WARRANT AGREEMENT
AGREEMENT, dated as of this ____ day of ___________, 1997,
by and among PARADIGM MUSIC ENTERTAINMENT COMPANY, a Delaware corporation (the
"Company"), AMERICAN STOCK TRANSFER & TRUST COMPANY, as Warrant Agent (the
"Warrant Agent"), and ▇.▇. ▇▇▇▇▇ INVESTMENT BANKING CORP., a New York
corporation (the "Underwriter").
W I T N E S S E T H
WHEREAS, in connection with a public offering of up to
2,600,000 units ("Units"), each unit consisting of one (1) share of the
Company's Class A Common Stock, $.01 par value (the "Class A Common Stock"), one
(1) redeemable Class A Warrant ("Class A Warrants") and one (1) redeemable Class
B Warrant ("Class B Warrants") pursuant to an underwriting agreement (the
"Underwriting Agreement") dated _______________, 1997 between the Company and
the Underwriter and the issuance to the Underwriter or its designees of Unit
Purchase Options to purchase an aggregate of ________ additional Units, to be
dated as of __________, 1997 (the "Unit Purchase Options"), the Company may
issue up to ______ Class A Warrants and ____________ Class B Warrants (the Class
A Warrants and Class B Warrants may be collectively referred to as "Warrants");
and
WHEREAS, each Class A Warrant initially entitles the
Registered Holder thereof to purchase one (1) share of Class A Common Stock and
one (1) Class B Warrant, and accordingly, the Company may issue up to an
additional _______ Class B Warrants; and
WHEREAS, each Class B Warrant initially entitles the
Registered Holder thereof to purchase one (1) share of Class A Common Stock; and
WHEREAS, the Company desires the Warrant Agent to act on
behalf of the Company, and the Warrant Agent is willing to so act, in connection
with the issuance, registration, transfer exchange and redemption of the
Warrants, the issuance of certificates representing the Warrants, the exercise
of the Warrants, and the rights of the Registered Holders thereof;
NOW THEREFORE, in consideration of the premises and the
mutual agreements hereinafter set forth and for the purpose of defining the
terms and provisions of the Warrants and the certificates representing the
Warrants and the respective rights and obligations thereunder of the Company,
the holders of certificates representing the Warrants and the Warrant Agent, the
parties hereto agree as follows:
SECTION 1. Definitions. As used herein, the following
terms shall have the following meanings, unless the context shall otherwise
require:
(a) "Aggregate Per Share Price" shall mean the Purchase
Price per share multiplied by the number of shares of Common Stock purchasable
upon the exercise of a Warrant.
(b) "Class A Aggregate Per Share Price" shall mean $6.50.
(c) "Class B Aggregate Per Share Price" shall mean $8.75.
(d) "Common Stock" shall mean stock of the Company of any
class, whether now or hereafter authorized, which has the right to participate
in the distribution of earnings and assets of the Company without limit as to
amount or percentage, which at the date hereof consists of (i) ______ shares of
Class A Common Stock, $.___ par value, (ii) ______ shares of Class B Common
Stock, $.01 par value and (iii) ______ shares of Class E Common Stock, $.01 par
value.
(e) "Corporate Office" shall mean the office of the
Warrant Agent (or its successor) at which at any particular time its principal
business shall be administered, which office is located at the date hereof at
________.
(f) "Exercise Date" shall mean, as to any Warrant, the
date on which the Warrant Agent shall have received both (a) the Warrant
Certificate representing such Warrant, with the exercise form thereon duly
executed by the Registered Holder thereof or his attorney duly authorized in
writing, and (b) payment in cash, or by official bank or certified check made
payable to the Company, of an amount in lawful money of the United States of
America equal to the applicable Purchase Price.
(g) "Initial Warrant Exercise Date" shall mean as to each
Class A Warrant and Class B Warrant __________, 1997.
(h) "Market Price" shall mean shall mean (i) the average
closing bid price of the Common Stock, for thirty (30) consecutive business days
ending on the Calculation Date as reported by Nasdaq, if the Common Stock is
traded on the Nasdaq SmallCap Market, or (ii) the average last reported sale
price of the Common Stock, for thirty (30) consecutive business days ending on
the Calculation Date, as reported by the primary exchange on which the Common
Stock is traded, if the Common Stock is traded on a national securities
exchange, or by Nasdaq, if the Common Stock is traded on the Nasdaq National
Market.
(i) "Purchase Price" shall mean the purchase price to be
paid upon exercise of each Class A Warrant or Class B Warrant in accordance with
the terms hereof, which price shall be $6.50 as to the Class A Warrants and
$8.75 as to the Class B Warrants, subject to adjustment from time to time
pursuant to the provisions of Section 9 hereof, and subject to the Company's
right to reduce the Purchase Price upon notice to all Registered Holders of
Warrants.
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(j) "Redemption Price" shall mean the price at which the
Company may, at its option in accordance with the terms hereof, redeem the Class
A Warrants and/or Class B Warrants, which price shall be $0.05 per Warrant.
(k) "Registered Holder" shall mean as to any Warrant and
as of any particular date, the person in whose name the certificate representing
the Warrant shall be registered on that date on the books maintained by the
Warrant Agent pursuant to Section 6.
(l) "Transfer Agent" shall mean AMERICAN STOCK TRANSFER &
TRUST COMPANY, as the Company's transfer agent, or its authorized successor, as
such.
(m) "Warrant Expiration Date" shall mean 5:00 P.M. (New
York time) on _________, 2002 (subject to extension as provided herein and in
Section 9(e) or, with respect to Warrants which are outstanding as of the
applicable Redemption Date (as defined in Section 8) and specifically excluding
Warrants issuable upon exercise of Unit Purchase Options if the Unit Purchase
Options have not been exercised, the Redemption Date, whichever is earlier;
provided that if such date shall in the State of New York be a holiday or a day
on which banks are authorized or required to close, then 5:00 P.M. (New York
time) on the next following day which in the State of New York is not a holiday
or a day on which banks are authorized or required to close. Upon notice to all
Registered Holders, the Company shall have the right to extend the Warrant
Expiration Date.
SECTION 2. Warrants and Issuance of Warrant Certificates.
(a) A Class A Warrant initially shall entitle the
Registered Holder of the Warrant Certificate representing such Warrant to
purchase one share of Class A Common Stock and one Class B Warrant upon the
exercise thereof, in accordance with the terms hereof, subject to modification
and adjustment as provided in Section 9.
(b) A Class B Warrant initially shall entitle the
Registered Holder of the Warrant Certificate representing such Warrant to
purchase one share of Class A Common Stock upon the exercise thereof, in
accordance with the terms hereof, subject to modification and adjustment as
provided in Section 9.
(c) The Class A Warrants and Class B Warrants included in
the offering of Units will be detachable and separately transferable immediately
from the shares of Common Stock constituting part of such Units. The Class B
Warrants will also be detachable and separately transferable immediately from
the shares of Common Stock issued upon exercise of the Class A Warrants.
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(d) Upon execution of this Agreement, Warrant Certificates
representing the number of Class A Warrants and Class B Warrants sold pursuant
to the Underwriting Agreement shall be executed by the Company and delivered to
the Warrant Agent. Upon written order of the Company signed by its President or
Chairman or a Vice President and by its Secretary or an Assistant Secretary, the
Warrant Certificates shall be countersigned, issued and delivered by the Warrant
Agent as part of the Units.
(e) From time to time, up to the Warrant Expiration Date,
the Transfer Agent shall countersign and deliver stock certificates in required
whole number denominations representing up to an aggregate of __________ shares
of Common Stock, subject to adjustment as described herein, upon the exercise of
Warrants in accordance with this Agreement.
(f) From time to time, up to the Warrant Expiration Date,
the Warrant Agent shall countersign and deliver Warrant Certificates in required
whole number denominations to the persons entitled thereto in connection with
any transfer or exchange permitted under this Agreement; provided that no
Warrant Certificates shall be issued except (i) those initially issued
hereunder, (ii) those issued on or after the Initial Warrant Exercise Date, upon
the exercise of fewer than all Warrants represented by any Warrant Certificate,
to evidence any unexercised Warrants held by the exercising Registered Holder,
(iii) those issued upon any transfer or exchange pursuant to Section 6; (iv)
those issued in replacement of lost, stolen, destroyed or mutilated Warrant
Certificates pursuant to Section 7; (v) those issued pursuant to the Unit
Purchase Option; (vi) at the option of the Company, in such form as may be
approved by the its Board of Directors, to reflect any adjustment or change in
the Purchase Price, the number of shares of Class A Common Stock purchasable
upon exercise of the Warrants or the Target Price(s) therefor made pursuant to
Section 8 hereof; and (vii) those Class B Warrants issued upon exercise of Class
A Warrants.
(g) Pursuant to the terms of the Unit Purchase Options,
the Underwriter or its designees may purchase up to ____ Units, which include up
to ______ Class A Warrants and _____ Class B Warrants. Notwithstanding anything
to the contrary contained herein, the Warrants underlying the Unit Purchase
Option shall not be subject to redemption by the Company except under the terms
and conditions set forth in the Unit Purchase Options.
SECTION 3. Form and Execution of Warrant Certificates.
(a) The Warrant Certificates shall be substantially in the
form annexed hereto as Exhibit A as to the Class A Warrants and Exhibit B as to
the Class B Warrants (the provisions of which are hereby incorporated herein)
and may have such letters, numbers or other marks of identification or
designation and such legends, summaries or endorsements printed, lithographed or
engraved thereon as the Company may deem appropriate and as are not inconsistent
with the provisions of this Agreement, or as may be required to comply with any
law
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or with any rule or regulation made pursuant thereto or with any rule or
regulation of any stock exchange on which the Class A Warrants or Class B
Warrants may be listed, or to conform to usage or to the requirements of Section
2(d). The Warrant Certificates shall be dated the date of issuance thereof
(whether upon initial issuance, transfer, exchange or in lieu of mutilated,
lost, stolen, or destroyed Warrant Certificates) and issued in registered form.
Warrant Certificates shall be numbered serially with the letters AW on Class A
Warrants of all denominations and the letters BW on Class B Warrants of all
denominations.
(b) Warrant Certificates shall be executed on behalf of
the Company by its Chairman of the Board, President or any Vice President and by
its Secretary or an Assistant Secretary, by manual signatures or by facsimile
signatures printed thereon, and shall have imprinted thereon a facsimile of the
Company's seal. Warrant Certificates shall be manually countersigned by the
Warrant Agent and shall not be valid for any purpose unless so countersigned. In
case any officer of the Company who shall have signed any of the Warrant
Certificates shall cease to be an officer of the Company or to hold the
particular office referenced in the Warrant Certificate before the date of
issuance of the Warrant Certificates or before countersignature by the Warrant
Agent and issue and delivery thereof, such Warrant Certificates may nevertheless
be countersigned by the Warrant Agent, issued and delivered with the same force
and effect as though the person who signed such Warrant Certificates had not
ceased to be an officer of the Company or to hold such office. After
countersignature by the Warrant Agent, Warrant Certificates shall be delivered
by the Warrant Agent to the Registered Holder without further action by the
Company, except as otherwise provided by Section 4(a) hereof.
SECTION 4. Exercise.
(a) Each Warrant may be exercised by the Registered Holder
thereof at any time on or after the Initial Warrant Exercise Date, but not after
the Warrant Expiration Date, upon the terms and subject to the conditions set
forth herein and in the applicable Warrant Certificate. A Warrant shall be
deemed to have been exercised immediately prior to the close of business on the
Exercise Date and the person entitled to receive the securities deliverable upon
such exercise shall be treated for all purposes as the holder of those
securities upon the exercise of the Warrant as of the close of business on the
Exercise Date. As soon as practicable on or after the Exercise Date, the Warrant
Agent shall deposit the proceeds received from the exercise of a Warrant and
shall notify the Company in writing of the exercise of the Warrants. Promptly
following, and in any event within five days after the date of such notice from
the Warrant Agent, the Warrant Agent, on behalf of the Company, shall cause to
be issued and delivered by the Transfer Agent, to the person or persons entitled
to receive the same, a certificate or certificates for the securities
deliverable upon such exercise, (plus a Warrant Certificate for any remaining
unexercised Warrants of the Registered Holder) unless prior to the date of
issuance of such certificates the
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Company shall instruct the Warrant Agent to refrain from causing such issuance
of certificates pending clearance of checks received in payment of the Purchase
Price pursuant to such Warrants. Notwithstanding the foregoing, in the case of
payment made in the form of a check drawn on an account of the Underwriter or
such other investment banks and brokerage houses as the Company shall approve in
writing to the Warrant Agent, certificates shall immediately be issued without
prior notice to the Company or any delay. Upon the exercise of any Warrant and
clearance of the funds received, the Warrant Agent shall promptly remit the
payment received for the Warrant (the "Warrant Proceeds") to the Company or as
the Company may direct in writing, subject to the provisions of Sections 4(b)
and 4(c) hereof.
(b) If, at the Exercise Date in respect of the exercise of
any Warrant after ____________, 1998, (i) the market price of the Company's
Class A Common Stock is greater than the then Purchase Price of the Warrant,
(ii) the exercise of the Warrant was solicited by a member of the National
Association of Securities Dealers, Inc. ("NASD") as designated in writing on the
Warrant Certificate Subscription Form, (iii) the Warrant was not held in a
discretionary account, (iv) disclosure of compensation arrangements was made
both at the time of the original offering and at the time of exercise; and (v)
the solicitation of the exercise of the Warrant was not in violation of
Regulation M (as such regulation or any successor regulation may be in effect as
of such time of exercise) promulgated under the Securities Exchange Act of 1934,
then the Warrant Agent, simultaneously with the distribution of the Warrant
Proceeds to the Company shall, on behalf of the Company, pay from the Warrant
Proceeds, a fee of 5% (the "Exercise Fee") of the Purchase Price to the
Underwriter (of which a portion may be reallowed by the Underwriter to the
dealer who solicited the exercise, which may also be the Underwriter or ▇.▇.
▇▇▇▇▇ & Co., Inc.). In the event the Exercise Fee is not received within five
days of the date on which the Company receives Warrant Proceeds, then the
Exercise Fee shall begin accruing interest at an annual rate of prime plus four
percent (4%), payable by the Company to the Underwriter at the time the
Underwriter receives the Exercise Fee. Within five days after exercise the
Warrant Agent shall send to the Underwriter a copy of the reverse side of each
Warrant exercised. The Underwriter shall reimburse the Warrant Agent, upon
request, for its reasonable expenses relating to compliance with this section
4(b). The Company shall pay all fees and expenses including all blue sky fees
and expenses and all out-of-pocket expenses of the Underwriter, including legal
fees, in connection with the solicitation, redemption or exchange of the
Warrants. In addition, the Underwriter and the Company may at any time during
business hours, examine the records of the Warrant Agent, including its ledger
of original Warrant Certificates returned to the Warrant Agent upon exercise of
Warrants. The provisions of this paragraph may not be modified, amended or
deleted without the prior written consent of the Underwriter.
(c) In order to enforce the provisions of Section 4(b)
above, in the event there is any dispute or question as to the amount or payment
of the
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Exercise Fee, the Warrant Agent is hereby expressly authorized to withhold
payment to the Company of the Warrant Proceeds unless and until the Company
establishes an escrow account for the purpose of depositing the entire amount of
the Exercise Fee, which amount will be deducted from the net Warrant Proceeds to
be paid to the Company. The funds placed in the escrow account may not be
released to the Company without a written agreement from the Underwriter that
the required Exercise Fee has been received by the Underwriter.
SECTION 5. Reservation of Shares; Listing; Payment of
Taxes; etc.
(a) The Company covenants that it will at all times
reserve and keep available out of its authorized Class A Common Stock, solely
for the purpose of issue upon exercise of Warrants, such number of shares of
Class A Common Stock as shall then be issuable upon the exercise of all
outstanding Warrants. The Company covenants that all shares of Class A Common
Stock which shall be issuable upon exercise of the Warrants shall, at the time
of delivery, be duly and validly issued, fully paid, nonassessable and free from
all taxes, liens and charges with respect to the issue thereof, (other than
those which the Company shall promptly pay or discharge) and that upon issuance
such shares shall be listed on each national securities exchange, on which the
other shares of outstanding Common Stock of the Company are then listed or shall
be eligible for inclusion in the Nasdaq National Market or the Nasdaq SmallCap
Market if the other shares of outstanding Common Stock of the Company are so
included.
(b) The Company covenants that if any securities to be
reserved for the purpose of exercise of Warrants hereunder require registration
with, or approval of, any governmental authority under any federal securities
law before such securities may be validly issued or delivered upon such
exercise, then the Company will in good faith and as expeditiously as reasonably
possible, endeavor to secure such registration or approval. The Company will use
reasonable efforts to obtain appropriate approvals or registrations under state
"blue sky" securities laws. With respect to any such securities, however,
Warrants may not be exercised by, or shares of Class A Common Stock issued to,
any Registered Holder in any state in which such exercise would be unlawful.
(c) The Company shall pay all documentary, stamp or
similar taxes and other governmental charges that may be imposed with respect to
the issuance of Warrants, or the issuance or delivery of any shares or Class B
Warrants upon exercise of the Class A Warrants, or the issuance or delivery of
any shares upon exercise of the Class B Warrants; provided, however, that if the
shares of Class A Common Stock or Class B Warrants, as the case may be, are to
be delivered in a name other than the name of the Registered Holder of the
Warrant Certificate representing any Warrant being exercised, then no such
delivery shall be made unless the person requesting the same has paid to the
Warrant Agent the amount of transfer taxes or charges incident thereto, if any.
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(d) The Warrant Agent is hereby irrevocably authorized to
requisition the Company's Transfer Agent from time to time for certificates
representing shares of Class A Common Stock issuable upon exercise of the
Warrants, and the Company will authorize the Transfer Agent to comply with all
such proper requisitions. The Company will file with the Warrant Agent a
statement setting forth the name and address of the Transfer Agent of the
Company for shares of Class A Common Stock issuable upon exercise of the
Warrants.
SECTION 6. Exchange and Registration of Transfer.
(a) Warrant Certificates may be exchanged for other
Warrant Certificates representing an equal aggregate number of Warrants of the
same class or may be transferred in whole or in part. Warrant Certificates to be
exchanged shall be surrendered to the Warrant Agent at its Corporate Office, and
upon satisfaction of the terms and provisions hereof, the Company shall execute
and the Warrant Agent shall countersign, issue and deliver in exchange therefor
the Warrant Certificate or Certificates which the Registered Holder making the
exchange shall be entitled to receive.
(b) The Warrant Agent shall keep at its office books in
which, subject to such reasonable regulations as it may prescribe, it shall
register Warrant Certificates and the transfer thereof in accordance with its
regular practice. Upon due presentment for registration of transfer of any
Warrant Certificate at such office, the Company shall execute and the Warrant
Agent shall issue and deliver to the transferee or transferees a new Warrant
Certificate or Certificates representing an equal aggregate number of Warrants.
(c) With respect to all Warrant Certificates presented for
registration or transfer, or for exchange or exercise, the subscription form on
the reverse thereof shall be duly endorsed, or be accompanied by a written
instrument or instruments of transfer and subscription, in form satisfactory to
the Company and the Warrant Agent, duly executed by the Registered Holder or his
attorney-in-fact duly authorized in writing.
(d) A service charge may be imposed by the Warrant Agent
for any exchange or registration of transfer of Warrant Certificates. In
addition, the Company may require payment by such holder of a sum sufficient to
cover any tax or other governmental charge that may be imposed in connection
therewith.
(e) All Warrant Certificates surrendered for exercise or
for exchange in case of mutilated Warrant Certificates shall be promptly
cancelled by the Warrant Agent and thereafter retained by the Warrant Agent
until termination of this Agreement or resignation as Warrant Agent, or, with
the prior written consent of the Underwriter, disposed of or destroyed, at the
direction of the Company.
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(f) Prior to due presentment for registration of transfer
thereof, the Company and the Warrant Agent may deem and treat the Registered
Holder of any Warrant Certificate as the absolute owner thereof and of each
Warrant represented thereby (notwithstanding any notations of ownership or
writing thereon made by anyone other than a duly authorized officer of the
Company or the Warrant Agent) for all purposes and shall not be affected by any
notice to the contrary. The Warrants, which are being publicly offered in Units
with shares of Common Stock pursuant to the Underwriting Agreement, will be
immediately detachable from the Common Stock and transferable separately
therefrom.
SECTION 7. Loss or Mutilation. Upon receipt by the Company
and the Warrant Agent of evidence satisfactory to them of the ownership of and
loss, theft, destruction or mutilation of any Warrant Certificate and (in case
of loss, theft or destruction) of indemnity satisfactory to them, and (in the
case of mutilation) upon surrender and cancellation thereof, the Company shall
execute and the Warrant Agent shall (in the absence of notice to the Company
and/or Warrant Agent that the Warrant Certificate has been acquired by a bona
fide purchaser) countersign and deliver to the Registered Holder in lieu thereof
a new Warrant Certificate of like tenor representing an equal aggregate number
of Class A Warrants or Class B Warrants. Applicants for a substitute Warrant
Certificate shall comply with such other reasonable regulations and pay such
other reasonable charges as the Warrant Agent may prescribe.
SECTION 8. Redemption.
(a) Subject to the provisions of paragraph 2(g) hereof, on
not less than thirty (30) days notice given at any time after ___________, 1998,
(the "Redemption Notice"), to Registered Holders of the Warrants being redeemed
at any time after ____________, 1998, the Warrants may be redeemed, at the
option of the Company, at the Redemption Price per Warrant, provided the Market
Price shall exceed $9.10 with respect to the Class A Warrants and $12.25 with
respect to the Class B Warrants (the "Target Prices"), subject to adjustment as
set forth in Section 8(f), below. All Warrants of a class must be redeemed if
any of that class are redeemed, provided that the Warrants underlying the Unit
Purchase Option may not be redeemed by the Company. For purposes of this Section
8, the Calculation Date shall mean a date within 15 days of the mailing of the
Redemption Notice. The date fixed for redemption of the Warrants is referred to
herein as the "Redemption Date." During the first fifty-four (54) months of this
Agreement, the Class B Warrant Redemption Date may not be earlier than six
months after the Class A Warrant Redemption Date.
(b) If the conditions set forth in Section 8(a) are met,
and the Company desires to exercise its right to redeem the Warrants, it shall
request the Underwriter to mail a Redemption Notice to each of the Registered
Holders of the Warrants to be redeemed, first class, postage prepaid, not later
than the thirtieth day before the Redemption Date, at their last address as
shall appear on
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the records maintained pursuant to Section 6(b). Any notice mailed in the manner
provided herein shall be conclusively presumed to have been duly given whether
or not the Registered Holder receives such notice.
(c) The Redemption Notice shall specify (i) the redemption
price, (ii) the Redemption Date, (iii) the place where the Warrant Certificates
shall be delivered and the redemption price paid, (iv) that the Underwriter will
assist each Registered Holder of a Warrant in connection with the exercise
thereof and (v) that the right to exercise the Warrant shall terminate at 5:00
P.M. (New York time) on the business day immediately preceding the Redemption
Date. No failure to mail such notice nor any defect therein or in the mailing
thereof shall affect the validity of the proceedings for such redemption except
as to a Registered Holder (a) to whom notice was not mailed or (b) whose notice
was defective. An affidavit of the Warrant Agent or of the Secretary or an
Assistant Secretary of the Underwriter or the Company that notice of redemption
has been mailed shall, in the absence of fraud, be prima facie evidence of the
facts stated therein.
(d) Any right to exercise a Warrant shall terminate at
5:00 P.M. (New York time) on the business day immediately preceding the
Redemption Date. On and after the Redemption Date, Registered Holders of the
Warrants shall have no further rights except to receive, upon surrender of the
Warrant, the Redemption Price.
(e) From and after the Redemption Date, the Company shall,
at the place specified in the Redemption Notice, upon presentation and surrender
to the Company by or on behalf of the Registered Holder thereof of one or more
Warrant Certificates evidencing Warrants to be redeemed, deliver or cause to be
delivered to or upon the written order of such Registered Holder a sum in cash
equal to the Redemption Price of each such Warrant. From and after the
Redemption Date and upon the deposit or setting aside by the Company of a sum
sufficient to redeem all the Warrants called for redemption, such Warrants shall
expire and become void and all rights hereunder and under the Warrant
Certificates, except the right to receive payment of the Redemption Price, shall
cease.
(f) If the shares of the Company's Common Stock are
subdivided or combined into a greater or smaller number of shares of Common
Stock, the Target Prices shall be proportionally adjusted by the ratio which the
total number of shares of Common Stock outstanding immediately prior to such
event bears to the total number of shares of Common Stock to be outstanding
immediately after such event.
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SECTION 9. Adjustment of Exercise Price and Number of
Shares of Common Stock or Warrants.
(a) Subject to the exceptions referred to in Section 9(g)
below, in the event the Company shall, at any time or from time to time after
the date hereof, sell any shares of Common Stock for a consideration per share
less than the Market Price on the date of the sale or issue any shares of Common
Stock as a stock dividend to the holders of Common Stock, or subdivide or
combine the outstanding shares of Common Stock into a greater or lesser number
of shares (any such sale, issuance, subdivision or combination being herein
called a "Change of Shares"), then, and thereafter upon each further Change of
Shares, the Purchase Price in effect immediately prior to such Change of Shares
shall be changed to a price (including any applicable fraction of a cent)
determined by multiplying the Purchase Price in effect immediately prior thereto
by a fraction, the numerator of which shall be the sum of the number of shares
of Common Stock outstanding immediately prior to the issuance of such additional
shares and the number of shares of Common Stock which the aggregate
consideration received (determined as provided in subsection 9(f)(F) below) for
the issuance of such additional shares would purchase at the Market Price and
the denominator of which shall be the sum of the number of shares of Common
Stock outstanding immediately after the issuance of such additional shares. Such
adjustment shall be made successively whenever such an issuance is made. For
purposes of this Section 9, the Calculation Date shall mean the date of the
sale, issuance, modification or other transaction referred to in this Section 9.
Upon each adjustment of the Purchase Price pursuant to
this Section 9, the total number of shares of Common Stock purchasable upon the
exercise of each Class A Warrant or the total number of shares of Common Stock
purchasable upon exercise of each Class B Warrant, as applicable, shall (subject
to the provisions contained in Section 9(b) hereof) be such number of shares
(calculated to the nearest one-hundredth; provided, however, that in no event
shall the Class A Aggregate Per Share Price or the Class B Aggregate Per Share
Price as applicable, increase as a result of such rounding calculation)
purchasable at the Purchase Price in effect immediately prior to such adjustment
multiplied by a fraction, the numerator of which shall be the Purchase Price in
effect immediately prior to such adjustment and the denominator of which shall
be the Purchase Price in effect immediately after such adjustment.
(b) The Company may elect, upon any adjustment of the
Purchase Price hereunder, to adjust the number of Class A Warrants or Class B
Warrants outstanding, in lieu of the adjustment in the number of shares of
Common Stock purchasable upon the exercise of each Warrant as hereinabove
provided, so that each Class A Warrant outstanding after such adjustment shall
represent the right to purchase one share of Common Stock and one Class B
Warrant, and each Class B Warrant outstanding after such adjustment shall
represent the right to purchase one share of Common Stock. Each Warrant held of
record prior to such adjustment of the number of Warrants shall become that
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number of Warrants (calculated to the nearest tenth) determined by multiplying
the number one by a fraction, the numerator of which shall be the Purchase Price
in effect immediately prior to such adjustment and the denominator of which
shall be the Purchase Price in effect immediately after such adjustment. Upon
each adjustment of the number of Warrants pursuant to this Section 9, the
Company shall, as promptly as practicable, cause to be distributed to each
Registered Holder of Warrant Certificates on the date of such adjustment Warrant
Certificates evidencing, subject to Section 10 hereof, the number of additional
Warrants to which such Holder shall be entitled as a result of such adjustment
or, at the option of the Company, cause to be distributed to such Holder in
substitution and replacement for the Warrant Certificates held by him prior to
the date of adjustment (and upon surrender thereof, if required by the Company)
new Warrant Certificates evidencing the number of Warrants to which such Holder
shall be entitled after such adjustment.
(c) In case of any reclassification, capital
reorganization or other change of outstanding shares of Common Stock, or in case
of any consolidation or merger of the Company with or into another corporation
(other than a consolidation or merger in which the Company is the continuing
corporation and which does not result in any reclassification, capital
reorganization or other change of outstanding shares of Common Stock), or in
case of any sale or conveyance to another corporation of the property of the
Company as, or substantially as, an entirety (other than a sale/leaseback,
mortgage or other financing transaction), the Company shall cause effective
provision to be made so that each holder of a Warrant then outstanding shall
have the right thereafter, by exercising such Warrant, to purchase the kind and
number of shares of stock or other securities or property (including cash)
receivable upon such reclassification, capital reorganization or other change,
consolidation, merger, sale or conveyance by a holder of the number of shares of
Common Stock that might have been purchased upon exercise of such Warrant
immediately prior to such reclassification, capital reorganization or other
change, consolidation, merger, sale or conveyance. Any such provision shall
include provision for adjustments that shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section 9. The Company shall
not effect any such consolidation, merger or sale unless prior to or
simultaneously with the consummation thereof the successor (if other than the
Company) resulting from such consolidation or merger or the corporation
purchasing assets or other appropriate corporation or entity shall assume, by
written instrument executed and delivered to the Warrant Agent, the obligation
to deliver to the holder of each Warrant such shares of stock, securities or
assets as, in accordance with the foregoing provisions, such holders may be
entitled to purchase and the other obligations of the Company under this
Agreement. The foregoing provisions shall similarly apply to successive
reclassifications, capital reorganizations and other changes of outstanding
shares of Common Stock and to successive consolidations, mergers, sales or
conveyances.
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(d) Irrespective of any adjustments or changes in the
Purchase Price or the number of shares of Common Stock purchasable upon exercise
of the Warrants, the Warrant Certificates theretofore and thereafter issued
shall, unless the Company shall exercise its option to issue new Warrant
Certificates pursuant to Section 2(f) hereof, continue to express the Purchase
Price per share, the number of shares purchasable thereunder and the Redemption
Price therefor as the Purchase Price per share, and the number of shares
purchasable and the Redemption Price therefor were expressed in the Warrant
Certificates when the same were originally issued.
(e) After each adjustment of the Purchase Price pursuant
to this Section 9, the Company will promptly prepare a certificate signed by the
Chairman or President, and by the Treasurer or an Assistant Treasurer or the
Secretary or an Assistant Secretary, of the Company setting forth: (i) the
Purchase Price as so adjusted, (ii) the number of shares of Common Stock
purchasable upon exercise of each Warrant after such adjustment and, if the
Company shall have elected to adjust the number of Warrants, the number of
Warrants to which the Registered Holder of each Warrant shall then be entitled,
and the adjustment in Redemption Price resulting therefrom, and (iii) a
statement showing in detail the method of calculation and the facts upon which
such adjustment or readjustment is based, including a statement of (a) the
consideration received or to be received by the Company for any securities
issued or sold or deemed to have been issued, (b) the number of shares of Common
Stock outstanding or deemed to be outstanding, and (c) the Purchase Price in
effect immediately prior to such issue or sale and as adjusted and readjusted
(if required by Section 9) on account thereof. The Company will promptly file
such certificate with the Warrant Agent and furnish a copy thereof to be sent no
later than thirty (30) days after the adjustment by ordinary first class mail to
the Underwriter and to each Registered Holder of Warrants at his last address as
it shall appear on the registry books of the Warrant Agent. No failure to mail
such notice nor any defect therein or in the mailing thereof shall affect the
validity thereof except as to the holder to whom the Company failed to mail such
notice, or except as to the holder whose notice was defective. If such mailing
is not made within such 30-day period the Warrant Expiration Date shall be
extended by the period of time equal to the period commencing on the 31st day
and expires on the date such mailing is effectuated. The Company will, upon the
written request at any time of the Underwriter, furnish to the Underwriter a
report by ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, LLC, or other independent public accountants of
recognized national standing (which may be the regular auditors of the Company)
selected by the Company to verify such computation and setting forth such
adjustment or readjustment and showing in detail the method of calculation and
the facts upon which such adjustment or readjustment is based. The Company will
also keep copies of all such certificates and reports at its principal office.
(f) For purposes of Section 9(a) and 9(b) hereof, the
following provisions (A) to (G) shall also be applicable:
-13-
(A) The number of shares of Common Stock
outstanding at any given time shall include shares of
Common Stock owned or held by or for the account of the
Company and the sale or issuance of such treasury shares
or the distribution of any such treasury shares shall not
be considered a Change of Shares for purposes of said
sections.
(B) No adjustment of the Purchase Price shall be
made unless such adjustment would require an increase or
decrease of at least $.05 in the Purchase Price; provided
that any adjustments which by reason of this clause (B)
are not required to be made shall be carried forward and
shall be made at the time of and together with the next
subsequent adjustment which, together with any
adjustment(s) so carried forward, shall require an
increase or decrease of at least $.05 in the Purchase
Price then in effect hereunder.
(C) In case of (1) the sale by the Company for
cash (or as a component of a unit being sold for cash) of
any rights or warrants to subscribe for or purchase, or
any options for the purchase of, Common Stock or any
securities convertible into or exchangeable for Common
Stock without the payment of any further consideration
other than cash, if any (such securities convertible,
exercisable or exchangeable into Common Stock being herein
called "Convertible Securities"), or (2) the issuance by
the Company, without the receipt by the Company of any
consideration therefor, of any rights or warrants to
subscribe for or purchase, or any options for the purchase
of, Common Stock or Convertible Securities, in each case,
if (and only if) the consideration payable to the Company
upon the exercise of such rights, warrants or options
shall consist of cash, whether or not such rights,
warrants or options, or the right to convert or exchange
such Convertible Securities, are immediately exercisable,
and the price per share for which Common Stock is issuable
upon the exercise of such rights, warrants or options or
upon the conversion or exchange of such Convertible
Securities (determined by dividing (x) the minimum
aggregate consideration payable to the Company upon the
exercise of such rights, warrants or options, plus the
consideration, if any, received by the Company for the
issuance or sale of such rights, warrants or options,
plus, in the case of such Convertible Securities, the
minimum aggregate amount of additional consideration,
other than such Convertible Securities, payable upon the
conversion or exchange thereof, by (y) the total maximum
number of shares of Common Stock issuable upon the
exercise of such rights, warrants or options or upon the
conversion or exchange of such Convertible Securities
issuable upon the exercise of such rights, warrants or
options) is less than the Market Price on the Calculation
Date, then
-14-
the total maximum number of shares of Common Stock
issuable upon the exercise of such rights, warrants or
options or upon the conversion or exchange of such
Convertible Securities (as of the date of the issuance or
sale of such rights, warrants or options) shall be deemed
to be outstanding shares of Common Stock for purposes of
Sections 9(a) and 9(b) hereof and shall be deemed to have
been sold for cash in an amount equal to such price per
share.
(D) In case of the sale by the Company for cash
of any Convertible Securities, whether or not the right of
conversion or exchange thereunder is immediately
exercisable, and the price per share for which Common
Stock is issuable upon the conversion or exchange of such
Convertible Securities (determined by dividing (x) the
total amount of consideration received by the Company for
the sale of such Convertible Securities, plus the minimum
aggregate amount of additional consideration, if any,
other than such Convertible Securities, payable upon the
conversion or exchange thereof, by (y) the total maximum
number of shares of Common Stock issuable upon the
conversion or exchange of such Convertible Securities) is
less than the Market Price on the Calculation Date, then
the total maximum number of shares of Common Stock
issuable upon the conversion or exchange of such
Convertible Securities (as of the date of the sale of such
Convertible Securities) shall be deemed to be outstanding
shares of Common Stock for purposes of Sections 9(a) and
9(b) hereof and shall be deemed to have been sold for cash
in an amount equal to such price per share.
(E) In case the Company shall modify the rights
of conversion, exchange or exercise of any of the
securities referred to in (C) or (D) above or any other
securities of the Company convertible, exchangeable or
exercisable for shares of Common Stock, for any reason
other than an event that would require adjustment to
prevent dilution, so that the consideration per share
received by the Company after such modification is less
than the Market Price on the Calculation Date, the
Purchase Price to be in effect after such modification
shall be determined by multiplying the Purchase Price in
effect immediately prior to such event by a fraction, of
which the numerator shall be the number of shares of
Common Stock outstanding on the date prior to the
modification plus the number of shares of Common Stock
which the aggregate consideration receivable by the
Company for the securities affected by the modification
would purchase at the Market Price and of which the
denominator shall be the number of shares of Common Stock
outstanding on such date plus the number of shares of
Common Stock to be issued upon conversion, exchange or
exercise of the modified securities at the modified rate.
Such adjustment shall become effective as of the date upon
which such modification
-15-
shall take effect. On the expiration of any such right,
warrant or option or the termination of any such right to
convert or exchange any such Convertible Securities
referred to in Paragraph (C) or (D) above, the Purchase
Price then in effect hereunder shall forthwith be
readjusted to such Purchase Price as would have obtained
(a) had the adjustments made upon the issuance or sale of
such rights, warrants, options or Convertible Securities
been made upon the basis of the issuance of only the
number of shares of Common Stock theretofore actually
delivered (and the total consideration received therefor)
upon the exercise of such rights, warrants or options or
upon the conversion or exchange of such Convertible
Securities and (b) had adjustments been made on the basis
of the Purchase Price as adjusted under clause (a) for all
transactions (which would have affected such adjusted
Purchase Price) made after the issuance or sale of such
rights, warrants, options or Convertible Securities.
(F) In case of the sale for cash of any shares of
Common Stock, any Convertible Securities, any rights or
warrants to subscribe for or purchase, or any options for
the purchase of, Common Stock or Convertible Securities,
the consideration received by the Company therefore shall
be deemed to be the gross sales price therefor without
deducting therefrom any expense paid or incurred by the
Company or any underwriting discounts or commissions or
concessions paid or allowed by the Company in connection
therewith.
(G) In case any event shall occur as to which the
provisions of Section 9 are not strictly applicable but
the failure to make any adjustment would not fairly
protect the purchase rights represented by the Warrants in
accordance with the essential intent and principles of
Section 9, then, in each such case, the Board of Directors
of the Company shall in good faith by resolution provide
for the adjustment, if any, on a basis consistent with the
essential intent and principles established in Section 9,
necessary to preserve, without dilution, the purchase
rights represented by the Warrants. The Company will
promptly make the adjustments described therein.
(g) No adjustment to the Purchase Price of the Warrants or
to the number of shares of Common Stock purchasable upon the exercise of each
Warrant will be made, however,
(i) upon the exercise of any of the options
presently outstanding under the Company's Stock Option
Plan (the "Plan") for officers, directors and certain
other key personnel of the Company; or
-16-
(ii) upon the issuance or exercise of any other
securities which may hereafter be granted or exercised
under the Plan or under any other employee benefit plan of
the Company approved by the Company's stockholders; or
(iii) upon the sale or exercise of the Warrants,
including without limitation the sale or exercise of any
of the Warrants comprising the Unit Purchase Option or
upon the sale or exercise of the Unit Purchase Option; or
(iv) upon the sale of any shares of Common Stock
and/or Convertible Securities in a firm commitment
underwritten public offering, including, without
limitation, shares sold upon the exercise of any
overallotment option granted to the underwriters in
connection with such offering; or
(v) upon the sale by the Company of any shares of
Common Stock and/or Convertible Securities in a private
placement for which the Underwriter is the Placement
Agent; or
(vi) upon the issuance or sale of Common Stock or
Convertible Securities upon the exercise of any rights or
warrants to subscribe for or purchase, or any options for
the purchase of, Common Stock or Convertible Securities,
whether or not such rights, warrants or options were
outstanding on the date of the original sale of the
Warrants or were thereafter issued or sold; or
(vii) upon the issuance or sale of Common Stock
upon conversion or exchange of any Convertible Securities,
whether or not any adjustment in the Purchase Price was
made or required to be made upon the issuance or sale of
such Convertible Securities and whether or not such
Convertible Securities were outstanding on the date of the
original sale of the Warrants or were thereafter issued or
sold.
(h) As used in this Section 9, the term "Common Stock"
shall mean and include the Company's Common Stock authorized on the date of the
original issue of the Units and shall also include any capital stock of any
class of the Company thereafter authorized which shall not be limited to a fixed
sum or percentage in respect of the rights of the holders thereof to participate
in dividends and in the distribution of assets upon the voluntary liquidation,
dissolution or winding up of the Company; provided, however, that the shares
issuable upon exercise of the Warrants shall include only shares of such class
designated in the Company's Certificate of Incorporation as Common Stock on the
date of the original issue of the Units or (i), in the case of any
reclassification, change, consolidation, merger, sale or conveyance of the
character referred to in Section 9(c) hereof, the stock, securities or property
-17-
provided for in such section or (ii), in the case of any reclassification or
change in the outstanding shares of Common Stock issuable upon exercise of the
Warrants as a result of a subdivision or combination or consisting of a change
in par value, or from par value to no par value, or from no par value to par
value, such shares of Common Stock as so reclassified or changed.
(i) Any determination as to whether an adjustment in the
Purchase Price in effect hereunder is required pursuant to Section 9, or as to
the amount of any such adjustment, if required, shall be binding upon the
holders of the Warrants and the Company if made in good faith by the Board of
Directors of the Company.
(j) If and whenever the Company shall grant to the holders
of Common Stock, as such, rights or warrants to subscribe for or to purchase, or
any options for the purchase of, Common Stock or securities convertible into or
exchangeable for or carrying a right, warrant or option to purchase Common
Stock, the Company shall concurrently therewith grant to each Registered Holder
as of the record date for such transaction of the Warrants then outstanding, the
rights, warrants or options to which each Registered Holder would have been
entitled if, on the record date used to determine the stockholders entitled to
the rights, warrants or options being granted by the Company, the Registered
Holder were the holder of record of the number of whole shares of Common Stock
then issuable upon exercise (assuming, for purposes of this Section 9(j), that
exercise of Warrants is permissible during periods prior to the Initial Warrant
Exercise Date) of his Warrants. Such grant by the Company to the holders of the
Warrants shall be in lieu of any adjustment which otherwise might be called for
pursuant to this Section 9.
SECTION 10. Fractional Warrants and Fractional Shares.
(a) If the number of shares of Common Stock purchasable
upon the exercise of each Warrant is adjusted pursuant to Section 9 hereof, the
Company nevertheless shall not be required to issue fractions of shares, upon
exercise of the Warrants or otherwise, or to distribute certificates that
evidence fractional shares. With respect to any fraction of a share called for
upon the exercise of any Warrant, the Company shall pay to the Holder an amount
in cash equal to such fraction multiplied by the current market value of such
fractional share, determined as follows:
(1) If the Common Stock is listed on a national
securities exchange or admitted to unlisted trading
privileges on such exchange or is traded on the Nasdaq
National Market, the current market value shall be the
last reported sale price of the Common Stock on such
exchange or market on the last business day prior to the
date of exercise of this Warrant or if no such sale is
made on
-18-
such day, the average of the closing bid and asked prices
for such day on such exchange or market; or
(2) If the Common Stock is not listed or admitted
to unlisted trading privileges on a national securities
exchange or is not traded on the Nasdaq National Market,
the current market value shall be the mean of the last
reported bid and asked prices reported by the Nasdaq
SmallCap Market or, if not traded thereon, by the National
Quotation Bureau, Inc. on the last business day prior to
the date of the exercise of this Warrant; or
(3) If the Common Stock is not so listed or
admitted to unlisted trading privileges and bid and asked
prices are not so reported, the current market value shall
be an amount determined in such reasonable manner as may
be prescribed by the Board of Directors of the Company.
SECTION 11. Warrant Holders Not Deemed Stockholders. No
holder of Warrants shall, as such, be entitled to vote or to receive dividends
or be deemed the holder of Common Stock that may at any time be issuable upon
exercise of such Warrants for any purpose whatsoever, nor shall anything
contained herein be construed to confer upon the holder of Warrants, as such,
any of the rights of a stockholder of the Company or any right to vote for the
election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action (whether
upon any recapitalization, issue or reclassification of stock, change of par
value or change of stock to no par value, consolidation, merger or conveyance or
otherwise), or to receive notice of meetings, or to receive dividends or
subscription rights, until such holder shall have exercised such Warrants and
been issued shares of Common Stock in accordance with the provisions hereof.
SECTION 12. Rights of Action. All rights of action with
respect to this Agreement are vested in the respective Registered Holders of the
Warrants, and any Registered Holder of a Warrant, without consent of the Warrant
Agent or of the holder of any other Warrant, may, in his own behalf and for his
own benefit, enforce against the Company his right to exercise his Warrants for
the purchase of shares of Common Stock in the manner provided in the Warrant
Certificate and this Agreement.
SECTION 13. Agreement of Warrant Holders. Every holder of
a Warrant, by his acceptance thereof, consents and agrees with the Company, the
Warrant Agent and every other holder of a Warrant that:
(a) The Warrants are transferable only on the registry
books of the Warrant Agent by the Registered Holder thereof in person or by his
attorney duly authorized in writing and only if the Warrant Certificates
representing such Warrants are surrendered at the office of the Warrant Agent,
duly endorsed or
-19-
accompanied by a proper instrument of transfer satisfactory to the Warrant Agent
and the Company in their sole discretion, together with payment of any
applicable transfer taxes; and
(b) The Company and the Warrant Agent may deem and treat
the person in whose name the Warrant Certificate is registered as the holder and
as the absolute, true and lawful owner of the Warrants represented thereby for
all purposes, and neither the Company nor the Warrant Agent shall be affected by
any notice or knowledge to the contrary, except as otherwise expressly provided
in Section 7 hereof.
SECTION 14. Cancellation of Warrant Certificates. If the
Company shall purchase or acquire any Warrant or Warrants, the Warrant
Certificate or Warrant Certificates evidencing the same shall thereupon be
delivered to the Warrant Agent and cancelled by it and retired. The Warrant
Agent shall also cancel the Warrant Certificate or Warrant Certificates
following exercise of any or all of the Warrants represented thereby or
delivered to it for transfer or exchange.
SECTION 15. Concerning the Warrant Agent. The Warrant
Agent acts hereunder as agent and in a ministerial capacity for the Company, and
its duties shall be determined solely by the provisions hereof. The Warrant
Agent shall not, by issuing and delivering Warrant Certificates or by any other
act hereunder be deemed to make any representations as to the validity, value or
authorization of the Warrant Certificates or the Warrants represented thereby or
of any securities or other property delivered upon exercise of any Warrant or
whether any stock issued upon exercise of any Warrant is fully paid and
nonassessable.
The Warrant Agent shall not at any time be under
any duty or responsibility to any holder of Warrant Certificates to make or
cause to be made any adjustment of the Purchase Price or the Redemption Price
provided in this Agreement, or to determine whether any fact exists which may
require any such adjustments, or with respect to the nature or extent of any
such adjustment, when made, or with respect to the method employed in making the
same. It shall not (i) be liable for any recital or statement of facts contained
herein or for any action taken, suffered or omitted by it in reliance on any
Warrant Certificate or other document or instrument believed by it in good faith
to be genuine and to have been signed or presented by the proper party or
parties, (ii) be responsible for any failure on the part of the Company to
comply with any of its covenants and obligations contained in this Agreement or
in any Warrant Certificate, or (iii) be liable for any act or omission in
connection with this Agreement except for its own negligence or wilful
misconduct.
The Warrant Agent may at any time consult with
counsel satisfactory to it (who may be counsel for the Company) and shall incur
no
-20-
liability or responsibility for any action taken, suffered or omitted by it in
good faith in accordance with the opinion or advice of such counsel.
Any notice, statement, instruction, request,
direction, order or demand of the Company shall be sufficiently evidenced by an
instrument signed by the Chairman of the Board, President, any Vice President,
its Secretary, or Assistant Secretary, (unless other evidence in respect thereof
is herein specifically prescribed). The Warrant Agent shall not be liable for
any action taken, suffered or omitted by it in accordance with such notice,
statement, instruction, request, direction, order or demand believed by it to be
genuine.
The Company agrees to pay the Warrant Agent
reasonable compensation for its services hereunder and to reimburse it for its
reasonable expenses hereunder; it further agrees to indemnify the Warrant Agent
and save it harmless against any and all losses, expenses and liabilities,
including judgments, costs and counsel fees, for anything done or omitted by the
Warrant Agent in the execution of its duties and powers hereunder except losses,
expenses and liabilities arising as a result of the Warrant Agent's negligence
or wilful misconduct.
The Warrant Agent may resign its duties and be
discharged from all further duties and liabilities hereunder (except liabilities
arising as a result of the Warrant Agent's own negligence or wilful misconduct),
after giving 30 days' prior written notice to the Company. At least 15 days
prior to the date such resignation is to become effective, the Warrant Agent
shall cause a copy of such notice of resignation to be mailed to the Registered
Holder of each Warrant Certificate at the Company's expense. Upon such
resignation, or any inability of the Warrant Agent to act as such hereunder, the
Company shall appoint a new warrant agent in writing. If the Company shall fail
to make such appointment within a period of 15 days after it has been notified
in writing of such resignation by the resigning Warrant Agent, then the
Registered Holder of any Warrant Certificate may apply to any court of competent
jurisdiction for the appointment of a new warrant agent. Any new warrant agent,
whether appointed by the Company or by such a court, shall be a bank or trust
company having a capital and surplus, as shown by its last published report to
its stockholders, of not less than $10,000,000 or a stock transfer company that
is a registered transfer agent under the Securities Exchange Act of 1934. After
acceptance in writing of such appointment by the new warrant agent is received
by the Company, such new warrant agent shall be vested with the same powers,
rights, duties and responsibilities as if it had been originally named herein as
the Warrant Agent, without any further assurance, conveyance, act or deed; but
if for any reason it shall be necessary or expedient to execute and deliver any
further assurance, conveyance, act or deed, the same shall be done at the
expense of the Company and shall be legally and validly executed and delivered
by the resigning Warrant Agent. Not later than the effective date of any such
appointment the Company shall file notice thereof with the resigning Warrant
-21-
Agent and shall forthwith cause a copy of such notice to be mailed to the
Registered Holder of each Warrant Certificate.
Any corporation into which the Warrant Agent or
any new warrant agent may be converted or merged or any corporation resulting
from any consolidation to which the Warrant Agent or any new warrant agent shall
be a party or any corporation succeeding to the trust business of the Warrant
Agent shall be a successor warrant agent under this Agreement without any
further act, provided that such corporation is eligible for appointment as
successor to the Warrant Agent under the provisions of the preceding paragraph.
Any such successor warrant agent shall promptly cause notice of its succession
as warrant agent to be mailed to the Company and to the Registered Holder of
each Warrant Certificate.
The Warrant Agent, its subsidiaries and
affiliates, and any of its or their officers or directors, may buy and hold or
sell Warrants or other securities of the Company and otherwise deal with the
Company in the same manner and to the same extent and with like effects as
though it were not Warrant Agent. Nothing herein shall preclude the Warrant
Agent from acting in any other capacity for the Company or for any other legal
entity.
SECTION 16. Modification of Agreement. Subject to the
provisions of Section 4(b), the parties hereto and the Company may by
supplemental agreement make any changes or corrections in this Agreement (i)
that they shall deem appropriate to cure any ambiguity or to correct any
defective or inconsistent provision or manifest mistake or error herein
contained; (ii) to reflect an increase in the number of Class A or Class B
Warrants which are to be governed by this Agreement resulting from (a) a
subsequent public offering of Company securities which includes Class A or Class
B Warrants or (b) a subsequent private placement of Company securities which
includes Class A or Class B Warrants, in either case having the same terms and
conditions as the Class A or Class B Warrants, respectively, originally covered
by or subsequently added to this Agreement under this Section 16, provided,
however, that in the case of a private placement, the amendment to this
Agreement will be effective only at such time as the resale of such Warrants, as
well as the securities underlying such Warrants is covered by an effective
registration statement under the Act; or (iii) that they may deem necessary or
desirable and which shall not adversely affect the interests of the holders of
Warrant Certificates; provided, however, that this Agreement shall not otherwise
be modified, supplemented or altered in any respect except with the consent in
writing of the Registered Holders of Warrant Certificates representing not less
than 50% of the Warrants then outstanding; and provided, further, that no change
in the number or nature of the securities purchasable upon the exercise of any
Warrant, or the Purchase Price therefor, or the acceleration of the Warrant
Expiration Date, shall be made without the consent in writing of the Registered
Holder of the Warrant Certificate representing such Warrant, other than such
changes as are specifically
-22-
prescribed by this Agreement as originally executed or are made in compliance
with applicable law.
SECTION 17. Notices. All notices, requests, consents and
other communications hereunder shall be in writing and shall be deemed to have
been made when delivered or mailed first class registered or certified mail,
postage prepaid as follows: if to the Registered Holder of a Warrant
Certificate, at the address of such holder as shown on the registry books
maintained by the Warrant Agent; if to the Company, at ▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇,
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, attention: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, or at such other address
as may have been furnished to the Warrant Agent in writing by the Company; if to
the Warrant Agent, at its Corporate Office; if to the Underwriter, at ▇.▇. ▇▇▇▇▇
Investment Banking Corp., ▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇.
SECTION 18. Governing Law. This Agreement shall be
governed by and construed in accordance with the laws of the State of New York,
without reference to principles of conflict of laws.
SECTION 19. Binding Effect. This Agreement shall be
binding upon and inure to the benefit of the Company and, the Warrant Agent and
their respective successors and assigns, and the holders from time to time of
Warrant Certificates . Nothing in this Agreement is intended or shall be
construed to confer upon any other person any right, remedy or claim, in equity
or at law, or to impose upon any other person any duty, liability or obligation.
SECTION 20. Termination. This Agreement shall terminate at
the close of business on the earlier of the Warrant Expiration Date or the date
upon which all Warrants (including the warrants issuable upon exercise of the
Unit Purchase Options) have been exercised, except that the Warrant Agent shall
account to the Company for cash held by it and the provisions of Section 15
hereof shall survive such termination.
-23-
SECTION 21. Counterparts. This Agreement may be executed
in several counterparts, which taken together shall constitute a single
document.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the date first above written.
PARADIGM MUSIC ENTERTAINMENT
COMPANY
By: ______________________________
AMERICAN STOCK TRANSFER & TRUST
COMPANY
By: ______________________________
Authorized Officer
▇.▇. ▇▇▇▇▇ INVESTMENT BANKING CORP.
By: ______________________________
Authorized Officer
-24-
EXHIBIT A
[FORM OF FACE OF CLASS A WARRANT CERTIFICATE]
No. AW _______ Class A Warrants
VOID AFTER __________, 2002
CLASS A WARRANT CERTIFICATE FOR PURCHASE
OF COMMON STOCK AND REDEEMABLE CLASS B WARRANTS
PARADIGM MUSIC ENTERTAINMENT COMPANY
This certifies that FOR VALUE RECEIVED __________________
or registered assigns (the "Registered Holder") is the owner of the number of
Class A Warrants ("Class A Warrants") specified above. Each Class A Warrant
represented hereby initially entitles the Registered Holder to purchase, subject
to the terms and conditions set forth in this Warrant Certificate and the
Warrant Agreement (as hereinafter defined), one fully paid and nonassessable
share of Class A Common Stock, $.01 value ("Common Stock"), of PARADIGM MUSIC
ENTERTAINMENT COMPANY, a Delaware corporation (the "Company"), and one Class B
Warrant of the Company at any time between ____________, 1997 and the Expiration
Date (as hereinafter defined), upon the presentation and surrender of this
Warrant Certificate with the Subscription Form on the reverse hereof duly
executed, at the corporate office of AMERICAN STOCK TRANSFER & TRUST COMPANY, as
Warrant Agent, or its successor (the "Warrant Agent"), accompanied by payment of
$6.50 for each Warrant (the "Purchase Price") in lawful money of the United
States of America in cash or by official bank or certified check made payable to
_________________.
This Warrant Certificate and each Class A Warrant
represented hereby are issued pursuant to and are subject in all respects to the
terms and conditions set forth in the Warrant Agreement (the "Warrant
Agreement"), dated ______________, 1997 by and among the Company, the Warrant
Agent and ▇.▇. ▇▇▇▇▇ Investment Banking Corp.
In the event of certain contingencies provided for in the
Warrant Agreement, the Purchase Price or the number of shares of Common Stock
and Class B Warrants subject to purchase upon the exercise of each Class A
Warrant represented hereby are subject to modification or adjustment.
Each Class A Warrant represented hereby is exercisable at
the option of the Registered Holder, but no fractional shares of Common Stock
will
A-1
be issued. In the case of the exercise of less than all the Class A Warrants
represented hereby, the Company shall cancel this Warrant Certificate upon the
surrender hereof and shall execute and deliver a new Warrant Certificate or
Warrant Certificates of like tenor, which the Warrant Agent shall countersign,
for the balance of such Class A Warrants.
The term "Expiration Date" shall mean 5:00 P.M. (New York
time) on _________________, 2002 or such earlier date as the Class A Warrants
shall be redeemed(1). If such date shall in the State of New York be a holiday
or a day on which banks are authorized to close, then the Expiration Date shall
mean 5:00 P.M. (New York time) the next following day which in the State of New
York is not a holiday or a day on which banks are authorized to close.
The Company shall not be obligated to deliver any
securities pursuant to the exercise of the Class A Warrants represented hereby
unless a registration statement under the Securities Act of 1933, as amended,
with respect to such securities is effective. The Company has covenanted and
agreed that it will file a registration statement and will use its best efforts
to cause the same to become effective and to keep such registration statement
current while any of the Class A Warrants are outstanding. The Class A Warrants
represented hereby shall not be exercisable by a Registered Holder in any state
where such exercise would be unlawful.
This Warrant Certificate is exchangeable, upon the
surrender hereof by the Registered Holder at the corporate office of the Warrant
Agent, for a new Warrant Certificate or Warrant Certificates of like tenor
representing an equal aggregate number of Class A Warrants, each of such new
Warrant Certificates to represent such number of Class A Warrants as shall be
designated by such Registered Holder at the time of such surrender. Upon due
presentment with a $_____________ transfer fee per certificate in addition to
any tax or other governmental charge imposed in connection therewith, for
registration of transfer of this Class A Warrant Certificate at such office, a
new Warrant Certificate or Warrant Certificates representing an equal aggregate
number of Class A Warrants will be issued to the transferee in exchange
therefor, subject to the limitations provided in the Warrant Agreement.
Prior to the exercise of any Class A Warrant represented
hereby, the Registered Holder shall not be entitled to any rights of a
stockholder of the Company, including, without limitation, the right to vote or
to receive dividends or other distributions, and shall not be entitled to
receive any notice of any proceedings of the Company, except as provided in the
Warrant Agreement.
The Class A Warrants represented hereby may be redeemed at
the option of the Company, at a redemption price of $.05 per Class A Warrant at
any
--------
(1) Not applicable for Warrant under the Unit Purchase Option.
A-2
time after __________, 1998, provided the Market Price (as defined in the
Warrant Agreement) for the Common Stock shall exceed $9.10 per share. Notice of
redemption shall be given not later than the thirtieth day before the date fixed
for redemption, all as provided in the Warrant Agreement. On and after the date
fixed for redemption, the Registered Holder shall have no rights with respect to
the Class A Warrants represented hereby except to receive the $.05 per Class A
Warrant upon surrender of this Warrant Certificate.(2)
Prior to due presentment for registration of transfer
hereof, the Company and the Warrant Agent may deem and treat the Registered
Holder as the absolute owner hereof and of each Class A Warrant represented
hereby (notwithstanding any notations of ownership or writing hereon made by
anyone other than a duly authorized officer of the Company or the Warrant Agent)
for all purposes and shall not be affected by any notice to the contrary.
The Company has agreed to pay a fee of 5% of the Purchase
Price upon certain conditions as specified in the Warrant Agreement upon the
exercise of the Class A Warrants represented hereby.
This Warrant Certificate shall be governed by and
construed in accordance with the laws of the State of New York.
This Warrant Certificate is not valid unless countersigned
by the Warrant Agent.
--------
(2) Not applicable for Warrant under the Unit Purchase Option.
A-3
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed, manually or in facsimile, by two of its
officers thereunto duly authorized and a facsimile of its corporate seal to be
imprinted hereon.
PARADIGM MUSIC ENTERTAINMENT
COMPANY
By:__________________________________
Name:
Title:
Dated:_________
[seal]
Countersigned:
AMERICAN STOCK TRANSFER & TRUST COMPANY,
as Warrant Agent
By:___________________________
Authorized Officer
A-4
[FORM OF REVERSE OF WARRANT CERTIFICATE]
TRANSFER FEE: $_______ PER CERTIFICATE ISSUED
SUBSCRIPTION FORM
To Be Executed by the Registered Holder
in Order to Exercise Warrants
The undersigned Registered Holder hereby irrevocably
elects to exercise _______ Class A Warrants represented by this Warrant
Certificate, and to purchase the securities issuable upon the exercise of such
Class A Warrants, and requests that certificates for such securities shall be
issued in the name of
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
___________________________
___________________________
___________________________
___________________________
[please print or type name and address]
and be delivered to
___________________________
___________________________
___________________________
___________________________
[please print or type name and address]
and if such number of Class A Warrants shall not be all the Class A Warrants
evidenced by this Warrant Certificate, that a new Class A Warrant Certificate
for the balance of such Class A Warrants be registered in the name of, and
delivered to, the Registered Holder at the address stated below.
The undersigned represents that the exercise of the Class
A Warrants evidenced hereby was solicited by a member of the National
A-5
Association of Securities Dealers, Inc. If not solicited by an NASD member,
please write "unsolicited" in the space below. Unless otherwise indicated by
listing the name of another NASD member firm, it will be assumed that the
exercise was solicited by ▇.▇. ▇▇▇▇▇ Investment Banking Corp. or ▇.▇. ▇▇▇▇▇ &
Co., Inc.
____________________________________
(Name of NASD Member)
Dated:_________________________ X
____________________________________
____________________________________
Address
____________________________________
Taxpayer Identification Number
____________________________________
Signature Guaranteed
____________________________________
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE
GUARANTEED BY A MEMBER OF THE MEDALLION STAMP PROGRAM.
A-6
ASSIGNMENT
To Be Executed by the Registered Holder
in Order to Assign Warrants
FOR VALUE RECEIVED, __________________ hereby sells, assigns and transfers
unto
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
OF TRANSFEREE
___________________________
___________________________
___________________________
___________________________
[please print or type name and address]
_________________ of the Class A Warrants represented by this Warrant
Certificate, and hereby irrevocably constitutes and appoints
____________________________________ Attorney to transfer this Warrant
Certificate on the books of the Company, with full power of substitution in the
premises.
Dated:________________ X ______________________________
Signature Guaranteed
______________________________________
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE
GUARANTEED BY A MEMBER OF THE MEDALLION STAMP PROGRAM.
A-7
EXHIBIT B
[FORM OF FACE OF CLASS B WARRANT CERTIFICATE]
No. BW ____ Class B Warrants
VOID AFTER _____________, 2002
CLASS B WARRANT CERTIFICATE FOR
PURCHASE OF COMMON STOCK
PARADIGM MUSIC ENTERTAINMENT COMPANY
This certifies that FOR VALUE RECEIVED __________________
or registered assigns (the "Registered Holder") is the owner of the number of
Class B Warrants specified above. Each Class B Warrant represented hereby
initially entitles the Registered Holder to purchase, subject to the terms and
conditions set forth in this Warrant Certificate and the Warrant Agreement (as
hereinafter defined), one fully paid and nonassessable share of Class A Common
Stock, $.01 par value ("Common Stock"), of PARADIGM MUSIC ENTERTAINMENT COMPANY,
a Delaware corporation (the "Company") between ____________, 1997 and the
Expiration Date (as hereinafter defined), upon the presentation and surrender of
this Warrant Certificate with the Subscription Form on the reverse hereof duly
executed, at the corporate office of AMERICAN STOCK TRANSFER & TRUST COMPANY, as
Warrant Agent, or its successor (the "Warrant Agent"), accompanied by payment of
$8.75 for each Warrant (the "Purchase Price") in lawful money of the United
States of America in cash or by official bank or certified check made payable to
_________________.
This Warrant Certificate and each Class A Warrant
represented hereby are issued pursuant to and are subject in all respects to the
terms and conditions set forth in the Warrant Agreement (the "Warrant
Agreement"), dated ______________, 1997 by and among the Company, the Warrant
Agent and ▇.▇. ▇▇▇▇▇ Investment Banking Corp.
In the event of certain contingencies provided for in the
Warrant Agreement, the Purchase Price or the number of shares of Common Stock
subject to purchase upon the exercise of each Class B Warrant represented hereby
are subject to modification or adjustment.
Each Class B Warrant represented hereby is exercisable at
the option of the Registered Holder, but no fractional shares of Common Stock
will be issued. In the case of the exercise of less than all the Class B
Warrants represented hereby, the Company shall cancel this Warrant Certificate
upon the
B-1
surrender hereof and shall execute and deliver a new Warrant Certificate or
Warrant Certificates of like tenor, which the Warrant Agent shall countersign,
for the balance of such Class B Warrants.
The term "Expiration Date" shall mean 5:00 P.M. (New York
time) on _______________, 2002 or such earlier date as the Class B Warrants
shall be redeemed.(3) If such date shall in the State of New York be a holiday
or a day on which banks are authorized to close, then the Expiration Date shall
mean 5:00 P.M. (New York time) the next following day which in the State of New
York is not a holiday or a day on which banks are authorized to close.
The Company shall not be obligated to deliver any
securities pursuant to the exercise of the Class B Warrants represented hereby
unless a registration statement under the Securities Act of 1933, as amended,
with respect to such securities is effective. The Company has covenanted and
agreed that it will file a registration statement and will use its best efforts
to cause the same to become effective and to keep such registration statement
current while any of the Class B Warrants are outstanding. The Class B Warrants
represented hereby shall not be exercisable by a Registered Holder in any state
where such exercise would be unlawful.
This Warrant Certificate is exchangeable, upon the
surrender hereof by the Registered Holder at the corporate office of the Warrant
Agent, for a new Warrant Certificate or Warrant Certificates of like tenor
representing an equal aggregate number of Class B Warrants, each of such new
Warrant Certificates to represent such number of Class B Warrants as shall be
designated by such Registered Holder at the time of such surrender. Upon due
presentment with any applicable transfer fee in addition to any tax or other
governmental charge imposed in connection therewith, for registration of
transfer of this Warrant Certificate at such office, a new Warrant Certificate
or Warrant Certificates representing an equal aggregate number of Class B
Warrants will be issued to the transferee in exchange therefor, subject to the
limitations provided in the Warrant Agreement.
Prior to the exercise of any Class B Warrant represented
hereby, the Registered Holder shall not be entitled to any rights of a
stockholder of the Company, including, without limitation, the right to vote or
to receive dividends or other distributions, and shall not be entitled to
receive any notice of any proceedings of the Company, except as provided in the
Warrant Agreement.
The Class B Warrants represented hereby may be redeemed at
the option of the Company, at a redemption price of $.05 per Class B Warrant at
any time after _____________, 1998, provided the Market Price (as defined in the
Warrant Agreement) for the Common Stock shall exceed $12.25 per share.
--------
(3) Not applicable for Warrant under the Unit Purchase Option.
B-2
Notice of redemption shall be given not later than the thirtieth day before the
date fixed for redemption, all as provided in the Warrant Agreement. On and
after the date fixed for redemption, the Registered Holder shall have no rights
with respect to the Class B Warrants represented hereby except to receive the
$.05 per Class B Warrant upon surrender of this Warrant Certificate.(4)
Prior to due presentment for registration of transfer
hereof, the Company and the Warrant Agent may deem and treat the Registered
Holder as the absolute owner hereof and of each Class B Warrant represented
hereby (notwithstanding any notations of ownership or writing hereon made by
anyone other than a duly authorized officer of the Company or the Warrant Agent)
for all purposes and shall not be affected by any notice to the contrary.
The Company has agreed to pay a fee of 5% of the Purchase
Price upon certain conditions as specified in the Warrant Agreement upon the
exercise of the Class B Warrants represented hereby.
This Warrant Certificate shall be governed by and
construed in accordance with the laws of the State of New York.
This Warrant Certificate is not valid unless countersigned
by the Warrant Agent.
--------
(4) Not applicable for Warrant under the Unit Purchase Option.
B-3
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed, manually or in facsimile, by two of its
officers thereunto duly authorized and a facsimile of its corporate seal to be
imprinted hereon.
PARADIGM MUSIC ENTERTAINMENT
COMPANY
By:__________________________________
Name:
Title:
Dated:__________
[seal]
Countersigned:
AMERICAN STOCK TRANSFER & TRUST COMPANY,
as Warrant Agent
By:___________________________
Authorized Officer
B-4
[FORM OF REVERSE OF WARRANT CERTIFICATE]
SUBSCRIPTION FORM
To Be Executed by the Registered Holder
in Order to Exercise Warrants
The undersigned Registered Holder hereby irrevocably
elects to exercise Class B Warrants represented by this Warrant Certificate, and
to purchase the securities issuable upon the exercise of such Class B Warrants,
and requests that certificates for such securities shall be issued in the name
of
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
___________________________
___________________________
___________________________
___________________________
[please print or type name and address]
and be delivered to
___________________________
___________________________
___________________________
___________________________
[please print or type name and address]
and if such number of Class B Warrants shall not be all the Class B Warrants
evidenced by this Warrant Certificate, that a new Warrant Certificate for the
balance of such Class B Warrants be registered in the name of, and delivered to,
the Registered Holder at the address stated below.
The undersigned represents that the exercise of the Class
B Warrants evidenced hereby was solicited by a member of the National
B-5
Association of Securities Dealers, Inc. If not solicited by an NASD member,
please write "unsolicited" in the space below. Unless otherwise indicated by
listing the name of another NASD member firm, it will be assumed that the
exercise was solicited by ▇.▇. ▇▇▇▇▇ Investment Banking Corp.
____________________________________
(Name of NASD Member)
Dated:________________________ X
____________________________________
____________________________________
Address
____________________________________
Taxpayer Identification Number
____________________________________
Signature Guaranteed
____________________________________
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE
GUARANTEED BY A MEMBER OF THE MEDALLION STAMP PROGRAM.
B-6
ASSIGNMENT
To Be Executed by the Registered Holder
in Order to Assign Warrants
FOR VALUE RECEIVED, _____________________________ hereby sells, assigns and
transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
OF TRANSFEREE
___________________________
___________________________
___________________________
___________________________
[please print or type name and address]
______________ of the Class B Warrants represented by this Warrant Certificate,
and hereby irrevocably constitutes and appoints________________________________
___________________________________________ Attorney to transfer this Warrant
Certificate on the books of the Company, with full power of substitution in the
premises.
Dated: _______________________ X
Signature Guaranteed
____________________________
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE
GUARANTEED BY A MEMBER OF THE MEDALLION STAMP PROGRAM.
B-7
