EXHIBIT 4.4
CD WAREHOUSE, INC.
(a Delaware corporation)
WARRANT AGREEMENT
May 22, 1998
COMVEST PARTNERS, INC.
CAPITAL WEST SECURITIES, INC.
c/o COMVEST PARTNERS, INC.
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▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Ladies/Gentlemen:
CD Warehouse, Inc., a Delaware corporation (the "Company"), agrees to issue
to you warrants (the "Warrants") to purchase the number of shares of common
stock, par value $0.01 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
certificated in the form attached hereto as Exhibit A, shall be issued to you
concurrently with the execution hereof in consideration of the private placement
of a minimum of 1,400,000 shares (the "Minimum Offering") and a maximum of
1,800,000 shares (the "Maximum Offering") of the Company's Common Stock at a
price per share of $10 per share pursuant to that certain offering memorandum
dated May 4, 1998. 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 one
(1) share of Common Stock for every 10 shares of Common Stock sold for an
exercise price equal to $10 per share (the "Exercise Price"); provided, however,
that the Minimum Offering has been sold.
2. 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 this Agreement at 5:00 p.m., Central Standard 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, 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 hereinafter defined) 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 share 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 the date of the surrendering
of the certificates for the shares so purchased. In the event a Warrant 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.
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,
the average of the daily closing prices of the Common Stock for 20 consecutive
business days commencing 30 business days before the date of exercise, 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 as soon as
practicable, but in no event later that 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 parities 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.
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3. 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
Offering Memorandum 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 Offering
Memorandum, 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 Offering
Memorandum, 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
Offering Memorandum, 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 herein.
(c) Promptly after receipt by an indemnified party under Sections
3(a) and (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 of 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 or 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 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.
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(d) If the indemnification provided for in this Section 3 is
unavailable or insufficient to hold harmless an indemnified party under Section
3(a) or (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 the state a material
fact related 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
3(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 (d). 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
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 3 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 3 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.
4. 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 the 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.
5. Successors and Assigns; Binding Effect. This Agreement shall be
binding upon and insure to the benefit of you and the Company and their
respective successors and permitted assigns.
6. Notices. Any notice hereunder shall be given by registered or
certified mail, if to the Company, at its principal office, and, if to the
holders, to the 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
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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.
7. 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.
8. 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. 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 of 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.
9. Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of Texas without giving effect to the
principles of choice of laws thereof.
10. Definition. All references to the word "you," and to "Capital West
Securities, Inc." and "ComVest Partners, 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.
11. Headings. The headings herein are for purposes of reference only and
shall not limited or otherwise affect the meaning of any of the provisions
hereof.
12. Counterparts. This Agreement may be signed in several counterparts,
each of which will constitute an original.
Very truly yours,
CD WAREHOUSE, INC.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
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▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Senior Vice President
and Chief Financial Officer
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Accepted as of the 22nd day of May, 1998
COMVEST PARTNERS, INC.
By: /s/ ▇▇▇▇▇▇ ▇▇▇
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▇▇▇▇▇▇ ▇▇▇, President
CAPITAL WEST SECURITIES, INC.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
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▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Chairman
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