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THE SECURITIES REPRESENTED HEREBY MAY NOT BE TRANSFERRED UNLESS (I)
SUCH SECURITIES HAVE BEEN REGISTERED FOR SALE PURSUANT TO THE
SECURITIES ACT OF 1933, AS AMENDED, (II) SUCH SECURITIES MAY BE SOLD
PURSUANT TO RULE 144, OR (III) THE COMPANY HAS RECEIVED AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO IT THAT SUCH TRANSFER MAY
LAWFULLY BE MADE WITHOUT REGISTRATION UNDER THE SECURITIES ACT OF
1933 OR QUALIFICATION UNDER APPLICABLE STATE SECURITIES LAWS.
SUBJECT TO THE PROVISIONS OF SECTION 10 HEREOF, THIS WARRANT
SHALL BE VOID AFTER 5:00 P.M. EASTERN TIME ON DECEMBER 31, 2011 (the
Warrant No. ____________
WARRANT TO PURCHASE 500,000 SHARES OF
CLASS A COMMON STOCK, NO PAR VALUE
For VALUE RECEIVED, __________________ (“Warrantholder”), is entitled to purchase, subject to the provisions of this Warrant, from _____________________, Inc., a
_____________ corporation (“Company”), at any time not later than 5:00 P.M., Eastern time, on
the Expiration Date (as defined above), at an exercise price per share equal to Two Cents ($0.02)
(the exercise price in effect being herein called the “Warrant Price”), 500,000 shares (“Warrant Shares”) of the Company’s Class A common stock, no par value per share (“Class A Common
Stock”). The number of Warrant Shares purchasable upon exercise of this Warrant and the
Warrant Price shall be subject to adjustment from time to time as described herein.
Section 1. Registration. The Company shall maintain books for the transfer and
registration of the Warrant. Upon the initial issuance of this Warrant, the Company shall issue
and register the Warrant in the name of the Warrantholder.
Section 2. Transfers. As provided herein, this Warrant may be transferred only
pursuant to a registration statement filed under the Securities Act of 1933, as amended (the
“Securities Act”), or an exemption from such registration. Subject to such restrictions, the
Company shall transfer this Warrant from time to time upon the books to be maintained by the
Company for that purpose, upon surrender thereof for transfer properly endorsed or accompanied
by appropriate instructions for transfer and such other documents as may be reasonably required
by the Company, including, if required by the Company, an opinion of its counsel to the effect
that such transfer is exempt from the registration requirements of the Securities Act, to establish
that such transfer is being made in accordance with the terms hereof, and a new Warrant shall be
issued to the transferee and the surrendered Warrant shall be canceled by the Company.
Section 3. Exercise of Warrant.
(a) Subject to the provisions hereof, the Warrantholder may exercise this Warrant
in whole or in part at any time prior to its expiration upon surrender of the Warrant, together with
delivery of the duly executed Warrant exercise form attached hereto as Appendix A (the
“Exercise Agreement”) and payment by cash, certified check or wire transfer of funds for the
aggregate Warrant Price for that number of Warrant Shares then being purchased, to the
Company during normal business hours on any business day at the Company’s principal
executive offices (or such other office or agency of the Company as it may designate by notice to
the Warrantholder). The Warrantholder shall deliver the Exercise Agreement to the Company’s
Chief Executive Officer by facsimile (to # _____________) and by Email
(________________Warrant Shares so purchased shall be deemed to be issued to the
Warrantholder or the Warrantholder’s designee, as the record owner of such shares, as of the
close of business on the date on which this Warrant shall have been surrendered (or evidence of
loss, theft or destruction thereof and security or indemnity satisfactory to the Company), the
Warrant Price shall have been paid and the completed Exercise Agreement shall have been
delivered. Certificates for the Warrant Shares so purchased, representing the aggregate number
of shares specified in the Exercise Agreement, shall be delivered to the Warrantholder within a
reasonable time, not exceeding two (2) business days, after this Warrant shall have been so
exercised. The certificates so delivered shall be in such denominations as may be requested by
the Warrantholder and shall be registered in the name of the Warrantholder or such other name
as shall be designated by the Warrantholder.
If by the second business day following the date this Warrant is duly exercised in
accordance the preceding paragraph in this Section 3(a), the Company fails to deliver the
required number of Warrant Shares in the manner required pursuant to this Section 3, and if after
such date and prior to the receipt of such Warrant Shares, shares of Class A Common Stock are
purchased by or for the account of the Warrantholder to deliver in satisfaction of a sale by the
Warrantholder of the Warrant Shares which the Warrantholder anticipated receiving upon such
exercise (a “Buy-In”), then the Company shall (1) pay in cash to the Warrantholder the amount
by which (x) the Warrantholder’s total purchase price (including brokerage commissions, if any)
for the shares of Class A Common Stock so purchased exceeds (y) the amount obtained by
multiplying (A) the number of Warrant Shares that the Company was required to deliver to the
Warrantholder in connection with such exercise by (B) the closing price of the Class A Common
Stock on the date the Exercise Form was delivered and (2) deliver to the Warrantholder the
number of shares of Class A Common Stock that would have been issued had the Company
timely complied with its exercise and delivery obligations hereunder. The Warrantholder shall
provide the Company written notice indicating the amounts payable to the Warrantholder in
respect of the Buy-In.
If this Warrant shall have been exercised only in part, then, unless this Warrant has
expired, the Company shall, at its expense, at the time of delivery of such certificates, deliver to
the Warrantholder a new Warrant representing the number of shares with respect to which this
Warrant shall not then have been exercised. As used herein, “business day” means a day, other
than a Saturday or Sunday, on which banks in New York City are open for the general
transaction of business.
(b) Net Issue Election. At any time prior to the Expiration Date, the Warrantholder may elect to receive, without the payment by the Warrantholder of any additional
consideration, shares equal to the value of this Warrant or any portion hereof by the surrender of
this Warrant, or such portion to the Company, with the net issue election notice annexed hereto
as Appendix B duly executed, at the office of the Company. Thereupon, the Company shall
issue to the Warrantholder such number of fully paid and nonassessable shares of Class A
Common Stock as is computed using the following formula:
X = Y ( A – B )
where X = the number of shares to be issued to the Warrantholder pursuant to this Section 3(b).
Y = the number of shares covered by this Warrant in respect of which the net issue
election is made pursuant to this Section 3(b).
A = the VWAP (as defined below).
B = the Purchase Price in effect under this Warrant at the time the net issue election is
made pursuant to this Section 3(b).
For purposes of this Section 3(b), the “VWAP” of a security of the Company as of a particular date shall be determined as follows: (i) if traded on a securities exchange or through the Nasdaq
Markets (such as Global or Global Select) (“Nasdaq Market”), the daily volume weighted
average price of the Class A Common Stock on the Nasdaq Market on which the Class A
Common Stock is then listed or quoted for trading as reported by Bloomberg L.P. (based on a
Trading Day from 9:30 a.m. (New York City time) to 4:00 p.m. (New York City time) over the
thirty (30) day period ending on the business day immediately prior to the net issue election; (ii)
if traded on the OTC Bulletin Board, the volume weighted average price of the Class A Common
Stock over the thirty (30) day period ending on the business day immediately prior to the net
issue election; (iii) if the Class A Common Stock is not then quoted for trading on the OTC
Bulletin Board and if prices for the Class A Common Stock are then reported in the “Pink
Sheets” published by Pink Sheets, LLC (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Class A Common Stock
so reported; and (iv) if there is no active public market, the fair market value shall be determined
in good faith by the Board. The Board shall promptly respond in writing to an inquiry by the
Warrantholder as to the VWAP of the Company’s securities.
Section 4. Compliance with the Securities Act of 1933. The Company may cause the
legend set forth on the first page of this Warrant to be set forth on each Warrant or similar legend
on any security issued or issuable upon exercise of this Warrant, unless counsel for the Company
is of the opinion as to any such security that such legend is unnecessary.
Section 5. Payment of Taxes. The Company will pay any documentary stamp taxes attributable to the initial issuance of Warrant Shares issuable upon the exercise of the Warrant;
provided, however, that the Company shall not be required to pay any tax or taxes which may be
payable in respect of any transfer involved in the issuance or delivery of any certificates for
Warrant Shares in a name other than that of the Warrantholder in respect of which such shares
are issued, and in such case, the Company shall not be required to issue or deliver any certificate
for Warrant Shares or any Warrant until the person requesting the same has paid to the Company
the amount of such tax or has established to the Company’s reasonable satisfaction that such tax
has been paid. The Warrantholder shall be responsible for income taxes due under federal, state
or other law, if any such tax is due.
Section 6. Mutilated or Missing Warrants. In case this Warrant shall be mutilated,
lost, stolen, or destroyed, the Company shall issue in exchange and substitution of and upon
cancellation of the mutilated Warrant, or in lieu of and substitution for the Warrant lost, stolen or
destroyed, a new Warrant of like tenor and for the purchase of a like number of Warrant Shares,
but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or
destruction of the Warrant, and with respect to a lost, stolen or destroyed Warrant, reasonable
indemnity or bond with respect thereto, if requested by the Company.
Section 7. Reservation of Class A Common Stock. The Company hereby represents
and warrants that there have been reserved, and the Company shall at all applicable times keep
reserved until issued (if necessary) as contemplated by this Section 7, out of the authorized and
unissued shares of Class A Common Stock, sufficient shares to provide for the exercise of the
rights of purchase represented by this Warrant. The Company agrees that all Warrant Shares
issued upon due exercise of the Warrant shall be, at the time of delivery of the certificates for
such Warrant Shares, duly authorized, validly issued, fully paid and non-assessable shares of
Class A Common Stock of the Company.
Section 8. Adjustments. Subject and pursuant to the provisions of this Section 8, the
Warrant Price and number of Warrant Shares subject to this Warrant shall be subject to adjustment from time to time as set forth hereinafter.
(a) If the Company shall, at any time or from time to time while this Warrant is outstanding, pay a dividend or make a distribution on its Class A Common Stock in shares of Class A Common Stock, subdivide its outstanding shares of Class A Common Stock into a greater number of shares or combine its outstanding shares of Class A Common Stock into a smaller number of shares or issue by reclassification of its outstanding shares of Class A Common Stock any shares of its capital stock (including any such reclassification in connection with a consolidation or merger in which the Company is the continuing corporation), then the number of Warrant Shares purchasable upon exercise of the Warrant and the Warrant Price in effect immediately prior to the date upon which such change shall become effective, shall be adjusted by the Company so that the Warrantholder thereafter exercising the Warrant shall be entitled to receive the number of shares of Class A Common Stock or other capital stock which the Warrantholder would have received if the Warrant had been exercised immediately prior to such event upon payment of a Warrant Price that has been adjusted to reflect a fair allocation of the economics of such event to the Warrantholder. Such adjustments shall be made successively whenever any event listed above shall occur.
(b) If any capital reorganization, reclassification of the capital stock of the Company, consolidation or merger of the Company with another corporation in which the Company is not the survivor, or sale, transfer or other disposition of all or substantially all of the Company’s assets to another corporation shall be effected, then, as a condition of such reorganization, reclassification, consolidation, merger, sale, transfer or other disposition, lawful and adequate provision shall be made whereby each Warrantholder shall thereafter have the right to purchase and receive upon the basis and upon the terms and conditions herein specified and in lieu of the Warrant Shares immediately theretofore issuable upon exercise of the Warrant, such shares of stock, securities or assets as would have been issuable or payable with respect to or in exchange for a number of Warrant Shares equal to the number of Warrant Shares immediately theretofore issuable upon exercise of the Warrant, had such reorganization, reclassification, consolidation, merger, sale, transfer or other disposition not taken place, and in any such case appropriate provision shall be made with respect to the rights and interests of each Warrantholder to the end that the provisions hereof (including, without limitation, provision for adjustment of the Warrant Price) shall thereafter be applicable, as nearly equivalent as may be practicable in relation to any shares of stock, securities or assets thereafter deliverable upon the exercise hereof. The Company shall not effect any such consolidation, merger, sale, transfer or other disposition unless prior to or simultaneously with the consummation thereof the successor corporation (if other than the Company) resulting from such consolidation or merger, or the corporation purchasing or otherwise acquiring such assets or other appropriate corporation or entity shall assume the obligation to deliver to the Warrantholder, at the last address of the Warrantholder appearing on the books of the Company, such shares of stock, securities or assets as, in accordance with the foregoing provisions, the Warrantholder may be entitled to purchase, and the other obligations under this Warrant. The provisions of this paragraph (b) shall similarly apply to successive reorganizations, reclassifications, consolidations, mergers, sales, transfers or other dispositions.
(c) In case the Company shall fix a payment date for the making of a
distribution to all holders of Class A Common Stock (including any such distribution made in connection with a consolidation or merger in which the Company is the continuing corporation) of evidences of indebtedness or assets (other than cash dividends or cash distributions payable out of consolidated earnings or earned surplus or dividends or distributions referred to in Section 8(a)), or subscription rights or warrants, the Warrant Price to be in effect after such payment date shall be determined by multiplying the Warrant Price in effect immediately prior to such payment date by a fraction, the numerator of which shall be the total number of shares of Class A Common Stock outstanding multiplied by the Market Price (as defined below) per share of Class A Common Stock immediately prior to such payment date, less the fair market value (as determined by the Company’s Board of Directors in good faith) of said assets or evidences of indebtedness so distributed, or of such subscription rights or warrants, and the denominator of which shall be the total number of shares of Class A Common Stock outstanding multiplied by such Market Price per share of Class A Common Stock immediately prior to such payment date. “Market Price” as of a particular date (the “Valuation Date”) shall mean the following: (a) if the Class A Common Stock is then listed on a national stock exchange, the closing sale price of one share of Class A Common Stock on such exchange on the last trading day prior to the Valuation Date; (b) if the Class A Common Stock is then quoted on the Nasdaq Market, the closing sale price of one share of Class A Common Stock on Nasdaq Market on the last trading day prior to the Valuation Date or, if no such closing sale price is available, the average of the high bid and the low asked price quoted on the Nasdaq Market or through the OTC Bulletin Board on the last trading day prior to the Valuation Date; or (c) if the Class A Common Stock is not then listed on a national stock exchange or quoted on the Nasdaq Market or through the OTC Bulletin Board, the fair market value of one share of Class A Common Stock as of the Valuation Date shall be determined in good faith by the Board of Directors of the Company and the Warrantholder. If the Class A Common Stock is not then listed on a national securities exchange or quoted on the Nasdaq Market or through the OTC Bulletin Board, the Board of Directors of the Company shall respond promptly, in writing, to an inquiry by the Warrantholder prior to the exercise hereunder as to the fair market value of a share of Class A Common Stock as determined by the Board of Directors of the Company. In the event that the Board of Directors of the Company and the Warrantholder are unable to agree upon the fair market value in respect of subpart (c) hereof, the Company and the Warrantholder shall jointly select an appraiser, who is experienced in such matters. The decision of such appraiser shall be final and conclusive, and the cost of such appraiser shall be borne equally by the Company and the Warrantholder. Such adjustment shall be made successively whenever such a payment date is fixed.
(d) An adjustment to the Warrant Price shall become effective
immediately after the payment date in the case of each dividend or distribution and immediately after the effective date of each other event which requires an adjustment.
(e) In the event that, as a result of an adjustment made pursuant to this Section 8, the Warrantholder shall become entitled to receive any shares of capital stock of the Company other than shares of Class A Common Stock, the number of such other shares so receivable upon exercise of this Warrant shall be subject thereafter to adjustment from time to time in a manner
and on terms as nearly equivalent as practicable to the provisions with respect to the Warrant
Shares contained in this Warrant.
Section 9. Fractional Interest. The Company shall not be required to issue fractions
of Warrant Shares upon the exercise of this Warrant. If any fractional share of Class A Common
Stock would, except for the provisions of the first sentence of this Section 9, be deliverable upon
such exercise, the Company, in lieu of delivering such fractional share, shall pay to the
exercising Warrantholder an amount in cash equal to the Market Price of such fractional share of
Class A Common Stock on the date of exercise.
Section 10. Benefits. Nothing in this Warrant shall be construed to give any person, firm or corporation (other than the Company and the Warrantholder) any legal or equitable right,
remedy or claim, it being agreed that this Warrant shall be for the sole and exclusive benefit of
the Company and the Warrantholder.
Section 11. Notices to Warrantholder. Upon the happening of any event requiring an
adjustment of the Warrant Price, the Company shall promptly give written notice thereof to the
Warrantholder at the address appearing in the records of the Company, stating the adjusted
Warrant Price and the adjusted number of Warrant Shares resulting from such event and setting
forth in reasonable detail the method of calculation and the facts upon which such calculation is
based. Failure to give such notice to the Warrantholder or any defect therein shall not affect the
legality or validity of the subject adjustment.
Section 12. Identity of Transfer Agent. The Transfer Agent for the Class A Common
Stock is Registrar and Transfer Company. Upon the appointment of any subsequent transfer
agent for the Class A Common Stock or other shares of the Company’s capital stock issuable
upon the exercise of the rights of purchase represented by the Warrant, the Company will mail to
the Warrantholder a statement setting forth the name and address of such transfer agent.
Section 13. Notices. Unless otherwise provided, any notice required or permitted under this Warrant shall be given in writing and shall be deemed effectively given only if such
notice is sent both by facsimile and Email; provided, however, that such notice shall be deemed
given if actually received even though regardless if only sent by facsimile or by Email.
Notwithstanding the foregoing, notice may be given as hereinafter described, however, notices
delivered in su ch manner shall not be deemed given unless actually received: (i) by personal
delivery, (ii) by mail, and (iv) by an internationally recognized overnight air courier. All notices
shall be addressed as follows: if to the Warrantholder, at its address as set forth in the Company’s
books and records and, if to the Company, at the address as follows, or at such other address as
the Warrantholder or the Company may designate by ten days’ advance written notice to the other:
If to the Company:
With a copy to: ___________________
Section 14. Company Registrations. Prior to the Expiration Date, if (and on each
occasion that) the Company proposes to register any of its securities under the Securities Act,
either for the Company’s own account or for the account of any of its security holders (each such
registration not withdrawn or abandoned prior to the effective date thereof, a “Piggyback
Registration”), the Company will give written notice to the Warrantholder (and to any successor,
assign or heir of the initial Warrantholder) of such registration at least 30 days prior to the
anticipated filing date of such Piggyback Registration. The Warrantholder shall have ten (10)
business days from the receipt of such notice from the Company to inform the Company of the
inclusion of the Warrants Shares in such Piggyback Registration. Upon the receipt of notice
from the Warrantholder, the Company shall include the Warrant Shares in such Piggyback
Registration. Notwithstanding the foregoing, the Company will not be obligated to give notice to
Warrantholder nor include the Warrant Shares in any registration (1) by the Company that covers
the resale of shares of Class A Common Stock issued or issuable pursuant to that certain Equity
Line of Credit Term Sheet, dated as of July 15, 2009 by and between the Company and the initial
Warrantholder or (2) on Form S-8 or similar limited-purpose form of registration statement
effected solely to implement an employee benefit plan or any registration on Form S-4 or similar
limited-purpose form of registration statement effected solely to implement an acquisition.
Section 15. Successors. All the covenants and provisions hereof by or for the benefit
of the Warrantholder shall bind and inure to the benefit of its respective successors and assigns
Section 16. Governing Law; Consent to Jurisdiction; Waiver of Jury Trial. This
Warrant shall be governed by, and construed in accordance with, the internal laws of the State of
Texas, without reference to the choice of law provisions thereof. The Company and, by
accepting this Warrant, the Warrantholder, each irrevocably submits to the exclusive jurisdiction
of the courts of the State of Texas located in the County of Harris, State of Texas and the United
States District Court for the Southern District of Texas for the purpose of any suit, action,
proceeding or judgment relating to or arising out of this Warrant and the transactions
contemplated hereby. Service of process in connection with any such suit, action or proceeding
may be served on each party hereto anywhere in the world by the same methods as are specified
for the giving of notices under this Warrant. The Company and, by accepting this Warrant, the
Warrantholder, each irrevocably consents to the jurisdiction of any such court in any such suit,
action or proceeding and to the laying of venue in such court. The Company and, by accepting
this Warrant, the Warrantholder, each irrevocably waives any objection to the laying of venue of
any such suit, action or proceeding brought in such courts and irrevocably waives any claim that
any such suit, action or proceeding brought in any such court has been brought in an
inconvenient forum. EACH OF THE COMPANY AND, BY ITS ACCEPTANCE HEREOF, THE WARRANTHOLDER HEREBY WAIVES ANY RIGHT TO REQUEST A TRIAL
BY JURY IN ANY LITIGATION WITH RESPECT TO THIS WARRANT AND
REPRESENTS THAT COUNSEL HAS BEEN CONSULTED SPECIFICALLY AS TO
Section 17. No Rights as Stockholder. Prior to the exercise of this Warrant, the Warrantholder shall not have or exercise any rights as a stockholder of the Company by virtue of
its ownership of this Warrant.
Section 18. Amendment; Waiver. This Warrant is one of a series of Warrants of like tenor issued by the Company pursuant to the issuance of its Convertible Debentures Units and
initially covering an aggregate of 6,000,000 shares of Class A Common Stock (collectively, the
“Company Warrants”). Any term of this Warrant may be amended or waived (including the
adjustment provisions included in Section 8 of this Warrant) upon the written consent of the
Company and the Warrantholder. A waiver or amendment of this Warrant shall not be an
amendment or waiver to any of the other Company Warrants without the written consent of the
holder(s) of such other Company Warrants.
Section 19. Section Headings. The section headings in this Warrant are for the convenience of the Company and the Warrantholder and in no way alter, modify, amend, limit or
restrict the provisions hereof.
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed, as
of the _____th day of September, 200____.
Title: Chief Executive Officer