations, business, properties, management and
prospects
-10-
sufficient to enable it to evaluate its investment; and (iii) the opportunity to
obtain such additional information which the Company possesses or can acquire
without unreasonable effort or expense that is necessary to make an informed
investment decision with respect to the investment and to verify the accuracy
and completeness of the information contained in the Disclosure Materials.
Neither such inquiries nor any other investigation conducted by or on behalf of
such Purchaser or its representatives or counsel shall modify, amend or affect
such Purchaser's right to rely on the truth, accuracy and completeness of the
Disclosure Materials and the Company's representations and warranties contained
in the Transaction Documents.
(g) General Solicitation. Such Purchaser is not purchasing the
Securities as a result of or subsequent to any advertisement, article, notice or
other communication regarding the Securities published in any newspaper,
magazine or similar media or broadcast over television or radio or presented at
any seminar.
(h) Reliance. Such Purchaser understands and acknowledges that
(i) the Securities are being offered and sold to it without registration under
the Securities Act in a private placement that is exempt from the registration
provisions of the Securities Act and (ii) the availability of such exemption,
depends in part on, and the Company will rely upon the accuracy and truthfulness
of, the foregoing representations and such Purchaser hereby consents to such
reliance.
The Company acknowledges and agrees that the Purchasers make
no representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in this Section 2.2.
ARTICLE III
OTHER AGREEMENTS OF THE PARTIES
3.1 Transfer Restrictions. (a) Securities may only be disposed of
pursuant to an effective registration statement under the Securities Act, to the
Company or pursuant to an available exemption from or in a transaction not
subject to the registration requirements of the Securities Act, and in
compliance with any applicable federal and state securities laws. In connection
with any transfer of Securities other than pursuant to an effective registration
statement or to the Company, except as otherwise set forth herein, the Company
may require the transferor thereof to provide to the Company an opinion of
counsel selected by the transferor, the form and substance of which opinion
shall be reasonably satisfactory to the Company, to the effect that such
transfer does not require registration of such transferred securities under the
Securities Act. Notwithstanding the foregoing, the Company hereby consents to
and agrees to register on the books of the Company and with any transfer agent
for the securities of the Company any transfer of Securities by such Purchaser
to a Designee of such Purchaser or any transfer among any such Designees,
provided that transferee certifies to the Company that it is an "accredited
investor" within the meaning of Rule 501(a) under the Securities Act and that it
is acquiring the Securities solely for investment purposes.
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Any such transferee shall agree in writing to be bound by the terms of this
Agreement and shall have the rights of a Purchaser under this Agreement and the
Registration Rights Agreement.
(b) The Purchasers agree to the imprinting, so long as is
required by this Section 3.1(b), of the following legend on the Securities:
NEITHER THESE SECURITIES [NOR THE SECURITIES INTO WHICH THESE
SECURITIES ARE EXERCISABLE] HAVE BEEN REGISTERED WITH THE SECURITIES
AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN
RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT
BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE
STATE SECURITIES LAWS.
The legend set forth above shall be removed from the Shares
and the Underlying Shares, and the Company shall cause its transfer agent to
issue a certificate or certificates without any legend (upon surrender of the
legended certificates duly endorsed) to each holder of the Shares and/or
Underlying Shares upon which it is stamped if (i) such Securities are registered
for resale under the Securities Act or (ii) such legend is not required under
applicable requirements of the Securities Act. Underlying Shares shall not
contain the legend set forth above nor any other legend if the exercise of
Warrants or other issuances of Underlying Shares as contemplated by the Warrants
occurs at any time while a Registration Statement covering the resale of such
Underlying Shares is effective under the Securities Act or in the event there is
not an effective Registration Statement at such time if such legend is not
required under applicable requirements of the Securities Act. The Company shall
cause its counsel to issue the legal opinion included in the Transfer Agent
Instructions to the Company's transfer agent on the day that such Registration
Statement is declared effective by the Commission. The Company agrees that, in
the event any Shares or Underlying Shares are issued with a legend in accordance
with this Section 3.1(b), it will, within three (3) Trading Days after request
therefor by the Purchaser and the surrender by the Purchaser of the certificate
representing the Shares or Underlying Shares, provide such Purchaser with a
certificate or certificates representing such Shares or Underlying Shares, free
from such legend at such time as such legend would not have been required under
this Section 3.1(b) had such issuance occurred on the date of such request. The
Company may not make any notation on its records or give instructions to any
transfer agent of the Company which enlarge the restrictions of transfer set
forth in this Section.
3.2 Acknowledgment of Dilution. The Company acknowledges that the
issuance of the issuance of Underlying Shares upon exercise of the Warrants may
result in dilution of the outstanding shares of Common Stock, which dilution may
be substantial under certain market conditions. The Company further acknowledges
that its obligation to issue Underlying Shares upon exercise of the Warrants is
unconditional and absolute, regardless of the effect of any such dilution.
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3.3 Furnishing of Information. As long as the Company is subject to
Sections 13(a) and 15(d) of the Exchange Act, the Company covenants to timely
file (or obtain extensions in respect thereof and file within the applicable
grace period) all reports required to be filed by the Company after the date
hereof pursuant to Section 13(a) or 15(d) of the Exchange Act. So long as any of
the Purchasers owns Securities, if the Company is not required to file reports
pursuant to such laws, it will prepare and furnish to such Purchaser and make
publicly available in accordance with Rule 144(c) promulgated under the
Securities Act annual and quarterly financial statements, together with a
discussion and analysis of such financial statements in form and substance
substantially similar to those that would otherwise be required to be included
in reports required by Section 13(a) or 15(d) of the Exchange Act, as well as
any other information required thereby, in the time period that such filings
would have been required to have been made under the Exchange Act. The Company
further covenants that it will take such further action as any holder of
Securities may reasonably request, all to the extent required from time to time
to enable such Person to sell Securities without registration under the
Securities Act within the limitation of the exemptions provided by Rule 144
promulgated under the Securities Act. Upon the request of any such Person, the
Company shall deliver to such Person a written certification of a duly
authorized officer as to whether it has complied with such requirements.
3.4 Blue Sky Laws. In accordance with the Registration Rights
Agreement, the Company shall qualify or exempt the issuance and sale of the
Securities under the securities or Blue Sky laws of such jurisdictions as the
Purchasers may reasonably request and shall continue such qualification or
exemption at all times until the Purchasers notify the Company in writing that
they no longer own Securities; provided, however, that neither the Company nor
its Subsidiaries shall be required in connection therewith to qualify as a
foreign corporation where they are not now so qualified or to take any action
that would subject the Company to general service of process in any such
jurisdiction where it is not then so subject.
3.5 Integration. The Company shall not, and shall use its best efforts
to ensure that, no Affiliate shall, sell, offer for sale or solicit offers to
buy or otherwise negotiate in respect of any security (as defined in Section 2
of the Securities Act) that would be integrated with the offer or sale of the
Securities in a manner that would require the registration under the Securities
Act of the sale of the Securities to the Purchasers.
3.6 Stockholder Approval Under the Rules and Regulations of The Nasdaq
Stock Market. If on any Vesting Date (as defined in the First Tranche 1 Warrants
and the First Tranche 2 Warrants, if applicable) or Closing Date (other than the
Tranche 1 Closing Date) (A) the Common Stock is listed for trading on NASDAQ,
(B) the number of Warrant Shares issuable on any Vesting Date or the Purchase
Price then in effect is such that the aggregate number of shares of Common Stock
that would then be issuable as Shares, as the case may be, together with any
Underlying Shares and Shares previously issued at a discount to the Tranche 1
Shares, would equal or exceed 20% of the number of shares of Common Stock
outstanding on the Tranche 1 Closing Date (such number of shares as would not
equal or exceed such 20% limit, the "Issuable Maximum"), and (C) the Company
shall not have previously obtained the vote of shareholders (the "Shareholder
Approval"), if any, as may be required by the applicable rules and regulations
of the Nasdaq Stock Market, Inc. (or any successor entity) applicable to approve
the issuance
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of shares of Common Stock in excess of the Issuable Maximum pursuant to the
terms hereof, then the Company shall issue to the holder so requesting
Underlying Shares or Shares, as the case may be, a number of shares of Common
Stock equal to the Issuable Maximum and, with respect to the remainder of
Underlying Shares or Shares, as the case may be, which would result in an
issuance of shares of Common Stock in excess of the Issuable Maximum (the
"Excess Shares"), the Company shall have the option to either (1) use its best
efforts to obtain the Shareholder Approval applicable to such issuance as soon
as is possible, but in any event not later than the 90th day after such request,
or (2) deliver to such holder cash in an amount equal to the product of (x) the
Per Share Market Value on the applicable Adjustment Date or Closing Date, as
applicable, and (y) the number of shares of Common Stock in excess of such
holder's pro rata portion of the Issuable Maximum that would have otherwise been
issuable to the holder but for the provisions of this Section (such amount of
cash being hereinafter referred to as the "Discount Equivalent"). If the Company
fails to pay the Discount Equivalent in full pursuant to this Section within
fifteen (15) days after the Company fails to obtain Shareholder Approval
pursuant to (1) above or the date payable pursuant to (2) above, the Company
will pay interest thereon at a rate of 15% per annum to the holder, accruing
daily from the applicable Adjustment Date or Closing Date, as the case may be,
until such amount, plus all such interest thereon, is paid in full.
3.7 Increase in Authorized Shares. At such times as the Company would
be, if a notice of exercise were to be delivered on such date, precluded from
issuing such number of Underlying Shares as would be issuable upon exercise in
full of the Warrants due to the unavailability of a sufficient number of shares
of authorized but unissued or reserved shares of Common Stock, the Company shall
promptly (and in any case, within 30 Business Days from such date) prepare and
mail to the stockholders of the Company proxy materials requesting authorization
to amend the Company's Articles of Incorporation to increase the number of
shares of Common Stock which the Company is authorized to issue to at least such
number of shares as reasonably requested by the Purchasers in order to provide
for such number of authorized and unissued shares of Common Stock to enable the
Company to comply with its exercise and reservation of shares obligations as set
forth in this Agreement and the Warrants. In connection therewith, the Board of
Directors shall (a) adopt proper resolutions authorizing such increase, (b)
recommend to and otherwise use its best efforts to promptly and duly obtain
stockholder approval to carry out such resolutions (and hold a special meeting
of the stockholders no later than the 60th day after delivery of the proxy
materials relating to such meeting) and (c) within five (5) Business Days of
obtaining such stockholder authorization, file an appropriate amendment to the
Company's Articles of Incorporation to evidence such increase.
3.8 Listing and Reservation of Underlying Shares. (a) The Company shall
(i) prior to the First Tranche 1 Closing Date prepare and file with the NASDAQ
(or such other national securities exchange or market or trading or quotation
facility on which the Common Stock is then listed) an additional shares listing
application covering a number of shares of Common Stock which is not less than
the Initial Minimum applicable to each such Closing, (ii) take all steps
necessary to cause such shares to be approved for listing in the NASDAQ (or on
the other primary national securities exchange or market or trading or quotation
facility on which the Common Stock is then listed) as soon as possible
thereafter, and (iii) provide to the Purchasers evidence of such listing, and
the Company shall maintain the listing of its Common Stock thereon.
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(b) The Company shall maintain a reserve of shares of Common
Stock for issuance pursuant to Section 3.15 and upon exercise of the Warrant in
accordance with its terms, in such amount as may be required to fulfill
obligations in full under the Transaction Documents, which reserve shall
include, with respect to each Closing, a number of shares of Common Stock equal
to no less than the Initial Minimum, with respect to each Closing.
3.9 Exercise and Issuance Procedures. The Transfer Agent Instructions
and Notice of Exercise under the Warrants set forth the totality of the
procedures with respect to the exercise of the Warrants, including such other
information and instructions as may be reasonably necessary to enable the
Purchasers to exercise the Warrants in accordance with their terms. The Company
shall honor any exercise of the Warrants and shall deliver Underlying Shares in
accordance with the terms, conditions and time periods set forth in the
Warrants.
3.10 Notice of Breaches. (a) Each of the Company and the Purchasers
shall give prompt written notice to the other of any breach by it of any
representation, warranty or other agreement contained in any Transaction
Document, as well as any events or occurrences arising after the date hereof
which would reasonably be likely to cause any representation or warranty or
other agreement of such party, as the case may be, contained therein to be
incorrect or breached as of any of the Closing Dates. However, no disclosure by
either party pursuant to this Section shall be deemed to cure any breach of any
representation, warranty or other agreement contained in any Transaction
Document.
(b) Notwithstanding the generality of Section 3.10(a), the
Company shall promptly notify the Purchasers of any notice or claim (written or
oral) that it receives from any lender of the Company to the effect that the
consummation of the transactions contemplated by the Transaction Documents
violates or would violate any written agreement or understanding between such
lender and the Company, and the Company shall promptly furnish by facsimile to
the holders of the Securities a copy of any written statement in support of or
relating to such claim or notice.
3.11 Right of First Refusal; Subsequent Registrations. (a) The Company
shall not, directly or indirectly, without the prior written consent of RAM,
offer, sell, grant any option to purchase, or otherwise dispose of (or announce
any offer, sale, grant or any option to purchase or other disposition) any of
its or its Affiliates' equity or equity-equivalent securities in a transaction
intended to be exempt or not subject to registration under the Securities Act (a
"Subsequent Placement") for a period of 180 days after the effective date of the
Registration Statement covering the Shares and Underlying Shares issued in
connection with the later to occur of the Tranche 1 Closing or the Tranche 2
Closing, if applicable, except as set forth in that certain Engagement Letter
Agreement between the Company and RAM dated as of April 1, 1999 (the "Engagement
Letter"). The Company agrees that it will deliver to the Purchasers any notices
or other correspondence that it is required to deliver to RAM pursuant to
Section 13 of the Engagement Letter. The Company further acknowledges that it
shall not accept any waiver of any rights RAM may have pursuant to Section 13 of
the Engagement Letter unless and until the Company has received a written
acknowledgment of such waiver by the Purchasers.
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(b) Except for (x) Underlying Shares, (y) other "Registrable
Securities" (as such term is defined in the Registration Rights Agreement) to be
registered, and securities of the Company permitted pursuant to Schedule 6(b) of
the Registration's Rights Agreement to be registered in the Underlying
Securities Registration Statement in accordance with the Registration Rights
Agreement, and (z) Common Stock to be registered (A) for resale in connection
with financings permitted pursuant to paragraph (a)(i), (iii) and (iv) of
Section 3.11(a) on Form S-4 or Forms S-8, the Company shall not, without the
prior written consent of the Purchasers (i) issue or sell any of its or any of
its Affiliates' equity or equity-equivalent securities pursuant to Regulation S
promulgated under the Securities Act, or (ii) register for resale any securities
of the Company, in each case, for a period commencing on the date that any
registration statement covering the resale of any of the Shares and the
Underlying Shares by the Purchasers meeting the requirement of the Registration
Rights Agreement is declared effective by the Commission and terminating at
least 90 Business Days thereafter. Any days that any Purchaser is unable to sell
Underlying Securities under any such registration statement shall be added to
such 90 Business Day period for the purposes of (i) and (ii) above.
3.12 Certain Securities Laws Disclosures; Publicity. The Company shall:
(i) issue within one (1) Business Day of each Closing a press release acceptable
to the Purchasers disclosing the transactions contemplated hereby, (ii) file
within ten (10) Business Days after each Closing Date with the Commission a
Current Report on Form 8-K disclosing the transactions contemplated hereby, and
(iii) timely file with the Commission a Form D promulgated under the Securities
Act as required under Regulation D promulgated under the Securities Act and
provide a copy thereof to the Purchasers promptly after the filing thereof. The
Company shall, no less than two (2) Business Days prior to the filing of any
disclosure required by clauses (ii) and (iii) above, provide a copy thereof to
the Purchasers. Unless required by applicable law or regulation, no such filing
or disclosure may be made that mentions the Purchasers by name without the prior
written consent of the Purchasers.
3.13 Use of Proceeds. The Company shall use the net proceeds from the
sale of Securities hereunder for working capital purposes and not for the
satisfaction of any portion of the Company's long-term debt or to redeem any
Company equity or equity-equivalent securities. Pending application of the
proceeds of this placement in the manner permitted hereby, the Company will
invest such proceeds in interest bearing accounts and/or short-term, investment
grade interest bearing securities.
3.14 Reimbursement. If either Purchaser, other than by reason of its
negligence or willful misconduct, becomes involved in any capacity in any
action, proceeding or investigation brought by or against any Person, including
stockholders of the Company, in connection with or as a result of the
consummation of the transactions contemplated by Transaction Documents, the
Company will reimburse such Purchaser for its reasonable legal and other
expenses (including the cost of any investigation and preparation) incurred in
connection therewith, as such expenses are incurred. In addition, other than
with respect to any matter in which any Purchaser is a named party, the Company
will pay such Purchaser the charges, as reasonably determined by such Purchaser,
for the time of any officers or employees of such Purchaser devoted to appearing
and preparing to appear as witnesses, assisting in preparation for hearings,
trials or pretrial matters, or otherwise with respect to inquiries, hearings,
trials, and other proceedings
-16-
relating to the subject matter of this Agreement. The reimbursement obligations
of the Company under this paragraph shall be in addition to any liability which
the Company may otherwise have, shall extend upon the same terms and conditions
to any Affiliate of such Purchaser who are actually named in such action,
proceeding or investigation, and partners, directors, agents, employees and
controlling persons (if any), as the case may be, of such Purchaser and any such
Affiliate, and shall be binding upon and inure to the benefit of any successors,
assigns, heirs and personal representatives of the Company, such Purchaser and
any such Affiliate and any such Person. The Company also agrees that neither
such Purchaser nor any Affiliate, partners, directors, agents, employees or
controlling persons shall have any liability to the Company or any person
asserting claims on behalf of or in right of the Company in connection with or
as a result of the consummation of the Transaction Documents except to the
extent that any losses, claims, damages, liabilities or expenses incurred by the
Company result from the negligence or willful misconduct of such Purchaser or
its breach of this Agreement.
3.15 Limitations on Short Sales. Each Purchaser agrees that it will not
enter into any Short Sales (as hereinafter defined) from the period commencing
on the First Tranche 1 Closing Date and ending on the last applicable Vesting
Date (as defined in the First Tranche 1 Warrant or the First Tranche 2 Warrant).
For purposes of this Section 3.15, a "Short Sale" by a Purchaser shall mean a
sale of Common Stock by such Purchaser that is marked as a short sale and that
is made at a time when there is no equivalent offsetting long position in Common
Stock held by the Purchaser. For purposes of determining whether there is an
equivalent offsetting long position in Common Stock held by a Purchaser, Warrant
Shares that have not yet been issued pursuant to the First Tranche 1 Warrant or
the First Tranche 2 Warrant, as applicable, in connection with the immediately
preceding Closing Date shall be deemed to be held long by the Purchaser, and the
number of Warrant Shares issuable pursuant to the First Tranche 1 Warrant or
First Tranche 2 Warrant, as applicable, then held by a Purchaser on any
particular date of computation shall be equal to the number of Warrant Shares
issuable pursuant to the First Tranche 1 Warrant or the First Tranche 2 Warrant,
as applicable, on each of the outstanding Vesting Dates calculated as if such
computation date were such Vesting Date (e.g. using the lowest twelve (12) Per
Share Market Values during the thirty (30) days immediately preceding such
computation date).
ARTICLE IV
CONDITIONS
4.1 Conditions Precedent to the Obligation of the Purchasers to
Purchase the Tranche 2 Shares. The obligation of the Purchasers to acquire the
Tranche 2 Shares is subject to the satisfaction or waiver by the Purchasers, at
or before the Early Tranche 2 Closing Date or the Tranche 2 Closing Date, as the
case may be, of each of the following conditions:
(i) Tranche 1 Closing. The First Tranche 1 Closing and Second
Tranche 1 Closing shall have occurred;
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(ii) Accuracy of the Company's Representations and Warranties.
The representations and warranties of the Company contained herein shall be true
and correct as of the date when made and as of the Tranche 2 Closing Date, as
the case may be, as though made on and as of the Tranche 2 Closing Date, except
for supplements to the Schedules to this Agreement;
(iii) Performance by the Company. The Company shall have
performed, satisfied and complied with all covenants, agreements and conditions
required by the Transaction Documents to be performed, satisfied or complied
with by the Company at or prior to the Tranche 2 Closing Date;
(iv) Registration Statement. The Registration Statement
covering the Tranche 1 Shares and Underlying Shares issuable in connection with
the Tranche 1 Closing shall have been declared effective under the Securities
Act by the Commission for at least sixty (60) days and shall have remained
effective at all times, not subject to any actual or threatened stop order or
subject to any actual or threatened suspension at any time prior to the Tranche
2 Closing Date;
(v) No Injunction. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction which prohibits the consummation of any of the transactions
contemplated by the Transaction Documents, including the issuance of any of the
Shares, Underlying Shares or exercise of the Warrants;
(vi) Adverse Changes. Since the Tranche 1 Closing Date, no
event or series of events which reasonably would be expected to have or result
in a Material Adverse Effect shall have occurred.
(vii) No Suspensions of Trading in Common Stock. The trading
in the Common Stock shall not have been suspended by the Commission or on the
NASDAQ (except for any suspension of trading of limited duration solely to
permit dissemination of material information regarding the Company) at any time
since the Tranche 1 Closing Date;
(viii) Listing of Common Stock. The Common Stock shall have
been at all times since the Tranche 1 Closing Date listed for trading on the
NASDAQ;
(ix) Change of Control. No Change of Control in the Company
shall have occurred. "Change of Control" means the occurrence of any of (i) an
acquisition after the date hereof by an individual or legal entity or "group"
(as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of in
excess of 50% of the voting securities of the Company, (ii) a replacement of
more than one-half of the members of the Company's board of directors which is
not approved by those individuals who are members of the board of directors on
the date hereof in one or a series of related transactions, (iii) the merger of
the Company with or into another entity, consolidation or sale of all or
substantially all of the assets of the Company in one or a series of related
transactions or (iv) the execution by the Company of an agreement to which the
Company is a party or by which it is bound, providing for any of the events set
forth above in (i), (ii) or (iii);
-18-
(x) Legal Opinion. The Company shall have delivered to the
Purchaser the opinion of the Company's outside counsel, in substantially the
form of Exhibit C, dated the Tranche 2 Closing Date;
(xi) Required Approvals. All Required Approvals shall have
been obtained;
(xii) Delivery of Stock Certificate. The Company shall have
delivered to the Purchaser or its Designee the stock certificate(s) representing
the Tranche 2 Shares registered in the name of the Purchaser or its Designee, in
form satisfactory to the Purchasers;
(xiii) Performance of Issuance and Exercise Obligations. The
Company shall have (a) delivered Underlying Shares, as applicable, upon each
Vesting Date as set forth in the Tranche 1 Warrants and otherwise performed its
obligations in accordance with the terms, conditions and timing requirements of
this Agreement and (b) delivered Underlying Shares upon exercise of the Warrants
and otherwise performed its obligations in accordance with the terms of the
Warrants;
(xiv) Closing Thresholds. For the 20 Business Days immediately
preceding the Tranche 2 Closing Date, as the case may be, the average daily
trading volume of the Common Stock on NASDAQ shall be at least 80,000 shares and
the average of the Per Share Market Values for the twenty (20) Business Days
immediately preceding the Tranche 2 Closing Date, as the case may be, shall be
greater than $6.00; and
(xv) Transfer Agent Instructions. The Transfer Agent
Instructions, dated the Tranche 2 Closing Date, shall have been delivered to and
acknowledged in writing by the Company's transfer agent.
ARTICLE V
MISCELLANEOUS
5.1 Fees and Expenses. The Company has paid or will pay up to $50,000
to RAM as an advance against legal and due diligence fees, in connection with
the preparation and negotiation of the Transaction Documents. Other than the
amounts contemplated in the immediately preceding sentence, each party hereto
shall pay the fees and expenses of its advisers, counsel, accountants and other
experts, if any, and all other expenses incurred by such party incident to the
negotiation, preparation, execution, delivery and performance of this Agreement.
The Company shall pay all stamp and other taxes and duties levied in connection
with the issuance of the Securities.
5.2 Entire Agreement; Amendments. This Agreement, together with the
Exhibits and Schedules hereto, the Registration Rights Agreement and the
Warrants contain the entire understanding of the parties with respect to the
subject matter hereof and supersede all prior agreements and understandings,
oral or written, with respect to such matters, which the parties acknowledge
have been merged into such documents, exhibits and schedules.
-19-
5.3 Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (i) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile
telephone number specified in this Section prior to 8:00 p.m. (New York City
time) on a Business Day, (ii) the Business Day after the date of transmission,
if such notice or communication is delivered via facsimile at the facsimile
telephone number specified in the Purchase Agreement later than 8:00 p.m. (New
York City time) on any date and earlier than 11:59 p.m. (New York City time) on
such date, (iii) the Business Day following the date of mailing, if sent by
nationally recognized overnight courier service, or (iv) upon actual receipt by
the party to whom such notice is required to be given. The address for such
notices and communications shall be as follows:
If to the Company: K-Tel International, Inc.
0000 Xxxxxxxxx Xxxx Xxxxx
Xxxxxxxxxxx, XX 00000
Facsimile: (000) 000-0000
Attention: Xxxxxxxx Xxxxxx, President
With copies to: Xxxxxx and Xxxxxx P.A.
0000 XXX Xxxxxx
Xxxxxxxxxxx, XX 00000
Facsimile: (000) 000-0000
Attention: Xxxxx X. Xxxxxx
If to Strong River: Strong River Investments Inc.
c/x Xxxxxxx Capital Corp.
000 Xxxxx Xxxxxx, Xxxxx 0000
Xxx Xxxx, Xxx Xxxx 00000
Facsimile: (000) 000-0000
Attention: Avi Vigder
If to Catharine: Catharine Street LLC
x/x Xxxxx Xxxxxxxx (Xxxxxx) Limited
Commercial Centre
P.O. Box 31106 SMB
Grand Cayman
Cayman Islands, British West Indies
With copies to: Xxxxxxxx Xxxxxxxxx Xxxxxx Xxxxxxxx &
Xxxxxx LLP
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, XX 00000
Facsimile: (000) 000-0000
-20-
Attention: Xxxxxxx X. Xxxxxxxxx
- and -
Xxxxxxx & Prager
000 Xxxxx Xxxxxx, 0xx Xxxxx
Xxx Xxxx, XX 00000
Facsimile No.: (000) 000-0000
Attn: Xxxxxx X. Xxxxxxx
or such other address as may be designated in writing hereafter, in the same
manner, by such Person.
5.4 Amendments; Waivers. No provision of this Agreement may be waived
or amended except in a written instrument signed, in the case of an amendment,
by both the Company and the Purchasers, or, in the case of a waiver, by the
party against whom enforcement of any such waiver is sought. No waiver of any
default with respect to any provision, condition or requirement of this
Agreement shall be deemed to be a continuing waiver in the future or a waiver of
any other provision, condition or requirement hereof, nor shall any delay or
omission of either party to exercise any right hereunder in any manner impair
the exercise of any such right accruing to it thereafter.
5.5 Headings. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.
5.6 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and permitted assigns.
The Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of the Purchasers. Except as set forth in
Section 3.1(a), the Purchasers may not assign this Agreement or any of the
rights or obligations hereunder or under the Transaction Documents (other than
to a Designee of the respective Purchaser) without the consent of the Company,
except that the Purchasers may assign their respective rights hereunder and,
subject to the terms thereof, under the Transaction Documents without the
consent of the Company as long as such assignee demonstrates to the reasonable
satisfaction of the Company its satisfaction of the representations and
warranties set forth in Section 2.2.
5.7 No Third-Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person.
5.8 Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the internal laws of the State of New York
without regard to the principles of conflicts of law thereof. Each party hereby
irrevocably submits to the non-exclusive jurisdiction of the state and federal
courts sitting in the City of New York, borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein (including with
-21-
respect to the enforcement of the any of the Transaction Documents), and hereby
irrevocably waives, and agrees not to assert in any suit, action or proceeding,
any claim that it is not personally subject to the jurisdiction of any such
court, that such suit, action or proceeding is improper. Each party hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by mailing a copy thereof to such
party at the address in effect for notices to it under this Agreement and agrees
that such service shall constitute good and sufficient service of process and
notice thereof. Nothing contained herein shall be deemed to limit in any way any
right to serve process in any manner permitted by law.
5.9 Survival. The representations, warranties, agreements and covenants
contained herein shall survive the Closings and the issuances of the Underlying
Shares.
5.10 Execution. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) the same with the same force and effect as if such facsimile signature
page were an original thereof.
5.11 Publicity. The Company and the Purchasers shall consult with each
other in issuing any press releases or otherwise making public statements or
filings and other communications with the Commission or any regulatory agency or
stock market or trading facility with respect to the transactions contemplated
hereby and neither party shall issue any such press release or otherwise make
any such public statement, filings or other communications without the prior
written consent of the other, which consent shall not be unreasonably withheld
or delayed, except that no prior consent shall be required if such disclosure is
required by law, in which such case the disclosing party shall provide the other
party with prior notice of such public statement, filing or other communication.
Except as set forth herein, notwithstanding the foregoing, the Company shall not
publicly disclose the name of any of the Purchasers, or include the name of any
of the Purchasers in any filing with the Commission, or any regulatory agency,
trading facility or stock market without the prior written consent of the
respective Purchaser, except to the extent such disclosure (but not any
disclosure as to the controlling Persons thereof) is required by law or by
applicable rules, bylaws or policies of the NASDAQ, in which case the Company
shall provide the respective Purchaser with prior notice of such disclosure.
5.12 Severability. In case any one or more of the provisions of this
Agreement shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Agreement shall not
in any way be affecting or impaired thereby and the parties will attempt to
agree upon a valid and enforceable provision which shall be a reasonable
substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Agreement.
-22-
5.13 Remedies. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, each party
shall have the right to apply to a court of competent jurisdiction to enforce
the obligations of the other under the Transaction Documents.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties hereto have caused this Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.
COMPANY:
K-TEL INTERNATIONAL, INC.
By: /s/ Xxxxxxxx Xxxxxx
------------------------------------
Name: Xxxxxxxx Xxxxxx
Title: President
PURCHASERS:
STRONG RIVER INVESTMENTS, INC.
By: /s/ Xxxxxxx X. Xxxxxxxxx
------------------------------------
Name: Xxxxxxx X. Xxxxxxxxx
Title:
CATHARINE STREET LLC
By: /s/ Xxxxx Xxxx
------------------------------------
Name: Xxxxx Xxxx
Title: Director
By: /s/ Xxxx Xxxxxxxxxx
------------------------------------
Name: Xxxx Xxxxxxxxxx
Title: Attorney-In-Fact
-24-
EXHIBIT 10.1 (D-1)
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS THEREUNDER AND IN
COMPLIANCE WITH APPLICABLE STATE SECURITIES OR BLUE SKY LAWS.
K-TEL INTERNATIONAL, INC.
WARRANT
Warrant No. A - ____ Dated: April 21, 1999
K-Tel International, Inc., a Minnesota corporation (the "Company"),
hereby certifies that, for value received, [________], or its registered and
permitted assigns ("Holder"), is entitled, subject to the terms set forth below,
to purchase from the Company up to the total number of shares of Common Stock,
$.01 par value per share (the "Common Stock"), of the Company (each such share,
a "Warrant Share" and all such shares, the "Warrant Shares") calculated pursuant
to Section 3 of this Warrant at an exercise price equal to $.01 per share (as
adjusted from time to time as provided in Section 8, the "Exercise Price"), at
the times set forth herein through and including ninety (90) days following the
Third Vesting Date (as defined in Section 3) (the "Expiration Date"), and
subject to the following terms and conditions:
1. Registration of Warrant. The Company shall register this
Warrant, upon records to be maintained by the Company for that purpose (the
"Warrant Register"), in the name of the record Holder hereof from time to time.
The Company may deem and treat the registered Holder of this Warrant as the
absolute owner hereof for the purpose of any exercise hereof or any distribution
to the Holder, and for all other purposes, and the Company shall not be affected
by notice to the contrary.
2. Registration of Transfers and Exchanges.
(a) The Company shall register the transfer of any portion of
this Warrant in the Warrant Register, upon surrender of this Warrant, with the
Form of Assignment attached hereto duly completed and signed, to the Transfer
Agent or to the Company at the office specified in or pursuant to Section 3(i).
Upon any such registration or transfer, a new warrant to purchase Common Stock,
in substantially the form of this Warrant (any such new warrant, a "New
Warrant"), evidencing the portion of this Warrant so transferred shall be issued
to the transferee and a New Warrant evidencing the remaining portion of this
Warrant not so transferred, if any, shall be issued to the transferring Holder.
The acceptance of the New Warrant by the transferee thereof shall be deemed the
acceptance of such transferee of all of the rights and obligations of a holder
of a Warrant.
(b) This Warrant is exchangeable, upon the surrender hereof by
the Holder to the office of the Company specified in or pursuant to Section 3(g)
for one or more New Warrants, evidencing in the aggregate the right to purchase
the number of Warrant Shares which may then be purchased hereunder. Any such New
Warrant will be dated the date of such exchange.
3. Duration, Exercise and Redemption of Warrants.
(a) The vesting of the Warrant Shares which the Holder is
permitted to acquire pursuant to this Warrant shall occur on the dates set forth
below. On each such date, this Warrant shall vest on a cumulative basis with
respect to a number of Warrant Shares calculated pursuant to Section 3(b) below.
Only the Warrant Shares that have vested may be acquired upon exercise of this
Warrant.
(i) The first Vesting Date (the "First Vesting Date") shall
be the thirtieth (30th) Trading Day following the earlier to occur of (A) the
Effectiveness Date and (B) the Effectiveness Required Date, provided that if
such day is not a business day, the next succeeding business day (the Warrant
Shares with respect to which this Warrant is exercisable on the First Vesting
Date are called the "Tranche A Warrant Shares");
(ii) The second Vesting Date (the "Second Vesting Date")
shall be the sixtieth (60th) Trading Day following the earlier to occur of (A)
the Effectiveness Date and (B) the Effectiveness Required Date, provided that if
such day is not a business day, the next succeeding business day (the Warrant
Shares with respect to which this Warrant is exercisable on the Second Vesting
Date are called the "Tranche B Warrant Shares"); and
(iii) The third Vesting Date (the "Third Vesting Date," and
together with the First Vesting Date and the Second Vesting Date, the "Vesting
Dates") shall be the ninetieth (90th) Trading Day following the earlier to occur
of (A) the Effectiveness Date and (B) the Effectiveness Required Date, provided
that if such day is not a business day, the next succeeding business day (the
-2-
Warrant Shares with respect to which this Warrant is exercisable on the Third
Vesting Date are called the "Tranche C Warrant Shares").
(b) Except as otherwise set forth in this Warrant, this Warrant
shall vest and become exercisable on each Vesting Date with respect to the
number of Warrant Shares calculated in accordance with the following formula:
(Applicable Share Number) x [(Purchase Price x 1.125) - Reset Price]
--------------------------------------------------------------------
Reset Price
If the number calculated in accordance with the foregoing formula is a negative
number, the Holder shall not be obligated to transfer any shares to the Company.
On each Vesting Date, the Company shall send a notice to the Holder setting
forth in reasonable detail its calculation of the number of Warrant Shares which
shall vest and be exercisable on such Vesting Date.
For purposes of this Warrant,
(i) "Applicable Share Number" means (i) with respect to the
First Vesting Date, 34% of the number of shares of Common Stock purchased by the
Holder pursuant to the Securities Purchase Agreement (the "Purchase Agreement"),
dated as of April 21, 1999, among the Company, Strong River Investments, Inc.
and Catharine Street LLC on the First Tranche 1 Closing Date and Second Tranche
1 Closing Date (as each such date is defined in the Purchase Agreement) and (ii)
with respect to each of the Second Vesting Date and the Third Vesting Date, 33%
of the number of shares of Common Stock purchased by the Holder pursuant to the
Purchase Agreement on the First Tranche 1 Closing Date and Second Tranche 1
Closing Date (as each such date is defined in the Purchase Agreement).
(ii) "Effectiveness Date" means the effective date of the
registration statement (the "Registration Statement") covering the Tranche 1
Shares (as defined in the Purchase Agreement) purchased pursuant to the Purchase
Agreement and meeting the requirements of the Registration Rights Agreement (the
"Registration Rights Agreement"), dated as of April 21, 1999, among the Company,
Strong River Investments, Inc. and Catharine Street LLC.
(iii) "Effectiveness Required Date" means the 105th day
following the date hereof;
(iv) "Reset Price" means the average of the lowest twelve
(12) Per Share Market Values (which need not occur on consecutive Trading Days)
during the thirty (30) Trading Days immediately preceding the first day of the
applicable Vesting Date.
(v) "Trading Day" means (a) a day on which the Common Stock
is traded on the Nasdaq National Market System or on any other stock market or
trading facility on which the shares
-3-
of Common Stock are listed or quoted (each, a "Subsequent Market"), as the case
may be, or (b) if the Common Stock is not listed on the Nasdaq National Market
System or on a Subsequent Market, a day on which the Common Stock is traded in
the over-the-counter market, as reported by the OTC Bulletin Board, or (c) if
the Common Stock is not quoted on the OTC Bulletin Board, a day on which the
Common Stock is quoted in the over-the-counter market as reported by the
National Quotation Bureau Incorporated (or any similar organization or agency
succeeding its functions of reporting prices); provided, however, that in the
event that the Common Stock is not listed or quoted as set forth in (a), (b) and
(c) hereof, then Trading Day shall mean any day except Saturday, Sunday and any
day which shall be a legal holiday or a day on which banking institutions in the
State of New York are authorized or required by law or other government action
to close; and
(vi) "Per Share Market Value" means on any particular date
(a) the closing bid price per share of the Common Stock on such date on the
Nasdaq National Market System ("Nasdaq") or on any Subsequent Market, or if
there is no such price on such date, then the closing bid price on the Nasdaq or
on such Subsequent Market on the date nearest preceding such date, or (b) if the
Common Stock is not then listed or quoted on the Nasdaq or a Subsequent Market,
the closing bid price for a share of Common Stock in the over-the-counter
market, as reported by the National Quotation Bureau Incorporated or similar
organization or agency succeeding to its functions of reporting prices) at the
close of business on such date, or (c) if the Common Stock is not then reported
by the National Quotation Bureau Incorporated (or similar organization or agency
succeeding to its functions of reporting prices), then the average of the "Pink
Sheet" quotes for the relevant conversion period, as determined in good faith by
the Holder, or (d) if the Common Stock is not then publicly traded the fair
market value of a share of Common Stock as determined by an appraiser selected
in good faith by the Holders of a majority of the applicable Registrable
Securities.
(c) The vesting of the Warrant Shares in accordance with this
Section 3 shall not be affected by any failure by the Company to maintain the
effectiveness of the Registration Statement after it has been declared effective
by the Securities and Exchange Commission (the "Commission").
(d) Notwithstanding the foregoing provisions of this Section 3,
at any time within ten (10) Trading Days following the occurrence of any of the
following events (each, an "Event"), the Holder shall have the option to elect
by notice ("Vesting Notice") to the Company to have this Warrant vest with
respect to those Warrant Shares that have not yet already vested:
(i) upon the occurrence of any of (i) an acquisition after
the date hereof by an individual or legal entity or "group" (as described in
Rule 13d-5(b)(1) promulgated under the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) of in excess of 50% of the voting securities of
the Company, (ii) a replacement of more than one-half of the members of the
Company's board of directors which is not approved by those individuals who are
members of the board of directors on the date hereof in one or a series of
related transactions, (iii) the merger of the Company with or into another
entity, consolidation or sale of all or substantially all of the assets of the
Company in one or a series
-4-
of related transactions, unless following such transaction or series of
transactions, the holders of the Company's securities prior to the first such
transaction continue to hold at least 50% of the securities of the surviving
entity or acquirer of such assets or (iv) the execution by the Company of an
agreement to which the Company is a party or by which it is bound, providing for
any of the events set forth above in (i), (ii) or (iii);
(ii) immediately prior to an assignment by the Company for
the benefit of creditors or commencement of a voluntary case under the Federal
Bankruptcy Code, or an entering into of an order for relief in an involuntary
case under the Federal Bankruptcy Code, or adoption by the Company of a plan of
liquidation or dissolution; or
(iii) five Business Days prior to the proposed consummation
with respect to the Company of a "Rule 13e-3 transaction" as defined in Rule
13e-3 under the Exchange Act (or, if necessary, such earlier date as the Company
shall determine in good faith to be required in order for the Holder to be able
to participate in such transaction), it being agreed that the Holder will
receive actual notice of the 13e-3 Statement filed with the Commission on the
date filed and actual notice of the date of acceleration hereunder no later than
such date, and that if such transaction is not consummated, and this Warrant has
been exercised, then the Holder (and to the extent that this Warrant would not
but for this paragraph be exercisable, the Company) shall be entitled to declare
the exercise null and void and the Holder shall, upon return of the Warrant
Shares to the Company, be entitled to receive a refund of the Exercise Price and
warrants identical to this Warrant, and such acceleration shall become void ab
initio, and the Warrants shall (as to any remaining unexercised portion thereof)
remain in full force and effect in accordance with the terms hereof.
In the event the Holder delivers a Vesting Notice, this Warrant shall vest with
respect to the number of Warrant Shares calculated in accordance with the
formula set forth on Section 3(b); provided, however that for purposes of such
calculation, (i) the "Applicable Share Number" shall be deemed to mean (A) 100%
of the number of shares of Common Stock purchased by the Holder pursuant to the
Purchase Agreement (such number, the "Holder Purchased Shares"), if the Event
occurred prior to the First Vesting Date, (B) 66% of the Holder Purchased
Shares, if the Event occurred on or after the First Vesting Date but prior to
the Second Vesting Date and (C) 33% of the Holder Purchased Shares if the Event
occurred on or after the Second Vesting Date but prior to the Third Vesting
Date; and (ii) the "Reset Price" shall be deemed to mean the average of the
lowest twelve (12) Per Share Market Values (which need not occur on consecutive
Trading Days) during the thirty (30) Trading Days immediately preceding the date
on which the Event occurred.
(e) Subject to Sections 3(a) and (b), this Warrant shall be
exercisable by the registered Holder on any Business Day before 5:30 P.M., New
York City time, at any time and from time to time on or after the date hereof to
and including the Expiration Date. At 5:30 P.M., New York City time on the
Expiration Date, the portion of this Warrant not exercised prior thereto shall
be and become void and of no value. For purposes of this Warrant, "Business Day"
means any day except Saturday, Sunday
-5-
and any day which shall be a legal holiday or a day on which banking
institutions in the State of New York are authorized or required by law or other
government action to close.
(f) Subject to Sections 2(b), 6 and 10, upon surrender of this
Warrant, with the Form of Election to Purchase attached hereto duly completed
and signed, to the Company at its address for notice set forth in Section 12 and
upon payment of the Exercise Price multiplied by the number of Warrant Shares
that the Holder intends to purchase hereunder, in the manner provided hereunder,
all as specified by the Holder in the Form of Election to Purchase, the Company
shall promptly (but in no event later than 3 Trading Days after the Date of
Exercise (as defined herein)) issue or cause to be issued and cause to be
delivered to or upon the written order of the Holder and in such name or names
as the Holder may designate, a certificate for the Warrant Shares issuable upon
such exercise, free of restrictive legends, except (i) either in the event that
a registration statement covering the resale of the Warrant Shares and naming
the Holder as a selling stockholder thereunder is not then effective or the
Warrant Shares are not freely transferable without volume restrictions pursuant
to Rule 144(k) promulgated under the Securities Act of 1933, as amended (the
"Securities Act"). Any person so designated by the Holder to receive Warrant
Shares shall be deemed to have become holder of record of such Warrant Shares as
of the Date of Exercise of this Warrant.
A "Date of Exercise" means the date on which the Company shall
have received (i) this Warrant (or any New Warrant, as applicable), with the
Form of Election to Purchase attached hereto (or attached to such New Warrant)
appropriately completed and duly signed, and (ii) payment of the Exercise Price
for the number of Warrant Shares so indicated by the holder hereof to be
purchased.
(g) If the Company fails to deliver to the Holder certificate or
certificates representing the Warrant Shares pursuant to Section 3(f) by the
third (3rd) Trading Day after the Date of Exercise, the Company shall pay to
such Holder, in cash, as liquidated damages and not as a penalty, $1,000 for
each day after such third (3rd) Trading Day until such certificates are
delivered. Nothing herein shall limit the Holder's right to pursue actual
damages for the Company's failure to deliver certificates representing shares of
Common Stock upon exercise within the period specified herein and the Holder
shall have the right to pursue all remedies available to it at law or in equity
including, without limitation, a decree of specific performance and/or
injunctive relief. The exercise of any such rights shall not prohibit the Holder
from seeking to enforce damages pursuant to any other Section hereof or under
applicable law.
(h) In addition to any other rights available to the Holder, if
the Company fails to deliver to the Holder certificate or certificates
representing the Warrant Shares pursuant to Section 3(f) by the third (3rd)
Trading Day after the Date of Exercise, and if after such third (3rd) Trading
Day the Holder purchases (in an open market transaction or otherwise) shares of
Common Stock to deliver in satisfaction of a sale by the Holder of the Warrant
Shares which the Holder anticipated receiving upon such exercise (a "Buy-In"),
then the Company shall pay in cash to the Holder (in addition to any remedies
available to or elected by the Holder) the amount by which (x) the Holder's
total purchase price (including brokerage commissions, if any) for the shares of
Common Stock so purchased exceeds (y) the amount
-6-
obtained by multiplying (A) the number of Warrant Shares that the Holder is
attempting to acquire by delivery of the Notice to Purchase by (B) the Per Share
Market Value on the Trading Day (or if such date is not a Trading Day, on the
immediately succeeding Trading Day) the certificate representing such Warrant
Shares are delivered to the Holder by or on behalf of the Company (and if there
is more than one certificate representing the Warrant Shares and they are
delivered on different Trading Days, clause (y)(B) of this Section shall be the
weighted average of the Per Share Market Values on the Trading Days on which
such certificates are delivered, based on the number of Warrant Shares
represented by each such certificate) . For example, if the Holder purchases
10,000 shares of Common Stock having a total purchase price of $90,000 to cover
a Buy-In with respect to an attempted exercise of this Warrant with respect to
10,000 Warrant Shares, and the Per Share Market Value on the Trading Day the
Holder receives the certificate representing such Warrant Shares is $8.00 the
Company shall be required to pay the Holder $10,000. The Holder shall provide
the Company written notice indicating the amounts payable to the Holder in
respect of the Buy-In. Notwithstanding anything contained herein to the
contrary, if a Holder requires the Company to make payment in respect of a
Buy-In for the failure to timely deliver certificates hereunder and the Company
timely pays in full such payment, the Company shall not be required to pay such
Holder liquidated damages under Section 3(h) in respect of the certificates
resulting in such Buy-In.
(i) Subject to Sections 3(a) and (b), this Warrant shall be
exercisable, either in its entirety or, from time to time, for a portion of the
number of Warrant Shares. If less than all of the Warrant Shares which may be
purchased under this Warrant are exercised at any time, the Company shall issue
or cause to be issued, at its expense, a New Warrant evidencing the right to
purchase the remaining number of Warrant Shares for which no exercise has been
evidenced by this Warrant.
4. Piggyback Registration Rights. During the term of this Warrant,
the Company may not file any registration statement with the Securities and
Exchange Commission (other than registration statements of the Company filed on
Form S-8 or Form S-4, each as promulgated under the Securities Act, pursuant to
which the Company is registering securities pursuant to a Company employee
benefit plan or pursuant to a merger, acquisition or similar transaction
including supplements thereto, but not additionally filed registration
statements in respect of such securities) at any time when there is not an
effective registration statement covering the resale of the Warrant Shares and
naming the Holder as a selling stockholder thereunder and the Warrant Shares may
not be sold pursuant to Rule 144, as promulgated under the Securities Act,
unless the Company provides the Holder with not less than 20 days notice of its
intention to file such registration statement and provides the Holder the option
to include any or all of the applicable Warrant Shares therein. The piggyback
registration rights granted to the Holder pursuant to this Section shall
continue until all of the Holder's Warrant Shares have been sold in accordance
with an effective registration statement or upon the Expiration Date. The
Company will pay all registration expenses in connection therewith.
5. Demand Registration Rights. At any time during the term of this
Warrant when the Warrant Shares are not registered for resale pursuant to an
effective registration statement, the Holder may make a written request for the
registration under the Securities Act (a "Demand Registration"), of all of the
-7-
Warrant Shares (the "Registrable Securities"), and the Company shall use its
best efforts to effect such Demand Registration as promptly as possible, but in
any case within 90 days thereafter. Any request for a Demand Registration shall
specify the aggregate number of Registrable Securities proposed to be sold and
shall also specify the intended method of disposition thereof. The right to
cause a registration of the Registrable Securities under this Section 5 shall be
limited to one such registration. In any registration initiated as a Demand
Registration, the Company will pay all registration expenses in connection
therewith. A Demand Registration shall not be counted as a Demand Registration
hereunder until the registration statement filed pursuant to the Demand
Registration has been declared effective by the Securities and Exchange
Commission and maintained continuously effective for a period of at least 360
days or such shorter period when all Registrable Securities included therein
have been sold in accordance with such registration statement, provided, however
that any days on which such registration statement is not effective or on which
the Holder is not permitted by the Company or any governmental authority to sell
Warrant Shares under such registration statement shall not count towards such
360 day period.
6. Payment of Taxes. The Company will pay all documentary stamp
taxes attributable to the issuance of Warrant Shares upon the exercise of this
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 registration
of any certificates for Warrant Shares or Warrants in a name other than that of
the Holder, and the Company shall not be required to issue or cause to be issued
or deliver or cause to be delivered the certificates for Warrant Shares unless
or until the person or persons requesting the issuance thereof shall have paid
to the Company the amount of such tax or shall have established to the
satisfaction of the Company that such tax has been paid. The Holder shall be
responsible for all other tax liability that may arise as a result of holding or
transferring this Warrant or receiving Warrant Shares upon exercise hereof.
7. Replacement of Warrant. If this Warrant is mutilated, lost,
stolen or destroyed, the Company shall issue or cause to be issued in exchange
and substitution for and upon cancellation hereof, or in lieu of and
substitution for this Warrant, a New Warrant, but only upon receipt of evidence
reasonably satisfactory to the Company of such loss, theft or destruction and
customary and reasonable indemnity, if requested. Applicants for a New Warrant
under such circumstances shall also comply with such other reasonable
regulations and procedures and pay such other reasonable charges as the Company
may prescribe.
8. Reservation of Warrant Shares. The Company covenants that it
will at all times reserve and keep available out of the aggregate of its
authorized but unissued Common Stock, solely for the purpose of enabling it to
issue Warrant Shares upon exercise of this Warrant as herein provided, the
number of Warrant Shares which are then issuable and deliverable upon the
exercise of this entire Warrant, free from preemptive rights or any other actual
contingent purchase rights of persons other than the Holder (taking into account
the adjustments and restrictions of Section 9). The Company covenants that all
Warrant Shares that shall be so issuable and deliverable shall, upon issuance
and the payment of the applicable Exercise Price in accordance with the terms
hereof, be duly and validly authorized, issued and fully paid and nonassessable.
-8-
9. Certain Adjustments. The Exercise Price and number of Warrant
Shares issuable upon exercise of this Warrant are subject to adjustment from
time to time as set forth in this Section 9. Upon each such adjustment of the
Exercise Price pursuant to this Section 9, the Holder shall thereafter prior to
the Expiration Date be entitled to purchase, at the Exercise Price resulting
from such adjustment, the number of Warrant Shares obtained by multiplying the
Exercise Price in effect immediately prior to such adjustment by the number of
Warrant Shares issuable upon exercise of this Warrant immediately prior to such
adjustment and dividing the product thereof by the Exercise Price resulting from
such adjustment.
(a) If the Company, at any time while this Warrant is
outstanding, (i) shall pay a stock dividend or otherwise make a distribution or
distributions on shares of its Common Stock or on any other class of capital
stock payable in shares of Common Stock, (ii) subdivide outstanding shares of
Common Stock into a larger number of shares, or (iii) combine outstanding shares
of Common Stock into a smaller number of shares, the Exercise Price shall be
multiplied by a fraction of which the numerator shall be the number of shares of
Common Stock outstanding before such event and of which the denominator shall be
the number of shares of Common Stock outstanding after such event. Any
adjustment made pursuant to this Section shall become effective immediately
after the record date for the determination of stockholders entitled to receive
such dividend or distribution and shall become effective immediately after the
effective date in the case of a subdivision or combination, and shall apply to
successive subdivisions and combinations.
(b) In case of any reclassification of the Common Stock, any
consolidation or merger of the Company with or into another person, the sale or
transfer of all or substantially all of the assets of the Company or any
compulsory share exchange pursuant to which the Common Stock is converted into
other securities, cash or property, then the Holder shall have the right
thereafter to exercise this Warrant only into the shares of stock and other
securities and property receivable upon or deemed to be held by holders of
Common Stock following such reclassification, consolidation, merger, sale,
transfer or share exchange, and the Holder shall be entitled upon such event to
receive such amount of securities or property equal to the amount of Warrant
Shares such Holder would have been entitled to had such Holder exercised this
Warrant immediately prior to such reclassification, consolidation, merger, sale,
transfer or share exchange. The terms of any such consolidation, merger, sale,
transfer or share exchange shall include such terms so as to continue to give to
the Holder the right to receive the securities or property set forth in this
Section 9(b) upon any exercise following any such reclassification,
consolidation, merger, sale, transfer or share exchange.
(c) If the Company, at any time while this Warrant is
outstanding, shall distribute (a "Distribution") to all holders of Common Stock
(and not to holders of this Warrant) evidences of its indebtedness or assets or
rights or warrants to subscribe for or purchase any security (excluding those
referred to in Sections 9(a), (b) and (d)) (collectively, "Rights"), then in
each such case the Holder shall be entitled to receive, for each Warrant Share
with respect to which this Warrant is exercised after the record date fixed for
determination of stockholders entitled to receive such Distribution, the Rights
received by all holders of Common Stock with respect to one share of Common
Stock.
-9-
(d) If, at any time while this Warrant is outstanding, the
Company shall issue or cause to be issued rights or warrants to acquire or
otherwise sell or distribute shares of Common Stock for a consideration per
share less than the Current Reset Price on the date of issuance of such rights
or warrants, then, forthwith upon such issue or sale, the Exercise Price shall
be reduced to the price (calculated to the nearest cent) determined by
multiplying the Exercise Price in effect immediately prior thereto by a
fraction, the numerator of which shall be the sum of (i) the number of shares of
Common Stock outstanding immediately prior to such issuance, and (ii) the number
of shares of Common Stock which the aggregate consideration received (or to be
received, assuming exercise or conversion in full of such rights, warrants and
convertible securities) for the issuance of such additional shares of Common
Stock would purchase at the Current Reset Price, and the denominator of which
shall be the sum of the number of shares of Common Stock outstanding immediately
after the issuance of such additional shares. Such adjustment shall be made
successively whenever such an issuance is made. For purposes of this Section
9(d), "Current Rest Price," with respect to any date, means the average of the
Per Share Market Values during the ten (10) Trading Days immediately preceding
such date.
(e) For the purposes of this Section 9, the following clauses
shall also be applicable:
(i) Record Date. In case the Company shall take a record of
the holders of its Common Stock for the purpose of entitling them (A) to receive
a dividend or other distribution payable in Common Stock or in securities
convertible or exchangeable into shares of Common Stock, or (B) to subscribe for
or purchase Common Stock or securities convertible or exchangeable into shares
of Common Stock, then such record date shall be deemed to be the date of the
issue or sale of the shares of Common Stock deemed to have been issued or sold
upon the declaration of such dividend or the making of such other distribution
or the date of the granting of such right of subscription or purchase, as the
case may be.
(ii) Treasury Shares. The number of shares of Common Stock
outstanding at any given time shall not include shares owned or held by or for
the account of the Company, and the disposition of any such shares shall be
considered an issue or sale of Common Stock.
(f) All calculations under this Section 9 shall be made to the
nearest 1/100th of a share.
(g) Whenever the Exercise Price is adjusted pursuant to Section
9(c) above, the Holder, after receipt of the determination by the Appraiser,
shall have the right to select an additional appraiser (which shall be a
nationally recognized accounting firm), in which case the adjustment shall be
equal to the average of the adjustments recommended by each of the Appraiser and
such appraiser. The Holder shall promptly mail or cause to be mailed to the
Company, a notice setting forth the Exercise Price after such adjustment and
setting forth a brief statement of the facts requiring such adjustment. Such
adjustment shall become effective immediately after the record date mentioned
above.
-10-
(h) If:
(i) the Company shall declare a dividend (or any other
distribution) on its Common Stock; or
(ii) the Company shall declare a special nonrecurring cash
dividend on or a redemption of its Common Stock; or
(iii) the Company shall authorize the granting to all
holders of the Common Stock rights or warrants to
subscribe for or purchase any shares of capital stock
of any class or of any rights; or
(iv) the approval of any stockholders of the Company shall
be required in connection with any reclassification
of the Common Stock of the Company, any consolidation
or merger to which the Company is a party, any sale
or transfer of all or substantially all of the assets
of the Company, or any compulsory share exchange
whereby the Common Stock is converted into other
securities, cash or property; or
(v) the Company shall authorize the voluntary
dissolution, liquidation or winding up of the affairs
of the Company,
then the Company shall cause to be mailed to each Holder at their last addresses
as they shall appear upon the Warrant Register, at least 30 calendar days prior
to the applicable record or effective date hereinafter specified, a notice
stating (x) the date on which a record is to be taken for the purpose of such
dividend, distribution, redemption, rights or warrants, or if a record is not to
be taken, the date as of which the holders of Common Stock of record to be
entitled to such dividend, distributions, redemption, rights or warrants are to
be determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of Common Stock of
record shall be entitled to exchange their shares of Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer, share exchange, dissolution, liquidation
or winding up; provided, however, that the failure to mail such notice or any
defect therein or in the mailing thereof shall not affect the validity of the
corporate action required to be specified in such notice.
10. Payment of Exercise Price. The Holder may pay the Exercise
Price in one of the following manners:
-11-
(a) Cash Exercise. The Holder shall deliver immediately
available funds; or
(b) Cashless Exercise. The Holder shall surrender this Warrant
to the Company together with a notice of cashless exercise, in which event the
Company shall issue to the Holder the number of Warrant Shares determined as
follows:
X = Y (A-B)/A
where:
X = the number of Warrant Shares to be issued to the
Holder.
Y = the number of Warrant Shares with respect to which this
Warrant is being exercised.
A = the average of the closing sale prices of the Common
Stock on the Nasdaq National Market for the five (5)
trading days immediately prior to (but not including) the
Date of Exercise as reported by Bloomberg Information
Systems, Inc. (or any successor to its function of
reporting stock prices).
B = the Exercise Price.
For purposes of Rule 144 promulgated under the Securities Act, it is intended,
understood and acknowledged that the Warrant Shares issued in a cashless
exercise transaction shall be deemed to have been acquired by the Holder, and
the holding period for the Warrant Shares shall be deemed to have been
commenced, on the issue date.
11. Certain Exercise Restrictions.
(a) The Holder agrees not to exercise this Warrant to the
extent such exercise would result in the Holder beneficially owning (as
determined in accordance with Section 13(d) of the Exchange Act and the rules
thereunder) in excess of 4.999% of the then issued and outstanding shares of
Common Stock, including shares issuable upon exercise of this Warrant after
application of this Section. The Holder shall have the sole authority and
obligation to determine whether the restriction contained in this Section
applies. The provisions of this Section may be waived by the Holder (but only as
to itself and not to any other holders of the other Warrant) upon not less than
75 days prior notice to the Company (in which case, the Holder shall make such
filings with the Commission, including under Regulation 13D or 13G, as are
required by applicable law). The holders of the Other Warrant shall be
unaffected by any such waiver.
(b) The Holder also agrees not to exercise this Warrant to the
extent such exercise would result in the Holder beneficially owning (as
determined in accordance with Section 13(d)
-12-
of the Exchange Act and the rules thereunder) in excess of 9.999% of the then
issued and outstanding Common Stock, including shares issuable upon exercise of
this Warrant after application of this Section. The Holder shall have the sole
authority and obligation to determine whether the restriction contained in this
Section applies. The provisions of this Section may be waived by the Holder (but
only as to itself and not to any other holders of the Other Warrant) upon not
less than 75 days prior notice to the Company. The holders of the Other Warrant
shall be unaffected by any such waiver.
12. Fractional Shares. The Company shall not be required to issue
or cause to be issued fractional Warrant Shares on the exercise of this Warrant.
The number of full Warrant Shares which shall be issuable upon the exercise of
this Warrant shall be computed on the basis of the aggregate number of Warrant
Shares purchasable on exercise of this Warrant so presented. If any fraction of
a Warrant Share would, except for the provisions of this Section 12, be issuable
on the exercise of this Warrant, the Company shall pay an amount in cash equal
to the Exercise Price multiplied by such fraction.
13. Notices. Any and all notices or other communications or
deliveries hereunder shall be in writing and shall be deemed given and effective
on the earliest of (i) the date of transmission, if such notice or communication
is delivered via facsimile at the facsimile telephone number specified in this
Section prior to 6:00 p.m. (New York City time) on a Business Day, (ii) the
Business Day after the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile telephone number specified in this
Section later than 6:00 p.m. (New York City time) on any date and earlier than
11:59 p.m. (New York City time) on such date, (iii) the Business Day following
the date of mailing, if sent by nationally recognized overnight courier service
with next day delivery specified thereon, or (iv) upon actual receipt by the
party to whom such notice is required to be given. The addresses for such
communications shall be: (i) if to the Company, to 0000 Xxxxxxxxx Xxxx Xxxxx,
Xxxxxxxxxxx, Xxxxxxxxx 00000, facsimile number (000) 000-0000, attention Chief
Financial Officer, or (ii) if to the Holder, to the Holder at the address or
facsimile number appearing on the Warrant Register or such other address or
facsimile number as the Holder may provide to the Company in accordance with
this Section 13.
14. Warrant Agent.
(a) The Company shall serve as warrant agent under this
Warrant. Upon thirty (30) days' notice to the Holder, the Company may appoint a
new warrant agent.
(b) Any corporation into which the Company or any new warrant
agent may be merged or any corporation resulting from any consolidation to which
the Company or any new warrant agent shall be a party or any corporation to
which the Company or any new warrant agent transfers substantially all of its
corporate trust or shareholders services business shall be a successor warrant
agent under this Warrant without any further act. Any such successor warrant
agent shall promptly cause notice of its succession as warrant agent to be
mailed (by first class mail, postage prepaid) to the Holder at the Holder's last
address as shown on the Warrant Register.
-13-
15. Miscellaneous.
(a) This Warrant shall be binding on and inure to the benefit
of the parties hereto and their respective successors and permitted assigns.
This Warrant may be amended only in writing signed by the Company and the Holder
and their successors and assigns.
(b) Subject to Section 15(a), above, nothing in this Warrant
shall be construed to give to any person or corporation other than the Company
and the Holder any legal or equitable right, remedy or cause under this Warrant.
This Warrant shall inure to the sole and exclusive benefit of the Company and
the Holder.
(c) This Warrant shall be governed by and construed and
enforced in accordance with the internal laws of the State of New York without
regard to the principles of conflicts of law thereof.
(d) The headings herein are for convenience only, do not
constitute a part of this Warrant and shall not be deemed to limit or affect any
of the provisions hereof.
(e) In case any one or more of the provisions of this Warrant
shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Warrant shall not
in any way be affected or impaired thereby and the parties will attempt in good
faith to agree upon a valid and enforceable provision which shall be a
commercially reasonable substitute therefor, and upon so agreeing, shall
incorporate such substitute provision in this Warrant.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK,
SIGNATURE PAGE FOLLOWS]
-14-
IN WITNESS WHEREOF, the Company has caused this Warrant to be
duly executed by its authorized officer as of the date first indicated above.
K-TEL INTERNATIONAL, INC.
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
FORM OF ELECTION TO PURCHASE
(To be executed by the Holder to exercise the right to purchase shares of Common
Stock under the foregoing Warrant)
To K-Tel International, Inc.:
In accordance with the Warrant enclosed with this Form of Election to
Purchase, the undersigned hereby irrevocably elects to purchase _____________
shares of Common Stock ("Common Stock"), $.01 par value per share, of K-Tel
International, Inc. and, if such Holder is not utilizing the cashless exercise
provisions set forth in this Warrant, encloses herewith $________ in cash,
certified or official bank check or checks, which sum represents the aggregate
Exercise Price (as defined in the Warrant) for the number of shares of Common
Stock to which this Form of Election to Purchase relates, together with any
applicable taxes payable by the undersigned pursuant to the Warrant.
The undersigned requests that certificates for the shares of Common
Stock issuable upon this exercise be issued in the name of
PLEASE INSERT SOCIAL SECURITY OR
TAX IDENTIFICATION NUMBER
--------------------------------
--------------------------------------------------------------------------------
(Please print name and address)
If the number of shares of Common Stock issuable upon this exercise
shall not be all of the shares of Common Stock which the undersigned is entitled
to purchase in accordance with the enclosed Warrant, the undersigned requests
that a New Warrant (as defined in the Warrant) evidencing the right to purchase
the shares of Common Stock not issuable pursuant to the exercise evidenced
hereby be issued in the name of and delivered to:
--------------------------------------------------------------------------------
(Please print name and address)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Dated: , Name of Holder:
---------------- ---
(Print)
---------------------------------
(By:)
-----------------------------------
(Name:)
(Title:)
(Signature must conform in all respects
to name of holder as specified on the
face of the Warrant)
FORM OF ASSIGNMENT
[To be completed and signed only upon transfer of Warrant]
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ________________________________ the right represented by the within
Warrant to purchase ____________ shares of Common Stock of K-Tel International,
Inc. to which the within Warrant relates and appoints ________________ attorney
to transfer said right on the books of Big Entertainment, Inc. with full power
of substitution in the premises.
Dated:
,
--------------- ----
-----------------------------------------
(Signature must conform in all respects
to name of holder as specified on the
face of the Warrant)
-----------------------------------------
Address of Transferee
-----------------------------------------
-----------------------------------------
In the presence of:
--------------------------
EXHIBIT 10.1 (D-2)
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS THEREUNDER AND IN
COMPLIANCE WITH APPLICABLE STATE SECURITIES OR BLUE SKY LAWS.
K-TEL INTERNATIONAL, INC.
WARRANT
Warrant No. B - __ Dated: April 21, 1999
K-Tel International, Inc., a Minnesota corporation (the "Company"),
hereby certifies that, for value received, [____________], or its registered and
permitted assigns ("Holder"), is entitled, subject to the terms set forth below,
to purchase from the Company up to a total of [ ](1) shares of Common Stock,
$.01 par value per share (the "Common Stock"), of the Company (each such share,
a "Warrant Share" and all such shares, the "Warrant Shares") at an exercise
price equal to [$ ](2) (as adjusted from time to time pursuant to the terms
hereunder, the "Exercise Price"), at any time and from time to time from and
after the date hereof and through and including [ ](3) (the "Expiration
Date"), and subject to the following terms and conditions:
1. Registration of Warrant. The Company shall register this
Warrant, upon records to be maintained by the Company for that purpose (the
"Warrant Register"), in the name of
----------------------
(1) Warrant D-2 shall be for the purchase of an aggregate amount of shares of
Common Stock equal to 15% of the quotient obtained by dividing (A) $12,000,000,
by (B) the average closing bid price of the Common Stock on the five (5) trading
days immediately preceding the First Tranche 1 Closing Date.
(2) The Exercise Price shall be equal to 125% of the average closing bid price
of the Common Stock on the five trading days immediately preceding the First
Tranche 1 Closing Date.
(3) Five years from the date of issuance.
the record Holder hereof from time to time. The Company may deem and treat the
registered Holder of this Warrant as the absolute owner hereof for the purpose
of any exercise hereof or any distribution to the Holder, and for all other
purposes, and the Company shall not be affected by notice to the contrary.
2. Registration of Transfers and Exchanges.
(a) The Company shall register the transfer of any
portion of this Warrant in the Warrant Register, upon surrender of this Warrant,
with the Form of Assignment attached hereto duly completed and signed, to the
Transfer Agent or to the Company at the office specified in or pursuant to
Section 3(b). Upon any such registration or transfer, a new warrant to purchase
Common Stock, in substantially the form of this Warrant (any such new warrant, a
"New Warrant"), evidencing the portion of this Warrant so transferred shall be
issued to the transferee and a New Warrant evidencing the remaining portion of
this Warrant not so transferred, if any, shall be issued to the transferring
Holder. The acceptance of the New Warrant by the transferee thereof shall be
deemed the acceptance of such transferee of all of the rights and obligations of
a holder of a Warrant.
(b) This Warrant is exchangeable, upon the surrender
hereof by the Holder to the office of the Company specified in or pursuant to
Section 3(b) for one or more New Warrants, evidencing in the aggregate the right
to purchase the number of Warrant Shares which may then be purchased hereunder.
Any such New Warrant will be dated the date of such exchange.
3. Duration, Exercise and Redemption of Warrants.
(a) Subject to the terms and conditions of this
Warrant, this Warrant shall be exercisable by the registered Holder on any
business day before 5:30 P.M., New York City time, at any time and from time to
time on or after the date hereof to and including the Expiration Date. At 5:30
P.M., New York City time on the Expiration Date, the portion of this Warrant not
exercised prior thereto shall be and become void and of no value.
(b) Subject to Sections 2(b), 6 and 10, upon
surrender of this Warrant, with the Form of Election to Purchase attached hereto
duly completed and signed, to the Company at its address for notice set forth in
Section 12 and upon payment of the Exercise Price multiplied by the number of
Warrant Shares that the Holder intends to purchase hereunder, in the manner
provided hereunder, all as specified by the Holder in the Form of Election to
Purchase, the Company shall promptly (but in no event later than 5 business days
after the Date of Exercise (as defined herein)) issue or cause to be issued and
cause to be delivered to or upon the written order of the Holder and in such
name or names as the Holder may designate, a certificate for the Warrant Shares
issuable upon such exercise, free of restrictive legends, except in the event
that a registration statement covering the resale of the Warrant Shares and
naming the Holder as a selling stockholder thereunder is not then effect of the
Warrant Shares are not freely transferable without volume restrictions pursuant
to Rule 144(k) promulgated under the Securities Act of 1933, as amended (the
"Securities Act"). Any person so designated by the Holder to receive Warrant
Shares shall be
-2-
deemed to have become holder of record of such Warrant Shares as of the Date of
Exercise of this Warrant.
A "Date of Exercise" means the date on which the
Company shall have received (i) this Warrant (or any New Warrant, as
applicable), with the Form of Election to Purchase attached hereto (or attached
to such New Warrant) appropriately completed and duly signed, and (ii) payment
of the Exercise Price for the number of Warrant Shares so indicated by the
holder hereof to be purchased.
(c) This Warrant shall be exercisable, either in its
entirety or, from time to time, for a portion of the number of Warrant Shares.
If less than all of the Warrant Shares which may be purchased under this Warrant
are exercised at any time, the Company shall issue or cause to be issued, at its
expense, a New Warrant evidencing the right to purchase the remaining number of
Warrant Shares for which no exercise has been evidenced by this Warrant.
4. Piggyback Registration Rights. During the term of this
Warrant, the Company may not file any registration statement with the Securities
and Exchange Commission (other than registration statements of the Company filed
on Form S-8 or Form S-4, each as promulgated under the Securities Act, pursuant
to which the Company is registering securities pursuant to a Company employee
benefit plan or pursuant to a merger, acquisition or similar transaction
including supplements thereto, but not additionally filed registration
statements in respect of such securities) at any time when there is not an
effective registration statement covering the resale of the Warrant Shares and
naming the Holder as a selling stockholder thereunder and the Warrant Shares may
not be sold pursuant to Rule 144, as promulgated under the Securities Act,
unless the Company provides the Holder with not less than 20 days notice of its
intention to file such registration statement and provides the Holder the option
to include any or all of the applicable Warrant Shares therein. The piggyback
registration rights granted to the Holder pursuant to this Section shall
continue until all of the Holder's Warrant Shares have been sold in accordance
with an effective registration statement or upon the Expiration Date. The
Company will pay all registration expenses in connection therewith.
5. Demand Registration Rights. At any time during the term of
this Warrant when the Warrant Shares are not registered for resale pursuant to
an effective registration statement, the Holder may make a written request for
the registration under the Securities Act (a "Demand Registration"), of all of
the Warrant Shares (the "Registrable Securities"), and the Company shall use its
best efforts to effect such Demand Registration as promptly as possible, but in
any case within 90 days thereafter. Any request for a Demand Registration shall
specify the aggregate number of Registrable Securities proposed to be sold and
shall also specify the intended method of disposition thereof. The right to
cause a registration of the Registrable Securities under this Section 5 shall be
limited to one such registration. In any registration initiated as a Demand
Registration, the Company will pay all registration expenses in connection
therewith. A Demand Registration shall not be counted as a Demand Registration
hereunder until the registration statement filed pursuant to the Demand
Registration has been declared effective by the Securities and Exchange
Commission and maintained continuously effective for a period of at least 360
days or such shorter period when all
-3-
Registrable Securities included therein have been sold in accordance with such
registration statement, provided, however that any days on which such
registration statement is not effective or on which the Holder is not permitted
by the Company or any governmental authority to sell Warrant Shares under such
registration statement shall not count towards such 360 day period.
6. Payment of Taxes. The Company will pay all documentary
stamp taxes attributable to the issuance of Warrant Shares upon the exercise of
this Warrant; provided, however, that the Company shall not be required to pay
any tax or other charge which may be payable in respect of any transfer of any
certificates for Warrant Shares or Warrants in a name other than that of the
Holder, and the Company shall not be required to issue or cause to be issued or
deliver or cause to be delivered the certificates for Warrant Shares unless or
until the person or persons requesting the issuance thereof shall have paid to
the Company the amount of such tax or other charge or shall have established to
the satisfaction of the Company that such tax or other charge has been paid. The
Holder shall be responsible for all other tax liability that may arise as a
result of holding or transferring this Warrant or receiving Warrant Shares upon
exercise hereof.
7. Replacement of Warrant. If this Warrant is mutilated, lost,
stolen or destroyed, the Company shall issue or cause to be issued in exchange
and substitution for and upon cancellation hereof, or in lieu of and
substitution for this Warrant, a New Warrant, but only upon receipt of evidence
reasonably satisfactory to the Company of such loss, theft or destruction and
indemnity, if requested, satisfactory to it. Applicants for a New Warrant under
such circumstances shall also comply with such other reasonable regulations and
procedures and pay such other reasonable charges as the Company may prescribe.
8. Reservation of Warrant Shares. The Company covenants that
it will at all times reserve and keep available out of the aggregate of its
authorized but unissued Common Stock, solely for the purpose of enabling it to
issue Warrant Shares upon exercise of this Warrant as herein provided, the
number of Warrant Shares which are then issuable and deliverable upon the
exercise of this entire Warrant, free from preemptive rights or any other actual
contingent purchase rights of persons other than the Holder (taking into account
the adjustments and restrictions of Section 9) created by the Company. The
Company covenants that all Warrant Shares that shall be so issuable and
deliverable shall, upon issuance and the payment of the applicable Exercise
Price in accordance with the terms hereof, be duly and validly authorized,
issued and fully paid and nonassessable.
9. Certain Adjustments. The Exercise Price and number of
Warrant Shares issuable upon exercise of this Warrant are subject to adjustment
from time to time as set forth in this Section 9. Upon each such adjustment of
the Exercise Price pursuant to this Section 9, the Holder shall thereafter prior
to the Expiration Date be entitled to purchase, at the Exercise Price resulting
from such adjustment, the number of Warrant Shares obtained by multiplying the
Exercise Price in effect immediately prior to such adjustment by the number of
Warrant Shares issuable upon exercise of this Warrant immediately prior to such
adjustment and dividing the product thereof by the Exercise Price resulting from
such adjustment.
-4-
(a) If the Company, at any time while this Warrant is
outstanding, (i) shall pay a stock dividend or otherwise make a distribution or
distributions on shares of its Common Stock or on any other class of capital
stock payable in shares of Common Stock, (ii) subdivide outstanding shares of
Common Stock into a larger number of shares, or (iii) combine outstanding shares
of Common Stock into a smaller number of shares, the Exercise Price shall be
multiplied by a fraction of which the numerator shall be the number of shares of
Common Stock outstanding before such event and of which the denominator shall be
the number of shares of Common Stock outstanding after such event. Any
adjustment made pursuant to this Section shall become effective immediately
after the record date for the determination of stockholders entitled to receive
such dividend or distribution and shall become effective immediately after the
effective date in the case of a subdivision or combination, and shall apply to
successive subdivisions and combinations.
(b) In case of any reclassification of the Common
Stock, any consolidation or merger of the Company with or into another person,
the sale or transfer of all or substantially all of the assets of the Company or
any compulsory share exchange pursuant to which the Common Stock is converted
into other securities, cash or property, then the Holder shall have the right
thereafter to exercise this Warrant only into the shares of stock and other
securities and property receivable upon or deemed to be held by holders of
Common Stock following such reclassification, consolidation, merger, sale,
transfer or share exchange, and the Holder shall be entitled upon such event to
receive such amount of securities or property equal to the amount of Warrant
Shares such Holder would have been entitled to had such Holder exercised this
Warrant immediately prior to such reclassification, consolidation, merger, sale,
transfer or share exchange. The terms of any such consolidation, merger, sale,
transfer or share exchange shall include such terms so as to continue to give to
the Holder the right to receive the securities or property set forth in this
Section 9(b) upon any exercise following any such reclassification,
consolidation, merger, sale, transfer or share exchange.
(c) If the Company, at any time while this Warrant is
outstanding, shall distribute (a "Distribution") to all holders of Common Stock
(and not to holders of this Warrant) evidences of its indebtedness or assets or
rights or warrants to subscribe for or purchase any security (excluding those
referred to in Sections 9(a), (b) and (d)) (collectively, "Rights"), then in
each such case the Holder shall be entitled to receive, for each Warrant Share
with respect to which this Warrant is exercised after the record date fixed for
determination of stockholders entitled to receive such Distribution, the Rights
received by all holders of Common Stock with respect to one share of Common
Stock.
(d) For the purposes of this Section 9, in case the
Company shall take a record of the holders of its Common Stock for the purpose
of entitling them (A) to receive a dividend or other distribution payable in
Common Stock or in securities convertible or exchangeable into shares of Common
Stock, or (B) to subscribe for or purchase Common Stock or securities
convertible or exchangeable into shares of Common Stock, then such record date
shall be deemed to be the date of the issue or sale of the shares of Common
Stock deemed to have been issued or sold
-5-
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.
(e) All calculations under this Section 9 shall be
made to the nearest cent or the nearest 1/100th of a share, as the case may be.
(f) Whenever the Exercise Price is adjusted pursuant
to Section 9(c) above, the Holder, after receipt of the determination by the
Appraiser, shall have the right to select an additional appraiser (which shall
be a nationally recognized accounting firm), in which case the adjustment shall
be equal to the average of the adjustments recommended by each of the Appraiser
and such appraiser. The Holder shall promptly mail or cause to be mailed to the
Company, a notice setting forth the Exercise Price after such adjustment and
setting forth a brief statement of the facts requiring such adjustment. Such
adjustment shall become effective immediately after the record date mentioned
above.
(g) If:
(i) the Company shall declare a
dividend (or any other
distribution) on its Common Stock;
or
(ii) the Company shall declare a special
nonrecurring cash dividend on or a
redemption of its Common Stock; or
(iii) the Company shall authorize the
granting to all holders of the
Common Stock rights or warrants to
subscribe for or purchase any
shares of capital stock of any
class or of any rights; or
(iv) the approval of any stockholders of
the Company shall be required in
connection with any
reclassification of the Common
Stock of the Company, any
consolidation or merger to which
the Company is a party, any sale or
transfer of all or substantially
all of the assets of the Company,
or any compulsory share exchange
whereby the Common Stock is
converted into other securities,
cash or property; or
(v) the Company shall authorize the
voluntary dissolution, liquidation
or winding up of the affairs of the
Company,
then the Company shall cause to be mailed to the Holder at its last address as
it shall appear upon the Warrant Register, at least 30 calendar days prior to
the applicable record or effective date hereinafter specified, a notice stating
(x) the date on which a record is to be taken for the purpose
-6-
of such dividend, distribution, redemption, rights or warrants, or if a record
is not to be taken, the date as of which the holders of Common Stock of record
to be entitled to such dividend, distributions, redemption, rights or warrants
are to be determined or (y) the date on which such reclassification,
consolidation, merger, sale, transfer or share exchange is expected to become
effective or close, and the date as of which it is expected that holders of
Common Stock of record shall be entitled to exchange their shares of Common
Stock for securities, cash or other property deliverable upon such
reclassification, consolidation, merger, sale, transfer, share exchange,
dissolution, liquidation or winding up; provided, however, that the failure to
mail such notice or any defect therein or in the mailing thereof shall not
affect the validity of the corporate action required to be specified in such
notice.
10. Payment of Exercise Price. The Holder may pay the Exercise
Price in one of the following manners:
(a) Cash Exercise. The Holder shall deliver
immediately available funds; or
(b) Cashless Exercise. The Holder shall surrender
this Warrant to the Company together with a notice of cashless exercise, in
which event the Company shall issue to the Holder the number of Warrant Shares
determined as follows:
X = Y (A-B)/A
where:
X = the number of Warrant Shares to be
issued to the Holder.
Y = the number of Warrant Shares with
respect to which this Warrant is being
exercised.
A = the average of the closing sale prices
of the Common Stock on the Nasdaq National
Market for the five (5) trading days
immediately prior to (but not including) the
Date of Exercise as reported by Bloomberg
Information Systems, Inc. (or any successor
to its function of reporting stock prices).
B = the Exercise Price.
For purposes of Rule 144 promulgated under the Securities Act, it is intended,
understood and acknowledged that the Warrant Shares issued in a cashless
exercise transaction shall be deemed to have been acquired by the Holder, and
the holding period for the Warrant Shares shall be deemed to have been
commenced, on the issue date.
11. Fractional Shares. The Company shall not be required to
issue or cause to be issued fractional Warrant Shares on the exercise of this
Warrant. The number of full Warrant Shares which shall be issuable upon the
exercise of this Warrant shall be computed on the basis of the
-7-
aggregate number of Warrant Shares purchasable on exercise of this Warrant so
presented. If any fraction of a Warrant Share would, except for the provisions
of this Section 11, be issuable on the exercise of this Warrant, the Company
shall pay an amount in cash equal to the Exercise Price multiplied by such
fraction.
12. Notices. Any and all notices or other communications or
deliveries hereunder shall be in writing and shall be deemed given and effective
on the earliest of (i) the date of transmission, if such notice or communication
is delivered via facsimile at the facsimile telephone number specified in this
Section prior to 6:00 p.m. (New York City time) on a business day, (ii) the
business day after the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile telephone number specified in this
Section later than 6:00 p.m. (New York time) on any date and earlier than 11:59
p.m. (New York time) on such date, (iii) the business day following the date of
mailing, if sent by nationally recognized overnight courier service with next
day delivery specified thereon, or (iv) upon actual receipt by the party to whom
such notice is required to be given. The addresses for such communications shall
be: (i) if to the Company, to 0000 Xxxxxxxxx Xxxx Xxxxx, Xxxxxxxxxxx, Xxxxxxxxx
00000, facsimile number (000) 000-0000, attention Chief Financial Officer, or
(ii) if to the Holder, to the Holder at the address or facsimile number
appearing on the Warrant Register or such other address or facsimile number as
the Holder may provide to the Company in accordance with this Section 12.
13. Warrant Agent.
(a) The Company shall serve as warrant agent under
this Warrant. Upon thirty (30) days' notice to the Holder, the Company may
appoint a new warrant agent.
(b) Any corporation into which the Company or any new
warrant agent may be merged or any corporation resulting from any consolidation
to which the Company or any new warrant agent shall be a party or any
corporation to which the Company or any new warrant agent transfers
substantially all of its corporate trust or shareholders services business shall
be a successor warrant agent under this Warrant without any further act. Any
such successor warrant agent shall promptly cause notice of its succession as
warrant agent to be mailed (by first class mail, postage prepaid) to the Holder
at the Holder's last address as shown on the Warrant Register.
14. Miscellaneous.
(a) This Warrant shall be binding on and inure to the
benefit of the parties hereto and their respective successors and permitted
assigns. This Warrant may be amended only in writing signed by the Company and
the Holder and their successors and assigns.
(b) Subject to Section 14(a), above, nothing in this
Warrant shall be construed to give to any person or corporation other than the
Company and the Holder any legal or equitable right, remedy or cause under this
Warrant. This Warrant shall inure to the sole and exclusive benefit of the
Company and the Holder.
-8-
(c) This Warrant shall be governed by and construed
and enforced in accordance with the internal laws of the State of New York
without regard to the principles of conflicts of law thereof.
(d) The headings herein are for convenience only, do
not constitute a part of this Warrant and shall not be deemed to limit or affect
any of the provisions hereof.
(e) In case any one or more of the provisions of this
Warrant shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Warrant shall not
in any way be affected or impaired thereby and the parties will attempt in good
faith to agree upon a valid and enforceable provision which shall be a
commercially reasonable substitute therefor, and upon so agreeing, shall
incorporate such substitute provision in this Warrant.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK,
SIGNATURE PAGE FOLLOWS]
-9-
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed by its authorized officer as of the date first indicated above.
K-TEL INTERNATIONAL, INC.
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
-10-
FORM OF ELECTION TO PURCHASE
(To be executed by the Holder to exercise the right to purchase shares of Common
Stock under the foregoing Warrant)
To K-tel International, Inc.:
In accordance with the Warrant enclosed with this Form of Election to
Purchase, the undersigned hereby irrevocably elects to purchase _____________
shares of Common Stock ("Common Stock"), $.01 par value per share, of K-tel
International, Inc. and , if such Holder is not utilizing the cashless exercise
provisions set forth in this Warrant, encloses herewith $________ in cash,
certified or official bank check or checks, which sum represents the aggregate
Exercise Price (as defined in the Warrant) for the number of shares of Common
Stock to which this Form of Election to Purchase relates, together with any
applicable taxes payable by the undersigned pursuant to the Warrant.
The undersigned requests that certificates for the shares of Common
Stock issuable upon this exercise be issued in the name of
PLEASE INSERT SOCIAL SECURITY OR
TAX IDENTIFICATION NUMBER
----------------------------------------
-------------------------------------------------------------------------------
(Please print name and address)
If the number of shares of Common Stock issuable upon this exercise
shall not be all of the shares of Common Stock which the undersigned is entitled
to purchase in accordance with the enclosed Warrant, the undersigned requests
that a New Warrant (as defined in the Warrant) evidencing the right to purchase
the shares of Common Stock not issuable pursuant to the exercise evidenced
hereby be issued in the name of and delivered to:
-------------------------------------------------------------------------------
(Please print name and address)
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Dated: Name of Holder:
---------------,-----
(Print)
---------------------------------
(By:)
-----------------------------------
(Name:)
(Title:)
(Signature must conform in all respects
to name of holder as specified on the
face of the Warrant)
FORM OF ASSIGNMENT
[To be completed and signed only upon transfer of Warrant]
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ________________________________ the right represented by the within
Warrant to purchase ____________ shares of Common Stock of K-tel International,
Inc. to which the within Warrant relates and appoints ________________ attorney
to transfer said right on the books of K-tel International, Inc. with full power
of substitution in the premises.
Dated:
---------------,-----
----------------------------------------
(Signature must conform in all respects
to name of holder as specified on the
face of the Warrant)
----------------------------------------
Address of Transferee
----------------------------------------
----------------------------------------
In the presence of:
-----------------------------------
EXHIBIT 10.1 (E-1)
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS THEREUNDER AND IN
COMPLIANCE WITH APPLICABLE STATE SECURITIES OR BLUE SKY LAWS.
K-TEL INTERNATIONAL, INC.
WARRANT
Warrant No. C - ____ Dated: _______, 1999
K-Tel International, Inc., a Minnesota corporation (the "Company"),
hereby certifies that, for value received, [________], or its registered and
permitted assigns ("Holder"), is entitled, subject to the terms set forth below,
to purchase from the Company up to the total number of shares of Common Stock,
$.01 par value per share (the "Common Stock"), of the Company (each such share,
a "Warrant Share" and all such shares, the "Warrant Shares") calculated pursuant
to Section 3 of this Warrant at an exercise price equal to $.01 per share (as
adjusted from time to time as provided in Section 8, the "Exercise Price"), at
the times set forth herein through and including ninety (90) days following the
Third Vesting Date (as defined in Section 3) (the "Expiration Date"), and
subject to the following terms and conditions:
1. Registration of Warrant. The Company shall register this
Warrant, upon records to be maintained by the Company for that purpose (the
"Warrant Register"), in the name of the record Holder hereof from time to time.
The Company may deem and treat the registered Holder of this Warrant as the
absolute owner hereof for the purpose of any exercise hereof or any distribution
to the Holder, and for all other purposes, and the Company shall not be affected
by notice to the contrary.
2. Registration of Transfers and Exchanges.
(a) The Company shall register the transfer of any
portion of this Warrant in the Warrant Register, upon surrender of this Warrant,
with the Form of Assignment attached hereto duly completed and signed, to the
Transfer Agent or to the Company at the office specified in or pursuant to
Section 3(i). Upon any such registration or transfer, a new warrant to purchase
Common Stock, in substantially the form of this Warrant (any such new warrant, a
"New Warrant"), evidencing the portion of this Warrant so transferred shall be
issued to the transferee and a New Warrant evidencing the remaining portion of
this Warrant not so transferred, if any, shall be issued to the transferring
Holder. The acceptance of the New Warrant by the transferee thereof shall be
deemed the acceptance of such transferee of all of the rights and obligations of
a holder of a Warrant.
(b) This Warrant is exchangeable, upon the surrender
hereof by the Holder to the office of the Company specified in or pursuant to
Section 3(g) for one or more New Warrants, evidencing in the aggregate the right
to purchase the number of Warrant Shares which may then be purchased hereunder.
Any such New Warrant will be dated the date of such exchange.
3. Duration, Exercise and Redemption of Warrants.
(a) The vesting of the Warrant Shares which the
Holder is permitted to acquire pursuant to this Warrant shall occur on the dates
set forth below. On each such date, this Warrant shall vest on a cumulative
basis with respect to a number of Warrant Shares calculated pursuant to Section
3(b) below. Only the Warrant Shares that have vested may be acquired upon
exercise of this Warrant.
(i) The first Vesting Date (the "First
Vesting Date") shall be the thirtieth (30th) Trading Day following the earlier
to occur of (A) the Effectiveness Date and (B) the Effectiveness Required Date,
provided that if such day is not a business day, the next succeeding business
day (the Warrant Shares with respect to which this Warrant is exercisable on the
First Vesting Date are called the "Tranche A Warrant Shares");
(ii) The second Vesting Date (the "Second
Vesting Date") shall be the sixtieth (60th) Trading Day following the earlier to
occur of (A) the Effectiveness Date and (B) the Effectiveness Required Date,
provided that if such day is not a business day, the next succeeding business
day (the Warrant Shares with respect to which this Warrant is exercisable on the
Second Vesting Date are called the "Tranche B Warrant Shares"); and
(iii) The third Vesting Date (the "Third
Vesting Date," and together with the First Vesting Date and the Second Vesting
Date, the "Vesting Dates") shall be the ninetieth (90th) Trading Day following
the earlier to occur of (A) the Effectiveness Date and (B) the Effectiveness
Required Date, provided that if such day is not a business day, the next
succeeding business day (the Warrant Shares
-2-
with respect to which this Warrant is exercisable on the Third Vesting Date are
called the "Tranche C Warrant Shares").
(b) Except as otherwise set forth in this Warrant,
this Warrant shall vest and become exercisable on each Vesting Date with respect
to the number of Warrant Shares calculated in accordance with the following
formula:
(Applicable Share Number) x [(Purchase Price x 1.125) - Reset Price]
--------------------------------------------------------------------
Reset Price
If the number calculated in accordance with the foregoing formula is a negative
number, the Holder shall not be obligated to transfer any shares to the Company.
On each Vesting Date, the Company shall send a notice to the Holder setting
forth in reasonable detail its calculation of the number of Warrant Shares which
shall vest and be exercisable on such Vesting Date.
For purposes of this Warrant,
(i) "Applicable Share Number" means (i) with
respect to the First Vesting Date, 34% of the number of shares of Common Stock
purchased by the Holder pursuant to the Securities Purchase Agreement (the
"Purchase Agreement"), dated as of April 21, 1999, among the Company, Strong
River Investments, Inc. and Catharine Street LLC on the Tranche 2 Closing Date
(as defined in the Purchase Agreement) and (ii) with respect to each of the
Second Vesting Date and the Third Vesting Date, 33% of the number of shares of
Common Stock purchased by the Holder pursuant to the Purchase Agreement on the
Tranche 2 Closing Date (as defined in the Purchase Agreement).
(ii) "Effectiveness Date" means the
effective date of the registration statement (the "Registration Statement")
covering the Tranche 2 Shares (as defined in the Purchase Agreement) purchased
pursuant to the Purchase Agreement and meeting the requirements of the
Registration Rights Agreement (the "Registration Rights Agreement"), dated as of
April 21, 1999, among the Company, Strong River Investments, Inc. and Catharine
Street LLC.
(iii) "Effectiveness Required Date" means
the 105th day following the Tranche 2 Closing Date;
(iv) "Reset Price" means the average of the
lowest twelve (12) Per Share Market Values (which need not occur on consecutive
Trading Days) during the thirty (30) Trading Days immediately preceding the
first day of the applicable Vesting Date.
(v) "Trading Day" means (a) a day on which
the Common Stock is traded on the Nasdaq National Market System or on any other
stock market or trading facility on which the shares of Common Stock are listed
or quoted (each, a "Subsequent Market"), as the case may be, or (b) if the
-3-
Common Stock is not listed on the Nasdaq National Market System or on a
Subsequent Market, a day on which the Common Stock is traded in the
over-the-counter market, as reported by the OTC Bulletin Board, or (c) if the
Common Stock is not quoted on the OTC Bulletin Board, a day on which the Common
Stock is quoted in the over-the-counter market as reported by the National
Quotation Bureau Incorporated (or any similar organization or agency succeeding
its functions of reporting prices); provided, however, that in the event that
the Common Stock is not listed or quoted as set forth in (a), (b) and (c)
hereof, then Trading Day shall mean any day except Saturday, Sunday and any day
which shall be a legal holiday or a day on which banking institutions in the
State of New York are authorized or required by law or other government action
to close; and
(vi) "Per Share Market Value" means on any
particular date (a) the closing bid price per share of the Common Stock on such
date on the Nasdaq National Market System ("Nasdaq") or on any Subsequent
Market, or if there is no such price on such date, then the closing bid price on
the Nasdaq or on such Subsequent Market on the date nearest preceding such date,
or (b) if the Common Stock is not then listed or quoted on the Nasdaq or a
Subsequent Market, the closing bid price for a share of Common Stock in the
over-the-counter market, as reported by the National Quotation Bureau
Incorporated or similar organization or agency succeeding to its functions of
reporting prices) at the close of business on such date, or (c) if the Common
Stock is not then reported by the National Quotation Bureau Incorporated (or
similar organization or agency succeeding to its functions of reporting prices),
then the average of the "Pink Sheet" quotes for the relevant conversion period,
as determined in good faith by the Holder, or (d) if the Common Stock is not
then publicly traded the fair market value of a share of Common Stock as
determined by an appraiser selected in good faith by the Holders of a majority
of the applicable Registrable Securities.
(c) The vesting of the Warrant Shares in accordance
with this Section 3 shall not be affected by any failure by the Company to
maintain the effectiveness of the Registration Statement after it has been
declared effective by the Securities and Exchange Commission (the "Commission").
(d) Notwithstanding the foregoing provisions of this
Section 3, at any time within ten (10) Trading Days following the occurrence of
any of the following events (each, an "Event"), the Holder shall have the option
to elect by notice ("Vesting Notice") to the Company to have this Warrant vest
with respect to those Warrant Shares that have not yet already vested:
(i) upon the occurrence of any of (i) an
acquisition after the date hereof by an individual or legal entity or "group"
(as described in Rule 13d-5(b)(1) promulgated under the Securities Exchange Act
of 1934, as amended (the "Exchange Act")) of in excess of 50% of the voting
securities of the Company, (ii) a replacement of more than one-half of the
members of the Company's board of directors which is not approved by those
individuals who are members of the board of directors on the date hereof in one
or a series of related transactions, (iii) the merger of the Company with or
into another entity, consolidation or sale of all or substantially all of the
assets of the Company in one or a series of related transactions, unless
following such transaction or series of transactions, the holders of the
-4-
Company's securities prior to the first such transaction continue to hold at
least 50% of the securities of the surviving entity or acquirer of such assets
or (iv) the execution by the Company of an agreement to which the Company is a
party or by which it is bound, providing for any of the events set forth above
in (i), (ii) or (iii);
(ii) immediately prior to an assignment by
the Company for the benefit of creditors or commencement of a voluntary case
under the Federal Bankruptcy Code, or an entering into of an order for relief in
an involuntary case under the Federal Bankruptcy Code, or adoption by the
Company of a plan of liquidation or dissolution; or
(iii) five Business Days prior to the
proposed consummation with respect to the Company of a "Rule 13e-3 transaction"
as defined in Rule 13e-3 under the Exchange Act (or, if necessary, such earlier
date as the Company shall determine in good faith to be required in order for
the Holder to be able to participate in such transaction), it being agreed that
the Holder will receive actual notice of the 13e-3 Statement filed with the
Commission on the date filed and actual notice of the date of acceleration
hereunder no later than such date, and that if such transaction is not
consummated, and this Warrant has been exercised, then the Holder (and to the
extent that this Warrant would not but for this paragraph be exercisable, the
Company) shall be entitled to declare the exercise null and void and the Holder
shall, upon return of the Warrant Shares to the Company, be entitled to receive
a refund of the Exercise Price and warrants identical to this Warrant, and such
acceleration shall become void ab initio, and the Warrants shall (as to any
remaining unexercised portion thereof) remain in full force and effect in
accordance with the terms hereof.
In the event the Holder delivers a Vesting Notice, this Warrant shall vest with
respect to the number of Warrant Shares calculated in accordance with the
formula set forth on Section 3(b); provided, however that for purposes of such
calculation, (i) the "Applicable Share Number" shall be deemed to mean (A) 100%
of the number of shares of Common Stock purchased by the Holder pursuant to the
Purchase Agreement (such number, the "Holder Purchased Shares"), if the Event
occurred prior to the First Vesting Date, (B) 66% of the Holder Purchased
Shares, if the Event occurred on or after the First Vesting Date but prior to
the Second Vesting Date and (C) 33% of the Holder Purchased Shares if the Event
occurred on or after the Second Vesting Date but prior to the Third Vesting
Date; and (ii) the "Reset Price" shall be deemed to mean the average of the
lowest twelve (12) Per Share Market Values (which need not occur on consecutive
Trading Days) during the thirty (30) Trading Days immediately preceding the date
on which the Event occurred.
(e) Subject to Sections 3(a) and (b), this Warrant
shall be exercisable by the registered Holder on any Business Day before 5:30
P.M., New York City time, at any time and from time to time on or after the date
hereof to and including the Expiration Date. At 5:30 P.M., New York City time on
the Expiration Date, the portion of this Warrant not exercised prior thereto
shall be and become void and of no value. For purposes of this Warrant,
"Business Day" means any day except Saturday, Sunday
-5-
and any day which shall be a legal holiday or a day on which banking
institutions in the State of New York are authorized or required by law or other
government action to close.
(f) Subject to Sections 2(b), 6 and 10, upon
surrender of this Warrant, with the Form of Election to Purchase attached hereto
duly completed and signed, to the Company at its address for notice set forth in
Section 12 and upon payment of the Exercise Price multiplied by the number of
Warrant Shares that the Holder intends to purchase hereunder, in the manner
provided hereunder, all as specified by the Holder in the Form of Election to
Purchase, the Company shall promptly (but in no event later than 3 Trading Days
after the Date of Exercise (as defined herein)) issue or cause to be issued and
cause to be delivered to or upon the written order of the Holder and in such
name or names as the Holder may designate, a certificate for the Warrant Shares
issuable upon such exercise, free of restrictive legends, except (i) either in
the event that a registration statement covering the resale of the Warrant
Shares and naming the Holder as a selling stockholder thereunder is not then
effective or the Warrant Shares are not freely transferable without volume
restrictions pursuant to Rule 144(k) promulgated under the Securities Act of
1933, as amended (the "Securities Act"). Any person so designated by the Holder
to receive Warrant Shares shall be deemed to have become holder of record of
such Warrant Shares as of the Date of Exercise of this Warrant.
A "Date of Exercise" means the date on which the
Company shall have received (i) this Warrant (or any New Warrant, as
applicable), with the Form of Election to Purchase attached hereto (or attached
to such New Warrant) appropriately completed and duly signed, and (ii) payment
of the Exercise Price for the number of Warrant Shares so indicated by the
holder hereof to be purchased.
(g) If the Company fails to deliver to the Holder
certificate or certificates representing the Warrant Shares pursuant to Section
3(f) by the third (3rd) Trading Day after the Date of Exercise, the Company
shall pay to such Holder, in cash, as liquidated damages and not as a penalty,
$1,000 for each day after such third (3rd) Trading Day until such certificates
are delivered. Nothing herein shall limit the Holder's right to pursue actual
damages for the Company's failure to deliver certificates representing shares of
Common Stock upon exercise within the period specified herein and the Holder
shall have the right to pursue all remedies available to it at law or in equity
including, without limitation, a decree of specific performance and/or
injunctive relief. The exercise of any such rights shall not prohibit the Holder
from seeking to enforce damages pursuant to any other Section hereof or under
applicable law.
(h) In addition to any other rights available to the
Holder, if the Company fails to deliver to the Holder certificate or
certificates representing the Warrant Shares pursuant to Section 3(f) by the
third (3rd) Trading Day after the Date of Exercise, and if after such third
(3rd) Trading Day the Holder purchases (in an open market transaction or
otherwise) shares of Common Stock to deliver in satisfaction of a sale by the
Holder of the Warrant Shares which the Holder anticipated receiving upon such
exercise (a "Buy-In"), then the Company shall pay in cash to the Holder (in
addition to any remedies available to or elected by the Holder) the amount by
which (x) the Holder's total purchase price (including brokerage commissions, if
any) for the shares of Common Stock so purchased exceeds (y) the amount
-6-
obtained by multiplying (A) the number of Warrant Shares that the Holder is
attempting to acquire by delivery of the Notice to Purchase by (B) the Per Share
Market Value on the Trading Day (or if such date is not a Trading Day, on the
immediately succeeding Trading Day) the certificate representing such Warrant
Shares are delivered to the Holder by or on behalf of the Company (and if there
is more than one certificate representing the Warrant Shares and they are
delivered on different Trading Days, clause (y)(B) of this Section shall be the
weighted average of the Per Share Market Values on the Trading Days on which
such certificates are delivered, based on the number of Warrant Shares
represented by each such certificate) . For example, if the Holder purchases
10,000 shares of Common Stock having a total purchase price of $90,000 to cover
a Buy-In with respect to an attempted exercise of this Warrant with respect to
10,000 Warrant Shares, and the Per Share Market Value on the Trading Day the
Holder receives the certificate representing such Warrant Shares is $8.00 the
Company shall be required to pay the Holder $10,000. The Holder shall provide
the Company written notice indicating the amounts payable to the Holder in
respect of the Buy-In. Notwithstanding anything contained herein to the
contrary, if a Holder requires the Company to make payment in respect of a
Buy-In for the failure to timely deliver certificates hereunder and the Company
timely pays in full such payment, the Company shall not be required to pay such
Holder liquidated damages under Section 3(h) in respect of the certificates
resulting in such Buy-In.
(i) Subject to Sections 3(a) and (b), this
Warrant shall be exercisable, either in its entirety or, from time to time, for
a portion of the number of Warrant Shares. If less than all of the Warrant
Shares which may be purchased under this Warrant are exercised at any time, the
Company shall issue or cause to be issued, at its expense, a New Warrant
evidencing the right to purchase the remaining number of Warrant Shares for
which no exercise has been evidenced by this Warrant.
4. Piggyback Registration Rights. During the term of this
Warrant, the Company may not file any registration statement with the Securities
and Exchange Commission (other than registration statements of the Company filed
on Form S-8 or Form S-4, each as promulgated under the Securities Act, pursuant
to which the Company is registering securities pursuant to a Company employee
benefit plan or pursuant to a merger, acquisition or similar transaction
including supplements thereto, but not additionally filed registration
statements in respect of such securities) at any time when there is not an
effective registration statement covering the resale of the Warrant Shares and
naming the Holder as a selling stockholder thereunder and the Warrant Shares may
not be sold pursuant to Rule 144, as promulgated under the Securities Act,
unless the Company provides the Holder with not less than 20 days notice of its
intention to file such registration statement and provides the Holder the option
to include any or all of the applicable Warrant Shares therein. The piggyback
registration rights granted to the Holder pursuant to this Section shall
continue until all of the Holder's Warrant Shares have been sold in accordance
with an effective registration statement or upon the Expiration Date. The
Company will pay all registration expenses in connection therewith.
5. Demand Registration Rights. At any time during the term of
this Warrant when the Warrant Shares are not registered for resale pursuant to
an effective registration statement, the Holder may make a written request for
the registration under the Securities Act (a "Demand Registration"), of all of
the
-7-
Warrant Shares (the "Registrable Securities"), and the Company shall use its
best efforts to effect such Demand Registration as promptly as possible, but in
any case within 90 days thereafter. Any request for a Demand Registration shall
specify the aggregate number of Registrable Securities proposed to be sold and
shall also specify the intended method of disposition thereof. The right to
cause a registration of the Registrable Securities under this Section 5 shall be
limited to one such registration. In any registration initiated as a Demand
Registration, the Company will pay all registration expenses in connection
therewith. A Demand Registration shall not be counted as a Demand Registration
hereunder until the registration statement filed pursuant to the Demand
Registration has been declared effective by the Securities and Exchange
Commission and maintained continuously effective for a period of at least 360
days or such shorter period when all Registrable Securities included therein
have been sold in accordance with such registration statement, provided, however
that any days on which such registration statement is not effective or on which
the Holder is not permitted by the Company or any governmental authority to sell
Warrant Shares under such registration statement shall not count towards such
360 day period.
6. Payment of Taxes. The Company will pay all documentary
stamp taxes attributable to the issuance of Warrant Shares upon the exercise of
this 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
registration of any certificates for Warrant Shares or Warrants in a name other
than that of the Holder, and the Company shall not be required to issue or cause
to be issued or deliver or cause to be delivered the certificates for Warrant
Shares unless or until the person or persons requesting the issuance thereof
shall have paid to the Company the amount of such tax or shall have established
to the satisfaction of the Company that such tax has been paid. The Holder shall
be responsible for all other tax liability that may arise as a result of holding
or transferring this Warrant or receiving Warrant Shares upon exercise hereof.
7. Replacement of Warrant. If this Warrant is mutilated, lost,
stolen or destroyed, the Company shall issue or cause to be issued in exchange
and substitution for and upon cancellation hereof, or in lieu of and
substitution for this Warrant, a New Warrant, but only upon receipt of evidence
reasonably satisfactory to the Company of such loss, theft or destruction and
customary and reasonable indemnity, if requested. Applicants for a New Warrant
under such circumstances shall also comply with such other reasonable
regulations and procedures and pay such other reasonable charges as the Company
may prescribe.
8. Reservation of Warrant Shares. The Company covenants that
it will at all times reserve and keep available out of the aggregate of its
authorized but unissued Common Stock, solely for the purpose of enabling it to
issue Warrant Shares upon exercise of this Warrant as herein provided, the
number of Warrant Shares which are then issuable and deliverable upon the
exercise of this entire Warrant, free from preemptive rights or any other actual
contingent purchase rights of persons other than the Holder (taking into account
the adjustments and restrictions of Section 9). The Company covenants that all
Warrant Shares that shall be so issuable and deliverable shall, upon issuance
and the payment of the applicable Exercise Price in accordance with the terms
hereof, be duly and validly authorized, issued and fully paid and nonassessable.
-8-
9. Certain Adjustments. The Exercise Price and number of
Warrant Shares issuable upon exercise of this Warrant are subject to adjustment
from time to time as set forth in this Section 9. Upon each such adjustment of
the Exercise Price pursuant to this Section 9, the Holder shall thereafter prior
to the Expiration Date be entitled to purchase, at the Exercise Price resulting
from such adjustment, the number of Warrant Shares obtained by multiplying the
Exercise Price in effect immediately prior to such adjustment by the number of
Warrant Shares issuable upon exercise of this Warrant immediately prior to such
adjustment and dividing the product thereof by the Exercise Price resulting from
such adjustment.
(a) If the Company, at any time while this Warrant is
outstanding, (i) shall pay a stock dividend or otherwise make a distribution or
distributions on shares of its Common Stock or on any other class of capital
stock payable in shares of Common Stock, (ii) subdivide outstanding shares of
Common Stock into a larger number of shares, or (iii) combine outstanding shares
of Common Stock into a smaller number of shares, the Exercise Price shall be
multiplied by a fraction of which the numerator shall be the number of shares of
Common Stock outstanding before such event and of which the denominator shall be
the number of shares of Common Stock outstanding after such event. Any
adjustment made pursuant to this Section shall become effective immediately
after the record date for the determination of stockholders entitled to receive
such dividend or distribution and shall become effective immediately after the
effective date in the case of a subdivision or combination, and shall apply to
successive subdivisions and combinations.
(b) In case of any reclassification of the Common
Stock, any consolidation or merger of the Company with or into another person,
the sale or transfer of all or substantially all of the assets of the Company or
any compulsory share exchange pursuant to which the Common Stock is converted
into other securities, cash or property, then the Holder shall have the right
thereafter to exercise this Warrant only into the shares of stock and other
securities and property receivable upon or deemed to be held by holders of
Common Stock following such reclassification, consolidation, merger, sale,
transfer or share exchange, and the Holder shall be entitled upon such event to
receive such amount of securities or property equal to the amount of Warrant
Shares such Holder would have been entitled to had such Holder exercised this
Warrant immediately prior to such reclassification, consolidation, merger, sale,
transfer or share exchange. The terms of any such consolidation, merger, sale,
transfer or share exchange shall include such terms so as to continue to give to
the Holder the right to receive the securities or property set forth in this
Section 9(b) upon any exercise following any such reclassification,
consolidation, merger, sale, transfer or share exchange.
(c) If the Company, at any time while this Warrant is
outstanding, shall distribute (a "Distribution") to all holders of Common Stock
(and not to holders of this Warrant) evidences of its indebtedness or assets or
rights or warrants to subscribe for or purchase any security (excluding those
referred to in Sections 9(a), (b) and (d)) (collectively, "Rights"), then in
each such case the Holder shall be entitled to receive, for each Warrant Share
with respect to which this Warrant is exercised after the record date fixed for
determination of stockholders entitled to receive such Distribution, the Rights
received by all holders of Common Stock with respect to one share of Common
Stock.
-9-
(d) If, at any time while this Warrant is
outstanding, the Company shall issue or cause to be issued rights or warrants to
acquire or otherwise sell or distribute shares of Common Stock for a
consideration per share less than the Current Reset Price on the date of
issuance of such rights or warrants, then, forthwith upon such issue or sale,
the Exercise Price shall be reduced to the price (calculated to the nearest
cent) determined by multiplying the Exercise Price in effect immediately prior
thereto by a fraction, the numerator of which shall be the sum of (i) the number
of shares of Common Stock outstanding immediately prior to such issuance, and
(ii) the number of shares of Common Stock which the aggregate consideration
received (or to be received, assuming exercise or conversion in full of such
rights, warrants and convertible securities) for the issuance of such additional
shares of Common Stock would purchase at the Current Reset Price, and the
denominator of which shall be the sum of the number of shares of Common Stock
outstanding immediately after the issuance of such additional shares. Such
adjustment shall be made successively whenever such an issuance is made. For
purposes of this Section 9(d), "Current Rest Price," with respect to any date,
means the average of the Per Share Market Values during the ten (10) Trading
Days immediately preceding such date.
(e) For the purposes of this Section 9, the following
clauses shall also be applicable:
(i) Record Date. In case the Company shall
take a record of the holders of its Common Stock for the purpose of entitling
them (A) to receive a dividend or other distribution payable in Common Stock or
in securities convertible or exchangeable into shares of Common Stock, or (B) to
subscribe for or purchase Common Stock or securities convertible or exchangeable
into shares of Common Stock, then such record date shall be deemed to be the
date of the issue or sale of the shares of Common Stock deemed to have been
issued or sold upon the declaration of such dividend or the making of such other
distribution or the date of the granting of such right of subscription or
purchase, as the case may be.
(ii) Treasury Shares. The number of shares
of Common Stock outstanding at any given time shall not include shares owned or
held by or for the account of the Company, and the disposition of any such
shares shall be considered an issue or sale of Common Stock.
(f) All calculations under this Section 9 shall be
made to the nearest 1/100th of a share.
(g) Whenever the Exercise Price is adjusted pursuant
to Section 9(c) above, the Holder, after receipt of the determination by the
Appraiser, shall have the right to select an additional appraiser (which shall
be a nationally recognized accounting firm), in which case the adjustment shall
be equal to the average of the adjustments recommended by each of the Appraiser
and such appraiser. The Holder shall promptly mail or cause to be mailed to the
Company, a notice setting forth the Exercise Price after such adjustment and
setting forth a brief statement of the facts requiring such adjustment. Such
adjustment shall become effective immediately after the record date mentioned
above.
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(h) If:
(i) the Company shall declare a dividend (or
any other distribution) on its Common
Stock; or
(ii) the Company shall declare a special
nonrecurring cash dividend on or a
redemption of its Common Stock; or
(iii) the Company shall authorize the granting
to all holders of the Common Stock rights
or warrants to subscribe for or purchase
any shares of capital stock of any class
or of any rights; or
(iv) the approval of any stockholders of the
Company shall be required in connection
with any reclassification of the Common
Stock of the Company, any consolidation or
merger to which the Company is a party,
any sale or transfer of all or
substantially all of the assets of the
Company, or any compulsory share exchange
whereby the Common Stock is converted into
other securities, cash or property; or
(v) the Company shall authorize the voluntary
dissolution, liquidation or winding up of
the affairs of the Company,
then the Company shall cause to be mailed to each Holder at their last addresses
as they shall appear upon the Warrant Register, at least 30 calendar days prior
to the applicable record or effective date hereinafter specified, a notice
stating (x) the date on which a record is to be taken for the purpose of such
dividend, distribution, redemption, rights or warrants, or if a record is not to
be taken, the date as of which the holders of Common Stock of record to be
entitled to such dividend, distributions, redemption, rights or warrants are to
be determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of Common Stock of
record shall be entitled to exchange their shares of Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer, share exchange, dissolution, liquidation
or winding up; provided, however, that the failure to mail such notice or any
defect therein or in the mailing thereof shall not affect the validity of the
corporate action required to be specified in such notice.
10. Payment of Exercise Price. The Holder may pay the Exercise
Price in one of the following manners:
-11-
(a) Cash Exercise. The Holder shall deliver
immediately available funds; or
(b) Cashless Exercise. The Holder shall surrender
this Warrant to the Company together with a notice of cashless exercise, in
which event the Company shall issue to the Holder the number of Warrant Shares
determined as follows:
X = Y (A-B)/A
where:
X = the number of Warrant Shares to be
issued to the Holder.
Y = the number of Warrant Shares with
respect to which this Warrant is being
exercised.
A = the average of the closing sale prices
of the Common Stock on the Nasdaq National
Market for the five (5) trading days
immediately prior to (but not including) the
Date of Exercise as reported by Bloomberg
Information Systems, Inc. (or any successor
to its function of reporting stock prices).
B = the Exercise Price.
For purposes of Rule 144 promulgated under the Securities Act, it is intended,
understood and acknowledged that the Warrant Shares issued in a cashless
exercise transaction shall be deemed to have been acquired by the Holder, and
the holding period for the Warrant Shares shall be deemed to have been
commenced, on the issue date.
11. Certain Exercise Restrictions.
(a) The Holder agrees not to exercise this Warrant to
the extent such exercise would result in the Holder beneficially owning (as
determined in accordance with Section 13(d) of the Exchange Act and the rules
thereunder) in excess of 4.999% of the then issued and outstanding shares of
Common Stock, including shares issuable upon exercise of this Warrant after
application of this Section. The Holder shall have the sole authority and
obligation to determine whether the restriction contained in this Section
applies. The provisions of this Section may be waived by the Holder (but only as
to itself and not to any other holders of the other Warrant) upon not less than
75 days prior notice to the Company (in which case, the Holder shall make such
filings with the Commission, including under Regulation 13D or 13G, as are
required by applicable law). The holders of the Other Warrant shall be
unaffected by any such wavier.
(b) The Holder also agrees not to exercise this
Warrant to the extent such exercise would result in the Holder beneficially
owning (as determined in accordance with Section 13(d)
-12-
of the Exchange Act and the rules thereunder) in excess of 9.999% of the then
issued and outstanding Common Stock, including shares issuable upon exercise of
this Warrant after application of this Section. The Holder shall have the sole
authority and obligation to determine whether the restriction contained in this
Section applies. The provisions of this Section may be waived by the Holder (but
only as to itself and not to any other holders of the Other Warrant) upon not
less than 75 days prior notice to the Company. The holders of the Other Warrant
shall be unaffected by any such waiver.
12. Fractional Shares. The Company shall not be required to
issue or cause to be issued fractional Warrant Shares on the exercise of this
Warrant. The number of full Warrant Shares which shall be issuable upon the
exercise of this Warrant shall be computed on the basis of the aggregate number
of Warrant Shares purchasable on exercise of this Warrant so presented. If any
fraction of a Warrant Share would, except for the provisions of this Section 12,
be issuable on the exercise of this Warrant, the Company shall pay an amount in
cash equal to the Exercise Price multiplied by such fraction.
13. Notices. Any and all notices or other communications or
deliveries hereunder shall be in writing and shall be deemed given and effective
on the earliest of (i) the date of transmission, if such notice or communication
is delivered via facsimile at the facsimile telephone number specified in this
Section prior to 6:00 p.m. (New York City time) on a Business Day, (ii) the
Business Day after the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile telephone number specified in this
Section later than 6:00 p.m. (New York City time) on any date and earlier than
11:59 p.m. (New York City time) on such date, (iii) the Business Day following
the date of mailing, if sent by nationally recognized overnight courier service
with next day delivery specified thereon, or (iv) upon actual receipt by the
party to whom such notice is required to be given. The addresses for such
communications shall be: (i) if to the Company, to 0000 Xxxxxxxxx Xxxx Xxxxx,
Xxxxxxxxxxx, Xxxxxxxxx 00000, facsimile number (000) 000-0000, attention Chief
Financial Officer, or (ii) if to the Holder, to the Holder at the address or
facsimile number appearing on the Warrant Register or such other address or
facsimile number as the Holder may provide to the Company in accordance with
this Section 13.
14. Warrant Agent.
(a) The Company shall serve as warrant agent under
this Warrant. Upon thirty (30) days' notice to the Holder, the Company may
appoint a new warrant agent.
(b) Any corporation into which the Company or any new
warrant agent may be merged or any corporation resulting from any consolidation
to which the Company or any new warrant agent shall be a party or any
corporation to which the Company or any new warrant agent transfers
substantially all of its corporate trust or shareholders services business shall
be a successor warrant agent under this Warrant without any further act. Any
such successor warrant agent shall promptly cause notice of its succession as
warrant agent to be mailed (by first class mail, postage prepaid) to the Holder
at the Holder's last address as shown on the Warrant Register.
-13-
15. Miscellaneous.
(a) This Warrant shall be binding on and inure to the
benefit of the parties hereto and their respective successors and permitted
assigns. This Warrant may be amended only in writing signed by the Company and
the Holder and their successors and assigns.
(b) Subject to Section 15(a), above, nothing in this
Warrant shall be construed to give to any person or corporation other than the
Company and the Holder any legal or equitable right, remedy or cause under this
Warrant. This Warrant shall inure to the sole and exclusive benefit of the
Company and the Holder.
(c) This Warrant shall be governed by and construed
and enforced in accordance with the internal laws of the State of New York
without regard to the principles of conflicts of law thereof.
(d) The headings herein are for convenience only, do
not constitute a part of this Warrant and shall not be deemed to limit or affect
any of the provisions hereof.
(e) In case any one or more of the provisions of this
Warrant shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Warrant shall not
in any way be affected or impaired thereby and the parties will attempt in good
faith to agree upon a valid and enforceable provision which shall be a
commercially reasonable substitute therefor, and upon so agreeing, shall
incorporate such substitute provision in this Warrant.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK,
SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the Company has caused this Warrant to be
duly executed by its authorized officer as of the date first indicated above.
K-TEL INTERNATIONAL, INC.
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
FORM OF ELECTION TO PURCHASE
(To be executed by the Holder to exercise the right to purchase shares of Common
Stock under the foregoing Warrant)
To K-Tel International, Inc.:
In accordance with the Warrant enclosed with this Form of Election to
Purchase, the undersigned hereby irrevocably elects to purchase _____________
shares of Common Stock ("Common Stock"), $.01 par value per share, of K-Tel
International, Inc. and, if such Holder is not utilizing the cashless exercise
provisions set forth in this Warrant, encloses herewith $________ in cash,
certified or official bank check or checks, which sum represents the aggregate
Exercise Price (as defined in the Warrant) for the number of shares of Common
Stock to which this Form of Election to Purchase relates, together with any
applicable taxes payable by the undersigned pursuant to the Warrant.
The undersigned requests that certificates for the shares of Common
Stock issuable upon this exercise be issued in the name of
PLEASE INSERT SOCIAL SECURITY OR
TAX IDENTIFICATION NUMBER
---------------------------------------
--------------------------------------------------------------------------------
(Please print name and address)
If the number of shares of Common Stock issuable upon this exercise
shall not be all of the shares of Common Stock which the undersigned is entitled
to purchase in accordance with the enclosed Warrant, the undersigned requests
that a New Warrant (as defined in the Warrant) evidencing the right to purchase
the shares of Common Stock not issuable pursuant to the exercise evidenced
hereby be issued in the name of and delivered to:
--------------------------------------------------------------------------------
(Please print name and address)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Dated: , Name of Holder:
--------------------- --
(Print)
----------------------------------
(By:)
------------------------------------
(Name:)
(Title:)
(Signature must conform in all respects
to name of holder as specified on the
face of the Warrant)
FORM OF ASSIGNMENT
[To be completed and signed only upon transfer of Warrant]
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ________________________________ the right represented by the within
Warrant to purchase ____________ shares of Common Stock of K-Tel International,
Inc. to which the within Warrant relates and appoints ________________ attorney
to transfer said right on the books of Big Entertainment, Inc. with full power
of substitution in the premises.
Dated:
---------------, ----
---------------------------------------
(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant)
---------------------------------------
Address of Transferee
---------------------------------------
---------------------------------------
In the presence of:
--------------------------
EXHIBIT 10.1 (E-2)
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS THEREUNDER AND IN
COMPLIANCE WITH APPLICABLE STATE SECURITIES OR BLUE SKY LAWS.
K-TEL INTERNATIONAL, INC.
WARRANT
Warrant No. D - ___ Dated: _______, 1999
K-Tel International, Inc., a Minnesota corporation (the "Company"),
hereby certifies that, for value received, [____________], or its registered and
permitted assigns ("Holder"), is entitled, subject to the terms set forth below,
to purchase from the Company up to a total of [ ](1) shares of Common Stock,
$.01 par value per share (the "Common Stock"), of the Company (each such share,
a "Warrant Share" and all such shares, the "Warrant Shares") at an exercise
price equal to [$ ](2) (as adjusted from time to time pursuant to the terms
hereunder, the "Exercise Price"), at any time and from time to time from and
after the date hereof and through and including [ ](3) (the "Expiration Date"),
and subject to the following terms and conditions:
-----------------
(1) Warrant E-2 shall be for the purchase of an aggregate amount of shares of
Common Stock equal to 15% of the quotient obtained by dividing (A)(1) the sum of
(i) the Tranche 1 Purchase Price and (ii) the Tranche 2 Purchase Price less (2)
$12,000,000, by (B) the average closing bid price of the Common Stock on the
five (5) trading days immediately preceding the Tranche 2 Closing Date.
(2) The Exercise Price shall be equal to 125% of the average closing bid price
of the Common Stock on the five trading days immediately preceding the Tranche 2
Closing Date.
(3) Five years from the date of issuance.
1. Registration of Warrant. The Company shall register this Warrant,
upon records to be maintained by the Company for that purpose (the "Warrant
Register"), in the name of the record Holder hereof from time to time. The
Company may deem and treat the registered Holder of this Warrant as the absolute
owner hereof for the purpose of any exercise hereof or any distribution to the
Holder, and for all other purposes, and the Company shall not be affected by
notice to the contrary.
2. Registration of Transfers and Exchanges.
(a) The Company shall register the transfer of any portion of this
Warrant in the Warrant Register, upon surrender of this Warrant, with the Form
of Assignment attached hereto duly completed and signed, to the Transfer Agent
or to the Company at the office specified in or pursuant to Section 3(b). Upon
any such registration or transfer, a new warrant to purchase Common Stock, in
substantially the form of this Warrant (any such new warrant, a "New Warrant"),
evidencing the portion of this Warrant so transferred shall be issued to the
transferee and a New Warrant evidencing the remaining portion of this Warrant
not so transferred, if any, shall be issued to the transferring Holder. The
acceptance of the New Warrant by the transferee thereof shall be deemed the
acceptance of such transferee of all of the rights and obligations of a holder
of a Warrant.
(b) This Warrant is exchangeable, upon the surrender hereof by the
Holder to the office of the Company specified in or pursuant to Section 3(b) for
one or more New Warrants, evidencing in the aggregate the right to purchase the
number of Warrant Shares which may then be purchased hereunder. Any such New
Warrant will be dated the date of such exchange.
3. Duration, Exercise and Redemption of Warrants.
(a) Subject to the terms and conditions of this Warrant, this
Warrant shall be exercisable by the registered Holder on any business day before
5:30 P.M., New York City time, at any time and from time to time on or after the
date hereof to and including the Expiration Date. At 5:30 P.M., New York City
time on the Expiration Date, the portion of this Warrant not exercised prior
thereto shall be and become void and of no value.
(b) Subject to Sections 2(b), 6 and 10, upon surrender of this
Warrant, with the Form of Election to Purchase attached hereto duly completed
and signed, to the Company at its address for notice set forth in Section 12 and
upon payment of the Exercise Price multiplied by the number of Warrant Shares
that the Holder intends to purchase hereunder, in the manner provided hereunder,
all as specified by the Holder in the Form of Election to Purchase, the Company
shall promptly (but in no event later than 5 business days after the Date of
Exercise (as defined herein)) issue or cause to be issued and cause to be
delivered to or upon the written order of the Holder and in such name or names
as the Holder may designate, a certificate for the Warrant Shares issuable upon
such exercise, free of restrictive legends, except in the event that a
registration statement covering the resale of the Warrant Shares and naming the
Holder as a selling stockholder thereunder is not then effect of the Warrant
Shares are not freely transferable without volume restrictions pursuant to Rule
144(k) promulgated under the Securities Act of
-2-
1933, as amended (the "Securities Act"). Any person so designated by the Holder
to receive Warrant Shares shall be deemed to have become holder of record of
such Warrant Shares as of the Date of Exercise of this Warrant.
A "Date of Exercise" means the date on which the Company shall have
received (i) this Warrant (or any New Warrant, as applicable), with the Form of
Election to Purchase attached hereto (or attached to such New Warrant)
appropriately completed and duly signed, and (ii) payment of the Exercise Price
for the number of Warrant Shares so indicated by the holder hereof to be
purchased.
(c) This Warrant shall be exercisable, either in its entirety or,
from time to time, for a portion of the number of Warrant Shares. If less than
all of the Warrant Shares which may be purchased under this Warrant are
exercised at any time, the Company shall issue or cause to be issued, at its
expense, a New Warrant evidencing the right to purchase the remaining number of
Warrant Shares for which no exercise has been evidenced by this Warrant.
4. Piggyback Registration Rights. During the term of this Warrant, the
Company may not file any registration statement with the Securities and Exchange
Commission (other than registration statements of the Company filed on Form S-8
or Form S-4, each as promulgated under the Securities Act, pursuant to which the
Company is registering securities pursuant to a Company employee benefit plan or
pursuant to a merger, acquisition or similar transaction including supplements
thereto, but not additionally filed registration statements in respect of such
securities) at any time when there is not an effective registration statement
covering the resale of the Warrant Shares and naming the Holder as a selling
stockholder thereunder and the Warrant Shares may not be sold pursuant to Rule
144, as promulgated under the Securities Act, unless the Company provides the
Holder with not less than 20 days notice of its intention to file such
registration statement and provides the Holder the option to include any or all
of the applicable Warrant Shares therein. The piggyback registration rights
granted to the Holder pursuant to this Section shall continue until all of the
Holder's Warrant Shares have been sold in accordance with an effective
registration statement or upon the Expiration Date. The Company will pay all
registration expenses in connection therewith.
5. Demand Registration Rights. At any time during the term of this
Warrant when the Warrant Shares are not registered for resale pursuant to an
effective registration statement, the Holder may make a written request for the
registration under the Securities Act (a "Demand Registration"), of all of the
Warrant Shares (the "Registrable Securities"), and the Company shall use its
best efforts to effect such Demand Registration as promptly as possible, but in
any case within 90 days thereafter. Any request for a Demand Registration shall
specify the aggregate number of Registrable Securities proposed to be sold and
shall also specify the intended method of disposition thereof. The right to
cause a registration of the Registrable Securities under this Section 5 shall be
limited to one such registration. In any registration initiated as a Demand
Registration, the Company will pay all registration expenses in connection
therewith. A Demand Registration shall not be counted as a Demand Registration
hereunder until the registration statement filed pursuant to the Demand
Registration has been declared effective by the Securities and Exchange
Commission and maintained continuously effective for a period of at least 360
days or such
-3-
shorter period when all Registrable Securities included therein have been sold
in accordance with such registration statement, provided, however that any days
on which such registration statement is not effective or on which the Holder is
not permitted by the Company or any governmental authority to sell Warrant
Shares under such registration statement shall not count towards such 360 day
period.
6. Payment of Taxes. The Company will pay all documentary stamp taxes
attributable to the issuance of Warrant Shares upon the exercise of this
Warrant; provided, however, that the Company shall not be required to pay any
tax or other charge which may be payable in respect of any transfer of any
certificates for Warrant Shares or Warrants in a name other than that of the
Holder, and the Company shall not be required to issue or cause to be issued or
deliver or cause to be delivered the certificates for Warrant Shares unless or
until the person or persons requesting the issuance thereof shall have paid to
the Company the amount of such tax or other charge or shall have established to
the satisfaction of the Company that such tax or other charge has been paid. The
Holder shall be responsible for all other tax liability that may arise as a
result of holding or transferring this Warrant or receiving Warrant Shares upon
exercise hereof.
7. Replacement of Warrant. If this Warrant is mutilated, lost, stolen
or destroyed, the Company shall issue or cause to be issued in exchange and
substitution for and upon cancellation hereof, or in lieu of and substitution
for this Warrant, a New Warrant, but only upon receipt of evidence reasonably
satisfactory to the Company of such loss, theft or destruction and indemnity, if
requested, satisfactory to it. Applicants for a New Warrant under such
circumstances shall also comply with such other reasonable regulations and
procedures and pay such other reasonable charges as the Company may prescribe.
8. Reservation of Warrant Shares. The Company covenants that it will at
all times reserve and keep available out of the aggregate of its authorized but
unissued Common Stock, solely for the purpose of enabling it to issue Warrant
Shares upon exercise of this Warrant as herein provided, the number of Warrant
Shares which are then issuable and deliverable upon the exercise of this entire
Warrant, free from preemptive rights or any other actual contingent purchase
rights of persons other than the Holder (taking into account the adjustments and
restrictions of Section 9) created by the Company. The Company covenants that
all Warrant Shares that shall be so issuable and deliverable shall, upon
issuance and the payment of the applicable Exercise Price in accordance with the
terms hereof, be duly and validly authorized, issued and fully paid and
nonassessable.
9. Certain Adjustments. The Exercise Price and number of Warrant Shares
issuable upon exercise of this Warrant are subject to adjustment from time to
time as set forth in this Section 9. Upon each such adjustment of the Exercise
Price pursuant to this Section 9, the Holder shall thereafter prior to the
Expiration Date be entitled to purchase, at the Exercise Price resulting from
such adjustment, the number of Warrant Shares obtained by multiplying the
Exercise Price in effect immediately prior to such adjustment by the number of
Warrant Shares issuable upon exercise of this Warrant immediately prior to such
adjustment and dividing the product thereof by the Exercise Price resulting from
such adjustment.
-4-
(a) If the Company, at any time while this Warrant is outstanding,
(i) shall pay a stock dividend or otherwise make a distribution or distributions
on shares of its Common Stock or on any other class of capital stock payable in
shares of Common Stock, (ii) subdivide outstanding shares of Common Stock into a
larger number of shares, or (iii) combine outstanding shares of Common Stock
into a smaller number of shares, the Exercise Price shall be multiplied by a
fraction of which the numerator shall be the number of shares of Common Stock
outstanding before such event and of which the denominator shall be the number
of shares of Common Stock outstanding after such event. Any adjustment made
pursuant to this Section shall become effective immediately after the record
date for the determination of stockholders entitled to receive such dividend or
distribution and shall become effective immediately after the effective date in
the case of a subdivision or combination, and shall apply to successive
subdivisions and combinations.
(b) In case of any reclassification of the Common Stock, any
consolidation or merger of the Company with or into another person, the sale or
transfer of all or substantially all of the assets of the Company or any
compulsory share exchange pursuant to which the Common Stock is converted into
other securities, cash or property, then the Holder shall have the right
thereafter to exercise this Warrant only into the shares of stock and other
securities and property receivable upon or deemed to be held by holders of
Common Stock following such reclassification, consolidation, merger, sale,
transfer or share exchange, and the Holder shall be entitled upon such event to
receive such amount of securities or property equal to the amount of Warrant
Shares such Holder would have been entitled to had such Holder exercised this
Warrant immediately prior to such reclassification, consolidation, merger, sale,
transfer or share exchange. The terms of any such consolidation, merger, sale,
transfer or share exchange shall include such terms so as to continue to give to
the Holder the right to receive the securities or property set forth in this
Section 9(b) upon any exercise following any such reclassification,
consolidation, merger, sale, transfer or share exchange.
(c) If the Company, at any time while this Warrant is outstanding,
shall distribute (a "Distribution") to all holders of Common Stock (and not to
holders of this Warrant) evidences of its indebtedness or assets or rights or
warrants to subscribe for or purchase any security (excluding those referred to
in Sections 9(a), (b) and (d)) (collectively, "Rights"), then in each such case
the Holder shall be entitled to receive, for each Warrant Share with respect to
which this Warrant is exercised after the record date fixed for determination of
stockholders entitled to receive such Distribution, the Rights received by all
holders of Common Stock with respect to one share of Common Stock.
(d) For the purposes of this Section 9, in case the Company shall
take a record of the holders of its Common Stock for the purpose of entitling
them (A) to receive a dividend or other distribution payable in Common Stock or
in securities convertible or exchangeable into shares of Common Stock, or (B) to
subscribe for or purchase Common Stock or securities convertible or exchangeable
into shares of Common Stock, then such record date shall be deemed to be the
date of the issue or sale of the shares of Common Stock deemed to have been
issued or sold upon the declaration of such dividend or the making of such other
distribution or the date of the granting of such right of subscription or
purchase, as the case may be.
-5-
(e) All calculations under this Section 9 shall be made to the
nearest cent or the nearest 1/100th of a share, as the case may be.
(f) Whenever the Exercise Price is adjusted pursuant to Section 9(c)
above, the Holder, after receipt of the determination by the Appraiser, shall
have the right to select an additional appraiser (which shall be a nationally
recognized accounting firm), in which case the adjustment shall be equal to the
average of the adjustments recommended by each of the Appraiser and such
appraiser. The Holder shall promptly mail or cause to be mailed to the Company,
a notice setting forth the Exercise Price after such adjustment and setting
forth a brief statement of the facts requiring such adjustment. Such adjustment
shall become effective immediately after the record date mentioned above.
(g) If:
(i) the Company shall declare a dividend (or any other
distribution) on its Common Stock; or
(ii) the Company shall declare a special nonrecurring cash
dividend on or a redemption of its Common Stock; or
(iii) the Company shall authorize the granting to all holders
of the Common Stock rights or warrants to subscribe for
or purchase any shares of capital stock of any class or
of any rights; or
(iv) the approval of any stockholders of the Company shall be
required in connection with any reclassification of the
Common Stock of the Company, any consolidation or merger
to which the Company is a party, any sale or transfer of
all or substantially all of the assets of the Company,
or any compulsory share exchange whereby the Common
Stock is converted into other securities, cash or
property; or
(v) the Company shall authorize the voluntary dissolution,
liquidation or winding up of the affairs of the Company,
then the Company shall cause to be mailed to the Holder at its last address as
it shall appear upon the Warrant Register, at least 30 calendar days prior to
the applicable record or effective date hereinafter specified, a notice stating
(x) the date on which a record is to be taken for the purpose of such dividend,
distribution, redemption, rights or warrants, or if a record is not to be taken,
the date as of which the holders of Common Stock of record to be entitled to
such dividend, distributions, redemption, rights or warrants are to be
determined or (y) the date on which such reclassification, consolidation,
merger, sale,
-6-
transfer or share exchange is expected to become effective or close, and the
date as of which it is expected that holders of Common Stock of record shall be
entitled to exchange their shares of Common Stock for securities, cash or other
property deliverable upon such reclassification, consolidation, merger, sale,
transfer, share exchange, dissolution, liquidation or winding up; provided,
however, that the failure to mail such notice or any defect therein or in the
mailing thereof shall not affect the validity of the corporate action required
to be specified in such notice.
10. Payment of Exercise Price. The Holder may pay the Exercise Price in
one of the following manners:
(a) Cash Exercise. The Holder shall deliver immediately available
funds; or
(b) Cashless Exercise. The Holder shall surrender this Warrant to
the Company together with a notice of cashless exercise, in which event the
Company shall issue to the Holder the number of Warrant Shares determined as
follows:
X = Y (A-B)/A
where:
X = the number of Warrant Shares to be issued to the Holder.
Y = the number of Warrant Shares with respect to which this
Warrant is being exercised.
A = the average of the closing sale prices of the Common Stock
on the Nasdaq National Market for the five (5) trading days
immediately prior to (but not including) the Date of Exercise
as reported by Bloomberg Information Systems, Inc. (or any
successor to its function of reporting stock prices).
B = the Exercise Price.
For purposes of Rule 144 promulgated under the Securities Act, it is intended,
understood and acknowledged that the Warrant Shares issued in a cashless
exercise transaction shall be deemed to have been acquired by the Holder, and
the holding period for the Warrant Shares shall be deemed to have been
commenced, on the issue date.
11. Fractional Shares. The Company shall not be required to issue or
cause to be issued fractional Warrant Shares on the exercise of this Warrant.
The number of full Warrant Shares which shall be issuable upon the exercise of
this Warrant shall be computed on the basis of the aggregate number of Warrant
Shares purchasable on exercise of this Warrant so presented. If any fraction of
a Warrant Share would, except for the provisions of this Section 11, be issuable
on the exercise of this Warrant, the Company shall pay an amount in cash equal
to the Exercise Price multiplied by such fraction.
-7-
12. Notices. Any and all notices or other communications or deliveries
hereunder shall be in writing and shall be deemed given and effective on the
earliest of (i) the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile telephone number specified in this
Section prior to 6:00 p.m. (New York City time) on a business day, (ii) the
business day after the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile telephone number specified in this
Section later than 6:00 p.m. (New York time) on any date and earlier than 11:59
p.m. (New York time) on such date, (iii) the business day following the date of
mailing, if sent by nationally recognized overnight courier service with next
day delivery specified thereon, or (iv) upon actual receipt by the party to whom
such notice is required to be given. The addresses for such communications shall
be: (i) if to the Company, to 0000 Xxxxxxxxx Xxxx Xxxxx, Xxxxxxxxxxx, Xxxxxxxxx
00000, facsimile number (000) 000-0000, attention Chief Financial Officer, or
(ii) if to the Holder, to the Holder at the address or facsimile number
appearing on the Warrant Register or such other address or facsimile number as
the Holder may provide to the Company in accordance with this Section 12.
13. Warrant Agent.
(a) The Company shall serve as warrant agent under this Warrant.
Upon thirty (30) days' notice to the Holder, the Company may appoint a new
warrant agent.
(b) Any corporation into which the Company or any new warrant agent
may be merged or any corporation resulting from any consolidation to which the
Company or any new warrant agent shall be a party or any corporation to which
the Company or any new warrant agent transfers substantially all of its
corporate trust or shareholders services business shall be a successor warrant
agent under this Warrant without any further act. Any such successor warrant
agent shall promptly cause notice of its succession as warrant agent to be
mailed (by first class mail, postage prepaid) to the Holder at the Holder's last
address as shown on the Warrant Register.
14. Miscellaneous.
(a) This Warrant shall be binding on and inure to the benefit of
the parties hereto and their respective successors and permitted assigns. This
Warrant may be amended only in writing signed by the Company and the Holder and
their successors and assigns.
(b) Subject to Section 14(a), above, nothing in this Warrant shall
be construed to give to any person or corporation other than the Company and the
Holder any legal or equitable right, remedy or cause under this Warrant. This
Warrant shall inure to the sole and exclusive benefit of the Company and the
Holder.
(c) This Warrant shall be governed by and construed and enforced in
accordance with the internal laws of the State of New York without regard to the
principles of conflicts of law thereof.
-8-
(d) The headings herein are for convenience only, do not constitute
a part of this Warrant and shall not be deemed to limit or affect any of the
provisions hereof.
(e) In case any one or more of the provisions of this Warrant shall
be invalid or unenforceable in any respect, the validity and enforceability of
the remaining terms and provisions of this Warrant shall not in any way be
affected or impaired thereby and the parties will attempt in good faith to agree
upon a valid and enforceable provision which shall be a commercially reasonable
substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Warrant.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK,
SIGNATURE PAGE FOLLOWS]
-9-
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed by its authorized officer as of the date first indicated above.
K-TEL INTERNATIONAL, INC.
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
-10-
FORM OF ELECTION TO PURCHASE
(To be executed by the Holder to exercise the right to purchase shares of Common
Stock under the foregoing Warrant)
To K-tel International, Inc.:
In accordance with the Warrant enclosed with this Form of Election to
Purchase, the undersigned hereby irrevocably elects to purchase _____________
shares of Common Stock ("Common Stock"), $.01 par value per share, of K-tel
International, Inc. and , if such Holder is not utilizing the cashless exercise
provisions set forth in this Warrant, encloses herewith $________ in cash,
certified or official bank check or checks, which sum represents the aggregate
Exercise Price (as defined in the Warrant) for the number of shares of Common
Stock to which this Form of Election to Purchase relates, together with any
applicable taxes payable by the undersigned pursuant to the Warrant.
The undersigned requests that certificates for the shares of Common
Stock issuable upon this exercise be issued in the name of
PLEASE INSERT SOCIAL SECURITY OR
TAX IDENTIFICATION NUMBER
--------------------------------
--------------------------------------------------------------------------------
(Please print name and address)
If the number of shares of Common Stock issuable upon this exercise
shall not be all of the shares of Common Stock which the undersigned is entitled
to purchase in accordance with the enclosed Warrant, the undersigned requests
that a New Warrant (as defined in the Warrant) evidencing the right to purchase
the shares of Common Stock not issuable pursuant to the exercise evidenced
hereby be issued in the name of and delivered to:
--------------------------------------------------------------------------------
(Please print name and address)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Dated: , Name of Holder:
-------------- ---
(Print)
----------------------------------
(By:)
------------------------------------
(Name:)
(Title:)
(Signature must conform in all respects
to name of holder as specified on the
face of the Warrant)
FORM OF ASSIGNMENT
[To be completed and signed only upon transfer of Warrant]
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ________________________________ the right represented by the within
Warrant to purchase ____________ shares of Common Stock of K-tel International,
Inc. to which the within Warrant relates and appoints ________________ attorney
to transfer said right on the books of K-tel International, Inc. with full power
of substitution in the premises.
Dated:
,
--------------- ----
-----------------------------------------
(Signature must conform in all respects
to name of holder as specified on the
face of the Warrant)
-----------------------------------------
Address of Transferee
-----------------------------------------
-----------------------------------------
In the presence of:
--------------------------
