EXHIBIT 10.3
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 - 001 Dated: April 21, 1999
K-Tel International, Inc., a Minnesota corporation (the "Company"),
hereby certifies that, for value received, Strong River Investments Inc., 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 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:
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(Applicable Share Number) x [(Purchase Price x 1.125) - Reset Price]
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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 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
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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
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);
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(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 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
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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 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
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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 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.
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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.
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
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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.
(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
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(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.
(h) If:
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(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:
(a) Cash Exercise. The Holder shall deliver
immediately available funds; or
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(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) of the Exchange Act and
the rules thereunder) in excess of 9.999% of the then issued and outstanding
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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.
15. Miscellaneous.
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(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: /s/ Xxxxxxxx Xxxxxx
--------------------------------------
Name: Xxxxxxxx Xxxxxx
------------------------------------
Title: President
-----------------------------------
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:
--------------------------
