NEITHER THIS WARRANT NOR ISSUANCE OF THE SECURITIES ISSUABLE UPON THE EXERCISE
HEREOF TO THE HOLDER HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR
QUALIFIED OR REGISTERED UNDER STATE SECURITIES OR BLUE SKY LAWS. NEITHER THIS
WARRANT NOR SUCH SECURITIES MAY BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED
OR OTHERWISE TRANSFERRED OR DISPOSED OF EXCEPT IN COMPLIANCE WITH THE SECURITIES
ACT OF 1933, APPLICABLE STATE SECURITIES OR BLUE SKY LAWS AND THE APPLICABLE
RULES AND REGULATIONS THEREUNDER.
THIS WARRANT MAY NOT BE TRANSFERRED EXCEPT AS PROVIDED IN SECTION 24.
No.W-1 Right to Purchase 708,333 Shares of
Common Stock of Dwango North
America Corp.
DWANGO NORTH AMERICA CORP.
COMMON STOCK PURCHASE WARRANT
DWANGO NORTH AMERICA CORP., a Nevada corporation, hereby
certifies that, for value received, ALEXANDRA GLOBAL MASTER FUND LTD. or
registered assigns (the "Holder"), is entitled, subject to the terms set forth
below, to purchase from the Company at any time or from time to time before 5:00
p.m., New York City time, on the Expiration Date (such capitalized term and all
other capitalized terms used herein having the respective meanings provided
herein), 708,333 fully paid and nonassessable shares of Common Stock at a
purchase price per share equal to the Purchase Price. The number of such shares
of Common Stock and the Purchase Price are subject to adjustment as provided in
this Warrant.
As used herein the following capitalized terms, unless the
context otherwise requires, have the following respective meanings:
"Advance Shares" shall have the meaning provided in the Notes.
"Advance Warrants" shall have the meaning provided in the
Notes.
"Aggregate Purchase Price" means at any time an amount equal
to the product obtained by multiplying (x) the Purchase Price TIMES (y)
the number of shares of Common Stock for which this Warrant may be
exercised at such time.
"Aggregation Parties" shall have the meaning provided in
Section 1(c).
"AMEX" means the American Stock Exchange, Inc.
"Board of Directors" means the Board of Directors of the
Company.
"Business Day" means any day other than a Saturday, Sunday or
other day on which commercial banks in The City of New York are
authorized or required by law or executive order to remain closed.
"Common Stock" includes the Company's Common Stock, par value
$.001 per share, (and any purchase rights issued with respect to the
Common Stock in the future) as authorized on the date hereof, and any
other securities into which or for which the Common Stock (and any such
rights issued with respect to the Common Stock) may be converted or
exchanged pursuant to a plan of recapitalization, reorganization,
merger, sale of assets or otherwise and any stock (other than Common
Stock) and other securities of the Company or any other Person which
the Holder at any time shall be entitled to receive, or shall have
received, on the exercise of this Warrant, in lieu of or in addition to
Common Stock.
"Common Stock Equivalents" means any warrant, option,
subscription or purchase right with respect to shares of Common Stock,
any security convertible into, exchangeable for, or otherwise entitling
the holder thereof to acquire, shares of Common Stock or any warrant,
option, subscription or purchase right with respect to any such
convertible, exchangeable or other security.
"Company" shall include Dwango North America Corp., a Nevada
corporation, and any corporation that shall succeed to or assume the
obligations of Dwango North America Corp. hereunder in accordance with
the terms hereof.
"Current Fair Market Value" means when used with respect to
the Common Stock as of a specified date with respect to each share of
Common Stock, the average of the closing prices of the Common Stock
sold on all securities exchanges (including the Nasdaq and the Nasdaq
SmallCap) on which the Common Stock may at the time be listed, or, if
there have been no
-2-
sales on any such exchange on such day, the average of the highest bid
and lowest asked prices on all such exchanges at the end of such day,
or, if on such day the Common Stock is not so listed, the average of
the representative bid and asked prices quoted in the NASDAQ System as
of 4:00 p.m., New York City time, or, if on such day the Common Stock
is not quoted in the NASDAQ System, the average of the highest bid and
lowest asked price on such day in the domestic over-the-counter market
as reported by the National Quotation Bureau, Incorporated, or any
similar successor organization, in each such case averaged over a
period of five Trading Days consisting of the day as of which the
Current Fair Market Value of Common Stock is being determined (or if
such day is not a Trading Day, the Trading Day next preceding such day)
and the four consecutive Trading Days prior to such day. If on the date
for which Current Fair Market Value is to be determined the Common
Stock is not listed on any securities exchange or quoted in the NASDAQ
System or the over-the-counter market, the Current Fair Market Value of
Common Stock shall be the highest price per share which the Company
could then obtain from a willing buyer (not an employee or director of
the Company at the time of determination) in an arms'-length
transaction for shares of Common Stock sold by the Company, from
authorized but unissued shares, as determined in good faith by the
Board of Directors.
"Excluded Shares" shall have the meaning provided in Section
1(c).
"Expiration Date" means January 8, 2008.
"Issuance Date" means the date of original issuance of this
Warrant.
"Nasdaq" means the Nasdaq National Market.
"Nasdaq SmallCap" means the Nasdaq SmallCap Market.
"1934 Act" means the Securities Exchange Act of 1934, as
amended.
"1933 Act" means the Securities Act of 1933, as amended.
"Note Purchase Agreement" means the Note Purchase Agreement,
dated as of January 8, 2004, by and between the Company and the
original Holder of this Warrant.
"Notes" means any of the 9% Senior Convertible Notes due 2007
issued by the Company pursuant to the Note Purchase Agreement and the
Other Notes, if any.
"NYSE" means the New York Stock Exchange, Inc.
-3-
"Other Notes" shall have the meaning provided in the Notes.
"Other Securities" means any stock (other than Common Stock)
and other securities of the Company or any other Person which the
Holder at any time shall be entitled to receive, or shall have
received, on the exercise of this Warrant, in lieu of or in addition to
Common Stock, or which at any time shall be issuable or shall have been
issued in exchange for or in replacement of Common Stock or Other
Securities pursuant to Section 4.
"Other Warrants" means the Common Stock Purchase Warrants
(other than this Warrant) issued or issuable by the Company pursuant to
the Note Purchase Agreement and issued or issuable by the Company in
connection with the Other Notes, if any.
"Person" means an individual, partnership, corporation,
limited liability company, trust, unincorporated organization, business
trust, association, joint stock company, joint venture, pool,
syndicate, sole proprietorship, governmental agency or any other form
of entity not specifically listed herein.
"Placement Agent Warrants" shall have the meaning provided in
the Notes.
"Purchase Price" means $1.20, subject to adjustment as
provided in this Warrant.
"QIB" means a "qualified institutional buyer" as defined in
Rule 144A.
"Registration Period" shall have the meaning provided in the
Note Purchase Agreement.
"Registration Statement" shall have the meaning provided in
the Note Purchase Agreement.
"Restricted Ownership Percentage" shall have the meaning
provided in Section 1(c).
"Restricted Securities" means securities that are not eligible
for resale pursuant to Rule 144(k) under the 1933 Act (or any successor
provision).
"Reorganization Event" means the occurrence of any one or more
of the following events:
(i) any consolidation, merger or similar transaction of the
Company or any Subsidiary with or into another entity (other than a
merger or
-4-
consolidation or similar transaction of a Subsidiary into the Company
or a wholly-owned Subsidiary); or the sale or transfer of all or
substantially all of the assets of the Company and the Subsidiaries in
a single transaction or a series of related transactions; or
(ii) the occurrence of any transaction or event in connection
with which all or substantially all the Common Stock shall be exchanged
for, converted into, acquired for or constitute the right to receive
securities of any other Person (whether by means of a Tender Offer,
liquidation, consolidation, merger, share exchange, combination,
reclassification, recapitalization, or otherwise); or
(iii) the acquisition by a Person or group of Persons acting
in concert as a partnership, limited partnership, syndicate or group,
as a result of a tender or exchange offer, open market purchases,
privately negotiated purchases or otherwise, of beneficial ownership of
securities of the Company representing 50% or more of the combined
voting power of the outstanding voting securities of the Company
ordinarily (and apart from rights accruing in special circumstances)
having the right to vote in the election of directors.
"Rule 144A" means Rule 144A as promulgated under the 1933 Act.
"SEC" means the Securities and Exchange Commission.
"SEC Effective Date" shall have the meaning provided in the
Note Purchase Agreement.
"Subsidiary" means any corporation or other entity of which a
majority of the capital stock or other ownership interests having
ordinary voting power to elect a majority of the board of directors or
other Persons performing similar functions are at the time directly or
indirectly owned by the Company.
"Tender Offer" means a tender offer, exchange offer or other
offer by the Company to repurchase outstanding shares of its capital
stock.
"Trading Day" means at any time a day on which any of a
national securities exchange, Nasdaq or such other securities market as
at such time constitutes the principal securities market for the Common
Stock is open for general trading of securities.
"Warrant Shares" means the shares of Common Stock issuable
upon exercise of this Warrant.
1. EXERCISE OF WARRANT.
-5-
(A) EXERCISE. This Warrant may be exercised by the Holder in
whole at any time or in part from time to time on or before the Expiration Date
by (x) surrendering this Warrant to the Company, (y) giving a subscription form
in the form of EXHIBIT 1 to this Warrant (duly executed by the Holder) to the
Company, and (z) making payment, in cash or by certified or official bank check
payable to the order of the Company, or by wire transfer of funds to the account
of the Company, in any such case, in the amount obtained by multiplying (a) the
number of shares of Common Stock designated by the Holder in the subscription
form by (b) the Purchase Price then in effect. On any partial exercise the
Company will forthwith issue and deliver to or upon the order of the Holder a
new Warrant or Warrants of like tenor, in the name of the Holder or as the
Holder (upon payment by the Holder of any applicable transfer taxes) may
request, providing in the aggregate on the face or faces thereof for the
purchase of the number of shares of Common Stock for which such Warrant or
Warrants may still be exercised. The subscription form may be surrendered by
telephone line facsimile transmission to such telephone number for the Company
as shall have been specified in writing to the Holder by the Company; PROVIDED,
HOWEVER, that if the subscription form is given to the Company by telephone line
facsimile transmission the Holder shall send an original of such subscription
form to the Company within ten Business Days after such subscription form is so
given to the Company; PROVIDED FURTHER, HOWEVER, that any failure or delay on
the part of the Holder in giving such original of any subscription form shall
not affect the validity or the date on which such subscription form is so given
by telephone line facsimile transmission.
(B) NET EXERCISE. The Holder may elect to exercise this
Warrant, in whole at any time or in part from time to time, by receiving shares
of Common Stock equal to the net issuance value (as determined below) of this
Warrant, or any part hereof, upon surrender of the subscription form annexed
hereto (duly executed by the Holder) to the Company (followed by surrender of
this Warrant to the Company within three Trading Days after surrender of such
subscription form), in which event the Company shall issue to the Holder a
number of shares of Common Stock computed using the following formula:
X = Y x (A - B)
-----------
A
where,
X = the number of shares of Common Stock to be issued to
the Holder
Y = the number of shares of Common Stock as to which this
Warrant is to be exercised
-6-
A = the Current Fair Market Value of one share of
Common Stock calculated as of the last Trading Day
immediately preceding the exercise of this Warrant
B = the Purchase Price
(C) 9.9% LIMITATION. (1) Notwithstanding anything to the
contrary contained herein, the number of shares of Common Stock that may be
acquired by the Holder upon exercise pursuant to the terms hereof at any time
shall not exceed a number that, when added to the total number of shares of
Common Stock deemed beneficially owned by the Holder (other than by virtue of
the ownership of securities or rights to acquire securities that have
limitations on the Holder's right to convert, exercise or purchase similar to
the limitation set forth herein (the "Excluded Shares"), together with all
shares of Common Stock deemed beneficially owned at such time (other than by
virtue of the ownership of the Excluded Shares) by Persons whose beneficial
ownership of Common Stock would be aggregated with the beneficial ownership by
the Holder for purposes of determining whether a group exists or for purposes of
determining the Holder's beneficial ownership (the "Aggregation Parties"), in
either such case for purposes of Section 13(d) of the 1934 Act and Regulation
13D-G thereunder (including, without limitation, as the same is made applicable
to Section 16 of the 1934 Act and the rules promulgated thereunder), would
result in beneficial ownership by the Holder or such group of more than 9.9% of
the shares of Common Stock for purposes of Section 13(d) or Section 16 of the
1934 Act and the rules promulgated thereunder (as the same may be modified by
the Holder as provided herein, the "Restricted Ownership Percentage"). The
Holder shall have the right at any time and from time to time to reduce its
Restricted Ownership Percentage immediately upon notice to the Company in the
event and only to the extent that Section 16 of the 1934 Act or the rules
promulgated thereunder (or any successor statute or rules) is changed to reduce
the beneficial ownership percentage threshold thereunder to a percentage less
than 9.9%. If at any time the limits in this Section 1(c) make this Warrant
unexercisable in whole or in part, the Company shall not by reason thereof be
relieved of its obligation to issue shares of Common Stock at any time or from
time to time thereafter upon exercise of this Warrant as and when shares of
Common Stock may be issued in compliance with such restrictions.
(2) For purposes of this Section 1(c), in determining the
number of outstanding shares of Common Stock at any time the Holder may rely on
the number of outstanding shares of Common Stock as reflected in (1) the
Company's then most recent Form 10-Q, Form 10-K or other public filing with the
SEC, as the case may be, (2) a public announcement by the Company that is later
than any such filing referred to in the preceding clause (1) or (3) any other
notice by the Company or its transfer agent setting forth the number shares of
Common Stock outstanding and knowledge the Holder may have about the number of
shares of Common Stock issued upon conversion or exercise of Common Stock
Equivalents by any Person,
-7-
including the Holder, which are not reflected in the preceding clauses (1)
through (3). Upon the written request of the Holder, the Company shall within
three Business Days confirm in writing to the Holder the number of shares of
Common Stock then outstanding. In any case, the number of outstanding shares of
Common Stock shall be determined after giving effect to the conversion or
exercise of Common Stock Equivalents, including the Notes and the Warrants, by
the Holder or its affiliates, in each such case subsequent to, the date as of
which such number of outstanding shares of Common Stock was reported.
2. DELIVERY OF STOCK CERTIFICATES, ETC., ON EXERCISE. As soon
as practicable after the exercise of this Warrant and in any event within five
Trading Days thereafter, upon the terms and subject to the conditions of this
Warrant, the Company at its expense (including the payment by it of any
applicable issue or stamp taxes) will cause to be issued in the name of and
delivered to the Holder, or as the Holder (upon payment by the Holder of any
applicable transfer taxes) may direct, a certificate or certificates for the
number of fully paid and nonassessable shares of Common Stock (or Other
Securities) to which the Holder shall be entitled on such exercise, in such
denominations as may be requested by the Holder, plus, in lieu of any fractional
share to which the Holder would otherwise be entitled, cash equal to such
fraction multiplied by the then Current Fair Market Value of one full share,
together with any other stock or Other Securities or any property (including
cash, where applicable) to which the Holder is entitled upon such exercise
pursuant to Section 1 or otherwise. The Company shall pay any taxes and other
governmental charges that may be imposed under the laws of the United States of
America or any political subdivision or taxing authority thereof or therein in
respect of the issue or delivery of shares of Common Stock (or Other Securities)
or payment of cash upon exercise of this Warrant (other than income taxes
imposed on the Holder). The Company shall not be required, however, to pay any
tax or other charge imposed in connection with any transfer involved in the
issue of any certificate for shares of Common Stock (or Other Securities)
issuable upon exercise of this Warrant or payment of cash to any Person other
than the Holder, and in case of such transfer or payment the Company shall not
be required to deliver any certificate for shares of Common Stock (or Other
Securities) upon such exercise or pay any cash until such tax or charge has been
paid or it has been established to the Company's reasonable satisfaction that no
such tax or charge is due. Upon exercise of this Warrant as provided herein, the
Company's obligation to issue and deliver the certificates for Common Stock
shall be absolute and unconditional, irrespective of the absence of any action
by the Holder to enforce the same, any waiver or consent with respect to any
provision hereof, the recovery of any judgment against any Person or any action
to enforce the same, any failure or delay in the enforcement of any other
obligation of the Company to the Holder, or any setoff, counterclaim,
recoupment, limitation or termination, or any breach or alleged breach by the
Holder or any other Person of any obligation to the Company or any violation or
alleged violation of law by the Holder or any other Person, and irrespective of
any other circumstance which might otherwise limit such obligation
-8-
of the Company to the Holder in connection with such exercise. If the Company
fails to issue and deliver the certificates for the Common Stock to the Holder
pursuant to the first sentence of this paragraph as and when required to do so,
in addition to any other liabilities the Company may have hereunder and under
applicable law, the Company shall pay or reimburse the Holder on demand for all
out-of-pocket expenses, including, without limitation, fees and expenses of
legal counsel, incurred by the Holder as a result of such failure.
3. ADJUSTMENT FOR DIVIDENDS IN OTHER STOCK, PROPERTY, ETC.;
RECLASSIFICATION, ETC. In case at any time or from time to time on or after the
Issuance Date, all the holders of Common Stock (or Other Securities) shall have
received, or (on or after the record date fixed for the determination of
stockholders eligible to receive) shall have become entitled to receive, without
payment therefor,
(a) other or additional stock, rights, warrants or other
securities or property (other than cash) by way of dividend, or
(b) any cash (excluding cash dividends payable solely out of
earnings or earned surplus of the Company), or
(c) other or additional stock, rights, warrants or other
securities or property (including cash) by way of spin-off, split-up,
reclassification, recapitalization, combination of shares or similar
corporate rearrangement,
other than (i) additional shares of Common Stock (or Other Securities) issued as
a stock dividend or in a stock-split (adjustments in respect of which are
provided for in Section 5) and (ii) rights or warrants to subscribe for Common
Stock at less than the Current Fair Market Value (adjustments in respect of
which are provided in Section 6), then and in each such case the Holder, on the
exercise hereof as provided in Section 1, shall be entitled to receive the
amount of stock, rights, warrants and Other Securities and property (including
cash in the cases referred to in subdivisions (b) and (c) of this Section 3)
which the Holder would hold on the date of such exercise if on the date thereof
the Holder had been the holder of record of the number of shares of Common Stock
called for on the face of this Warrant and had thereafter, during the period
from the date thereof to and including the date of such exercise, retained such
shares and all such other or additional stock, rights, warrants and Other
Securities and property (including cash in the case referred to in subdivisions
(b) and (c) of this Section 3) receivable by the Holder as aforesaid during such
period, giving effect to all adjustments called for during such period by
Section 4.
4. EXERCISE UPON A REORGANIZATION EVENT. In case of any
Reorganization Event the Company shall, as a condition precedent to the
consummation of the transactions constituting, or announced as, such
Reorganization Event, cause effective provisions to be made so that the Holder
shall
-9-
have the right thereafter, by exercising this Warrant (in lieu of the shares of
Common Stock of the Company and Other Securities or property purchasable and
receivable upon exercise of the rights represented hereby immediately prior to
such transaction) to purchase the kind and amount of shares of stock and Other
Securities and property (including cash) receivable upon such Reorganization
Event by a holder of the number of shares of Common Stock that might have been
received upon exercise of this Warrant immediately prior to such Reorganization
Event. Any such provision shall include provisions for adjustments in respect of
such shares of stock and Other Securities and property that shall be as nearly
equivalent as may be practicable to the adjustments provided for in this
Warrant. The provisions of this Section 4 shall apply to successive
Reorganization Events.
5. ADJUSTMENT FOR CERTAIN EXTRAORDINARY EVENTS. In the event
that on or after the Issuance Date the Company shall (i) issue additional shares
of the Common Stock as a dividend or other distribution on outstanding Common
Stock, (ii) subdivide or reclassify its outstanding shares of Common Stock, or
(iii) combine its outstanding shares of Common Stock into a smaller number of
shares of Common Stock, then, in each such event, the Purchase Price shall,
simultaneously with the happening of such event, be adjusted by multiplying the
Purchase Price in effect immediately prior to such event by a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such event and the denominator of which shall be the number
of shares of Common Stock outstanding immediately after such event, and the
product so obtained shall thereafter be the Purchase Price then in effect. The
Purchase Price, as so adjusted, shall be readjusted in the same manner upon the
happening of any successive event or events described herein in this Section 5.
The Holder shall thereafter, on the exercise hereof as provided in Section 1, be
entitled to receive that number of shares of Common Stock determined by
multiplying the number of shares of Common Stock which would be issuable on such
exercise immediately prior to such issuance by a fraction of which (i) the
numerator is the Purchase Price in effect immediately prior to such issuance and
(ii) the denominator is the Purchase Price in effect on the date of such
exercise.
6. ISSUANCE OF RIGHTS OR WARRANTS TO COMMON STOCKHOLDERS AT
LESS THAN CURRENT FAIR MARKET VALUE. In case the Company shall on or after the
Issuance Date issue rights or warrants to all holders of its outstanding shares
of Common Stock entitling them to subscribe for or purchase shares of Common
Stock at a price per share less than the Current Fair Market Value on the record
date fixed for the determination of stockholders entitled to receive such rights
or warrants, then
(a) the Purchase Price shall be adjusted so that the same
shall equal the price determined by multiplying the Purchase Price in
effect at the opening of business on the day after such record date by
a fraction of which the numerator shall be the number of shares of
Common Stock outstanding
-10-
at the close of business on such record date plus the number of shares
which the aggregate offering price of the total number of shares so
offered would purchase at such Current Fair Market Value, and the
denominator shall be the number of shares of Common Stock outstanding
on the close of business on such record date plus the total number of
additional shares of Common Stock so offered for subscription or
purchase; and
(b) the number of shares of Common Stock which the Holder may
thereafter purchase upon exercise of this Warrant at the opening of
business on the day after such record date shall be increased to a
number equal to the quotient obtained by dividing (x) the Aggregate
Purchase Price in effect immediately prior to such adjustment in the
Purchase Price pursuant to clause (a) of this Section 6 BY (y) the
Purchase Price in effect immediately after such adjustment in the
Purchase Price pursuant to clause (a) of this Section 6.
Such adjustment shall become effective immediately after the opening of business
on the day following the record date fixed for determination of stockholders
entitled to receive such rights or warrants. To the extent that shares of Common
Stock are not delivered pursuant to such rights or warrants, upon the expiration
or termination of such rights or warrants, the Purchase Price shall be
readjusted to the Purchase Price which would then be in effect had the
adjustments made upon the issuance of such rights or warrants been made on the
basis of delivery of only the number of shares of Common Stock actually
delivered and the number of shares of Common Stock for which this Warrant may
thereafter be exercised shall be readjusted (subject to proportionate adjustment
for any intervening exercises of this Warrant) to the number which would then be
in effect had the adjustments made upon the issuance of such rights or warrants
been made on the basis of delivery of only the number of shares of Common Stock
actually delivered. In the event that such rights or warrants are not so issued,
the Purchase Price shall again be adjusted to be the Purchase Price which would
then be in effect if such record date had not been fixed and the number of
shares of Common Stock for which this Warrant may thereafter be exercised shall
again be adjusted (subject to proportionate adjustment for any intervening
exercises of this Warrant) to be the number which would then be in effect if
such record date had not been fixed. In determining whether any rights or
warrants entitle the holder to subscribe for or purchase shares of Common Stock
at less than such Current Fair Market Value, and in determining the aggregate
offering price of such shares of Common Stock, there shall be taken into account
any consideration received for such rights or warrants, the value of such
consideration, if other than cash, to be determined by the Board of Directors.
7. ISSUANCE AT LESS THAN CURRENT FAIR MARKET VALUE. (a) In
case at any time on or after the Issuance Date the Company shall issue shares of
its Common Stock or Common Stock Equivalents (collectively, the "Newly Issued
-11-
Shares"), other than an issuance pro rata to all holders of its outstanding
Common Stock (adjustments for which are provided in Sections 5 and 6) and other
than an issuance in respect of which Section 9 is applicable, at a price below
the Current Fair Market Value of the Common Stock at the time of such issuance,
then following such issuance of Newly Issued Shares the Purchase Price shall be
reduced as provided in clause (b) of this Section 7 and the number of shares of
Common Stock which may be issued upon exercise of this Warrant shall be
increased as provided in clause (c) of this Section 7.
(b) The reduction in the Purchase Price following any such
adjustment shall be determined by multiplying the Purchase Price immediately
prior to such adjustment by a fraction, of which the numerator shall be the sum
of (1) the number of shares of Common Stock outstanding immediately prior to the
issuance of the Newly Issued Shares (calculated on a fully-diluted basis
assuming the exercise or conversion of all options, warrants, purchase rights or
convertible securities which are exercisable or convertible at the time of the
issuance of the Newly Issued Shares) PLUS (2) the number of shares of Common
Stock which the aggregate consideration, if any, received by the Company for the
number of Newly Issued Shares would purchase at a price equal to the Current
Fair Market Value of the Common Stock at the time of such issuance, and the
denominator shall be the sum of (X) the number of shares of Common Stock
outstanding immediately prior to the issuance of the Newly Issued Shares
(calculated on a fully-diluted basis assuming the exercise or conversion of all
options, warrants, purchase rights or convertible securities which are
exercisable or convertible at the time of the issuance of the Newly Issued
Shares) PLUS (Y) the number of Newly Issued Shares. The adjustment provided for
in this Section 7(b) may be expressed as the following mathematical formula:
( O +(C /FMV)) x PP
----------
NPP = ( O + N )
where,
C = aggregate consideration received by the Company for the
Newly Issued Shares
N = number of Newly Issued Shares
O = number of shares of Common Stock outstanding (on a fully
diluted basis, as described above)immediately prior to the
issuance of the Newly Issued Shares
-12-
FMV = Current Fair Market Value of the Common Stock at the time
of issuance of the Newly Issued Shares
PP = Purchase Price immediately prior to the issuance of the
Newly Issued Shares
NPP = Purchase Price immediately after the issuance of the Newly
Issued Shares
(c) If the Purchase Price is reduced in connection with the
issuance of Newly Issued Shares as provided in Section 7(b), then the number of
shares of Common Stock for which this Warrant may thereafter be exercised shall
be increased at the time of such reduction in the Purchase Price to a number
equal to the quotient obtained by dividing (x) the Aggregate Purchase Price in
effect immediately prior to such issuance of Newly Issued Shares BY (y) the
Purchase Price in effect immediately after such issuance of Newly Issued Shares
after giving effect to such reduction in the Purchase Price pursuant to Section
7(b).
(d) Notwithstanding the foregoing, no adjustment shall be made
under this Section 7 by reason of:
(1) the issuance by the Company of shares of Common Stock pro
rata to all holders of the Common Stock so long as (i) any adjustment required
by Section 5 is made and (ii) the Company shall have given notice thereof to the
Holder pursuant to Section 14;
(2) the issuance by the Company of the Notes, the Other Notes,
the Warrants or the Other Warrants or shares of Common Stock upon conversion of
the Notes, or the Other Notes or upon exercise of this Warrant or the Other
Warrants or in accordance with the terms hereof and thereof or any other
issuance of securities solely to the Holder occurring on or before August 31,
2004;
(3) the issuance by the Company of shares of Common Stock in
payment of interest on the Notes in accordance with the terms thereof;
(4) the issuance of Common Stock upon conversion, exercise or
exchange of Common Stock Equivalents outstanding on the Issuance Date; or
(5) the issuance by the Company of Newly Issued Shares upon
grant or exercise of options for employees, directors and consultants under a
stock option, equity compensation or similar plan duly adopted by the Board of
Directors; or
(6) the issuance by the Company of the Advance Shares, the
Advance Warrants or the Placement Agent Warrants or shares of Common Stock
-13-
upon exercise of the Advance Warrants or the Placement Agent Warrants in
accordance with the terms hereof and thereof.
8. ADJUSTMENT FOR CERTAIN ISSUANCES. (a) If at any time on or
before January 8, 2005 the Company issues shares of Common Stock or Common Stock
Equivalents that are not registered for sale by the Company in such offering
under the 1933 Act or issues shares of Common Stock or Common Stock Equivalents
in an offering of a type commonly known as a PIPE or an equity line, in any such
case in an amount which, together with all other offerings by the Company that
would be integrated with such offering for purposes of Regulation D under the
1933 Act, results in gross proceeds to the Company of at least $250,000, at a
price per share at which the Company sells such shares of Common Stock or the
price per share at which the holders of such Common Stock Equivalents are
entitled to acquire shares of Common Stock upon conversion or exercise thereof
which is less than the Purchase Price in effect at the time of such issuance,
then following such issuance the Purchase Price shall be reduced to the price
per share (or weighted average price per share, if such shares are issued, or
such Common Stock Equivalents may be converted or exercised, at different
prices) at which such shares of Common Stock are issued or at which such Common
Stock Equivalents may be exercised, if the same is lower than the Purchase Price
in effect immediately prior to such issuance. If the Purchase Price is reduced
pursuant to this Section 8, then the number of shares of Common Stock for which
this Warrant may thereafter be exercised shall be increased at the time of such
reduction of the Purchase Price to a number equal to the quotient obtained by
dividing (x) the Aggregate Purchase Price in effect immediately prior to such
issuance BY (y) the Purchase Price in effect immediately after such issuance
after giving effect to such reduction in the Purchase Price pursuant to this
Section 8.
(b) If any adjustment in the Purchase Price is made pursuant
to this Section 8 in respect of any issuance of shares of Common Stock or Common
Stock Equivalents, no adjustment in the Purchase Price or the number of shares
of Common Stock issuable upon exercise of this Warrant shall be made by reason
of such issuance pursuant to Section 8.
(c) Notwithstanding the foregoing, no adjustment shall be made
under this Section 8 by reason of:
(1) the issuance by the Company of shares of Common Stock pro
rata to all holders of the Common Stock so long as (i) any adjustment required
by Section 5 is made and (ii) the Company shall have given notice thereof to the
Holder pursuant to Section 14;
(2) the issuance by the Company of the Notes, the Other
Notes, the Warrants or the Other Warrants or shares of Common Stock upon
conversion of the Notes, or the Other Notes or upon exercise of this Warrant or
the Other Warrants
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or in accordance with the terms hereof and thereof or any other issuance of
securities solely to the Holder occurring on or before August 31, 2004;
(3) the issuance by the Company of shares of Common Stock in
payment of interest on the Notes in accordance with the terms thereof;
(4) the issuance of Common Stock upon conversion, exercise or
exchange of Common Stock Equivalents outstanding on the Issuance Date; or
(5) the issuance by the Company of Newly Issued Shares upon
grant or exercise of options for employees, directors and consultants under a
stock option, equity compensation or similar plan duly adopted by the Board of
Directors; or
(6) the issuance by the Company of the Advance Shares, the
Advance Warrants or the Placement Agent Warrants or shares of Common Stock upon
exercise of the Advance Warrants or the Placement Agent Warrants in accordance
with the terms hereof and thereof.
9. EFFECT OF RECLASSIFICATION, CONSOLIDATION, MERGER OR SALE.
(a) If any of the following events occur, namely (i) any reclassification or
change of the outstanding shares of Common Stock (other than a change in par
value, or from par value to no par value, or from no par value to par value, or
as a result of a subdivision or combination), (ii) any consolidation, merger or
combination of the Company with another corporation as a result of which holders
of Common Stock shall be entitled to receive stock, securities or other property
or assets (including cash) with respect to or in exchange for such Common Stock,
or (iii) any sale or conveyance of the properties and assets of the Company as,
or substantially as, an entirety to any other Person as a result of which
holders of Common Stock shall be entitled to receive stock, securities or other
property or assets (including cash) with respect to or in exchange for such
Common Stock, then the Company or the successor or purchasing Person, as the
case may be, shall execute with the Holder a written agreement providing that
(x) this Warrant shall thereafter entitle the Holder to purchase the kind and
amount of shares of stock and Other Securities or property or assets (including
cash) receivable upon such reclassification, change, consolidation, merger,
combination, sale or conveyance by the holder of a number of shares of Common
Stock issuable upon exercise of this Warrant (assuming, for such purposes, a
sufficient number of authorized shares of Common Stock available to exercise
this Warrant) immediately prior to such reclassification, change, consolidation,
merger, combination, sale or conveyance assuming such holder of Common Stock did
not exercise such holder's rights of election, if any, as to the kind or amount
of securities, cash or other property receivable upon such consolidation,
merger, statutory exchange, sale or conveyance (PROVIDED that, if the kind or
amount of securities, cash or other property receivable upon such consolidation,
merger, statutory exchange, sale or conveyance is not the same for each share of
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Common Stock in respect of which such rights of election shall not have been
exercised ("non-electing share"), then for the purposes of this Section 9 the
kind and amount of securities, cash or other property receivable upon such
consolidation, merger, statutory exchange, sale or conveyance for each
non-electing share shall be deemed to be the kind and amount so receivable per
share by a plurality of the non-electing shares), (y) in the case of any such
successor or purchasing Person, upon such consolidation, merger, combination,
sale or conveyance such successor or purchasing Person shall be jointly and
severally liable with the Company for the performance of all of the Company's
obligations under this Warrant and the Note Purchase Agreement and (z) if
registration or qualification is required under the 1933 Act or applicable state
law for the public resale by the Holder of such shares of stock and Other
Securities so issuable upon exercise of this Warrant, such registration or
qualification shall be completed prior to such reclassification, change,
consolidation, merger, combination or sale. Such written agreement shall provide
for adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Warrant. If, in the case of any such
reclassification, change, consolidation, merger, combination, sale or
conveyance, the stock or other securities and assets receivable thereupon by a
holder of shares of Common Stock includes shares of stock or other securities
and assets of a corporation other than the successor or purchasing corporation,
as the case may be, in such reclassification, change, consolidation, merger,
combination, sale or conveyance, then such written agreement shall also be
executed by such other corporation and shall contain such additional provisions
to protect the interests of the Holder as the Board of Directors shall
reasonably consider necessary by reason of the foregoing.
(b) The above provisions of this Section 9 shall similarly apply to
successive reclassifications, changes, consolidations, mergers, combinations,
sales and conveyances.
(c) If this Section 9 applies to any event or occurrence, Section 4
shall not apply to such event or occurrence.
10. TAX ADJUSTMENTS. The Company may make such reductions in
the Purchase Price, in addition to those required by Sections 3, 4, 5, 6, 7 and
8, as the Board of Directors considers to be advisable to avoid or diminish any
income tax to holders of Common Stock or rights to purchase Common Stock
resulting from any dividend or distribution of stock (or rights to acquire
stock) or from any event treated as such for income tax purposes.
11. MINIMUM ADJUSTMENT. (a) No adjustment in the Purchase
Price (and no related adjustment in the number of shares of Common Stock which
may thereafter be purchased upon exercise of this Warrant) shall be required
unless such adjustment would require an increase or decrease of at least 1% in
the Purchase Price; PROVIDED, HOWEVER, that any adjustments which by reason of
this
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Section 11 are not required to be made shall be carried forward and taken into
account in any subsequent adjustment. All such calculations under this Warrant
shall be made by the Company and shall be made to the nearest cent or to the
nearest one hundredth of a share, as the case may be.
(b) No adjustment need be made for a change in the par value
of the Common Stock or from par value to no par value or from no par value to
par value.
12. NOTICE OF ADJUSTMENTS. Whenever the Purchase Price is
adjusted as herein provided, the Company shall promptly, but in no event later
than five Trading Days thereafter, give a notice to the Holder setting forth the
Purchase Price and number of shares of Common Stock which may be purchased upon
exercise of this Warrant after such adjustment and setting forth a brief
statement of the facts requiring such adjustment but which such statement shall
not include any information which would be material non-public information for
purposes of the 1934 Act. Failure to deliver such notice shall not affect the
legality or validity of any such adjustment.
13. FURTHER ASSURANCES. The Company will take all action that
may be necessary or appropriate in order that the Company may validly and
legally issue fully paid and nonassessable shares of stock, free from all taxes,
liens and charges with respect to the issue thereof, on the exercise of all or
any portion of this Warrant from time to time outstanding.
14. NOTICE TO HOLDER PRIOR TO CERTAIN ACTIONS. In case on or
after the Issuance Date:
(a) the Company shall declare a dividend (or any other
distribution) on its Common Stock (other than in cash out of retained earnings);
or
(b) the Company shall authorize the granting to the holders of
its Common Stock of rights or warrants to subscribe for or purchase any share of
any class or any other rights or warrants; or
(c) the Board of Directors shall authorize any
reclassification of the Common Stock (other than a subdivision or combination of
its outstanding Common Stock, or a change in par value, or from par value to no
par value, or from no par value to par value), or any consolidation or merger or
other business combination transaction to which the Company is a party and for
which approval of any stockholders of the Company is required, or the sale or
transfer of all or substantially all of the assets of the Company; or
(d) there shall be pending the voluntary or involuntary
dissolution, liquidation or winding-up of the Company;
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the Company shall give the Holder, as promptly as possible but in any event at
least ten Trading Days prior to the applicable date hereinafter specified, a
notice stating (x) the date on which a record is to be taken for the purpose of
such dividend, distribution or rights or warrants, or, if a record is not to be
taken, the date as of which the holders of Common Stock of record to be entitled
to such dividend, distribution or rights are to be determined, or (y) the date
on which such reclassification, consolidation, merger, other business
combination transaction, sale, transfer, dissolution, liquidation or winding-up
is expected to become effective or occur, and the date as of which it is
expected that holders of Common Stock of record who shall be entitled to
exchange their Common Stock for securities or other property deliverable upon
such reclassification, consolidation, merger, other business combination
transaction, sale, transfer, dissolution, liquidation or winding-up shall be
determined. Such notice shall not include any information which would be
material non-public information for purposes of the 1934 Act. Failure to give
such notice, or any defect therein, shall not affect the legality or validity of
such dividend, distribution, reclassification, consolidation, merger, sale,
transfer, dissolution, liquidation or winding-up. In the case of any such action
of which the Company gives such notice to the Holder or is required to give such
notice to the Holder, the Holder shall be entitled to give a subscription form
to exercise this Warrant in whole or in part that is contingent on the
completion of such action.
15. RESERVATION OF STOCK, ETC., ISSUABLE ON EXERCISE OF
WARRANTS. The Company will at all times reserve and keep available out of its
authorized but unissued shares of capital stock, solely for issuance and
delivery on the exercise of this Warrant, a sufficient number of shares of
Common Stock (or Other Securities) to effect the full exercise of this Warrant
and the exercise, conversion or exchange of any other warrant or security of the
Company exercisable for, convertible into, exchangeable for or otherwise
entitling the holder to acquire shares of Common Stock (or Other Securities),
and if at any time the number of authorized but unissued shares of Common Stock
(or Other Securities) shall not be sufficient to effect such exercise,
conversion or exchange, the Company shall take such action as may be necessary
to increase its authorized but unissued shares of Common Stock (or Other
Securities) to such number as shall be sufficient for such purposes.
16. TRANSFER OF WARRANT. This Warrant shall inure to the
benefit of the successors to and assigns of the Holder. This Warrant and all
rights hereunder, in whole or in part, are registrable at the office or agency
of the Company referred to below by the Holder in Person or by his duly
authorized attorney, upon surrender of this Warrant properly endorsed
accompanied by an assignment form in the form attached to this Warrant, or other
customary form, duly executed by the transferring Holder.
17. REGISTER OF WARRANTS. The Company shall maintain, at the
principal office of the Company (or such other office as it may designate by
notice to
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the Holder), a register 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 successor and prior owner of such Warrant. The Company shall
be entitled to treat the Person in whose name this Warrant is so registered as
the sole and absolute owner of this Warrant for all purposes.
18. EXCHANGE OF WARRANT. This Warrant is exchangeable, upon
the surrender hereof by the Holder at the office or agency of the Company
referred to in Section 16, for one or more new Warrants of like tenor
representing in the aggregate the right to subscribe for and purchase the number
of shares of Common Stock which may be subscribed for and purchased hereunder,
each of such new Warrants to represent the right to subscribe for and purchase
such number of shares as shall be designated by the Holder at the time of such
surrender.
19. REPLACEMENT OF WARRANT. On receipt by the Company of
evidence reasonably satisfactory to it of the ownership of and the loss, theft,
destruction or mutilation of this Warrant and (a) in the case of loss, theft or
destruction, of indemnity from the Holder reasonably satisfactory in form to the
Company (and without the requirement to post any bond or other security), or (b)
in the case of mutilation, upon surrender and cancellation of this Warrant, the
Company will execute and deliver to the Holder a new Warrant of like tenor
without charge to the Holder.
20. WARRANT AGENT. The Company may, by written notice to the
Holder, appoint the transfer agent and registrar for the Common Stock as the
Company's agent for the purpose of issuing Common Stock (or Other Securities) on
the exercise of this Warrant pursuant to Section 1, and the Company may, by
written notice to the Holder, appoint an agent having an office in the United
States of America for the purpose of exchanging this Warrant pursuant to Section
18, and replacing this Warrant pursuant to Section 19, or any of the foregoing,
and thereafter any such exchange or replacement, as the case may be, shall be
made at such office by such agent.
21. REMEDIES. The Company stipulates that the remedies at law
of the Holder in the event of any default or threatened default by the Company
in the performance of or compliance with any of the terms of this Warrant are
not and will not be adequate, and that such terms may be specifically enforced
by a decree for the specific performance of any agreement contained herein or by
an injunction against a violation of any of the terms hereof or otherwise.
22. NO RIGHTS OR LIABILITIES AS A STOCKHOLDER. This Warrant
shall not entitle the Holder to any voting rights or other rights as a
stockholder of the Company. Nothing contained in this Warrant shall be construed
as conferring upon the Holder the right to vote or to consent or to receive
notice as a stockholder of the Company on any matters or with respect to any
rights whatsoever as a
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stockholder of the Company. No dividends or interest shall be payable or accrued
in respect of this Warrant or the interest represented hereby or the Common
Stock (or Other Securities) purchasable hereunder until, and only to the extent
that, this Warrant shall have been exercised in accordance with its terms.
23. NOTICES, ETC. All notices and other communications from
the Company to the Holder shall be mailed by first class certified mail, postage
prepaid, at such address as may have been furnished to the Company in writing by
the Holder or at the address shown for the Holder on the register of Warrants
referred to in Section 16.
24. TRANSFER RESTRICTIONS. This Warrant has not been and is
not being registered under the provisions of the 1933 Act or any state
securities laws and this Warrant may not be transferred unless (1) the
transferee is an "accredited investor" (as defined in Regulation D under the
1933 Act) or a QIB in a transfer that meets the requirements of Rule 144A and
(2) the Holder shall have delivered to the Company an opinion of counsel,
reasonably satisfactory in form, scope and substance to the Company, to the
effect that this Warrant may be sold or transferred without registration under
the 1933 Act. Prior to any such transfer, such transferee shall have represented
in writing to the Company that such transferee has requested and received from
the Company all information relating to the business, properties, operations,
condition (financial or other), results of operations or prospects of the
Company deemed relevant by such transferee; that such transferee has been
afforded the opportunity to ask questions of the Company concerning the
foregoing and has had the opportunity to obtain and review the Registration
Statement (as defined in the Note Purchase Agreement) and the prospectus
included therein, each as amended or supplemented to the date of transfer to
such transferee, and the reports and other information concerning the Company
which at the time of such transfer have been filed by the Company with the SEC
pursuant to the 1934 Act and which are incorporated by reference in such
prospectus as of the date of such transfer. If such transfer is intended to
assign the rights and obligations under Sections 5, 8, 9 and 10 of the Note
Purchase Agreement, such transfer shall otherwise be made in compliance with
Section 10(j) of the Note Purchase Agreement.
25. RULE 144A INFORMATION REQUIREMENT. Within the period prior
to the expiration of the holding period applicable to sales hereof under Rule
144(k) under the 1933 Act (or any successor provision), the Company covenants
and agrees that it shall, during any period in which it is not subject to
Section 13 or 15(d) under the 1934 Act, make available to the Holder and the
holder of any shares of Common Stock issued upon exercise of this Warrant which
continue to be Restricted Securities in connection with any sale thereof and any
prospective purchaser of this Warrant from the Holder, the information required
pursuant to Rule 144A(d)(4) under the 1933 Act upon the request of the Holder
and it will take such further action as the Holder may reasonably request, all
to the extent required
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from time to time to enable the Holder to sell this Warrant without registration
under the 1933 Act within the limitation of the exemption provided by Rule 144A,
as Rule 144A may be amended from time to time. Upon the request of the Holder,
the Company will deliver to the Holder a written statement as to whether it has
complied with such requirements.
26. LEGEND. Unless theretofore registered for resale under the
1933 Act, each certificate for shares issued upon exercise of this Warrant shall
bear the following legend:
The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended (the "1933 Act"). The
securities have been acquired for investment and may not be resold,
transferred or assigned in the absence of an effective registration
statement for the securities under the 1933 Act, or an opinion of
counsel that registration is not required under the 1933 Act.
27. AMENDMENT; WAIVER. This Warrant and any terms hereof may
be changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of such change, waiver, discharge
or termination is sought.
28. MISCELLANEOUS. This Warrant shall be construed and
enforced in accordance with and governed by the internal laws of the State of
New York. The headings, captions and footers in this Warrant are for purposes of
reference only, and shall not limit or otherwise affect any of the terms hereof.
The invalidity or unenforceability of any provision hereof shall in no way
affect the validity or enforceability of any other provision.
29. ATTORNEYS' FEES. In any litigation, arbitration or court
proceeding between the Company and Holder relating hereto, the prevailing party
shall be entitled to attorneys' fees and expenses and all costs of proceedings
incurred in enforcing this Warrant.
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IN WITNESS WHEREOF, the Company has caused this Warrant to be
duly executed on its behalf by one of its officers thereunto duly authorized.
Dated: January 8, 2004 DWANGO NORTH AMERICA CORP.
By:R.E. Huntley
-----------------------
Name:Robert Huntley
Title: CEO
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ASSIGNMENT
For value hereby sell(s), assign(s) and
-----------------
transfer(s) unto (Please insert social security or other
-----------------
Taxpayer Identification Number of assignee: )the attached original,
-------------
executed Warrant to purchase share of Common Stock of Dwango North America
Corp., a Nevada corporation (the "Company"), and hereby irrevocably constitutes
and appoints attorney to transfer the Warrant on the books
-----------------
of the Company, with full power of substitution in the premises.
In connection with any transfer of the Warrant within the period prior
to the expiration of the holding period applicable to sales thereof under Rule
144(k) under the 1933 Act (or any successor provision) (other than any transfer
pursuant to a registration statement that has been declared effective under the
1933 Act), the undersigned confirms that such Warrant is being transferred:
[ ] To the Company or a subsidiary thereof; or
[ ] To a QIB pursuant to and in compliance with Rule 144A; or
[ ] To an "accredited investor" (as defined in Regulation
D under the 1933 Act) pursuant to and in compliance with
the 1933 Act; or
[ ] Pursuant to and in compliance with Rule 144 under the 1933
Act;
and unless the box below is checked, the undersigned confirms that, to the
knowledge of the undersigned, such Warrant is not being transferred to an
"affiliate" (as defined in Rule 144 under the 1933 Act) of the Company.
[ ] The transferee is an affiliate of the Company.
Capitalized terms used in this Assignment and not defined in
this Assignment shall have the respective meanings provided in the Warrant.
Dated: NAME:
--------------- -----------------
--------------------------
Signature(s)
EXHIBIT 1
FORM OF SUBSCRIPTION
DWANGO NORTH AMERICA CORP.
(To be signed only on exercise of Warrant)
TO: Dwango North America Corp.
5847 San Felipe Street
Houston, Texas 77057
Attention: Chief Executive Officer
Facsimile No.: (713) 914-9688
1. The undersigned Holder of the attached original, executed Warrant
hereby elects to exercise its purchase right under such Warrant with respect to
shares (the "Exercise Shares") of Common Stock, as defined in the Warrant, of
Dwango North America Corp., a Nevada corporation (the "Company").
2. The undersigned Holder (check one):
(a) elects to pay the Aggregate Purchase Price for such shares
of Common Stock (i) in lawful money of the United States or by
the enclosed certified or official bank check payable in
United States dollars to the order of the Company in the
amount of $ ,or (ii) by wire transfer of United
--------------
States funds to the account of the Company in the amount
of $ , which transfer has been made before or
--------------
simultaneously with the delivery of this Form of Subscription
pursuant to the instructions of the Company;
or
(b) elects to receive shares of Common Stock having a value
equal to the value of the Warrant calculated in accordance
with Section 1(b) of the Warrant.
3. Please issue a stock certificate or certificates representing the
appropriate number of shares of Common Stock in the name of the undersigned or
in such other name(s) as is specified below:
Name:
------------------------------
Address:
------------------------------
------------------------------
------------------------------
Social Security or Tax Identification Number (if any):
------------------------------
Dated:
----------- ------------------------------------
(Signature must conform to name of
Holder as specified on the face of
the Warrant)
------------------------------------
------------------------------------
(Address)
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