EXHIBIT 4.2
[FORM OF WARRANT]
NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISEABLE HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED
OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR
THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION
OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED
UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID
ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION
WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED
BY THE SECURITIES.
ARTISTDIRECT, INC.
WARRANT TO PURCHASE COMMON STOCK
Warrant No.:__________
Number of Shares of Common Stock: [__________]
Date of Issuance: July 28, 2005 ("ISSUANCE DATE")
ARTISTdirect, Inc., a Delaware corporation (the "COMPANY"), hereby
certifies that, for good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, [______________], the registered holder hereof
or its permitted assigns (the "HOLDER"), is entitled, subject to the terms set
forth below, to purchase from the Company, at the Exercise Price (as defined
below) then in effect, upon surrender of this Warrant to Purchase Common Stock
(including any Warrants to Purchase Common Stock issued in exchange, transfer or
replacement hereof, the "WARRANT"), at any time or times on or after the date
hereof (the "INITIAL EXERCISABILITY DATE"), but not after 11:59 p.m., New York
Time, on the Expiration Date (as defined below), [________] fully paid
nonassessable shares of Common Stock (as defined below) (the "WARRANT SHARES").
Except as otherwise defined herein, capitalized terms in this Warrant shall have
the meanings set forth in Section 16. This Warrant is one of the Warrants to
purchase Common Stock (the "NPA WARRANTS") issued pursuant to Section 1 of that
certain Note and Warrant Purchase Agreement, dated as of July 28, 2005 (the
"SUBSCRIPTION DATE"), by and among the Company and the investors (the "BUYERS")
referred to therein (the "NOTE PURCHASE AGREEMENT").
1. EXERCISE OF WARRANT.
(a) Mechanics of Exercise. Subject to the terms and conditions
hereof (including, without limitation, the limitations set forth in Section
1(f)), this Warrant may be exercised by the Holder on any day on or after the
Initial Exercisability Date, in whole or in part, by (i) delivery of a written
notice, in the form attached hereto as Exhibit A (the "EXERCISE NOTICE"), of the
Holder's election to exercise this Warrant and (ii) (A) payment to the Company
of an amount equal to the applicable Exercise Price multiplied by the number of
Warrant Shares as to which this Warrant is being exercised (the "AGGREGATE
EXERCISE PRICE") in cash or wire transfer of immediately available funds or (B)
by notifying the Company that this Warrant is being exercised pursuant to a
Cashless Exercise (as defined in Section 1(d)). The Holder shall not be required
to deliver the original Warrant in order to effect an exercise hereunder.
Execution and delivery of the Exercise Notice with respect to less than all of
the Warrant Shares shall have the same effect as cancellation of the original
Warrant and issuance of a new Warrant evidencing the right to purchase the
remaining number of Warrant Shares. On or before the first Business Day
following the date on which the Company has received each of the Exercise Notice
and the Aggregate Exercise Price (or notice of a Cashless Exercise) (the
"EXERCISE DELIVERY DOCUMENTS"), the Company shall transmit by facsimile an
acknowledgment of confirmation of receipt of the Exercise Delivery Documents to
the Holder and the Company's transfer agent (the "TRANSFER AGENT"). On or before
the third (3rd) Business Day following the date on which the Company has
received all of the Exercise Delivery Documents (the "SHARE DELIVERY DATE"), the
Company shall (X) provided that the Transfer Agent is participating in The
Depository Trust Company ("DTC") Deposit Withdrawal Agent Commission Program
("DWAC"), credit such aggregate number of shares of Common Stock to which the
Holder is entitled pursuant to such exercise to the Holder's or its designee's
balance account with DTC through its DWAC, or (Y) if the Transfer Agent is not
participating in the DTC DWAC, issue and dispatch by overnight courier to the
address as specified in the Exercise Notice, a certificate, registered in the
Company's share register in the name of the Holder or its designee, for the
number of shares of Common Stock to which the Holder is entitled pursuant to
such exercise. Upon delivery of the Exercise Notice and Aggregate Exercise Price
referred to in clause (ii)(A) above or notification to the Company of a Cashless
Exercise referred to in Section 1(d), the Holder shall be deemed for all
corporate purposes to have become the holder of record of the Warrant Shares
with respect to which this Warrant has been exercised, irrespective of the date
of delivery of the certificates evidencing such Warrant Shares. If this Warrant
is submitted in connection with any exercise pursuant to this Section 1(a) and
the number of Warrant Shares represented by this Warrant submitted for exercise
is greater than the number of Warrant Shares being acquired upon an exercise,
then the Company shall as soon as practicable and in no event later than three
Business Days after any exercise and at its own expense, issue a new Warrant (in
accordance with Section 7(d)) representing the right to purchase the number of
Warrant Shares purchasable immediately prior to such exercise under this
Warrant, less the number of Warrant Shares with respect to which this Warrant is
exercised. No fractional shares of Common Stock are to be issued upon the
exercise of this Warrant, but rather the number of shares of Common Stock to be
issued shall be rounded up to the nearest whole number. The Company shall pay
any and all taxes which may be payable with respect to the issuance and delivery
of Warrant Shares upon exercise of this Warrant.
(b) Exercise Price. For purposes of this Warrant, "EXERCISE
PRICE" means $2.00, subject to adjustment as provided herein.
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(c) Company's Failure to Timely Deliver Securities. If the
Company shall fail for any reason or for no reason to issue to the Holder within
five (5) Business Days of receipt of the Exercise Delivery Documents, a
certificate for the number of shares of Common Stock to which the Holder is
entitled and register such shares of Common Stock on the Company's share
register or to credit the Holder's balance account with DTC for such number of
shares of Common Stock to which the Holder is entitled upon the Holder's
exercise of this Warrant, then, in addition to all other remedies available to
the Holder, the Company shall pay in cash to the Holder on each day after such
fifth (5th) Business Day that the issuance of such shares of Common Stock is not
timely effected an amount equal to 0.5% of the product of (A) the sum of the
number of shares of Common Stock not issued to the Holder on a timely basis and
to which the Holder is entitled and (B) the Closing Sale Price of the shares of
Common Stock on the trading day immediately preceding the last possible date
which the Company could have issued such shares of Common Stock to the Holder
without violating Section 1(a). In addition to the foregoing, if within three
(3) Trading Days after the Company's receipt of the facsimile copy of a Exercise
Notice, the Company shall fail to issue and deliver a certificate to the Holder
and register such shares of Common Stock on the Company's share register or
credit the Holder's balance account with DTC for the number of shares of Common
Stock to which the Holder is entitled upon such holder's exercise hereunder, and
if on or after such Trading Day the Holder purchases (in an open market
transaction or otherwise) shares of Common Stock to deliver in satisfaction of a
sale by the Holder of shares of Common Stock issuable upon such exercise that
the Holder anticipated receiving from the Company (a "BUY-IN"), then the Company
shall, within three (3) Business Days after the Holder's request and in the
Holder's discretion, either (i) pay cash to the Holder in an amount equal to the
Holder's total purchase price (including brokerage commissions, if any) for the
shares of Common Stock so purchased (the "BUY-IN PRICE"), at which point the
Company's obligation to deliver such certificate (and to issue such shares of
Common Stock) shall terminate, or (ii) promptly honor its obligation to deliver
to the Holder a certificate or certificates representing such shares of Common
Stock and pay cash to the Holder in an amount equal to the excess (if any) of
the Buy-In Price over the product of (A) such number of shares of Common Stock,
times (B) the Closing Bid Price on the date of exercise.
(d) Cashless Exercise. Notwithstanding anything contained
herein to the contrary, if at any time after the earlier of the Effectiveness
Deadline or Effective Date (as such terms are defined in the Registration Rights
Agreement), a Registration Statement (as defined in the Registration Rights
Agreement) covering the Warrant Shares that are the subject of the Exercise
Notice (the "Unavailable Warrant Shares") is not available for the resale of
such Unavailable Warrant Shares, the Holder may, in its sole discretion,
exercise this Warrant in whole or in part and, in lieu of making the cash
payment otherwise contemplated to be made to the Company upon such exercise in
payment of the Aggregate Exercise Price, elect instead to receive upon such
exercise the "Net Number" of shares of Common Stock determined according to the
following formula (a "Cashless Exercise"):
Net Number = (A x B) - (A x C)
-----------------
B
purposes of the foregoing formula:
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A= the total number of shares with respect to which this Warrant
is then being exercised.
B= the Closing Sale Price of the shares of Common Stock (as
reported by Bloomberg) on the date immediately preceding the date
of the Exercise Notice.
C= the Exercise Price then in effect for the applicable Warrant
Shares at the time of such exercise.
(e) Disputes. In the case of a dispute as to the determination
of the Exercise Price or the arithmetic calculation of the Warrant Shares, the
Company shall promptly issue to the Holder the number of Warrant Shares that are
not disputed and resolve such dispute in accordance with Section 13.
(f) Limitation on Exercise. Until the Stockholder Approval (as
defined in the Note Purchase Agreement) is obtained and a Certificate of
Amendment has been filed (which shall be filed promptly after receiving the
Stockholder Approval) and accepted by the Delaware Secretary of State, the
Holders may only exercise up to a total of 1,332,411 Warrant Shares, allocated
as follows: JMB Capital Partners, LP: 888,294 Warrant Shares; JMG Triton
Offshore Fund, Ltd.: 133,244 Warrant Shares; JMG Capital Partners, L.P.: 133,244
Warrant Shares; and CCM Master Qualified Fund, Ltd.: 177,659 Warrant Shares.
2. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES. The
Exercise Price and the number of Warrant Shares shall be adjusted from time to
time as follows:
(a) Adjustment upon Issuance of shares of Common Stock. If at
any time after the first anniversary of the Effective Date (as defined in the
Registration Rights Agreement), the Company issues or sells, or in accordance
with this Section 2(a) is deemed to have issued or sold, any shares of Common
Stock (including the issuance or sale of shares of Common Stock owned or held by
or for the account of the Company for a consideration per share, but excluding
shares of Common Stock deemed to have been issued or sold by the Company in
connection with any Excluded Security (as defined herein)) (the "NEW SECURITIES
ISSUANCE PRICE") less than a price (the "APPLICABLE PRICE") equal to $3.00 (the
foregoing a "DILUTIVE ISSUANCE"), then immediately after such Dilutive Issuance,
the Exercise Price then in effect shall be reduced, and in no event increased,
to an amount (rounded to the nearest cent) equal to the product of (A) the
Exercise Price in effect immediately prior to such Dilutive Issuance and (B) the
quotient determined by dividing (1) the sum of (I) the product derived by
multiplying the Exercise Price in effect immediately prior to such Dilutive
Issuance and the number of shares of Common Stock Deemed Outstanding immediately
prior to such Dilutive Issuance plus (II) the consideration, if any, received by
the Company upon such Dilutive Issuance, by (2) the product derived by
multiplying (I) the Conversion Price in effect immediately prior to such
Dilutive Issuance by (II) the number of shares of Common Stock Deemed
Outstanding immediately after such Dilutive Issuance. If and whenever prior to
the first anniversary of the Effective Date (as defined in the Registration
Right Agreement), the Company
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issues or sells, or in accordance with this Section 2 is deemed to have issued
or sold, any shares of Common Stock (including the issuance or sale of shares of
Common Stock owned or held by or for the account of the Company) for a New
Securities Issuance Price that is less than the Exercise Price in effect
immediately prior to such issue or sale or deemed issuance or sale, then
immediately after such issue or sale, the Exercise Price then in effect shall be
reduced to an amount equal to such New Securities Issuance Price. Upon each such
adjustment of the Exercise Price pursuant to the immediately preceding sentence,
the number of Warrant Shares shall be adjusted to the number of shares of Common
Stock determined by multiplying the Exercise Price in effect immediately prior
to such adjustment by the number of Warrant Shares acquirable upon exercise of
this Warrant immediately prior to such adjustment and dividing the product
thereof by the Exercise Price resulting from such adjustment. For purposes of
determining the adjusted Exercise Price under this Section 2(a), the following
shall be applicable:
(i) Issuance of Options. If the Company in any manner
grants any Options and the lowest price per share for
which one share of Common Stock is issuable upon the
exercise of any such Option or upon conversion,
exercise or exchange of any Convertible Securities
issuable upon exercise of any such Option is less than
the Applicable Price or the Exercise Price in effect
immediately prior to such issue or sale, then such
share of Common Stock shall be deemed to be outstanding
and to have been issued and sold by the Company at the
time of the granting or sale of such Option for such
price per share. For purposes of this Section 2(a)(i),
the "lowest price per share for which one share of
Common Stock is issuable upon exercise of such Options
or upon conversion, exercise or exchange of such
Convertible Securities" shall be equal to the sum of
the lowest amounts of consideration (if any) received
or receivable by the Company with respect to any one
share of Common Stock upon the granting or sale of the
Option, upon exercise of the Option and upon
conversion, exercise or exchange of any Convertible
Security issuable upon exercise of such Option. No
further adjustment of the Exercise Price or number of
Warrant Shares shall be made upon the actual issuance
of such shares of Common Stock or of such Convertible
Securities upon the exercise of such Options or upon
the actual issuance of such shares of Common Stock upon
conversion, exercise or exchange of such Convertible
Securities.
(ii) Issuance of Convertible Securities. If the Company
in any manner issues or sells any Convertible
Securities and the lowest price per share for which one
share of Common Stock is issuable upon the conversion,
exercise or exchange thereof is less than the
Applicable Price or the Exercise Price in effect
immediately prior to such issue or sale, then such
share of Common Stock shall be deemed to be outstanding
and to have been issued and sold by the Company at the
time of the issuance or sale of such Convertible
Securities for such price per share. For the purposes
of this Section 2(a)(ii), the "lowest price per share
for which one share of Common Stock is issuable upon
the conversion, exercise or exchange"
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shall be equal to the sum of the lowest amounts of
consideration (if any) received or receivable by the
Company with respect to one share of Common Stock upon
the issuance or sale of the Convertible Security and
upon conversion, exercise or exchange of such
Convertible Security. No further adjustment of the
Exercise Price or number of Warrant Shares shall be
made upon the actual issuance of such shares of Common
Stock upon conversion, exercise or exchange of such
Convertible Securities, and if any such issue or sale
of such Convertible Securities is made upon exercise of
any Options for which adjustment of this Warrant has
been or is to be made pursuant to other provisions of
this Section 2(a), no further adjustment of the
Exercise Price or number of Warrant Shares shall be
made by reason of such issue or sale.
(iii) Change in Option Price or Rate of Conversion. If
the purchase price provided for in any Options, the
additional consideration, if any, payable upon the
issue, conversion, exercise or exchange of any
Convertible Securities, or the rate at which any
Convertible Securities are convertible into or
exercisable or exchangeable for shares of Common Stock
increases or decreases at any time, the Exercise Price
and the number of Warrant Shares in effect at the time
of such increase or decrease shall be adjusted to the
Exercise Price and the number of Warrant Shares which
would have been in effect at such time had such Options
or Convertible Securities provided for such increased
or decreased purchase price, additional consideration
or increased or decreased conversion rate, as the case
may be, at the time initially granted, issued or sold.
For purposes of this Section 2(a)(iii), if the terms of
any Option or Convertible Security that was outstanding
as of the date of issuance of this Warrant are
increased or decreased in the manner described in the
immediately preceding sentence, then such Option or
Convertible Security and the shares of Common Stock
deemed issuable upon exercise, conversion or exchange
thereof shall be deemed to have been issued as of the
date of such increase or decrease. No adjustment
pursuant to this Section 2(a)(iii) shall be made if
such adjustment would result in an increase of the
Exercise Price then in effect or a decrease in the
number of Warrant Shares.
(iv) Calculation of Consideration Received. In case
any Option is issued in connection with the issue or
sale of other securities of the Company, together
comprising one integrated transaction in which no
specific consideration is allocated to such Options by
the parties thereto, the Options will be deemed to have
been issued for a consideration of $0.01. If any shares
of Common Stock, Options or Convertible Securities are
issued or sold or deemed to have been issued or sold
for cash, the consideration received therefor will be
deemed to be the net amount received by the Company
therefor. If any shares of Common Stock, Options or
Convertible Securities are issued or sold for a
consideration other than cash, the amount of such
consideration received by the
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Company will be the fair 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 Closing Sale Price of such
security on the date of receipt. If any shares of
Common Stock, Options or Convertible Securities are
issued to the owners of the non-surviving entity in
connection with any merger in which the Company is the
surviving entity, the amount of consideration therefor
will be deemed to be the fair value of such portion of
the net assets and business of the non-surviving entity
as is attributable to such shares of Common Stock,
Options or Convertible Securities, as the case may be.
The fair value of any consideration other than cash or
securities will be determined jointly by the Company
and the Required Holders. If such parties are unable to
reach agreement within ten (10) days after the
occurrence of an event requiring valuation (the
"VALUATION EVENT"), the fair value of such
consideration will be determined within five (5)
Business Days after the tenth day following the
Valuation Event by an independent, reputable appraiser
jointly selected by the Company and the Required
Holders. The determination of such appraiser shall be
final and binding upon all parties absent manifest
error and the fees and expenses of such appraiser shall
be borne by the Company.
(v) Record Date. If the Company takes a record of the
holders of shares of Common Stock for the purpose of
entitling them (A) to receive a dividend or other
distribution payable in shares of Common Stock, Options
or in Convertible Securities or (B) to subscribe for or
purchase shares of Common Stock, Options or Convertible
Securities, then such record date will be deemed to be
the date of the issue or sale of the shares of Common
Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such
other distribution or the date of the granting of such
right of subscription or purchase, as the case may be.
(b) Adjustment upon Subdivision or Combination of Common
Stock. If the Company at any time on or after the Subscription Date subdivides
(by any stock split, stock dividend, recapitalization or otherwise) one or more
classes of its outstanding shares of Common Stock into a greater number of
shares, the Exercise Price in effect immediately prior to such subdivision will
be proportionately reduced and the number of Warrant Shares will be
proportionately increased. If the Company at any time on or after the
Subscription Date combines (by combination, reverse stock split or otherwise)
one or more classes of its outstanding shares of Common Stock into a smaller
number of shares, the Exercise Price in effect immediately prior to such
combination will be proportionately increased and the number of Warrant Shares
will be proportionately decreased. Any adjustment under this Section 2(b) shall
become effective at the close of business on the date the subdivision or
combination becomes effective.
(c) Other Events. If any event occurs of the type contemplated
by the provisions of this Section 2 but not expressly provided for by such
provisions (including, without
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limitation, the granting of stock appreciation rights, phantom stock rights or
other rights with equity features), then the Company's Board of Directors will
make an appropriate adjustment in the Exercise Price and the number of Warrant
Shares so as to protect the rights of the Holder; provided that no such
adjustment pursuant to this Section 2(c) will increase the Exercise Price or
decrease the number of Warrant Shares as otherwise determined pursuant to this
Section 2.
3. RIGHTS UPON DISTRIBUTION OF ASSETS. If the Company shall declare
or make any dividend or other distribution of its assets (or rights to acquire
its assets) to holders of shares of Common Stock, by way of return of capital or
otherwise (including, without limitation, any distribution of cash, stock or
other securities, property or options by way of a dividend, spin off,
reclassification, corporate rearrangement, scheme of arrangement or other
similar transaction) (a "DISTRIBUTION"), at any time after the issuance of this
Warrant, then, in each such case:
(a) any Exercise Price in effect immediately prior to the
close of business on the record date fixed for the determination of holders of
shares of Common Stock entitled to receive the Distribution shall be reduced,
effective as of the close of business on such record date, to a price determined
by multiplying such Exercise Price by a fraction of which (i) the numerator
shall be the Closing Bid Price of the shares of Common Stock on the trading day
immediately preceding such record date minus the value of the Distribution (as
determined in good faith by the Company's Board of Directors) applicable to one
share of Common Stock, and (ii) the denominator shall be the Closing Bid Price
of the shares of Common Stock on the trading day immediately preceding such
record date; and
(b) the number of Warrant Shares shall be increased to a
number of shares equal to the number of shares of Common Stock obtainable
immediately prior to the close of business on the record date fixed for the
determination of holders of shares of Common Stock entitled to receive the
Distribution multiplied by the reciprocal of the fraction set forth in the
immediately preceding paragraph (a); provided that in the event that the
Distribution is of shares of Common Stock (or common equity) ("OTHER SHARES OF
COMMON EQUITY") of a company whose shares of common equity are traded on a
national securities exchange or a national automated quotation system, then the
Holder may elect to receive a warrant to purchase Other Shares of Common Equity
in lieu of an increase in the number of Warrant Shares, the terms of which shall
be identical to those of this Warrant, except that such warrant shall be
exercisable into the number of shares of Other Shares of Common Equity that
would have been payable to the Holder pursuant to the Distribution had the
Holder exercised this Warrant immediately prior to such record date and with an
aggregate exercise price equal to the product of the amount by which the
exercise price of this Warrant was decreased with respect to the Distribution
pursuant to the terms of the immediately preceding paragraph (a) and the number
of Warrant Shares calculated in accordance with the first part of this paragraph
(b).
4. PURCHASE RIGHTS; FUNDAMENTAL TRANSACTIONS.
(a) Purchase Rights. In addition to any adjustments pursuant
to Section 2 above, if at any time the Company grants, issues or sells any
Options, Convertible Securities or rights to purchase stock, warrants,
securities or other property pro rata to the record holders of
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any class of shares of Common Stock (the "PURCHASE RIGHTS"), then the Holder
will be entitled to acquire or receive, upon the terms applicable to such
Purchase Rights, the aggregate Purchase Rights which the Holder could have
acquired if the Holder had held the number of shares of Common Stock acquirable
upon complete exercise of this Warrant (without regard to any limitations on the
exercise of this Warrant) immediately before the date on which a record is taken
for the grant, issuance or sale of such Purchase Rights, or, if no such record
is taken, the date as of which the record holders of shares of Common Stock are
to be determined for the grant, issue or sale of such Purchase Rights.
(b) Fundamental Transactions. The Company shall not enter into
or be party to a Fundamental Transaction unless (i) the Successor Entity assumes
in writing all of the obligations of the Company under this Warrant and the
other Transaction Documents in accordance with the provisions of this Section
(4)(b) pursuant to written agreements in form and substance satisfactory to the
Required Holders and approved by the Required Holders prior to such Fundamental
Transaction, including agreements to deliver to each holder of Warrants in
exchange for such Warrants a security of the Successor Entity evidenced by a
written instrument substantially similar in form and substance to this Warrant,
including, without limitation, an adjusted exercise price equal to the value for
the shares of Common Stock reflected by the terms of such Fundamental
Transaction, and exercisable for a corresponding number of shares of capital
stock equivalent to the shares of Common Stock acquirable and receivable upon
exercise of this Warrant (without regard to any limitations on the exercise of
this Warrant) prior to such Fundamental Transaction, and satisfactory to the
Required Holders and (ii) the Successor Entity (including its Parent Entity) is
a publicly traded corporation whose common stock is quoted on or listed for
trading on an Eligible Market. Upon the occurrence of any Fundamental
Transaction, the Successor Entity shall succeed to, and be substituted for (so
that from and after the date of such Fundamental Transaction, the provisions of
this Warrant referring to the "Company" shall refer instead to the Successor
Entity), and may exercise every right and power of the Company and shall assume
all of the obligations of the Company under this Warrant with the same effect as
if such Successor Entity had been named as the Company herein. Upon consummation
of the Fundamental Transaction, the Successor Entity shall deliver to the Holder
confirmation that there shall be issued upon exercise of this Warrant at any
time after the consummation of the Fundamental Transaction, in lieu of the
shares of the Common Stock (or other securities, cash, assets or other property)
purchasable upon the exercise of the Warrant prior to such Fundamental
Transaction, such shares of stock, securities, cash, assets or any other
property whatsoever (including warrants or other purchase or subscription
rights) which the Holder would have been entitled to receive upon the happening
of such Fundamental Transaction had this Warrant been converted immediately
prior to such Fundamental Transaction, as adjusted in accordance with the
provisions of this Warrant. In addition to and not in substitution for any other
rights hereunder, prior to the consummation of any Fundamental Transaction
pursuant to which holders of shares of Common Stock are entitled to receive
securities or other assets with respect to or in exchange for shares of Common
Stock (a "CORPORATE EVENT"), the Company shall make appropriate provision to
insure that the Holder will thereafter have the right to receive upon an
exercise of this Warrant at any time after the consummation of the Fundamental
Transaction but prior to the Expiration Date, in lieu of the shares of the
Common Stock (or other securities, cash, assets or other property) purchasable
upon the exercise of the Warrant prior to such Fundamental Transaction, such
shares of stock, securities, cash, assets or any other property whatsoever
(including warrants or other purchase or subscription rights) which the Holder
would
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have been entitled to receive upon the happening of such Fundamental Transaction
had the Warrant been exercised immediately prior to such Fundamental
Transaction. Provision made pursuant to the preceding sentence shall be in a
form and substance reasonably satisfactory to the Required Holders. The
provisions of this Section shall apply similarly and equally to successive
Fundamental Transactions and Corporate Events and shall be applied without
regard to any limitations on the exercise of this Warrant.
5. COMPANY'S RIGHT OF MANDATORY EXERCISE.
(a) Mandatory Exercise. If at any time following the Issuance
Date (i) a Mandatory Exercise Triggering Event occurs and (ii) on each day
during the period commencing on the Mandatory Exercise Notice Date and ending on
the Mandatory Exercise Date (each, as defined below), the Equity Conditions are
satisfied or waived in writing by the Holder, the Company shall have the right
to require the Holder to exercise all or any outstanding portion of this Warrant
as designated in the Mandatory Exercise Notice (the "MANDATORY EXERCISE AMOUNT")
into fully paid, validly issued and nonassessable shares of Common Stock in
accordance with Section 1 hereof (including, without limitation, the Holder's
right to exercise any portion of this Warrant pursuant to the cashless exercise
provisions as set forth in Section 1(d)) (a "MANDATORY EXERCISE"). The Company
may exercise its right to require exercise under this Section 5(a) by delivering
within not more than three (3) Trading Days following the end of such Mandatory
Exercise Measuring Period a written notice thereof by facsimile and overnight
courier to all, but not less than all, of the holders of the NPA Warrants and
the Transfer Agent (the "MANDATORY EXERCISE NOTICE" and the date all of the
holders received such notice is referred to as the "MANDATORY EXERCISE NOTICE
DATE"). The Mandatory Exercise Notice shall be irrevocable. Notwithstanding the
foregoing, the Company may only elect to pursue Mandatory Exercise
simultaneously with an election to pursue mandatory conversion of the
subordinated indebtedness and warrants issued pursuant to the Securities
Purchase Documents (as defined in the Note Purchase Agreement).
(b) Pro Rata Exercise Requirement. If the Company elects to
cause an exercise of all or any outstanding portion of this Warrant pursuant to
Section 5(a), then it must simultaneously take the same action with respect to
all of the NPA Warrants. The Mandatory Exercise Notice shall state the Trading
Day selected for the Mandatory Exercise (the "MANDATORY EXERCISE DATE") in
accordance with Section 5(a), which Trading Day shall be at least twenty (20)
Business Days but not more than sixty (60) Business Days following the Mandatory
Exercise Notice Date. If the Company has elected a Mandatory Exercise, the
mechanics of exercise set forth in Section 1 shall apply, to the extent
applicable, as if the Company and the Transfer Agent had received from the
Holder on the Mandatory Exercise Date a Mandatory Exercise Notice with respect
to the Mandatory Exercise Amount being exercised pursuant to the Mandatory
Exercise.
6. NONCIRCUMVENTION. The Company hereby covenants and agrees that
the Company will not, by amendment of its Certificate of Incorporation, Bylaws
or through any reorganization, transfer of assets, consolidation, merger, scheme
of arrangement, 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, and will at all times in good faith carry out all the
provisions of this Warrant and take all action as may be required to protect the
rights of the
10
Holder. Without limiting the generality of the foregoing, the Company (i) shall
not increase the par value of any shares of Common Stock receivable upon the
exercise of this Warrant above the Exercise Price then in effect, (ii) shall
take all such actions as may be necessary or appropriate in order that the
Company may validly and legally issue fully paid and nonassessable shares of
Common Stock upon the exercise of this Warrant, and (iii) shall, so long as any
of the NPA Warrants are outstanding, take all action necessary to reserve and
keep available out of its authorized and unissued shares of Common Stock
(including solicitation of Stockholder Approval), solely for the purpose of
effecting the exercise of the NPA Warrants, 130% of the number of shares of
Common Stock as shall from time to time be necessary to effect the exercise of
the NPA Warrants then outstanding (without regard to any limitations on
exercise).
7. WARRANT HOLDER NOT DEEMED A STOCKHOLDER. Except as otherwise
specifically provided herein, the Holder, solely in such Person's capacity as a
holder of this Warrant, shall not be entitled to vote or receive dividends or be
deemed the holder of share capital of the Company for any purpose, nor shall
anything contained in this Warrant be construed to confer upon the Holder,
solely in such Person's capacity as the Holder of this Warrant, any of the
rights of a stockholder of the Company or any right to vote, give or withhold
consent to any corporate action (whether any reorganization, issue of stock,
reclassification of stock, consolidation, merger, conveyance or otherwise),
receive notice of meetings, receive dividends or subscription rights, or
otherwise, prior to the issuance to the Holder of the Warrant Shares which such
Person is then entitled to receive upon the due exercise of this Warrant. In
addition, nothing contained in this Warrant shall be construed as imposing any
liabilities on the Holder to purchase any securities (upon exercise of this
Warrant or otherwise) or as a stockholder of the Company, whether such
liabilities are asserted by the Company or by creditors of the Company.
Notwithstanding this Section 7, the Company shall provide the Holder with copies
of the same notices and other information given to the stockholders of the
Company generally, contemporaneously with the giving thereof to the
stockholders.
8. REISSUANCE OF WARRANTS.
(a) Transfer of Warrant. If this Warrant is to be transferred,
the Holder shall surrender this Warrant to the Company, whereupon the Company
will forthwith issue and deliver upon the order of the Holder a new Warrant (in
accordance with Section 8(d)), registered as the Holder may request,
representing the right to purchase the number of Warrant Shares being
transferred by the Holder and, if less then the total number of Warrant Shares
then underlying this Warrant is being transferred, a new Warrant (in accordance
with Section 8(d)) to the Holder representing the right to purchase the number
of Warrant Shares not being transferred.
(b) Lost, Stolen or Mutilated Warrant. Upon receipt by the
Company of evidence reasonably satisfactory to the Company of the loss, theft,
destruction or mutilation of this Warrant, and, in the case of loss, theft or
destruction, of any indemnification undertaking by the Holder to the Company in
customary form and, in the case of mutilation, upon surrender and cancellation
of this Warrant, the Company shall execute and deliver to the Holder a new
Warrant (in accordance with Section 8(d)) representing the right to purchase the
Warrant Shares then underlying this Warrant.
11
(c) Exchangeable for Multiple Warrants. This Warrant is
exchangeable, upon the surrender hereof by the Holder at the principal office of
the Company, for a new Warrant or Warrants (in accordance with Section 8(d))
representing in the aggregate the right to purchase the number of Warrant Shares
then underlying this Warrant, and each such new Warrant will represent the right
to purchase such portion of such Warrant Shares as is designated by the Holder
at the time of such surrender; provided, however, that no Warrants for
fractional shares of Common Stock shall be given.
(d) Issuance of New Warrants. Whenever the Company is required
to issue a new Warrant pursuant to the terms of this Warrant, such new Warrant
(i) shall be of like tenor with this Warrant, (ii) shall represent, as indicated
on the face of such new Warrant, the right to purchase the Warrant Shares then
underlying this Warrant (or in the case of a new Warrant being issued pursuant
to Section 8(a) or Section 8(c), the Warrant Shares designated by the Holder
which, when added to the number of shares of Common Stock underlying the other
new Warrants issued in connection with such issuance, does not exceed the number
of Warrant Shares then underlying this Warrant), (iii) shall have an issuance
date, as indicated on the face of such new Warrant which is the same as the
Issuance Date, and (iv) shall have the same rights and conditions as this
Warrant.
9. NOTICES. Whenever notice is required to be given under this
Warrant, unless otherwise provided herein, such notice shall be given in
accordance with Section 9(f) of the Note Purchase Agreement. The Company shall
provide the Holder with prompt written notice of all actions taken pursuant to
this Warrant, including in reasonable detail a description of such action and
the reason therefore. Without limiting the generality of the foregoing, the
Company will give written notice to the Holder (i) immediately upon any
adjustment of the Exercise Price, setting forth in reasonable detail, and
certifying, the calculation of such adjustment and (ii) at least fifteen (15)
days prior to the date on which the Company closes its books or takes a record
(A) with respect to any dividend or distribution upon the shares of Common
Stock, (B) with respect to any grants, issuances or sales of any Options,
Convertible Securities or rights to purchase stock, warrants, securities or
other property to holders of shares of Common Stock or (C) for determining
rights to vote with respect to any Fundamental Transaction, dissolution or
liquidation, provided in each case that such information shall be made known to
the public prior to or in conjunction with such notice being provided to the
Holder.
10. AMENDMENT AND WAIVER. Except as otherwise provided herein, the
provisions of this Warrant may be amended and the Company may take any action
herein prohibited, or omit to perform any act herein required to be performed by
it, only if the Company has obtained the written consent of the Required
Holders; provided that no such action may increase the exercise price of any NPA
Warrants or decrease the number of shares or class of stock obtainable upon
exercise of any NPA Warrants without the written consent of the Holder. No such
amendment shall be effective to the extent that it applies to less than all of
the holders of the NPA Warrants then outstanding.
11. GOVERNING LAW. This Warrant shall be governed by and construed
and enforced in accordance with, and all questions concerning the construction,
validity, interpretation and performance of this Warrant shall be governed by,
the internal laws of the State of New York, without giving effect to any choice
of law or conflict of law provision or rule
12
(whether of the State of New York or any other jurisdictions) that would cause
the application of the laws of any jurisdictions other than the State of New
York.
12. CONSTRUCTION; HEADINGS. This Warrant shall be deemed to be
jointly drafted by the Company and all the Buyers and shall not be construed
against any person as the drafter hereof. The headings of this Warrant are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Warrant.
13. DISPUTE RESOLUTION. In the case of a dispute as to the
determination of the Exercise Price or the arithmetic calculation of the Warrant
Shares, the Company shall submit the disputed determinations or arithmetic
calculations via facsimile within two (2) Business Days of receipt of the
Exercise Notice giving rise to such dispute, as the case may be, to the Holder.
If the Holder and the Company are unable to agree upon such determination or
calculation of the Exercise Price or the Warrant Shares within three (3)
Business Days of such disputed determination or arithmetic calculation being
submitted to the Holder, then the Company shall, within two (2) Business Days
submit via facsimile (a) the disputed determination of the Exercise Price to an
independent, reputable investment bank selected by the Company and approved by
the Holder or (b) the disputed arithmetic calculation of the Warrant Shares to
the Company's independent, outside accountant. The Company shall cause at its
expense the investment bank or the accountant, as the case may be, to perform
the determinations or calculations and notify the Company and the Holder of the
results no later than ten (10) Business Days from the time it receives the
disputed determinations or calculations. Such investment bank's or accountant's
determination or calculation, as the case may be, shall be binding upon all
parties absent demonstrable error.
14. REMEDIES, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF. The
remedies provided in this Warrant shall be cumulative and in addition to all
other remedies available under this Warrant and the other Transaction Documents,
at law or in equity (including a decree of specific performance and/or other
injunctive relief), and nothing herein shall limit the right of the Holder right
to pursue actual damages for any failure by the Company to comply with the terms
of this Warrant. The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to the Holder and that the remedy at law
for any such breach may be inadequate. The Company therefore agrees that, in the
event of any such breach or threatened breach, the holder of this Warrant shall
be entitled, in addition to all other available remedies, to an injunction
restraining any breach, without the necessity of showing economic loss and
without any bond or other security being required.
15. TRANSFER. This Warrant may be offered for sale, sold,
transferred or assigned without the consent of the Company, except as may
otherwise be required by Section 4(f) of the Note Purchase Agreement.
16. CERTAIN DEFINITIONS. For purposes of this Warrant, the following
terms shall have the following meanings:
(a) "APPROVED STOCK PLAN" means any employee benefit, option
or incentive plan which has been approved by the Board of Directors of the
Company, pursuant to
13
which the Company's securities may be issued to any employee, consultant,
officer or director for services provided to the Company.
(b) "BLOOMBERG" means Bloomberg Financial Markets.
(c) "BUSINESS DAY" means any day other than Saturday, Sunday
or other day on which commercial banks in The City of New York are authorized or
required by law to remain closed.
(d) "COMMON STOCK" means (i) the Company's shares of Common
Stock, par value $.01 per share, and (ii) any share capital into which such
Common Stock shall have been changed or any share capital resulting from a
reclassification of such Common Stock.
(e) "CLOSING BID PRICE" and "CLOSING SALE PRICE" means, for
any security as of any date, the last closing bid price and last closing trade
price, respectively, for such security on the Principal Market, as reported by
Bloomberg, or, if the Principal Market begins to operate on an extended hours
basis and does not designate the closing bid price or the closing trade price,
as the case may be, then the last bid price or last trade price, respectively,
of such security prior to 4:00:00 p.m., New York Time, as reported by Bloomberg,
or, if the Principal Market is not the principal securities exchange or trading
market for such security, the last closing bid price or last trade price,
respectively, of such security on the principal securities exchange or trading
market where such security is listed or traded as reported by Bloomberg, or if
the foregoing do not apply, the last closing bid price or last trade price,
respectively, of such security in the over-the-counter market on the electronic
bulletin board for such security as reported by Bloomberg, or, if no closing bid
price or last trade price, respectively, is reported for such security by
Bloomberg, the average of the bid prices, or the ask prices, respectively, of
any market makers for such security as reported in the "pink sheets" by Pink
Sheets LLC (formerly the National Quotation Bureau, Inc.). If the Closing Bid
Price or the Closing Sale Price cannot be calculated for a security on a
particular date on any of the foregoing bases, the Closing Bid Price or the
Closing Sale Price, as the case may be, of such security on such date shall be
the fair market value as mutually determined by the Company and the Holder. If
the Company and the Holder are unable to agree upon the fair market value of
such security, then such dispute shall be resolved pursuant to Section 13. All
such determinations to be appropriately adjusted for any stock dividend, stock
split, stock combination or other similar transaction during the applicable
calculation period.
(f) "CONVERTIBLE SECURITIES" means any stock or securities
(other than Options) directly or indirectly convertible into or exercisable or
exchangeable for shares of Common Stock.
(g) "EXCLUDED SECURITIES" means any shares of Common Stock
issued or issuable: (i) in connection with any Approved Stock Plan; (ii) upon
conversion, redemption or exchange of the subordinated indebtedness or warrants
issued pursuant to the Securities Purchase Documents (including any shares of
Common Stock issued as an interest payment pursuant to the Securities Purchase
Documents); (iii) pursuant to a bona fide firm commitment underwritten public
offering with a nationally recognized underwriter which generates gross proceeds
to the Company in excess of $25,000,000 (other than an "at-the-market offering"
as defined in Rule
14
415(a)(4) under the 1933 Act and "equity lines"); (iv) upon conversion of any
convertible security outstanding on the Subscription Date so long as the terms
of such securities are not thereafter amended, modified or changed; (v) to
employees, directors or consultants in the ordinary course of business in
consideration for services provided to the Company (to the extent the value of
the securities are based on fair market value as based on the Closing Sales
Price on the date of issuance) in an amount not to exceed an aggregate of
200,000 shares in any twelve (12) month period; and (vi) upon the issuance or
conversion of any security listed on Schedule A attached hereto.
(h) "ELIGIBLE MARKET" means the Principal Market, The New York
Stock Exchange, Inc., the American Stock Exchange, the Nasdaq National Market or
The Nasdaq SmallCap Market.
(i) "EQUITY CONDITIONS" means each of the following
conditions: (i) during the period beginning on the date that is three months
prior to the applicable date of determination and ending on and including the
applicable date of determination (the "EQUITY CONDITIONS MEASURING PERIOD"), the
Company shall have delivered shares of Common Stock upon any exercise or
conversion of the NPA Warrants or any subordinated indebtedness or warrants
issued pursuant to the Securities Purchase Documents (as defined in the Note
Purchase Agreement); (ii) on each day of the Equity Conditions Measuring Period,
the Common Stock shall be listed on the Principal Market or an Eligible Market
and delisting or suspension by such market or exchange shall not have been
threatened either (A) in writing by such market or exchange or (B) by falling
below the minimum listing maintenance requirements of such market or exchange;
(iii) during each day of the Equity Conditions Measuring Period, there shall not
have occurred (x) the public announcement of a pending, proposed or intended
Fundamental Transaction which has not been abandoned, terminated or consummated,
(y) an event of default on any indebtedness of the Company or (z) an event that
with the passage of time or giving of notice, and assuming it were not cured,
would constitute an event of default on any indebtedness of the Company; (iv) on
each day of the Equity Conditions Measuring Period, the registration statement
or registration statements required pursuant to the Registration Rights
Agreement shall be effective and available for the sale of all of the
Registrable Securities in accordance with the terms of the Registration Rights
Agreement; (v) on each day of the Equity Conditions Measuring Period and for the
thirty Trading Days thereafter, the registration statements required pursuant to
the Registration Rights Agreement shall be or shall be expected to be effective
and available for the sale of all of the Registrable Securities in accordance
with the terms of the Registration Rights Agreement; (vi) the Company otherwise
shall have been in material compliance with and shall not have breached (unless
subsequently cured by the Company prior to the first Trading Day of the
Mandatory Exercise Measuring Period), in any material respect, any material
provision, covenant, representation or warranty of the Transaction Documents (as
defined in the Note Purchase Agreement); and (vii) the Company shall not be in
violation of Section 3(d).
(j) "EXPIRATION DATE" means the date sixty months after the
Issuance Date or, if such date falls on a day other than a Business Day or on
which trading does not take place on the Principal Market (a "HOLIDAY"), the
next date that is not a Holiday.
(k) "FUNDAMENTAL TRANSACTION" means that the Company shall,
directly or indirectly, in one or more related transactions, (i) consolidate or
merge with or into (whether
15
or not the Company is the surviving corporation) another Person, or (ii) sell,
assign, transfer, convey or otherwise dispose of all or substantially all of the
properties or assets of the Company to another Person, or (iii) allow another
Person to make a purchase, tender or exchange offer that is accepted by the
holders of more than the 50% of either the outstanding shares of Common Stock
(not including any shares of Common Stock held by the Person or Persons making
or party to, or associated or affiliated with the Persons making or party to,
such purchase, tender or exchange offer), or (iv) consummate a stock purchase
agreement or other business combination (including, without limitation, a
reorganization, recapitalization, spin-off or scheme of arrangement) with
another Person whereby such other Person acquires more than the 50% of the
outstanding shares of Common Stock (not including any shares of Common Stock
held by the other Person or other Persons making or party to, or associated or
affiliated with the other Persons making or party to, such stock purchase
agreement or other business combination), or (v) reorganize, recapitalize or
reclassify its Common Stock.
(l) "MANDATORY EXERCISE TRIGGERING EVENT" means (A) the
Closing Sale Price of the Common Stock equals or exceeds $4.00 (subject to
appropriate adjustments for stock splits, stock dividends, stock combinations
and other similar transactions after the Issuance Date) for each of any fifteen
(15) consecutive Trading Days (the "MANDATORY EXERCISE MEASURING PERIOD") (with
a minimum trading volume of 200,000 shares of Common Stock on each such Trading
Day); and (B) the Notes (as defined in the Note Purchase Agreement), including
all principal and interest accrued and unpaid thereon have been paid in full and
are no longer outstanding.
(m) "OPTIONS" means any rights, warrants or options to
subscribe for or purchase shares of Common Stock or Convertible Securities.
(n) "PARENT ENTITY" of a Person means an entity that, directly
or indirectly, controls the applicable Person and whose common stock or
equivalent equity security is quoted or listed on an Eligible Market, or, if
there is more than one such Person or Parent Entity, the Person or Parent Entity
with the largest public market capitalization as of the date of consummation of
the Fundamental Transaction.
(o) "PERSON" means an individual, a limited liability company,
a partnership, a joint venture, a corporation, a trust, an unincorporated
organization, any other entity and a government or any department or agency
thereof.
(p) "PRINCIPAL MARKET" means the OTC Bulletin Board.
(q) "REGISTRATION RIGHTS AGREEMENT" means that certain
registration rights agreement by and among the Company and the Buyers.
(r) "REQUIRED HOLDERS" means the holders of the NPA Warrants
representing at least a majority of shares of Common Stock underlying the NPA
Warrants then outstanding.
(s) "SUCCESSOR ENTITY" means the Person (or, if so elected by
the Required Holders, the Parent Entity) formed by, resulting from or surviving
any Fundamental
16
Transaction or the Person (or, if so elected by the Required Holders, the Parent
Entity) with which such Fundamental Transaction shall have been entered into.
(t) "TRADING DAY" means any day on which the Common Stock is
traded on the Principal Market, or, if the Principal Market is not the principal
trading market for the Common Stock, then on the principal securities exchange
or securities market on which the Common Stock is then traded; provided that
"Trading Day" shall not include any day on which the Common Stock is scheduled
to trade on such exchange or market for less than 4.5 hours or any day that the
Common Stock is suspended from trading during the final hour of trading on such
exchange or market (or if such exchange or market does not designate in advance
the closing time of trading on such exchange or market, then during the hour
ending at 4:00:00 p.m., New York Time).
[SIGNATURE PAGE FOLLOWS]
17
IN WITNESS WHEREOF, the Company has caused this Warrant to Purchase Common
Stock to be duly executed as of the Issuance Date set out above.
ARTISTDIRECT, INC.
By: __________________________
Name:
Title:
EXHIBIT A
EXERCISE NOTICE
TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS
WARRANT TO PURCHASE COMMON STOCK
ARTISTDIRECT, INC.
The undersigned holder hereby exercises the right to purchase
______________ of the shares of Common Stock ("WARRANT SHARES") of ARTISTdirect,
Inc., a Delaware corporation (the "COMPANY"), evidenced by the attached Warrant
to Purchase Common Stock (the "WARRANT"). Capitalized terms used herein and not
otherwise defined shall have the respective meanings set forth in the Warrant.
1. Form of Exercise Price. The Holder intends that payment of the Exercise
Price shall be made as:
a "Cash Exercise" with respect to _________________ Warrant
Shares; and/or
a "Cashless Exercise" with respect to _________________
Warrant Shares.
2. Payment of Exercise Price. In the event that the holder has elected a
Cash Exercise with respect to some or all of the Warrant Shares to be issued
pursuant hereto, the holder shall pay the Aggregate Exercise Price in the sum of
$___________________ to the Company in accordance with the terms of the Warrant.
3. Delivery of Warrant Shares. The Company shall deliver to the holder
__________ Warrant Shares in accordance with the terms of the Warrant.
Date: _______________ __, ______
_________________________________
Name of Registered Holder
By: ________________________
Name:
Title:
A-1
ACKNOWLEDGMENT
The Company hereby acknowledges this Exercise Notice and hereby directs
American Stock Transfer & Trust Company to issue the above indicated number of
shares of Common Stock in accordance with the Transfer Agent Instructions dated
July 28, 2005 from the Company and acknowledged and agreed to by American Stock
Transfer & Trust Company.
ARTISTDIRECT, INC.
By: _____________________________________
Name:
Title:
A-2
SCHEDULE A
EXERCISE PRICE INVESTMENT AMT PREWARRANTS FD FULLY DILUTED
COMMON SHAREHOLDERS 3,502,117 9.5%
----------
OPTIONS
Current Directors/Management 302,370 0.2%
92,000 0.2%
259,659 0.7%
120,000 0.3%
Employees (Non Directors/Management) 205,150 0.6%
Subject to Cancellation 320,000
1,299,179
Employees/Artists/Directors 586,531
1,885,710
Way out of money option (508,901)
Investor out of money options (320,000)
TOTAL OPTIONS 1,056,809 2.9%
----------
TOTAL EXISTING OPTIONS & SHARES 4,558,926 17.5%
M&A Fee $ 1,564,000 1,109,032 3.00%
Financing Capital Fee $ 1,530,000 987,097 2.7%
----------
NEW SHARES 2,096,129 8.1%
NEW SHARES /DEBT
CCM $ 13,000,000 8,387,097
JFL $ 1,500,000 967,742
Redwood $ 3,000,000 1,935,484
DKR Oasis $ 8,000,000 5,161,290
MediaDefender Mgt $ 4,500,000 2,903,226
-------------- ----------
$ 30,000,000 19,354,839 74.4% 52.30%
PREWARRANT FULLY DILUTED 26,009,894
DEBT WARRANTS $ 2.00 $ 15,000,000 3,487,500
FINANCING FEE WARRANTS $ 1.55 1,516,935 4.10%
NEW EQUITY WARRANTS $ 1.55 1,596,774 4.32%
M&A FEE WARRANTS 114,985 0.31%
----------
PRE-MGT OPTIONS 32,726,088
NEW MGT OPTIONS
Saaf $ 1.55 200,000 0.5%
Herrera $ 1.55 200,000 0.5%
Mgt & Others $ 1.55 3,878,098
----------
4,278,098 13.07% 12%
14.4%
FDILUTED SHARES 37,004,186
==========
Price per share $ 1.55
TIME VESTING PERFORMANCE EXISTING TOTAL
CEO 1,045,000 1,708,098 259,659 3,012,757
CFO 275,000 275,000 120,000 670,000
Outside Directors* 170,000 170,000
Directors 75,000 75,000
Others 330,000 330,000
---------
TOTAL 1,895,000 1,983,098 379,659
Total Pool 3,878,098
chk 3,878,098
* EP = 85% of 60 day closing price beg. 30 days prior to closing.
A-1