Document:

Exhibit 4.1

 

SECOND SUPPLEMENTAL INDENTURE

 

between

 

MEDLEY LLC

 

and

 

U.S. BANK NATIONAL ASSOCIATION,

 

as Trustee

 

Dated as of October 18, 2016

 

 

 

SECOND SUPPLEMENTAL INDENTURE

 

THIS SECOND SUPPLEMENTAL INDENTURE (this
“Second Supplemental Indenture”), dated as of October 18, 2016, is between Medley LLC, a Delaware limited liability
company (the “Company”), and U.S. Bank National Association, as trustee (the “Trustee”). All capitalized
terms used but not otherwise defined herein shall have the meaning set forth in the Base Indenture (as defined below).

 

RECITALS OF THE COMPANY

 

The Company and the Trustee executed and
delivered an Indenture, dated as of August 9, 2016 (the “Base Indenture” and, as amended and supplemented by the First
Supplemental Indenture, dated as of August 9, 2016 (the “First Supplemental Indenture”), and together with the Base
Indenture and the Second Supplemental Indenture, the “Indenture”), to provide for the issuance by the Company from
time to time of the Company’s unsecured debentures, notes or other evidences of indebtedness (the “Securities”),
to be issued in one or more series as provided in the Indenture.

 

On August 9, 2016, $25,000,000 in aggregate
principal amount the Company’s 6.875% Notes due 2026 were issued under the Indenture (the “Existing Notes”).
The Company desires to reopen the series with the further issuance and sale of an additional $28,595,000 in aggregate principal
amount (or up to $32,884,250 in aggregate principal amount if the underwriters’ option to purchase additional Notes is exercised
in full) of the Company’s 6.875% Notes due 2026 (the “Notes”). The Notes will form a single series with the Existing
Notes under the Indenture.

 

Sections 901(5) and 901(7) of the Base Indenture
provide that without the consent of Holders of the Securities of any series issued under the Indenture, the Company, when authorized
by or pursuant to a Board Resolution, and the Trustee, at any time and from time to time, may enter into one or more indentures
supplemental to the Base Indenture to (i) change or eliminate any of the provisions of the Indenture when there is no Security
Outstanding of any series created prior to the execution of the supplemental indenture that is entitled to the benefit of such
provision and (ii) establish the form or terms of Securities of any series as permitted by Section 201 and Section 301 of the Base
Indenture.

 

The Company desires to establish the form
and terms of the Notes and to modify, alter, supplement and change certain provisions of the Base Indenture for the benefit of
the Holders of the Notes (except as may be provided in a future supplemental indenture to the Indenture applicable to the Notes
(“Future Supplemental Indenture”)).

 

The Company has duly authorized the execution
and delivery of this Second Supplemental Indenture to provide for the issuance of the Notes and amendment of certain provisions
of the Base Indenture as herein provided and all acts and things necessary to make this Second Supplemental Indenture a valid,
binding, and legal obligation of the Company and to constitute a valid agreement of the Company, in accordance with its terms,
have been done and performed.

 

     

     

    

 

NOW, THEREFORE, for and in consideration
of the premises and the purchase of the Notes by the Holders thereof, it is mutually agreed, for the equal and proportionate benefit
of all Holders of the Notes, as follows:

 

ARTICLE
I

TERMS
OF THE NOTES

 

Section 101      Terms
of the Notes. The following terms relating to the Notes are hereby established:

 

(a)          The
Notes shall constitute a series of Senior Securities having the title “6.875% Notes due 2026.” The Notes shall bear
a CUSIP number of 58503Y 105 and an ISIN number of US58503Y1055.

 

(b)         The
aggregate principal amount of the Notes (including the Existing Notes) that may be authenticated and delivered under the Indenture
(except for Notes authenticated and delivered upon registration of, transfer of, or in exchange for, or in lieu of, other Notes
pursuant to Sections 304, 305, 306, 906, 1107 or 1305 of the Base Indenture, and except for any Securities that, pursuant to Section
303 of the Base Indenture, are deemed never to have been authenticated and delivered under the Indenture) shall be $53,595,000
(or up to $57,884,250 if the underwriters’ option to purchase additional Notes is exercised in full). Under a Board Resolution,
Officers’ Certificate pursuant to Board Resolutions or an indenture supplement, the Company may from time to time, without
the consent of the Holders of Notes, issue additional Notes (in any such case “Additional Notes”) having the same ranking
and the same interest rate, maturity and other terms as the Notes. Any Additional Notes and the existing Notes will constitute
a single series under the Indenture and all references to the relevant Notes herein shall include the Additional Notes unless the
context otherwise requires.

 

(c)          The
entire outstanding principal of the Notes shall be payable on August 15, 2026, unless earlier redeemed or repurchased in accordance
with the provisions of this Second Supplemental Indenture.

 

(d)         The
rate at which the Notes shall bear interest shall be 6.875% per annum (the “Applicable Interest Rate”). The date from
which interest shall accrue on the Notes shall be August 9, 2016, or the most recent Interest Payment Date to which interest has
been paid or provided for; the Interest Payment Dates for the Notes shall be February 15, May 15, August 15 and November 15 of
each year, commencing November 15, 2016 (if an Interest Payment Date falls on a day that is not a Business Day, then the applicable
interest payment will be made on the next succeeding Business Day and no additional interest will accrue as a result of such delayed
payment); the initial interest period will be the period from and including August 9, 2016, to, but excluding, the initial Interest
Payment Date, and the subsequent interest periods will be the periods from and including an Interest Payment Date to, but excluding,
the next Interest Payment Date or the Stated Maturity, as the case may be; the interest so payable, and punctually paid or duly
provided for, on any Interest Payment Date, will be paid to the Person in whose name the Note (or one or more Predecessor Securities)
is registered at the close of business on the Regular Record Date for such interest, which shall be February 1, May 1, August 1
or November 1 (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. Payment of principal
of (and premium, if any, on) and any such interest on the Notes will be made at the Corporate Trust Office of the Trustee in Boston,
Massachusetts in such coin or currency of the United States of America as at the time of payment is legal tender for payment of
public and private debts; provided, however, that at the option of the Company payment of interest may be made by check mailed
to the address of the Person entitled thereto as such address shall appear in the Security Register; provided, further, however,
that so long as the Notes are registered to Cede & Co., such payment will be made by wire transfer in accordance with the procedures
established by The Depository Trust Company and the Trustee. Interest on the Notes will be computed on the basis of a 360-day year
of twelve 30-day months.

  

(e)          The
Notes shall be initially issuable in global form (each such Note, a “Global Note”). The Global Notes and the Trustee’s
certificate of authentication thereon shall be substantially in the form of Exhibit A to this Second Supplemental Indenture. Each
Global Note shall represent the outstanding Notes as shall be specified therein and each shall provide that it shall represent
the aggregate amount of outstanding Notes from time to time endorsed thereon and that the aggregate amount of outstanding Notes
represented thereby may from time to time be reduced or increased, as appropriate, to reflect exchanges, redemptions and issuances.
Any endorsement of a Global Note to reflect the amount of any increase or decrease in the amount of outstanding Notes represented
thereby shall be made by the Trustee or the Security Registrar, in accordance with Sections 203 and 305 of the Base Indenture.

 

     

     

    

 

(f)          The
depositary for such Global Notes (the “Depositary”) shall be The Depository Trust Company, New York, New York. The
Security Registrar with respect to the Global Notes shall be the Trustee.

 

(g)         The
Notes shall be defeasible pursuant to Section 1402 or Section 1403 of the Base Indenture. Covenant defeasance contained in Section
1403 of the Base Indenture shall apply to the covenants contained in Sections 1007, 1008 and 1009 of the Indenture.

 

(h)         The
Notes shall be redeemable pursuant to Section 1101 of the Base Indenture and as follows:

 

(i)          The
Notes will be redeemable in whole or in part at any time or from time to time, at the option of the Company, on or after August
15, 2019, at a redemption price equal to 100% of the outstanding principal amount thereof plus accrued and unpaid interest payments
otherwise payable for the then-current quarterly interest period accrued to, but excluding, the date fixed for redemption.

 

(ii)         Notice
of redemption shall be given in writing and mailed, first-class postage prepaid or by overnight courier guaranteeing next-day delivery,
to each Holder of the Notes to be redeemed, not less than thirty (30) nor more than sixty (60) days prior to the Redemption Date,
at the Holder’s address appearing in the Security Register. All notices of redemption shall contain the information set forth
in Section 1104 of the Base Indenture.

 

(iii)        Any
exercise of the Company’s option to redeem the Notes will be done in compliance with the Indenture to the extent applicable.

 

(iv)        If
the Company elects to redeem only a portion of the Notes, the Trustee or the Depositary, as applicable, will determine the method
for selecting the particular Notes to be redeemed, in accordance with Section 1103 of the Base Indenture and the Investment Company
Act and the rules of any national securities exchange or quotation system on which the Notes are listed, in each case to the extent
applicable.

 

(v)         Unless
the Company defaults in payment of the Redemption Price, on and after the Redemption Date, interest will cease to accrue on the
Notes called for redemption hereunder.

 

(i)          The
Notes shall not be subject to any sinking fund pursuant to Section 1201 of the Base Indenture.

 

(j)          The
Notes shall be issuable in denominations of $25 and integral multiples of $25 in excess thereof.

 

(k)          Holders
of the Notes will not have the option to have the Notes repaid prior to the Stated Maturity.

 

(l)          The
Notes are hereby designated as “Designated Senior Securities” under the Indenture.

 

ARTICLE
II

DEFINITIONS
AND OTHER PROVISIONS OF GENERAL APPLICATION

 

Section 201      Except
as may be provided in a Future Supplemental Indenture, for the benefit of the Holders of the Notes but no other series of Securities
under the Indenture, whether now or hereafter issued and Outstanding, Article I of the Base Indenture shall be amended by adding
the following defined terms to Section 101 in appropriate alphabetical sequence, as follows:

  

“‘Exchange Act’
means the Securities Exchange Act of 1934, as amended, and any statute successor thereto.”

 

     

     

    

 

“‘GAAP’
means generally accepted accounting principles in the United States set forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public Accountants, the opinions and pronouncements of the Public Company
Accounting Oversight Board and the statements and pronouncements of the Financial Accounting Standards Board or in such other statements
by such other entity as have been approved by a significant segment of the accounting profession in the United States, which are
in effect from time to time.”

 

ARTICLE
III

COVENANTS

 

Section 301      Except
as may be provided in a Future Supplemental Indenture, for the benefit of the Holders of the Notes but no other series of Securities
under the Indenture, whether now or hereafter issued and Outstanding, Article X of the Base Indenture shall be amended by adding
the following new Section 1007 thereto, as set forth below:

 

“Section 1007 Commission Reports and Reports
to Holders.

 

If, at any time, the Company or
Medley Management Inc. are not subject to the reporting requirements of Sections 13 or 15(d) of the Exchange Act to file any periodic
reports with the Commission, the Company agrees to furnish to the Holders of Notes and the Trustee for the period of time during
which the Notes are Outstanding: (i) within 90 days after the end of the each fiscal year of the Company, audited annual consolidated
financial statements of the Company and (ii) within 45 days after the end of each fiscal quarter of the Company (other than the
Company’s fourth fiscal quarter), unaudited interim consolidated financial statements of the Company. All such financial
statements shall be prepared, in all material respects, in accordance with GAAP.”

 

ARTICLE
IV

REDEMPTION
OF SECURITIES

 

Section 401      Except
as may be provided in a Future Supplemental Indenture, for the benefit of the Holders of the Notes but no other series of Securities
under the Indenture, whether now or hereafter issued and Outstanding, Section 1103 of the Base Indenture shall be amended by replacing
the heading and the first paragraph thereof with the following:

  

“Section 1103. Selection of Securities
to Be Redeemed.

 

If less than all the Securities
of any series issued on the same day with the same terms are to be redeemed, the particular Securities to be redeemed shall be
selected not more than 45 days prior to the Redemption Date by the Trustee, or by the Depositary in the case of global Securities,
from the Outstanding Securities of such series issued on such date with the same terms not previously called for redemption, in
compliance with the requirements of DTC and in compliance with the requirements of the principal national securities exchange on
which the Securities are listed (if the Securities are listed on any national securities exchange), or if the Securities are not
held through DTC or listed on any national securities exchange, or DTC prescribed no method of selection, on a pro rata basis,
or by such method as the Trustee shall deem fair and appropriate and subject to and otherwise in accordance with the procedures
of the applicable Depositary; provided that such method may provide for the selection for redemption of portions (equal to the
minimum authorized denomination for Securities of that series or any integral multiple thereof) of the principal amount of Securities
of such series of a denomination larger than the minimum authorized denomination for Securities of that series; provided, however,
that no such partial redemption shall reduce the portion of the principal amount of a Security not redeemed to less than the minimum
authorized denomination for Securities of such series.”

 

     

     

    

 

ARTICLE
V

MEETINGS
OF HOLDERS OF SECURITIES

 

Section 501      Except
as may be provided in a Future Supplemental Indenture, for the benefit of the Holders of the Notes but no other series of Securities
under the Indenture, whether now or hereafter issued and Outstanding, Section 1505 of the Base Indenture shall be amended by replacing
clause (c) thereof with the following:

  

“(c)          At
any meeting of Holders, each Holder of a Security of such series or proxy shall be entitled to one vote for each $25.00 principal
amount of the Outstanding Securities of such series held or represented by such Holder; provided, however, that no
vote shall be cast or counted at any meeting in respect of any Security challenged as not Outstanding and ruled by the chairman
of the meeting to be not Outstanding. The chairman of the meeting shall have no right to vote, except as a Holder of a Security
of such series or proxy.”

 

 

ARTICLE
VI

MISCELLANEOUS

 

Section 601      This
Second Supplemental Indenture and the Notes shall be governed by and construed in accordance with the laws of the State of New
York, without regard to principles of conflicts of laws. This Second Supplemental Indenture is subject to the provisions of the
Trust Indenture Act that are required to be part of the Indenture and shall, to the extent applicable, be governed by such provisions.

 

Section 602      In
case any provision in this Second Supplemental Indenture or in the Notes shall be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.

 

Section 603      This
Second Supplemental Indenture may be executed in counterparts, each of which will be an original, but such counterparts will together
constitute but one and the same Second Supplemental Indenture. The exchange of copies of this Second Supplemental Indenture and
of signature pages by facsimile, .pdf transmission, email or other electronic means shall constitute effective execution and delivery
of this Second Supplemental Indenture for all purposes. Signatures of the parties hereto transmitted by facsimile, .pdf transmission,
email or other electronic means shall be deemed to be their original signatures for all purposes.

 

Section 604      The
Base Indenture, as supplemented and amended by this Second Supplemental Indenture, is in all respects ratified and confirmed, and
the Base Indenture and this Second Supplemental Indenture shall be read, taken and construed as one and the same instrument with
respect to the Notes. All provisions included in this Second Supplemental Indenture supersede any conflicting provisions included
in the Base Indenture with respect to the Notes, unless not permitted by law. The Trustee accepts the trusts created by the Base
Indenture, as supplemented by this Second Supplemental Indenture, and agrees to perform the same upon the terms and conditions
of the Base Indenture, as supplemented by this Second Supplemental Indenture.

 

Section 605      The
provisions of this Second Supplemental Indenture shall become effective as of the date hereof.

 

Section 606      Notwithstanding
anything else to the contrary herein, the terms and provisions of this Second Supplemental Indenture shall apply only to the Notes
and shall not apply to any other series of Securities under the Indenture and this Second Supplemental Indenture shall not and
does not otherwise affect, modify, alter, supplement or change the terms and provisions of any other series of Securities under
the Indenture, whether now or hereafter issued and Outstanding.

 

Section 607      The
recitals contained herein and in the Notes shall be taken as the statements of the Company, and the Trustee assumes no responsibility
for their correctness. The Trustee makes no representations as to the validity or sufficiency of this Second Supplemental Indenture,
the Notes or any Additional Notes, except that the Trustee represents that it is duly authorized to execute and deliver this Second
Supplemental Indenture, authenticate the Notes and any Additional Notes and perform its obligations hereunder. The Trustee shall
not be accountable for the use or application by the Company of the Notes or any Additional Notes or the proceeds thereof.

 

     

     

    

 

IN WITNESS WHEREOF, the parties hereto have
caused this Second Supplemental Indenture to be duly executed as of the date first above written.

 

	 	MEDLEY LLC
	 	 
	 	By:	/s/ Richard T. Allorto, Jr.  
	 	Name:   	Richard T. Allorto, Jr.
	 	Title:	Chief Financial Officer
	 	 
	 	U.S. BANK NATIONAL ASSOCIATION, as Trustee
	 	 
	 	By:	/s/ Steven J. Gomes 
	 	Name:	Steven J. Gomes
	 	Title:	Vice President

 

[Signature page to Second Supplemental
Indenture]

 

     

     

    

 

Exhibit A

Form of Global Note 

 

This Security is a Global Note within the meaning of the
Indenture hereinafter referred to and is registered in the name of The Depository Trust Company or a nominee thereof. This Security
may not be exchanged in whole or in part for a Security registered, and no transfer of this Security in whole or in part may be
registered, in the name of any Person other than The Depository Trust Company or a nominee thereof, except in the limited circumstances
described in the Indenture.

 

Unless this certificate is presented by an authorized representative
of The Depository Trust Company to the issuer or its agent for registration of transfer, exchange or payment and such certificate
issued in exchange for this certificate is registered in the name of Cede & Co., or such other name as requested by an authorized
representative of The Depository Trust Company, any transfer, pledge or other use hereof for value or otherwise by or to any person
is wrongful, as the registered owner hereof, Cede & Co., has an interest herein.

 

Medley LLC

 

	No. 	$      
	 	CUSIP No. [  ]
	 	ISIN No. [   ]

 

6.875% Notes due 2026

 

Medley LLC, a limited liability company
duly organized and existing under the laws of Delaware (herein called the “Company,” which term includes any successor
Person under the Indenture hereinafter referred to), for value received, hereby promises to pay to Cede & Co., or registered
assigns, the principal sum of  [       ] U.S. DOLLARS (U.S.$ [       ])
on August 15, 2026, and to pay interest thereon from August 9, 2016, or from the most recent Interest Payment Date to which interest
has been paid or duly provided for, quarterly on February 15, May 15, August 15 and November 15 in each year, commencing November
15, 2016, at the rate of 6.875% per annum, until the principal hereof is paid or made available for payment. The interest so payable,
and punctually paid or duly provided for, on any Interest Payment Date will, as provided in such Indenture, be paid to the Person
in whose name this Security is registered at the close of business on the Regular Record Date for such interest, which shall be
February 1, May 1, August 1 or November 1 (whether or not a Business Day), as the case may be, next preceding such Interest Payment
Date. Any such interest not so punctually paid or duly provided for will forthwith cease to be payable to the Holder on such Regular
Record Date and may either be paid to the Person in whose name this Security is registered at the close of business on a Special
Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to Holders of
Securities of this series not less than 10 days prior to such Special Record Date, or be paid at any time in any other lawful manner
not inconsistent with the requirements of any securities exchange on which the Securities of this series may be listed, and upon
such notice as may be required by such exchange, all as more fully provided in said Indenture. This Security may be issued as part
of a series.

 

Payment of the principal of (and premium,
if any, on) and any such interest on this Security will be made at the Corporate Trust Office of the Trustee in Boston, Massachusetts
in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private
debts; provided, however, that at the option of the Company payment of interest may be made by check mailed to the
address of the Person entitled thereto as such address shall appear in the Security Register; provided, further, however,
that so long as this Security is registered to Cede & Co., such payment will be made by wire transfer in accordance with the
procedures established by The Depository Trust Company and the Trustee.

 

Reference is hereby made to the further
provisions of this Security set forth on the reverse hereof, which further provisions shall for all purposes have the same effect
as if set forth at this place.

 

     

     

    

 

Unless the certificate of authentication
hereon has been executed by the Trustee referred to on the reverse hereof by manual signature, this Security shall not be entitled
to any benefit under the Indenture or be valid or obligatory for any purpose.

 

IN WITNESS WHEREOF, the Company has caused
this instrument to be duly executed.

 

Dated:

 

	 	MEDLEY LLC
	 	 
	 	By:	 
	 	 	Name:
	 	 	Title:   

 

Attest

 

	By:	 	 
	 	Name:	 
	 	Title:	 

 

 

     

     

    

 

This is one of the Securities of the series
designated therein referred to in the within-mentioned Indenture.

 

Dated:

 

	 	U.S. BANK NATIONAL ASSOCIATION as Trustee
	 	 
	 	By:	 
	 	 	Authorized Signatory

 

 

     

     

    

 

Medley LLC

6.875% Notes due 2026

 

This Security is one of a duly authorized
issue of Senior Securities of the Company (herein called the “Securities”), issued and to be issued in one or more
series under an Indenture, dated as of August 9, 2016 (herein called the “Base Indenture”, which term shall have the
meaning assigned to it in such instrument), between the Company and U.S. Bank National Association, as Trustee (herein called the
“Trustee”, which term includes any successor trustee under the Base Indenture), and reference is hereby made to the
Base Indenture for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company,
the Trustee, and the Holders of the Securities and of the terms upon which the Securities are, and are to be, authenticated and
delivered, as supplemented by the First Supplemental Indenture relating to the Securities, dated as of August 9, 2016, by and between
the Company and the Trustee (herein called the “First Supplemental Indenture”), and as further supplemented by the
Second Supplemental Indenture relating to the Securities, dated as of October 18, 2016, by and between the Company and the Trustee
(herein called the “Second Supplemental Indenture”) (the First Supplemental Indenture, the Second Supplemental Indenture
and the Base Indenture collectively are herein called the “Indenture”). In the event of any conflict between the Base
Indenture, the First Supplemental Indenture, and the Second Supplemental Indenture, the Second Supplemental Indenture shall govern
and control.

 

This Security is one of the series designated
on the face hereof, which series is initially limited in aggregate principal amount to $[       ]
(or up to $[       ] in aggregate principal amount if the underwriters’ option to purchase
additional Securities is exercised in full).  Under a Board Resolution, Officers’ Certificate pursuant to Board
Resolutions or an indenture supplement, the Company may from time to time, without the consent of the Holders of Securities, issue
additional Securities of this series (in any such case “Additional Securities”) having the same ranking and the same
interest rate, maturity and other terms as the Securities. Any Additional Securities and the existing Securities will constitute
a single series under the Indenture and all references to the relevant Securities herein shall include the Additional Securities
unless the context otherwise requires. The aggregate amount of outstanding Securities represented hereby may from time to time
be reduced or increased, as appropriate, to reflect exchanges, redemptions and issuances.

 

The Securities of this series are subject
to redemption in whole or in part at any time or from time to time, at the option of the Company, on or after August 15, 2019,
at a redemption price per security equal to 100% of the outstanding principal amount thereof plus accrued and unpaid interest payments
otherwise payable for the then-current quarterly interest period accrued to, but excluding, the date fixed for redemption.

 

Notice of redemption shall be given in writing
and mailed, first-class postage prepaid or by overnight courier guaranteeing next-day delivery, to each Holder of the Securities
to be redeemed, not less than thirty (30) nor more than sixty (60) days prior to the Redemption Date, at the Holder’s address
appearing in the Security Register. All notices of redemption shall contain the information set forth in Section 1104 of the Base
Indenture.

 

Any exercise of the Company’s option
to redeem the Securities will be done in compliance with the Indenture and the Investment Company Act, to the extent applicable.

 

If the Company elects to redeem only a portion
of the Securities, the Trustee or the Depositary, as applicable, will determine the method for selecting the particular Securities
to be redeemed, in accordance with the Indenture to the extent applicable. In the event of redemption of this Security in part
only, a new Security or Securities of this series and of like tenor for the unredeemed portion hereof will be issued in the name
of the Holder hereof upon the cancellation hereof.

 

Unless the Company defaults in payment of
the Redemption Price, on and after the Redemption Date, interest will cease to accrue on the Securities called for redemption.

  

The Indenture contains provisions for defeasance
at any time of the entire indebtedness of this Security or certain restrictive covenants and Events of Default with respect to
this Security, in each case upon compliance with certain conditions set forth in the Indenture.

 

     

     

    

 

If an Event of Default with respect to Securities
of this series shall occur and be continuing, the principal of the Securities of this series may be declared due and payable in
the manner and with the effect provided in the Indenture.

 

The Indenture permits, with certain exceptions
as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of
the Holders of the Securities of each series to be affected under the Indenture at any time by the Company and the Trustee with
the consent of the Holders of not less than a majority in principal amount of the Securities at the time Outstanding of each series
to be affected. The Indenture also contains provisions permitting the Holders of specified percentages in principal amount of the
Securities of each series at the time Outstanding, on behalf of the Holders of all Securities of such series, to waive compliance
by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any
such consent or waiver by the Holder of this Security shall be conclusive and binding upon such Holder and upon all future Holders
of this Security and of any Security issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof,
whether or not notation of such consent or waiver is made upon this Security.

 

As provided in and subject to the provisions
of the Indenture, the Holder of this Security shall not have the right to institute any proceeding with respect to the Indenture
or for the appointment of a receiver or trustee or for any other remedy thereunder, unless such Holder shall have previously given
the Trustee written notice of a continuing Event of Default with respect to the Securities of this series, the Holders of not less
than 50% in principal amount of the Securities of this series at the time Outstanding shall have made written request to the Trustee
to institute proceedings in respect of such Event of Default as Trustee and offered the Trustee reasonable indemnity against the
costs, expenses and liabilities to be incurred in compliance with such request, and the Trustee shall not have received from the
Holders of a majority in principal amount of Securities of this series at the time Outstanding a direction inconsistent with such
request, and shall have failed to institute any such proceeding, for sixty (60) days after receipt of such notice, request and
offer of indemnity. The foregoing shall not apply to any suit instituted by the Holder of this Security for the enforcement of
any payment of principal hereof or any premium or interest hereon on or after the respective due dates expressed herein.

 

No reference herein to the Indenture and
no provision of this Security or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional,
to pay the principal of and any premium and interest on this Security at the times, place and rate, and in the coin or currency,
herein prescribed.

 

As provided in the Indenture and subject
to certain limitations therein set forth, the transfer of this Security is registrable in the Security Register, upon surrender
of this Security for registration of transfer at the office or agency of the Company in any place where the principal of and any
premium and interest on this Security are payable, duly endorsed by, or accompanied by a written instrument of transfer in form
satisfactory to the Company and the Security Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing,
and thereupon one or more new Securities of this series and of like tenor, of authorized denominations and for the same aggregate
principal amount, will be issued to the designated transferee or transferees.

 

The Securities of this series are issuable
only in registered form without coupons in denominations of $25 and any integral multiples of $25 in excess thereof. As provided
in the Indenture and subject to certain limitations therein set forth, Securities of this series are exchangeable for a like aggregate
principal amount of Securities of this series and of like tenor of a different authorized denomination, as requested by the Holder
surrendering the same.

 

No service charge shall be made for any
such registration of transfer or exchange, but the Company or Trustee may require payment of a sum sufficient to cover any tax
or other governmental charge payable in connection therewith.

 

Prior to due presentment of this Security
for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose
name this Security is registered as the owner hereof for all purposes, whether or not this Security be overdue, and neither the
Company, the Trustee nor any such agent shall be affected by notice to the contrary.

 

     

     

    

 

All terms used in this Security which are
defined in the Indenture shall have the meanings assigned to them in the Indenture.

 

The Indenture and this Security shall be
governed by and construed in accordance with the laws of the State of New York, without regard to principles of conflicts of laws.rlje-ex107_6.htm

Exhibit 10.7

 

NEITHER THIS SECURITY NOR THE SECURITIES FOR WHICH THIS SECURITY IS EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.  THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

 

COMMON STOCK PURCHASE WARRANT

 

RLJ ENTERTAINMENT, INC.

Warrant No. _________Initial Exercise Date: May 20, 2015

Warrant Shares: _______Exchange Date: October 14, 2016

 

THIS COMMON STOCK PURCHASE WARRANT (the “Warrant”) certifies that, for value received, _____________ or its assigns (the “Holder”) is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time on or after May 20, 2015 (the “Initial Exercise Date”) and on or prior to the close of business on the five year anniversary of the Initial Exercise Date (the “Termination Date”) but not thereafter, to subscribe for and purchase from RLJ Entertainment, Inc., a Nevada corporation (the “Company”), up to ______ shares (as subject to adjustment hereunder, the “Warrant Shares,” and such number of Warrant Shares, the “Warrant Share Number”)) of Common Stock.  The purchase price of one share of Common Stock under this Warrant shall be equal to the Exercise Price, as defined in Section 2(b).  

Section 1.Definitions.  Capitalized terms used and not otherwise defined herein shall have the meanings set forth in that certain Securities Purchase Agreement (the “Purchase Agreement”), dated May 14, 2015, among the Company and the purchasers signatory thereto. This Warrant is issued pursuant to an Amendment and Exchange Agreement, dated as of August 19, 2016, by and between the Holder and the Company (the “Exchange Agreement”) in exchange for a Common Stock Purchase Warrant, exercisable into the Warrant Share Number of shares of Common Stock, originally issued on the Initial Exercise Date pursuant to the Purchase Agreement.

For purposes of this Warrant, the following terms shall have the following meanings:

a)“Bloomberg” means Bloomberg, L.P.

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b)“Convertible Securities” means any stock or other security (other than Options) that is at any time and under any circumstances, directly or indirectly, convertible into, exercisable or exchangeable for, or which otherwise entitles the holder thereof to acquire, any shares of Common Stock.

c)“Options” means any rights, warrants or options to subscribe for or purchase shares of Common Stock or Convertible Securities.

Section 2.Exercise.

a)Exercise of Warrant.  Exercise of the purchase rights represented by this Warrant may be made, in whole or in part, at any time or times on or after the Initial Exercise Date and on or before the Termination Date by delivery to the Company (or such other office or agency of the Company as it may designate by notice in writing to the registered Holder at the address of the Holder appearing on the books of the Company) of a duly executed facsimile copy (or e-mail attachment) of the Notice of Exercise in the form annexed hereto and within three (3) Trading Days of the date said Notice of Exercise is delivered to the Company, the Company shall have received payment of the aggregate Exercise Price of the shares thereby purchased by wire transfer or cashier’s check drawn on a United States bank or, if available, pursuant to the cashless exercise procedure specified in Section 2(c) below. No ink-original Notice of Exercise shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of Exercise form be required.  Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company until the Holder has purchased all of the Warrant Shares available hereunder and the Warrant has been exercised in full, in which case, the Holder shall surrender this Warrant to the Company for cancellation within three (3) Trading Days of the date the final Notice of Exercise is delivered to the Company. Partial exercises of this Warrant resulting in purchases of a portion of the total number of Warrant Shares available hereunder shall have the effect of lowering the outstanding number of Warrant Shares purchasable hereunder in an amount equal to the applicable number of Warrant Shares purchased.  The Holder and the Company shall maintain records showing the number of Warrant Shares purchased and the date of such purchases. The Company shall deliver any objection to any Notice of Exercise within one (1) Business Day of receipt of such notice.  The Holder and any assignee, by acceptance of this Warrant, acknowledge and agree that, by reason of the provisions of this paragraph, following the purchase of a portion of the Warrant Shares hereunder, the number of Warrant Shares available for purchase hereunder at any given time may be less than the amount stated on the face hereof.

b)Exercise Price.  The exercise price per share of the Common Stock under this Warrant shall be $[1.50/2.37/3.00], subject to adjustment hereunder (the “Exercise Price”).

c)Cashless Exercise.  If at any time after the six month anniversary of the date of the Purchase Agreement, there is no effective Registration Statement registering, or no current prospectus available for, the resale of the Warrant Shares by the Holder, 

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then this Warrant may also be exercised, in whole or in part, at such time by means of a “cashless exercise” in which the Holder shall be entitled to receive a number of Warrant Shares equal to the quotient obtained by dividing [(A-B) (X)] by (A), where:

 (A) = the VWAP on the Trading Day immediately preceding the date on which Holder elects to exercise this Warrant by means of a “cashless exercise,” as set forth in the applicable Notice of Exercise;

 

(B) = the Exercise Price of this Warrant, as adjusted hereunder; and 

 

(X) = the number of Warrant Shares that would be issuable upon exercise of this Warrant in accordance with the terms of this Warrant if such exercise were by means of a cash exercise rather than a cashless exercise.

 

If Warrant Shares are issued in such a cashless exercise, the parties acknowledge and agree that in accordance with Section 3(a)(9) of the Securities Act, the Warrant Shares shall take on the registered characteristics of the Warrants being exercised, and the holding period of the Warrants being exercised may be tacked on to the holding period of the Warrant Shares.  The Company agrees not to take any position contrary to this Section 2(c).

 

“VWAP” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b)  if OTCQB or OTCQX is not a Trading Market, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on OTCQB or OTCQX as applicable, (c) if the Common Stock is not then listed or quoted for trading on OTCQB or OTCQX and if prices for the Common Stock are then reported in the “Pink Sheets” published by OTC Markets, Inc. (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported, or (d) if the Company and the Holder are unable to agree upon the fair market value of such security, then such dispute shall be resolved in accordance with the procedures in Section 5(p).

 

Notwithstanding anything herein to the contrary, on the Termination Date, this Warrant shall be automatically exercised via cashless exercise pursuant to this Section 2(c) (except, that to the extent such exercise would violate Section 2(e) below, the aggregate number of Warrant Shares issuable upon exercise in full of this Warrant via a cashless exercise shall be automatically exchanged into a right to receive such aggregate number of Warrant Shares, subject to a restriction on exercise in the form of Section 2(e) below).

 

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d)
	
Mechanics of Exercise. 

i.Delivery of Warrant Shares Upon Exercise.  Warrant Shares purchased hereunder shall be transmitted by the Transfer Agent to the Holder by crediting the account of the Holder’s or its designee’s balance account with The Depository Trust Company through its Deposit or Withdrawal at Custodian system (“DWAC”) if the Company is then a participant in such system and either (A) there is an effective registration statement permitting the issuance of the Warrant Shares to or resale of the Warrant Shares by the Holder or (B) the Warrant Shares are eligible for resale by the Holder pursuant to Rule 144, and otherwise by physical delivery of a certificate, registered in the Company’s share register in the name of the Holder or its designee, for the number of Warrant Shares to which the Holder is entitled pursuant to such exercise to the address specified by the Holder in the Notice of Exercise by the date that is one (1) Trading Day after the delivery to the Company of the Notice of Exercise (such date, the “Warrant Share Delivery Date”).   The Warrant Shares shall be deemed to have been issued, and Holder or any other person so designated to be named therein shall be deemed to have become a holder of record of such shares for all purposes, as of the date the Warrant has been exercised, with payment to the Company of the Exercise Price (or by cashless exercise, if permitted) and all taxes required to be paid by the Holder, if any, pursuant to Section 2(d)(vi) prior to the issuance of such shares, having been paid.  If the Company fails for any reason to deliver to the Holder the Warrant Shares subject to a Notice of Exercise by the Warrant Share Delivery Date, the Company shall pay to the Holder, in cash, as liquidated damages and not as a penalty, for each $1,000 of Warrant Shares subject to such exercise (based on the VWAP of the Common Stock on the date of the applicable Notice of Exercise), $10 per Trading Day (increasing to $20 per Trading Day on the fifth Trading Day after such liquidated damages begin to accrue) for each Trading Day after such Warrant Share Delivery Date until such Warrant Shares are delivered or Holder rescinds such exercise. 

ii.Delivery of New Warrants Upon Exercise.  If this Warrant shall have been exercised in part, the Company shall, at the request of a Holder and upon surrender of this Warrant certificate, at the time of delivery of the Warrant Shares, deliver to the Holder a new Warrant evidencing the rights of the Holder to purchase the unpurchased Warrant Shares called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant.

iii.Rescission Rights.  If the Company fails to cause the Transfer Agent to transmit to the Holder the Warrant Shares pursuant to Section 2(d)(i) by the Warrant Share Delivery Date, then the Holder will have the right to rescind such exercise.

iv.Compensation for Buy-In on Failure to Timely Deliver Warrant Shares Upon Exercise.  In addition to any other rights available to the Holder, if the Company fails to cause the Transfer Agent to transmit to the Holder the Warrant Shares in accordance with the provisions of Section 2(d)(i) above 

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pursuant to an exercise on or before the Warrant Share Delivery Date (a “Delivery Failure”), and if after such date the Holder is required by its broker to purchase (in an open market transaction or otherwise) or the Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Warrant Shares which the Holder anticipated receiving upon such exercise (a “Buy-In”), then the Company shall (A) pay in cash to the Holder the amount, if any, by which (x) the Holder’s total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased exceeds (y) the amount obtained by multiplying (1) the number of Warrant Shares that the Company was required to deliver to the Holder in connection with the exercise at issue times (2) the price at which the sell order giving rise to such purchase obligation was executed, and (B) at the option of the Holder, either reinstate the portion of the Warrant and equivalent number of Warrant Shares for which such exercise was not honored (in which case such exercise shall be deemed rescinded) or deliver to the Holder the number of shares of Common Stock that would have been issued had the Company timely complied with its exercise and delivery obligations hereunder.  For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted exercise of shares of Common Stock with an aggregate sale price giving rise to such purchase obligation of $10,000, under clause (A) of the immediately preceding sentence the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount of such loss.  Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver shares of Common Stock upon exercise of the Warrant as required pursuant to the terms hereof.

v.No Fractional Shares or Scrip.  No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant.  As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such exercise, the Company shall, at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Exercise Price or round up to the next whole share.

vi.Charges, Taxes and Expenses.  Issuance of Warrant Shares shall be made without charge to the Holder for any issue or transfer tax or other incidental expense in respect of the issuance of Warrant Shares, all of which taxes and expenses shall be paid by the Company, and such Warrant Shares shall be issued in the name of the Holder or in such name or names as may be directed by the Holder; provided, however, that in the event that Warrant Shares are to be issued in a name other than the name of the Holder, this Warrant when surrendered for exercise shall be accompanied by the Assignment Form attached hereto duly executed by the Holder and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto.  

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The Company shall pay all Transfer Agent fees required for same-day processing of any Notice of Exercise and all fees to the Depository Trust Company (or another established clearing corporation performing similar functions) required for same-day electronic delivery of the Warrant Shares. 

vii.Closing of Books.  The Company will not close its stockholder books or records in any manner which prevents the timely exercise of this Warrant, pursuant to the terms hereof. 

viii.Disputes.  In the case of a dispute as to the determination of the Exercise Price or the arithmetic calculation of the number of Warrant Shares to be issued pursuant to the terms hereof, 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 5(p).

 

e)Holder’s Exercise Limitations.  The Company shall not effect any exercise of this Warrant, and a Holder shall not have the right to exercise any portion of this Warrant, pursuant to Section 2 or otherwise, to the extent that after giving effect to such issuance after exercise as set forth on the applicable Notice of Exercise, the Holder (together with the Holder’s Affiliates, and any other Persons acting as a group together with the Holder or any of the Holder’s Affiliates), would beneficially own in excess of the Beneficial Ownership Limitation (as defined below).  For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its Affiliates shall include the number of shares of Common Stock issuable upon exercise of this Warrant with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (i) exercise of the remaining, nonexercised portion of this Warrant beneficially owned by the Holder or any of its Affiliates and (ii) exercise or conversion of the unexercised or nonconverted portion of any other securities of the Company (including, without limitation, any other  Common Stock Equivalents) subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Holder or any of its Affiliates.  Except as set forth in the preceding sentence, for purposes of this Section 2(e), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder, it being acknowledged by the Holder that the Company is not representing to the Holder that such calculation is in compliance with Section 13(d) of the Exchange Act and the Holder is solely responsible for any schedules required to be filed in accordance therewith.   To the extent that the limitation contained in this Section 2(e) applies, the determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates) and of which portion of this Warrant is exercisable shall be in the sole discretion of the Holder, and the submission of a Notice of Exercise shall be deemed to be the Holder’s determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates) and of which portion of this Warrant is exercisable, in each case subject to the Beneficial Ownership Limitation, and the Company shall have no obligation to verify or confirm the accuracy of such determination.   In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the 

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Exchange Act and the rules and regulations promulgated thereunder.  For purposes of this Section 2(e), in determining the number of outstanding shares of Common Stock, a Holder may rely on the number of outstanding shares of Common Stock as reflected in (A) the Company’s most recent periodic or annual report filed with the Commission, as the case may be, (B) a more recent public announcement by the Company or (C) a more recent written notice by the Company or the Transfer Agent setting forth the number of shares of Common Stock outstanding.  Upon the written or oral request of a Holder, the Company shall within two Trading Days confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding.  In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Warrant, by the Holder or its Affiliates since the date as of which such number of outstanding shares of Common Stock was reported.  The “Beneficial Ownership Limitation” shall be 4.99% or 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon exercise of this Warrant, as elected by the applicable initial Holder on the Closing Date or in the applicable Blocker Election Notice (as defined below).  The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 2(e) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall apply to a successor holder of this Warrant.  Notwithstanding anything herein to the contrary, unless a Holder otherwise notifies the Company in writing on or prior to the Closing Date, this Section 2(e) shall not apply to a Holder who is, or whose Affiliate is, a director or a director by designation of the Company or any of its Subsidiaries when such Holder first acquires Preferred Shares or thereafter, until such time as the Holder delivers written notice (a “Blocker Election Notice”) to the Company that this Section 2(e) shall thereafter apply to this Warrant (which notice may not be waived, withdrawn or modified once given).

Section 3.Certain Adjustments.

a)Stock Dividends and Splits. If the Company, at any time while this Warrant is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions on shares of its Common Stock or any other equity or equity equivalent securities payable in shares of Common Stock (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon exercise of this Warrant), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of reverse stock split) outstanding shares of Common Stock into a smaller number of shares or (iv) issues by reclassification of shares of the Common Stock any shares of capital stock of the Company, then in each case the Exercise Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event, and the number of shares issuable upon exercise of this Warrant shall be proportionately adjusted such that 

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the aggregate Exercise Price of this Warrant shall remain unchanged.  Any adjustment made pursuant to this Section 3(a) shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re‐classification.

b)Subsequent Equity Sales.  If and whenever on or after the Closing Date, the Company issues or sells, or in accordance with this Section 3 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, but excluding any Excluded Securities issued or sold or deemed to have been issued or sold) for a consideration per share (the “Base Share Price”) less than a price equal to the VWAP immediately prior to such issuance or sale or deemed issuance or sale (such VWAP then in effect is referred to herein as the “Applicable Price”) (the foregoing a “Dilutive Issuance”), then immediately after such Dilutive Issuance, the Exercise Price then in effect shall be reduced to the price equal to the Exercise Price in effect immediately prior to the Dilutive Issuance multiplied by the quotient obtained by dividing (A) the sum of (i) the amount of Common Stock outstanding prior to the Dilutive Issuance (including any shares of Common Stock deemed to have been issued pursuant to Section 3(b)(i) or Section 3(b)(ii) but excluding the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such Dilutive Issuance (the “Warrant Exercise Shares”) plus (ii) the number of shares of Common Stock equal to the price payable to exercise the Dilutive Issuance divided by the VWAP as of the date immediately prior to the Dilutive Issuance, by (B) the sum of (i) the amount of Common Stock outstanding prior to the Dilutive Issuance (including any shares of Common Stock deemed to have been issued pursuant to Section 3(b)(i) or Section 3(b)(ii) but excluding the Warrant Exercise Shares) plus (ii) the number of shares of Common Stock issuable pursuant to the Dilutive Issuance.  For all purposes of the foregoing (including, without limitation, determining the adjusted Exercise Price and the Base Share Price under this Section 3(b)), the following shall be applicable: 

i.Issuance of Options.  If the Company in any manner grants or sells any Options and the lowest price per share for which one share of Common Stock is at any time 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 or otherwise pursuant to the terms thereof is less than the Applicable Price, 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 3(b)(i), the “lowest price per share for which one share of Common Stock is issuable upon the exercise of any such Options or upon conversion, exercise or exchange of any Convertible Securities issuable upon exercise of any such Option or otherwise pursuant to the terms thereof”  shall be equal to (1) the lower of (x) 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 such Option, upon exercise of such Option and upon conversion, exercise or exchange of any Convertible Security issuable upon exercise of such Option or otherwise 

8

 

 

pursuant to the terms thereof and (y) the lowest exercise price set forth in such Option for which one share of Common Stock is issuable upon the exercise of any such Options or upon conversion, exercise or exchange of any Convertible Securities issuable upon exercise of any such Option or otherwise pursuant to the terms thereof minus (2) the sum of all amounts paid or payable to the holder of such Option (or any other Person) upon the granting or sale of such Option, upon exercise of such Option and upon conversion, exercise or exchange of any Convertible Security issuable upon exercise of such Option or otherwise pursuant to the terms thereof plus the value of any other consideration received or receivable by, or benefit conferred on, the holder of such Option (or any other Person).  Except as contemplated below, no further adjustment of the Exercise Price 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 otherwise pursuant to the terms of 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 at any time issuable upon the conversion, exercise or exchange thereof or otherwise pursuant to the terms thereof is less than the Applicable Price, 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 3(b)(ii), the “lowest price per share for which one share of Common Stock is issuable upon the conversion, exercise or exchange thereof or otherwise pursuant to the terms thereof” shall be equal to (1) the lower of (x) 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 or otherwise pursuant to the terms thereof and (y) the lowest conversion price set forth in such Convertible Security for which one share of Common Stock is issuable upon conversion, exercise or exchange thereof or otherwise pursuant to the terms thereof minus (2) the sum of all amounts paid or payable to the holder of such Convertible Security (or any other Person) upon the issuance or sale of such Convertible Security plus the value of any other consideration received or receivable by, or benefit conferred on, the holder of such Convertible Security (or any other Person).  Except as contemplated below, no further adjustment of the Exercise Price shall be made upon the actual issuance of such shares of Common Stock upon conversion, exercise or exchange of such Convertible Securities or otherwise pursuant to the terms thereof, and if any such issuance 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 3(b), except as contemplated below, no further adjustment of the Exercise Price shall be made by reason of such issuance or sale.

iii.Change in Option Price or Rate of Conversion.  If the purchase or exercise price provided for in any Options, the additional consideration, if any, 

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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 (other than proportional changes in conversion or exercise prices, as applicable, in connection with an event referred to in Section 3(a)), the Exercise Price in effect at the time of such increase or decrease shall be adjusted to the Exercise Price 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 3(b)(iii), if the terms of any Option or Convertible Security that was outstanding as of the Closing Date 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 3(b) shall be made if such adjustment would result in an increase of the Exercise Price then in effect.

iv.Calculation of Consideration Received.  If any Option is issued in connection with the issuance or sale of any other securities of the Company together comprising one integrated transaction in which no specific consideration is allocated to such Option 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 of consideration 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 Company will be the fair value of such consideration, except where such consideration consists of publicly traded securities, in which case the amount of consideration received by the Company for such securities will be the arithmetic average of the VWAPs of such security for each of the five (5) Trading Days immediately preceding 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.  The fair value of any consideration other than cash or publicly traded securities will be determined jointly by the Company and the Holder.  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) Trading Days after the tenth (10th) day following such Valuation Event by an independent, reputable appraiser jointly selected by the Company and the Holder.  The determination of such appraiser shall be final and binding upon all parties absent manifest error.  If such appraiser’s valuation differs by less than 5% from the Company’s proposed 

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valuation, the fees and expenses of such appraiser shall be borne by the Holder, and if such appraiser’s valuation differs by more than 5% from the Company’s proposed valuation, 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 issuance 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).

c)Number of Warrant Shares.  Simultaneously with any adjustment to the Exercise Price pursuant to Section 3(a), the number of Warrant Shares that may be purchased upon exercise of this Warrant shall be increased or decreased proportionately, so that after such adjustment the aggregate Exercise Price payable hereunder for the adjusted number of Warrant Shares shall be the same as the aggregate Exercise Price in effect immediately prior to such adjustment (without regard to any limitations on exercise contained herein). 

d)Other Events.  In the event that the Company (or any Subsidiary) shall take any action to which the provisions hereof are not strictly applicable, or, if applicable, would not operate to protect the Holder from dilution or if any event occurs of the type contemplated by the provisions of this Section 3 but not expressly provided for by such provisions (including, without limitation, the granting of  stock appreciation rights, phantom stock rights or other rights with equity features), then the Company’s board of directors shall in good faith determine and implement an appropriate adjustment in the Exercise Price and the number of Warrant Shares (if applicable) so as to protect the rights of the Holder, provided that no such adjustment pursuant to this Section 3(d) will increase the Exercise Price or decrease the number of Warrant Shares as otherwise determined pursuant to this Section 3, provided further that if the Holder does not accept such adjustments as appropriately protecting its interests hereunder against such dilution, then the Company’s board of directors and the Holder shall agree, in good faith, upon an independent investment bank of nationally recognized standing to make such appropriate adjustments, whose determination shall be final and binding absent manifest error.  If such investment bank’s resolution differs by less than 5% from the Company’s proposed determination, the fees and expenses of such investment bank shall be borne by the Holder, and if such investment bank’s resolution differs by more than 5% from the Company’s proposed determination, the fees and expenses of such investment bank shall be borne by the Company.  

e)Voluntary Adjustment By Company.  The Company may at any time during the term of this Warrant, with the prior written consent of the Holder, reduce the 

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then current Exercise Price to any amount and for any period of time deemed appropriate by the board of directors of the Company. 

f)Notice; Variable Rate Transactions. The Company shall notify the Holder, in writing, no later than the Trading Day following the issuance or deemed issuance of any Common Stock or Common Stock Equivalents subject to Section 3(b), indicating therein the applicable issuance price, or applicable reset price, exchange price, conversion price and other pricing terms (such notice, the “Dilutive Issuance Notice”).  For purposes of clarification, whether or not the Company provides a Dilutive Issuance Notice pursuant to Section 3(b), upon the occurrence of any Dilutive Issuance, the Holder is entitled to receive a number of Warrant Shares based upon the Base Share Price regardless of whether the Holder accurately refers to the Base Share Price in the Notice of Exercise. If the Company enters into a Variable Rate Transaction, despite the prohibition thereon in the Purchase Agreement, the Company shall be deemed to have issued Common Stock or Common Stock Equivalents at the lowest possible conversion or exercise price at which such securities may be converted or exercised.

g)Subsequent Rights Offerings.  In addition to any adjustments pursuant to Section 3(a) above, if at any time the Company grants, issues or sells any Common Stock Equivalents or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of shares of Common Stock (the “Purchase Rights”), then the Holder will be entitled to acquire, 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 exercise hereof, including without limitation, the Beneficial Ownership Limitation) 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 (provided, however, to the extent that the Holder’s right to participate in any such Purchase Right would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Purchase Right to such extent (or beneficial ownership of such shares of Common Stock as a result of such Purchase Right to such extent) and such Purchase Right to such extent shall be held in abeyance for the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation). 

h)Pro Rata Distributions.  During such time as this Warrant is outstanding, 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, the Holder shall be entitled to participate in such Distribution to the same extent that the Holder would have participated therein 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 

12

 

 

exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date of which a record is taken for such Distribution, 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 participation in such Distribution (provided, however, to the extent that the Holder's right to participate in any such Distribution would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Distribution to such extent (or in the beneficial ownership of any shares of Common Stock as a result of such Distribution to such extent) and the portion of such Distribution shall be held in abeyance for the benefit of the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).  

i)Fundamental Transaction. If, at any time while this Warrant is outstanding, (i) the Company, directly or indirectly, in one or more related transactions effects any merger or consolidation of the Company with or into another Person, (ii) the Company, directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or a series of related transactions, (iii) the Company, directly or indirectly, assists or agrees to assist a purchase offer, tender offer or exchange offer pursuant to which holders of Common Stock are permitted to sell, tender or exchange their shares for other securities, cash or property and such offer has been accepted by the holders of 50% or more of the outstanding Common Stock, (iv) the Company, directly or indirectly, in one or more related transactions effects any reclassification, reorganization or recapitalization of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property, or (v) the Company, directly or indirectly, in one or more related transactions consummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement and any sale of control by a controlling stockholder or stockholders that is facilitated by the Company) with another Person or group of Persons whereby such other Person or group acquires more than 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 or share purchase agreement or other business combination) (each a “Fundamental Transaction”), then (1) in the event of a Fundamental Transaction in which the consideration received by the holders of Common Stock is exclusively cash, the Company or the Successor Entity (as the case may be) shall purchase this Warrant from the Holder as promptly as practicable on the date of such consummation by paying to the Holder cash equal to (x) the amount, if any, by which the purchase price per share paid for the shares of Common Stock acquired in the Fundamental Transaction exceeds the Exercise Price, multiplied by (y) the number of Warrant Shares, and (2) in the event of a Fundamental Transaction in which the consideration received by the holders of Common Stock is not exclusively cash, upon any subsequent exercise of this Warrant, the Holder shall have the right to receive (without regard to any limitation in Section 2(e) on the exercise of this Warrant), for each Warrant Share that would have been issuable upon such exercise immediately prior to the occurrence of such Fundamental Transaction the number of shares of Common Stock of the successor or acquiring corporation or of the Company, if it is the 

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surviving corporation, and any additional consideration (the “Alternate Consideration”) receivable as a result of such Fundamental Transaction by a holder of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such Fundamental Transaction (without regard to any limitation in Section 2(e) on the exercise of this Warrant).  For purposes of any such exercise, the determination of the Exercise Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Exercise Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration.  If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any exercise of this Warrant following such Fundamental Transaction. The Company shall cause any successor entity in a Fundamental Transaction in which the Company is not the survivor (the “Successor Entity”) to assume 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 3(i) pursuant to written agreements in form and substance reasonably satisfactory to the Holder and approved by the Holder (without unreasonable delay) prior to such Fundamental Transaction and shall, at the option of the Holder, deliver to the Holder in exchange for this Warrant a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Warrant, which is exercisable for a corresponding number of shares of capital stock of such Successor Entity (or its parent entity) 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 with an exercise price that applies the exercise price hereunder to such shares of capital stock (but taking into account the relative value of the shares of Common Stock pursuant to such Fundamental Transaction and the value of such shares of capital stock, such number of shares of capital stock and such exercise price being for the purpose of protecting the economic value of this Warrant immediately prior to the consummation of such Fundamental Transaction), and which is reasonably satisfactory in form and substance to the Holder. Upon the occurrence of any such 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 and the other Transaction Documents 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 and the other Transaction Documents with the same effect as if such Successor Entity had been named as the Company herein.

j)Calculations. All calculations under this Section 3 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Section 3, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding treasury shares, if any) issued and outstanding.

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k)Notice to Holder.  

i.Adjustment to Exercise Price. Whenever the Exercise Price is adjusted pursuant to any provision of this Section 3, the Company shall promptly mail to the Holder a notice setting forth the Exercise Price after such adjustment and any resulting adjustment to the number of Warrant Shares and setting forth a brief statement of the facts requiring such adjustment. 

ii.Notice to Allow Exercise by Holder. If (A) the Company shall declare a dividend (or any other distribution in whatever form) on the Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the Company shall authorize the granting to all holders of the Common Stock rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, or any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property, or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company, then, in each case, the Company shall cause to be mailed to the Holder at its last address as it shall appear upon the Warrant Register of the Company, at least 20 calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange; provided that the failure to mail such notice or any defect therein or in the mailing thereof shall not affect the validity of the corporate action required to be specified in such notice.  To the extent that any notice provided in this Warrant constitutes, or contains, material, non-public information regarding the Company or any of the Subsidiaries, the Company shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K.  The Holder shall remain entitled to exercise this Warrant during the period commencing on the date of such notice to the effective date of the event triggering such notice  except as may otherwise be expressly set forth herein.

l)[For Non-Management Warrants:  [Intentionally Omitted]] 

[For Management Warrants:

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Limitation on Adjustment.  The foregoing provisions of this Section 3 notwithstanding, in no event shall the Exercise Price be reduced, as a result of the application of Section 3(b), 3(d) or 3(e), to less than $2.37 per share.  For the avoidance of doubt, the foregoing limitation does not apply to any adjustment as a result of the application of Section 3(a).]

Section 4.Transfer of Warrant.

a)Transferability.  Subject to compliance with any applicable securities laws and the conditions set forth in Section 4(d) hereof and to the provisions of Section 4.1 of the Purchase Agreement, this Warrant and all rights hereunder (including, without limitation, any registration rights) are transferable, in whole or in part, upon surrender of this Warrant at the principal office of the Company or its designated agent, together with a written assignment of this Warrant substantially in the form attached hereto duly executed by the Holder or its agent or attorney and funds sufficient to pay any transfer taxes payable upon the making of such transfer.  Upon such surrender and, if required, such payment, the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees, as applicable, and in the denomination or denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled.  Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company unless the Holder has assigned this Warrant in full, in which case, the Holder shall surrender this Warrant to the Company within three (3) Trading Days of the date the Holder delivers an assignment form to the Company assigning this Warrant full.  The Warrant, if properly assigned in accordance herewith, may be exercised by a new holder for the purchase of Warrant Shares without having a new Warrant issued.  

b)New Warrants. This Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by the Holder or its agent or attorney.  Subject to compliance with Section 4(a), as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice. All Warrants issued on transfers or exchanges shall be dated the Initial Exercise Date and shall be identical with this Warrant except as to the number of Warrant Shares issuable pursuant thereto. 

c)Warrant Register. The Company shall register this Warrant, upon records to be maintained by the Company for that purpose (the “Warrant Register”), in the name of the record Holder hereof from time to time.  The Company may deem and treat the registered Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, absent actual notice to the contrary.

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d)Transfer Restrictions. 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 4.1 of the Purchase Agreement.

e)Representation by the Holder.  The Holder, by the acceptance hereof, represents and warrants that it is acquiring this Warrant and, upon any exercise hereof, will acquire the Warrant Shares issuable upon such exercise, for its own account and not with a view to or for distributing or reselling such Warrant Shares or any part thereof in violation of the Securities Act or any applicable state securities law, except pursuant to sales registered or exempted under the Securities Act.

Section 5.Miscellaneous.

a)No Rights as Stockholder Until Exercise.  This Warrant does not entitle the Holder to any voting rights, dividends or other rights as a stockholder of the Company prior to the exercise hereof as set forth in Section 2(d)(i), except as expressly set forth in Section 3.  

b)Loss, Theft, Destruction or Mutilation of Warrant. The Company covenants that upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant or any stock certificate relating to the Warrant Shares, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it (which, in the case of the Warrant, shall not include the posting of any bond), and upon surrender and cancellation of such Warrant or stock certificate, if mutilated, the Company will make and deliver a new Warrant or stock certificate of like tenor and dated as of such cancellation, in lieu of such Warrant or stock certificate.

c)Saturdays, Sundays, Holidays, etc.  If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a Business Day, then, such action may be taken or such right may be exercised on the next succeeding Business Day.

d)Authorized Shares.  

i.The Company covenants that, during the period the Warrant is outstanding, it will reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of the Warrant Shares upon the exercise of any purchase rights under this Warrant (the 
“Required Reserve Amount”).  The Company further covenants that its issuance of this Warrant shall constitute full authority to its officers who are charged with the duty of issuing the necessary Warrant Shares upon the exercise of the purchase rights under this Warrant.  The Company will take all such reasonable action as may be necessary to assure that such Warrant Shares may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of the Trading Market upon which the Common Stock may be listed.  The Company covenants that all Warrant Shares which may be issued 

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upon the exercise of the purchase rights represented by this Warrant will, upon exercise of the purchase rights represented by this Warrant and payment for such Warrant Shares in accordance herewith, be duly authorized, validly issued, fully paid and nonassessable and free from all taxes, liens and charges created by the Company in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such issue).  

ii.If, notwithstanding the foregoing, and not in limitation thereof, at any time while the Warrant remain outstanding, the Company does not have a sufficient number of authorized and unreserved shares of Common Stock to satisfy its obligation to reserve the Required Reserve Amount (an “Authorized Share Failure”), then the Company shall immediately take all action necessary to increase the Company’s authorized shares of Common Stock to an amount sufficient to allow the Company to reserve the Required Reserve Amount for all the Warrants then outstanding.  Without limiting the generality of the foregoing sentence, as soon as practicable after the date of the occurrence of an Authorized Share Failure, but in no event later than ninety (90) days after the occurrence of such Authorized Share Failure, the Company shall hold a meeting of its stockholders for the approval of an increase in the number of authorized shares of Common Stock.  In connection with such meeting, the Company shall provide each stockholder with a proxy statement and shall use its reasonable best efforts to solicit its stockholders’ approval of such increase in authorized shares of Common Stock and to cause its board of directors to recommend to the stockholders that they approve such proposal.

iii.Except and to the extent as waived or consented to by the Holder, the Company shall not by any action, including, without limitation, amending its certificate of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of Holder as set forth in this Warrant against impairment.  Without limiting the generality of the foregoing, the Company will (i) not increase the par value of any Warrant Shares above the amount payable therefor upon such exercise immediately prior to such increase in par value, (ii) take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable Warrant Shares upon the exercise of this Warrant and (iii) use reasonable best efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof, as may be, necessary to enable the Company to perform its obligations under this Warrant.

iv.Before taking any action which would result in an adjustment in the number of Warrant Shares for which this Warrant is exercisable or in the Exercise Price, the Company shall obtain all such authorizations or exemptions 

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thereof, or consents thereto, as may be necessary from any public regulatory body or bodies having jurisdiction thereof.

e)Jurisdiction. All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be determined in accordance with the provisions of the Purchase Agreement.

f)Restrictions.  The Holder acknowledges that the Warrant Shares acquired upon the exercise of this Warrant, if not registered and the Holder does not utilize cashless exercise, will have restrictions upon resale imposed by state and federal securities laws.

g)Nonwaiver and Expenses.  No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder shall operate as a waiver of such right or otherwise prejudice the Holder’s rights, powers or remedies, notwithstanding the fact that all rights hereunder terminate on the Termination Date.  If the Company willfully and knowingly fails to comply with any provision of this Warrant, which results in any material damages to the Holder, the Company shall pay to the Holder such amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys’ fees, including those of appellate proceedings, incurred by the Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder.

h)Notices.  Any notice, request or other document required or permitted to be given or delivered to the Holder by the Company shall be delivered in accordance with the notice provisions of the Purchase Agreement.

i)Limitation of Liability.  No provision hereof, in the absence of any affirmative action by the Holder to exercise this Warrant to purchase Warrant Shares, and no enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of the Holder for the purchase price of any Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company.

j)Remedies.  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 to pursue actual and consequential damages for any failure by the Company to comply with the terms of this Warrant.  The Company covenants to the Holder that there shall be no characterization concerning this instrument other than as expressly provided herein.  Amounts set forth or provided for herein with respect to payments, exercises and the like (and the computation thereof) shall be the amounts to be received by the Holder and shall not, except as expressly provided herein, be subject to any other obligation of the Company (or the performance thereof).  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 

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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.  The Company shall provide all information and documentation to the Holder that is  requested by the Holder to enable the Holder to confirm the Company’s compliance with the terms and conditions of this Warrant.  The issuance of shares and certificates for shares as contemplated hereby upon the exercise of this Warrant shall be made without charge to the Holder or such shares for any issuance tax or other costs in respect thereof, provided that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of any certificate in a name other than the Holder or its agent on its behalf.  If (a) this Warrant is placed in the hands of an attorney for collection or enforcement or is collected or enforced through any legal proceeding or the holder otherwise takes action to collect amounts due under this Warrant or to enforce the provisions of this Warrant or (b) there occurs any bankruptcy, reorganization, receivership of the company or other proceedings affecting company creditors’ rights and involving a claim under this Warrant, then the Company shall pay the costs incurred by the Holder for such collection, enforcement or action or in connection with such bankruptcy, reorganization, receivership or other proceeding, including, without limitation, attorneys’ fees and disbursements.

k)Successors and Assigns.  Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall inure to the benefit of and be binding upon the successors and permitted assigns of the Company and the successors and permitted assigns of Holder.  The provisions of this Warrant are intended to be for the benefit of any Holder from time to time of this Warrant and shall be enforceable by the Holder or holder of Warrant Shares.

l)Amendment.  This Warrant (other than Section 2(e)) may be modified or amended or the provisions hereof waived with the written consent of the Company and the Holder.  No waiver shall be effective unless it is in writing and signed by an authorized representative of the waiving party.

m)Severability.  If any provision of this Warrant is prohibited by law or otherwise determined to be invalid or unenforceable by a court of competent jurisdiction, the provision that would otherwise be prohibited, invalid or unenforceable shall be deemed amended to apply to the broadest extent that it would be valid and enforceable, and the invalidity or unenforceability of such provision shall not affect the validity of the remaining provisions of this Warrant so long as this Warrant as so modified continues to express, without material change, the original intentions of the parties as to the subject matter hereof and the prohibited nature, invalidity or unenforceability of the provision(s) in question does not substantially impair the respective expectations or reciprocal obligations of the parties or the practical realization of the benefits that would otherwise be conferred upon the parties.  The parties will endeavor in good faith negotiations to replace the prohibited, invalid or unenforceable provision(s) with a valid provision(s), the effect of which comes as close as possible to that of the prohibited, invalid or unenforceable provision(s).

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n)Headings.  This Warrant shall be deemed to be jointly drafted by the Company and the Holder 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.  Terms used in this Warrant but defined in the other Transaction Documents shall have the meanings ascribed to such terms on the Closing Date in such other Transaction Documents unless otherwise consented to in writing by the Holder.

o)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 (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.  The Company hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof to the Company at the address set forth on its signature page to the Purchase Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof.  The Company hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in The City of New York, Borough of Manhattan, for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper.  Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law.  Nothing contained herein shall be deemed or operate to preclude the Holder from bringing suit or taking other legal action against the Company in any other jurisdiction to collect on the Company’s obligations to the Holder, to realize on any collateral or any other security for such obligations, or to enforce a judgment or other court ruling in favor of the Holder.  THE COMPANY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE TO, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS WARRANT OR ANY TRANSACTION CONTEMPLATED HEREBY.

	
 
	
p)
	
DISPUTE RESOLUTION

	
 
	
i.
	
Submission to Dispute Resolution. 

(A)In the case of a dispute relating to the Exercise Price, the Closing Sale Price, the Bid Price, or fair market value or the arithmetic calculation of the number of Warrant Shares (as the case may be) (including, without limitation, a dispute relating to the determination of any of the foregoing), the Company or the Holder (as the case may be) shall submit the dispute to the other party via facsimile (A) if by the Company, within two (2) Business Days after the occurrence of the 

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circumstances giving rise to such dispute or (B) if by the Holder, at any time after the Holder learned of the circumstances giving rise to such dispute.  If the Holder and the Company are unable to promptly resolve such dispute relating to such Exercise Price, such Closing Sale Price, such Bid Price, or such fair market value or such arithmetic calculation of the number of Warrant Shares (as the case may be), at any time after the second (2nd) Business Day following such initial notice by the Company or the Holder (as the case may be) of such dispute to the Company or the Holder (as the case may be), then the Holder may, at its sole option, select an independent, reputable investment bank  to resolve such dispute.

(B)The Holder and the Company shall each deliver to such investment bank (A) a copy of the initial dispute submission so delivered in accordance with the first sentence of this Section 5(p) and (B) written documentation supporting its position with respect to such dispute, in each case, no later than 5:00 p.m. (New York time) by the fifth (5th) Business Day immediately following the date on which the Holder selected such investment bank (the “Dispute Submission Deadline”) (the documents referred to in the immediately preceding clauses (A) and (B) are collectively referred to herein as the “Required Dispute Documentation”) (it being understood and agreed that if either the Holder or the Company fails to so deliver all of the Required Dispute Documentation by the Dispute Submission Deadline, then the party who fails to so submit all of the Required Dispute Documentation shall no longer be entitled to (and hereby waives its right to) deliver or submit any written documentation or other support to such investment bank with respect to such dispute and such investment bank shall resolve such dispute based solely on the Required Dispute Documentation that was delivered to such investment bank prior to the Dispute Submission Deadline). Unless otherwise agreed to in writing by both the Company and the Holder or otherwise requested by such investment bank, neither the Company nor the Holder shall be entitled to deliver or submit any written documentation or other support to such investment bank in connection with such dispute (other than the Required Dispute Documentation).

(C)The Company and the Holder shall cause such investment bank to determine the resolution of such dispute and notify the Company and the Holder of such resolution no later than ten (10) Business Days immediately following the Dispute Submission Deadline. Such investment bank’s resolution of such dispute shall be final and binding upon all parties absent manifest error.  If such investment bank’s resolution differs by less than 5% from the Company’s proposed determination, the fees and expenses of such investment bank shall be borne by the Holder, and if such investment bank’s resolution differs by more than 5% from the Company’s proposed determination, the fees and expenses of such investment bank shall be borne by the Company. 

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ii.Miscellaneous.  The Company expressly acknowledges and agrees that (i) this Section 5(p) constitutes an agreement to arbitrate between the Company and the Holder (and constitutes an arbitration agreement) under the rules then in effect under § 7501, et seq. of the New York Civil Practice Law and Rules (“CPLR”) and that the Holder is authorized to apply for an order to compel arbitration pursuant to CPLR § 7503(a) in order to compel compliance with this Section 5(p), (ii) a dispute relating to the Exercise Price includes, without limitation, disputes as to (A) whether an issuance or sale or deemed issuance or sale of Common Stock occurred under Section 3(b), (B) the consideration per share at which an issuance or deemed issuance of Common Stock occurred, (C) whether any issuance or sale or deemed issuance or sale of Common Stock was an issuance or sale or deemed issuance or sale of Excluded Securities, (D) whether an agreement, instrument, security or the like constitutes and Option or Convertible Security and (E) whether a Dilutive Issuance occurred, (iii) the terms of this Warrant and each other applicable Transaction Document shall serve as the basis for the selected investment bank’s resolution of the applicable dispute, such investment bank shall be entitled (and is hereby expressly authorized) to make all findings, determinations and the like that such investment bank determines are required to be made by such investment bank in connection with its resolution of such dispute (including, without limitation, determining (A) whether an issuance or sale or deemed issuance or sale of Common Stock occurred under Section 3(b), (B) the consideration per share at which an issuance or deemed issuance of Common Stock occurred, (C) whether any issuance or sale or deemed issuance or sale of Common Stock was an issuance or sale or deemed issuance or sale of Excluded Securities, (D) whether an agreement, instrument, security or the like constitutes and Option or Convertible Security and (E) whether a Dilutive Issuance occurred) and in resolving such dispute such investment bank shall apply such findings, determinations and the like to the terms of this Warrant and any other applicable Transaction Documents, (iv) the Holder (and only the Holder), in its sole discretion, shall have the right to submit any dispute described in this Section 5(p) to any state or federal court sitting in The City of New York, Borough of Manhattan in lieu of utilizing the procedures set forth in this Section 5(p) and (v) nothing in this Section 5(p) shall limit the Holder from obtaining any injunctive relief or other equitable remedies (including, without limitation, with respect to any matters described in this Section 5(p)). 

 

********************

 

 

(Signature Page Follows)

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IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer thereunto duly authorized as of the date first above indicated.

 

  

	
	
RLJ ENTERTAINMENT, INC.

 

 

	
By:/s/ MIGUEL PENELLA________________________

     Name: Miguel Penella

     Title: Chief Executive Officer

 

 

 

 

24

 

 

EXHIBIT A

 

NOTICE OF EXERCISE

 

TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS

WARRANT TO PURCHASE COMMON STOCK

 

RLJ ENTERTAINMENT, INC.

 

The undersigned holder hereby exercises the right to purchase _________________ of the shares of Common Stock (“Warrant Shares”) of RLJ Entertainment, Inc., a Nevada corporation (the “Company”), evidenced by Warrant to Purchase Common Stock No. _______ (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 Aggregate 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 Holder, or its designee or agent as specified below, __________ Warrant Shares in accordance with the terms of the Warrant.  Delivery shall be made to Holder, or for its benefit, as follows:

	
☐
	
Check here if requesting delivery as a certificate to the following name and to the following address:

		
	
Issue to:
	
 

	
 
	
 

	
 
	
 

 

	

	
☐Check here if requesting delivery by Deposit/Withdrawal at Custodian as follows: 

			
	
DTC Participant:
	
 

	
DTC Number:
	
 

	
Account Number:
	
 

	
 
	
 

 

 

 

 

	
	
	
Date: _____________ __, 

Name of Registered Holder

 

	
By:  
Name: 
Title:

Tax ID:____________________________

Facsimile:__________________________

E-mail Address:_____________________

 

 

 

 

EXHIBIT B

 

ASSIGNMENT FORM

 

 (To assign the foregoing Warrant, execute this form and supply required information.  Do not use this form to purchase shares.)

FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby assigned to

		
	
Name:
	
 

	
 
	
(Please Print)

	
Address:
	
 

	
 
	
(Please Print)

	
Dated: _______________ __, ______
	
 

	
Holder’s Signature:
	
 

	
Holder’s Address:
	
 

 

 

 

 

 

Schedule A

Warrant Holders

 

	
Stockholder Name
	
Shares
	
Exercise Price

	
Wolverine Flagship Fund Trading Limited
	
400,000
	
$1.50

	
Sudbury Capital Fund, LP
	
200,000
	
$1.50

	
JH Partners Evergreen Fund, LP
	
561,829
	
$1.50

	
JH Investment Partners III, LP
	
75,986
	
$1.50

	
JH Investment Partners GP Fund III, LLC
	
34,918
	
$1.50

	
Forrestal, LLC
	
75,212
	
$1.50

	
John Avagliano
	
18,351
	
$1.50

	
Twayab Rostom
	
2,294
	
$1.50

	
Producers Sales Organization
	
38,995
	
$1.50

	
Theodore S. Green
	
45,877
	
$1.50

	
Taylor Rettig
	
1,166
	
$1.50

	
RLJ SPAC Acquisition, LLC
	
1,500,000
	
$3.00

	
Peter Edwards
	
50,000
	
$2.37

	
Morris Goldfarb
	
100,000
	
$2.37

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