Exhibit 10.5
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 103,896 Shares of Common Stock of
THE SINGING MACHINE COMPANY, INC.
THIS COMMON STOCK PURCHASE WARRANT CERTIFIES that, for value
received, Xxxx Capital Partners, LLC (with any permitted assignee or successor,
the "Holder"), is entitled, upon the terms and subject to the limitations on
exercise and the conditions hereinafter set forth, at any time on or after
September 8, 2003 (the "Initial Exercise Date") and on or prior to the close of
business on the third anniversary of the Initial Exercise Date (the "Termination
Date") but not thereafter, to subscribe for and purchase from The Singing
Machine Company, Inc., a corporation incorporated in Delaware (the "Company"),
up to 103,896 shares (the "Warrant Shares") of Common Stock, par value $.01 per
share, of the Company (the "Common Stock"). The purchase price of one share of
Common Stock (the "Exercise Price") under this Warrant shall be $4.025, subject
to adjustment hereunder.
1
1. Title to Warrant. Prior to the Termination Date and subject to
compliance with applicable laws and Section 7 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.
2. Authorization of Warrant Shares. The Company represents and warrants
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).
3. Exercise of Warrant.
(a) Exercise of the purchase rights represented by this Warrant
may be made 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
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 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 payment of the
aggregate Exercise Price of the shares thereby purchased by wire transfer or
cashier's check drawn on a United States bank. Certificates for shares purchased
hereunder shall be delivered to the Holder within the earlier of (i) 5 Trading
Days after the date on which the Notice of Exercise shall have been delivered by
facsimile copy or (ii) 3 Trading Days from the delivery to the Company of the
Notice of Exercise Form by facsimile copy, surrender of this Warrant and payment
of the aggregate Exercise Price as set forth above ("Warrant Share Delivery
Date"); provided, however, in the event the Warrant is not surrendered or the
aggregate Exercise Price is not received by the Company within 5 Trading Days
after the date on which the Notice of Exercise shall be delivered by facsimile
copy, the Warrant Share Delivery Date shall be extended to the extent such 5
Trading Day period is exceeded (or alternatively, within three (3) Trading Days
after the date on which this Warrant shall have been exercised, the Company
shall at the Holder's election deliver the Warrant Shares to the Holder, if
eligible, via the Depository Trust Company's ("DTC") Deposit Withdrawal Agent
Commission ("DWAC") system via the DTC instructions provided to the Company in
the Notice of Exercise or otherwise in writing). This Warrant shall be deemed to
have been exercised on the date the Notice of Exercise is delivered to the
Company by facsimile copy. 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 5 prior to the issuance of such shares, have been paid. If the
Company fails to deliver to the Holder a certificate or certificates
representing the Warrant Shares pursuant to this Section 3(a) by the
2
Warrant Share Delivery Date, then the Holder will have the right to rescind such
exercise. In addition to any other rights available to the Holder, if the
Company fails to deliver to the Holder a certificate or 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 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. The Holder agrees that it
will have not right to exercise any remedies contained in this Agreement if the
Company is in default under the terms of its credit agreement with its primary
commercial lender or the payment of any amounts required herein will result in
the Company's failing to meet its financial requirements under its credit
agreement with its primary commercial lender.
(b) If this Warrant shall have been 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 unpurchased
Warrant Shares called for by this Warrant, which new Warrant shall in
all other respects be identical with this Warrant.
(c) The Company shall not effect any exercise of this Warrant,
and the Holder shall not have the right to exercise any portion of
this Warrant, pursuant to Section 3(a) or otherwise, to the extent
that after giving effect to such issuance after exercise, the Holder
(together with the 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
3
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, nonexercised portion of this Warrant beneficially owned by
the Holder or any of its affiliates and (B) exercise or conversion of
the unexercised or nonconverted portion of any other securities of the
Company (including, without limitation, any other Debentures or
Warrants) subject to a limitation on conversion or exercise analogous
to the limitation contained herein beneficially owned by the Holder or
any of its affiliates. Except as set forth in the preceding sentence,
for purposes of this Section 3(c), beneficial ownership shall be
calculated in accordance with Section 13(d) of the Exchange Act. To
the extent that the limitation contained in this Section 3(c) applies,
the determination of whether this Warrant is exercisable (in relation
to other securities owned by the Holder) and of which a portion of
this Warrant is exercisable shall be in the sole discretion of such
Xxxxxx, and the submission of a Notice of Exercise shall be deemed to
be such 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 3(c), 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 (x) the
Company's most recent Form 10-Q or Form 10-K, as the case may be, (y)
a more recent public announcement 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 the written or
oral request of the Holder, the Company shall within two Trading Days
confirm orally and in writing to the 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 the Holder or its affiliates since the date as of which
such number of outstanding shares of Common Stock was reported. The
provisions of this Section 3(c) may be waived by the Holder upon, at
the election of the Holder, not less than 61 days' prior notice to the
Company, and the provisions of this Section 3(c) shall continue to
apply until such 61st day (or such later date, as determined by the
Holder, as may be specified in such notice of waiver).
(d) 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 VWAP of the Common Stock on the Trading Day preceding
the date of such election;
(B) = the Exercise Price of the Warrants, as adjusted; and
(X) = the number of Warrant Shares issuable upon exercise of
this Warrant in accordance with the terms of this Warrant.
4
"VWAP" means, for any date, the price determined by the first of
the following clauses that applies: (a) the daily volume weighted
average price of the Common Stock for such date (or the nearest
preceding date) on the primary market or exchange on which the
Common Stock is then listed or quoted as reported by Bloomberg
Financial L.P. (based on a Trading Day from 9:30 a.m. Eastern
Time to 4:00 p.m. Eastern Time); (b) if the Common Stock is not
then listed or quoted on a market or exchange and if prices for
the Common Stock are then quoted on the OTC Bulletin Board, the
volume weighted average price of the Common Stock for such date
(or the nearest preceding date) on the OTC Bulletin Board; (c) if
the Common Stock is not then listed or quoted on the OTC Bulletin
Board and if prices for the Common Stock are then reported in the
"Pink Sheets" published by the National Quotation Bureau
Incorporated (or a similar organization or agency succeeding to
its functions of reporting prices), the average of the most
recent bid and ask price per share of the Common Stock so
reported; or (d) in all other cases, the fair market value of a
share of Common Stock as determined by a nationally
recognized-independent appraiser selected in good faith by
Xxxxxx.
4. 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.
5. Charges, Taxes and Expenses. Issuance of certificates for Warrant Shares
shall be made without charge to the Holder for any issue or transfer tax or
other incidental expense in respect of the issuance of such certificate, all of
which taxes and expenses shall be paid by the Company, and such certificates
shall be issued in the name of the Holder or in such name or 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 transfer tax incidental thereto.
6. 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.
7. Transfer, Division and Combination.
(a) Subject to compliance with any applicable securities laws and
the conditions set forth in Sections 1 and 7(e) hereof and to the
provisions of Section 4.1 of the Purchase Agreement, 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,
5
such payment, the Company shall execute and deliver a new Warrant or
Warrants in the name of the assignee or assignees and in the
denomination or denominations specified in such instrument of
assignment, and shall issue to the assignor a new 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) This Warrant may be divided or combined with other Warrants
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 7(a), as to any
transfer which may be involved in such division or combination, the
Company shall execute and deliver a new Warrant or Warrants in
exchange for the Warrant or Warrants to be divided or combined in
accordance with such notice.
(c) The Company shall prepare, issue and deliver at its own
expense (other than transfer taxes) the new Warrant or Warrants under
this Section 7.
(d) The Company agrees to maintain, at its aforesaid office,
books for the registration and the registration of transfer of the
Warrants.
(e) 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 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 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) promulgated under the Securities Act.
8. No Rights as Shareholder until Exercise. This Warrant does not entitle
the Holder to any voting rights or other rights as a shareholder 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
as the record owner of such shares as of the close of business on the later of
the date of such surrender or payment.
9. 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 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
6
deliver a new Warrant or stock certificate of like tenor and dated as of such
cancellation, in lieu of such Warrant or stock certificate.
10. 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.
11. Adjustments of Exercise Price and Number of Warrant Shares.
(a) Stock Splits, etc. The number and kind of securities purchasable
upon the exercise of this Warrant and the Exercise Price shall be subject
to adjustment from time to time upon the happening of any of the following.
In case the Company shall (i) pay a dividend in shares of Common Stock or
make a distribution in shares of Common Stock to holders of its outstanding
Common Stock, (ii) subdivide its outstanding shares of Common Stock into a
greater number of shares, (iii) combine its outstanding shares of Common
Stock into a smaller number of shares of Common Stock, or (iv) issue any
shares of its capital stock in a reclassification of the Common Stock, then
the number of Warrant Shares purchasable upon exercise of this Warrant
immediately prior thereto shall be adjusted so that the Holder shall be
entitled to receive the kind and number of Warrant Shares or other
securities of the Company which it would have owned or have been entitled
to receive had such Warrant been exercised in advance thereof. Upon each
such adjustment of the kind and number of Warrant Shares or other
securities of the Company which are purchasable hereunder, the Holder shall
thereafter be entitled to purchase the number of Warrant Shares or other
securities resulting from such adjustment at an Exercise Price per Warrant
Share or other security obtained by multiplying the Exercise Price in
effect immediately prior to such adjustment by the number of Warrant Shares
purchasable pursuant hereto immediately prior to such adjustment and
dividing by the number of Warrant Shares or other securities of the Company
resulting from such adjustment. An adjustment made pursuant to this
paragraph shall become effective immediately after the effective date of
such event retroactive to the record date, if any, for such event.
(b) Anti-Dilution Provisions. During the Exercise Period, the Exercise
Price shall be subject to adjustment from time to time as provided in this
Section 11(b). In the event that any adjustment of the Exercise Price as
required herein results in a fraction of a cent, such Exercise Price shall
be rounded up or down to the nearest cent.
(i) Adjustment of Exercise Price. If and whenever the Company
issues or sells, or in accordance with Section 11(b)(ii) hereof is
deemed to have issued or sold, any shares of Common Stock by means of
Capital Shares Equivalents (as defined in the Purchase Agreement) for
an effective consideration per share of less than the then Exercise
Price or for no consideration (such lower price, the "Base Share
Price" and such issuances collectively, a "Dilutive Issuance"), then,
the Exercise Price shall be reduced (A) if such Dilutive Issuance
occurs on or prior to the first anniversary of the Initial Exercise
7
Date, by an amount equal to 75% of the difference between the then
Exercise Price and the Base Share Price and (B) if such Dilutive
Issuance occurs after the first anniversary of the Initial Exercise
Date, by an amount equal to 50% of the difference between the then
Exercise Price and the Base Share Price. Such adjustment shall be made
whenever such shares of Common Stock or Capital Shares Equivalent are
issued.
(ii) Effect on Exercise Price of Certain Events. For purposes of
determining the adjusted Exercise Price under Section 11(b) hereof,
the following will be applicable:
(A) Issuance of Rights or Options. If the Company in any
manner issues or grants any warrants, rights or options, whether
or not immediately exercisable, to subscribe for or to purchase
Common Stock or Capital Shares Equivalent (such warrants, rights
and options to purchase Common Stock or Capital Shares Equivalent
are hereinafter referred to as "Options") and the effective price
per share for which Common Stock is issuable upon the exercise of
such Options is less than the Exercise Price ("Below Base Price
Options"), then the maximum total number of shares of Common
Stock issuable upon the exercise of all such Below Base Price
Options (assuming full exercise, conversion or exchange of
Capital Shares Equivalent, if applicable) will, as of the date of
the issuance or grant of such Below Base Price Options, be deemed
to be outstanding and to have been issued and sold by the Company
for such price per share and the maximum consideration payable to
the Company upon such exercise (assuming full exercise,
conversion or exchange of Capital Shares Equivalent, if
applicable) will be deemed to have been received by the Company.
For purposes of the preceding sentence, the "effective price per
share for which Common Stock is issuable upon the exercise of
such Below Base Price Options" is determined by dividing (i) the
total amount, if any, received or receivable by the Company as
consideration for the issuance or granting of all such Below Base
Price Options, plus the minimum aggregate amount of additional
consideration, if any, payable to the Company upon the exercise
of all such Below Base Price Options, plus, in the case of
Capital Shares Equivalent issuable upon the exercise of such
Below Base Price Options, the minimum aggregate amount of
additional consideration payable upon the exercise, conversion or
exchange thereof at the time such Capital Shares Equivalent first
become exercisable, convertible or exchangeable, by (ii) the
maximum total number of shares of Common Stock issuable upon the
exercise of all such Below Base Price Options (assuming full
conversion of Capital Shares Equivalent, if applicable). No
further adjustment to the Exercise Price will be made upon the
actual issuance of such Common Stock upon the exercise of such
Below Base Price Options or upon the exercise, conversion or
exchange of Capital Shares Equivalent issuable upon exercise of
such Below Base Price Options.
(B) Issuance of Capital Shares Equivalent. If the Company in
any manner issues or sells any Capital Shares Equivalent,
8
whether or not immediately convertible (other than where the
same are issuable upon the exercise of Options) and the effective
price per share for which Common Stock is issuable upon such
exercise, conversion or exchange is less than the Exercise Price,
then the maximum total number of shares of Common Stock issuable
upon the exercise, conversion or exchange of all such Capital
Shares Equivalent will, as of the date of the issuance of such
Capital Shares Equivalent, be deemed to be outstanding and to
have been issued and sold by the Company for such price per share
and the maximum consideration payable to the Company upon such
exercise (assuming full exercise, conversion or exchange of
Capital Shares Equivalent, if applicable) will be deemed to have
been received by the Company. For the purposes of the preceding
sentence, the "effective price per share for which Common Stock
is issuable upon such exercise, conversion or exchange" is
determined by dividing (i) the total amount, if any, received or
receivable by the Company as consideration for the issuance or
sale of all such Capital Shares Equivalent, plus the minimum
aggregate amount of additional consideration, if any, payable to
the Company upon the exercise, conversion or exchange thereof at
the time such Capital Shares Equivalent first become exercisable,
convertible or exchangeable, by (ii) the maximum total number of
shares of Common Stock issuable upon the exercise, conversion or
exchange of all such Capital Shares Equivalent. No further
adjustment to the Exercise Price will be made upon the actual
issuance of such Common Stock upon exercise, conversion or
exchange of such Capital Shares Equivalent.
(C) Change in Option Price or Conversion Rate. If there is a
change at any time in (i) the amount of additional consideration
payable to the Company upon the exercise of any Options; (ii) the
amount of additional consideration, if any, payable to the
Company upon the exercise, conversion or exchange of any Capital
Shares Equivalent; or (iii) the rate at which any Capital Shares
Equivalent are convertible into or exchangeable for Common Stock
(in each such case, other than under or by reason of provisions
designed to protect against dilution), the Exercise Price in
effect at the time of such change will be readjusted to the
Exercise Price which would have been in effect at such time had
such Options or Capital Shares Equivalent still outstanding
provided for such changed additional consideration or changed
conversion rate, as the case may be, at the time initially
granted, issued or sold.
(D) Calculation of Consideration Received. If any Common
Stock, Options or Capital Shares Equivalent are issued, granted
or sold for cash, the consideration received therefor for
purposes of this Warrant will be the amount received by the
Company therefor, before deduction of reasonable commissions,
underwriting discounts or allowances or other reasonable expenses
paid or incurred by the Company in connection with such issuance,
grant or sale. In case any Common
9
Stock, Options or Capital Shares Equivalent are issued or sold
for a consideration part or all of which shall be other than
cash, the amount of the consideration other than cash received by
the Company will be the fair market value of such consideration,
except where such consideration consists of securities, in which
case the amount of consideration received by the Company will be
the fair market value (closing bid price, if traded on any
market) thereof as of the date of receipt. In case any Common
Stock, Options or Capital Shares Equivalent are issued in
connection with any merger or consolidation in which the Company
is the surviving corporation, the amount of consideration
therefor will be deemed to be the fair market value of such
portion of the net assets and business of the non-surviving
corporation as is attributable to such Common Stock, Options or
Capital Shares Equivalent, as the case may be. The fair market
value of any consideration other than cash or securities will be
determined in good faith by an investment banker or other
appropriate expert of national reputation selected by the Company
and reasonably acceptable to the holder hereof, with the costs of
such appraisal to be borne by the Company.
(E) Exceptions to Adjustment of Exercise Price.
Notwithstanding the foregoing, no adjustment will be made under
this Section 11(b) in respect of (1) the granting of options to
employees, officers, directors and key consultants of the Company
pursuant to any stock option plan or other plan duly adopted by a
majority of the non-employee members of the Board of Directors of
the Company or a majority of the members of a committee of
non-employee directors established for such purpose, or (2) upon
the exercise of the Debentures or any Debentures of this series
or of any other series or security issued by the Company in
connection with the offer and sale of this Company's securities
pursuant to the Purchase Agreement, or (3) upon the exercise of
or conversion of any Capital Shares Equivalent or Options issued
and outstanding on the Original Issue Date, provided that the
securities have not been amended since the date of the Purchase
Agreement except as a result of the Purchase Agreement, or (4)
acquisitions or strategic investments, the primary purpose of
which is not to raise capital, or (5) the granting of stock,
stock options and/or warrants to an investment group in
connection with the advancement of $1 million to the Company,
which transaction is described in Item 13 of the Company's Annual
Report on Form 10-K for the fiscal year ended March 31, 2003.
(iii) Minimum Adjustment of Exercise Price. No adjustment of the
Exercise Price shall be made in an amount of less than 1% of the
Exercise Price in effect at the time such adjustment is otherwise
required to be made, but any such lesser adjustment shall be carried
forward and shall be made at the time and together with the next
subsequent adjustment which, together with any
10
adjustments so carried forward, shall amount to not less than 1% of
such Exercise Price.
12. Reorganization, Reclassification, Merger, Consolidation or Disposition
of Assets. In case the Company shall reorganize its capital, reclassify its
capital stock, consolidate or merge with or into another corporation (where the
Company is not the surviving corporation or where there is a change in or
distribution with respect to the Common Stock of the Company), or sell, transfer
or otherwise dispose of all or substantially all its property, assets or
business to another corporation and, pursuant to the terms of such
reorganization, reclassification, merger, consolidation or disposition of
assets, shares of common stock of the successor or acquiring corporation, or any
cash, shares of stock or other securities or property of any nature whatsoever
(including warrants or other subscription or purchase rights) in addition to or
in lieu of common stock of the successor or acquiring corporation ("Other
Property"), are to be received by or distributed to the holders of Common Stock
of the Company, then the Holder shall have the right thereafter to receive, at
the option of the Holder, (a) upon exercise of this Warrant, the number of
shares of Common Stock of the successor or acquiring corporation or of the
Company, if it is the surviving corporation, and Other Property receivable upon
or as a result of such reorganization, reclassification, merger, consolidation
or disposition of assets by a Holder of the number of shares of Common Stock for
which this Warrant is exercisable immediately prior to such event or (b) cash
equal to the value of this Warrant as determined in accordance with the
Black-Scholes option pricing formula. In case of any such reorganization,
reclassification, merger, consolidation or disposition of assets, the successor
or acquiring corporation (if other than the Company) shall expressly assume the
due and punctual observance and performance of each and every covenant and
condition of this Warrant to be performed and observed by the Company and all
the obligations and liabilities hereunder, subject to such modifications as may
be deemed appropriate (as determined in good faith by resolution of the Board of
Directors of the Company) in order to provide for adjustments of Warrant Shares
for which this Warrant is exercisable which shall be as nearly equivalent as
practicable to the adjustments provided for in this Section 12. For purposes of
this Section 12, "common stock of the successor or acquiring corporation" shall
include stock of such corporation of any class which is not preferred as to
dividends or assets over any other class of stock of such corporation and which
is not subject to redemption and shall also include any evidences of
indebtedness, shares of stock or other securities which are convertible into or
exchangeable for any such stock, either immediately or upon the arrival of a
specified date or the happening of a specified event and any warrants or other
rights to subscribe for or purchase any such stock. The foregoing provisions of
this Section 12 shall similarly apply to successive reorganizations,
reclassifications, mergers, consolidations or disposition of assets.
13. Voluntary Adjustment by the Company. The Company may at any time during
the term of this 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.
14. Notice of Adjustment. Whenever the number of Warrant Shares or number
or kind of securities or other property purchasable upon the exercise of this
Warrant or the Exercise Price is adjusted, as herein provided, the Company shall
give notice thereof to the Holder, which notice shall state the number of
Warrant Shares (and other securities or property) purchasable upon the exercise
of this Warrant and the Exercise Price of such Warrant Shares (and other
11
securities or property) after such adjustment, setting forth a brief statement
of the facts requiring such adjustment and setting forth the computation by
which such adjustment was made.
15. Notice of Corporate Action. If at any time:
(a) the Company shall take a record of the holders of its Common Stock
for the purpose of entitling them to receive a dividend or other
distribution, or any right to subscribe for or purchase any evidences of
its indebtedness, any shares of stock of any class or any other securities
or property, or to receive any other right, or
(b) there shall be any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company or
any consolidation or merger of the Company with, or any sale, transfer or
other disposition of all or substantially all the property, assets or
business of the Company to, another corporation or,
(c) there shall be a voluntary or involuntary dissolution, liquidation
or winding up of the Company;
then, in any one or more of such cases, the Company shall give to Holder (i) at
least 20 days' prior written notice of the date on which a record date shall be
selected for such dividend, distribution or right or for determining rights to
vote in respect of any such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, liquidation or winding up, and (ii)
in the case of any such reorganization, reclassification, merger, consolidation,
sale, transfer, disposition, dissolution, liquidation or winding up, at least 20
days' prior written notice of the date when the same shall take place. Such
notice in accordance with the foregoing clause also shall specify (i) the date
on which any such record is to be taken for the purpose of such dividend,
distribution or right, the date on which the holders of Common Stock shall be
entitled to any such dividend, distribution or right, and the amount and
character thereof, and (ii) the date on which any such reorganization,
reclassification, merger, consolidation, sale, transfer, disposition,
dissolution, liquidation or winding up is to take place and the time, if any
such time is to be fixed, as of which the holders of Common Stock shall be
entitled to exchange their Warrant Shares for securities or other property
deliverable upon such disposition, dissolution, liquidation or winding up. Each
such written notice shall be sufficiently given if addressed to Holder at the
last address of Xxxxxx appearing on the books of the Company and delivered in
accordance with Section 17(d).
16. 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 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 Principal Market
upon which the Common Stock may be listed.
12
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.
Before taking any action which would result in an adjustment in the number
of Warrant Shares for which this Warrant is exercisable or in the Exercise
Price, the Company shall obtain all such authorizations or exemptions thereof,
or consents thereto, as may be necessary from any public regulatory body or
bodies having jurisdiction thereof.
17. Miscellaneous.
(a) Jurisdiction. This Warrant shall constitute a contract under the
laws of California, without regard to its conflict of law, principles or
rules. Venue shall be exclusively the county of San Diego, California.
(b) 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 state and federal securities laws.
(c) Nonwaiver 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 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.
(d) Notices. Any notice, request or other document required or
permitted to be given or delivered to the Holder by the Company shall be
delivered in accordance with the notice provisions of the Purchase
Agreement.
13
(e) 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.
(f) 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.
(g) 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 from time to time of this
Warrant and shall be enforceable by any such Holder or holder of Warrant
Shares.
(h) Amendment. This Warrant may be modified or amended or the
provisions hereof waived with the written consent of the Company and the
Holder.
(i) 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.
(j) 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.
(k) Broker-Dealer Provision. To the extent this Warrant is being
issued to a broker-dealer that is acting as a placement agent in the
transaction in which it is being issued, any terms, restrictions or
limitations required by the compensation rules of the National Association
of Securities Dealers are incorporated by this reference herein.
********************
14
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by
its officer thereunto duly authorized.
Dated: September 8, 2003
THE SINGING MACHINE COMPANY, INC.
By: /s/ Xx Xxxx Xxxx
----------------
Name: Xx Xxxx Xxxx
Title: Chief Operating Officer
15
NOTICE OF EXERCISE
To: THE SINGING MACHINE COMPANY, INC.
(1) The undersigned hereby elects to purchase ________ Warrant Shares of
The Singing Machine Company, Inc. 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
3(d), to exercise this Warrant with respect to the maximum number
of Warrant Shares purchasable pursuant to the cashless exercise
procedure set forth in subsection 3(d).
(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 DTC account:
________________________________________
________________________________________
________________________________________
(4) Accredited Investor. The undersigned is an "accredited investor" as
defined in Regulation D promulgated under the Securities Act of 1933, as
amended.
[PURCHASER]
By: ______________________________
Name:
Title:
Dated: __________________________
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.
