EXHIBIT 10.2
WARRANT
NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE 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 SELECTED BY THE HOLDER, IN A GENERALLY ACCEPTABLE FORM, 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.
ADVANCED CANNABIS SOLUTIONS, INC.
WARRANT TO PURCHASE COMMON STOCK
Warrant No.: W-1
Number of Shares of Common Stock: 1,000,000
Date of Issuance: January 21, 2014 ("Issuance Date")
Advanced Cannabis Solutions, Inc., a Colorado corporation (the "Company"),
hereby certifies that, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Full Circle Capital Corporation,
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, at any time or times on or
after the Issuance Date, but not after 11:59 p.m., New York time, on the
Expiration Date, (as defined below), one million (1,000,000) fully paid
nonassessable shares of Common Stock, subject to adjustment as provided herein
(the "Warrant Shares"). Except as otherwise defined herein, capitalized terms in
this Warrant to Purchase Common Stock (including any Warrants to Purchase Common
Stock issued in exchange, transfer or replacement hereof, this "Warrant"), shall
have the meanings set forth in Section 17. 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 January 21, 2014 (the
"Subscription Date"), by and among the Company and the investors (the "Buyers")
referred to therein (the "Securities Purchase Agreement"). Capitalized terms
used herein and not otherwise defined shall have the definitions ascribed to
such terms in 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 at any time or times on or after the
Issuance Date, 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) if the provisions of Section 1(d) are applicable, 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 effect 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) Trading Day following the date on which the Company
has received the Exercise Notice, the Company shall transmit by facsimile or
electronic mail an acknowledgment of confirmation of receipt of the Exercise
Notice to the Holder and the Company's transfer agent (the "Transfer Agent"). On
or before the third (3rd) Trading Day following the date on which the Company
has received the Exercise Notice, so long as the Holder delivers the Aggregate
Exercise Price (or notice of a Cashless Exercise) on or prior to the second
(2nd) Trading Day following the date on which the Company has received the
Exercise Notice (the "Share Delivery Date") (provided that if the Aggregate
Exercise Price has not been delivered by such date, the Share Delivery Date
shall be one (1) Trading Day after the Aggregate Exercise Price (or notice of a
Cashless Exercise) is delivered), the Company shall (X) provided that the
Transfer Agent is participating in The Depository Trust Company ("DTC") Fast
Automated Securities Transfer Program, the Holder's broker has delivered a DWAC
instruction to the Company's transfer agent and either (A) the Warrant Shares
are subject to an effective resale registration statement in favor of the Holder
or (B) if this Warrant is exercised via Cashless Exercise, at a time when Rule
144 would be available for immediate resale of the Warrant Shares by the Holder,
credit such aggregate number of Warrant Shares 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 At Custodian ("DWAC") system, or (Y) if the
Transfer Agent is not participating in the DTC Fast Automated Securities
Transfer Program or (A) the Warrant Shares are not subject to an effective
resale registration statement in favor of the Holder and (B) if this Warrant is
exercised via Cashless Exercise, at a time when Rule 144 would not be available
for immediate resale of the Warrant Shares by the Holder, 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 Warrant Shares to which the Holder is
entitled pursuant to such exercise, which certificate shall bear a restrictive
legend similar to that set forth on the first page of this Warrant. The Company
shall be responsible for all fees and expenses of the Transfer Agent and all
fees and expenses with respect to the issuance of Warrant Shares via DTC, if
any. Upon delivery of the Exercise Notice, 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
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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 (3) Trading 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 issuable immediately prior to
such exercise under this Warrant, less the number of Warrant Shares with respect
to which this Warrant is exercised. No fractional Warrant Shares are to be
issued upon the exercise of this Warrant, but rather the number of Warrant
Shares 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
$5.50, 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 on or prior to the
Share Delivery Date either (I) if the Transfer Agent is not participating in the
DTC Fast Automated Securities Transfer Program or the Warrant Shares are not
subject to an effective resale registration statement in favor of the Holder or,
if exercised via Cashless Exercise, at a time when Rule 144 would not be
available for immediate resale of the Warrant Shares by the Holder, 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 if the Transfer Agent is participating in the DTC Fast Automated
Securities Transfer Program and the Warrant Shares are subject to an effective
resale registration statement in favor of the Holder or, if exercised via
Cashless Exercise, at a time when Rule 144 would be available for immediate
resale of the Warrant Shares by the Holder, to credit the Holder's balance
account with DTC, as applicable, for such number of shares of Common Stock to
which the Holder is entitled upon the Holder's exercise of this Warrant or (II)
if the Registration Statement (as defined in the Registration Rights Agreement)
covering the resale of 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 (a "Registration Failure") and the Company fails
to promptly, but in no event later than as required pursuant to the Registration
Rights Agreement (x) so notify the Holder and (y) deliver the Warrant Shares
electronically without any restrictive legend by crediting such aggregate number
of Warrant Shares to which the Holder is entitled pursuant to such exercise to
the Holder's or its designee's balance account with DTC through its DWAC system
(the event described in the immediately foregoing clause (II) is hereinafter
referred as a "Notice Failure" and together with the event described in clause
(I) above, an "Exercise Failure"), then, in addition to all other remedies
available to the Holder, (X) the Company shall pay in cash to the Holder on each
day after the Share Delivery Date and during such Exercise Failure an amount
equal to 1.0% of the product of (A) the sum of the number of shares of Common
Stock not issued to the Holder on or prior to the Share Delivery Date and to
which the Holder is entitled, and (B) the Closing Sale Price of the 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) (the "Liquidated Damages"), and (Y) the Holder, upon
written notice to the Company, may void its Exercise Notice with respect to, and
retain or have returned, as the case may be, any portion of this Warrant that
has not been exercised pursuant to such Exercise Notice; provided that the
voiding of an Exercise Notice shall not affect the Company's obligations to make
any payments which have accrued prior to the date of such notice pursuant to
this Section 1(c) or otherwise. In addition to the foregoing, if on or prior to
the Share Delivery Date at a time when the Warrant Shares are subject to an
effective resale registration statement in favor of the Holder or, if this
Warrant is exercised via Cashless Exercise, at a time when Rule 144 would be
available for immediate resale of the Warrant Shares by the Holder either (I) if
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the Transfer Agent is not participating in the DTC Fast Automated Securities
Transfer Program, 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, if the Transfer Agent is participating in the DTC Fast Automated
Securities Transfer Program, 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 or pursuant to the Company's obligation pursuant to
clause (ii) below or (II) a Notice Failure occurs, 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) Trading Days after the Holder's request and in the Holder's discretion,
either (i) pay cash to the Holder in an amount equal to the Holder's total
purchase price (including brokerage commissions and other out-of-pocket
expenses, if any) for the shares of Common Stock so purchased (the "Buy-In
Price"), at which point (i) the Company's obligation to deliver such certificate
(and to issue such shares of Common Stock) or credit such Holder's balance
account with DTC, as applicable, for such shares of Common Stock shall terminate
and (ii) the Liquidated Damages shall cease to accrue, or (ii) promptly honor
its obligation to deliver to the Holder a certificate or certificates
representing such shares of Common Stock or credit such Holder's balance account
with DTC 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 shall limit the
Holder's right to pursue any other remedies available to it hereunder, at law or
in equity, including, without limitation, a decree of specific performance
and/or injunctive relief with respect to the Company's failure to timely deliver
certificates representing shares of Common Stock (or to electronically deliver
such shares of Common Stock) upon the exercise of this Warrant as required
pursuant to the terms hereof.
(d) Cashless Exercise. Notwithstanding anything contained herein to the
contrary, if there is a Registration Failure, 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)
-----------------
D
For purposes of the foregoing formula:
A= the total number of shares with respect to which this Warrant is
then being exercised.
B= the arithmetic average of the Closing Sale Prices of the Common
Stock for the five (5) consecutive Trading Days ending on the
date immediately preceding the date of the Exercise Notice.
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C= the Exercise Price then in effect for the applicable Warrant
Shares at the time of such exercise.
D= the Closing Sale Price of the Common Stock on the date of the
Exercise Notice.
For purposes of Rule 144(d) promulgated under the 1933 Act, as in effect on
the date hereof, it is intended that the Warrant Shares issued in a Cashless
Exercise shall be deemed to have been acquired by the Holder, and the holding
period for the Warrant Shares shall be deemed to have commenced, on the date
this Warrant was originally issued pursuant to the Securities Purchase
Agreement.
(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) Limitation on Beneficial Ownership. Notwithstanding anything to the
contrary contained herein, the Company shall not effect the exercise of any
portion of this Warrant, and the Holder shall not have the right to exercise any
portion of this Warrant, pursuant to the terms and conditions of this Warrant
and any such exercise shall be null and void and treated as if never made, to
the extent that after giving effect to such exercise, the Holder together with
the other Attribution Parties collectively would beneficially own in excess of
4.99% (the "Maximum Percentage") of the number of 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 by the Holder and the other Attribution Parties shall include
the number of shares of Common Stock held by the Holder and all other
Attribution Parties plus 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 the number of shares of Common Stock
which would be issuable upon (A) exercise of the remaining, unexercised portion
of this Warrant beneficially owned by the Holder or any of the other Attribution
Parties and (B) exercise or conversion of the unexercised or unconverted portion
of any other securities of the Company (including, without limitation, any
convertible notes or convertible preferred stock or warrants, including the
other SPA Warrants) beneficially owned by the Holder or any other Attribution
Party subject to a limitation on conversion or exercise analogous to the
limitation contained in this Section 1(f). For purposes of this Section 1(f),
beneficial ownership shall be calculated in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended (the "1934 Act"). For purposes of
this Warrant, in determining the number of outstanding shares of Common Stock
the Holder may acquire upon the exercise of this Warrant without exceeding the
Maximum Percentage, the Holder may rely on the number of outstanding shares of
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Common Stock as reflected in (x) the Company's most recent Annual Report on Form
10-K, Quarterly Report on Form 10-Q, Current Report on Form 8-K or other public
filing with the Securities and Exchange Commission (the "SEC"), as the case may
be, (y) a more recent public announcement by the Company or (3) any other
written notice by the Company or the Transfer Agent setting forth the number of
shares of Common Stock outstanding (the "Reported Outstanding Share Number"). If
the Company receives an Exercise Notice from the Holder at a time when the
actual number of outstanding shares of Common Stock is less than the Reported
Outstanding Share Number, the Company shall (i) notify the Holder in writing of
the number of shares of Common Stock then outstanding and, to the extent that
such Exercise Notice would otherwise cause the Holder's beneficial ownership, as
determined pursuant to this Section 1(f), to exceed the Maximum Percentage, the
Holder must notify the Company of a reduced number of Warrant Shares to be
purchased pursuant to such Exercise Notice (the number of shares by which such
purchase is reduced, the "Reduction Shares") and (ii) as soon as reasonably
practicable, the Company shall return to the Holder any exercise price paid by
the Holder for the Reduction Shares. For any reason at any time, upon the
written or oral request of the Holder, the Company shall within one (1) Business
Day confirm orally and in writing or by electronic mail to the Holder the number
of shares of Common Stock then outstanding. In any case, the number of
outstanding shares of Common Stock shall be determined after giving effect to
the conversion or exercise of securities of the Company, including this Warrant,
by the Holder and any other Attribution Party since the date as of which the
Reported Outstanding Share Number was reported. In the event that the issuance
of shares of Common Stock to the Holder upon exercise of this Warrant results in
the Holder and the other Attribution Parties being deemed to beneficially own,
in the aggregate, more than the Maximum Percentage of the number of outstanding
shares of Common Stock (as determined under Section 13(d) of the 1934 Act), the
number of shares so issued by which the Holder's and the other Attribution
Parties' aggregate beneficial ownership exceeds the Maximum Percentage (the
"Excess Shares") shall be deemed null and void and shall be cancelled ab initio,
and the Holder shall not have the power to vote or to transfer the Excess
Shares. As soon as reasonably practicable after the issuance of the Excess
Shares has been deemed null and void, the Company shall return to the Holder the
exercise price paid by the Holder for the Excess Shares. Upon delivery of a
written notice to the Company, the Holder may from time to time increase (with
such increase not effective until the sixty-first (61st) day after delivery of
such notice) or decrease the Maximum Percentage to any other percentage not in
excess of 9.99% as specified in such notice; provided that (i) any such increase
in the Maximum Percentage 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 the other Attribution Parties and not
to any other holder of SPA Warrants that is not an Attribution Party of the
Holder. For purposes of clarity, the shares of Common Stock issuable pursuant to
the terms of this Warrant in excess of the Maximum Percentage shall not be
deemed to be beneficially owned by the Holder for any purpose including for
purposes of Section 13(d) or Rule 16a-1(a)(1) of the 1934 Act. No prior
inability to exercise this Warrant pursuant to this paragraph shall have any
effect on the applicability of the provisions of this paragraph with respect to
any subsequent determination of exercisability. The provisions of this paragraph
shall be construed and implemented in a manner otherwise than in strict
conformity with the terms of this Section 1(f) to the extent necessary to
correct this paragraph or any portion of this paragraph which may be defective
or inconsistent with the intended beneficial ownership limitation contained in
this Section 1(f) or to make changes or supplements necessary or desirable to
properly give effect to such limitation. The limitation contained in this
paragraph may not be waived and shall apply to a successor holder of this
Warrant.
(g) Insufficient Authorized Shares. If at any time while this Warrant
remains outstanding the Company does not have a sufficient number of authorized
and unreserved shares of Common Stock to satisfy its obligation to reserve for
issuance upon exercise of this Warrant at least a number of shares of Common
Stock equal to 130% of the number of shares of Common Stock as shall from time
to time be necessary to effect the exercise of all of this Warrant then
outstanding (the "Required Reserve Amount" and the failure to have such
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sufficient number of authorized and unreserved shares of Common Stock, an
"Authorized Share Failure"), then the Company shall immediately take all action
necessary to increase the Company's authorized shares of Common Stock to an
amount sufficient to allow the Company to reserve the Required Reserve Amount
for this Warrant 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 sixty (60) days after
the occurrence of such Authorized Share Failure, the Company shall hold a
meeting of its shareholders 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 shareholder with a proxy statement and shall use its best
efforts to solicit its shareholders' approval of such increase in authorized
shares of Common Stock and to cause its board of directors to recommend to the
shareholders that they approve such proposal. Notwithstanding the foregoing, if
any such time of an Authorized Share Failure, the Company is able to obtain the
written consent of a majority of the shares of its issued and outstanding Common
Stock to approve the increase in the number of authorized shares of Common
Stock, the Company may satisfy this obligation by obtaining such consent and
submitting for filing with the SEC an Information Statement on Schedule 14C.
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 or sold by the Company in connection with any Excluded
Securities for a consideration per share 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 product of (A) the Applicable Price
and (B) the quotient determined by dividing (1) the sum of (I) the product
derived by multiplying the Exercise Price in effect immediately prior to such
Dilutive Issuance and the number of shares of Common Stock Deemed Outstanding
immediately prior to such Dilutive Issuance plus (II) the consideration, if any,
received by the Company upon such Dilutive Issuance, by (2) the product derived
by multiplying (I) the Applicable Price by (II) the number of shares of Common
Stock Deemed Outstanding immediately after such Dilutive Issuance. Upon each
such adjustment of the Exercise Price hereunder, the number of Warrant Shares
issuable immediately prior to such Dilutive Issuance shall be adjusted to the
number of share of Common Stock determined by multiplying the Exercise Price in
effect immediately prior to such adjustment by the number of Warrant Shares
acquirable upon exercise of this Warrant immediately prior to such adjustment
and dividing the product thereof by the Exercise Price resulting from such
adjustment. 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 or sells 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 share of Common Stock shall be deemed to be outstanding
and to have been issued and sold by the Company at the time of the
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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 the exercise of any such Options or upon
conversion, exercise or exchange of any Convertible Securities issuable
upon exercise of any such Option" 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 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
less any consideration paid or payable by the Company with respect to such
one share of Common Stock upon the granting or sale of such Option, upon
exercise of such Option and upon conversion exercise or exchange of any
Convertible Security issuable upon exercise of such Option. No further
adjustment of the Exercise Price shall be made upon the actual issuance of
such shares of Common Stock or of such Convertible Securities upon the
exercise of such Options or 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 share of Common Stock shall be deemed to be outstanding
and to have been issued and sold by the Company at the time of the
issuance or sale of such Convertible Securities for such price per share.
For the purposes of this Section 2(a)(ii), the "lowest price per share for
which one share of Common Stock is issuable upon the conversion, exercise
or exchange thereof" 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 Stock (i) upon the issuance or sale of the
Convertible Security and (ii) upon conversion, exercise or exchange of
such Convertible Security less any consideration paid or payable by the
Company with respect to such one share of Common Stock upon the issuance
or sale of such Convertible Security and upon conversion, exercise or
exchange of such Convertible Security. No further adjustment of the
Exercise Price shall be made upon the actual issuance of such shares of
Common Stock upon conversion, exercise or exchange of such Convertible
Securities, 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 shall be made by reason
of such issue or sale.
(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 in effect at the time of such increase or decrease shall be
adjusted to the Exercise Price which would have been in effect at such
time had such Options or Convertible Securities provided for such
increased or decreased purchase price, additional consideration or
increased or decreased conversion rate, as the case may be, at the time
initially granted, issued or sold. For purposes of this Section 2(a)(iii),
if the terms of any Option or Convertible Security that was outstanding as
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of the Subscription Date are increased or decreased in the manner
described in the immediately preceding sentence, then such Option or
Convertible Security and the shares of Common Stock deemed issuable upon
exercise, conversion or exchange thereof shall be deemed to have been
issued as of the date of such increase or decrease. No adjustment pursuant
to this Section 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.
(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, (x) the
Options will be deemed to have been issued for the Option Value of such
Options and (y) the other securities issued or sold in such integrated
transaction shall be deemed to have been issued or sold for the difference
of (I) the aggregate consideration received by the Company less any
consideration paid or payable by the Company pursuant to the terms of such
other securities of the Company, less (II) the Option Value. 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 other than
cash received therefor will be deemed to be the net 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 securities 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 (10th) 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 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.
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(b) Voluntary Adjustment By Company. The Company may at any time during the
term of this Warrant reduce the then current Exercise Price to any amount and
for any period of time deemed appropriate by the Board of Directors of the
Company. Upon each such reduction of the Exercise Price hereunder, the number of
Warrant Shares issuable immediately prior to such reduction shall be adjusted to
the number of shares of Common Stock determined by multiplying the Exercise
Price then in effect immediately prior to such reduction by the number of
Warrant Shares acquirable upon exercise of this Warrant immediately prior to
such reduction and dividing the product thereof by the Exercise Price after
giving effect to such reduction.
(c) Adjustment Upon Subdivision or Combination of Shares 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(c) shall become effective at the close of
business on the date the subdivision or combination becomes effective.
(d) 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, as mutually determined by the Company's Board of
Directors and the Required Holders, so as to protect the rights of the Holder;
provided that no such adjustment pursuant to this Section 2(d) 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, options, evidence of indebtedness or any other
assets by way of a dividend, spin off, reclassification, corporate
rearrangement, scheme of arrangement or other similar transaction) (a
"Distribution"), at any time after the issuance of this Warrant, then, in each
such case, the Holder shall be entitled to participate in such Distribution to
the same extent that the Holder would have participated therein if the Holder
had held the number of shares of Common Stock acquirable upon complete exercise
of this Warrant (without regard to any limitations or restrictions on exercise
of this Warrant, including without limitation, the Maximum Percentage)
immediately before the date of which a record is taken for such Distribution,
or, if no such record is taken, the date as of which the record holders of
shares of Common Stock are to be determined for the participation in such
Distribution (provided, however, that to the extent that the Holder's right to
participate in any such Distribution would result in the Holder and the other
Attribution Parties exceeding the Maximum Percentage, then the Holder shall not
be entitled to participate in such Distribution to such extent (and shall not be
entitled to beneficial ownership of such shares of Common Stock as a result of
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such Distribution (and beneficial ownership) to such extent) and the portion of
such Distribution shall be held in abeyance for the benefit of the Holder until
such time or times as its right thereto would not result in the Holder and the
other Attribution Parties exceeding the Maximum Percentage, at which time or
times the Holder shall be granted such Distribution (and any Distributions
declared or made on such initial Distribution or on any subsequent Distribution
held similarly in abeyance) to the same extent as if there had been no such
limitation).
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 Common Stock (the
"Purchase Rights"), then the Holder will be entitled to acquire, upon the terms
applicable to such Purchase Rights, the aggregate Purchase Rights which the
Holder could have acquired if the Holder had held the number of shares of Common
Stock acquirable upon complete exercise of this Warrant (without regard to any
limitations or restrictions on exercise of this Warrant, including without
limitation, the Maximum Percentage) immediately before the date on which a
record is taken for the grant, issuance or sale of such Purchase Rights, or, if
no such record is taken, the date as of which the record holders of shares of
Common Stock are to be determined for the grant, issue or sale of such Purchase
Rights (provided, however, that to the extent that the Holder's right to
participate in any such Purchase Right would result in the Holder and the other
Attribution Parties exceeding the Maximum Percentage, then the Holder shall not
be entitled to participate in such Purchase Right to such extent (and shall not
be entitled to beneficial ownership of such shares of Common Stock as a result
of such Purchase Right (and beneficial ownership) to such extent) and such
Purchase Right to such extent shall be held in abeyance for the benefit of the
Holder until such time or times as its right thereto would not result in the
Holder and the other Attribution Parties exceeding the Maximum Percentage, at
which time or times the Holder shall be granted such right (and any Purchase
Right granted, issued or sold on such initial Purchase Right or on any
subsequent Purchase Right held similarly in abeyance) to the same extent as if
there had been no such limitation).
(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 reasonably satisfactory to
the Required Holders prior to such Fundamental Transaction, including agreements
, if so requested by the Holder, to deliver to each holder of the SPA Warrants
in exchange for such SPA 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 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 reasonably satisfactory
to the Required Holders, and with an exercise price which applies the exercise
price hereunder to such shares of capital stock (but taking into account the
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relative value of the shares of Common Stock pursuant to such Fundamental
Transaction and the value of such shares of capital stock, such adjustments to
the number of shares of capital stock and such exercise price being for the
purpose of protecting the economic value of this Warrant immediately prior to
the occurrence or consummation of such Fundamental Transaction), 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. Any
security issuable or potentially issuable to the Holder pursuant to the terms of
this Warrant on the consummation of a Fundamental Transaction shall be
registered and freely tradable by the Holder without any restriction or
limitation or the requirement to be subject to any holding period pursuant to
any applicable securities laws. Upon the occurrence or consummation of any
Fundamental Transaction, and it shall be a required condition to the occurrence
or consummation of any Fundamental Transaction that, the Company and the
Successor Entity or Successor Entities, jointly and severally, shall succeed to,
and the Company shall cause any Successor Entity or Successor Entities to
jointly and severally succeed to, and be added to the term "Company" under this
Warrant (so that from and after the date of such Fundamental Transaction, each
and every provision of this Warrant referring to the "Company" shall refer
instead to each of the Company and the Successor Entity or Successor Entities,
jointly and severally), and the Company and the Successor Entity or Successor
Entities, jointly and severally, may exercise every right and power of the
Company prior thereto and shall assume all of the obligations of the Company
prior thereto under this Warrant with the same effect as if the Company and such
Successor Entity or Successor Entities, jointly and severally, had been named as
the Company in this Warrant, and, solely at the request of the Holder, if the
Successor Entity and/or Successor Entities is a publicly traded corporation
whose common stock is quoted on or listed for trading on an Eligible Market,
shall deliver (in addition to and without limiting any right under this Warrant)
to the Holder in exchange for this Warrant a security of the Successor Entity
and/or Successor Entities evidenced by a written instrument substantially
similar in form and substance to this Warrant and exercisable for a
corresponding number of shares of capital stock of the Successor Entity and/or
Successor Entities (the "Successor 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 (such corresponding number of shares of Successor
Capital Stock to be delivered to the Holder shall be equal to the quotient of
(i) the aggregate dollar value of all consideration (including cash
consideration and any consideration other than cash ("Non-Cash Consideration"),
in such Fundamental Transaction, as such values are set forth in any definitive
agreement for the Fundamental Transaction that has been executed at the time of
the first public announcement of the Fundamental Transaction or, if no such
value is determinable from such definitive agreement, as determined in
accordance with Section 12 with the term "Non-Cash Consideration" being
substituted for the term "Exercise Price") that the Holder would have been
entitled to receive upon the happening of such Fundamental Transaction or the
record, eligibility or other determination date for the event resulting in such
Fundamental Transaction, had this Warrant been exercised immediately prior to
such Fundamental Transaction or the record, eligibility or other determination
date for the event resulting in such Fundamental Transaction (without regard to
any limitations on the exercise of this Warrant) divided by (ii) the per share
Closing Sale Price of such corresponding capital stock on the Trading Day
immediately prior to the consummation or occurrence of the Fundamental
Transaction), and such security shall be satisfactory to the Holder, and with an
identical exercise price to the Exercise Price hereunder (such adjustments to
the number of shares of capital stock and such exercise price being for the
purpose of protecting after the consummation or occurrence of such Fundamental
Transaction the economic value of this Warrant that was in effect immediately
prior to the consummation or occurrence of such Fundamental Transaction, as
elected by the Holder solely at its option). Upon occurrence or consummation of
the Fundamental Transaction, and it shall be a required condition to the
occurrence or consummation of such Fundamental Transaction that, the Company and
the Successor Entity or Successor Entities shall deliver to the Holder
confirmation that there shall be issued upon exercise of this Warrant at any
time after the occurrence or consummation of the Fundamental Transaction, as
elected by the Holder solely at its option, shares of Common Stock, Successor
Capital Stock or, in lieu of the shares of Common Stock or Successor Capital
Stock (or other securities, cash, assets or other property purchasable upon the
exercise of this 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 for purposes of
clarification may continue to be shares of Common Stock, if any, that the Holder
would have been entitled to receive upon the happening of such Fundamental
Transaction or the record, eligibility or other determination date for the event
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resulting in such Fundamental Transaction, had this Warrant been exercised
immediately prior to such Fundamental Transaction or the record, eligibility or
other determination date for the event resulting in such Fundamental Transaction
(without regard to any limitations on the exercise of this Warrant), 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 occurrence or
consummation of any Fundamental Transaction pursuant to which holders of shares
of Common Stock are entitled to receive securities, cash, assets or other
property with respect to or in exchange for shares of Common Stock (a "Corporate
Event"), the Company shall make appropriate provision to insure that, and any
applicable Successor Entity or Successor Entities shall ensure that, and it
shall be a required condition to the occurrence or consummation of such
Corporate Event that, the Holder will thereafter have the right to receive upon
exercise of this Warrant at any time after the occurrence or consummation of the
Corporate Event, shares of Common Stock or Successor Capital Stock or, if so
elected by the Holder, in lieu of the shares of Common Stock (or other
securities, cash, assets or other property) purchasable upon the exercise of
this Warrant prior to such Corporate Event (but not in lieu of such items still
issuable under Sections 3 and 4(a), which shall continue to be receivable on the
Common Stock or on the such shares of stock, securities, cash, assets or any
other property otherwise receivable with respect to or in exchange for shares of
Common Stock), such shares of stock, securities, cash, assets or any other
property whatsoever (including warrants or other purchase or subscription rights
and any shares of Common Stock) which the Holder would have been entitled to
receive upon the occurrence or consummation of such Corporate Event or the
record, eligibility or other determination date for the event resulting in such
Corporate Event, had this Warrant been exercised immediately prior to such
Corporate Event or the record, eligibility or other determination date for the
event resulting in such Corporate Event (without regard to any limitations on
exercise of this Warrant). Provision made pursuant to the preceding sentence
shall be in a form and substance reasonably satisfactory to the Holder. The
provisions of this Section 4(b) shall apply similarly and equally to successive
Fundamental Transactions and Corporate Events.
(c) Notwithstanding the foregoing, if a Fundamental
Transaction is announced or is scheduled to occur on or prior to the thirtieth
month following the Issuance Date, at the request of the Holder delivered before
the ninetieth (90th) day after the occurrence or consummation of such
Fundamental Transaction, the Company (or the Successor Entity) shall purchase
this Warrant from the Holder by paying to the Holder, within five (5) Business
13
Days after such request (or, if later, on the effective date of the Fundamental
Transaction), cash in an amount equal to (if positive) 200% of the product of
(A) the difference between (1) the arithmetic average of the Closing Sale Prices
of the Common Stock for the last five (5) Trading Days ending on the date of the
request of the Holder, and (2) the then existing Exercise Price, and (B) the
maximum number of Warrant Shares then issuable upon exercise on this Warrant
(without regard to any limitations on exercise of this Warrant.
5. NONCIRCUMVENTION. The Company hereby covenants and agrees that the
Company will not, by amendment of its Articles of Incorporation or 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 of 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, 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 receive dividends 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, receive dividends 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.
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
forthwith issue and deliver upon the order of the Holder a new Warrant (in
accordance with Section 7(d)), registered as the Holder may request,
14
representing the right to purchase the number of Warrant Shares being
transferred by the Holder and, if less than 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 SPA Warrants for fractional
Warrant Shares 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.
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
therefor. 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. It is expressly understood and
agreed that the time of exercise specified by the Holder in each Exercise Notice
shall be definitive and may not be disputed or challenged by the Company.
15
9. AMENDMENT AND WAIVER. Except as otherwise provided herein, the
provisions of this Warrant may be amended or waived 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
Holder.
10. GOVERNING LAW; JURISDICTION; JURY TRIAL. 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. Subject to
the provisions of Section 12, the Company hereby irrevocably submits to the
exclusive jurisdiction of the state and federal courts sitting in The City of
New York, Borough of Manhattan, for the adjudication of any dispute hereunder or
in connection herewith or with any transaction contemplated hereby or discussed
herein, and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is brought
in an inconvenient forum or that the venue of such suit, action or proceeding is
improper. The Company hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to the Company at the address set forth in Section 9(f)
of the Securities Purchase Agreement and agrees that such service shall
constitute good and sufficient service of process and notice thereof. Nothing
contained herein shall be deemed to limit in any way any right to serve process
in any manner permitted by law. Nothing contained herein shall be deemed or
operate to preclude the Holder from bringing suit or taking other legal action
against the Company in any other jurisdiction to collect on the Company's
obligations to the Holder, to realize on any collateral or any other security
for such obligations, or to enforce a judgment or other court ruling in favor of
the Holder. THE COMPANY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND
AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE
HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS WARRANT OR ANY
TRANSACTION CONTEMPLATED HEREBY.
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. 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 or electronic mail within two (2) 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 (3)
Business Days of such disputed determination or arithmetic calculation being
submitted to the Holder, then the Company shall, within two (2) Business Days
submit via facsimile or electronic mail (a) the disputed determination of the
Exercise Price to an independent, reputable investment bank selected by the
Company and approved by the Holder or (b) the disputed arithmetic calculation of
the Warrant Shares to the Company's independent, outside accountant. The Company
16
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 (10) 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 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 and the Warrant Shares may be offered for sale,
sold, transferred, pledged or assigned with prior written notice to the Company
but without the consent of the Company, except as may otherwise be required by
Section 2(f) of the Securities Purchase Agreement. Notwithstanding anything to
the contrary contained herein, without the prior written consent of the Company
(such consent not to be unreasonably withheld, delayed or conditioned), the
Holder shall not transfer a portion of this Warrant representing less than the
right to purchase 100,000 Warrant Shares unless such lesser amount represents
all of the remaining portion of this Warrant.
15. SEVERABILITY. If any provision of this Warrant is prohibited by law or
otherwise determined to be invalid or unenforceable by a court of competent
jurisdiction, the provision that would otherwise be prohibited, invalid or
unenforceable shall be deemed amended to apply to the broadest extent that it
would be valid and enforceable, and the invalidity or unenforceability of such
provision shall not affect the validity of the remaining provisions of this
Warrant so long as this Warrant as so modified continues to express, without
material change, the original intentions of the parties as to the subject matter
hereof and the prohibited nature, invalidity or unenforceability of the
provision(s) in question does not substantially impair the respective
expectations or reciprocal obligations of the parties or the practical
realization of the benefits that would otherwise be conferred upon the parties.
The parties will endeavor in good faith negotiations to replace the prohibited,
invalid or unenforceable provision(s) with a valid provision(s), the effect of
which comes as close as possible to that of the prohibited, invalid or
unenforceable provision(s).
16. DISCLOSURE. Upon receipt or delivery by the Company of any notice in
accordance with the terms of this Warrant, unless the Company has in good faith
determined that the matters relating to such notice do not constitute material,
nonpublic information relating to the Company or its Subsidiaries (as defined in
the Securities Purchase Agreement), the Company shall within one (1) Business
Day after any such receipt or delivery publicly disclose such material,
nonpublic information on a Current Report on Form 8-K or otherwise. In the event
17
that the Company believes that a notice contains material, nonpublic information
relating to the Company or its Subsidiaries, the Company so shall indicate to
such Holder contemporaneously with delivery of such notice, and in the absence
of any such indication, the Holder shall be allowed to presume that all matters
relating to such notice do not constitute material, nonpublic information
relating to the Company or its Subsidiaries.
17. CERTAIN DEFINITIONS. For purposes of this Warrant, the following terms
shall have the following meanings:
(a) "1933 Act" means the Securities Act of 1933, as amended.
(b) "Affiliate" means, with respect to any Person, any other Person that
directly or indirectly controls, is controlled by, or is under common control
with, such Person, it being understood for purposes of this definition that
"control" of a Person means the power directly or indirectly either to vote 10%
or more of the stock having ordinary voting power for the election of directors
of such Person or direct or cause the direction of the management and policies
of such Person whether by contract or otherwise.
(c) "Attribution Parties" means, collectively, the following Persons and
entities: (i) any investment vehicle, including, any funds, feeder funds or
managed accounts, currently, or from time to time after the Issuance Date,
directly or indirectly managed or advised by the Holder's investment manager or
any of its Affiliates or principals, (ii) any direct or indirect Affiliates of
the Holder or any of the foregoing, (iii) any Person acting or who could be
deemed to be acting as a Group together with the Holder or any of the foregoing
and (iv) any other Persons whose beneficial ownership of the Company's Common
Stock would or could be aggregated with the Holder's and the other Attribution
Parties for purposes of Section 13(d) of the 1934 Act. For clarity, the purpose
of the foregoing is to subject collectively the Holder and all other Attribution
Parties to the Maximum Percentage.
(d) "Bloomberg" means Bloomberg Financial Markets.
(e) "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.
(f) "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 the 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
18
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 OTC Link
or "pink sheets" by OTC Markets Group Inc. (formerly Pink OTC Markets 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, reclassification or other similar
transaction during the applicable calculation period.
(g) "Common Stock" means (i) the Company's shares of Common Stock, no par
value, 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.
(h) "Common Stock Deemed Outstanding" means, at any given time, the number
of shares of Common Stock outstanding at such time, plus the number of shares of
Common Stock deemed to be outstanding pursuant to Sections 2(a)(i) and 2(a)(ii)
hereof regardless of whether the Options or Convertible Securities are actually
exercisable at such time, but excluding any shares of Common Stock owned or held
by or for the account of the Company or issuable upon exercise of the SPA
Warrants.
(i) "Convertible Securities" means any stock or securities (other than
Options) directly or indirectly convertible into or exercisable or exchangeable
for shares of Common Stock.
(j) "Eligible Market" means the Principal Market, the NYSE MKT LLC, The
NASDAQ Global Market, The NASDAQ Capital Market, The NASDAQ Global Select Market
or The New York Stock Exchange, Inc.
(k) "Excluded Securities" means any Common Stock issued or issuable: (i)
upon conversion of the Notes issued on the Issuance Date; provided, that upon
the terms of such Notes are not amended, modified or changed on or after the
Subscription Date, (ii) upon exercise of the SPA Warrants; provided, that the
terms of the SPA Warrants are not amended, modified or changed on or after the
Subscription Date and (iii) upon exercise of any Options or Convertible
Securities which are outstanding on the day immediately preceding the
Subscription Date; provided, that the terms of such Options or Convertible
Securities are not amended, modified or changed on or after the Subscription
Date.
(l) "Expiration Date" means the date thirty six (36) 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 day that is not a Holiday.
(m) "Fundamental Transaction" means (A) that the Company shall, directly or
indirectly, including through subsidiaries, Affiliates or otherwise, in one or
more related transactions, (i) consolidate or merge with or into (whether or not
the Company is the surviving corporation) another Subject Entity, or (ii) sell,
assign, transfer, convey or otherwise dispose of all or substantially all of the
19
properties or assets of the Company or any of its "significant subsidiaries" (as
defined in Rule 1-02 of Regulation S-X) to one or more Subject Entities, or
(iii) make, or allow one or more Subject Entities to make, or allow the Company
to be subject to or have its Common Stock be subject to or party to one or more
Subject Entities making, a purchase, tender or exchange offer that is accepted
by the holders of at least either (x) 50% of the outstanding shares of Common
Stock, (y) 50% of the outstanding shares of Common Stock calculated as if any
shares of Common Stock held by all Subject Entities making or party to, or
Affiliated with any Subject Entities making or party to, such purchase, tender
or exchange offer were not outstanding; or (z) such number of shares of Common
Stock such that all Subject Entities making or party to, or Affiliated with any
Subject Entity making or party to, such purchase, tender or exchange offer,
become collectively the beneficial owners (as defined in Rule 13d-3 under the
1934 Act) of at least 50% of the outstanding shares of Common Stock, or (iv)
consummate a stock purchase agreement or other business combination (including,
without limitation, a reorganization, recapitalization, spin-off or scheme of
arrangement) with one or more Subject Entities whereby all such Subject
Entities, individually or in the aggregate, acquire, either (x) at least 50% of
the outstanding shares of Common Stock, (y) at least 50% of the outstanding
shares of Common Stock calculated as if any shares of Common Stock held by all
the Subject Entities making or party to, or Affiliated with any Subject Entity
making or party to, such stock purchase agreement or other business combination
were not outstanding; or (z) such number of shares of Common Stock such that the
Subject Entities become collectively the beneficial owners (as defined in Rule
13d-3 under the 1934 Act) of at least 50% of the outstanding shares of Common
Stock, or (v) reorganize, recapitalize or reclassify its Common Stock, (B) that
the Company shall, directly or indirectly, including through subsidiaries,
Affiliates or otherwise, in one or more related transactions, allow any Subject
Entity individually or the Subject Entities in the aggregate to be or become the
"beneficial owner" (as defined in Rule 13d-3 under the 1934 Act), directly or
indirectly, whether through acquisition, purchase, assignment, conveyance,
tender, tender offer, exchange, reduction in outstanding shares of Common Stock,
merger, consolidation, business combination, reorganization, recapitalization,
spin-off, scheme of arrangement, reorganization, recapitalization or
reclassification or otherwise in any manner whatsoever, of either (x) at least
50% of the aggregate ordinary voting power represented by issued and outstanding
Common Stock, (y) at least 50% of the aggregate ordinary voting power
represented by issued and outstanding Common Stock not held by all such Subject
Entities as of the date of this Warrant calculated as if any shares of Common
Stock held by all such Subject Entities were not outstanding, or (z) a
percentage of the aggregate ordinary voting power represented by issued and
outstanding shares of Common Stock or other equity securities of the Company
sufficient to allow such Subject Entities to effect a statutory short form
merger or other transaction requiring other stockholders of the Company to
surrender their shares of Common Stock without approval of the stockholders of
the Company or (C) directly or indirectly, including through subsidiaries,
Affiliates or otherwise, in one or more related transactions, the issuance of or
the entering into any other instrument or transaction structured in a manner to
circumvent, or that circumvents, the intent of this definition in which case
this definition shall be construed and implemented in a manner otherwise than in
strict conformity with the terms of this definition to the extent necessary to
correct this definition or any portion of this definition which may be defective
or inconsistent with the intended treatment of such instrument or transaction.
(n) "Group" means a "group" as that term is used in Section 13(d) of the
1934 Act and as defined in Rule 13d-5 thereunder.
20
(o) "Option Value" means the value of an Option based on the Black and
Scholes Option Pricing model obtained from the "OV" function on Bloomberg
determined as of (A) the Trading Day prior to the public announcement of the
issuance of the applicable Option, if the issuance of such Option is publicly
announced or (B) the Trading Day immediately following the issuance of the
applicable Option if the issuance of such Option is not publicly announced, for
pricing purposes and reflecting (i) a risk-free interest rate corresponding to
the U.S. Treasury rate for a period equal to the remaining term of the
applicable Option as of the applicable date of determination, (ii) an expected
volatility equal to the greater of 100% and the 100 day volatility obtained from
the HVT function on Bloomberg as of (A) the Trading Day immediately following
the public announcement of the applicable Option if the issuance of such Option
is publicly announced or (B) the Trading Day immediately following the issuance
of the applicable Option if the issuance of such Option is not publicly
announced, (iii) the underlying price per share used in such calculation shall
be the highest Weighted Average Price of the Common Stock during the period
beginning on the Trading Day prior to the execution of definitive documentation
relating to the issuance of the applicable Option and ending on (A) the Trading
Day immediately following the public announcement of such issuance, if the
issuance of such Option is publicly announced or (B) the Trading Day immediately
following the issuance of the applicable Option if the issuance of such Option
is not publicly announced, (iv) a zero cost of borrow and (v) a 360 day
annualization factor.
(p) "Options" means any rights, warrants or options to subscribe for or
purchase shares of Common Stock or Convertible Securities.
(q) "Parent Entity" of a Person means an entity that, directly or
indirectly, controls the applicable Person, including such entity whose common
stock or equivalent equity security is quoted or listed on an Eligible Market
(or, if so elected by the Required Holders, any other market, exchange or
quotation system), or, if there is more than one such Person or such entity, the
Person or Parent Entity designated by the Required Holders or in the absence of
such designation, such Person or entity with the largest public market
capitalization as of the date of consummation of the Fundamental Transaction.
(r) "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.
(s) "Principal Market" means the OTC Bulletin Board.
(t) "Registration Rights Agreement" means that certain Registration Rights
Agreement dated as of the Subscription Date by and among the Company and the
Buyers.
(u) "Required Holders" means the holders of the SPA Warrants representing
at least a majority of the shares of Common Stock underlying the SPA Warrants
then outstanding.
(v) "Subject Entity" means any Person, Persons or Group or any Affiliate or
associate of any such Person, Persons or Group.
21
(w) "Successor Entity" means one or more Person or Persons (or, if so
elected by the Holder, the Parent Entity) which may be the entity formed by,
resulting from or surviving any Fundamental Transaction or one or more Person or
Persons (or, if so elected by the Holder, the Company or the Parent Entity) with
which such Fundamental Transaction shall have been entered into.
(x) "Trading Day" means any day on which the Common Stock is traded on the
Principal Market, or, if the Principal Market is not the principal trading
market for the Common Stock, then on the principal securities exchange or
securities market on which the Common Stock is then traded; provided that
"Trading Day" shall not include any day on which the Common Stock is scheduled
to trade on such exchange or market for less than 4.5 hours or any day that the
Common Stock is suspended from trading during the final hour of trading on such
exchange or market (or if such exchange or market does not designate in advance
the closing time of trading on such exchange or market, then during the hour
ending at 4:00:00 p.m., New York time).
(y) "Weighted Average Price" means, for any security as of any date, the
dollar volume-weighted average price for such security on the Principal Market
during the period beginning at 9:30:01 a.m., New York time (or such other time
as the Principal Market publicly announces is the official open of trading), and
ending at 4:00:00 p.m., New York time (or such other time as the Principal
Market publicly announces is the official close of trading), as reported by
Bloomberg through its "Volume at Price" function or, if the foregoing does not
apply, the dollar volume-weighted average price of such security in the
over-the-counter market on the electronic bulletin board for such security
during the period beginning at 9:30:01 a.m., New York time (or such other time
as such market publicly announces is the official open of trading), and ending
at 4:00:00 p.m., New York time (or such other time as such market publicly
announces is the official close of trading), as reported by Bloomberg, or, if no
dollar volume-weighted average price is reported for such security by Bloomberg
for such hours, the average of the highest closing bid price and the lowest
closing ask price of any of the market makers for such security as reported in
the OTC Link or "pink sheets" by OTC Markets Group Inc. (formerly Pink OTC
Markets Inc.). If the Weighted Average Price cannot be calculated for a security
on a particular date on any of the foregoing bases, the Weighted Average Price
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 with the term "Weighted Average Price"
being substituted for the term "Exercise Price." All such determinations shall
be appropriately adjusted for any stock dividend, stock split, stock
combination, reclassification or other similar transaction during the applicable
calculation period.
[Signature Page Follows]
22
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.
ADVANCED CANNABIS SOLUTIONS, INC.
By: /s/ Robert L. Frichtel
-----------------------------------
Name: Robert L. Frichtel
Title: President
EXHIBIT A
EXERCISE NOTICE
TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS
WARRANT TO PURCHASE COMMON STOCK
ADVANCED CANNABIS SOLUTIONS, INC.
The undersigned holder hereby exercises the right to purchase
_________________ of the shares of Common Stock ("Warrant Shares") of Advanced
Cannabis Solutions, Inc., a Colorado 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.
Date: _______________ __, ______
Name of Registered Holder
By:
Name:
Title:
ACKNOWLEDGMENT
The Company hereby acknowledges this Exercise Notice and hereby directs
[NAME OF TRANSFER AGENT] to issue the above indicated number of shares of Common
Stock in accordance with the Transfer Agent Instructions dated _________ __,
2014 from the Company and acknowledged and agreed to by [NAME OF TRANSFER
AGENT].
ADVANCED CANNABIS SOLUTIONS, INC.
By:________________________________
Name:
Title: