Exhibit 10.10
WARRANT
THE SECURITIES REPRESENTED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE
SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE,
SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL IN A FORM REASONABLY
SATISFACTORY TO THE ISSUER THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR
APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID
ACT. NOTWITHSTANDING THE FOREGOING, THIS WARRANT MAY BE PLEDGED IN CONNECTION
WITH A BONA FIDE MARGIN ACCOUNT.
CITY NETWORK, INC.
WARRANT TO PURCHASE COMMON STOCK
Warrant No.: HHF-001 Number of Shares: 25,000
Date of Issuance: August 17, 2005
City Network, Inc., a Nevada corporation (the "COMPANY"), hereby certifies that
for good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, Highgate House Funds, Ltd. ("Highgate"), the registered
holder hereof or its permitted assigns, is entitled, subject to the terms set
forth below, to purchase from the Company upon surrender of this Warrant, at any
time or times on or after the date hereof, but not after 11:59 P.M. Eastern Time
on the Expiration Date (as defined herein) Twenty Five Thousand (25,000) fully
paid and nonassessable shares of Common Stock (as defined herein) of the Company
(the "WARRANT SHARES") at the exercise price per share provided in Section 1(b)
below or as subsequently adjusted; provided, however, that in no event shall the
holder be entitled to exercise this Warrant for a number of Warrant Shares in
excess of that number of Warrant Shares which, upon giving effect to such
exercise, would cause the aggregate number of shares of Common Stock
beneficially owned by the holder and its affiliates to exceed 4.99% of the
outstanding shares of the Common Stock following such exercise, except within
sixty (60) days of the Expiration Date. For purposes of the foregoing proviso,
the aggregate number of shares of Common Stock beneficially owned by the holder
and its affiliates shall include the number of shares of Common Stock issuable
upon exercise of this Warrant with respect to which the determination of such
proviso is being made, but shall exclude shares of Common Stock which would be
issuable upon (i) exercise of the remaining, unexercised Warrants beneficially
owned by the holder and its affiliates and (ii) exercise or conversion of the
unexercised or unconverted portion of any other securities of the Company
beneficially owned by the holder and its affiliates (including, without
limitation, any convertible notes or preferred stock) subject to a limitation on
conversion or exercise analogous to the limitation contained herein. Except as
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set forth in the preceding sentence, for purposes of this paragraph, beneficial
ownership shall be calculated in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended. For purposes of this Warrant, in determining
the number of outstanding shares of Common Stock a holder may rely on the number
of outstanding shares of Common Stock as reflected in (1) the Company's most
recent Form 10-QSB or Form 10-KSB, as the case may be, (2) a more recent public
announcement by the Company or (3) any other notice by the Company or its
transfer agent setting forth the number of shares of Common Stock outstanding.
Upon the written request of any holder, the Company shall promptly, but in no
event later than one (1) Business Day following the receipt of such notice,
confirm in writing to any such 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 exercise of Warrants (as defined below)
by such holder and its affiliates since the date as of which such number of
outstanding shares of Common Stock was reported.
Section 1.
(a) This Warrant is the common stock purchase warrant (the "WARRANT")
issued pursuant to the Securities Purchase Agreement dated the date hereof by
and between the Company and Highgate.
(b) DEFINITIONS. The following words and terms as used in this Warrant
shall have the following meanings:
(i) "APPROVED STOCK PLAN" means any employee benefit plan which has
been approved by the Board of Directors of the Company, pursuant to which the
Company's securities may be issued to any employee, officer or director for
services provided to the Company.
(ii) "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.
(iii) "CLOSING BID PRICE" means the closing bid price of Common Stock
as quoted on the Principal Market (as reported by Bloomberg Financial Markets
("BLOOMBERG") through its "Volume at Price" function).
(iv) "COMMON STOCK" means (i) the Company's common stock, par value
$0.001 per share, and (ii) any capital stock into which such Common Stock shall
have been changed or any capital stock resulting from a reclassification of such
Common Stock.
(v) "CONVERTIBLE SECURITIES" shall mean any securities of the Company
convertible into Common Stock.
(vi) "EXCLUDED SECURITIES" means, provided such security is issued at a
price which is greater than or equal to the arithmetic average of the Closing
Bid Prices of the Common Stock for the ten (10) consecutive trading days
immediately preceding the date of issuance, any of the following: (a) any
issuance by the Company of securities in connection with a strategic partnership
or a joint venture (the primary purpose of which is not to raise equity
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capital), (b) any issuance by the Company of securities as consideration for a
merger or consolidation or the acquisition of a business, product, license, or
other assets of another person or entity and (c) options to purchase shares of
Common Stock, provided (I) such options are issued after the date of this
Warrant to employees of the Company within thirty (30) days of such employee's
starting his employment with the Company, and (II) the exercise price of such
options is not less than the Closing Bid Price of the Common Stock on the date
of issuance of such option.
(vii) "EXPIRATION DATE" means the date three (3) years from the
Issuance Date of this Warrant or, if such date falls on a Saturday, Sunday or
other day on which banks are required or authorized to be closed in the City of
New York or the State of New York or on which trading does not take place on the
Principal Exchange or automated quotation system on which the Common Stock is
traded (a "HOLIDAY"), the next date that is not a Holiday.
(viii) "ISSUANCE DATE" means the date hereof.
(ix) "OPTIONS" means any rights, warrants or options to subscribe for
or purchase Common Stock or Convertible Securities.
(x) "OTHER SECURITIES" means (i) those options and warrants of the
Company issued prior to, and outstanding on, the Issuance Date of this Warrant,
(ii) the shares of Common Stock issuable on exercise of such options and
warrants, provided such options and warrants are not amended after the Issuance
Date of this Warrant and (iii) the shares of Common Stock issuable upon exercise
of this Warrant.
(xi) "PERSON" means an individual, a limited liability company, a
partnership, a joint venture, a corporation, a trust, an unincorporated
organization and a government or any department or agency thereof.
(xii) "PRINCIPAL MARKET" means the New York Stock Exchange, the
American Stock Exchange, the Nasdaq National Market, the Nasdaq SmallCap Market,
whichever is at the time the principal trading exchange or market for such
security, or the over-the-counter market on the electronic bulletin board for
such security as reported by Bloomberg or, if no bid or sale information is
reported for such security by Bloomberg, then the average of the bid prices of
each of the market makers for such security as reported in the "pink sheets" by
the National Quotation Bureau, Inc.
(xiii) "SECURITIES ACT" means the Securities Act of 1933, as amended.
(xiv) "WARRANT" means this Warrant and all Warrants issued in exchange,
transfer or replacement thereof.
(xv) "WARRANT EXERCISE PRICE" shall be $0.001 or as subsequently
adjusted as provided in Section 8 hereof.
(xvi) "WARRANT SHARES" means the shares of Common Stock issuable at any
time upon exercise of this Warrant.
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(c) Other Definitional Provisions.
(i) Except as otherwise specified herein, all references herein (A) to
the Company shall be deemed to include the Company's successors and (B) to any
applicable law defined or referred to herein shall be deemed references to such
applicable law as the same may have been or may be amended or supplemented from
time to time.
(ii) When used in this Warrant, the words "HEREIN", "HEREOF", and
"HEREUNDER" and words of similar import, shall refer to this Warrant as a whole
and not to any provision of this Warrant, and the words "SECTION", "SCHEDULE",
and "EXHIBIT" shall refer to Sections of, and Schedules and Exhibits to, this
Warrant unless otherwise specified.
(iii) Whenever the context so requires, the neuter gender includes the
masculine or feminine, and the singular number includes the plural, and vice
versa.
Section 2. EXERCISE OF WARRANT. Subject to the terms and conditions hereof,
this Warrant may be exercised by the holder hereof then registered on the books
of the Company, pro rata as hereinafter provided, at any time on any Business
Day on or after the opening of business on such Business Day, commencing with
the first day after the date hereof, and prior to 11:59 P.M. Eastern Time on the
Expiration Date, by (i) delivery of a written notice, in the form of the
subscription notice attached as EXHIBIT A hereto (the "EXERCISE NOTICE"), of
such holder's election to exercise this Warrant, which notice shall specify the
number of Warrant Shares to be purchased, (ii) payment to the Company of an
amount equal to the Warrant Exercise Price(s) applicable to the Warrant Shares
being purchased, multiplied by the number of Warrant Shares (at the applicable
Warrant Exercise Price) as to which this Warrant is being exercised (plus any
applicable issue or transfer taxes) (the "AGGREGATE EXERCISE PRICE") in cash or
wire transfer of immediately available funds and (iii) the surrender of this
Warrant (or an indemnification undertaking with respect to this Warrant in the
case of its loss, theft or destruction) to a common carrier for overnight
delivery to the Company as soon as practicable following such date. In the event
of any exercise of the rights represented by this Warrant in compliance with
this Section 2, the Company shall on the fifth (5th) Business Day following the
date of receipt of the Exercise Notice, the Aggregate Exercise Price and this
Warrant (or an indemnification undertaking with respect to this Warrant in the
case of its loss, theft or destruction) and the receipt of the representations
of the holder specified in Section 6 hereof, if requested by the Company (the
"EXERCISE DELIVERY DOCUMENTS"), and if the Common Stock is DTC eligible credit
such aggregate number of shares of Common Stock to which the holder shall be
entitled to the holder's or its designee's balance account with The Depository
Trust Company; provided, however, if the holder who submitted the Exercise
Notice requested physical delivery of any or all of the Warrant Shares, or, if
the Common Stock is not DTC eligible then the Company shall, on or before the
fifth (5th) Business Day following receipt of the Exercise Delivery Documents,
issue and surrender to a common carrier for overnight delivery to the address
specified in the Exercise Notice, a certificate, registered in the name of the
holder, for the number of shares of Common Stock to which the holder shall be
entitled pursuant to such request. Upon delivery of the Exercise Notice and
Aggregate Exercise Price referred to in clause (ii) above the holder of this
Warrant 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. In the case of a dispute as to the determination of the Warrant
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Exercise Price, the Closing Bid Price or the arithmetic calculation of the
Warrant Shares, the Company shall promptly issue to the holder the number of
Warrant Shares that is not disputed and shall submit the disputed determinations
or arithmetic calculations to the holder via facsimile within one (1) Business
Day of receipt of the holder's Exercise Notice. If the holder and the Company
are unable to agree upon the determination of the Warrant Exercise Price or
arithmetic calculation of the Warrant Shares within one (1) day of such disputed
determination or arithmetic calculation being submitted to the holder, then the
Company shall immediately submit via facsimile (i) the disputed determination of
the Warrant Exercise Price or the Closing Bid Price to an independent, reputable
investment banking firm or (ii) the disputed arithmetic calculation of the
Warrant Shares to its independent, outside accountant. The Company shall cause
the investment banking firm 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 forty-eight (48) hours from the time it receives the
disputed determinations or calculations. Such investment banking firm's or
accountant's determination or calculation, as the case may be, shall be deemed
conclusive absent manifest error.
(a) Unless the rights represented by this Warrant shall have expired or
shall have been fully exercised, the Company shall, as soon as practicable and
in no event later than five (5) Business Days after any exercise and at its own
expense, issue a new Warrant identical in all respects to this Warrant exercised
except it shall represent rights to purchase the number of Warrant Shares
purchasable immediately prior to such exercise under this Warrant exercised,
less the number of Warrant Shares with respect to which such Warrant is
exercised.
(b) No fractional Warrant Shares are to be issued upon any pro rata
exercise of this Warrant, but rather the number of Warrant Shares issued upon
such exercise of this Warrant shall be rounded up or down to the nearest whole
number.
(c) If the Company or its Transfer Agent shall fail for any reason or for
no reason to issue to the holder within ten (10) days of receipt of the Exercise
Delivery Documents, a certificate for the number of Warrant Shares to which the
holder is entitled or to credit the holder's balance account with The Depository
Trust Company for such number of Warrant Shares to which the holder is entitled
upon the holder's exercise of this Warrant, the Company shall, in addition to
any other remedies under this Warrant or otherwise available to such holder, pay
as additional damages in cash to such holder on each day the issuance of such
certificate for Warrant Shares is not timely effected an amount equal to 0.025%
of the product of (A) the sum of the number of Warrant Shares not issued to the
holder on a timely basis and to which the holder is entitled, and (B) the
Closing Bid Price of the Common Stock for the trading day immediately preceding
the last possible date which the Company could have issued such Common Stock to
the holder without violating this Section 2.
(d) If within ten (10) days after the Company's receipt of the Exercise
Delivery Documents, the Company fails to deliver a new Warrant to the holder for
the number of Warrant Shares to which such holder is entitled pursuant to
Section 2 hereof, then, in addition to any other available remedies under this
Warrant, or otherwise available to such holder, the Company shall pay as
additional damages in cash to such holder on each day after such tenth (10th)
day that such delivery of such new Warrant is not timely effected in an amount
equal to 0.25% of the product of (A) the number of Warrant Shares represented by
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the portion of this Warrant which is not being exercised and (B) the Closing Bid
Price of the Common Stock for the trading day immediately preceding the last
possible date which the Company could have issued such Warrant to the holder
without violating this Section 2.
Section 3. COVENANTS AS TO COMMON STOCK. The Company hereby covenants and
agrees as follows:
(a) This Warrant is, and any Warrants issued in substitution for or
replacement of this Warrant will upon issuance be, duly authorized and validly
issued.
(b) All Warrant Shares which may be issued upon the exercise of the rights
represented by this Warrant will, upon issuance, be validly issued, fully paid
and nonassessable and free from all taxes, liens and charges with respect to the
issue thereof.
(c) During the period within which the rights represented by this Warrant
may be exercised, the Company will at all times have authorized and reserved at
least one hundred percent (100%) of the number of shares of Common Stock needed
to provide for the exercise of the rights then represented by this Warrant and
the par value of said shares will at all times be less than or equal to the
applicable Warrant Exercise Price. If at any time the Company does not have a
sufficient number of shares of Common Stock authorized and available, then the
Company shall call and hold a special meeting of its stockholders within sixty
(60) days of that time for the sole purpose of increasing the number of
authorized shares of Common Stock.
(d) If at any time after the date hereof the Company shall file a
registration statement, the Company shall include the Warrant Shares issuable to
the holder, pursuant to the terms of this Warrant and shall maintain, so long as
any other shares of Common Stock shall be so listed, such listing of all Warrant
Shares from time to time issuable upon the exercise of this Warrant; and the
Company shall so list on each national securities exchange or automated
quotation system, as the case may be, and shall maintain such listing of, any
other shares of capital stock of the Company issuable upon the exercise of this
Warrant if and so long as any shares of the same class shall be listed on such
national securities exchange or automated quotation system.
(e) The Company will not, by amendment of its Articles of Incorporation or
through any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities, or any other voluntary action, avoid
or seek to avoid the observance or performance of any of the terms to be
observed or performed by it hereunder, but will at all times in good faith
assist in the carrying out of all the provisions of this Warrant and in the
taking of all such action as may reasonably be requested by the holder of this
Warrant in order to protect the exercise privilege of the holder of this Warrant
against dilution or other impairment, consistent with the tenor and purpose of
this Warrant. The Company will not increase the par value of any shares of
Common Stock receivable upon the exercise of this Warrant above the Warrant
Exercise Price then in effect, and (ii) will 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.
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(f) This Warrant will be binding upon any entity succeeding to the Company
by merger, consolidation or acquisition of all or substantially all of the
Company's assets.
Section 4. TAXES. The Company shall pay any and all taxes, except any
applicable withholding, which may be payable with respect to the issuance and
delivery of Warrant Shares upon exercise of this Warrant.
Section 5. WARRANT HOLDER NOT DEEMED A STOCKHOLDER. Except as otherwise
specifically provided herein, no holder, as such, of this Warrant shall be
entitled to vote or receive dividends or be deemed the holder of shares of
capital stock of the Company for any purpose, nor shall anything contained in
this Warrant be construed to confer upon the holder hereof, as such, 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 this Warrant of the Warrant
Shares which he or she 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 such 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 5, the Company will provide the holder of
this Warrant 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.
Section 6. REPRESENTATIONS OF HOLDER. The holder of this Warrant, by the
acceptance hereof, represents that it is acquiring this Warrant and the Warrant
Shares for its own account for investment only and not with a view towards, or
for resale in connection with, the public sale or distribution of this Warrant
or the Warrant Shares, except pursuant to sales registered or exempted under the
Securities Act; provided, however, that by making the representations herein,
the holder does not agree to hold this Warrant or any of the Warrant Shares for
any minimum or other specific term and reserves the right to dispose of this
Warrant and the Warrant Shares at any time in accordance with or pursuant to a
registration statement or an exemption under the Securities Act. The holder of
this Warrant further represents, by acceptance hereof, that, as of this date,
such holder is an "accredited investor" as such term is defined in Rule
501(a)(1) of Regulation D promulgated by the Securities and Exchange Commission
under the Securities Act (an "ACCREDITED INVESTOR"). Upon exercise of this
Warrant the holder shall, if requested by the Company, confirm in writing, in a
form satisfactory to the Company, that the Warrant Shares so purchased are being
acquired solely for the holder's own account and not as a nominee for any other
party, for investment, and not with a view toward distribution or resale and
that such holder is an Accredited Investor. If such holder cannot make such
representations because they would be factually incorrect, it shall be a
condition to such holder's exercise of this Warrant that the Company receive
such other representations as the Company considers reasonably necessary to
assure the Company that the issuance of its securities upon exercise of this
Warrant shall not violate any United States or state securities laws.
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Section 7. OWNERSHIP AND TRANSFER.
(a) The Company shall maintain at its principal executive offices (or such
other office or agency of the Company as it may designate by notice to the
holder hereof), a register for this Warrant, in which the Company shall record
the name and address of the person in whose name this Warrant has been issued,
as well as the name and address of each transferee. The Company may treat the
person in whose name any Warrant is registered on the register as the owner and
holder thereof for all purposes, notwithstanding any notice to the contrary, but
in all events recognizing any transfers made in accordance with the terms of
this Warrant.
Section 8. ADJUSTMENT OF WARRANT EXERCISE PRICE AND NUMBER OF SHARES. The
Warrant Exercise Price and the number of shares of Common Stock issuable upon
exercise of this Warrant shall be adjusted from time to time as follows:
(a) ADJUSTMENT OF WARRANT EXERCISE PRICE AND NUMBER OF SHARES UPON ISSUANCE
OF COMMON STOCK. If and whenever on or after the Issuance Date of this Warrant,
the Company issues or sells, or is deemed to have issued or sold, any shares of
Common Stock (other than (i) Excluded Securities and (ii) shares of Common Stock
which are issued or deemed to have been issued by the Company in connection with
an Approved Stock Plan or upon exercise or conversion of the Other Securities)
for a consideration per share less than the current market price at the time of
such issuance (the "APPLICABLE PRICE"), then the Warrant Exercise Price shall be
adjusted immediately thereafter so that it shall equal the price determined by
multiplying the Warrant Exercise Price in effect immediately prior thereto by a
fraction, the numerator of which shall be the sum of the number of shares of
Common Stock outstanding immediately prior to the issuance of such additional
shares and the number of shares of Common Stock which the aggregate
consideration received for the issuance of such additional shares would purchase
at such current market price per share of Common Stock, and the denominator of
which shall be the number of shares of Common Stock outstanding immediately
after the issuance of such additional shares. Upon each adjustment of the
Warrant Exercise Price pursuant to this Section 8(a), the Warrant outstanding
prior to the making of the adjustment in the Exercise Price shall thereafter
evidence the right to receive upon payment of the Warrant Exercise Price that
number of shares of Common Stock (calculated to the nearest hundredth) obtained
from the following formula:
N' = N x E/E'
where:
N' = the adjusted number of Warrant Shares issuable upon exercise of a
Warrant by payment of the adjusted Exercise Price.
N = the number of Warrant Shares previously issuable upon exercise of a
Warrant by payment of the Exercise Price prior to adjustment.
E' = the adjusted Exercise Price.
E = the Exercise Price prior to adjustment.
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(b) EFFECT ON WARRANT EXERCISE PRICE OF CERTAIN EVENTS. For purposes of
determining the adjusted Warrant Exercise Price under Section 8(a) above, the
following shall be applicable:
(i) ISSUANCE OF OPTIONS. If after the date hereof, the Company in any
manner grants any Options and the lowest price per share for which one share of
Common Stock is issuable upon the exercise of any such Option or upon conversion
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 8(b)(i), the lowest price per share for which one share
of Common Stock is issuable upon exercise of such Options or upon conversion or
exchange of such Convertible Securities shall be equal to the sum of the lowest
amounts of consideration (if any) received or receivable by the Company with
respect to any one share of Common Stock upon the granting or sale of the
Option, upon exercise of the Option or upon conversion or exchange of any
convertible security issuable upon exercise of such Option. No further
adjustment of the Warrant Exercise Price shall be made upon the actual issuance
of such Common Stock or of such Convertible Securities upon the exercise of such
Options or upon the actual issuance of such Common Stock upon conversion 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 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 8(b) (ii), the lowest price per
share for which one share of Common Stock is issuable upon such conversion or
exchange shall be equal to the sum of the lowest amounts of consideration (if
any) received or receivable by the Company with respect to one share of Common
Stock upon the issuance or sale of the convertible security and upon conversion
or exchange of such convertible security. No further adjustment of the Warrant
Exercise Price shall be made upon the actual issuance of such Common Stock upon
conversion 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 the Warrant Exercise Price had been or are to be made
pursuant to other provisions of this Section 8(b), no further adjustment of the
Warrant 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 or exchange of any Convertible Securities, or the
rate at which any Convertible Securities are convertible into or exchangeable
for Common Stock changes at any time, the Warrant Exercise Price in effect at
the time of such change shall be adjusted to the Warrant Exercise Price which
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would have been in effect at such time had such Options or Convertible
Securities provided for such changed purchase price, additional consideration or
changed conversion rate, as the case may be, at the time initially granted,
issued or sold and the number of Warrant Shares issuable upon exercise of this
Warrant shall be correspondingly readjusted. For purposes of this Section
8(b)(iii), if the terms of any Option or convertible security that was
outstanding as of the Issuance Date of this Warrant are changed in the manner
described in the immediately preceding sentence, then such Option or convertible
security and the Common Stock deemed issuable upon exercise, conversion or
exchange thereof shall be deemed to have been issued as of the date of such
change. No adjustment pursuant to this Section 8(b) shall be made if such
adjustment would result in an increase of the Warrant Exercise Price then in
effect.
(c) EFFECT ON WARRANT EXERCISE PRICE OF CERTAIN EVENTS. For purposes of
determining the adjusted Warrant Exercise Price under Sections 8(a) and 8(b),
the following shall be applicable:
(i) CALCULATION OF CONSIDERATION RECEIVED. If any Common Stock, Options
or Convertible Securities are issued or sold or deemed to have been issued or
sold for cash, the consideration received thereof will be the gross sales price.
If any 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 marketable securities, in which case the amount of
consideration received by the Company will be the market price of such
securities on the date of receipt of such securities. If any 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 therefore 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 Common Stock, Options or Convertible Securities, as
the case may be. The fair value of any consideration other than cash or
securities will be determined jointly by the Company and the holders of Warrants
representing at least two-thirds (b) of the Warrant Shares issuable upon
exercise of the Warrants then outstanding. 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 holders of Warrants representing at least two-thirds (b) of
the Warrant Shares issuable upon exercise of the Warrants then outstanding. The
determination of such appraiser shall be final and binding upon all parties and
the fees and expenses of such appraiser shall be borne jointly by the Company
and the holders of Warrants.
(ii) INTEGRATED TRANSACTIONS. In case any Option is issued in
connection with the issue or sale of other securities of the Company, together
comprising one integrated transaction in which no specific consideration is
allocated to such Options by the parties thereto, the Options will be deemed to
have been issued for a consideration of $.01.
(iii) TREASURY SHARES. The number of shares of Common Stock outstanding
at any given time does not include shares owned or held by or for the account of
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the Company, and the disposition of any shares so owned or held will be
considered an issue or sale of Common Stock.
(iv) RECORD DATE. If the Company takes a record of the holders of
Common Stock for the purpose of entitling them (1) to receive a dividend or
other distribution payable in Common Stock, Options or in Convertible Securities
or (2) to subscribe for or purchase 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.
(d) ADJUSTMENT OF WARRANT EXERCISE PRICE UPON SUBDIVISION OR COMBINATION OF
COMMON STOCK. If the Company at any time after the date of issuance of this
Warrant 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, any Warrant Exercise Price in effect immediately prior
to such subdivision will be proportionately reduced and the number of shares of
Common Stock obtainable upon exercise of this Warrant will be proportionately
increased; provided that the Warrant Exercise Price shall not be reduced below
the par value of the Common Stock. If the Company at any time after the date of
issuance of this Warrant 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, any Warrant Exercise Price in effect immediately prior
to such combination will be proportionately increased and the number of Warrant
Shares issuable upon exercise of this Warrant will be proportionately decreased.
Any adjustment under this Section 8(d) shall become effective at the close of
business on the date the subdivision or combination becomes effective.
(e) 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 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 or other similar transaction) (a "Distribution"), at any time
after the issuance of this Warrant, then, in each such case: any Warrant
Exercise Price in effect immediately prior to the close of business on the
record date fixed for the determination of holders of Common Stock entitled to
receive the Distribution shall be reduced, effective as of the close of business
on such record date, to a price determined by multiplying such Warrant Exercise
Price by a fraction of which (A) the numerator shall be the Closing Sale Price
of the Common Stock on the trading day immediately preceding such record date
minus the value of the Distribution (as determined in good faith by the
Company's Board of Directors) applicable to one share of Common Stock, and (B)
the denominator shall be the Closing Sale Price of the Common Stock on the
trading day immediately preceding such record date; provided that the Warrant
Exercise Price shall not be reduced below the par value of the Common Stock.
(f) CERTAIN EVENTS. If any event occurs of the type contemplated by the
provisions of this Section 8 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 Warrant Exercise
Price and the number of shares of Common Stock obtainable upon exercise of this
11
Warrant so as to protect the rights of the holders of the Warrants; provided,
except as set forth in section 8(d), that no such adjustment pursuant to this
Section 8(f) will increase the Warrant Exercise Price or decrease the number of
shares of Common Stock obtainable as otherwise determined pursuant to this
Section 8; provided that the Warrant Exercise Price shall not be reduced below
the par value of the Common Stock.
(g) NOTICES.
(i) Immediately upon any adjustment of the Warrant Exercise Price, the
Company will give written notice thereof to the holder of this Warrant, setting
forth in reasonable detail, and certifying, the calculation of such adjustment.
(ii) The Company will give written notice to the holder of this Warrant
at least ten (10) 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
Common Stock, (B) with respect to any pro rata subscription offer to holders of
Common Stock or (C) for determining rights to vote with respect to any Organic
Change (as defined below), dissolution or liquidation, provided that such
information shall be made known to the public prior to or in conjunction with
such notice being provided to such holder.
(iii) The Company will also give written notice to the holder of this
Warrant at least ten (10) days prior to the date on which any Organic Change (as
defined below), dissolution or liquidation will take place, provided that such
information shall be made known to the public prior to or in conjunction with
such notice being provided to such holder.
(h) Limitations. Notwithstanding the above provisions of this Section 8,
the number of shares of Common Stock issuable upon exercise of this Warrant
shall in no event be increased to an amount such that the Total Transaction
Shares shall be equal to or greater than 5,500,000 shares, until the holders of
Common Stock approve the issuance of the Total Transaction Shares. "Total
Transaction Shares" shall mean, in the aggregate, the shares of Common Stock
issued to Highgate or its affiliates, and transferees, subsequent transferees,
or any other party pursuant to the Securities Purchase Agreement of even date
herewith among the Company and Highgate, the Pledge and Escrow Agreement of even
date herewith between the Company and Highgate (the "Pledge Agreement"), and the
Placement Agent Agreement dated as of even date herewith between the Company and
Monitor Capital, Inc., together with the Warrant Shares, shares of Common Stock
issued as Liquidated Damages (as defined in the Investor Registration Rights
Agreement dated as of the date herewith between the Company and Highgate), and
the Initial Investor's Shares (as defined in the Standby Equity Distribution
Agreement dated as of even date herewith between Cornell Capital Partners, LP
and the Company).
Section 9. PURCHASE RIGHTS; REORGANIZATION, RECLASSIFICATION,
CONSOLIDATION, MERGER OR SALE.
(a) In addition to any adjustments pursuant to Section 8 above, if at any
time the Company grants, issues or sells any Options, Convertible Securities or
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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 upon
the exercise of this Warrant the holder of this Warrant will be entitled to
acquire, upon the terms applicable to such Purchase Rights, the aggregate
Purchase Rights which such holder could have acquired if such holder had held
the number of shares of Common Stock acquired pursuant to such exercise
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 Common Stock are to be determined for the grant,
issue or sale of such Purchase Rights.
(b) Any recapitalization, reorganization, reclassification, consolidation,
merger, sale of all or substantially all of the Company's assets to another
Person or other transaction in each case which is effected in such a way that
holders of Common Stock are entitled to receive (either directly or upon
subsequent liquidation) stock, securities or assets with respect to or in
exchange for Common Stock is referred to herein as an "ORGANIC CHANGE." Prior to
the consummation of any (i) sale of all or substantially all of the Company's
assets to an acquiring Person or (ii) other Organic Change following which the
Company is not a surviving entity, the Company will secure from the Person
purchasing such assets or the successor resulting from such Organic Change (in
each case, the "ACQUIRING ENTITY") a written agreement (in form and substance
satisfactory to the holders of Warrants representing at least two-thirds (iii)
of the Warrant Shares issuable upon exercise of the Warrants then outstanding)
to deliver to each holder of Warrants in exchange for such Warrants, a security
of the Acquiring Entity evidenced by a written instrument substantially similar
in form and substance to this Warrant and satisfactory to the holders of the
Warrants (including an adjusted warrant exercise price equal to the value for
the Common Stock reflected by the terms of such consolidation, merger or sale,
and exercisable for a corresponding number of shares of Common Stock acquirable
and receivable upon exercise of the Warrants without regard to any limitations
on exercise, if the value so reflected is less than any Applicable Warrant
Exercise Price immediately prior to such consolidation, merger or sale). Prior
to the consummation of any other Organic Change, the Company shall make
appropriate provision (in form and substance satisfactory to the holders of
Warrants representing a majority of the Warrant Shares issuable upon exercise of
the Warrants then outstanding) to insure that each of the holders of the
Warrants will thereafter have the right to acquire and receive in lieu of or in
addition to (as the case may be) the Warrant Shares immediately theretofore
issuable and receivable upon the exercise of such holder's Warrants (without
regard to any limitations on exercise), such shares of stock, securities or
assets that would have been issued or payable in such Organic Change with
respect to or in exchange for the number of Warrant Shares which would have been
issuable and receivable upon the exercise of such holder's Warrant as of the
date of such Organic Change (without taking into account any limitations or
restrictions on the exercisability of this Warrant).
Section 10. LOST, STOLEN, MUTILATED OR DESTROYED WARRANT. If this Warrant
is lost, stolen, mutilated or destroyed, the Company shall promptly, on receipt
of an indemnification undertaking (or, in the case of a mutilated Warrant, the
Warrant), issue a new Warrant of like denomination and tenor as this Warrant so
lost, stolen, mutilated or destroyed.
Section 11. NOTICE. Any notices, consents, waivers, or other communications
required or permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been delivered (i) upon receipt, when
delivered personally or by a nationally recognized overnight or world wide
13
courier; (ii) upon confirmation of receipt, when sent by facsimile; or (iii) ten
(10) days after being sent by U.S. certified mail, return receipt requested, in
each case properly addressed to the party to receive the same. The addresses and
facsimile numbers for such communications shall be::
If to Highgate: Highgate House Funds, Ltd.
101 Hudson Street - Suite 3700
Jersey City, NJ 07302
Attention: Mark A. Angelo
Telephone: (201) 985-8300
Facsimile: (201) 985-8266
With Copy to: David Gonzalez, Esq.
101 Hudson Street - Suite 3700
Jersey City, NJ 07302
Telephone: (201) 985-8300
Facsimile: (201) 985-8266
If to the Company, to: City Network, Inc
6F-3, No.16, Jian Ba Road
Jhonghe City, Taipei County, 235
Taiwan, ROC F5 235
Attention: Mr Tiao-Tsan Lai
Telephone: 886-2-8226-5566
Facsimile: 886-2-8226-8585
With a copy to: Loeb & Loeb, LLP
345 Park Avenue
New York, NY 10154-0037
Attention: Mitchell Nussbaum, Esq.
Telephone: (212) 407-4159
Facsimile: (212) 407-4990
Each party shall provide five days' prior written notice to the other party of
any change in address or facsimile number. Written confirmation of receipt (A)
given by the recipient of such notice, consent, facsimile, waiver or other
communication, (or (B) provided by a nationally recognized overnight delivery
service shall be rebuttable evidence of personal service, receipt by facsimile
or receipt from a nationally recognized overnight delivery service in accordance
with clause (i), (ii) or (iii) above, respectively.
Section 12. DATE. The date of this Warrant is set forth on page 1 hereof.
This Warrant, in all events, shall be wholly void and of no effect after the
close of business on the Expiration Date, except that notwithstanding any other
provisions hereof, the provisions of Section 8(b) shall continue in full force
and effect after such date as to any Warrant Shares or other securities issued
upon the exercise of this Warrant.
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Section 13. AMENDMENT AND WAIVER. Except as otherwise provided herein, the
provisions of the Warrants 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 holders of
Warrants representing at least two-thirds of the Warrant Shares issuable upon
exercise of the Warrants then outstanding; provided that, except for Section
8(d), no such action may increase the Warrant Exercise Price or decrease the
number of shares or class of stock obtainable upon exercise of any Warrant
without the written consent of the holder of such Warrant.
Section 14. DESCRIPTIVE HEADINGS; GOVERNING LAW. The descriptive headings
of the several sections and paragraphs of this Warrant are inserted for
convenience only and do not constitute a part of this Warrant. The corporate
laws of the State of Nevada shall govern all issues concerning the relative
rights of the Company and its stockholders. All other questions concerning the
construction, validity, enforcement and interpretation of this Agreement shall
be governed by the internal laws of the State of New Jersey, without giving
effect to any choice of law or conflict of law provision or rule (whether of the
State of New Jersey or any other jurisdictions) that would cause the application
of the laws of any jurisdictions other than the State of New Jersey. Each party
hereby irrevocably submits to the exclusive jurisdiction of the state and
federal courts sitting in Hudson County and the United States District Court for
the District of New Jersey, for the adjudication of any dispute hereunder or in
connection herewith or therewith, 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. Each party 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 such party at the address for such notices to it under
this 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.
Section 15. WAIVER OF JURY TRIAL. AS A MATERIAL INDUCEMENT FOR EACH PARTY
HERETO TO ENTER INTO THIS WARRANT, THE PARTIES HERETO HEREBY WAIVE ANY RIGHT TO
TRIAL BY JURY IN ANY LEGAL PROCEEDING RELATED IN ANY WAY TO THIS WARRANT AND/OR
ANY AND ALL OF THE OTHER DOCUMENTS ASSOCIATED WITH THIS TRANSACTION.
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IN WITNESS WHEREOF, the Company has caused this Warrant to be signed as of
the date first set forth above.
CITY NETWORK, INC.
By: /s/ Tiao-Tsan Lai
------------------------------
Name: Mr Tiao-Tsan Lai
Title: Chief Executive Officer
16
EXHIBIT A TO WARRANT
EXERCISE NOTICE
TO BE EXECUTED
BY THE REGISTERED HOLDER TO EXERCISE THIS WARRANT
CITY NETWORK, INC.
The undersigned holder hereby exercises the right to purchase
______________ of the shares of Common Stock ("WARRANT SHARES") of City Network,
Inc., a Nevada corporation (the "COMPANY"), evidenced by the attached Warrant
(the "WARRANT"). Capitalized terms used herein and not otherwise defined shall
have the respective meanings set forth in the Warrant.
1. FORM OF WARRANT EXERCISE PRICE. The Holder intends that payment of the
Warrant Exercise Price shall be made on a cash basis with respect to
______________ Warrant Shares.
2. PAYMENT OF WARRANT EXERCISE PRICE. The holder shall pay 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:
17