EXHIBIT 10.5
NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS EXERCISABLE
HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO
SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE ACCEPTABLE TO THE COMPANY.
WARRANT
TO PURCHASE SHARES OF COMMON STOCK
OF
INNUITY, INC.
Warrant No. ______ Number of Shares: _______
Issue Date: __________
THIS WARRANT (the "Warrant") certifies that, for value received,
_____________ (the "Holder"), is entitled, upon the terms and subject to the
limitations on exercise and the conditions hereinafter set forth, at any time on
or after the date hereof (the "Initial Exercise Date") and on or prior to the
close of business on the earlier of (i) the second (2nd) anniversary of the
Initial Exercise Date, or (ii) the date on which the closing bid price of the
Company's common stock, par value $0.00025 per share ("Common Stock"), is equal
to or greater than $3.00 per share for twenty (20) consecutive trading days and
the average daily trading volume of the Common Stock exceeds 40,000 shares for
such twenty-day period (the earlier, the "Termination Date"), but not
thereafter, to subscribe for and purchase from Innuity, Inc., a Utah corporation
(the "Company"), up to __________ shares (the "Warrant Shares") of Common Stock.
The purchase price of one share of Common Stock under this Warrant shall be
equal to the Exercise Price, as defined in Section 2(b).
Section 1. Definitions. Capitalized terms used and not otherwise defined
herein shall have the meanings set forth in that certain Securities Purchase
Agreement (the "Purchase Agreement"), dated June __, 2006, among the Company and
the purchasers signatory thereto.
Section 2. Exercise.
a) Exercise of Warrant. Exercise of the purchase rights represented
by this Warrant may be made, in whole or in part, at any time or times on
or after the Initial Exercise Date and on or before the Termination Date
by delivery to the Company of a duly executed facsimile copy of the Notice
of Exercise Form annexed hereto (or such other office or agency of the
Company as it may designate by notice in writing to the
registered Holder at the address of such Holder appearing on the books of
the Company); provided, however, within five (5) Trading Days of the date
said Notice of Exercise is delivered to the Company, the Holder shall have
surrendered this Warrant to the Company and the Company shall have
received payment of the aggregate Exercise Price of the shares thereby
purchased by wire transfer or cashier's check drawn on a United States
bank.
b) Exercise Price. The exercise price of the Common Stock under this
Warrant shall be $0.01, subject to adjustment hereunder (the "Exercise
Price").
c) Mechanics of Exercise.
i. Authorization of Warrant Shares. The Company
covenants that all Warrant Shares which may be issued upon the
exercise of the purchase rights represented by this Warrant
will, upon exercise of the purchase rights represented by this
Warrant, be duly authorized, validly issued, fully paid and
nonassessable and free from all taxes, liens and charges
imposed by the Company in respect of the issue thereof (other
than taxes in respect of any transfer occurring
contemporaneously with such issue).
ii. Delivery of Certificates Upon Exercise. The Company
shall use its commercially reasonable efforts to cause that
certificates for shares purchased hereunder to be transmitted
by the transfer agent of the Company to the Holder by
crediting the account of the Holder's prime broker with the
Depository Trust Company through its Deposit Withdrawal Agent
Commission ("DWAC") system if the Company is a participant in
such system, and otherwise by physical delivery to the address
specified by the Holder in the Notice of Exercise within five
(5) Trading Days from the delivery to the Company of the
Notice of Exercise Form, surrender of this Warrant and payment
of the aggregate Exercise Price as set forth above ("Warrant
Share Delivery Date"). This Warrant shall be deemed to have
been exercised on the date the Exercise Price and completed
Notice of Exercise are received by the Company. The Warrant
Shares shall be deemed to have been issued, and Holder or any
other person so designated to be named therein shall be deemed
to have become a holder of record of such shares for all
purposes, as of the date the Warrant has been exercised by
payment to the Company of the Exercise Price and all taxes
required to be paid by the Holder, if any, pursuant to Section
2(e)(vi) prior to the issuance of such shares, have been paid.
iii. Delivery of New Warrants Upon Exercise. If this
Warrant shall have been exercised in part, the Company shall,
at the time of delivery of the certificate or certificates
representing Warrant Shares, deliver to Holder a new Warrant
evidencing the rights of Holder to purchase the unpurchased
Warrant Shares called for by this Warrant,
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which new Warrant shall in all other respects be identical
with this Warrant.
iv. Rescission Rights. If the Company fails to cause its
transfer agent to transmit to the Holder a certificate or
certificates representing the Warrant Shares pursuant to this
Section 2(e)(iv) by the Warrant Share Delivery Date, then the
Holder will have the right to rescind such exercise until such
time as the Company causes its transfer agent to transmit such
certificate or certificates.
v. No Fractional Shares or Scrip. No fractional shares
or scrip representing fractional shares shall be issued upon
the exercise of this Warrant. As to any fraction of a share
which Holder would otherwise be entitled to purchase upon such
exercise, the Company shall pay a cash adjustment in respect
of such final fraction in an amount equal to such fraction
multiplied by the Exercise Price.
vi. Charges, Taxes and Expenses. Issuance of
certificates for Warrant Shares shall be made without charge
to the Holder for any issue or transfer tax or other
incidental expense in respect of the issuance of such
certificate, all of which taxes and expenses shall be paid by
the Company, and such certificates shall be issued in the name
of the Holder or in such name or names as may be directed by
the Holder; provided, however, that in the event certificates
for Warrant Shares are to be issued in a name other than the
name of the Holder, this Warrant when surrendered for exercise
shall be accompanied by the Assignment Form attached hereto
duly executed by the Holder; and the Company may require, as a
condition thereto, the payment of a sum sufficient to
reimburse it for any transfer tax incidental thereto.
vii. Closing of Books. The Company will not close its
shareholder books or records prior to the Termination Date in
any manner which prevents the timely exercise of this Warrant,
pursuant to the terms hereof.
Section 3. Certain Adjustments.
a) Stock Dividends and Splits. If the Company, at any time while
this Warrant is outstanding: (A) pays a stock dividend or otherwise make a
distribution or distributions on shares of its Common Stock or any other
equity or equity equivalent securities payable in shares of Common Stock
(which, for avoidance of doubt, shall not include any shares of Common
Stock issued by the Company pursuant to this Warrant), (B) subdivides
outstanding shares of Common Stock into a larger number of shares, (C)
combines (including by way of reverse stock split) outstanding shares of
Common Stock into a smaller number of shares, or (D) issues by
reclassification of shares of the Common Stock any shares of capital stock
of the Company, then in each case the Exercise Price shall be multiplied
by a fraction of which the numerator shall be the number of shares of
Common Stock (excluding treasury shares, if any) outstanding
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immediately before such event and of which the denominator shall be the
number of shares of Common Stock outstanding immediately after such event
and the number of shares issuable upon exercise of this Warrant shall be
proportionately adjusted. Any adjustment made pursuant to this Section
3(a) shall become effective immediately after the record date for the
determination of shareholders entitled to receive such dividend or
distribution and shall become effective immediately after the effective
date in the case of a subdivision, combination or re-classification.
b) Pro Rata Distributions. If the Company, at any time prior to the
Termination Date, shall distribute to all holders of Common Stock (and not
to Holders of the Warrants) evidences of its indebtedness or assets
(including cash and cash dividends) or rights or warrants to subscribe for
or purchase any security other than the Common Stock, then in each such
case the Exercise Price shall be adjusted by multiplying the Exercise
Price in effect immediately prior to the record date fixed for
determination of shareholders entitled to receive such distribution by a
fraction of which the denominator shall be the VWAP determined as of the
record date mentioned above, and of which the numerator shall be such VWAP
on such record date less the then per share fair market value at such
record date of the portion of such assets or evidence of indebtedness so
distributed applicable to one outstanding share of the Common Stock as
determined by the Board of Directors in good faith. In either case the
adjustments shall be described in a statement provided to the Holder of
the portion of assets or evidences of indebtedness so distributed or such
subscription rights applicable to one share of Common Stock. Such
adjustment shall be made whenever any such distribution is made and shall
become effective immediately after the record date mentioned above. "VWAP"
means, for any date, the price determined by the first of the following
clauses that applies: (a) if the Common Stock is then listed or quoted on
a Trading Market, the daily volume weighted average price of the Common
Stock for such date (or the nearest preceding date) on the Trading Market
on which the Common Stock is then listed or quoted as reported by
Bloomberg Financial L.P. (based on a Trading Day from 9:30 a.m. Eastern
Time to 4:02 p.m. Eastern Time); (b) if the Common Stock is not then
listed or quoted on a Trading Market and if prices for the Common Stock
are then quoted on the OTC Bulletin Board, the volume weighted average
price of the Common Stock for such date (or the nearest preceding date) on
the OTC Bulletin Board; (c) if the Common Stock is not then listed or
quoted on the OTC Bulletin Board and if prices for the Common Stock are
then reported in the "Pink Sheets" published by the Pink Sheets, LLC (or a
similar organization or agency succeeding to its functions of reporting
prices), the most recent bid price per share of the Common Stock so
reported; or (c) in all other cases, the fair market value of a share of
Common Stock as determined by an independent appraiser selected in good
faith by the Purchasers and reasonably acceptable to the Company.
c) Fundamental Transaction. If, at any time while this Warrant is
outstanding, (A) the Company effects any merger or consolidation of the
Company with or into another Person, (B) the Company effects any sale of
all or substantially all of its assets in one or a series of related
transactions, (C) any tender offer or exchange offer (whether by the
Company or another Person) is completed pursuant to which holders of
Common Stock are permitted to tender or exchange their shares for other
securities, cash or property, or (D) the Company effects any
reclassification of the Common Stock or any
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compulsory share exchange pursuant to which the Common Stock is
effectively converted into or exchanged for other securities, cash or
property (in any such case, a "Fundamental Transaction"), then, upon any
subsequent exercise of this Warrant, the Holder shall have the right to
receive, for each Warrant Share that would have been issuable upon such
exercise immediately prior to the occurrence of such Fundamental
Transaction, at the option of the Holder, (a) upon exercise of this
Warrant, the number of shares of Common Stock of the successor or
acquiring corporation or of the Company, if it is the surviving
corporation, and any additional consideration (the "Alternate
Consideration") receivable upon or as a result of such reorganization,
reclassification, merger, consolidation or disposition of assets by a
Holder of the number of shares of Common Stock for which this Warrant is
exercisable immediately prior to such event or (b) if the Company is
acquired in an all cash transaction, cash equal to the value of this
Warrant as determined in accordance with the Black-Scholes option pricing
formula. For purposes of any such exercise, the determination of the
Exercise Price shall be appropriately adjusted to apply to such Alternate
Consideration based on the amount of Alternate Consideration issuable in
respect of one share of Common Stock in such Fundamental Transaction, and
the Company shall apportion the Exercise Price among the Alternate
Consideration in a reasonable manner reflecting the relative value of any
different components of the Alternate Consideration. If holders of Common
Stock are given any choice as to the securities, cash or property to be
received in a Fundamental Transaction, then the Holder shall be given the
same choice as to the Alternate Consideration it receives upon any
exercise of this Warrant following such Fundamental Transaction. To the
extent necessary to effectuate the foregoing provisions, any successor to
the Company or surviving entity in such Fundamental Transaction shall
issue to the Holder a new warrant consistent with the foregoing provisions
and evidencing the Holder's right to exercise such warrant into Alternate
Consideration. The terms of any agreement pursuant to which a Fundamental
Transaction is effected shall include terms requiring any such successor
or surviving entity to comply with the provisions of this Section 3(c) and
insuring that this Warrant (or any such replacement security) will be
similarly adjusted upon any subsequent transaction analogous to a
Fundamental Transaction.
d) Calculations. All calculations under this Section 3 shall be made
to the nearest cent or the nearest 1/100th of a share, as the case may be.
For purposes of this Section 3, the number of shares of Common Stock
deemed to be issued and outstanding as of a given date shall be the sum of
the number of shares of Common Stock (excluding treasury shares, if any)
issued and outstanding.
e) Voluntary Adjustment By Company. The Company may at any time
during the term of this Warrant reduce the then current Exercise Price to
any amount and for any period of time deemed appropriate by the Board of
Directors of the Company.
f) Notice to Holders.
i. Adjustment to Exercise Price. Whenever the Exercise
Price is adjusted pursuant to this Section 3, the Company
shall promptly mail to
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each Holder a notice setting forth the Exercise Price after
such adjustment and setting forth a brief statement of the
facts requiring such adjustment.
ii. Notice to Allow Exercise by ▇▇▇▇▇▇. If (A) the
Company shall declare a dividend (or any other distribution)
on the Common Stock; (B) the Company shall declare a special
nonrecurring cash dividend on or a redemption of the Common
Stock; (C) the Company shall authorize the granting to all
holders of the Common Stock rights or warrants to subscribe
for or purchase any shares of capital stock of any class or of
any rights; (D) the approval of any shareholders of the
Company shall be required in connection with any
reclassification of the Common Stock, any consolidation or
merger to which the Company is a party, any sale or transfer
of all or substantially all of the assets of the Company, of
any compulsory share exchange whereby the Common Stock is
converted into other securities, cash or property; (E) the
Company shall authorize the voluntary or involuntary
dissolution, liquidation or winding up of the affairs of the
Company; then, in each case, the Company shall cause to be
mailed to the Holder at its last address as it shall appear
upon the Warrant Register of the Company, at least three (3)
calendar days prior to the applicable record or effective date
hereinafter specified, a notice stating (x) the date on which
a record is to be taken for the purpose of such dividend,
distribution, redemption, rights or warrants, or if a record
is not to be taken, the date as of which the holders of the
Common Stock of record to be entitled to such dividend,
distributions, redemption, rights or warrants are to be
determined or (y) the date on which such reclassification,
consolidation, merger, sale, transfer or share exchange is
expected to become effective or close, and the date as of
which it is expected that holders of the Common Stock of
record shall be entitled to exchange their shares of the
Common Stock for securities, cash or other property
deliverable upon such reclassification, consolidation, merger,
sale, transfer or share exchange; provided, that the failure
to mail such notice or any defect therein or in the mailing
thereof shall not affect the validity of the corporate action
required to be specified in such notice. The Holder is
entitled to exercise this Warrant, to extent this Warrant is
exercisable, during the 3-day period commencing on the date of
such notice to the effective date of the event triggering such
notice.
Section 4. Transfer of Warrant; Warrant Records.
a) Transferability.
i. The Holder of this Warrant, by acceptance hereof,
acknowledges that this Warrant or the shares of Warrant Shares
to be issued upon exercise hereof are being acquired solely
for the Holder's own account and not as a nominee for any
other party, and for investment, and that the Holder will not
offer, sell or otherwise dispose of this Warrant or any shares
of Warrant Shares to be issued upon exercise hereof except
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pursuant to an effective registration statement, or an
exemption from registration, under the Securities Act and any
applicable state securities laws.
ii. Except as provided in paragraph (iii) below, this
Warrant and all certificates representing shares of Warrant
Shares issued upon exercise hereof shall be stamped or
imprinted with a legend in substantially the following form:
"THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE
UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR
ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED OR
OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES
ACT AND UNDER APPLICABLE STATE SECURITIES LAWS OR INNUITY,
INC. SHALL HAVE RECEIVED AN OPINION OF ITS COUNSEL THAT
REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES ACT AND
UNDER THE PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS
NOT REQUIRED."
b) New Warrants. This Warrant may be divided or combined with other
Warrants upon presentation hereof at the aforesaid office of the Company,
together with a written notice specifying the names and denominations in
which new Warrants are to be issued, signed by the Holder or its agent or
attorney. Subject to compliance with Section 4(a), as to any transfer
which may be involved in such division or combination, the Company shall
execute and deliver a new Warrant or Warrants in exchange for the Warrant
or Warrants to be divided or combined in accordance with such notice.
c) Warrant Register. The Company shall register this Warrant, upon
records to be maintained by the Company for that purpose (the "Warrant
Register"), in the name of the record Holder hereof from time to time. The
Company may deem and treat the registered Holder of this Warrant as the
absolute owner hereof for the purpose of any exercise hereof or any
distribution to the Holder, and for all other purposes, absent actual
notice to the contrary.
Section 5. Miscellaneous.
a) Title to Warrant. Prior to the Termination Date and subject to
compliance with applicable laws and Section 4 of this Warrant, this
Warrant and all rights hereunder are transferable, in whole or in part, at
the office or agency of the Company by the Holder in person or by duly
authorized attorney, upon surrender of this Warrant together with the
Assignment Form annexed hereto properly endorsed. The transferee shall
sign an investment letter in form and substance reasonably satisfactory to
the Company.
b) No Rights as Shareholder Until Exercise. This Warrant does not
entitle the Holder to any voting rights or other rights as a shareholder
of the Company prior to
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the exercise hereof. Upon the surrender of this Warrant and the payment of
the aggregate Exercise Price (or by means of a cashless exercise), the
Warrant Shares so purchased shall be and be deemed to be issued to such
Holder as the record owner of such shares as of the close of business on
the later of the date of such surrender or payment.
c) Loss, Theft, Destruction or Mutilation of Warrant. The Company
covenants that upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this
Warrant or any stock certificate relating to the Warrant Shares, and in
case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it (which, in the case of the Warrant, shall not include
the posting of any bond), and upon surrender and cancellation of such
Warrant or stock certificate, if mutilated, the Company will make and
deliver a new Warrant or stock certificate of like tenor and dated as of
such cancellation, in lieu of such Warrant or stock certificate.
d) Saturdays, Sundays, Holidays, etc. If the last or appointed day
for the taking of any action or the expiration of any right required or
granted herein shall be a Saturday, Sunday or a legal holiday, then such
action may be taken or such right may be exercised on the next succeeding
day not a Saturday, Sunday or legal holiday.
e) Authorized Shares. The Company covenants that during the period
the Warrant is outstanding, it will reserve from its authorized and
unissued Common Stock a sufficient number of shares to provide for the
issuance of the Warrant Shares upon the exercise of any purchase rights
under this Warrant. The Company further covenants that its issuance of
this Warrant shall constitute full authority to its officers who are
charged with the duty of executing stock certificates to execute and issue
the necessary certificates for the Warrant Shares upon the exercise of the
purchase rights under this Warrant. The Company will take all such
reasonable action as may be necessary to assure that such Warrant Shares
may be issued as provided herein without violation of any applicable law
or regulation, or of any requirements of the Trading Market upon which the
Common Stock may be listed.
f) Jurisdiction. All questions concerning the construction,
validity, enforcement and interpretation of this Warrant shall be
determined in accordance with the provisions of the Purchase Agreement.
g) Restrictions. The Holder acknowledges that the Warrant Shares
acquired upon the exercise of this Warrant, if not registered, will have
restrictions upon resale imposed by state and federal securities laws.
h) Nonwaiver and Expenses. No course of dealing or any delay or
failure to exercise any right hereunder on the part of Holder shall
operate as a waiver of such right or otherwise prejudice ▇▇▇▇▇▇'s rights,
powers or remedies, notwithstanding the fact that all rights hereunder
terminate on the Termination Date. If the Company willfully and knowingly
fails to comply with any provision of this Warrant, which results in any
material damages to the Holder, the Company shall pay to Holder such
amounts as shall be sufficient to cover any costs and expenses including,
but not limited to, reasonable
8
attorneys' fees, including those of appellate proceedings, incurred by
▇▇▇▇▇▇ in collecting any amounts due pursuant hereto or in otherwise
enforcing any of its rights, powers or remedies hereunder.
i) Notices. Any notice, request or other document required or
permitted to be given or delivered to the Holder by the Company shall be
delivered in accordance with the notice provisions of the Purchase
Agreement.
j) Limitation of Liability. No provision hereof, in the absence of
any affirmative action by Holder to exercise this Warrant or purchase
Warrant Shares, and no enumeration herein of the rights or privileges of
Holder, shall give rise to any liability of Holder for the purchase price
of any Common Stock or as a shareholder of the Company, whether such
liability is asserted by the Company or by creditors of the Company.
k) Successors and Assigns. Subject to applicable securities laws,
this Warrant and the rights and obligations evidenced hereby shall inure
to the benefit of and be binding upon the successors of the Company and
the successors and permitted assigns of Holder. The provisions of this
Warrant are intended to be for the benefit of all Holders from time to
time of this Warrant and shall be enforceable by any such Holder or holder
of Warrant Shares.
l) Amendment. This Warrant may be modified or amended or the
provisions hereof waived with the written consent of the Company and the
Holder.
m) Severability. Wherever possible, each provision of this Warrant
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Warrant shall be prohibited
by or invalid under applicable law, such provision shall be ineffective to
the extent of such prohibition or invalidity, without invalidating the
remainder of such provisions or the remaining provisions of this Warrant.
n) Headings. The headings used in this Warrant are for the
convenience of reference only and shall not, for any purpose, be deemed a
part of this Warrant.
********************
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IN WITNESS WHEREOF, the Company has caused this Warrant to be
executed by its officer thereunto duly authorized.
Dated: June __, 2006
INNUITY, INC.
By: __________________________________________
Name: _______________________________
Title: ________________________________
NOTICE OF EXERCISE
To: INNUITY, INC.
(1) The undersigned hereby elects to purchase ________ Warrant
Shares of the Company pursuant to the terms of the attached Warrant (only if
exercised in full), and tenders herewith payment of the exercise price in full,
together with all applicable transfer taxes, if any.
(2) Payment shall take the form of lawful money of the United
States.
(3) Please issue a certificate or certificates representing
said Warrant Shares in the name of the undersigned or in such other name as is
specified below:
________________________
The Warrant Shares shall be delivered to the following:
________________________
________________________
________________________
(4) Accredited Investor. The undersigned is an "accredited investor"
as defined in Regulation D promulgated under the Securities Act of 1933, as
amended.
Name of Investing Entity: ______________________________________________________
Signature of Authorized Signatory of Investing Entity: _________________________
Name of Authorized Signatory: __________________________________________________
Title of Authorized Signatory: _________________________________________________
Date: __________________________________________________________________________