CD WAREHOUSE, INC.
WARRANT AGREEMENT
January ___, 1997
CAPITAL WEST SECURITIES, INC.
WESTPORT RESOURCES
INVESTMENT SERVICES, INC.
▇▇▇▇▇▇▇ ▇▇▇▇▇▇ & COMPANY
FINANCIAL SERVICES, INC.
c/o Capital West Securities, Inc.
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16th Floor, ▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Ladies and Gentlemen:
CD Warehouse, Inc., a Delaware corporation (the "Company"), agrees to issue
and sell to you warrants (the "Warrants") to purchase the number of shares of
common stock, $0.01 par value per share (the "Common Stock"), of the Company set
forth herein, subject to the terms and conditions contained herein.
1. ISSUANCE OF WARRANTS; EXERCISE PRICE. The Warrants, which shall be in
the form attached hereto as Exhibit A, shall be issued to you concurrently with
the execution hereof in consideration of the payment by you to the Company of
the sum of $0.001 cash per share of Common Stock subject to the Warrants, the
receipt and sufficiency of which are hereby acknowledged. The Warrant shall
provide that you, or such other holder or holders of the Warrants to whom
transfer is authorized in accordance with the terms of this Agreement, shall
have the right to purchase an aggregate of 100,000 shares of Common Stock for an
exercise price equal to $_____ per share (the "Exercise Price") or $____________
in the aggregate. The number, character and Exercise Price of such shares of
Common Stock are subject to adjustment as hereinafter provided, and the term
"Common Stock" shall mean, unless the context otherwise requires, the stock and
other securities and property receivable upon exercise of the Warrants. The
term "Exercise Price" shall mean, unless the context otherwise requires, the
price per share of the Common Stock purchasable under the Warrants as set forth
in this Section 1, as adjusted from time to time pursuant to Section 6.
2. REPRESENTATIONS AND WARRANTIES. The Company represents and warrants
to you and to each subsequent holder of Warrants and agrees that:
(a) This Agreement has been duly authorized, executed and delivered
by the Company and constitutes the valid and binding obligation of the Company
enforceable in accordance with its terms; and neither the issuance of the
Warrants nor the issuance of the shares of Common Stock issuable upon exercise
of the Warrants will result in a breach or violation of any terms or provisions
of, or constitute a default under, any contract, indenture, mortgage, deed of
trust, loan agreement or other agreement or instrument to which the Company is a
party or by which the Company is bound, the
Certificate of Incorporation or Bylaws of the Company, or any law, order,
rule, regulation or decree of any government, governmental instrumentality or
court, domestic or foreign, or result in the creation or imposition of any
lien, charge or encumbrance upon any property or assets of the Company.
(b) No consent, approval, authorization or order of any court or
governmental agency or body is required for the sale and issuance of the
Warrants or the sale and issuance of the shares of Common Stock issuable upon
exercise of the Warrants, except such as have been obtained or may be required
under the Securities Act of 1933, as amended (the "Act"), and such as may be
required under state securities or blue sky laws in connection with the issuance
of the Warrants and the shares of Common Stock issuable upon exercise of the
Warrants. Upon exercise of the Warrants by the holder thereof, the shares of
Common Stock with respect to which the Warrants are exercised will be validly
issued, fully paid, and nonassessable, and good and marketable title to such
shares of Common Stock shall be delivered to such holder free and clear of all
liens, encumbrances, equities, claims or preemptive or similar rights.
(c) During the term of this Agreement, the Company shall make timely
filings of all periodic and other reports and forms and other materials required
(but only to the extent required) to be filed with the Securities and Exchange
Commission (the "Commission") pursuant to the Act or the Securities Exchange Act
of 1934, as amended, and with any national securities exchange or quotation
system upon which any of the securities of the Company may be listed.
3. NOTICES OF RECORD DATE; ETC. In the event of (i) any taking by the
Company of a record date with respect to the holders of any class of securities
of the Company for purposes of determining which of such holders are entitled to
dividends or other distributions (other than regular quarterly dividends), or
any right to subscribe for, purchase or otherwise acquire shares of stock of any
class or any other securities or property, or to receive any other right, (ii)
any capital reorganization of the Company, or reclassification or
recapitalization of capital stock of the Company or any transfer in one or more
related transactions of all or a majority of the assets or revenue or income
generating capacity of the Company to, or consolidation or merger of the Company
with or into, any other entity or person, or (iii) any voluntary or involuntary
dissolution or winding up of the Company, then and in each such event the
Company will mail or cause to be mailed to each holder of a Warrant at the time
outstanding a notice specifying, as the case may be, (A) the date on which any
such record is to be taken for the purpose of such dividend, distribution or
right, and stating the amount and character of such dividend, distribution or
right; or (B) the date on which any such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, conveyance, dissolution,
liquidation or winding-up is to take place and the time, if any is to be fixed,
as of which the holders of record of Common Stock (or any other class of stock
or securities of the Company, or another issuer pursuant to Section 6,
receivable upon the exercise of the Warrants) shall be entitled to exchange
their shares of Common Stock (or such other stock or securities) for securities
or other property deliverable upon such event. Any such notice shall be
deposited in the United States mail, postage prepaid, at least ten (10) days
prior to the date therein specified, and the holders(s) of the Warrant(s) may
exercise the Warrant(s) and participate in such event as a registered holder of
Common Stock, upon exercise of the Warrant(s) so held, within the ten (10) day
period from the date of mailing of such notice.
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4. NO IMPAIRMENT. The Company shall not, by amendment of its
organizational documents or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities, or any other
action, avoid or seek to avoid the observance or performance of any of the terms
of this Agreement or of the Warrants, but will at all times in good faith take
any and all action as may be necessary in order to protect the rights of the
holders of the Warrants against impairment. Without limiting the generality of
the foregoing, the Company (a) will at all times reserve and keep available,
solely for issuance and delivery upon exercise of the Warrants, shares of Common
Stock issuable from time to time upon exercise of the Warrants, (b) will not
increase the par value of any shares of stock receivable upon exercise of the
Warrants above the amount payable in respect thereof upon such exercise, and (c)
will take all such action as may be necessary or appropriate in order that the
Company may validly and legally issue fully paid and non-assessable stock upon
the exercise of the Warrants, or any of them.
5. EXERCISE OF WARRANTS. At any time and from time to time on and after
the first anniversary of the date hereof and expiring on the fifth anniversary
of the effective date of the public offering of the Common Stock at 5:00 p.m.,
Oklahoma City, Oklahoma time, Warrants may be exercised as to all or any portion
of the whole number of shares of Common Stock covered by the Warrants by the
holder thereof by surrender of the Warrants, accompanied by a subscription for
shares to be purchased in the form attached hereto as Exhibit B and by a check
payable to the order of the Company in the amount required for purchase of the
shares as to which the Warrant is being exercised, delivered to the Company at
its principal office at ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇,
Attention: President. Warrants may also be exercised from time to time, without
any payment required for the purchase of the shares as to which the Warrant is
being exercised, as to all or any portion of the number of shares of Common
Stock covered by the Warrant(s) by the holder thereof by surrender of the
Warrants, accompanied by a subscription for shares in the form attached as
Exhibit C, pursuant to which the holder thereof will be entitled to receive upon
such surrender of the Warrant(s) (and without any further payment) that number
of shares of Common Stock equal to the product of the number of shares of Common
Stock obtainable upon exercise of the Warrant(s) (or the portion thereof as to
which the exercise relates) multiplied by a fraction: (i) the numerator of which
shall be the difference between the then Current Value (as defined in this
Section 5 and Section 7(d)) of one full share of Common Stock on the date of
exercise and the Exercise Price, and (ii) the denominator of which shall be the
Current Value of one full share of Common Stock on the date of exercise. Upon
the exercise of a Warrant in whole or in part, the Company will within five (5)
days thereafter, at its expense (including the payment by the Company of any
applicable issue or transfer taxes), cause to be issued in the name of and
delivered to the Warrant holder a certificate or certificates for the number of
fully paid and non-assessable shares of Common Stock to which such holder is
entitled upon exercise of the Warrant. In the event such holder is entitled to
a fractional share, in lieu thereof such holder shall be paid a cash amount
equal to such fraction, multiplied by the Current Value of one full shares of
Common Stock on the date of exercise. Certificates for shares of Common Stock
issuable by reason of the exercise of the Warrant or Warrants shall be dated and
shall be effective as of the date of the surrendering of the Warrant for
exercise, notwithstanding any delays in the actual execution, issuance or
delivery of the certificates for the shares so purchased. In the event a
Warrant or Warrants is exercised as to less than the aggregate amount of all
shares of Common Stock issuable upon exercise of all Warrants held by such
person, the Company shall issue a new Warrant to the holder of the Warrant so
exercised covering the aggregate number of shares of Common Stock as to which
Warrants remain unexercised.
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For purposes of this section, Current Value is defined (i) in the case
for which a public market exists for the Common Stock at the time of such
exercise, according to Section 7(d), and (ii) in the case no public market
exists at the time of such exercise, at the Appraised Value. For the purposes
of this Agreement, "Appraised Value" is the value determined in accordance with
the following procedures. For a period of five (5) days after the date of an
event (a "Valuation Event") requiring determination of Current Value at a time
when no public market exists for the Common Stock (the "Negotiation Period"),
each party to this Agreement agrees to negotiate in good faith to reach
agreement upon the Appraised Value of the securities or property at issue, as of
the date of the Valuation Event, which will be the fair market value of such
securities or property, without premium for control or discount for minority
interests, illiquidity or restrictions on transfer. In the event that the
parties are unable to agree upon the Appraised Value of such securities or other
property by the end of the Negotiation Period, then the Appraised Value of such
securities or property will be determined for purposes of this Agreement by a
recognized appraisal or investment banking firm mutually agreeable to the
holders of the Warrants and the Company (the "Appraiser"). If the holders of
the Warrants and the Company cannot agree on an Appraiser within two (2)
business days after the end of the Negotiation Period, the Company, on the one
hand, and the holders of the Warrants, on the other hand, will each select an
Appraiser within ten (10) business days after the end of the Negotiation Period
and those two Appraisers will select ten (10) days after the end of the
Negotiation Period an independent Appraiser to determine the fair market value
of such securities or property, without premium for control or discount for
minority interests. Such independent Appraiser will be directed to determine
fair market value of such securities or property as soon as practicable, but in
no event later than thirty (30) days from the date of its selection. The
determination by an Appraiser of the fair market value will be conclusive and
binding on all parties to this Agreement. Appraised Value of each share of
Common Stock at a time when (i) the Company is not a reporting company under the
Exchange Act and (ii) the Common Stock is not traded in the organized securities
markets, will, in all cases, be calculated by determining the Appraised Value of
the entire Company taken as a whole and dividing that value by the number of
shares of Common Stock then outstanding, without premium for control or discount
for minority interests, illiquidity or restrictions on transfer. The costs of
the Appraiser will be borne by the Company. In no event will the Appraised
Value of the Common Stock be less than the per share consideration received or
receivable with respect to the Common Stock or securities or property of the
same class in connection with a pending transaction involving a sale, merger,
recapitalization, reorganization, consolidation, or share exchange, dissolution
of the Company, sale or transfer of all or a majority of its assets or revenue
or income generating capacity, or similar transaction.
6. PROTECTION AGAINST DILUTION. The Exercise Price for the shares of
Common Stock and number of shares of Common Stock issuable upon exercise of the
Warrants is subject to adjustment from time to time as follows:
(a) STOCK DIVIDENDS, SUBDIVISIONS, RECLASSIFICATIONS, ETC.. In case
at any time or from time to time after the date of execution of this Agreement,
the Company shall (i) take a record of the holders of Common Stock for the
purpose of entitling them to receive a dividend or a distribution on shares of
Common Stock payable in shares of Common Stock or other class of securities,
(ii) subdivide or reclassify its outstanding shares of Common Stock into a
greater number of shares, or (iii) combine or reclassify its outstanding Common
Stock into a smaller number of shares, then, and in each such case, the Exercise
Price in effect at the time of the record date for such dividend or distribution
or
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the effective date of such subdivision, combination or reclassification shall
be adjusted in such a manner that the Exercise Price for the shares issuable
upon exercise of the Warrants immediately after such event shall bear the same
ratio to the Exercise Price in effect immediately prior to any such event as the
total number of shares of Common Stock outstanding immediately prior to such
event shall bear to the total number of shares of Common Stock outstanding
immediately after such event.
(b) ADJUSTMENT OF NUMBER OF SHARES PURCHASABLE. When any adjustment
is required to be made in the exercise Price under this Section 6, (i) the
number of shares of Common Stock issuable upon exercise of the Warrants shall be
changed (upward to the nearest full share) to the number of shares determined by
dividing (x) an amount equal to the number of shares issuable pursuant to the
exercise of the Warrants immediately prior to the adjustment, multiplied by the
Exercise Price in effect immediately prior to the adjustment, by (y) the
Exercise Price in effect immediately after such adjustment, and (ii) upon
exercise of the Warrant, the holder will be entitled to receive the number of
shares of other securities referred to in Section 6(a) that such holder would
have received had the Warrant been exercised prior to the events referred to in
Section 6(a).
(c) ADJUSTMENT FOR REORGANIZATION, CONSOLIDATION, MERGER, ETC.. In
case of any reorganization or consolidation of the Company with, or any merger
of the Company with or into, another entity (other than a consolidation or
merger in which the Company is the surviving corporation) or in case of any sale
or transfer to another entity of the majority of assets of the Company, the
entity resulting from such reorganization or consolidation or surviving such
merger or to which such sale or transfer shall be made, as the case may be,
shall make suitable provision (which shall be fair and equitable to the holders
of Warrants) and shall assume the obligations of the Company hereunder (by
written instrument executed and mailed to each holder of the Warrants then
outstanding) pursuant to which, upon exercise of the Warrants, at any time after
the consummation of such reorganization, consolidation, merger or conveyance,
the holder shall be entitled to receive the stock or other securities or
property that such holder would have been entitled to upon consummation if such
holder had exercised the Warrants immediately prior thereto, all subject to
further adjustment as provided in this Section 6.
(d) CERTIFICATE AS TO ADJUSTMENTS. In the event of adjustment as
herein provided in paragraphs of this Section 6, the Company shall promptly mail
to each Warrant holder a certificate setting forth the Exercise Price and number
of shares of Common Stock issuable upon exercise after such adjustment and
setting forth a brief statement of facts requiring such adjustment. Such
certificate shall also set forth a brief statement of facts requiring such
adjustment. Such certificate shall also set forth the kind and amount of stock
or other securities or property into which the Warrants shall be exercisable
after any adjustment of the Exercise Price as provided in this Agreement.
(e) MINIMUM ADJUSTMENT. Notwithstanding the foregoing, no
certificate as to adjustment of the Exercise Price hereunder shall be made if
such adjustment results in a change in the Exercise Price then in effect of less
than five cents ($0.05) and any adjustment of less than five cents ($0.05) of
any Exercise Price shall be carried forward and shall be made at the time of and
together with any subsequent adjustment that, together with the adjustment or
adjustments so carried forward, amounts to five cents ($0.05) or more; provided
however, that upon the exercise of a Warrant, the Company shall
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have made all necessary adjustments (to the nearest cent) not theretofore made
to the Exercise Price up to and including the date upon which such Warrant is
exercised.
7. REGISTRATION RIGHTS.
(a) The Company agrees that upon written notice given to the Company
at any time on or after the first anniversary of the effective date of the
public offering of the Common Stock but before the fifth anniversary of the
effective date of the public offering, from the holder or holders of not less
than fifty-one percent (51%) of the shares issued and issuable upon exercise of
the Warrants, of a proposed distribution by such holder or holders of Common
Stock issued or issuable upon exercise of Warrants, the Company will, within 45
days after receipt of such notice, promptly prepare, file and diligently
prosecute to effectiveness, an appropriate filing with the Commission of a
registration statement covering the proposed sale or distribution of all or any
part of such shares under the Securities Act of 1933, as amended (the "Act"),
and the appropriate registration statements or applications under the securities
laws of such states as such holders, in their discretion, shall determine, and
will use its reasonable best efforts to have such registration and application
(including both the registration under the Act and the registration or
application made under the various state securities laws) declared effective as
soon as practicable after the filing thereof and to remain effective for such
period that may be reasonably necessary to complete the distribution of
securities so registered or qualified. At least 15 days prior to such filing,
the Company shall give written notice of such proposed filing to each registered
holder of any Warrants at the holders' addresses appearing on the records of the
Company and to each registered holder of Common Stock purchased from the
exercise of any Warrants at such holder's address appearing on the Company
records, and shall offer to include in such registration statement any proposed
distribution of such Common Stock held or to be held by each such registered
holder; provided, however, that except as provided in Section 7(e), the Company
need not effect the registration of the sale or distribution of Common Stock
purchased upon exercise of Warrants more than once. All expenses, disbursements
and fees (including fees and expenses of counsel for the Company, special
auditing fees specifically attributable to the sale by the selling holder or
holders of Common Stock, printing expenses (including all necessary copies of
the registration statement and prospectuses contained therein), registration and
filing fees and blue sky fees and expenses, and fees and charges of the
Company's transfer agent and registrar for services rendered in connection
therewith) shall be borne by the Company; provided, however, that the Company
shall not be required to pay for any expenses of any registration proceeding
begun (in which case holders shall bear such expenses), if the registration
request is subsequently withdrawn at any time at the request of the holder or
holders of not less than 51% of the shares issued and issuable upon exercise of
the Warrants, unless such withdrawal is due to the misconduct of the Company or
due to an unforeseen material adverse change in the business, properties,
prospects or financial condition of the Company occurring prior to the
effectiveness of the registration statement, in which case the Company will
continue to bear such expenses.
(b) In connection with any registration under the Act and specified
state securities law pursuant to this Agreement, the Company will, without
charge, furnish each holder whose shares are registered thereunder with copies
of the registration statement and all amendments thereto and will, without
charge, supply each such holder with copies of any preliminary and final
prospectus
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included therein in such quantities as may be necessary for the purposes of
such proposed sale or distribution that the holder or holders may reasonably
request.
(c) In connection with any registration of shares pursuant to this
Section 7, the holders whose shares are being registered shall furnish the
Company with such information concerning such holders and the proposed sale or
distribution as shall be required for use in the preparation of such
registration statement and applications.
(d) Notwithstanding the foregoing provisions of this Section 7, upon
receipt of such written notice from the holder or holders of not less than fifty
one percent (51%) of the shares issued and issuable upon exercise of the
Warrants requesting that the Company effect registration of the sale or
distribution of Common Stock as provided in Section 7(a) or upon election by
holders of Warrants or Common Stock to participate in a registration pursuant to
Section 7(e), the Company shall have the option, for a period of ten (10) days
thereafter, to purchase all or any such Warrants and all or any such shares of
Common Stock acquired pursuant to the exercise of the Warrants and held by
holders providing the request for registration under Section 7(a) and/or 7(e)
and held by any other holder of Warrants or shares issued and will exercise its
option if it so elects as follows:
(i) as to such Warrants, at a price per Warrant equal to the
difference between (A) the average of the means between the closing bid and
asked prices of the Common Stock in the over-the-counter market for 20
consecutive business days commencing 30 business days before the date of receipt
of such notice, (B) if the Common Stock is quoted on the Nasdaq SmallCap Market,
at the average of the means of the daily closing bid and asked prices of the
Common Stock for 20 consecutive business days commencing 30 business days before
the date of such notice, or (C) if the Common Stock is listed on any national
securities exchange or quoted on the Nasdaq National Market System, at the
average of the daily closing prices of the Common Stock for 20 consecutive
business days commencing 30 business days before the date of such notice and the
Exercise Price of the Warrant at the time of receipt of such notice; and
(ii) as to shares of Common Stock previously purchased pursuant
to the exercise of Warrants, at a price per share equal to (A) the average of
the means between the closing bid and asked prices of the Common Stock in the
over-the-counter market for 20 consecutive business days commencing 30 business
days before the date of such notice, (b) if the Common Stock is quoted on the
Nasdaq SmallCap Market, at the average of the means of the daily closing bid and
asked prices of the Common Stock for 20 consecutive business days commencing 30
business days before the date of such notice or (C) if the Common Stock is
listed on any national securities exchange or the Nasdaq National Market System,
at the average of the daily closing prices of the Common Stock for 20
consecutive business days commencing 30 business days before the date of such
notice (such value of shares so determined in this Section 7(d)(ii), as the case
may be, is referred to herein as the "Current Value").
(e) If any time on or after the first anniversary of the date hereof
but before the fifth anniversary of the date hereof the Company proposes to file
a registration statement under the
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Act covering a proposed sale of shares of Common Stock, it shall give to each
holder who then owns any Warrants or any shares of Common Stock acquired
pursuant to the exercise of the Warrants notice of such proposed registration
at least 30 days prior to the filing of the registration statement and shall
afford each such holder who then proposed to sell or distribute publicly any
of the shares subject to the Warrants upon giving not less than 10 days notice
prior to such filing, the opportunity to have such shares included in the
securities registered under the registration statement. All expenses,
disbursements and fees (including, but without limitation, fees and expenses
of counsel, auditing fees, printing expenses, SEC filing fees and expenses,
but excluding any underwriting discounts or commissions) incurred in
connection with the registration by the Company of the sale of any shares for
any such holder under this Section 7(e) shall be borne by the Company.
8. INDEMNIFICATION; CONTRIBUTION.
(a) The Company will indemnify and hold harmless each holder and each
affiliate thereof of Common Stock registered pursuant to this Agreement with the
Commission, or under any Blue Sky Law or regulation against any losses, claims,
damages, or liabilities, joint or several, to which such holder may become
subject under the Act or otherwise, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereof) arise out of or are based upon an
untrue statement or alleged untrue statement of a material fact contained in any
preliminary prospectus, registration statement, prospectus, or any amendment or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will reimburse each
such holder and affiliate for any legal or other expenses reasonably incurred by
such holder in connection with investigating or defending any such action or
claim regardless of the negligence of any such holder or affiliate; provided,
however, that the Company shall not be liable in any such case to the extent
that any such loss, claim, damage, or liability arises out of or is based upon
an untrue statement or alleged untrue statement or omission or alleged omission
made in any preliminary prospectus, registration statement or prospectus, or any
such amendment or supplement thereto, in reliance upon and in conformity with
written information furnished to the Company by any such holder expressly for
use therein.
(b) Each holder of Common Stock registered pursuant to this Agreement
will indemnify and hold harmless the Company against any losses, claims,
damages, or liabilities to which the Company may become subject, under the Act
or otherwise, insofar as such losses, claims, damages, or liabilities (or
actions in respect thereof) arise out of or are based upon an untrue statement
or alleged untrue statement of a material fact contained in any preliminary
prospectus, registration statement or prospectus, or any amendment or supplement
thereto, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, in each case to the extent, but only to
the extent, that such untrue statement or alleged untrue statement or omission
or alleged omission was made in any preliminary prospectus, registration
statement or prospectus, or any amendment or supplement thereto, in reliance
upon and in conformity with written information furnished to the Company by such
holder expressly for use therein.
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(c) Promptly after receipt by an indemnified party under Sections
8(a) or (b) above of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against the indemnifying
party under either such subsection, notify the indemnifying party in writing of
the commencement thereof; but the omission so to notify the indemnifying party
shall not relieve it from any liability that it may otherwise have to any
indemnified party. In case any such action shall be brought against any
indemnified party and it shall notify the indemnifying party of the commencement
thereof the indemnifying party shall be entitled to assume the defense thereof
by notice in writing to the indemnified party. After notice from the
indemnifying party to such indemnified party of its election to assume the
defense thereof, the indemnifying party shall not be liable to such indemnified
party under either of such subsections for any legal expenses of other counsel
or any other expense, in each case subsequently incurred by such indemnified
party, in connection with the defense thereof other than reasonable costs of
investigation incurred prior to the assumption by the indemnifying party, unless
such expenses have been specifically authorized in writing by the indemnifying
party, the indemnifying party has failed to assume the defense and employ
counsel, or the named parties to any such action include both the indemnified
party and the indemnifying party, as appropriate, and such indemnified party has
been advised by counsel that the representation of such indemnified party has
been advised by counsel that the representation of such indemnified party and
the indemnifying party by the same counsel would be inappropriate due to actual
or potential differing interests between them, in each of which cases the fees
of counsel for the indemnified party will be paid by the indemnifying party.
(d) If the indemnification provided for in this Section 8 is
unavailable or insufficient to hold harmless an indemnified party under Section
8(a) or 8(b) in respect of any losses, claims, damages, or liabilities (or
action in respect thereof) referred to therein, then each indemnifying party
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages, or liabilities (or actions in respect
thereof) in such proportion as is appropriate to reflect the relative benefits
received by the Company and the holder or holders from this Agreement and from
the offering of the shares of Common Stock. If, however, the allocation
provided by the immediately preceding sentence is not permitted by applicable
law, then each indemnifying party shall contribute to such amount paid or
payable by such indemnified party in such proportion as is appropriate to
reflect not only such relative benefits but also the relative fault of the
Company and the holders in connection with the statement or omissions that
resulted in such losses, claims, damages, or liabilities (or actions in respect
thereof), as well as any other relevant equitable considerations. The relative
fault shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the Company
or the holder and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission. The Company
and the holders agree that it would not be just and equitable if contribution
pursuant to this Section 8(d) were determined by pro rata allocation (even if
the holders were treated as one entity for such purpose) or by any other method
of allocation that does not take into account the equitable considerations
referred to above in this subsection (e). Except as provided in Section 8(c),
the amount paid or payable by an indemnified party as a result of the losses,
claims, damages, or liabilities (or actions in respect thereof) referred to
above in this Section
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8(d) shall be deemed to include any legal or other expenses reasonably
incurred by such indemnified party in connection with investigation or
defending any such action or claim. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. Notwithstanding any provision in this Section 8(d) to the
contrary, no holder shall be liable for any amount, in the aggregate, in
excess of the net proceeds to such holder from the sale of such holder's
shares (obtained upon exercise of Warrants) giving rise to such losses,
claims, damages, or liabilities.
(e) The obligations of the Company under this Section 8 shall be in
addition to any liability that the Company may otherwise have and shall extend,
upon the same terms and conditions, to each person, if any, who controls any
holder of Warrants within the meaning of the Act. The obligations of the
holders of Common Stock under this Section 8 shall be in addition to any
liability that such holders may otherwise have and shall extend, upon the same
terms and conditions to each person, if any, who controls the Company within the
meaning of the Act.
9. STOCK EXCHANGE LISTING. In the event the Company lists its Common
Stock on any national securities exchange, the Company will, at its expense,
also list on such exchange, upon exercise of a Warrant, all shares of Common
Stock issuable pursuant to such Warrant.
10. SPECIFIC PERFORMANCE. The Company stipulates that remedies at law, in
money damages, available to the holder of a Warrant, or of a holder of Common
Stock issued pursuant to exercise of a Warrant, in the event of any default or
threatened default by the Company in the performance of or compliance with any
of the terms of this Agreement are not and will not be adequate. Therefore, the
Company agrees that the terms of this Agreement may be specifically enforced by
a decree for the specific performance of any agreement contained herein or by an
injunction against a violation of any of the terms hereof or otherwise.
11. SUCCESSORS AND ASSIGNS; BINDING EFFECT. This Agreement shall be
binding upon and inure to the benefit of you and the Company and their
respective successors and permitted assigns.
12. NOTICES. Any notice hereunder shall be given by registered or
certified mail, if to the Company, at its principal office referred to in
Section 5 and, if to the holders, to their respective addresses shown in the
Warrant ledger of the Company, provided that any holder may at any time on three
(3) days' written notice to the Company designate or substitute another address
where notice is to be given. Notice shall be deemed given and received after a
certified or registered letter, properly addressed with postage prepaid, is
deposited in the U.S. mail.
13. SEVERABILITY. Every provision of this Agreement is intended to be
severable. If any term or provision hereof is illegal or invalid for any reason
whatsoever, such illegality or invalidity shall not affect the remainder of this
Agreement.
10
14. ASSIGNMENT; REPLACEMENT OF WARRANTS. If the Warrant or Warrants are
assigned, in whole or in part, the Warrants shall be surrendered at the
principal office of the Company, and thereupon, in the case of a partial
assignment, a new Warrant shall be issued to the holder thereof covering the
number of shares not assigned, and the assignee shall be entitled to receive a
new Warrant covering the number of shares so assigned. Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction, or
mutilation of any Warrant and appropriate bond or indemnification protection,
the Company shall issue a new Warrant of like tenor. Except as contemplated by
Section 7 of this Agreement, the Warrants will not be transferred, sold, or
otherwise hypothecated by you or any other person and the Warrants will be
nontransferable, except to (i) one or more persons, each of which on the date of
transfer is an officer, shareholder, or employee of you; (ii) a partnership or
partnerships, the partners of which are you and one or more persons, each of
whom on the date of transfer is an officer to you; (iii) a successor to you in
merger or consolidation; (iv) a purchaser of all or substantially all of your
assets; or (v) a person that receives a Warrant upon death of a Holder pursuant
to will, trust, or the laws of intestate succession.
15. GOVERNING LAW. This Agreement shall be governed and construed in
accordance with the laws of the State of Oklahoma without giving effect to the
principles of choice of laws thereof.
16. DEFINITION. All references to the word "you", and to "Capital West
Securities, Inc." in this Agreement shall be deemed to apply with equal effect
to any persons or entities to whom Warrants have been transferred in accordance
with the terms hereof, and, where appropriate, to any persons or entities
holding shares of Common Stock issuable upon exercise of Warrants.
17. HEADINGS. The headings herein are for purposes of reference only and
shall not limit or otherwise affect the meaning of any of the provisions hereof.
Very truly yours,
CD WAREHOUSE, INC.
By:
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▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, President
11
Accepted as of the _____ day of January, 1997.
CAPITAL WEST SECURITIES, INC.
By:
----------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Chairman
WESTPORT RESOURCES
INVESTMENT SERVICES, INC.
By:
----------------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇▇ & COMPANY
FINANCIAL SERVICES, INC.
By:
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12
EXHIBIT A
CD WAREHOUSE, INC.
COMMON STOCK PURCHASE WARRANT
THIS IS TO CERTIFY that _________________________________ or its assigns as
permitted in that certain Warrant Agreement (the "Warrant Agreement") dated
January __, 1997, between the Company (as hereinafter defined) and Capital West
Securities, Inc., Westport Resources Investment Services, Inc. and ▇▇▇▇▇▇▇
▇▇▇▇▇▇ & Company Financial Services, Inc. is entitled to purchase at any time or
from time to time on or after January __, 1998 until 5:00 p.m., Oklahoma City,
Oklahoma time on January __, 2002, an aggregate of ______________ shares of
Common Stock, par value $0.01 per share, of CD Warehouse, Inc., a Delaware
corporation (the "Company"), for an exercise price per share as set forth in the
Warrant Agreement referred to herein. This Warrant is issued pursuant to the
Warrant Agreement, and all rights of the holder of this Warrant are further
governed by, and subject to the terms and provisions of such Warrant Agreement,
copies of which are available upon request to the Company. The holder of this
Warrant and the shares issuable upon the exercise hereof shall be entitled to
the benefits, rights and privileges and subject to the obligations, duties and
liabilities provided in the Warrant Agreement.
The issuance of this Warrant and the shares issuable upon the due and
timely exercise hereof have not been registered under the Securities Act of
1933, as amended (the "Act"), or any similar state securities law or act, and,
as such, no public offering of either this Warrant of any of the shares of
Common Stock issuable upon exercise of this Warrant may be made other than under
an exemption under the Act or until the effectiveness of a registration
statement under such Act covering such offering. Transfer of this Warrant is
restricted as provided in Section 14 of the Warrant Agreement.
Subject to the provisions of the Act, of the Warrant Agreement and of this
Warrant, this Warrant and all rights hereunder are transferable, in whole or in
part, only to the extent expressly permitted in such documents and then only at
the office of the Company at ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇,
Attention: President, by the holder hereof or by a duly authorized attorney-in-
fact, upon surrender of this Warrant duly endorsed, together with the Assignment
hereof duly endorsed. Until transfer hereof on the books of the Company, the
Company may treat the registered holder hereof as the owner hereof for all
purposes.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed and
its corporate seal to be hereunto affixed by its proper corporate officers
thereunto duly authorized.
CD WAREHOUSE, INC.
By:
---------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, President
(SEAL)
Attest:
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▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Secretary