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 TO THE HOLDER (IF REQUESTED BY THE COMPANY), IN A FORM REASONABLY
ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR
(II) UNLESS SOLD OR ELIGIBLE TO BE 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.
IMAGING3, INC.
WARRANT TO PURCHASE COMMON STOCK
Series B Warrant No.: B-1
---
Date of Issuance: October 15, 2010 ("ISSUANCE DATE")
Imaging3, Inc., a California corporation (the "COMPANY"), hereby
certifies that, for good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, CRANSHIRE CAPITAL, L.P., 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 exercise 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 Issuance Date, but not after 11:59 p.m., New York time, on the Expiration
Date (as defined below), 4,518,349 (subject to adjustment as provided herein)
fully paid and 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 16. 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 October 4,
2010, 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 Issuance Date,
in whole or in part, by delivery (whether via facsimile or otherwise) of a
written notice, in the form attached hereto as EXHIBIT A (the "EXERCISE
NOTICE"), of the Holder's election to exercise this Warrant. Within one (1)
Trading Day following an exercise of this Warrant as aforesaid, the Holder shall
deliver payment to the Company of an amount equal to the Exercise Price in
effect on the date of such exercise multiplied by the number of Warrant Shares
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as to which this Warrant was so exercised (the "AGGREGATE EXERCISE PRICE") in
cash or via wire transfer of immediately available funds if the Holder did not
notify the Company in such Exercise Notice that such exercise was made pursuant
to a Cashless Exercise (as defined in Section 1(d)). The Holder shall not be
required to deliver the original of this Warrant in order to effect an exercise
hereunder. Execution and delivery of an Exercise Notice with respect to less
than all of the Warrant Shares shall have the same effect as cancellation of the
original of this Warrant and issuance of a new Warrant evidencing the right to
purchase the remaining number of Warrant Shares. Execution and delivery of an
Exercise Notice for all of the then-remaining Warrant Shares shall have the same
effect as cancellation of the original of this Warrant after delivery of the
Warrant Shares in accordance with the terms hereof. On or before the first (1st)
Trading Day following the date on which the Company has received an Exercise
Notice, the Company shall transmit by facsimile an acknowledgment of
confirmation of receipt of such Exercise Notice, in the form attached hereto as
EXHIBIT B, 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 such Exercise Notice, the Company shall (X) provided
that the Transfer Agent is participating in The Depository Trust Company ("DTC")
Fast Automated Securities Transfer Program, upon the request of the Holder,
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 at Custodian system, or (Y) if
the Transfer Agent is not participating in the DTC Fast Automated Securities
Transfer Program, issue and deliver to the Holder or, at the Holder's
instruction pursuant to the Exercise Notice, the Holder's agent or designee, in
each case, sent by reputable overnight courier to the address as specified in
the applicable Exercise Notice, a certificate, registered in the Company's share
register in the name of the Holder or its designee (as indicated in the
applicable Exercise Notice), for the number of shares of Common Stock to which
the Holder is entitled pursuant to such exercise. Upon delivery of an 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 submitted for exercise is greater than the number of
Warrant Shares being acquired upon an exercise, then, at the request of the
Holder, the Company shall as soon as practicable and in no event later than
three (3) Business Days after any exercise and at its own expense, issue and
deliver to the Holder (or its designee) 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
and fees 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 $0.218, subject to adjustment as provided herein.
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(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 after receipt of the applicable Exercise Notice, 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
(as the case may be), then, in addition to all other remedies available to the
Holder, the Company shall pay in cash to the Holder on each day after such third
(3rd) Trading Day that the issuance of such shares of Common Stock is not timely
effected an amount equal to 2% of the product of (A) the aggregate 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 the Common Stock on the
Trading Day immediately preceding the last possible date on which the Company
could have issued such shares of Common Stock to the Holder without violating
Section 1(a). In addition to the foregoing, if within three (3) Trading Days
after the Company's receipt of the applicable 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 (as the case may be), and if on or
after such third (3rd) 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, then, in addition to all
other remedies available to the Holder, the Company shall, within three (3)
Business 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, 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 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 (as the case may be) (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 shares of Common
Stock 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 (as the case may be) 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 Sale Price of the Common Stock on
the Trading Day immediately preceding the date of the applicable Exercise
Notice.
(d) CASHLESS EXERCISE. Notwithstanding anything contained herein to the
contrary (other than Section 1(f) below), if at the time of exercise hereof a
Registration Statement (as defined in the Registration Rights Agreement (as
defined in the Securities Purchase Agreement)) is not effective (or the
prospectus contained therein is not available for use) for the resale by the
Holder of all of the Warrant Shares, then 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"):
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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.
B= as applicable: (i) the Closing Sale Price of the Common
Stock on the Trading Day immediately preceding the date of the
applicable Exercise Notice if such Exercise Notice is (1) both
executed and delivered pursuant to Section 1(a) hereof on a
day that is not a Trading Day or (2) both executed and
delivered pursuant to Section 1(a) hereof on a Trading Day
prior to the opening of "regular trading hours" (as defined in
Rule 600(b)(64) of Regulation NMS promulgated under the
federal securities laws) on such Trading Day, (ii) the Bid
Price of the Common Stock as of the time of the Holder's
execution of the applicable Exercise Notice if such Exercise
Notice is executed during "regular trading hours" on a Trading
Day and is delivered within two (2) hours thereafter pursuant
to Section 1(a) hereof or (iii) the Closing Sale Price of the
Common Stock on the date of the applicable Exercise Notice if
the date of such Exercise Notice is a Trading Day and such
Exercise Notice is both executed and delivered pursuant to
Section 1(a) hereof after the close of "regular trading hours"
on such Trading Day.
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 number of Warrant Shares to
be issued pursuant to the terms hereof, the Company shall promptly issue to the
Holder the number of Warrant Shares that are not disputed and resolve such
dispute in accordance with Section 13.
(f) LIMITATIONS ON EXERCISES. Notwithstanding anything to the contrary
contained in this Warrant, this Warrant shall not be exercisable by the Holder
hereof to the extent (but only to the extent) that the Holder or any of its
affiliates would beneficially own in excess of 4.9% (the "MAXIMUM PERCENTAGE")
of the Common Stock. To the extent the above limitation applies, the
determination of whether this Warrant shall be exercisable (vis-a-vis other
convertible, exercisable or exchangeable securities owned by the Holder or any
of its affiliates) and of which such securities shall be exercisable (as among
all such securities owned by the Holder) shall, subject to such Maximum
Percentage limitation, be determined on the basis of the first submission to the
Company for conversion, exercise or exchange (as the case may be). 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. For the purposes of this
paragraph, beneficial ownership and all determinations and calculations
(including, without limitation, with respect to calculations of percentage
ownership) shall be determined in accordance with Section 13(d) of the 1934 Act
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(as defined in the Securities Purchase Agreement) and the rules and regulations
promulgated thereunder. The provisions of this paragraph shall be implemented in
a manner otherwise than in strict conformity with the terms of this paragraph to
correct this paragraph (or any portion hereof) which may be defective or
inconsistent with the intended Maximum Percentage beneficial ownership
limitation herein contained or to make changes or supplements necessary or
desirable to properly give effect to such Maximum Percentage limitation. The
limitations contained in this paragraph shall apply to a successor Holder of
this Warrant. The holders of Common Stock shall be third party beneficiaries of
this paragraph and the Company may not waive this paragraph without the consent
of holders of a majority of its Common Stock. 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 to the Holder the number of shares of
Common Stock then outstanding, including by virtue of any prior conversion or
exercise of convertible or exercisable securities into Common Stock, including,
without limitation, pursuant to this Warrant or securities issued pursuant to
the Securities Purchase Agreement.
(g) INSUFFICIENT AUTHORIZED SHARES. The Company shall at all times keep
reserved for issuance under this Warrant a number of shares of Common Stock as
shall be necessary to satisfy the Company's obligation to issue shares of Common
Stock hereunder (without regard to any limitation otherwise contained herein
with respect to the number of shares of Common Stock that may be acquirable upon
exercise of this Warrant). If, notwithstanding the foregoing, and not in
limitation thereof, at any time while any of the SPA Warrants remain 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 the SPA Warrants at least a number of shares of Common Stock equal
to the number of shares of Common Stock as shall from time to time be necessary
to effect the exercise of all of the SPA Warrants then outstanding (the
"REQUIRED RESERVE AMOUNT") (an "AUTHORIZED SHARE FAILURE"), then the Company
shall immediately take all action necessary to increase the Company's authorized
shares of Common Stock to an amount sufficient to allow the Company to reserve
the Required Reserve Amount for all the SPA 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 sixty (60) 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 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.
2. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES. The Exercise Price
and number of Warrant Shares issuable upon exercise of this Warrant are subject
to adjustment from time to time as set forth in this Section 2.
(a) STOCK DIVIDENDS AND SPLITS. Without limiting any provision of
Section 2(b) or Section 4, if the Company, at any time on or after the date of
the Securities Purchase Agreement, (i) pays a stock dividend on one or more
classes of its then outstanding shares of Common Stock or otherwise makes a
distribution on any class of capital stock that is payable in shares of Common
Stock, (ii) subdivides (by any stock split, stock dividend, recapitalization or
otherwise) one or more classes of its then outstanding shares of Common Stock
into a larger number of shares or (iii) combines (by combination, reverse stock
-5-
split or otherwise) one or more classes of its then outstanding shares of Common
Stock into a smaller number of shares, then in each such case the Exercise Price
shall be multiplied by a fraction of which the numerator shall be the number of
shares of Common Stock outstanding immediately before such event and of which
the denominator shall be the number of shares of Common Stock outstanding
immediately after such event. Any adjustment made pursuant to clause (i) of this
paragraph shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or distribution,
and any adjustment pursuant to clause (ii) or (iii) of this paragraph shall
become effective immediately after the effective date of such subdivision or
combination. If any event requiring an adjustment under this paragraph occurs
during the period that an Exercise Price is calculated hereunder, then the
calculation of such Exercise Price shall be adjusted appropriately to reflect
such event.
(b) ADJUSTMENT UPON ISSUANCE OF SHARES OF COMMON STOCK. If and whenever
on or after the date of the Securities Purchase Agreement, 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 any
Excluded Securities (as defined in the Securities Purchase Agreement) issued or
sold or deemed to have been issued or sold) for a consideration per share (the
"NEW ISSUANCE PRICE") less than a price equal to the Exercise Price in effect
immediately prior to such issue or sale or deemed issuance or sale (such
Exercise Price then in effect is referred to as the "APPLICABLE PRICE") (the
foregoing a "DILUTIVE ISSUANCE"), then immediately after such Dilutive Issuance,
the Exercise Price then in effect shall be reduced to an amount equal to the New
Issuance Price. For purposes of determining the adjusted Exercise Price under
this Section 2(b), the following shall be applicable:
(i) ISSUANCE OF OPTIONS. If the Company in any manner grants
or sells any Options and the lowest price per share for which one share
of Common Stock is 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 granting or sale of such Option for such price per share. For
purposes of this Section 2(b)(i), the "lowest price per share for which
one share of Common Stock is issuable upon the exercise of any such
Options or upon conversion, exercise or exchange of any Convertible
Securities issuable upon exercise of any such Option" shall be equal to
(1) the lower of (x) the sum of the lowest amounts of consideration (if
any) received or receivable by the Company with respect to any one
share of Common Stock upon the granting or sale of such Option, upon
exercise of such Option and upon conversion, exercise or exchange of
any Convertible Security issuable upon exercise of such Option and (y)
the lowest exercise price set forth in such Option for which one share
of Common Stock is issuable upon the exercise of any such Options or
upon conversion, exercise or exchange of any Convertible Securities
issuable upon exercise of any such Option minus (2) the sum of all
amounts paid or payable to the holder of such Option (or any other
Person) upon the granting or sale of such Option, upon exercise of such
Option and upon conversion, exercise or exchange of any Convertible
Security issuable upon exercise of such Option plus the value of any
other consideration received or receivable by, or benefit conferred on,
-6-
the holder of such Option (or any other Person). Except as contemplated
below, no further adjustment of the Exercise Price shall be made upon
the actual issuance of such shares of Common Stock or of such
Convertible Securities upon the exercise of such Options or 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(b)(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 (1) the
lower of (x) the sum of the lowest amounts of consideration (if any)
received or receivable by the Company with respect to one share of
Common Stock upon the issuance or sale of the Convertible Security and
upon conversion, exercise or exchange of such Convertible Security and
(y) the lowest conversion price set forth in such Convertible Security
for which one share of Common Stock is issuable upon conversion,
exercise or exchange thereof minus (2) the sum of all amounts paid or
payable to the holder of such Convertible Security (or any other
Person) upon the issuance or sale of such Convertible Security plus the
value of any other consideration received or receivable by, or benefit
conferred on, the holder of such Convertible Security (or any other
Person). Except as contemplated below, no further adjustment of the
Exercise Price shall be made upon the actual issuance of such shares of
Common Stock upon conversion, exercise or exchange of such Convertible
Securities, 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(b), except as contemplated below, 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 or exercise 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(b)(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(b) shall be made if such adjustment would result in an
increase of the Exercise Price then in effect.
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(iv) CALCULATION OF CONSIDERATION RECEIVED. If any Option or
Convertible Security is issued in connection with the issuance or sale
or deemed issuance or sale of any other securities of the Company,
together comprising one integrated transaction, (x) such Option or
Convertible Security (as applicable) will be deemed to have been issued
for consideration equal to the Black Scholes Consideration Value
thereof and (y) the other securities issued or sold or deemed to have
been issued or sold in such integrated transaction shall be deemed to
have been issued for consideration equal to the difference of (I) the
aggregate consideration received by the Company minus (II) the Black
Scholes Consideration Value of each such Option or Convertible Security
(as applicable). If any shares of Common Stock, Options or Convertible
Securities are issued or sold or deemed to have been issued or sold for
cash, the consideration received therefor will be deemed to be the net
amount of consideration received by the Company therefor. If any shares
of Common Stock, Options or Convertible Securities are issued or sold
for a consideration other than cash, the amount of such consideration
received by the Company will be the fair value of such consideration,
except where such consideration consists of publicly traded securities,
in which case the amount of consideration received by the Company for
such securities will be the arithmetic average of the VWAPs of such
security for each of the five (5) Trading Days immediately preceding
the date of receipt. If any shares of Common Stock, Options or
Convertible Securities are issued to the owners of the non-surviving
entity in connection with any merger in which the Company is the
surviving entity, the amount of consideration therefor will be deemed
to be the fair value of such portion of the net assets and business of
the non-surviving entity as is attributable to such shares of Common
Stock, Options or Convertible Securities, 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 Holder. If
such parties are unable to reach agreement within ten (10) days after
the occurrence of an event requiring valuation (the "VALUATION EVENT"),
the fair value of such consideration will be determined within five (5)
Trading Days after the tenth (10th) day following such Valuation Event
by an independent, reputable appraiser jointly selected by the Company
and the Holder. The determination of such appraiser shall be final and
binding upon all parties absent manifest error 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).
(c) NUMBER OF WARRANT SHARES. Simultaneously with any adjustment to the
Exercise Price pursuant to paragraphs (a) or (b) of this Section 2, the number
of Warrant Shares that may be purchased upon exercise of this Warrant shall be
increased or decreased proportionately, so that after such adjustment the
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aggregate Exercise Price payable hereunder for the adjusted number of Warrant
Shares shall be the same as the aggregate Exercise Price in effect immediately
prior to such adjustment (without regard to any limitations on exercise
contained herein).
(d) OTHER EVENTS. In the event that the Company (or any Subsidiary (as
defined in the Securities Purchase Agreement)) shall take any action to which
the provisions hereof are not strictly applicable, or, if applicable, would not
operate to protect the Holder from dilution or if any event occurs of the type
contemplated by the provisions of this Section 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 shall in good faith determine and
implement an appropriate adjustment in the Exercise Price and the number of
Warrant Shares (if applicable) so as to protect the rights of the Holder,
provided that no such adjustment pursuant to this Section 2(d) will increase the
Exercise Price or decrease the number of Warrant Shares as otherwise determined
pursuant to this Section 2, provided further that if the Holder does not accept
such adjustments as appropriately protecting its interests hereunder against
such dilution, then the Company's board of directors and the Holder shall agree,
in good faith, upon an independent investment bank of nationally recognized
standing to make such appropriate adjustments, whose determination shall be
final and binding and whose fees and expenses shall be borne by the Company.
(e) CALCULATIONS. All calculations under this Section 2 shall be made
by rounding to the nearest cent or the nearest 1/100th of a share, as
applicable. The number of shares of Common Stock outstanding at any given time
shall not include shares owned or held by or for the account of the Company, and
the disposition of any such shares shall be considered an issue or sale of
Common Stock.
3. RIGHTS UPON DISTRIBUTION OF ASSETS. In addition to any adjustments pursuant
to Section 2 above, if the Company shall declare or make any dividend or other
distribution of its assets (or rights to acquire its assets) to holders of
shares of Common Stock, by way of return of capital or otherwise (including,
without limitation, any distribution of cash, stock or other securities,
property or options by way of a dividend, spin off, reclassification, corporate
rearrangement, scheme of arrangement or other similar transaction) (a
"Distribution"), at any time after the issuance of this Warrant, then, in each
such case, the Holder shall be entitled to participate in such Distribution to
the same extent that the Holder would have participated therein if the Holder
had held the number of shares of Common Stock acquirable upon complete exercise
of this Warrant (without regard to any limitations on exercise hereof, including
without limitation, the Maximum Percentage) immediately before the date on which
a record is taken for such Distribution, or, if no such record is taken, the
date as of which the record holders of shares of Common Stock are to be
determined for the participation in such Distribution (provided, however, to the
extent that the Holder's right to participate in any such Distributions would
result in the Holder exceeding the Maximum Percentage, then the Holder shall not
be entitled to participate in such Distribution to such extent (or the
beneficial ownership of any such shares of Common Stock as a result of such
Distribution to such extent) and such Distribution to such extent shall be held
in abeyance for the benefit of the Holder until such time, if ever, as its right
thereto would not result in the Holder exceeding the Maximum Percentage).
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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 number of shares
of Common Stock acquirable upon complete exercise of this Warrant (without
regard to any limitations on exercise hereof, including without limitation, the
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, to the extent that the Holder's right to participate in any such
Purchase Right would result in the Holder exceeding the Maximum Percentage, then
the Holder shall not be entitled to participate in such Purchase Right to such
extent (or beneficial ownership of such shares of Common Stock as a result of
such Purchase Right to such extent) and such Purchase Right to such extent shall
be held in abeyance for the Holder until such time, if ever, as its right
thereto would not result in the Holder exceeding the Maximum Percentage).
(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 (as defined in the Securities Purchase Agreement) in
accordance with the provisions of this Section 4(b) pursuant to written
agreements in form and substance satisfactory to the Holder and approved by the
Holder prior to such Fundamental Transaction, including agreements to deliver to
the Holder in exchange for this Warrant a security of the Successor Entity
evidenced by a written instrument substantially similar in form and substance to
this Warrant, including, without limitation, which is 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 with an exercise price which applies the exercise
price hereunder to such shares of capital stock (but taking into account the
relative value of the shares of Common Stock pursuant to such Fundamental
Transaction and the value of such shares of capital stock, such 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 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. Upon the
consummation of each Fundamental Transaction, the Successor Entity shall succeed
to, and be substituted for (so that from and after the date of the applicable
Fundamental Transaction, the provisions of this Warrant and the other
Transaction Documents referring to the "Company" shall refer instead to the
Successor Entity), and may exercise every right and power of the Company and
shall assume all of the obligations of the Company under this Warrant and the
other Transaction Documents with the same effect as if such Successor Entity had
been named as the Company herein. Upon consummation of each 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 applicable Fundamental Transaction, in lieu of the shares of
Common Stock (or other securities, cash, assets or other property (except such
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items still issuable under Sections 3 and 4(a) above, which shall continue to be
receivable thereafter)) issuable upon the exercise of this Warrant prior to the
applicable Fundamental Transaction, such shares of 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 the
applicable Fundamental Transaction had this Warrant been exercised immediately
prior to the applicable 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 consummation of each 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 applicable
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 (except
such items still issuable under Sections 3 and 4(a) above, which shall continue
to be receivable thereafter)) 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 the applicable Fundamental Transaction had this Warrant been
exercised immediately prior to the applicable Fundamental Transaction (without
regard to any limitations on the exercise of this Warrant). Provision made
pursuant to the preceding sentence shall be in a form and substance reasonably
satisfactory to the Holder.
(c) BLACK SCHOLES VALUE. Notwithstanding the foregoing and the
provisions of Section 4(b) above, in the event of any announcement of any
Fundamental Transaction, then, at the request of the Holder delivered at any
time after the announcement of such Fundamental Transaction through the date
that is ninety (90) days after the consummation of such Fundamental Transaction,
the Company or the Successor Entity (as the case may be) shall purchase this
Warrant from the Holder on the date of such request by paying to the Holder cash
in an amount equal to the Black Scholes Value.
(d) APPLICATION. The provisions of this Section 4 shall apply similarly
and equally to successive Fundamental Transactions and Corporate Events and
shall be applied as if this Warrant (and any such subsequent warrants) were
fully exercisable and without regard to any limitations on the exercise of this
Warrant (provided that the Holder shall continue to be entitled to the benefit
of the Maximum Percentage, applied however with respect to shares of capital
stock registered under the 1934 Act and thereafter receivable upon exercise of
this Warrant (or any such other warrant)).
5. NONCIRCUMVENTION. The Company hereby covenants and agrees that the Company
will not, by amendment of its Articles of Incorporation (as defined in the
Securities Purchase Agreement), Bylaws (as defined in the Securities Purchase
Agreement) 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
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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 maximum 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 its 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 its 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 it 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,
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 (as to which a written certification and the
indemnification contemplated below shall suffice as such evidence), and, in the
case of loss, theft or destruction, of any indemnification undertaking by the
Holder to the Company in customary and reasonable form and, in the case of
mutilation, upon surrender and cancellation of this Warrant, the Company shall
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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, 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.
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 each adjustment of the
Exercise Price and the number of Warrant Shares, setting forth in reasonable
detail, and certifying, the calculation of such adjustment(s) 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 and (iii) at least ten (10) Trading Days prior to the
consummation of any Fundamental Transaction. To the extent that any notice
provided hereunder constitutes, or contains, material, non-public information
regarding the Company or any of its subsidiaries, the Company shall
simultaneously file such notice with the SEC (as defined in the Securities
Purchase Agreement) pursuant to a Current Report on Form 8-K. It is expressly
understood and agreed that the time of execution specified by the Holder in each
Exercise Notice shall be definitive and may not be disputed or challenged by the
Company.
9. AMENDMENT AND WAIVER. Except as otherwise provided herein, the provisions of
this Warrant (other than Section 1(f)) 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
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Holder. The Holder shall be entitled, at its option, to the benefit of any
amendment of (i) any other similar warrant issued under the Securities Purchase
Agreement or (ii) any other similar warrant. No waiver shall be effective unless
it is in writing and signed by an authorized representative of the waiving
party.
10. 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).
11. 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 Illinois, without giving effect to any choice of
law or conflict of law provision or rule (whether of the State of Illinois or
any other jurisdictions) that would cause the application of the laws of any
jurisdictions other than the State of Illinois. The Company hereby irrevocably
submits to the exclusive jurisdiction of the state and federal courts sitting in
Chicago, Illinois, for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or discussed
herein, and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is brought
in an inconvenient forum or that the venue of such suit, action or proceeding is
improper. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law. Nothing contained herein shall
be deemed or operate to preclude the Holder from bringing suit or taking other
legal action against the Company in any other jurisdiction to collect on the
Company's obligations to the Holder or to enforce a judgment or other court
ruling in favor of the Holder. THE COMPANY HEREBY IRREVOCABLY WAIVES ANY RIGHT
IT MAY HAVE TO, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF
ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS WARRANT OR
ANY TRANSACTION CONTEMPLATED HEREBY.
12. CONSTRUCTION; HEADINGS. This Warrant shall be deemed to be jointly drafted
by the Company and the Holder and shall not be construed against any Person as
the drafter hereof. The headings of this Warrant are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Warrant. Terms used in this Warrant but defined in the other Transaction
Documents shall have the meanings ascribed to such terms on the Closing Date (as
defined in the Securities Purchase Agreement) in such other Transaction
Documents unless otherwise consented to in writing by the Holder.
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13. DISPUTE RESOLUTION. In the case of a dispute as to the determination of the
Exercise Price, the Closing Sale Price, the Bid Price or fair market value or
the arithmetic calculation of the Warrant Shares (as the case may be), the
Company or the Holder (as the case may be) shall submit the disputed
determinations or arithmetic calculations (as the case may be) via facsimile (i)
within two (2) Business Days after receipt of the applicable notice giving rise
to such dispute to the Company or the Holder (as the case may be) or (ii) if no
notice gave rise to such dispute, at any time after the Holder learned of the
circumstances giving rise to such dispute (including, without limitation, as to
whether any issuance or sale or deemed issuance or sale was an issuance or sale
or deemed issuance or sale of Excluded Securities). If the Holder and the
Company are unable to agree upon such determination or calculation (as the case
may be) of the Exercise Price, the Closing Sale Price, the Bid Price or fair
market value or the number of Warrant Shares (as the case may be) within three
(3) Business Days of such disputed determination or arithmetic calculation being
submitted to the Company or the Holder (as the case may be), then the Company
shall, within two (2) Business Days submit via facsimile (a) the disputed
determination of the Exercise Price, the Closing Sale Price, the Bid Price or
fair market value (as the case may be) to an independent, reputable investment
bank selected by the Holder 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 (as the case may be) and
notify the Company and the Holder of the results no later than ten (10) Business
Days from the time it receives such disputed determinations or calculations (as
the case may be). Such investment bank's or accountant's determination or
calculation (as the case may be) shall be binding upon all parties absent
demonstrable error.
14. REMEDIES, CHARACTERIZATION, 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 covenants to the Holder that
there shall be no characterization concerning this instrument other than as
expressly provided herein. Amounts set forth or provided for herein with respect
to payments, exercises and the like (and the computation thereof) shall be the
amounts to be received by the Holder and shall not, except as expressly provided
herein, be subject to any other obligation of the Company (or the performance
thereof). The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to the Holder and that the remedy at law
for any such breach may be inadequate. The Company therefore agrees that, in the
event of any such breach or threatened breach, the holder of this Warrant shall
be entitled, in addition to all other available remedies, to an injunction
restraining any breach, without the necessity of showing economic loss and
without any bond or other security being required. The Company shall provide all
information and documentation to the Holder that is requested by the Holder to
enable the Holder to confirm the Company's compliance with the terms and
conditions of this Warrant (including, without limitation, compliance with
Section 2 hereof). The issuance of shares and certificates for shares as
contemplated hereby upon the exercise of this Warrant shall be made without
charge to the Holder or such shares for any issuance tax or other costs in
respect thereof, provided that the Company shall not be required to pay any tax
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which may be payable in respect of any transfer involved in the issuance and
delivery of any certificate in a name other than the Holder or its agent on its
behalf.
15. 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(g) of the Securities Purchase Agreement.
16. CERTAIN DEFINITIONS. For purposes of this Warrant, the following terms shall
have the following meanings:
(a) "BID PRICE" means, for any security as of the particular time of
determination, the bid price for such security on the Principal Market as
reported by Bloomberg as of such time of determination, or, if the Principal
Market is not the principal securities exchange or trading market for such
security, the bid price of such security on the principal securities exchange or
trading market where such security is listed or traded as reported by Bloomberg
as of such time of determination, or if the foregoing does not apply, the bid
price of such security in the over-the-counter market on the electronic bulletin
board for such security as reported by Bloomberg as of such time of
determination, or, if no bid price is reported for such security by Bloomberg as
of such time of determination, the average of the bid prices of any market
makers for such security as reported in the "pink sheets" by Pink Sheets LLC
(formerly the National Quotation Bureau, Inc.) as of such time of determination.
If the Bid Price cannot be calculated for a security as of the particular time
of determination on any of the foregoing bases, the Bid Price of such security
as of such time of determination 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 in accordance with the procedures in Section 13. All such
determinations shall be appropriately adjusted for any stock dividend, stock
split, stock combination or other similar transaction during such period.
(b) "BLACK SCHOLES CONSIDERATION VALUE" means the value of the
applicable Option or Convertible Security (as the case may be) as of the date of
issuance thereof calculated using the Black Scholes Option Pricing Model
obtained from the "OV" function on Bloomberg utilizing (i) an underlying price
per share equal to the Closing Sale Price of the Common Stock on the Trading Day
immediately preceding the public announcement of the execution of definitive
documents with respect to the issuance of such Option or Convertible Security
(as the case may be), (ii) a risk-free interest rate corresponding to the U.S.
Treasury rate for a period equal to the remaining term of such Option or
Convertible Security (as the case may be) as of the date of issuance of such
Option or Convertible Security (as the case may be) and (iii) an expected
volatility equal to the greater of 100% and the 100 day volatility obtained from
the HVT function on Bloomberg (determined utilizing a 365 day annualization
factor) as of the Trading Day immediately following the date of issuance of such
Option or Convertible Security (as the case may be).
(c) "BLACK SCHOLES VALUE" means the value of the unexercised portion of
this Warrant remaining on the date of the Holder's request pursuant to Section
4(c), which value is calculated using the Black Scholes Option Pricing Model
obtained from the "OV" function on Bloomberg utilizing (i) an underlying price
per share equal to the greater of (1) the highest Closing Sale Price of the
Common Stock during the period beginning on the Trading Day immediately
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preceding the announcement of the applicable Fundamental Transaction and ending
on the Trading Day of the Holder's request pursuant to Section 4(c) and (2) the
sum of the price per share being offered in cash in the applicable Fundamental
Transaction (if any) plus the value of the non-cash consideration being offered
in the applicable Fundamental Transaction (if any), (ii) a strike price equal to
the Exercise Price in effect on the of date of the Holder's request pursuant to
Section 4(c), (iii) a risk-free interest rate corresponding to the U.S. Treasury
rate for a period equal to the greater of (1) the remaining term of this Warrant
as of the date of the Holder's request pursuant to Section 4(c) and (2) the
remaining term of this Warrant as of the date of consummation of the applicable
Fundamental Transaction and (iv) an expected volatility equal to the greater of
100% and the 100 day volatility obtained from the HVT function on Bloomberg
(determined utilizing a 365 day annualization factor) as of the Trading Day
immediately following the public announcement of the applicable Fundamental
Transaction.
(d) "BLOOMBERG" means Bloomberg, L.P.
(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 SALE PRICE" means, for any security as of any date, the
last closing trade price 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 trade price, then the last trade price
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 trade price 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 does not apply, the last trade price
of such security in the over-the-counter market on the electronic bulletin board
for such security as reported by Bloomberg, or, if no last trade price is
reported for such security by Bloomberg, the average of the ask prices 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 Sale Price
cannot be calculated for a security on a particular date on any of the foregoing
bases, the Closing Sale 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 in accordance with the procedures
in Section 13. All such determinations shall be appropriately adjusted for any
stock dividend, stock split, stock combination or other similar transaction
during such period.
(g) "COMMON STOCK" means (i) the Company's shares of common stock, no
par value per share, and (ii) any capital stock into which such common stock
shall have been changed or any share capital resulting from a reclassification
of such common stock.
(h) "CONVERTIBLE SECURITIES" means any stock or other security (other
than Options) that is at any time and under any circumstances, directly or
indirectly, convertible into, exercisable or exchangeable for, or which
otherwise entitles the holder thereof to acquire, any shares of Common Stock.
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(i) "ELIGIBLE MARKET" means The New York Stock Exchange, the NYSE Amex,
the Nasdaq Global Select Market, the Nasdaq Global Market, the Nasdaq Capital
Market or the Principal Market.
(j) "EXPIRATION DATE" means the date that is the earlier to occur of
(i) the one hundred eighty (180) day anniversary of the Applicable Date (as
defined in the Securities Purchase Agreement) and (ii) the eighteen (18) month
anniversary of 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.
(k) "FUNDAMENTAL TRANSACTION" means that (i) the Company or any of its
Subsidiaries shall, directly or indirectly, in one or more related transactions,
(1) consolidate or merge with or into (whether or not the Company or any of its
Subsidiaries is the surviving corporation) any other Person, or (2) sell, lease,
license, assign, transfer, convey or otherwise dispose of all or substantially
all of its respective properties or assets to any other Person, or (3) allow any
other Person to make a purchase, tender or exchange offer that is accepted by
the holders of more than 50% of the outstanding shares of Voting Stock of the
Company (not including any shares of Voting Stock of the Company 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 (4)
consummate a stock or share purchase agreement or other business combination
(including, without limitation, a reorganization, recapitalization, spin-off or
scheme of arrangement) with any other Person whereby such other Person acquires
more than 50% of the outstanding shares of Voting Stock of the Company (not
including any shares of Voting Stock of the Company held by the other Person or
other Persons making or party to, or associated or affiliated with the other
Persons making or party to, such stock or share purchase agreement or other
business combination), or (5) (I) reorganize, recapitalize or reclassify the
Common Stock, (II) effect or consummate a stock combination, reverse stock split
or other similar transaction involving the Common Stock or (III) make any public
announcement or disclosure with respect to any stock combination, reverse stock
split or other similar transaction involving the Common Stock (including,
without limitation, any public announcement or disclosure of (x) any potential,
possible or actual stock combination, reverse stock split or other similar
transaction involving the Common Stock or (y) board or stockholder approval
thereof, or the intention of the Company to seek board or stockholder approval
of any stock combination, reverse stock split or other similar transaction
involving the Common Stock), or (ii) any "person" or "group" (as these terms are
used for purposes of Sections 13(d) and 14(d) of the 1934 Act and the rules and
regulations promulgated thereunder) is or shall become the "beneficial owner"
(as defined in Rule 13d-3 under the 1934 Act), directly or indirectly, of 50% of
the aggregate ordinary voting power represented by issued and outstanding Voting
Stock of the Company.
(l) "OPTIONS" means any rights, warrants or options to subscribe for or
purchase shares of Common Stock or Convertible Securities.
(m) "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.
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(n) "PERSON" means an individual, a limited liability company, a partnership, a
joint venture, a corporation, a trust, an unincorporated organization, any other
entity or a government or any department or agency thereof.
(o) "PRINCIPAL MARKET" means the OTC Bulletin Board.
(p) "SUCCESSOR ENTITY" means the Person (or, if so elected by the
Holder, the Parent Entity) formed by, resulting from or surviving any
Fundamental Transaction or the Person (or, if so elected by the Holder, the
Parent Entity) with which such Fundamental Transaction shall have been entered
into.
(q) "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) unless such day is otherwise designated
as a Trading Day in writing by the Holder.
(r) "VOTING STOCK" of a Person means capital stock of such Person of
the class or classes pursuant to which the holders thereof have the general
voting power to elect, or the general power to appoint, at least a majority of
the board of directors, managers or trustees of such Person (irrespective of
whether or not at the time capital stock of any other class or classes shall
have or might have voting power by reason of the happening of any contingency).
(s) "VWAP" means, for any security as of any date, the dollar
volume-weighted average price for such security on the Principal Market (or, if
the Principal Market is not the principal trading market for such security, then
on the principal securities exchange or securities market on which such security
is then traded) during the period beginning at 9:30:01 a.m., New York time, and
ending at 4:00:00 p.m., New York time, 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, and ending at 4:00:00 p.m., New York time, 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 "pink sheets" by Pink Sheets LLC
(formerly the National Quotation Bureau, Inc.). If VWAP cannot be calculated for
such security on such date on any of the foregoing bases, the VWAP 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
in accordance with the procedures in Section 13. All such determinations shall
be appropriately adjusted for any stock dividend, stock split, stock combination
or other similar transaction during such period.
[SIGNATURE PAGE FOLLOWS]
-19-
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.
IMAGING3, INC.
By: /s/ Dean Janes
_________________________________
Name: Dean Janes
Title: Chief Executive Officer
-20-
EXHIBIT A
EXERCISE NOTICE
TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS
WARRANT TO PURCHASE COMMON STOCK
IMAGING3, INC.
The undersigned holder hereby exercises the right to purchase
_________________ of the shares of Common Stock ("WARRANT SHARES") of Imaging3,
Inc., a California corporation (the "COMPANY"), evidenced by Series B Warrant
No. _______ (the "WARRANT"). Capitalized terms used herein and not otherwise
defined shall have the respective meanings set forth in the Warrant.
1. FORM OF EXERCISE PRICE. The Holder intends that payment of the
Exercise Price shall be made as:
____________ a "CASH EXERCISE" with respect to _________________
Warrant Shares; and/or
____________ a "CASHLESS EXERCISE" with respect to _______________
Warrant Shares.
In the event that the Holder has elected a Cashless Exercise with
respect to some or all of the Warrant Shares to be issued pursuant hereto, the
Holder hereby represents and warrants that (i) this Exercise Notice was executed
by the Holder at __________ [a.m.][p.m.] on the date set forth below and (ii) if
applicable, the Bid Price as of such time of execution of this Exercise Notice
was $________.
2. PAYMENT OF EXERCISE PRICE. In the event that the Holder has elected
a Cash Exercise with respect to some or all of the Warrant Shares to be issued
pursuant hereto, the Holder shall pay the Aggregate Exercise Price in the sum of
$___________________ to the Company in accordance with the terms of the Warrant.
3. DELIVERY OF WARRANT SHARES. The Company shall deliver to Holder, or
its designee or agent as specified below, __________ Warrant Shares in
accordance with the terms of the Warrant. Delivery shall be made to Holder, or
for its benefit, to the following address:
-----------------------
-----------------------
-----------------------
-----------------------
Date: _______________ __, ______
- --------------------------------
Name of Registered Holder
By:
-----------------------------------
Name:
Title:
EXHIBIT B
ACKNOWLEDGMENT
The Company hereby acknowledges this Exercise Notice and hereby directs
______________ to issue the above indicated number of shares of Common Stock in
accordance with the Transfer Agent Instructions dated _________, 20__, from the
Company and acknowledged and agreed to by _______________.
IMAGING3, INC.
By:________________________________
Name:
Title: