EXHIBIT 4.2
NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS 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 AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO
SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS
SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
LOAN SECURED BY SUCH SECURITIES.
COMMON STOCK PURCHASE WARRANT
To Purchase 60,000 Shares of Common Stock of
ARTISTdirect, Inc.
THIS COMMON STOCK PURCHASE WARRANT (the "Warrant") certifies that,
for value received, Verus International Group Limited (the "Holder"), is
entitled, upon the terms and subject to the limitations on exercise and the
conditions hereinafter set forth, at any time (i) on or after the first to occur
of (A) September 30, 2005, if the acquisition target, which is mutually
acceptable to ARTISTdirect, Inc., a Delaware corporation (the "Company") and the
Holder (the "Acquisition Candidate"), has not executed a definitive purchase
agreement with any person or entity on or prior to such date or (B) the date
that the Company notifies the Holder that the Acquisition Candidate has executed
a definitive purchase agreement with a party other than (1) the Company or (2)
the Holder or its affiliates (which shall include for this purpose only, any
party that that submits a competing bid to acquire the Acquisition Candidate and
such party receives financing to fund all or any portion of such acquisition
from the Holder or any of its affiliate funds) (the first to occur of (i)(A) and
(i)(B) is referred to as the "Initial Exercise Date") and (ii) on or prior to
the earlier of (A) the occurrence of a Fundamental Transaction (as defined
below) and (B) the close of business on the fifth anniversary of the Initial
Exercise Date (the "Termination Date") but not thereafter, to subscribe for and
purchase from the Company up to 60,000 shares (the "Warrant Shares") of Common
Stock, par value $0.01 per share, of the Company (the "Common Stock"). The
purchase price of one share of Common Stock under this Warrant shall be equal to
the Exercise Price, as defined in Section 1(b). The Company shall notify the
Holder of the triggering of the Initial Exercise Date within two (2) trading
days and such notice shall be in accordance with Section 4(j) below.
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Section 1. Exercise.
a) Exercise of Warrant. Exercise of the purchase rights represented by
this Warrant may be made, in whole or in part, at any time or times on or after
the Initial Exercise Date and on or before the Termination Date by delivery to
the Company of a duly executed original or facsimile copy of the Notice of
Exercise Form annexed hereto (or such other office or agency of the Company as
it may designate by notice in writing to the registered Holder at the address of
such Holder appearing on the books of the Company); provided, however, within
five (5) trading days of the date said Notice of Exercise is delivered to the
Company, the Holder shall have surrendered this Warrant to the Company and the
Company shall have received full payment of the aggregate Exercise Price for
shares thereby purchased by wire transfer of immediately available funds or
cashier's check drawn on a United States bank (unless exercised by means of a
"cashless exercise" in accordance with Section 1(c) below).
b) Exercise Price. The exercise price of the Common Stock under this
Warrant shall be $1.00 per share, subject to adjustment hereunder (the "Exercise
Price").
c) Cashless Exercise. If at any time after one (1) year from the date of
issuance of this Warrant there is no effective registration statement filed with
the Securities and Exchange Commission ("SEC") under the Securities Act of 1933,
as amended (the "Securities Act") registering, or no current prospectus
available for, the resale of the Warrant Shares by the Holder, then this Warrant
may also be exercised at such time by means of a "cashless exercise" in which
the Holder shall be entitled to receive a certificate for the number of Warrant
Shares equal to the quotient obtained by dividing [(A-B) (X)] by (A), where:
(A) = the average closing price of the Common Stock over the five (5)
trading days immediately preceding the date of such election (the
"Closing Price"), as such closing price is reported on the
Over-the-Counter Bulletin Board, or if the Company's Common Stock
ceases trading on the Over-the-Counter Bulletin Board, such other
national securities trading market in which the primary trading of the
Common Stock of the Company occurs;
(B) = the Exercise Price of this Warrant, as adjusted; and
(X) = the number of Warrant Shares then issuable upon exercise of this
Warrant in accordance with the terms of this Warrant by means of a
cash exercise rather than a cashless exercise;
provided, however, that the Holder's ability to exercise all or any portion of
this Warrant by means of a "cashless exercise" shall be postponed if, within the
twenty (20) trading days preceding the date of such election, Holder or any of
its affiliates has traded, placed any order for or bid upon any shares of the
Company's Common Stock on the open market with the intent or expectation of
manipulating the price of the Company's Common Stock.
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Notwithstanding anything herein to the contrary (but subject to Section
1(d)), on the Termination Date, this Warrant shall be automatically exercised
via cashless exercise pursuant to this Section 1(c), so long as the Exercise
Price is less than the Closing Price.
d) Exercise Limitations; Xxxxxx's Restrictions. The Holder shall not have
the right to exercise any portion of this Warrant, pursuant to Section 1(c) or
otherwise, to the extent that after giving effect to such issuance after
exercise, the Holder (together with such Holder's affiliates), as set forth on
the applicable Notice of Exercise, would beneficially own in excess of 4.99% of
the number of shares of the Common Stock outstanding immediately after giving
effect to such issuance. For purposes of the foregoing sentence, the number of
shares of Common Stock beneficially owned by the Holder and its affiliates shall
include the number of shares of Common Stock issuable upon exercise of this
Warrant with respect to which the determination of such sentence is being made,
but shall exclude the number of shares of Common Stock which would be issuable
upon (A) exercise of the remaining, non-exercised portion of this Warrant
beneficially owned by such Holder or any of its affiliates and (B) exercise or
conversion of the unexercised or non-converted portion of any other securities
of the Company (including, without limitation, any other Warrants) subject to a
limitation on conversion or exercise analogous to the limitation contained
herein beneficially owned by such Holder or any of its affiliates. Except as set
forth in the preceding sentence, for purposes of this Section 1(d), beneficial
ownership shall be calculated in accordance with Section 13(d) of the Exchange
Act of 1934, as amended (the "Exchange Act"), it being acknowledged by a Holder
that the Company is not representing to such Holder that such calculation is in
compliance with Section 13(d) of the Exchange Act and such Holder is solely
responsible for any schedules required to be filed in accordance therewith and
any other obligations of Holder arising thereunder or under any other state or
federal securities or "blue sky" laws or regulations. To the extent that the
limitation contained in this Section 1(d) applies, the determination of whether
this Warrant is exercisable (in relation to other securities owned by such
Holder) and of which a portion of this Warrant is exercisable shall be in the
sole discretion of Holder, and the submission of a Notice of Exercise shall be
deemed to be each Holder's determination of whether this Warrant is exercisable
(in relation to other securities owned by such Holder) and of which portion of
this Warrant is exercisable, in each case subject to such aggregate percentage
limitation, and the Company shall have no obligation to verify or confirm the
accuracy of such determination. For purposes of this Section 1(d), in
determining the number of outstanding shares of Common Stock, the Holder may
rely on the number of outstanding shares of Common Stock as reflected in the
later of (x) the Company's most recent Form 10-Q or Form 10-K, as the case may
be, (y) a more recent public announcement or filing with the SEC by the Company
or (z) any other notice by the Company or the Company's transfer agent setting
forth the number of shares of Common Stock outstanding. Upon delivery of written
notice of a Holder, the Company shall within two (2) trading days confirm in
writing to such Holder the number of shares of Common Stock then outstanding. In
any case, the number of outstanding shares of Common Stock shall be determined
after giving effect to the conversion or exercise of securities of the Company,
including this Warrant, by such Holder or its affiliates since the date as of
which such number of outstanding shares of Common Stock was reported. Further,
the Holder shall
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not have the right to exercise any portion of this Warrant while such Holder (or
any of such Holder's affiliates) is in possession of material, confidential and
non-public information regarding the Company; including, but not limited to,
information regarding any pending financing or strategic transactions.
e) Mechanics of Exercise.
i. Authorization of Warrant Shares. The Company covenants that
all Warrant Shares which may be issued upon the exercise of the
purchase rights represented by this Warrant will, upon exercise of
the purchase rights represented by this Warrant, be duly authorized,
validly issued, fully paid and nonassessable and free from all
taxes, liens and charges in respect of the issue thereof (other than
taxes in respect of any transfer occurring contemporaneously with
such issue).
ii. Delivery of Certificates Upon Exercise. Certificates for
shares purchased hereunder shall be transmitted by the transfer
agent of the Company to the Holder by crediting the account of the
Holder's prime broker registered on the books of the Depository
Trust Company through its Deposit Withdrawal Agent Commission
("DWAC") system, if the Company is a participant in such system, and
otherwise by physical delivery of the certificate to the address
specified by the Holder in the Notice of Exercise within five (5)
trading days from the delivery to the Company of the Notice of
Exercise Form, surrender of this Warrant and payment of the
aggregate Exercise Price as set forth above ("Warrant Share Delivery
Date"). This Warrant shall be deemed to have been exercised on the
date the Exercise Price is received by the Company. The Warrant
Shares shall be deemed to have been issued, and Holder or any other
person so designated to be named therein shall be deemed to have
become a holder of record of such shares for all purposes, as of the
date the Warrant has been exercised by payment to the Company of the
Exercise Price and all taxes required to be paid by the Holder, if
any, pursuant to Section 1(e)(vii) prior to the issuance of such
shares, have been paid.
iii. Delivery of New Warrants Upon Exercise. If this Warrant
is exercised in part, the Company shall, at the time of delivery of
the certificate or certificates representing Warrant Shares, deliver
to Holder a new Warrant evidencing the rights of Holder to purchase
the remaining unpurchased Warrant Shares called for by this Warrant,
which new Warrant shall in all other respects, be identical with
this Warrant.
iv. Rescission Rights. If the Company fails to cause its
transfer agent to transmit to the Holder or its nominee a
certificate or certificates representing the Warrant Shares pursuant
to this Section 1(e)(iv) by the
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Warrant Share Delivery Date, then the Holder will have the right to
rescind such exercise.
v. Compensation for Buy-In on Failure to Timely Deliver
Certificates Upon Exercise. In addition to any other rights
available to the Holder, if the Company fails to cause its transfer
agent to transmit to the Holder, or its nominee, one or more
certificates representing the Warrant Shares pursuant to an exercise
on or before the Warrant Share Delivery Date, and if after such date
the Holder is required by its broker to purchase (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 in good faith anticipated receiving upon such exercise (a
"Buy-In"), then the Company shall (1) pay in cash to 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 Company was required to deliver to
the Holder in connection with the exercise at issue times (B) the
price at which the sell order giving rise to such purchase
obligation was executed, and (2) at the option of the Holder, either
reinstate the portion of the Warrant and equivalent number of
Warrant Shares for which such exercise was not honored or deliver to
the Holder the number of shares of Common Stock that would have been
issued had the Company timely complied with its exercise and
delivery obligations hereunder. For example, if the Holder purchases
Common Stock having a total purchase price of $11,000 to cover a
Buy-In with respect to an attempted exercise of shares of Common
Stock with an aggregate sale price giving rise to such purchase
obligation of $10,000, under clause (1) of the immediately preceding
sentence the Company shall be required to pay the Holder $1,000. The
Holder shall provide the Company written notice indicating the
amounts payable to the Holder in respect of the Buy-In, together
with applicable confirmations and other evidence reasonably
requested by the Company. Nothing herein shall limit a Holder's
right to pursue any other remedies available to it hereunder, at law
or in equity including, without limitation, a decree of specific
performance and/or injunctive relief with respect to the Company's
failure to timely deliver certificates representing shares of Common
Stock upon exercise of the Warrant as required pursuant to the terms
hereof.
vi. No Fractional Shares or Scrip. No fractional shares or
scrip representing fractional shares shall be issued upon the
exercise of this Warrant. As to any fraction of a share which Holder
would otherwise be entitled to purchase upon such exercise, the
Company shall pay a cash adjustment in respect of such final
fraction in an amount equal to such fraction multiplied by the
Exercise Price.
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vii. Charges, Taxes and Expenses. Issuance of certificates for
Warrant Shares shall be made without charge to the Holder for any
issue or other incidental expense in respect of the issuance of such
certificate, all of which taxes (excluding any applicable transfer
tax incidental thereto) and expenses shall be paid by the Company,
and such certificates shall be issued in the name of the Holder or
in one or more such names as may be directed by the Holder;
provided, however, that in the event certificates for Warrant Shares
are to be issued in a name other than the name of the Holder, this
Warrant when surrendered for exercise shall be accompanied by the
Assignment Form attached hereto duly executed by the Holder; and the
Company may require, as a condition thereto, the payment of a sum
sufficient to reimburse it for any expenses in respect of the
issuance of certificates for Warrant Shares, including, but not
limited to, any incidental expenses or taxes (including any
applicable transfer tax).
viii. Closing of Books. The Company will not close its
stockholder books or records in any manner which prevents the timely
exercise of this Warrant, pursuant to the terms hereof.
Section 2. Certain Adjustments.
a) Stock Dividends and Splits. If the Company, at any time while this
Warrant is outstanding: (A) pays a stock dividend or otherwise makes one or more
distributions on all shares of its Common Stock or any other equity or equity
equivalent securities payable in shares of Common Stock (which, for avoidance of
doubt, shall not include any shares of Common Stock issued by the Company
pursuant to this Warrant), (B) sub-divides outstanding shares of Common Stock
into a larger number of shares, (C) combines (including by way of reverse stock
split) outstanding shares of Common Stock into a smaller number of shares, or
(D) issues by reclassification of shares of Common Stock any shares of capital
stock of the Company, then in each case the Exercise Price shall be multiplied
by a fraction of which the numerator shall be the number of shares of Common
Stock (excluding treasury shares, if any) outstanding immediately before such
event and of which the denominator shall be the number of shares of Common Stock
(excluding treasury shares, if any) outstanding immediately after such event and
the number of shares issuable upon exercise of this Warrant shall be
proportionately adjusted. Any adjustment made pursuant to this Section 2(a)
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
sub-division, combination or reclassification.
b) Adjustment Due to Dilutive Issuance.
i. Dilutive Issuances On or Prior to December 31, 2005. If at
any time on or prior to December 31, 2005, the Company or any subsidiary
thereof, as applicable, while any portion of this Warrant is outstanding, shall
sell, issue or grant any option or warrant to acquire its Common Stock, or
reprice any outstanding options or
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warrants exercisable into Common Stock, or otherwise sell, issue or grant any
securities at any time convertible, exchangeable or exercisable into Common
Stock ("Common Stock Equivalents"), other than Excluded Stock (as defined
below), at a price per share less than the Exercise Price in effect on the date
of such issuance (or deemed issuance) of such shares of Common Stock or Common
Stock Equivalents (such lower price, the "Base Share Price" and such issuances
other than with respect to Excluded Stock collectively, a "Dilutive Issuance")
then, the Exercise Price shall be reduced to equal the Base Share Price and the
number of Warrant Shares issuable hereunder shall be increased such that the
aggregate Exercise Price payable hereunder, after taking into account the
decrease in the Exercise Price, shall be equal to the aggregate Exercise Price
prior to such adjustment.
ii. Dilutive Issuances Subsequent to December 31, 2005. If at
any time subsequent to December 31, 2005, the Company or any subsidiary thereof,
as appropriate, makes a Dilutive Issuance while any portion of this Warrant is
outstanding, then immediately upon the Dilutive Issuance, the Exercise Price
will adjusted to a price equal to the quotient obtained by using the following
formula:
Z = A + B / X
Where:
(A)= the product of (x) the total number of shares of Common Stock
(excluding shares of Excluded Stock) outstanding immediately prior to such
issuance multiplied by (y) the applicable Exercise Price in effect immediately
prior to such issuance;
(B)= the consideration received by the Company upon such issuance;
and
(X)= the total number of shares of Common Stock outstanding
(excluding shares of Excluded Stock) immediately after the issuance of such
Common Stock.
Any such adjustments made pursuant to this Section 2(b) shall be made whenever
such Common Stock or Common Stock Equivalents are issued. The Company shall
notify the Holder in writing, no later than five (5) business days following the
issuance of any Common Stock or Common Stock Equivalents subject to this section
(such notice the "Dilutive Issuance Notice"). For purposes of clarification,
whether or not the Company provides a Dilutive Issuance Notice pursuant to this
Section 2(b), upon the occurrence of any Dilutive Issuance, after the date of
such Dilutive Issuance, the Holder will be entitled to receive a number of
Warrant Shares based upon the adjustments set forth above regardless of whether
the Holder accurately provides notice describing the adjusted Exercise Price in
the Notice of Exercise.
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For purposes of this Section 2(b), "Excluded Stock" shall mean shares of Common
Stock or Common Stock Equivalents issued by the Company (i) prior to April 1,
2005, (ii) to employees, officers, directors and consultants of the Company in
the ordinary course of business, (iii) under a Compensatory Benefit Plan (as
defined in Rule 701 of the Securities Act of 1933, as amended), (iv) with
respect to which the provisions of Section 2(a), 2(c) and/or 2(d) apply, (v) to
the Holder or any of its affiliates, or (vi) upon conversion of any Common Stock
Equivalents for which adjustment of the Exercise Price has previously been made
pursuant to Section 2(b).
c) Pro Rata Distributions. If the Company, at any time prior to the
Termination Date, shall distribute to all holders of Common Stock (and not to
Holders of the Warrants) evidences of its indebtedness or assets (including cash
and cash dividends) or rights or warrants to subscribe for or purchase any
security other than the Common Stock (which shall be subject to Section 2(b)),
then in each such case the Exercise Price shall be adjusted by multiplying the
Exercise Price in effect immediately prior to the record date fixed for
determination of stockholders entitled to receive such distribution by a
fraction of which the denominator shall be the average closing price of the
Common Stock over the ten (10) trading days immediately preceding the record
date (as reported by the Over-the-Counter Bulletin Board, or if the Company's
Common Stock ceases trading on the Over-the-Counter Bulletin Board, such other
national securities trading market in which the primary trading of the Common
Stock of the Company occurs), and of which the numerator shall be such average
closing price of the Common Stock over the ten (10) trading days immediately
preceding the record date (as reported by the Over-the-Counter Bulletin Board,
or if the Company's Common Stock ceases trading on the Over-the-Counter Bulletin
Board, such other national securities trading market in which the primary
trading of the Common Stock of the Company occurs) less the then per share fair
market value at such record date of the portion of such assets or evidence of
indebtedness so distributed applicable to one outstanding share of the Common
Stock as determined by the Board of Directors in good faith. In either case the
adjustments shall be described in a statement provided to the Holder of the
portion of assets or evidences of indebtedness so distributed or such
subscription rights applicable to one share of Common Stock. Such adjustment
shall be made whenever any such distribution is made and shall become effective
immediately after the record date mentioned above.
d) Fundamental Transaction. If, at any time while this Warrant is
outstanding, (A) the Company effects any merger or consolidation of the Company
with or into another entity, (B) the Company effects any sale of all or
substantially all of its assets in one or a series of related transactions, (C)
any tender offer or exchange offer (whether by the Company or another person or
entity) is completed pursuant to which holders of Common Stock are permitted to
tender or exchange their shares for other securities, cash or property, or (D)
the Company effects any reclassification of the Common Stock or any compulsory
share exchange pursuant to which the Common Stock is effectively converted into
or exchanged for other securities, cash or property (in any such case, a
"Fundamental Transaction"), then, this Warrant shall be cancelled and shall no
longer be in force or effect.
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e) Calculations. All calculations under this Section 2 shall be made to
the nearest cent or the nearest 1/100th of a share, as the case may be. For
purposes of this Section 2, the number of shares of Common Stock deemed to be
issued and outstanding as of a given date shall be the sum of the number of
shares of Common Stock (excluding treasury shares, if any) issued and
outstanding.
f) Voluntary Adjustment By Company. The Company may at any time during the
term of the Warrant reduce the then current Exercise Price to any amount and for
any period of time deemed appropriate by the Board of Directors of the Company
(in its discretion).
g) Notice to Holders.
i. Adjustment to Exercise Price. Whenever the Exercise Price
is adjusted pursuant to this Section 2, the Company shall promptly
mail to each Holder a notice setting forth the Exercise Price after
such adjustment and setting forth a brief statement of the facts
requiring such adjustment.
ii. Notice to Allow Exercise by Xxxxxx. If (A) the Company
shall declare a dividend (or any other distribution) on the Common
Stock; (B) the Company shall declare a special non-recurring cash
dividend on or a redemption of the Common Stock; (C) 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; (D) the approval of the
stockholders of the Company shall be required in connection with any
reclassification of the Common Stock, 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, of any compulsory
share exchange whereby the Common Stock is converted into other
securities, cash or property; (E) the Company shall authorize a
Fundamental Transaction or the voluntary or involuntary dissolution,
liquidation or winding up of the affairs of the Company; then, in
each case, the Company shall cause to be mailed to the Holder at its
last address as it shall appear upon the Warrant Register (as
defined below) of the Company, at least twenty (20) 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 the 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 the Common Stock of record shall be
entitled to exchange their shares of the Common Stock for
securities, cash or other property deliverable upon such
reclassification, consolidation, merger, sale, transfer
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or share exchange; provided, 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. The Holder is entitled to exercise this Warrant during the
twenty (20) day period commencing on the date of such notice to the
effective date of the event triggering such notice.
Section 3. Transfer of Warrant.
a) Transferability. Subject to compliance with any applicable securities
laws and regulations and the conditions set forth in Sections 3(d) and 4(a)
hereof, this Warrant and all rights hereunder are transferable, in whole or in
part, upon surrender of this Warrant at the principal office of the Company,
together with a written assignment of this Warrant substantially in the form
attached hereto duly executed by the Holder or its agent or attorney and funds
sufficient to pay any transfer taxes payable upon the making of such transfer.
Upon such surrender and, if required, such payment, the Company shall execute
and deliver one or more new Warrants in the name of the assignee(s) and in the
denomination(s) specified in such instrument of assignment, and shall issue to
the assignor a new Warrant containing identical terms and conditions as this
Warrant evidencing the portion of this Warrant not so assigned, and this Warrant
shall promptly be cancelled. A Warrant, if properly assigned, may be exercised
by a new holder for the purchase of Warrant Shares without having a new Warrant
issued.
b) New Warrants. This Warrant may be divided or combined with other
Warrants containing identical terms and conditions upon presentation hereof at
the aforesaid office of the Company, together with a written notice specifying
the names and denominations in which new Warrants are to be issued, signed by
the Holder or its agent or attorney. Subject to compliance with Section 3(a), as
to any transfer which may be involved in such division or combination, the
Company shall execute and deliver one or more new Warrants in exchange for the
Warrant(s) to be divided or combined in accordance with such notice.
c) Warrant Register. 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, absent actual written notice to the contrary.
d) Transfer Restrictions. If, at the time of the surrender of this Warrant
in connection with any transfer of this Warrant, the transfer of this Warrant
shall not be registered pursuant to an effective registration statement filed
with the SEC under the Securities Act and under applicable state securities or
blue sky laws, the Company may require, as a condition of allowing such transfer
(i) that the Holder or transferee of this Warrant, as the case may be, furnish
to the Company a written opinion of counsel (which opinion shall be in form,
substance and scope customary for opinions of counsel in
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comparable transactions) to the effect that such transfer may be made without
registration under the Securities Act and under applicable state securities or
blue sky laws, (ii) that the Holder or transferee execute and deliver to the
Company an investment letter in form and substance acceptable to the Company and
(iii) that the transferee be an "accredited investor" as defined in Rule
501(a)(1), (a)(2), (a)(3), (a)(7), or (a)(8) promulgated under the Securities
Act or a qualified institutional buyer as defined in Rule 144A(a) under the
Securities Act.
Section 4. Miscellaneous.
a) If at any time prior to the Termination Date there is not an effective
registration statement filed with the SEC under the Securities Act covering all
of the Warrant Shares and the Company shall determine to prepare and file with
the SEC a registration statement relating to an offering for its own account or
the account of others under the Securities Act of any of its equity securities,
then the Company shall send to each Holder a written notice of such
determination and, if within fifteen (15) days after the date of such notice,
any such Holder shall so request in writing, the Company shall include in such
registration statement all or any part of such Warrant Shares such holder
requests to be registered; provided, however, that, (i) the Company shall not be
required to register any Warrant Shares pursuant to this Section 4(a) that are
eligible for resale pursuant to Rule 144(k) promulgated under the Securities Act
or that are the subject of a then effective registration statement filed with
the SEC under the Securities Act; or (ii) if managing underwriter of any
offering by the Company, for its own account or the account of others, or the
Company's Board of Directors, determines that marketing factors require
limitation of the number of shares that may be included in a registration
statement, the Company may, at its discretion, limit or exclude the Warrant
Shares from such registration.
b) Title to Warrant. Prior to the Termination Date and subject to
compliance with applicable laws and Section 4 of this Warrant, this Warrant and
all rights hereunder are transferable, in whole or in part, at the office or
agency of the Company by the Holder in person or by duly authorized attorney,
upon surrender of this Warrant together with the Assignment Form annexed hereto
properly endorsed. The transferee shall sign an investment letter in form and
substance reasonably satisfactory to the Company.
c) No Rights as Stockholder Until Exercise. This Warrant does not entitle
the Holder to any voting rights or other rights as a stockholder of the Company
prior to the exercise hereof. Upon the surrender of this Warrant and the payment
of the aggregate Exercise Price (or by means of a cashless exercise), the
Warrant Shares so purchased shall be and be deemed to be issued to such Holder,
or nominee, as the record owner of such shares as of the close of business on
the later of the date of such surrender or payment.
d) Loss, Theft, Destruction or Mutilation of Warrant. The Company
covenants that upon receipt by the Company of evidence reasonably satisfactory
to it of the loss, theft, destruction or mutilation of this Warrant or any stock
certificate relating to
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the Warrant Shares, and in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to it (which, in the case of the Warrant, shall
not include the posting of any bond), and upon surrender and cancellation of
such Warrant or stock certificate, if mutilated, the Company will make and
deliver a new Warrant or stock certificate of like tenor and dated as of such
cancellation, in lieu of such Warrant or stock certificate.
e) Saturdays, Sundays, Holidays, etc. If the last or appointed day for the
taking of any action or the expiration of any right required or granted herein
shall be a Saturday, Sunday or a legal holiday, then such action may be taken or
such right may be exercised on the next succeeding day not a Saturday, Sunday or
legal holiday.
f) Authorized Shares.
The Company covenants that during the period the Warrant is outstanding,
it will reserve from its authorized and unissued Common Stock a sufficient
number of shares to provide for the issuance of the Warrant Shares upon the
exercise of any purchase rights under this Warrant. The Company further
covenants that its issuance of this Warrant shall constitute the granting of
full authority to its officers who are charged with the duty of executing stock
certificates to execute and issue the necessary certificates for the Warrant
Shares upon the exercise of the purchase rights under this Warrant. The Company
will take all such reasonable action as may be necessary to assure that such
Warrant Shares may be issued as provided herein without violation of any
applicable law or regulation, or of any requirements of the trading market upon
which the Common Stock may be listed; provided, however, that the Company shall
have five (5) trading days to report the issuance of the Warrant Shares to the
then applicable trading market.
Except and to the extent as waived or consented to by the Holder, the
Company shall not by any action, including, without limitation, amending its
certificate of incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms of this Warrant, but will at all times in good faith assist in the
carrying out of all such terms and in the taking of all such actions as may be
necessary or appropriate to protect the rights of Holder as set forth in this
Warrant against impairment. Without limiting the generality of the foregoing,
the Company will (a) not increase the par value of any Warrant Shares above the
amount payable therefor upon such exercise immediately prior to such increase in
par value, (b) take all such action as may be necessary or appropriate in order
that the Company may validly and legally issue fully paid and nonassessable
Warrant Shares upon the exercise of this Warrant, and (c) use commercially
reasonable efforts to obtain all such authorizations, exemptions or consents
from any public regulatory body having jurisdiction thereof as may be necessary
to enable the Company to perform its obligations under this Warrant.
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g) Jurisdiction. All questions concerning the construction, validity,
enforcement and interpretation of this Warrant shall be determined in accordance
with the laws of the State of New York.
h) Restrictions. THE HOLDER ACKNOWLEDGES THAT THE WARRANT SHARES ACQUIRED
UPON THE EXERCISE OF THIS WARRANT, IF NOT REGISTERED, WILL HAVE RESTRICTIONS
UPON RESALE IMPOSED BY APPLICABLE STATE AND FEDERAL SECURITIES LAWS AND
REGULATIONS AND THE CERTIFICATES ISSUED HEREUNDER WILL CONTAIN CUSTOMARY
RESTRICTIVE LEGENDS.
i) Non-waiver and Expenses. No course of dealing or any delay or failure
to exercise any right hereunder on the part of Holder shall operate as a waiver
of such right or otherwise prejudice Xxxxxx's rights, powers or remedies,
notwithstanding the fact that all rights hereunder terminate on the Termination
Date. If the Company willfully and knowingly fails to comply with any provision
of this Warrant, which results in any material damages to the Holder, the
Company shall pay to Holder such amounts as shall be sufficient to cover any
costs and expenses including, but not limited to, reasonable attorneys' fees,
including those of appellate proceedings, incurred by Holder in collecting any
amounts due pursuant hereto or in otherwise enforcing any of its rights, powers
or remedies hereunder.
j) Notices. Any notice, request or other document required or permitted to
be given or delivered to the Holder by the Company shall be delivered via
personal delivery, facsimile transmission or first class registered or certified
mail at (a) Xxxxxx House, South Church Street, Grand Cayman, Cayman Islands or
facsimile number 000-000-0000, or such other address or facsimile number as the
Holder shall have furnished to the Company in writing or (b) if to the Company,
at 00000 Xxxxxxxx Xxxxxxxxx, Xxxxx 0000, Xxx Xxxxxxx, Xxxxxxxxxx 00000 or
facsimile number 000-000-0000.
k) Limitation of Liability. No provision hereof, in the absence of any
affirmative action by Holder to exercise this Warrant or purchase Warrant
Shares, and no enumeration herein of the rights or privileges of Holder, shall
give rise to any liability of Holder for the purchase price of any Common Stock
or as a stockholder of the Company, whether such liability is asserted by the
Company or by creditors of the Company.
l) Remedies. Holder, in addition to being entitled to exercise all rights
granted by law, including recovery of damages, will be entitled to specific
performance of its rights under this Warrant. The Company agrees that monetary
damages would not be adequate compensation for any loss incurred by reason of a
breach by it of the provisions of this Warrant and hereby agrees to waive the
defense in any action for specific performance that a remedy at law would be
adequate.
m) Successors and Assigns. Subject to applicable securities laws, this
Warrant and the rights and obligations evidenced hereby shall inure to the
benefit of and be binding upon the successors of the Company and the successors
and permitted assigns of Holder. The provisions of this Warrant are intended to
be for the benefit of all Holders
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from time to time of this Warrant and shall be enforceable by any such Holder of
Warrant Shares.
n) Amendment. This Warrant may be modified or amended or the provisions
hereof waived only by the written consent of the Company and the Holder.
o) Disclosure. The Company may disclose the terms of this Warrant to third
parties, or file a copy of such Warrant as an exhibit to a filing with the SEC,
to the extent the Company determines that it is required to do so under
applicable federal securities laws or as required by the rules of the trading
market in which the primary trading of the Common Stock of the Company occurs.
p) Severability. Wherever possible, each provision of this Warrant shall
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Warrant shall be prohibited by or invalid under
applicable law, such provision shall be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of such provisions
or the remaining provisions of this Warrant.
q) Headings. The headings used in this Warrant are for the convenience of
reference only and shall not, for any purpose, be deemed a part of this Warrant.
r) Early Termination. The Holder acknowledges and agrees that if (i) the
Company consummates an acquisition of the Acquisition Candidate that is financed
in part by or on behalf of the Holder or its affiliates, or (b) the Company and
the Acquisition Candidate execute a letter of intent for the acquisition of the
Acquisition Candidate, and Xxxxxx fails or refuses to fund $15 million into an
escrow account, as contemplated by that certain financing commitment letter
dated as of April 14, 2005 and delivered by Holder to the Company, this Warrant
shall be, without additional consideration, immediately rescinded and treated as
if it was never in force or effect.
********************
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IN WITNESS WHEREOF, the Company has caused this Warrant to be
executed by its officer thereunto duly authorized.
Dated: April 26, 2005
ARTISTDIRECT, INC.
By: /s/ Xxxxxx X. Xxxxxxxxxx
____________________________________________
Name: Xxxxxx X. Xxxxxxxxxx
__________________________________________
Title: Chief Financial Officer
_________________________________________
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NOTICE OF EXERCISE
To: ARTISTDIRECT, INC.
(1) The undersigned hereby elects to purchase ________ Warrant
Shares of the Company pursuant to the terms of the attached Warrant (only if
exercised in full), and tenders herewith payment of the exercise price in full,
together with all applicable transfer taxes, if any.
(2) Payment shall take the form of (check applicable box):
[ ] in lawful money of the United States; or
[ ] the cancellation of such number of Warrant Shares as is
necessary, in accordance with the formula set forth in
subsection 1(c), to exercise this Warrant with respect to the
maximum number of Warrant Shares purchasable pursuant to the
cashless exercise procedure set forth in subsection 1(c).
(3) Please issue a certificate or certificates representing said
Warrant Shares in the name of the undersigned or in such other name as is
specified below:
___________________________
The Warrant Shares shall be delivered to the following:
_____________________________
_____________________________
_____________________________
(4) Accredited Investor. The undersigned is an "accredited investor"
as defined in Regulation D promulgated under the Securities Act of 1933, as
amended.
(5) The undersigned hereby represents and warrants to the Company
that within the twenty (20) trading days preceding the date hereof, neither the
undersigned or any of its affiliates has traded, placed any order for or bid
upon any shares of the Company's Common Stock on the open market with the intent
or expectation of manipulating the price of the Company's Common Stock.
[SIGNATURE OF HOLDER]
Name of Investing Entity: ______________________________________________________
Signature of Authorized Signatory of Investing Entity: _________________________
Name of Authorized Signatory: __________________________________________________
Title of Authorized Signatory: _________________________________________________
Date: __________________________________________________________________________
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ASSIGNMENT FORM
(To assign the foregoing warrant, execute
this form and supply required information.
Do not use this form to exercise the warrant.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced
thereby are hereby assigned to
_______________________________________________ whose address is
________________________________________________________________
________________________________________________________________
Dated: ______________, _______
Holder's Signature: _____________________________
Holder's Address: ____________________________
____________________________
Signature Guaranteed: ___________________________________________
NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Warrant, without alteration or enlargement or any
change whatsoever, and must be guaranteed by a bank or trust company. Officers
of corporations and those acting in a fiduciary or other representative capacity
should file proper evidence of authority to assign the foregoing Warrant.
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