Exhibit 10.3
NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS WARRANT NOR
THE SECURITIES INTO WHICH THIS WARRANT IS EXERCISABLE HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE
SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE
ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL
SHALL BE SELECTED BY THE HOLDER), IN A FORM REASONABLY ACCEPTABLE TO THE
COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD
PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING,
THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR
OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.
CATUITY, INC.
WARRANT TO PURCHASE COMMON STOCK
Warrant No.: GCMaster 001
Number of Shares of Common Stock: 220,459
Date of Issuance: November 21, 2006 ("ISSUANCE DATE")
Catuity, Inc., a Delaware corporation (the "COMPANY"), hereby certifies
that, for good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, GOTTBETTER CAPITAL MASTER, LTD., the registered holder
hereof or its permitted assigns (the "HOLDER"), is entitled, subject to the
terms set forth below, to purchase from the Company, at the Exercise Price (as
defined below) then in effect, upon surrender of this Warrant to purchase Common
Stock (including any Warrants to purchase Common Stock issued in exchange,
transfer or replacement hereof, the "WARRANT"), at any time or times on or after
the date hereof, but not after 11:59 p.m., New York Time, on the Expiration Date
(as defined below), Two Hundred and Twenty Thousand, Four Hundred and Fifty Nine
(220,459) fully paid nonassessable shares of Common Stock (as defined below)
(the "WARRANT SHARES"). Except as otherwise defined herein, capitalized terms in
this Warrant shall have the meanings set forth in Section 15. This Warrant is
one of the Warrants to purchase Common Stock (the "SPA WARRANTS") issued
pursuant to Section 1 of that certain Securities Purchase Agreement, dated as of
November 21, 2006 (the "SUBSCRIPTION DATE"), by and among the Company and the
investors (the "BUYERS") referred to therein (the "SECURITIES PURCHASE
AGREEMENT").
1. EXERCISE OF WARRANT.
(a) Mechanics of Exercise. Subject to the terms and conditions hereof
(including, without limitation, the limitations set forth in Section 1(f)), this
Warrant may be exercised by the Holder on any day on or after the date hereof,
in whole or in part, by (i) delivery of a written notice, in the form attached
hereto as Exhibit A (the "EXERCISE NOTICE"), of the Holder's election to
exercise this Warrant and (ii) (A) payment to the Company of an amount equal to
the applicable Exercise Price multiplied by the number of Warrant Shares as to
which this Warrant is
being exercised (the "AGGREGATE EXERCISE PRICE") in cash or by wire transfer of
immediately available funds or (B) by notifying the Company that this Warrant is
being exercised pursuant to a Cashless Exercise (as defined in Section 1(d)).
The Holder shall not be required to deliver the original Warrant in order to
affect an exercise hereunder. Execution and delivery of the Exercise Notice with
respect to less than all of the Warrant Shares shall have the same effect as
cancellation of the original Warrant and issuance of a new Warrant evidencing
the right to purchase the remaining number of Warrant Shares. On or before the
first (1st) Business Day following the date on which the Company has received
each of the Exercise Notice and the Aggregate Exercise Price (or notice of a
Cashless Exercise) (the "EXERCISE DELIVERY DOCUMENTS"), the Company shall
transmit by facsimile an acknowledgment of confirmation of receipt of the
Exercise Delivery Documents to the Holder and the Company's transfer agent (the
"TRANSFER AGENT"). On or before the second (2nd) Business Day following the date
on which the Company has received all of the Exercise Delivery Documents (the
"SHARE DELIVERY DATE"), the Company shall (X) provided that the Transfer Agent
is participating in The Depository Trust Company ("DTC") Fast Automated
Securities Transfer Program, credit such aggregate number of shares of Common
Stock to which the Holder is entitled pursuant to such exercise to the Holder's
or its designee's balance account with DTC through its Deposit Withdrawal Agent
Commission system, or (Y) if the Transfer Agent is not participating in the DTC
Fast Automated Securities Transfer Program, issue and dispatch by overnight
courier to the address as specified in the Exercise Notice, a certificate,
registered in the Company's share register in the name of the Holder or its
designee, for the number of shares of Common Stock to which the Holder is
entitled pursuant to such exercise. Upon delivery of the Exercise Delivery
Documents, the Holder shall be deemed for all corporate purposes to have become
the holder of record of the Warrant Shares with respect to which this Warrant
has been exercised, irrespective of the date such Warrant Shares are credited to
the Holder's DTC account or the date of delivery of the certificates evidencing
such Warrant Shares as the case may be. If this Warrant is submitted in
connection with any exercise pursuant to this Section 1(a) and the number of
Warrant Shares represented by this Warrant submitted for exercise is greater
than the number of Warrant Shares being acquired upon an exercise, then the
Company shall as soon as practicable and in no event later than three Business
Days after any exercise and at its own expense, issue, a new Warrant (in
accordance with Section 7(d)) representing the right to purchase the number of
Warrant Shares purchasable immediately prior to such exercise under this
Warrant, less the number of Warrant Shares with respect to which this Warrant is
exercised. No fractional shares of Common Stock are to be issued upon the
exercise of this Warrant, but rather the number of shares of Common Stock to be
issued shall be rounded up to the nearest whole number. The Company shall pay
any and all taxes which may be payable with respect to the issuance and delivery
of Warrant Shares upon exercise of this Warrant.
(b) Exercise Price. For purposes of this Warrant, "EXERCISE PRICE" means
$3.58 subject to adjustment as provided herein.
(c) Company's Failure to Timely Deliver Securities. If the Company shall
fail for any reason or for no reason to issue to the Holder within three (3)
Trading Days of receipt of the Exercise Delivery Documents, a certificate for
the number of shares of Common Stock to which the Holder is entitled and
register such shares of Common Stock on the Company's share register or to
credit the Holder's balance account with DTC for such number of shares of Common
Stock to which the Holder is entitled upon the Holder's exercise of this
Warrant, then, in addition to all
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other remedies available to the Holder, the Company shall pay in cash to the
Holder on each day after such third Business Day that the issuance of such
shares of Common Stock is not timely effected an amount equal to 1.5% of the
product of (A) the sum of the number of shares of Common Stock not issued to the
Holder on a timely basis and to which the Holder is entitled and (B) the Closing
Sale Price of a share of Common Stock on the Trading Day immediately preceding
the last possible date which the Company could have issued such shares of Common
Stock to the Holder without violating Section 1(a). In addition if within three
(3) Trading Days after the Company's receipt of a copy (whether delivered by
facsimile or any other method) of an Exercise Notice the Company shall fail to
issue and deliver a certificate to the Holder and register such shares of Common
Stock on the Company's share register or credit the Holder's balance account
with DTC for the number of shares of Common Stock to which the Holder is
entitled upon the Holder's exercise hereunder, and if on or after such Trading
Day the Holder purchases (in an open market transaction or otherwise) shares of
Common Stock to deliver in satisfaction of a sale by the Holder of shares of
Common Stock issuable upon such exercise that the Holder anticipated receiving
from the Company (a "BUY-IN" ), then the Company shall, within three (3)
Business Days after the Holder's request and in the Holder's sole discretion,
either (i) pay cash to the Holder in an amount equal to the Holder's total
purchase price (including brokerage commissions, if any) for the shares of
Common Stock so purchased (the "BUY-IN Price"), at which point the Company's
obligation to deliver such certificate (and to issue such shares of Common
Stock) shall terminate, or (ii) promptly honor its obligation to deliver to the
Holder a certificate or certificates representing such Warrant Shares and pay
cash to the Holder in an amount equal to the excess (if any) of the Buy-In Price
over the product of (A) such number of shares of Common Stock, times (B) the
Closing Bid Price on the date of exercise. Nothing herein shall limit the
holder's right to pursue actual damages for the Company's failure to maintain a
sufficient number of authorized shares of Common Stock or to otherwise issue
shares of Common Stock upon exercise of this Warrant in accordance with the
terms hereof, and the Holder shall have the right to pursue all remedies
available at law or in equity (including a decree of specific performance and/or
injunctive relief).
(d) Cashless Exercise. Notwithstanding anything contained herein to the
contrary, if, at the time of exercise of this Warrant, a Registration Statement
(as defined in the Registration Rights Agreement) covering the Warrant Shares
that are the subject of the Exercise Notice (the "UNAVAILABLE WARRANT SHARES")
is not available for the resale of such Unavailable Warrant Shares, the Holder
may, in its sole discretion, exercise this Warrant in whole or in part and, in
lieu of making the cash payment otherwise contemplated to be made to the Company
upon such exercise in payment of the Aggregate Exercise Price, elect instead to
receive upon such exercise the "Net Number" of shares of Common Stock determined
according to the following formula (a "CASHLESS EXERCISE"):
Net Number = (A x B) - (A x C)
-----------------
B
For purposes of the foregoing formula:
A = the total number of shares with respect to
which this Warrant is then being exercised.
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B = the Closing Sale Price of the shares of
Common Stock (as reported by Bloomberg) on
the date immediately preceding the date of
the Exercise Notice.
C = the Exercise Price then in effect for the
applicable Warrant Shares at the time of
such exercise.
(e) Disputes. In the case of a dispute as to the determination of the
Exercise Price or the arithmetic calculation of the Warrant Shares, the Company
shall promptly issue to the Holder the number of Warrant Shares that are not
disputed and resolve such dispute in accordance with Section 12.
(f) Limitations on Exercises.
(1) Beneficial Ownership. The Company shall not effect the exercise of
this Warrant, and the Holder shall not have the right to exercise this
Warrant, to the extent that after giving effect to such exercise, such
Person (together with such Person's affiliates) would beneficially own
(directly or indirectly through Warrant Shares or otherwise) in excess of
4.99% of the shares of Common Stock outstanding immediately after giving
effect to such exercise. For purposes of the foregoing sentence, the
aggregate number of shares of Common Stock beneficially owned (directly or
indirectly through Warrant Shares or otherwise) by such Person and its
affiliates shall include the number of shares of Common Stock issuable upon
exercise of this Warrant with respect to which the determination of such
sentence is being made, but shall exclude shares of Common Stock which
would be issuable upon (i) exercise of the remaining, unexercised portion
of this Warrant beneficially owned by such Person and its affiliates and
(ii) exercise or conversion of the unexercised or unconverted portion of
any other securities of the Company beneficially owned by such Person and
its affiliates (including, without limitation, any convertible notes or
convertible preferred stock or warrants) subject to a limitation on
conversion or exercise analogous to the limitation contained herein. Except
as set forth in the preceding sentence, for purposes of this paragraph,
beneficial ownership shall be calculated in accordance with Section 13(d)
of the Securities Exchange Act of 1934, as amended. For purposes of this
Warrant, in determining the number of outstanding shares of Common Stock,
the Holder may rely on the number of outstanding shares of Common Stock as
reflected in (1) the Company's most recent Form 10-KSB, Form 10-QSB,
Current Report on Form 8-K or other public filing with the Securities and
Exchange Commission, as the case may be, (2) a more recent public
announcement by the Company or (3) any other notice by the Company or the
Transfer Agent setting forth the number of shares of Common Stock
outstanding. For any reason at any time, upon the written request of the
Holder, the Company shall within two Business 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 the SPA Securities and the SPA
Warrants, by the
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Holder and its affiliates since the date as of which such number of
outstanding shares of Common Stock was reported. By written notice to the
Company, the Holder may from time to time increase or decrease the Maximum
Percentage specified in such notice; provided that (i) any such increase
will not be effective until the sixty-first (61st) day after such notice is
delivered to the Company, and (ii) any such increase or decrease will apply
only to the Holder and not to any other holder of SPA Warrants.
(2) Principal Market Regulation. The Company shall not be obligated to
issue any shares of Common Stock upon exercise of this Warrant if the
issuance of such shares of Common Stock would exceed that number of shares
of Common Stock which the Company may issue upon exercise, redemption or
conversion, as applicable, of the SPA Warrants and SPA Securities or
otherwise without breaching the Company's obligations under the rules or
regulations of the Principal Market or the Australian Stock Exchange (the
"EXCHANGE CAP"), except that such limitation shall not apply in the event
that the Company (A) obtains the approval of its stockholders as required
by the applicable rules of the Principal Market or the Australian Stock
Exchange for issuances of shares of Common Stock in excess of such amount
or (B) obtains a written opinion from outside counsel to the Company that
such approval is not required, which opinion shall be reasonably
satisfactory to the Required Holders. Until such approval or written
opinion is obtained, no Buyer shall be issued in the aggregate, upon
exercise or conversion, as applicable, of any SPA Warrants or SPA
Securities, shares of Common Stock in an amount greater than the product of
the Exchange Cap multiplied by a fraction, the numerator of which is the
total number of shares of Common Stock underlying the SPA Warrants issued
to such Buyer pursuant to the Securities Purchase Agreement on the Issuance
Date and the denominator of which is the aggregate number of shares of
Common Stock underlying the SPA Warrants issued to the Buyers pursuant to
the Securities Purchase Agreement on the Issuance Date (with respect to
each Buyer, the "EXCHANGE CAP ALLOCATION"). In the event that any Buyer
shall sell or otherwise transfer any of such Buyer's SPA Warrants, the
transferee shall be allocated a pro rata portion of such Buyer's Exchange
Cap Allocation, and the restrictions of the prior sentence shall apply to
such transferee with respect to the portion of the Exchange Cap Allocation
allocated to such transferee. In the event that any holder of SPA Warrants
shall exercise all of such holder's SPA Warrants into a number of shares of
Common Stock which, in the aggregate, is less than such holder's Exchange
Cap Allocation, then the difference between such holder's Exchange Cap
Allocation and the number of shares of Common Stock actually issued to such
holder shall be allocated to the respective Exchange Cap Allocations of the
remaining holders of SPA Warrants on a pro rata basis in proportion to the
shares of Common Stock underlying the SPA Warrants then held by each such
holder. To the extent required by the Principal Market, the provisions of
the Exchange Cap shall be modified to comply with the applicable rules and
regulations of the Principal Market, provided that any such changes shall
not, in the Holder's reasonable discretion, materially change the terms of
the transaction contemplated hereby.
(g) Insufficient Authorized Shares. If at any time while any of the
Warrants remain outstanding the Company does not have a sufficient number of
authorized and unreserved shares of Common Stock (an "AUTHORIZED SHARE FAILURE")
to satisfy its obligation to reserve for
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issuance upon exercise of the Warrants at least a number of shares of Common
Stock equal to 175% of the number of shares of Common Stock as shall from time
to time be necessary to effect the exercise of all of the Warrants then
outstanding (the "REQUIRED RESERVE AMOUNT"), 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 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.
(h) Right of Mandatory Redemption by the Company.
(1) If at any time from and after the Effective Date (as defined in
the Registration Rights Agreement), (i) the Closing Sales Price of the Common
Stock for each Trading Day of any 20 consecutive Trading Day period preceding
the applicable Mandatory Redemption Eligibility Date equals or exceeds $7.87 per
share (subject to equitable adjustment for stock splits, stock dividends,
combinations, and capital reorganizations, as applicable), and (ii) the average
daily dollar trading volume of the Common Stock over such 20 consecutive Trading
Day period equals or exceeds $400,000 and no single Trading Day is less than
$200,000.00 (the "MANDATORY REDEMPTION ELIGIBILITY DATE"), the Company shall
have the right to require the Holder to exercise this Warrant in whole or in
part, subject to Sections 1(h)(2) below, as designated in the Mandatory
Redemption Notice (as defined below) into fully paid, validly issued and
non-assessable shares of Common Stock in accordance with the terms of this
Warrant at the Exercise Price as of the Mandatory Redemption Eligibility Date (a
"MANDATORY REDEMPTION"). Notwithstanding anything contained herein to the
contrary, Warrants subject to Mandatory Redemption may be exercised by the
Holder anytime prior to the receipt of the redemption amount by the Holder. The
Company may exercise its right to require redemption under this Section 1(h) by
delivering within not more than ten (10) days after the end of the Mandatory
Redemption Eligibility Date a written notice thereof by facsimile and overnight
courier to all, but not less than all, of the holders of Warrants (the
"MANDATORY REDEMPTION NOTICE" and the date all of the holders received such
notice by facsimile is referred to as the "MANDATORY REDEMPTION NOTICE DATE").
The Mandatory Redemption Notice shall state (i) the aggregate number of Warrants
subject to Mandatory Redemption from the Holder and all of the holders of the
Warrants pursuant to this Section 1(h). The Holder shall have ten (10) Trading
Days from the receipt of the Mandatory Redemption Notice to exercise the number
of warrants stated in the Mandatory Redemption Notice prior to redemption.
(2) Notwithstanding anything to the contrary contained in this Section
1(h), the aggregate number of Warrants that the Company shall have the right to
call at any given time under Section 1(h) shall be limited to a number of
Warrants such that the number of Warrant Shares issuable upon exercise of the
Warrants so called does not exceed 61,728 Warrants
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(subject to equitable adjustment for stock splits, stock dividends,
combinations, and capital reorganizations, as applicable) per calendar month.
The purchase of the Warrants listed in any Mandatory Redemption Notice shall
occur on the tenth (10th) Trading Day following the receipt by the Holder of the
corresponding Mandatory Redemption Notice. If following the receipt by the
Holder of a Mandatory Redemption Notice and prior to such tenth (10th) Trading
Day following the receipt of such Mandatory Redemption Notice, the Holder shall
have exercised a number of Warrants equal to the number of Warrants stated in
such Mandatory Redemption Notice, there shall be no Mandatory Redemption
pursuant to such notice. There shall be no restriction on the ability of the
Holder to exercise the Warrants that are not called by the Company.
(i) Unregistered Shares. Upon the exercise of this Warrant, the
Company shall have the right to issue unregistered Common Stock if the Piggyback
Registration (as defined in the Registration Rights Agreement) is not declared
effective by the Securities and Exchange Commission.
2. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES.
The Exercise Price and the number of Warrant Shares shall be adjusted from time
to time as follows:
(a) Adjustment upon Issuance of shares of Common Stock. If and whenever on
or after the Subscription Date the Company issues or sells, or in accordance
with this Section 2 is deemed to have issued or sold, any shares of Common Stock
(including the issuance or sale of shares of Common Stock owned or held by or
for the account of the Company, but excluding shares of Common Stock deemed to
have been issued by the Company in connection with any Excluded Securities (as
defined in the SPA Securities)) for a consideration per share (the "NEW ISSUANCE
PRICE") less than a price (the "APPLICABLE PRICE") equal to the Exercise Price
in effect immediately prior to such issue or sale or deemed issuance or sale
(the foregoing a "DILUTIVE ISSUANCE"), then immediately after such Dilutive
Issuance, the Exercise Price then in effect shall be reduced to an amount equal
to the New Issuance Price. For purposes of determining the adjusted Exercise
Price under this Section 2(a), the following shall be applicable:
(i) Issuance of Options. If the Company in any manner grants any
Options and the lowest price per share for which one share of
Common Stock is issuable upon the exercise of any such Option or
upon conversion, exercise or exchange of any Convertible
Securities issuable upon exercise of any such Option is less than
the Applicable Price, then such shares of Common Stock
(underlying such Option shall be deemed to be outstanding and to
have been issued and sold by the Company at the time of the
granting or sale of such Option for such price per share. For
purposes of this Section 2(a)(i), the "lowest price per share for
which one share of Common Stock is issuable upon exercise of such
Options or upon conversion, exercise or exchange of such
Convertible Securities" shall be equal to the sum of the lowest
amounts of consideration (if any) received or receivable by the
Company with respect to any one share of Common
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Stock upon the granting or sale of the Option, upon exercise of
the Option and upon conversion, exercise or exchange of any
Convertible Security issuable upon exercise of such Option. No
further adjustment of the Exercise Price or number of Warrant
Shares shall be made upon the actual issuance of such shares of
Common Stock or of such Convertible Securities upon the exercise
of such Options or upon the actual issuance of such shares of
Common Stock upon conversion, exercise or exchange of such
Convertible Securities.
(ii) Issuance of Convertible Securities. If the Company in any manner
issues or sells any Convertible Securities and the lowest price
per share for which one share of Common Stock is issuable upon
the conversion, exercise or exchange thereof is less than the
Applicable Price, then such shares of Common Stock issuable upon
conversion of such Convertible Securities shall be deemed to be
outstanding and to have been issued and sold by the Company at
the time of the issuance or sale of such Convertible Securities
for such price per share. For the purposes of this Section
2(a)(ii), the "lowest price per share for which one share of
Common Stock is issuable upon the conversion, exercise or
exchange" shall be equal to the sum of the lowest amounts of
consideration (if any) received or receivable by the Company with
respect to one share of Common Stock upon the issuance or sale of
the Convertible Security and upon conversion, exercise or
exchange of such Convertible Security. No further adjustment of
the Exercise Price or number of Warrant Shares shall be made upon
the actual issuance of such shares of Common Stock upon
conversion, exercise or exchange of such Convertible Securities,
and if any such issue or sale of such Convertible Securities is
made upon exercise of any Options for which adjustment of this
Warrant has been or is to be made pursuant to other provisions of
this Section 2(a), no further adjustment of the Exercise Price or
number of Warrant Shares shall be made by reason of such issue or
sale. A change that permits the holder of an Option or
Convertible Security to utilize a cashless exercise feature shall
not be deemed to decrease the consideration payable by the holder
solely by reason of the fact that the cashless exercise feature
would result in a reduction in cash consideration receivable by
the Company.
(iii) Change in Option Price or Rate of Conversion. If the purchase
price provided for in any Options, the additional consideration,
if any, payable upon the issue, conversion, exercise or exchange
of any Convertible Securities, or the rate at which any
Convertible Securities are convertible into or exercisable or
exchangeable for shares of Common Stock increases or decreases at
any time, the Exercise Price and the number of Warrant Shares in
effect at the time of such increase or decrease shall be adjusted
to the Exercise Price and the number of Warrant Shares which
would have been in effect at such time had such Options or
Convertible Securities provided for such increased or decreased
purchase price, additional consideration or increased or
decreased conversion rate, as the case may
8
be, at the time initially granted, issued or sold. For purposes
of this Section 2(a)(iii), if the terms of any Option or
Convertible Security that was outstanding as of the date of
issuance of this Warrant are increased or decreased in the manner
described in the immediately preceding sentence, then such Option
or Convertible Security and the shares of Common Stock deemed
issuable upon exercise, conversion or exchange thereof shall be
deemed to have been issued as of the date of such increase or
decrease. No adjustment pursuant to this Section 2(a) shall be
made if such adjustment would result in an increase of the
Exercise Price then in effect or a decrease in the number of
Warrant Shares. A change that permits the holder of an Option or
Convertible Security to utilize a cashless exercise feature shall
not be deemed to decrease the consideration payable by the holder
solely by reason of the fact that the cashless exercise feature
would result in a reduction in cash consideration receivable by
the Company.
(iv) Calculation of Consideration Received. In case any Option is
issued in connection with the issue or sale of other securities
of the Company, together comprising one integrated transaction in
which no specific consideration is allocated to such Options by
the parties thereto, the Options will be deemed to have been
issued for a consideration of $0.001. 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 amount received by the
Company therefor. If any shares of Common Stock, Options or
Convertible Securities are issued or sold for a consideration
other than cash, the amount of such consideration received by the
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
will be the Closing Sale Price of such publicly traded security
on the date of receipt. If any shares of Common Stock, Options or
Convertible Securities are issued to the owners of the
non-surviving entity in connection with any merger in which the
Company is the surviving entity, the amount of consideration
therefor will be deemed to be the fair value of such portion of
the net assets and business of the non-surviving entity as is
attributable to such shares of Common Stock, Options or
Convertible Securities, as the case may be. The fair value of any
consideration other than cash or publicly traded securities will
be determined jointly by the Company and the Required Holders. If
such parties are unable to reach agreement within ten (10) days
after the occurrence of an event requiring valuation (the
"VALUATION EVENT"), the fair value of such consideration will be
determined within five (5) Business Days after the tenth day
following the Valuation Event by an independent, reputable
appraiser jointly selected by the Company and the Required
Holders. The determination of such appraiser shall be final and
binding upon all parties absent manifest error
9
and the fees and expenses of such appraiser shall be borne by the
Company.
(v) Record Date. If the Company takes a record of the holders of
shares of Common Stock for the purpose of entitling them (A) to
receive a dividend or other distribution payable in shares of
Common Stock, Options or in Convertible Securities or (B) to
subscribe for or purchase shares of Common Stock, Options or
Convertible Securities, then such record date will be deemed to
be the date of the issue or sale of the shares of Common Stock
deemed to have been issued or sold upon the declaration of such
dividend or the making of such other distribution or the date of
the granting of such right of subscription or purchase, as the
case may be.
(b) Adjustment upon Subdivision or Combination of Common Stock. If the
Company at any time on or after the Subscription Date subdivides (by any stock
split, stock dividend, recapitalization or otherwise) one or more classes of its
outstanding shares of Common Stock into a greater number of shares, the Exercise
Price in effect immediately prior to such subdivision will be proportionately
reduced and the number of Warrant Shares will be proportionately increased. If
the Company at any time on or after the Subscription Date combines (by
combination, reverse stock split or otherwise) one or more classes of its
outstanding shares of Common Stock into a smaller number of shares, the Exercise
Price in effect immediately prior to such combination will be proportionately
increased and the number of Warrant Shares will be proportionately decreased.
Any adjustment under this Section 2(b) shall become effective at the close of
business on the date the subdivision or combination becomes effective.
(c) Other Events. If any event occurs of the type contemplated by the
provisions of this Section 2 but not expressly provided for by such provisions
(including, without limitation, the granting of stock appreciation rights,
phantom stock rights or other rights with equity features), then the Company's
Board of Directors will make an appropriate adjustment in the Exercise Price and
the number of Warrant Shares so as to protect the rights of the Holder; provided
that no such adjustment pursuant to this Section 2(c) will increase the Exercise
Price or decrease the number of Warrant Shares as otherwise determined pursuant
to this Section 2.
3. RIGHTS UPON DISTRIBUTION OF ASSETS.
If the Company shall declare or make any dividend or other distribution of its
assets (or rights to acquire its assets) to holders of shares of Common Stock,
by way of return of capital or otherwise (including, without limitation, any
distribution of cash, stock or other securities, property or options by way of a
dividend, spin off, reclassification, corporate rearrangement, scheme of
arrangement or other similar transaction) (a "DISTRIBUTION"), at any time after
the issuance of this Warrant, then, in each such case:
(a) any Exercise Price in effect immediately prior to the close of business
on the record date fixed for the determination of holders of shares of Common
Stock entitled to receive the Distribution shall be reduced, effective as of the
close of business on such record date, to a
10
price determined by multiplying such Exercise Price by a fraction of which (i)
the numerator shall be the Closing Bid Price of a share of Common Stock on the
Trading Day immediately preceding such record date minus the value of the
Distribution (as determined in good faith by the Company's Board of Directors)
applicable to one share of Common Stock, and (ii) the denominator shall be the
Closing Bid Price of a share of Common Stock on the Trading Day immediately
preceding such record date; and
(b) the number of Warrant Shares shall be increased to a number of shares
equal to the number of shares of Common Stock obtainable immediately prior to
the close of business on the record date fixed for the determination of holders
of shares of Common Stock entitled to receive the Distribution multiplied by the
reciprocal of the fraction set forth in the immediately preceding paragraph (a);
provided that in the event that the Distribution is of shares of Common Stock
(or common stock) ("OTHER SHARES OF COMMON STOCK") of a company whose common
shares are traded on a national securities exchange or a national automated
quotation system, then the Holder may elect to receive a warrant to purchase
Other Shares of Common Stock in lieu of an increase in the number of Warrant
Shares, the terms of which shall be identical to those of this Warrant, except
that such warrant shall be exercisable into the number of shares of Other Shares
of Common Stock that would have been payable to the Holder pursuant to the
Distribution had the Holder exercised this Warrant immediately prior to such
record date and with an aggregate exercise price equal to the product of the
amount by which the exercise price of this Warrant was decreased with respect to
the Distribution pursuant to the terms of the immediately preceding paragraph
(a) and the number of Warrant Shares calculated in accordance with the first
part of this paragraph (b).
4. PURCHASE RIGHTS; FUNDAMENTAL TRANSACTIONS.
(a) Purchase Rights. In addition to any adjustments pursuant to Section 2
above, if at any time the Company grants, issues or sells any Options,
Convertible Securities or rights to purchase stock, warrants, securities or
other property pro rata to the record holders of 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 proportionate
number of shares of Common Stock acquirable upon complete exercise of this
Warrant (without regard to any limitations on the exercise of this Warrant)
immediately before the date on which a record is taken for the grant, issuance
or sale of such Purchase Rights, or, if no such record is taken, the date as of
which the record holders of shares of Common Stock are to be determined for the
grant, issue or sale of such Purchase Rights.
(b) Fundamental Transactions. The Company shall not enter into or be party
to a Fundamental Transaction unless (i) the Successor Entity assumes in writing
all of the obligations of the Company under this Warrant and the other
Transaction Documents in accordance with the provisions of this Section (4)(b)
pursuant to written agreements in form and substance satisfactory to the
Required Holders and approved by the Required Holders prior to such Fundamental
Transaction, including agreements to deliver to each holder of Warrants in
exchange for such Warrants a security of the Successor Entity evidenced by a
written instrument substantially similar in form and substance to this Warrant,
including, without limitation, an adjusted exercise price equal to the value for
the shares of Common Stock reflected by the terms
11
of such Fundamental Transaction, and exercisable for a corresponding number of
shares of capital stock equivalent to the shares of Common Stock acquirable and
receivable upon exercise of this Warrant (without regard to any limitations on
the exercise of this Warrant) prior to such Fundamental Transaction, and
satisfactory to the Required Holders and (ii) the Successor Entity (including
its Parent Entity) is a publicly traded corporation whose common stock is quoted
on or listed for trading on an Eligible Market. Upon the occurrence of any
Fundamental Transaction, the Successor Entity shall succeed to, and be
substituted for (so that from and after the date of such Fundamental
Transaction, the provisions of this Warrant referring to the "Company" shall
refer instead to the Successor Entity), the Company and may exercise every right
and power of the Company and shall assume all of the obligations of the Company
under this Warrant with the same effect as if such Successor Entity had been
named as the Company herein. Upon consummation of the Fundamental Transaction,
the Successor Entity shall deliver to the Holder confirmation that there shall
be issued upon exercise of this Warrant at any time after the consummation of
the Fundamental Transaction, in lieu of the shares of the Common Stock (or other
securities, cash, assets or other property) issuable upon the exercise of the
Warrant prior to such Fundamental Transaction, such shares of the publicly
traded Common Stock (or its equivalent) of the Successor Entity (including its
Parent Entity) which the Holder would have been entitled to receive upon the
happening of such Fundamental Transaction had this Warrant been converted
immediately prior to such Fundamental Transaction, as adjusted in accordance
with the provisions of this Warrant. In addition to and not in substitution for
any other rights hereunder, prior to the consummation of any Fundamental
Transaction pursuant to which holders of shares of Common Stock are entitled to
receive securities or other assets with respect to or in exchange for shares of
Common Stock (a "CORPORATE EVENT"), the Company shall make appropriate provision
to insure that the Holder will thereafter have the right to receive upon an
exercise of this Warrant at any time after the consummation of the Fundamental
Transaction but prior to the Expiration Date, in lieu of the shares of the
Common Stock (or other securities, cash, assets or other property) issuable upon
the exercise of the Warrant prior to such Fundamental Transaction, such shares
of stock, securities, cash, assets or any other property whatsoever (including
warrants or other purchase or subscription rights) which the Holder would have
been entitled to receive upon the happening of such Fundamental Transaction had
the Warrant been exercised immediately prior to such Fundamental Transaction.
Provisions made pursuant to the preceding sentence shall be in the form and
substance reasonably satisfactory to the Required Holders. The provisions of
this Section shall apply similarly and equally to successive Fundamental
Transactions and Corporate Events and shall be applied without regard to any
limitations on the exercise of this Warrant.
(c) Notwithstanding the foregoing and the provisions of Section 4(b) above,
in the event of a Fundamental Transaction, only if such Fundamental Transaction
is within the control of the Company, if the Holder has not exercised the
Warrant in full prior to the consummation of the Fundamental Transaction, then
the Company may enter into a Fundamental Transaction pursuant to which the
Holder shall receive, simultaneously with the consummation of the Fundamental
Transaction, in lieu of the warrant referred to in Section 4(b) cash in the
amount equal to the value of the remaining unexercised portion of this Warrant
on the date of such consummation, which value shall be determined by use of the
Black Scholes Option Pricing Model reflecting (A) a risk-free interest rate
corresponding to the U.S. Treasury rate for a period equal to the remaining term
of this Warrant as of such date of request and (B) an expected
12
volatility equal to the greater of 60% and the 100 day volatility obtained from
the HVT function on Bloomberg.
5. NONCIRCUMVENTION.
The Company hereby covenants and agrees that the Company will not, by amendment
of its Articles of Incorporation, Bylaws or through any reorganization, transfer
of assets, consolidation, merger, scheme of arrangement, dissolution, issue or
sale of securities, or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, and will at all
times in good faith carry out all the provisions of this Warrant and take all
action as may be required to protect the rights of the Holder. Without limiting
the generality of the foregoing, the Company (i) shall not increase the par
value of any shares of Common Stock receivable upon the exercise of this Warrant
above the Exercise Price then in effect, (ii) shall take all such actions as may
be necessary or appropriate in order that the Company may validly and legally
issue fully paid and nonassessable shares of Common Stock upon the exercise of
this Warrant, and (iii) shall, so long as any of the SPA Warrants are
outstanding, take all action necessary to reserve and keep available out of its
authorized and unissued shares of Common Stock, solely for the purpose of
effecting the exercise of the SPA Warrants, 175% of the number of shares of
Common Stock as shall from time to time be necessary to effect the exercise of
the SPA Warrants then outstanding (without regard to any limitations on
exercise).
6. WARRANT HOLDER NOT DEEMED A STOCKHOLDER.
Except as otherwise specifically provided herein, the Holder, solely in such
Person's capacity as a holder of this Warrant, shall not be entitled to vote or
be deemed the holder of share capital of the Company for any purpose, nor shall
anything contained in this Warrant be construed to confer upon the Holder,
solely in such Person's capacity as the Holder of this Warrant, any of the
rights of a stockholder of the Company or any right to vote, give or withhold
consent to any corporate action (whether any reorganization, issue of stock,
reclassification of stock, consolidation, merger, conveyance or otherwise),
receive notice of meetings, or subscription rights, or otherwise, prior to the
issuance to the Holder of the Warrant Shares which such Person is then entitled
to receive upon the due exercise of this Warrant. In addition, nothing contained
in this Warrant shall be construed as imposing any liabilities on the Holder to
purchase any securities (upon exercise of this Warrant or otherwise) or as a
stockholder of the Company, whether such liabilities are asserted by the Company
or by creditors of the Company. Notwithstanding this Section 6, the Company
shall provide the Holder with copies of the same notices and other information
given to the stockholders of the Company generally, contemporaneously with the
giving thereof to the stockholders.
Notwithstanding the above, in the event that the Company shall at any time prior
to the exercise of all Warrants declare a dividend (other than a dividend
consisting solely of shares of Common Stock) or otherwise distribute to its
stockholders any assets, property, rights, evidences of indebtedness, securities
(other than shares of Common Stock), whether issued by the Company or by
another, or any other thing of value, the Holders of the unexercised Warrants
shall thereafter be entitled, in addition to the shares of Common Stock or other
securities and property receivable upon the exercise thereof, to receive, upon
the exercise of such Warrants, the same
13
property, assets, rights, evidences of indebtedness, securities or any other
thing of value that they would have been entitled to receive at the time of such
dividend or distribution as if the Warrants had been exercised immediately prior
to such dividend or distribution. At the time of any such dividend or
distribution, the Company shall make appropriate reserves to ensure the timely
performance of the provisions of this Section 6. Nothing contained herein shall
provide for the receipt or accrual by a Holder of cash dividends prior to the
exercise by such Holder of the Warrants.
7. REISSUANCE OF WARRANTS.
(a) Transfer of Warrant. If this Warrant is to be transferred, the Holder
shall surrender this Warrant to the Company, whereupon the Company will issue
promptly following satisfaction of the transfer provisions contained in the
Securities Purchase Agreement and deliver upon the order of the Holder a new
Warrant (in accordance with Section 7(d)), in the name of the validly registered
assignee or transferee, representing the right to purchase the number of Warrant
Shares being transferred by the Holder and, if less then the total number of
Warrant Shares then underlying this Warrant is being transferred, a new Warrant
(in accordance with Section 7(d)) to the Holder representing the right to
purchase the number of Warrant Shares not being transferred.
(b) Lost, Stolen or Mutilated Warrant. Upon receipt by the Company of
evidence reasonably satisfactory to the Company of the loss, theft, destruction
or mutilation of this Warrant, and, in the case of loss, theft or destruction,
of any indemnification undertaking by the Holder to the Company in customary
form and, in the case of mutilation, upon surrender and cancellation of this
Warrant, the Company shall execute and deliver to the Holder a new Warrant (in
accordance with Section 7(d)) representing the right to purchase the Warrant
Shares then underlying this Warrant.
(c) Exchangeable for Multiple Warrants. This Warrant is exchangeable, upon
the surrender hereof by the Holder at the principal office of the Company, for a
new Warrant or Warrants (in accordance with Section 7(d)) representing in the
aggregate the right to purchase the number of Warrant Shares then underlying
this Warrant, and each such new Warrant will represent the right to purchase
such portion of such Warrant Shares as is designated by the Holder at the time
of such surrender; provided, however, that no Warrants for fractional shares of
Common Stock shall be given.
(d) Issuance of New Warrants. Whenever the Company is required to issue a
new Warrant pursuant to the terms of this Warrant, such new Warrant (i) shall be
of like tenor with this Warrant, (ii) shall represent, as indicated on the face
of such new Warrant, the right to purchase the Warrant Shares then underlying
this Warrant (or in the case of a new Warrant being issued pursuant to Section
7(a) or Section 7(c), the Warrant Shares designated by the Holder which, when
added to the number of shares of Common Stock underlying the other new Warrants
issued in connection with such issuance, does not exceed the number of Warrant
Shares then underlying this Warrant), (iii) shall have an issuance date, as
indicated on the face of such new Warrant which is the same as the Issuance
Date, and (iv) shall have the same rights and conditions as this Warrant.
14
8. NOTICES.
Whenever notice is required to be given under this Warrant, unless otherwise
provided herein, such notice shall be given in accordance with Section 9(f) of
the Securities Purchase Agreement. The Company shall provide the Holder with
prompt written notice of all actions taken pursuant to this Warrant, including
in reasonable detail a description of such action and the reason therefore.
Without limiting the generality of the foregoing, the Company will give written
notice to the Holder (i) immediately upon any adjustment of the Exercise Price,
setting forth in reasonable detail, and certifying, the calculation of such
adjustment and (ii) at least fifteen (15) days prior to the date on which the
Company closes its books or takes a record (A) with respect to any dividend or
distribution upon the shares of Common Stock, (B) with respect to any grants,
issuances or sales of any Options, Convertible Securities or rights to purchase
stock, warrants, securities or other property to holders of shares of Common
Stock or (C) for determining rights to vote with respect to any Fundamental
Transaction, dissolution or liquidation, provided in each case that such
information shall be made known to the public prior to or in conjunction with
such notice being provided to the Holder.
9. AMENDMENT AND WAIVER.
Except as otherwise provided herein, the provisions of this Warrant may be
amended and the Company may take any action herein prohibited, or omit to
perform any act herein required to be performed by it, only if the Company has
obtained the written consent of the Required Holders; provided that no such
action may increase the exercise price of any SPA Warrant or decrease the number
of shares or class of stock obtainable upon exercise of any SPA Warrant without
the written consent of the Holder. No such amendment shall be effective to the
extent that it applies to less than all of the holders of the SPA Warrants then
outstanding.
10. 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.
11. CONSTRUCTION; HEADINGS.
This Warrant shall be deemed to be jointly drafted by the Company and all the
Buyers and shall not be construed against any person as the drafter hereof. The
headings of this Warrant are for convenience of reference and shall not form
part of, or affect the interpretation of, this Warrant.
12. DISPUTE RESOLUTION.
15
In the case of a dispute as to the determination of the Exercise Price or the
arithmetic calculation of the Warrant Shares, the Company shall submit the
disputed determinations or arithmetic calculations via facsimile within two
Business Days of receipt of the Exercise Notice giving rise to such dispute, as
the case may be, to the Holder. If the Holder and the Company are unable to
agree upon such determination or calculation of the Exercise Price or the
Warrant Shares within three Business Days of such disputed determination or
arithmetic calculation being submitted to the Holder, then the Company shall,
within two Business Days submit via facsimile (a) the disputed determination of
the Exercise Price to an independent, reputable investment bank selected by the
Company and approved by the Holder (such approval not to be unreasonably
withheld or delayed) or (b) the disputed arithmetic calculation of the Warrant
Shares to the Company's independent, outside accountant. The Company shall cause
at its expense the investment bank or the accountant, as the case may be, to
perform the determinations or calculations and notify the Company and the Holder
of the results no later than ten Business Days from the time it receives the
disputed determinations or calculations. Such investment bank's or accountant's
determination or calculation, as the case may be, shall be binding upon all
parties absent demonstrable error.
13. REMEDIES, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF.
The remedies provided in this Warrant shall be cumulative and in addition to all
other remedies available under this Warrant and the other Transaction Documents,
at law or in equity (including a decree of specific performance and/or other
injunctive relief), and nothing herein shall limit the right of the Holder right
to pursue actual damages for any failure by the Company to comply with the terms
of this Warrant. The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to the Holder and that the remedy at law
for any such breach may be inadequate. The Company therefore agrees that, in the
event of any such breach or threatened breach, the holder of this Warrant shall
be entitled, in addition to all other available remedies, to an injunction
restraining any breach, without the necessity of showing economic loss and
without any bond or other security being required.
14. TRANSFER.
This Warrant may be offered for sale, sold, transferred or assigned without the
consent of the Company, except as may otherwise be required by Section 2(f) of
the Securities Purchase Agreement.
15. CERTAIN DEFINITIONS.
For purposes of this Warrant, the following terms shall have the following
meanings:
(a) "BLOOMBERG" means Bloomberg Financial Markets.
(b) "BUSINESS DAY" means any day other than Saturday, Sunday or other day
on which commercial banks in The City of New York are authorized or required by
law to remain closed.
16
(c) "CLOSING BID PRICE" and "CLOSING SALE PRICE" means, for any security as
of any date, the last closing bid price and last closing trade price,
respectively, for such security on the Principal Market, as reported by
Bloomberg, or, if the Principal Market begins to operate on an extended hours
basis and does not designate the closing bid price or the closing trade price,
as the case may be, then the last bid price or last trade price, respectively,
of such security prior to 4:00:00 p.m., New York Time, as reported by Bloomberg,
or, if the Principal Market is not the principal securities exchange or trading
market for such security, the last closing bid price or last trade price,
respectively, of such security on the principal securities exchange or trading
market where such security is listed or traded as reported by Bloomberg, or if
the foregoing do not apply, the last closing bid price or last trade price,
respectively, of such security in the over-the-counter market on the electronic
bulletin board for such security as reported by Bloomberg, or, if no closing bid
price or last trade price, respectively, is reported for such security by
Bloomberg, the average of the bid prices, or the ask prices, respectively, of
any market makers for such security as reported in the "pink sheets" by Pink
Sheets LLC (formerly the National Quotation Bureau, Inc.). If the Closing Bid
Price or the Closing Sale Price cannot be calculated for a security on a
particular date on any of the foregoing bases, the Closing Bid Price or the
Closing Sale Price, as the case may be, of such security on such date shall be
the fair market value as mutually determined by the Company and the Holder. If
the Company and the Holder are unable to agree upon the fair market value of
such security, then such dispute shall be resolved pursuant to Section 12. All
such determinations to be appropriately adjusted for any stock dividend, stock
split, stock combination or other similar transaction during the applicable
calculation period.
(d) "COMMON STOCK" means (i) the Company's shares of Common Stock, par
value $0.001 per share, and (ii) any share capital into which such Common Stock
shall have been changed or any share capital resulting from a reclassification
of such Common Stock.
(e) "CONVERTIBLE SECURITIES" means any stock or securities (other than
Options) directly or indirectly convertible into or exercisable or exchangeable
for shares of Common Stock.
(f) "ELIGIBLE MARKET" means the Principal Market, The New York Stock
Exchange, Inc., the Nasdaq National Market, Over-the-Counter Bulletin Board or
the American Stock Exchange.
(g) "EXPIRATION DATE" means the date sixty months after the Issuance Date
or, if such date falls on a day other than a Business Day or on which trading
does not take place on the Principal Market (a "HOLIDAY"), the next date that is
not a Holiday.
(h) "FUNDAMENTAL TRANSACTION" means that the Company shall, directly or
indirectly, in one or more related transactions, (i) consolidate or merge with
or into (whether or not the Company is the surviving corporation) another
Person, or (ii) sell, assign, transfer, convey or otherwise dispose of all or
substantially all of the properties or assets of the Company to another Person,
or (iii) allow another Person to make a purchase, tender or exchange offer that
is accepted by the holders of more than the 50% of either the outstanding shares
of Common Stock (not including any shares of Common Stock held by the Person or
Persons making or party to, or associated or affiliated with the Persons making
or party to, such purchase, tender or exchange offer), or (iv) consummate a
stock purchase agreement or other business combination
17
(including, without limitation, a reorganization, recapitalization, spin-off or
scheme of arrangement) with another Person whereby such other Person acquires
more than the 50% of the outstanding shares of Common Stock (not including any
shares of Common Stock held by the other Person or other Persons making or party
to, or associated or affiliated with the other Persons making or party to, such
stock purchase agreement or other business combination), (v) reorganize,
recapitalize or reclassify its Common Stock (other than a forward or reverse
stock split), or (vi) any "person" or "group" (as these terms are used for
purposes of Sections 13(d) and 14(d) of the Exchange Act) is or shall become the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of 50% of the aggregate ordinary voting power represented by
issued and outstanding Common Stock.
(i) "OPTIONS" means any rights, warrants or options to subscribe for or
purchase shares of Common Stock or Convertible Securities.
(j) "PARENT ENTITY" of a Person means an entity that, directly or
indirectly, controls the applicable Person and whose common stock or equivalent
equity security is quoted or listed on an Eligible Market, or, if there is more
than one such Person or Parent Entity, the Person or Parent Entity with the
largest public market capitalization as of the date of consummation of the
Fundamental Transaction.
(k) "PERSON" means an individual, a limited liability company, a
partnership, a joint venture, a corporation, a trust, an unincorporated
organization, any other entity and a government or any department or agency
thereof.
(l) "PRINCIPAL MARKET" means the Nasdaq Small Cap Market.
(m) "REGISTRATION RIGHTS AGREEMENT" means that certain registration rights
agreement by and among the Company and the Buyers.
(n) "REQUIRED HOLDERS" means the holders of the SPA Warrants representing
at least a majority of shares of Common Stock underlying the SPA Warrants then
outstanding.
(o) "SPA SECURITIES" means the Notes and Preferred Stock issued pursuant to
the Securities Purchase Agreement.
(p) "SUCCESSOR ENTITY" means the Person (or, if so elected by the Required
Holders, the Parent Entity) formed by, resulting from or surviving any
Fundamental Transaction or the Person (or, if so elected by the Required
Holders, the Parent Entity) with which such Fundamental Transaction shall have
been entered into.
[SIGNATURE PAGE FOLLOWS]
18
IN WITNESS WHEREOF, the Company has caused this Warrant to Purchase Common
Stock to be duly executed as of the Issuance Date set out above.
CATUITY, INC.
By:
------------------------------------
Name: John Racine
Title: Chief Executive Officer
EXHIBIT A
EXERCISE NOTICE
TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS
WARRANT TO PURCHASE COMMON STOCK
CATUITY, INC.
The undersigned holder hereby exercises the right to purchase
_________________ of the shares of Common Stock ("WARRANT SHARES") of Catuity,
Inc., a Delaware corporation (the "COMPANY"), evidenced by the attached Warrant
to Purchase Common Stock (the "WARRANT"). Capitalized terms used herein and not
otherwise defined shall have the respective meanings set forth in the Warrant.
1. Form of Exercise Price. The Holder intends that payment of the Exercise
Price shall be made as:
a "Cash Exercise" with respect to _________________ Warrant
Shares; and/or
_______________
a "Cashless Exercise" with respect to _______________
Warrant Shares.
_______________
2. Payment of Exercise Price. In the event that the holder has elected a
Cash Exercise with respect to some or all of the Warrant Shares to be issued
pursuant hereto, the holder shall pay the Aggregate Exercise Price in the sum of
$___________________ to the Company in accordance with the terms of the Warrant.
3. Delivery of Warrant Shares. The Company shall deliver to the holder
__________ Warrant Shares in accordance with the terms of the Warrant.
4. Delivery of Warrant. The Registered Holder shall deliver the Warrant to
the Company.
Date: _______________ __, ______
Name of Registered Holder
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
20
ACKNOWLEDGMENT
The Company hereby acknowledges this Exercise Notice and hereby directs
Computershare Investor Services to issue the above indicated number of shares of
Common Stock in accordance with the Transfer Agent Instructions dated November
21, 2006 from the Company and acknowledged and agreed to by Computershare
Investor Services.
CATUITY, INC.
By:
------------------------------------
Name: John Racine
Title: Chief Executive Officer
21
NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS WARRANT NOR
THE SECURITIES INTO WHICH THIS WARRANT IS EXERCISABLE HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE
SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE
ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL
SHALL BE SELECTED BY THE HOLDER), IN A FORM REASONABLY ACCEPTABLE TO THE
COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD
PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING,
THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR
OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.
CATUITY, INC.
WARRANT TO PURCHASE COMMON STOCK
Warrant No.: BMF 001
Number of Shares of Common Stock: 136,684
Date of Issuance: November 21, 2006 ("ISSUANCE DATE")
Catuity, Inc., a Delaware corporation (the "COMPANY"), hereby certifies
that, for good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, BRIDGEPOINTE MASTER FUND LTD., the registered holder
hereof or its permitted assigns (the "HOLDER"), is entitled, subject to the
terms set forth below, to purchase from the Company, at the Exercise Price (as
defined below) then in effect, upon surrender of this Warrant to purchase Common
Stock (including any Warrants to purchase Common Stock issued in exchange,
transfer or replacement hereof, the "WARRANT"), at any time or times on or after
the date hereof, but not after 11:59 p.m., New York Time, on the Expiration Date
(as defined below), One Hundred and Thirty Six Thousand, Six Hundred and Eighty
Four (136,684) fully paid nonassessable shares of Common Stock (as defined
below) (the "WARRANT SHARES"). Except as otherwise defined herein, capitalized
terms in this Warrant shall have the meanings set forth in Section 15. This
Warrant is one of the Warrants to purchase Common Stock (the "SPA WARRANTS")
issued pursuant to Section 1 of that certain Securities Purchase Agreement,
dated as of November 21, 2006 (the "SUBSCRIPTION DATE"), by and among the
Company and the investors (the "BUYERS") referred to therein (the "SECURITIES
PURCHASE AGREEMENT").
1. EXERCISE OF WARRANT.
(a) Mechanics of Exercise. Subject to the terms and conditions hereof
(including, without limitation, the limitations set forth in Section 1(f)), this
Warrant may be exercised by the Holder on any day on or after the date hereof,
in whole or in part, by (i) delivery of a written notice, in the form attached
hereto as Exhibit A (the "EXERCISE NOTICE"), of the Holder's election to
exercise this Warrant and (ii) (A) payment to the Company of an amount equal to
the applicable Exercise Price multiplied by the number of Warrant Shares as to
which this Warrant is
being exercised (the "AGGREGATE EXERCISE PRICE") in cash or by wire transfer of
immediately available funds or (B) by notifying the Company that this Warrant is
being exercised pursuant to a Cashless Exercise (as defined in Section 1(d)).
The Holder shall not be required to deliver the original Warrant in order to
affect an exercise hereunder. Execution and delivery of the Exercise Notice with
respect to less than all of the Warrant Shares shall have the same effect as
cancellation of the original Warrant and issuance of a new Warrant evidencing
the right to purchase the remaining number of Warrant Shares. On or before the
first (1st) Business Day following the date on which the Company has received
each of the Exercise Notice and the Aggregate Exercise Price (or notice of a
Cashless Exercise) (the "EXERCISE DELIVERY DOCUMENTS"), the Company shall
transmit by facsimile an acknowledgment of confirmation of receipt of the
Exercise Delivery Documents to the Holder and the Company's transfer agent (the
"TRANSFER AGENT"). On or before the second (2nd) Business Day following the date
on which the Company has received all of the Exercise Delivery Documents (the
"SHARE DELIVERY DATE"), the Company shall (X) provided that the Transfer Agent
is participating in The Depository Trust Company ("DTC") Fast Automated
Securities Transfer Program, credit such aggregate number of shares of Common
Stock to which the Holder is entitled pursuant to such exercise to the Holder's
or its designee's balance account with DTC through its Deposit Withdrawal Agent
Commission system, or (Y) if the Transfer Agent is not participating in the DTC
Fast Automated Securities Transfer Program, issue and dispatch by overnight
courier to the address as specified in the Exercise Notice, a certificate,
registered in the Company's share register in the name of the Holder or its
designee, for the number of shares of Common Stock to which the Holder is
entitled pursuant to such exercise. Upon delivery of the Exercise Delivery
Documents, the Holder shall be deemed for all corporate purposes to have become
the holder of record of the Warrant Shares with respect to which this Warrant
has been exercised, irrespective of the date such Warrant Shares are credited to
the Holder's DTC account or the date of delivery of the certificates evidencing
such Warrant Shares as the case may be. If this Warrant is submitted in
connection with any exercise pursuant to this Section 1(a) and the number of
Warrant Shares represented by this Warrant submitted for exercise is greater
than the number of Warrant Shares being acquired upon an exercise, then the
Company shall as soon as practicable and in no event later than three Business
Days after any exercise and at its own expense, issue, a new Warrant (in
accordance with Section 7(d)) representing the right to purchase the number of
Warrant Shares purchasable immediately prior to such exercise under this
Warrant, less the number of Warrant Shares with respect to which this Warrant is
exercised. No fractional shares of Common Stock are to be issued upon the
exercise of this Warrant, but rather the number of shares of Common Stock to be
issued shall be rounded up to the nearest whole number. The Company shall pay
any and all taxes which may be payable with respect to the issuance and delivery
of Warrant Shares upon exercise of this Warrant.
(b) Exercise Price. For purposes of this Warrant, "EXERCISE PRICE" means
$3.58 subject to adjustment as provided herein.
(c) Company's Failure to Timely Deliver Securities. If the Company shall
fail for any reason or for no reason to issue to the Holder within three (3)
Trading Days of receipt of the Exercise Delivery Documents, a certificate for
the number of shares of Common Stock to which the Holder is entitled and
register such shares of Common Stock on the Company's share register or to
credit the Holder's balance account with DTC for such number of shares of Common
Stock to which the Holder is entitled upon the Holder's exercise of this
Warrant, then, in addition to all
2
other remedies available to the Holder, the Company shall pay in cash to the
Holder on each day after such third Business Day that the issuance of such
shares of Common Stock is not timely effected an amount equal to 1.5% of the
product of (A) the sum of the number of shares of Common Stock not issued to the
Holder on a timely basis and to which the Holder is entitled and (B) the Closing
Sale Price of a share of Common Stock on the Trading Day immediately preceding
the last possible date which the Company could have issued such shares of Common
Stock to the Holder without violating Section 1(a). In addition if within three
(3) Trading Days after the Company's receipt of a copy (whether delivered by
facsimile or any other method) of an Exercise Notice the Company shall fail to
issue and deliver a certificate to the Holder and register such shares of Common
Stock on the Company's share register or credit the Holder's balance account
with DTC for the number of shares of Common Stock to which the Holder is
entitled upon the Holder's exercise hereunder, and if on or after such Trading
Day the Holder purchases (in an open market transaction or otherwise) shares of
Common Stock to deliver in satisfaction of a sale by the Holder of shares of
Common Stock issuable upon such exercise that the Holder anticipated receiving
from the Company (a "BUY-IN" ), then the Company shall, within three (3)
Business Days after the Holder's request and in the Holder's sole discretion,
either (i) pay cash to the Holder in an amount equal to the Holder's total
purchase price (including brokerage commissions, if any) for the shares of
Common Stock so purchased (the "BUY-IN PRICE"), at which point the Company's
obligation to deliver such certificate (and to issue such shares of Common
Stock) shall terminate, or (ii) promptly honor its obligation to deliver to the
Holder a certificate or certificates representing such Warrant Shares and pay
cash to the Holder in an amount equal to the excess (if any) of the Buy-In Price
over the product of (A) such number of shares of Common Stock, times (B) the
Closing Bid Price on the date of exercise. Nothing herein shall limit the
holder's right to pursue actual damages for the Company's failure to maintain a
sufficient number of authorized shares of Common Stock or to otherwise issue
shares of Common Stock upon exercise of this Warrant in accordance with the
terms hereof, and the Holder shall have the right to pursue all remedies
available at law or in equity (including a decree of specific performance and/or
injunctive relief).
(d) Cashless Exercise. Notwithstanding anything contained herein to the
contrary, if, at the time of exercise of this Warrant, a Registration Statement
(as defined in the Registration Rights Agreement) covering the Warrant Shares
that are the subject of the Exercise Notice (the "UNAVAILABLE WARRANT SHARES")
is not available for the resale of such Unavailable Warrant Shares, the Holder
may, in its sole discretion, exercise this Warrant in whole or in part and, in
lieu of making the cash payment otherwise contemplated to be made to the Company
upon such exercise in payment of the Aggregate Exercise Price, elect instead to
receive upon such exercise the "Net Number" of shares of Common Stock determined
according to the following formula (a "CASHLESS EXERCISE"):
Net Number = (A x B) - (A x C)
-----------------
B
For purposes of the foregoing formula:
A = the total number of shares with respect to
which this Warrant is then being exercised.
3
B = the Closing Sale Price of the shares of
Common Stock (as reported by Bloomberg) on
the date immediately preceding the date of
the Exercise Notice.
C = the Exercise Price then in effect for the
applicable Warrant Shares at the time of
such exercise.
(e) Disputes. In the case of a dispute as to the determination of the
Exercise Price or the arithmetic calculation of the Warrant Shares, the Company
shall promptly issue to the Holder the number of Warrant Shares that are not
disputed and resolve such dispute in accordance with Section 12.
(f) Limitations on Exercises.
(1) Beneficial Ownership. The Company shall not effect the exercise of
this Warrant, and the Holder shall not have the right to exercise this
Warrant, to the extent that after giving effect to such exercise, such
Person (together with such Person's affiliates) would beneficially own
(directly or indirectly through Warrant Shares or otherwise) in excess of
4.99% of the shares of Common Stock outstanding immediately after giving
effect to such exercise. For purposes of the foregoing sentence, the
aggregate number of shares of Common Stock beneficially owned (directly or
indirectly through Warrant Shares or otherwise) by such Person and its
affiliates shall include the number of shares of Common Stock issuable upon
exercise of this Warrant with respect to which the determination of such
sentence is being made, but shall exclude shares of Common Stock which
would be issuable upon (i) exercise of the remaining, unexercised portion
of this Warrant beneficially owned by such Person and its affiliates and
(ii) exercise or conversion of the unexercised or unconverted portion of
any other securities of the Company beneficially owned by such Person and
its affiliates (including, without limitation, any convertible notes or
convertible preferred stock or warrants) subject to a limitation on
conversion or exercise analogous to the limitation contained herein. Except
as set forth in the preceding sentence, for purposes of this paragraph,
beneficial ownership shall be calculated in accordance with Section 13(d)
of the Securities Exchange Act of 1934, as amended. For purposes of this
Warrant, in determining the number of outstanding shares of Common Stock,
the Holder may rely on the number of outstanding shares of Common Stock as
reflected in (1) the Company's most recent Form 10-KSB, Form 10-QSB,
Current Report on Form 8-K or other public filing with the Securities and
Exchange Commission, as the case may be, (2) a more recent public
announcement by the Company or (3) any other notice by the Company or the
Transfer Agent setting forth the number of shares of Common Stock
outstanding. For any reason at any time, upon the written request of the
Holder, the Company shall within two Business 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 the SPA Securities and the SPA
Warrants, by the
4
Holder and its affiliates since the date as of which such number of
outstanding shares of Common Stock was reported. By written notice to the
Company, the Holder may from time to time increase or decrease the Maximum
Percentage specified in such notice; provided that (i) any such increase
will not be effective until the sixty-first (61st) day after such notice is
delivered to the Company, and (ii) any such increase or decrease will apply
only to the Holder and not to any other holder of SPA Warrants.
(2) Principal Market Regulation. The Company shall not be obligated to
issue any shares of Common Stock upon exercise of this Warrant if the
issuance of such shares of Common Stock would exceed that number of shares
of Common Stock which the Company may issue upon exercise, redemption or
conversion, as applicable, of the SPA Warrants and SPA Securities or
otherwise without breaching the Company's obligations under the rules or
regulations of the Principal Market or the Australian Stock Exchange (the
"EXCHANGE CAP"), except that such limitation shall not apply in the event
that the Company (A) obtains the approval of its stockholders as required
by the applicable rules of the Principal Market or the Australian Stock
Exchange for issuances of shares of Common Stock in excess of such amount
or (B) obtains a written opinion from outside counsel to the Company that
such approval is not required, which opinion shall be reasonably
satisfactory to the Required Holders. Until such approval or written
opinion is obtained, no Buyer shall be issued in the aggregate, upon
exercise or conversion, as applicable, of any SPA Warrants or SPA
Securities, shares of Common Stock in an amount greater than the product of
the Exchange Cap multiplied by a fraction, the numerator of which is the
total number of shares of Common Stock underlying the SPA Warrants issued
to such Buyer pursuant to the Securities Purchase Agreement on the Issuance
Date and the denominator of which is the aggregate number of shares of
Common Stock underlying the SPA Warrants issued to the Buyers pursuant to
the Securities Purchase Agreement on the Issuance Date (with respect to
each Buyer, the "EXCHANGE CAP ALLOCATION"). In the event that any Buyer
shall sell or otherwise transfer any of such Buyer's SPA Warrants, the
transferee shall be allocated a pro rata portion of such Buyer's Exchange
Cap Allocation, and the restrictions of the prior sentence shall apply to
such transferee with respect to the portion of the Exchange Cap Allocation
allocated to such transferee. In the event that any holder of SPA Warrants
shall exercise all of such holder's SPA Warrants into a number of shares of
Common Stock which, in the aggregate, is less than such holder's Exchange
Cap Allocation, then the difference between such holder's Exchange Cap
Allocation and the number of shares of Common Stock actually issued to such
holder shall be allocated to the respective Exchange Cap Allocations of the
remaining holders of SPA Warrants on a pro rata basis in proportion to the
shares of Common Stock underlying the SPA Warrants then held by each such
holder. To the extent required by the Principal Market, the provisions of
the Exchange Cap shall be modified to comply with the applicable rules and
regulations of the Principal Market, provided that any such changes shall
not, in the Holder's reasonable discretion, materially change the terms of
the transaction contemplated hereby.
(g) Insufficient Authorized Shares. If at any time while any of the
Warrants remain outstanding the Company does not have a sufficient number of
authorized and unreserved shares of Common Stock (an "AUTHORIZED SHARE FAILURE")
to satisfy its obligation to reserve for
5
issuance upon exercise of the Warrants at least a number of shares of Common
Stock equal to 175% of the number of shares of Common Stock as shall from time
to time be necessary to effect the exercise of all of the Warrants then
outstanding (the "REQUIRED RESERVE AMOUNT"), 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 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.
(h) Right of Mandatory Redemption by the Company.
(1) If at any time from and after the Effective Date (as defined in
the Registration Rights Agreement), (i) the Closing Sales Price of the Common
Stock for each Trading Day of any 20 consecutive Trading Day period preceding
the applicable Mandatory Redemption Eligibility Date equals or exceeds $7.87 per
share (subject to equitable adjustment for stock splits, stock dividends,
combinations, and capital reorganizations, as applicable), and (ii) the average
daily dollar trading volume of the Common Stock over such 20 consecutive Trading
Day period equals or exceeds $400,000 and no single Trading Day is less than
$200,000.00 (the "MANDATORY REDEMPTION ELIGIBILITY DATE"), the Company shall
have the right to require the Holder to exercise this Warrant in whole or in
part, subject to Sections 1(h)(2) below, as designated in the Mandatory
Redemption Notice (as defined below) into fully paid, validly issued and
non-assessable shares of Common Stock in accordance with the terms of this
Warrant at the Exercise Price as of the Mandatory Redemption Eligibility Date (a
"MANDATORY REDEMPTION"). Notwithstanding anything contained herein to the
contrary, Warrants subject to Mandatory Redemption may be exercised by the
Holder anytime prior to the receipt of the redemption amount by the Holder. The
Company may exercise its right to require redemption under this Section 1(h) by
delivering within not more than ten (10) days after the end of the Mandatory
Redemption Eligibility Date a written notice thereof by facsimile and overnight
courier to all, but not less than all, of the holders of Warrants (the
"MANDATORY REDEMPTION NOTICE" and the date all of the holders received such
notice by facsimile is referred to as the "MANDATORY REDEMPTION NOTICE DATE").
The Mandatory Redemption Notice shall state (i) the aggregate number of Warrants
subject to Mandatory Redemption from the Holder and all of the holders of the
Warrants pursuant to this Section 1(h). The Holder shall have ten (10) Trading
Days from the receipt of the Mandatory Redemption Notice to exercise the number
of warrants stated in the Mandatory Redemption Notice prior to redemption.
(2) Notwithstanding anything to the contrary contained in this Section
1(h), the aggregate number of Warrants that the Company shall have the right to
call at any given time under Section 1(h) shall be limited to a number of
Warrants such that the number of Warrant Shares issuable upon exercise of the
Warrants so called does not exceed 38,272 Warrants
6
(subject to equitable adjustment for stock splits, stock dividends,
combinations, and capital reorganizations, as applicable) per calendar month.
The purchase of the Warrants listed in any Mandatory Redemption Notice shall
occur on the tenth (10th) Trading Day following the receipt by the Holder of the
corresponding Mandatory Redemption Notice. If following the receipt by the
Holder of a Mandatory Redemption Notice and prior to such tenth (10th) Trading
Day following the receipt of such Mandatory Redemption Notice, the Holder shall
have exercised a number of Warrants equal to the number of Warrants stated in
such Mandatory Redemption Notice, there shall be no Mandatory Redemption
pursuant to such notice. There shall be no restriction on the ability of the
Holder to exercise the Warrants that are not called by the Company.
(i) Unregistered Shares. Upon the exercise of this Warrant, the
Company shall have the right to issue unregistered Common Stock if the Piggyback
Registration (as defined in the Registration Rights Agreement) is not declared
effective by the Securities and Exchange Commission.
2. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES.
The Exercise Price and the number of Warrant Shares shall be adjusted from time
to time as follows:
(a) Adjustment upon Issuance of shares of Common Stock. If and whenever on
or after the Subscription Date the Company issues or sells, or in accordance
with this Section 2 is deemed to have issued or sold, any shares of Common Stock
(including the issuance or sale of shares of Common Stock owned or held by or
for the account of the Company, but excluding shares of Common Stock deemed to
have been issued by the Company in connection with any Excluded Securities (as
defined in the SPA Securities)) for a consideration per share (the "NEW ISSUANCE
PRICE") less than a price (the "APPLICABLE PRICE") equal to the Exercise Price
in effect immediately prior to such issue or sale or deemed issuance or sale
(the foregoing a "DILUTIVE ISSUANCE"), then immediately after such Dilutive
Issuance, the Exercise Price then in effect shall be reduced to an amount equal
to the New Issuance Price. For purposes of determining the adjusted Exercise
Price under this Section 2(a), the following shall be applicable:
(i) Issuance of Options. If the Company in any manner grants any
Options and the lowest price per share for which one share of
Common Stock is issuable upon the exercise of any such Option or
upon conversion, exercise or exchange of any Convertible
Securities issuable upon exercise of any such Option is less than
the Applicable Price, then such shares of Common Stock
(underlying such Option shall be deemed to be outstanding and to
have been issued and sold by the Company at the time of the
granting or sale of such Option for such price per share. For
purposes of this Section 2(a)(i), the "lowest price per share for
which one share of Common Stock is issuable upon exercise of such
Options or upon conversion, exercise or exchange of such
Convertible Securities" shall be equal to the sum of the lowest
amounts of consideration (if any) received or receivable by the
Company with respect to any one share of Common
7
Stock upon the granting or sale of the Option, upon exercise of
the Option and upon conversion, exercise or exchange of any
Convertible Security issuable upon exercise of such Option. No
further adjustment of the Exercise Price or number of Warrant
Shares shall be made upon the actual issuance of such shares of
Common Stock or of such Convertible Securities upon the exercise
of such Options or upon the actual issuance of such shares of
Common Stock upon conversion, exercise or exchange of such
Convertible Securities.
(ii) Issuance of Convertible Securities. If the Company in any manner
issues or sells any Convertible Securities and the lowest price
per share for which one share of Common Stock is issuable upon
the conversion, exercise or exchange thereof is less than the
Applicable Price, then such shares of Common Stock issuable upon
conversion of such Convertible Securities shall be deemed to be
outstanding and to have been issued and sold by the Company at
the time of the issuance or sale of such Convertible Securities
for such price per share. For the purposes of this Section
2(a)(ii), the "lowest price per share for which one share of
Common Stock is issuable upon the conversion, exercise or
exchange" shall be equal to the sum of the lowest amounts of
consideration (if any) received or receivable by the Company with
respect to one share of Common Stock upon the issuance or sale of
the Convertible Security and upon conversion, exercise or
exchange of such Convertible Security. No further adjustment of
the Exercise Price or number of Warrant Shares shall be made upon
the actual issuance of such shares of Common Stock upon
conversion, exercise or exchange of such Convertible Securities,
and if any such issue or sale of such Convertible Securities is
made upon exercise of any Options for which adjustment of this
Warrant has been or is to be made pursuant to other provisions of
this Section 2(a), no further adjustment of the Exercise Price or
number of Warrant Shares shall be made by reason of such issue or
sale. A change that permits the holder of an Option or
Convertible Security to utilize a cashless exercise feature shall
not be deemed to decrease the consideration payable by the holder
solely by reason of the fact that the cashless exercise feature
would result in a reduction in cash consideration receivable by
the Company.
(iii) Change in Option Price or Rate of Conversion. If the purchase
price provided for in any Options, the additional consideration,
if any, payable upon the issue, conversion, exercise or exchange
of any Convertible Securities, or the rate at which any
Convertible Securities are convertible into or exercisable or
exchangeable for shares of Common Stock increases or decreases at
any time, the Exercise Price and the number of Warrant Shares in
effect at the time of such increase or decrease shall be adjusted
to the Exercise Price and the number of Warrant Shares which
would have been in effect at such time had such Options or
Convertible Securities provided for such increased or decreased
purchase price, additional consideration or increased or
decreased conversion rate, as the case may
8
be, at the time initially granted, issued or sold. For purposes
of this Section 2(a)(iii), if the terms of any Option or
Convertible Security that was outstanding as of the date of
issuance of this Warrant are increased or decreased in the manner
described in the immediately preceding sentence, then such Option
or Convertible Security and the shares of Common Stock deemed
issuable upon exercise, conversion or exchange thereof shall be
deemed to have been issued as of the date of such increase or
decrease. No adjustment pursuant to this Section 2(a) shall be
made if such adjustment would result in an increase of the
Exercise Price then in effect or a decrease in the number of
Warrant Shares. A change that permits the holder of an Option or
Convertible Security to utilize a cashless exercise feature shall
not be deemed to decrease the consideration payable by the holder
solely by reason of the fact that the cashless exercise feature
would result in a reduction in cash consideration receivable by
the Company.
(iv) Calculation of Consideration Received. In case any Option is
issued in connection with the issue or sale of other securities
of the Company, together comprising one integrated transaction in
which no specific consideration is allocated to such Options by
the parties thereto, the Options will be deemed to have been
issued for a consideration of $0.001. 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 amount received by the
Company therefor. If any shares of Common Stock, Options or
Convertible Securities are issued or sold for a consideration
other than cash, the amount of such consideration received by the
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
will be the Closing Sale Price of such publicly traded security
on the date of receipt. If any shares of Common Stock, Options or
Convertible Securities are issued to the owners of the
non-surviving entity in connection with any merger in which the
Company is the surviving entity, the amount of consideration
therefor will be deemed to be the fair value of such portion of
the net assets and business of the non-surviving entity as is
attributable to such shares of Common Stock, Options or
Convertible Securities, as the case may be. The fair value of any
consideration other than cash or publicly traded securities will
be determined jointly by the Company and the Required Holders. If
such parties are unable to reach agreement within ten (10) days
after the occurrence of an event requiring valuation (the
"VALUATION EVENT"), the fair value of such consideration will be
determined within five (5) Business Days after the tenth day
following the Valuation Event by an independent, reputable
appraiser jointly selected by the Company and the Required
Holders. The determination of such appraiser shall be final and
binding upon all parties absent manifest error
9
and the fees and expenses of such appraiser shall be borne by the
Company.
(v) Record Date. If the Company takes a record of the holders of
shares of Common Stock for the purpose of entitling them (A) to
receive a dividend or other distribution payable in shares of
Common Stock, Options or in Convertible Securities or (B) to
subscribe for or purchase shares of Common Stock, Options or
Convertible Securities, then such record date will be deemed to
be the date of the issue or sale of the shares of Common Stock
deemed to have been issued or sold upon the declaration of such
dividend or the making of such other distribution or the date of
the granting of such right of subscription or purchase, as the
case may be.
(b) Adjustment upon Subdivision or Combination of Common Stock. If the
Company at any time on or after the Subscription Date subdivides (by any stock
split, stock dividend, recapitalization or otherwise) one or more classes of its
outstanding shares of Common Stock into a greater number of shares, the Exercise
Price in effect immediately prior to such subdivision will be proportionately
reduced and the number of Warrant Shares will be proportionately increased. If
the Company at any time on or after the Subscription Date combines (by
combination, reverse stock split or otherwise) one or more classes of its
outstanding shares of Common Stock into a smaller number of shares, the Exercise
Price in effect immediately prior to such combination will be proportionately
increased and the number of Warrant Shares will be proportionately decreased.
Any adjustment under this Section 2(b) shall become effective at the close of
business on the date the subdivision or combination becomes effective.
(c) Other Events. If any event occurs of the type contemplated by the
provisions of this Section 2 but not expressly provided for by such provisions
(including, without limitation, the granting of stock appreciation rights,
phantom stock rights or other rights with equity features), then the Company's
Board of Directors will make an appropriate adjustment in the Exercise Price and
the number of Warrant Shares so as to protect the rights of the Holder; provided
that no such adjustment pursuant to this Section 2(c) will increase the Exercise
Price or decrease the number of Warrant Shares as otherwise determined pursuant
to this Section 2.
3. RIGHTS UPON DISTRIBUTION OF ASSETS.
If the Company shall declare or make any dividend or other distribution of its
assets (or rights to acquire its assets) to holders of shares of Common Stock,
by way of return of capital or otherwise (including, without limitation, any
distribution of cash, stock or other securities, property or options by way of a
dividend, spin off, reclassification, corporate rearrangement, scheme of
arrangement or other similar transaction) (a "DISTRIBUTION"), at any time after
the issuance of this Warrant, then, in each such case:
(a) any Exercise Price in effect immediately prior to the close of business
on the record date fixed for the determination of holders of shares of Common
Stock entitled to receive the Distribution shall be reduced, effective as of the
close of business on such record date, to a
10
price determined by multiplying such Exercise Price by a fraction of which (i)
the numerator shall be the Closing Bid Price of a share of Common Stock on the
Trading Day immediately preceding such record date minus the value of the
Distribution (as determined in good faith by the Company's Board of Directors)
applicable to one share of Common Stock, and (ii) the denominator shall be the
Closing Bid Price of a share of Common Stock on the Trading Day immediately
preceding such record date; and
(b) the number of Warrant Shares shall be increased to a number of shares
equal to the number of shares of Common Stock obtainable immediately prior to
the close of business on the record date fixed for the determination of holders
of shares of Common Stock entitled to receive the Distribution multiplied by the
reciprocal of the fraction set forth in the immediately preceding paragraph (a);
provided that in the event that the Distribution is of shares of Common Stock
(or common stock) ("OTHER SHARES OF COMMON STOCK") of a company whose common
shares are traded on a national securities exchange or a national automated
quotation system, then the Holder may elect to receive a warrant to purchase
Other Shares of Common Stock in lieu of an increase in the number of Warrant
Shares, the terms of which shall be identical to those of this Warrant, except
that such warrant shall be exercisable into the number of shares of Other Shares
of Common Stock that would have been payable to the Holder pursuant to the
Distribution had the Holder exercised this Warrant immediately prior to such
record date and with an aggregate exercise price equal to the product of the
amount by which the exercise price of this Warrant was decreased with respect to
the Distribution pursuant to the terms of the immediately preceding paragraph
(a) and the number of Warrant Shares calculated in accordance with the first
part of this paragraph (b).
4. PURCHASE RIGHTS; FUNDAMENTAL TRANSACTIONS.
(a) Purchase Rights. In addition to any adjustments pursuant to Section 2
above, if at any time the Company grants, issues or sells any Options,
Convertible Securities or rights to purchase stock, warrants, securities or
other property pro rata to the record holders of 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 proportionate
number of shares of Common Stock acquirable upon complete exercise of this
Warrant (without regard to any limitations on the exercise of this Warrant)
immediately before the date on which a record is taken for the grant, issuance
or sale of such Purchase Rights, or, if no such record is taken, the date as of
which the record holders of shares of Common Stock are to be determined for the
grant, issue or sale of such Purchase Rights.
(b) Fundamental Transactions. The Company shall not enter into or be party
to a Fundamental Transaction unless (i) the Successor Entity assumes in writing
all of the obligations of the Company under this Warrant and the other
Transaction Documents in accordance with the provisions of this Section (4)(b)
pursuant to written agreements in form and substance satisfactory to the
Required Holders and approved by the Required Holders prior to such Fundamental
Transaction, including agreements to deliver to each holder of Warrants in
exchange for such Warrants a security of the Successor Entity evidenced by a
written instrument substantially similar in form and substance to this Warrant,
including, without limitation, an adjusted exercise price equal to the value for
the shares of Common Stock reflected by the terms
11
of such Fundamental Transaction, and exercisable for a corresponding number of
shares of capital stock equivalent to the shares of Common Stock acquirable and
receivable upon exercise of this Warrant (without regard to any limitations on
the exercise of this Warrant) prior to such Fundamental Transaction, and
satisfactory to the Required Holders and (ii) the Successor Entity (including
its Parent Entity) is a publicly traded corporation whose common stock is quoted
on or listed for trading on an Eligible Market. Upon the occurrence of any
Fundamental Transaction, the Successor Entity shall succeed to, and be
substituted for (so that from and after the date of such Fundamental
Transaction, the provisions of this Warrant referring to the "Company" shall
refer instead to the Successor Entity), the Company and may exercise every right
and power of the Company and shall assume all of the obligations of the Company
under this Warrant with the same effect as if such Successor Entity had been
named as the Company herein. Upon consummation of the Fundamental Transaction,
the Successor Entity shall deliver to the Holder confirmation that there shall
be issued upon exercise of this Warrant at any time after the consummation of
the Fundamental Transaction, in lieu of the shares of the Common Stock (or other
securities, cash, assets or other property) issuable upon the exercise of the
Warrant prior to such Fundamental Transaction, such shares of the publicly
traded Common Stock (or its equivalent) of the Successor Entity (including its
Parent Entity) which the Holder would have been entitled to receive upon the
happening of such Fundamental Transaction had this Warrant been converted
immediately prior to such Fundamental Transaction, as adjusted in accordance
with the provisions of this Warrant. In addition to and not in substitution for
any other rights hereunder, prior to the consummation of any Fundamental
Transaction pursuant to which holders of shares of Common Stock are entitled to
receive securities or other assets with respect to or in exchange for shares of
Common Stock (a "CORPORATE EVENT"), the Company shall make appropriate provision
to insure that the Holder will thereafter have the right to receive upon an
exercise of this Warrant at any time after the consummation of the Fundamental
Transaction but prior to the Expiration Date, in lieu of the shares of the
Common Stock (or other securities, cash, assets or other property) issuable upon
the exercise of the Warrant prior to such Fundamental Transaction, such shares
of stock, securities, cash, assets or any other property whatsoever (including
warrants or other purchase or subscription rights) which the Holder would have
been entitled to receive upon the happening of such Fundamental Transaction had
the Warrant been exercised immediately prior to such Fundamental Transaction.
Provisions made pursuant to the preceding sentence shall be in the form and
substance reasonably satisfactory to the Required Holders. The provisions of
this Section shall apply similarly and equally to successive Fundamental
Transactions and Corporate Events and shall be applied without regard to any
limitations on the exercise of this Warrant.
(c) Notwithstanding the foregoing and the provisions of Section 4(b) above,
in the event of a Fundamental Transaction, only if such Fundamental Transaction
is within the control of the Company, if the Holder has not exercised the
Warrant in full prior to the consummation of the Fundamental Transaction, then
the Company may enter into a Fundamental Transaction pursuant to which the
Holder shall receive, simultaneously with the consummation of the Fundamental
Transaction, in lieu of the warrant referred to in Section 4(b) cash in the
amount equal to the value of the remaining unexercised portion of this Warrant
on the date of such consummation, which value shall be determined by use of the
Black Scholes Option Pricing Model reflecting (A) a risk-free interest rate
corresponding to the U.S. Treasury rate for a period equal to the remaining term
of this Warrant as of such date of request and (B) an expected
12
volatility equal to the greater of 60% and the 100 day volatility obtained from
the HVT function on Bloomberg.
5. NONCIRCUMVENTION.
The Company hereby covenants and agrees that the Company will not, by amendment
of its Articles of Incorporation, Bylaws or through any reorganization, transfer
of assets, consolidation, merger, scheme of arrangement, dissolution, issue or
sale of securities, or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, and will at all
times in good faith carry out all the provisions of this Warrant and take all
action as may be required to protect the rights of the Holder. Without limiting
the generality of the foregoing, the Company (i) shall not increase the par
value of any shares of Common Stock receivable upon the exercise of this Warrant
above the Exercise Price then in effect, (ii) shall take all such actions as may
be necessary or appropriate in order that the Company may validly and legally
issue fully paid and nonassessable shares of Common Stock upon the exercise of
this Warrant, and (iii) shall, so long as any of the SPA Warrants are
outstanding, take all action necessary to reserve and keep available out of its
authorized and unissued shares of Common Stock, solely for the purpose of
effecting the exercise of the SPA Warrants, 175% of the number of shares of
Common Stock as shall from time to time be necessary to effect the exercise of
the SPA Warrants then outstanding (without regard to any limitations on
exercise).
6. WARRANT HOLDER NOT DEEMED A STOCKHOLDER.
Except as otherwise specifically provided herein, the Holder, solely in such
Person's capacity as a holder of this Warrant, shall not be entitled to vote or
be deemed the holder of share capital of the Company for any purpose, nor shall
anything contained in this Warrant be construed to confer upon the Holder,
solely in such Person's capacity as the Holder of this Warrant, any of the
rights of a stockholder of the Company or any right to vote, give or withhold
consent to any corporate action (whether any reorganization, issue of stock,
reclassification of stock, consolidation, merger, conveyance or otherwise),
receive notice of meetings, or subscription rights, or otherwise, prior to the
issuance to the Holder of the Warrant Shares which such Person is then entitled
to receive upon the due exercise of this Warrant. In addition, nothing contained
in this Warrant shall be construed as imposing any liabilities on the Holder to
purchase any securities (upon exercise of this Warrant or otherwise) or as a
stockholder of the Company, whether such liabilities are asserted by the Company
or by creditors of the Company. Notwithstanding this Section 6, the Company
shall provide the Holder with copies of the same notices and other information
given to the stockholders of the Company generally, contemporaneously with the
giving thereof to the stockholders.
Notwithstanding the above, in the event that the Company shall at any time prior
to the exercise of all Warrants declare a dividend (other than a dividend
consisting solely of shares of Common Stock) or otherwise distribute to its
stockholders any assets, property, rights, evidences of indebtedness, securities
(other than shares of Common Stock), whether issued by the Company or by
another, or any other thing of value, the Holders of the unexercised Warrants
shall thereafter be entitled, in addition to the shares of Common Stock or other
securities and property receivable upon the exercise thereof, to receive, upon
the exercise of such Warrants, the same
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property, assets, rights, evidences of indebtedness, securities or any other
thing of value that they would have been entitled to receive at the time of such
dividend or distribution as if the Warrants had been exercised immediately prior
to such dividend or distribution. At the time of any such dividend or
distribution, the Company shall make appropriate reserves to ensure the timely
performance of the provisions of this Section 6. Nothing contained herein shall
provide for the receipt or accrual by a Holder of cash dividends prior to the
exercise by such Holder of the Warrants.
7. REISSUANCE OF WARRANTS.
(a) Transfer of Warrant. If this Warrant is to be transferred, the Holder
shall surrender this Warrant to the Company, whereupon the Company will issue
promptly following satisfaction of the transfer provisions contained in the
Securities Purchase Agreement and deliver upon the order of the Holder a new
Warrant (in accordance with Section 7(d)), in the name of the validly registered
assignee or transferee, representing the right to purchase the number of Warrant
Shares being transferred by the Holder and, if less then the total number of
Warrant Shares then underlying this Warrant is being transferred, a new Warrant
(in accordance with Section 7(d)) to the Holder representing the right to
purchase the number of Warrant Shares not being transferred.
(b) Lost, Stolen or Mutilated Warrant. Upon receipt by the Company of
evidence reasonably satisfactory to the Company of the loss, theft, destruction
or mutilation of this Warrant, and, in the case of loss, theft or destruction,
of any indemnification undertaking by the Holder to the Company in customary
form and, in the case of mutilation, upon surrender and cancellation of this
Warrant, the Company shall execute and deliver to the Holder a new Warrant (in
accordance with Section 7(d)) representing the right to purchase the Warrant
Shares then underlying this Warrant.
(c) Exchangeable for Multiple Warrants. This Warrant is exchangeable, upon
the surrender hereof by the Holder at the principal office of the Company, for a
new Warrant or Warrants (in accordance with Section 7(d)) representing in the
aggregate the right to purchase the number of Warrant Shares then underlying
this Warrant, and each such new Warrant will represent the right to purchase
such portion of such Warrant Shares as is designated by the Holder at the time
of such surrender; provided, however, that no Warrants for fractional shares of
Common Stock shall be given.
(d) Issuance of New Warrants. Whenever the Company is required to issue a
new Warrant pursuant to the terms of this Warrant, such new Warrant (i) shall be
of like tenor with this Warrant, (ii) shall represent, as indicated on the face
of such new Warrant, the right to purchase the Warrant Shares then underlying
this Warrant (or in the case of a new Warrant being issued pursuant to Section
7(a) or Section 7(c), the Warrant Shares designated by the Holder which, when
added to the number of shares of Common Stock underlying the other new Warrants
issued in connection with such issuance, does not exceed the number of Warrant
Shares then underlying this Warrant), (iii) shall have an issuance date, as
indicated on the face of such new Warrant which is the same as the Issuance
Date, and (iv) shall have the same rights and conditions as this Warrant.
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8. NOTICES.
Whenever notice is required to be given under this Warrant, unless otherwise
provided herein, such notice shall be given in accordance with Section 9(f) of
the Securities Purchase Agreement. The Company shall provide the Holder with
prompt written notice of all actions taken pursuant to this Warrant, including
in reasonable detail a description of such action and the reason therefore.
Without limiting the generality of the foregoing, the Company will give written
notice to the Holder (i) immediately upon any adjustment of the Exercise Price,
setting forth in reasonable detail, and certifying, the calculation of such
adjustment and (ii) at least fifteen (15) days prior to the date on which the
Company closes its books or takes a record (A) with respect to any dividend or
distribution upon the shares of Common Stock, (B) with respect to any grants,
issuances or sales of any Options, Convertible Securities or rights to purchase
stock, warrants, securities or other property to holders of shares of Common
Stock or (C) for determining rights to vote with respect to any Fundamental
Transaction, dissolution or liquidation, provided in each case that such
information shall be made known to the public prior to or in conjunction with
such notice being provided to the Holder.
9. AMENDMENT AND WAIVER.
Except as otherwise provided herein, the provisions of this Warrant may be
amended and the Company may take any action herein prohibited, or omit to
perform any act herein required to be performed by it, only if the Company has
obtained the written consent of the Required Holders; provided that no such
action may increase the exercise price of any SPA Warrant or decrease the number
of shares or class of stock obtainable upon exercise of any SPA Warrant without
the written consent of the Holder. No such amendment shall be effective to the
extent that it applies to less than all of the holders of the SPA Warrants then
outstanding.
10. 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.
11. CONSTRUCTION; HEADINGS.
This Warrant shall be deemed to be jointly drafted by the Company and all the
Buyers and shall not be construed against any person as the drafter hereof. The
headings of this Warrant are for convenience of reference and shall not form
part of, or affect the interpretation of, this Warrant.
12. DISPUTE RESOLUTION.
15
In the case of a dispute as to the determination of the Exercise Price or the
arithmetic calculation of the Warrant Shares, the Company shall submit the
disputed determinations or arithmetic calculations via facsimile within two
Business Days of receipt of the Exercise Notice giving rise to such dispute, as
the case may be, to the Holder. If the Holder and the Company are unable to
agree upon such determination or calculation of the Exercise Price or the
Warrant Shares within three Business Days of such disputed determination or
arithmetic calculation being submitted to the Holder, then the Company shall,
within two Business Days submit via facsimile (a) the disputed determination of
the Exercise Price to an independent, reputable investment bank selected by the
Company and approved by the Holder (such approval not to be unreasonably
withheld or delayed) or (b) the disputed arithmetic calculation of the Warrant
Shares to the Company's independent, outside accountant. The Company shall cause
at its expense the investment bank or the accountant, as the case may be, to
perform the determinations or calculations and notify the Company and the Holder
of the results no later than ten Business Days from the time it receives the
disputed determinations or calculations. Such investment bank's or accountant's
determination or calculation, as the case may be, shall be binding upon all
parties absent demonstrable error.
13. REMEDIES, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF.
The remedies provided in this Warrant shall be cumulative and in addition to all
other remedies available under this Warrant and the other Transaction Documents,
at law or in equity (including a decree of specific performance and/or other
injunctive relief), and nothing herein shall limit the right of the Holder right
to pursue actual damages for any failure by the Company to comply with the terms
of this Warrant. The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to the Holder and that the remedy at law
for any such breach may be inadequate. The Company therefore agrees that, in the
event of any such breach or threatened breach, the holder of this Warrant shall
be entitled, in addition to all other available remedies, to an injunction
restraining any breach, without the necessity of showing economic loss and
without any bond or other security being required.
14. TRANSFER.
This Warrant may be offered for sale, sold, transferred or assigned without the
consent of the Company, except as may otherwise be required by Section 2(f) of
the Securities Purchase Agreement.
15. CERTAIN DEFINITIONS.
For purposes of this Warrant, the following terms shall have the following
meanings:
(a) "BLOOMBERG" means Bloomberg Financial Markets.
(b) "BUSINESS DAY" means any day other than Saturday, Sunday or other day
on which commercial banks in The City of New York are authorized or required by
law to remain closed.
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(c) "CLOSING BID PRICE" and "CLOSING SALE PRICE" means, for any security as
of any date, the last closing bid price and last closing trade price,
respectively, for such security on the Principal Market, as reported by
Bloomberg, or, if the Principal Market begins to operate on an extended hours
basis and does not designate the closing bid price or the closing trade price,
as the case may be, then the last bid price or last trade price, respectively,
of such security prior to 4:00:00 p.m., New York Time, as reported by Bloomberg,
or, if the Principal Market is not the principal securities exchange or trading
market for such security, the last closing bid price or last trade price,
respectively, of such security on the principal securities exchange or trading
market where such security is listed or traded as reported by Bloomberg, or if
the foregoing do not apply, the last closing bid price or last trade price,
respectively, of such security in the over-the-counter market on the electronic
bulletin board for such security as reported by Bloomberg, or, if no closing bid
price or last trade price, respectively, is reported for such security by
Bloomberg, the average of the bid prices, or the ask prices, respectively, of
any market makers for such security as reported in the "pink sheets" by Pink
Sheets LLC (formerly the National Quotation Bureau, Inc.). If the Closing Bid
Price or the Closing Sale Price cannot be calculated for a security on a
particular date on any of the foregoing bases, the Closing Bid Price or the
Closing Sale Price, as the case may be, of such security on such date shall be
the fair market value as mutually determined by the Company and the Holder. If
the Company and the Holder are unable to agree upon the fair market value of
such security, then such dispute shall be resolved pursuant to Section 12. All
such determinations to be appropriately adjusted for any stock dividend, stock
split, stock combination or other similar transaction during the applicable
calculation period.
(d) "COMMON STOCK" means (i) the Company's shares of Common Stock, par
value $0.001 per share, and (ii) any share capital into which such Common Stock
shall have been changed or any share capital resulting from a reclassification
of such Common Stock.
(e) "CONVERTIBLE SECURITIES" means any stock or securities (other than
Options) directly or indirectly convertible into or exercisable or exchangeable
for shares of Common Stock.
(f) "ELIGIBLE MARKET" means the Principal Market, The New York Stock
Exchange, Inc., the Nasdaq National Market, Over-the-Counter Bulletin Board or
the American Stock Exchange.
(g) "EXPIRATION DATE" means the date sixty months after the Issuance Date
or, if such date falls on a day other than a Business Day or on which trading
does not take place on the Principal Market (a "HOLIDAY"), the next date that is
not a Holiday.
(h) "FUNDAMENTAL TRANSACTION" means that the Company shall, directly or
indirectly, in one or more related transactions, (i) consolidate or merge with
or into (whether or not the Company is the surviving corporation) another
Person, or (ii) sell, assign, transfer, convey or otherwise dispose of all or
substantially all of the properties or assets of the Company to another Person,
or (iii) allow another Person to make a purchase, tender or exchange offer that
is accepted by the holders of more than the 50% of either the outstanding shares
of Common Stock (not including any shares of Common Stock held by the Person or
Persons making or party to, or associated or affiliated with the Persons making
or party to, such purchase, tender or exchange offer), or (iv) consummate a
stock purchase agreement or other business combination
17
(including, without limitation, a reorganization, recapitalization, spin-off or
scheme of arrangement) with another Person whereby such other Person acquires
more than the 50% of the outstanding shares of Common Stock (not including any
shares of Common Stock held by the other Person or other Persons making or party
to, or associated or affiliated with the other Persons making or party to, such
stock purchase agreement or other business combination), (v) reorganize,
recapitalize or reclassify its Common Stock (other than a forward or reverse
stock split), or (vi) any "person" or "group" (as these terms are used for
purposes of Sections 13(d) and 14(d) of the Exchange Act) is or shall become the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of 50% of the aggregate ordinary voting power represented by
issued and outstanding Common Stock.
(i) "OPTIONS" means any rights, warrants or options to subscribe for or
purchase shares of Common Stock or Convertible Securities.
(j) "PARENT ENTITY" of a Person means an entity that, directly or
indirectly, controls the applicable Person and whose common stock or equivalent
equity security is quoted or listed on an Eligible Market, or, if there is more
than one such Person or Parent Entity, the Person or Parent Entity with the
largest public market capitalization as of the date of consummation of the
Fundamental Transaction.
(k) "PERSON" means an individual, a limited liability company, a
partnership, a joint venture, a corporation, a trust, an unincorporated
organization, any other entity and a government or any department or agency
thereof.
(l) "PRINCIPAL MARKET" means the Nasdaq Small Cap Market.
(m) "REGISTRATION RIGHTS AGREEMENT" means that certain registration rights
agreement by and among the Company and the Buyers.
(n) "REQUIRED HOLDERS" means the holders of the SPA Warrants representing
at least a majority of shares of Common Stock underlying the SPA Warrants then
outstanding.
(o) "SPA SECURITIES" means the Notes and Preferred Stock issued pursuant to
the Securities Purchase Agreement.
(p) "SUCCESSOR ENTITY" means the Person (or, if so elected by the Required
Holders, the Parent Entity) formed by, resulting from or surviving any
Fundamental Transaction or the Person (or, if so elected by the Required
Holders, the Parent Entity) with which such Fundamental Transaction shall have
been entered into.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the Company has caused this Warrant to Purchase Common
Stock to be duly executed as of the Issuance Date set out above.
CATUITY, INC.
By:
------------------------------------
Name: John Racine
Title: Chief Executive Officer
EXHIBIT A
EXERCISE NOTICE
TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS
WARRANT TO PURCHASE COMMON STOCK
CATUITY, INC.
The undersigned holder hereby exercises the right to purchase
_________________ of the shares of Common Stock ("WARRANT SHARES") of Catuity,
Inc., a Delaware corporation (the "COMPANY"), evidenced by the attached Warrant
to Purchase Common Stock (the "WARRANT"). Capitalized terms used herein and not
otherwise defined shall have the respective meanings set forth in the Warrant.
1. Form of Exercise Price. The Holder intends that payment of the Exercise
Price shall be made as:
a "Cash Exercise" with respect to _________________
Warrant Shares; and/or
__________________
a "Cashless Exercise" with respect to
_______________ Warrant Shares.
__________________
2. Payment of Exercise Price. In the event that the holder has elected a
Cash Exercise with respect to some or all of the Warrant Shares to be issued
pursuant hereto, the holder shall pay the Aggregate Exercise Price in the sum of
$___________________ to the Company in accordance with the terms of the Warrant.
3. Delivery of Warrant Shares. The Company shall deliver to the holder
__________ Warrant Shares in accordance with the terms of the Warrant.
4. Delivery of Warrant. The Registered Holder shall deliver the Warrant to
the Company.
Date: _______________ __, ______
Name of Registered Holder
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
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ACKNOWLEDGMENT
The Company hereby acknowledges this Exercise Notice and hereby directs
Computershare Investor Services to issue the above indicated number of shares of
Common Stock in accordance with the Transfer Agent Instructions dated November
21, 2006 from the Company and acknowledged and agreed to by Computershare
Investor Services.
CATUITY, INC.
By:
------------------------------------
Name: John Racine
Title: Chief Executive Officer
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