WARRANT AGREEMENT PRIME ACQUISITION CORP. and AMERICAN STOCK TRANSFER & TRUST COMPANY, as Warrant Agent Dated as of [●], 2011

 

 

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SECTION 3.         Execution of Warrant Certificates .

 

3.1          Warrant Certificates must be signed on behalf of the Company by its Chairman of the Board, President, Chief Executive Officer or a Vice President. Each such signature upon the Warrant Certificates may be in the form of a facsimile signature of the present or any future Chairman of the Board, President, Chief Executive Officer, or Vice President, and may be imprinted or otherwise reproduced on the Warrant Certificates and for that purpose the Company may adopt and use the facsimile signature of any person who has been Chairman of the Board, President, Chief Executive Officer, or Vice President, notwithstanding the fact that at the time the Warrant Certificates is countersigned and delivered or disposed of he or she has ceased to hold such office.

 

3.2          If any officer of the Company who has signed any of the Warrant Certificates ceases to be such officer before the Warrant Certificates so signed have been countersigned by the Warrant Agent, or disposed of by the Company, such Warrant Certificates nevertheless may be countersigned and delivered or disposed of as though such person had not ceased to be such officer of the Company; and any Warrant Certificate may be signed on behalf of the Company by any person who, at the actual date of the execution of such Warrant Certificate, is a proper officer of the Company to sign such Warrant Certificate, although at the date of the execution of this Agreement any such person was not such officer.

 

3.3          The Warrant Agent shall date the Warrant Certificates the date of countersignature by the Warrant Agent.

 

SECTION 4.         Registration and Countersignature .

 

4.1          The Warrant Agent shall, upon written instructions of the Chairman of the Board, the President, the Chief Executive Officer, a Vice President, the Treasurer or the Chief Financial Officer of the Company, countersign, issue and deliver Warrants as provided in this Agreement.  Warrant Certificates not countersigned by the Warrant Agent will not be valid for any purpose.

 

4.2          The Company and the Warrant Agent may deem and treat the registered holder(s) of the Warrant Certificates as the absolute owner(s) thereof (notwithstanding any notation of ownership or other writing thereon made by anyone), for all purposes, and neither the Company nor the Warrant Agent shall be affected by any notice to the contrary.

 

SECTION 5.          Registration of Transfers and Exchanges; Transfer Restrictions .

 

5.1          The Warrant Agent shall from time to time, subject to the limitations of this Section 5, register the transfer of any outstanding Warrant Certificates upon the records to be maintained by it for that purpose, upon surrender thereof duly endorsed or accompanied (if so required by the Warrant Agent) by a written instrument or instruments of transfer in form satisfactory to the Warrant Agent, duly executed by the registered holder or holders thereof or by the duly appointed legal representative thereof or by a duly authorized attorney.  Upon any such registration of transfer, the Warrant Agent shall issue a new Warrant Certificate to the transferee(s) and shall cancel the surrendered Warrant Certificate.  The Warrant Agent shall dispose of such cancelled Warrant Certificates in its customary manner.

 

5.2          The Founders’ Warrants may not be sold or transferred for a period of nine (9) months from the date the Company completes its initial business combination (as described more fully in the Registration Statement) ( the “Initial Business Combination”) with respect to 50% of the Founders’ Warrants owned by each Founding Shareholder, and twelve (12) months from the date the Company completes its Initial Business Combination with respect to the remaining 50% of the Founders’ Warrants owned by each Founding Shareholder, except to a Permitted Transferee who agrees in writing with the Company to be subject to such transfer restrictions.

 

 

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5.3          As used herein, “Permitted Transferee” means

 

(a)           any officer, director or employee of the Company;

 

(b)           an affiliate or a member of the holder’s immediate family (or a member of the immediate family of its officers or directors) or a trust or other entity, the beneficiary of which is the holder (or one of its officers or directors or a member of their respective immediate families); or

 

(c)           any successor in interest by virtue of the laws of descent and distribution upon death of any holder, or

 

(d)           pursuant to a qualified domestic relations order.

 

5.4         The holders of any Private Warrants or Warrant Shares issued upon exercise of any Private Warrants further agree, prior to any transfer of such securities, to give written notice to the Company expressing its desire to effect such transfer and describing briefly the proposed transfer.  Upon receiving such notice, the Company shall present copies thereof to its counsel and the holder agrees not to make any disposition of all or any portion of such securities unless and until:

 

(a)           there is then in effect a registration statement under the Securities Act covering such proposed disposition and such disposition is made in accordance with such registration statement, in which case the legends set forth in Exhibit B or Section 6(c) hereof, as the case may be (collectively the “Legends”) with respect to such securities sold pursuant to such registration statement shall be removed; or

 

(b)           if reasonably requested by the Company, (A) the holder shall have furnished the Company with an opinion of counsel, reasonably satisfactory to the Company, that such disposition will not require registration of such Securities under the Securities Act, (B) the Company shall have received customary representations and warranties regarding the transferee that are reasonably satisfactory to the Company signed by the proposed transferee and (C) the Company shall have received an agreement by such transferee to the restrictions contained in the Legends.

 

5.5          Each one-half of a Public Warrant must initially be issued together with one share of Common Stock as a Unit.  The shares of Common Stock and Public Warrants comprising a Unit may not be separately transferable until 90 days following effectiveness of the Registration Statement, unless the Underwriter informs the Company of its decision to allow earlier separate trading, subject to the Company having filed a Form 6-K with the Securities and Exchange Commission containing an audited balance sheet reflecting the Company’s receipt of the gross proceeds of the offering of the Units and having issued a press release announcing when such separate trading will begin (the “ Detachment Date ”).  Prior to the Detachment Date, Public Warrants may be transferred or exchanged only together with the Unit in which such Public Warrant is included, and only for the purpose of effecting, or in conjunction with, a transfer or exchange of such Unit.  Furthermore, prior to the Detachment Date, each transfer of a Public Unit on the register relating to such Units shall operate also to transfer the Public Warrant included in such Unit. Upon separation of the Units by a holder, the number of Warrants issuable upon separation of the Units shall be rounded down to the nearest whole Warrant. In no event may a Warrant Certificate for a partial Warrant be issued.

 

 

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5.6          Subject to the terms of this Agreement, Warrant Certificates may be exchanged at the option of the holder(s) thereof, when surrendered to the Warrant Agent at its principal corporate trust office, which is currently located at the address listed in Section 17 hereof, for another Warrant Certificate or other Warrant Certificates of like tenor and representing in the aggregate a like number of Warrants.  Any holder desiring to exchange a Warrant Certificate shall deliver a written request to the Warrant Agent, and shall surrender, duly endorsed or accompanied (if so required by the Warrant Agent) by a written instrument or instruments of transfer in form satisfactory to the Warrant Agent, the Warrant Certificate or Certificates to be so exchanged.  Warrant Certificates surrendered for exchange shall be cancelled by the Warrant Agent.  Such cancelled Warrant Certificates shall then be disposed of by such Warrant Agent in its customary manner.

 

5.7          The Warrant Agent is hereby authorized to countersign, in accordance with the provisions of this Section 5 and of Section 4 hereof, the new Warrant Certificates required pursuant to the provisions of this Section 5.

 

SECTION 6.          Terms of Warrants ..

 

6.1           Exercise Price and Exercise Period .

 

(a)          The initial exercise price per share that Warrant Shares may be purchasable upon the exercise of full Warrants (the “ Exercise Price ”) is $7.50 per share, and each full Warrant is initially exercisable to purchase one share of Common Stock.

 

(b)          Subject to the terms of this Agreement (including without limitation Section 6.4 below), each Warrant holder has the right, which may be exercised commencing at the opening of business on the first day of the applicable Warrant Exercise Period set forth below and until 5:00 p.m., New York City time, on the last day of such Warrant Exercise Period, to receive from the Company the number of fully paid and nonassessable Warrant Shares which the holder may at the time be entitled to receive on exercise of such Warrants and payment of the Exercise Price then in effect for such Warrant Shares, rounded down to the nearest whole Warrant.  No adjustments as to dividends will be made upon exercise of the Warrants.

 

(c)          The “ Warrant Exercise Period ” for all Warrants commences (subject to Section 6.4 below) on the later of: (A) the date that is 12 months from the date that the Registration Statement is declared effective by the Securities and Exchange Commission (the “ Effective Date ”) or (B) the date on which the Company completes its Initial Business Combination, and ends on the earlier of: (A) the date that is five years from the Effective Date or (B) the Business Day preceding the date on which such Warrants are redeemed pursuant to Section 6.2 below.

 

(d)          The “Closing Price” of the Common Stock on any date of determination means:

 

(i)           the closing sale price for the regular trading session (without considering after hours or other trading outside regular trading session hours) of the Common Stock (regular way) as reported in the composite transactions for the principal United States securities exchange on which the Common Stock is so listed on that date (or, if no closing price is reported, the last reported sale price during that regular trading session), or

 

(ii)           if the Common Stock is not so listed, the last quoted sales price for the Common Stock in the over-the-counter market as reported by the OTC Bulletin Board, the National Quotation Bureau or similar organization, or

 

 

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(iii)           if the Common Stock is not so quoted, the average of the mid-point of the last bid and ask prices for the Common Stock from at least three nationally recognized investment-banking firms that the Company selects for this purpose.

 

(e)           Each Warrant not exercised prior to 5:00 p.m., New York City time, on the last day of the Warrant Exercise Period shall become void and all rights thereunder and all rights in respect thereof under this Agreement shall cease as of such time.

 

6.2           Redemption of Warrants .

 

(a)           The Company may call the Warrants for redemption upon the Underwriter’s prior written consent, such consent not to be unreasonably withheld or delayed, in whole and not in part, at a price of $0.01 per Warrant, upon not less than 30 days’ prior written notice of redemption to each Warrant holder, at any time after such Warrants have become exercisable pursuant to Section 6(a), if, and only if, (i) the Closing Price has equalled or exceeded $15.00 (the “Redemption Threshold”) per share for any 20 trading days within a 30-trading-day period ending on the third business day prior to the notice of redemption to Warrant holders and (ii) at all times between the date that is 10 trading days prior to the date of such notice of redemption and the redemption date a registration statement is in effect covering the Warrant Shares issuable upon exercise of the Warrants and a current prospectus relating to those Warrant Shares is available.

 

6.3           Exercise Procedure ..

 

(a)           A Warrant may be exercised upon surrender to the Company at the principal stock transfer office of the Warrant Agent, which is currently located at the address listed in Section 17 hereof, of the certificate or certificates evidencing the Warrants to be exercised with the form of election to purchase on the reverse thereof duly filled in and signed and such other documentation as the Warrant Agent may reasonably request, and upon payment to the Warrant Agent for the account of the Company of the Exercise Price (adjusted as herein provided if applicable) for the number of Warrant Shares in respect of which such Warrants are then exercised.  Payment of the aggregate Exercise Price must be made in cash or by certified or official bank check payable to the order of the Company in New York Clearing House Funds, or the equivalent thereof.

 

(b)           The Founding Shareholders and their permitted transferees may settle any Founders’ Warrants, and the Private Placement Warrantholders and their permitted transferees may settle and Insider Warrants, on a cashless basis in accordance with the following formula:

 

N’= (N x (P - E)) / P

 

where:

 

N’ =       the adjusted number of shares of Common Stock issuable upon cashless exercise of each Warrant.

N =        the current number of shares of Common Stock issuable upon exercise of each Warrant.

E =         the Exercise Price on the date of cashless exercise of the Warrants.

P =         the average reported last sales price of the Common Stock for the last 10 trading days ending on the third business day prior to the date on which notice of cashless exercise is given.

 

 

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(c)          Subject to the provisions of Section 7, upon surrender of Warrants and payment of the Exercise Price, the Company shall issue and cause to be delivered with all reasonable dispatch to and in such name or names as the Warrant holder may designate, a certificate or certificates for the number of full Warrant Shares issuable upon the exercise of such Warrants together with cash as provided in Section 12 hereof.  Such certificate or certificates are to be deemed to have been issued and any person so designated to be named therein is to be deemed to have become a holder of record of such Warrant Shares as of the date of the surrender of such Warrants and payment of the Exercise Price.

 

(d)          The Warrants may be exercisable, at the election of the holders thereof, either in full or from time to time in part and, in the event that a certificate evidencing Warrants is exercised in respect of fewer than all of the Warrant Shares issuable on such exercise at any time prior to the date of expiration of the Warrants, a new certificate evidencing the remaining Warrant or Warrants will be issued, and the Warrant Agent is hereby irrevocably authorized to countersign and to deliver the required new Warrant Certificate or Certificates pursuant to the provisions of this Section 6 and of Section 4 hereof, and the Company, whenever required by the Warrant Agent, shall supply the Warrant Agent with Warrant Certificates duly executed on behalf of the Company for such purpose.  The Warrant Agent may assume that any Warrant presented for exercise is permitted to be so exercised under applicable law and shall have no liability for acting in reliance on such assumption.

 

(e)          The Warrant Agent shall cancel all Warrant Certificates surrendered upon exercise of Warrants and shall then dispose of such Warrant Certificates in its customary manner.  The Warrant Agent shall account promptly to the Company with respect to Warrants exercised and shall concurrently pay to the Company all monies received by the Warrant Agent for the purchase of the Warrant Shares through the exercise of such Warrants.

 

(f)           The Warrant Agent shall keep copies of this Agreement and any notices given or received hereunder available for inspection by the holders with reasonable prior written notice during normal business hours at its office.  The Company shall supply the Warrant Agent from time to time with such numbers of copies of this Agreement as the Warrant Agent may request.

 

(g)          Certificates evidencing Warrant Shares issued upon exercise of a Founders’ Warrant must bear the following legends:

 

THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAW, AND MAY NOT BE OFFERED, SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND ANY APPLICABLE STATE SECURITIES LAWS OR AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE.

 

SECURITIES EVIDENCED BY THIS CERTIFICATE WILL BE ENTITLED TO REGISTRATION RIGHTS UNDER A REGISTRATION RIGHTS AGREEMENT TO BE EXECUTED BY THE COMPANY.

 

SECURITIES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS AND CONDITIONS OF AN ESCROW AGREEMENT BY AND BETWEEN THE COMPANY AND THE HOLDER OF THIS CERTIFICATE.  THESE SHARES MAY NOT BE SOLD EXCEPT IN COMPLIANCE WITH THAT AGREEMENT.

 

(h)          Certificates evidencing Warrant Shares issued upon exercise of an Insider Warrant must bear the following legends:

 

 

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THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAW, AND MAY NOT BE OFFERED, SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND ANY APPLICABLE STATE SECURITIES LAWS OR AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE.

 

SECURITIES EVIDENCED BY THIS CERTIFICATE WILL BE ENTITLED TO REGISTRATION RIGHTS UNDER A REGISTRATION RIGHTS AGREEMENT TO BE EXECUTED BY THE COMPANY.

 

6.4           Registration Requirement .  Notwithstanding anything else in this Section 6, no Public Warrants may be exercised unless at the time of exercise (i) a registration statement covering the Warrant Shares to be issued upon exercise (other than Warrant Shares to be issued upon exercise of any Private Warrant) is effective under the Securities Act of 1933, as amended (the “ Act ”) and (ii) a prospectus thereunder relating to the Warrant Shares is current.  The Company shall use commercially reasonable best efforts to have a registration statement in effect covering Warrant Shares issuable upon exercise of the Warrants from the date the Warrants become exercisable and to maintain a current prospectus relating to those Warrant Shares until the Warrants expire or are redeemed.  If any such post-effective amendment or registration statement has not been declared effective prior to the 90 day anniversary of the closing of the Initial Business Combination holders of the Warrants shall have the right, during the period beginning on the next business day following the 90 day anniversary of the closing of the Initial Business Combination and ending upon such post-effective amendment or registration statement being declared effective by the SEC, and during any other period after the 90 day anniversary of the closing of the Initial Business Combination when the Company shall fail to have maintained an effective registration statement covering the Common Stock issuable upon exercise of the Warrants, to exercise such Warrants on a cashless basis (in accordance with Section 3(a)(9) of the Act or another exemption) in accordance with the following formula:

N’= (N x (P - E)) / P

where:

N’ =           the adjusted number of shares of Common Stock issuable upon cashless exercise of each Warrant.

N =           the current number of shares of Common Stock issuable upon exercise of each Warrant.

E =           the Exercise Price on the date of cashless exercise of the Warrants.

P =           the average reported last sales price of the Common Stock for the last 10 trading days ending on the third business day prior to the date on which notice of cashless exercise is given.

The date that notice of cashless exercise is received by the Warrant Agent shall be conclusively determined by the Warrant Agent. If in compliance with applicable securities laws, the Company shall provide the Warrant Agent with an opinion of counsel for the Company (which shall be an outside law firm with securities law experience) stating that the exercise of the Warrants on a cashless basis in accordance with this Section 6.4 is not required to be registered under the Act. In the event that, at the end of the Warrant Exercise Period, a Warrant has not been exercised, all the rights of the holder hereunder shall terminate and such Warrant  shall expire unexercised and worthless, and as a result purchasers of the Units will have paid the full Unit price solely for the share of Common Stock included in each Unit.  The Company is not required to issue unregistered shares upon the exercise of any Warrant; provided , however , that the Company shall issue unregistered shares upon the exercise of any Private Warrant or Founders’ Warrant, if, at the time of such exercise, there is not an effective registration statement or current prospectus covering the Warrant Shares underlying such Private Warrant. In no event will the registered holder of the Warrant be entitled to receive a net-cash settlement, securities or other consideration in lieu of physical settlement in shares of Common Stock, regardless of whether the Common Stock underlying the Warrants is registered pursuant to an effective registration statement.

 

SECTION 7.         Payment of Taxes ..  The Company shall pay all documentary stamp taxes attributable to the initial issuance of Warrant Shares upon the exercise of Warrants; provided, however, that the Company shall not be required to pay any tax or taxes which may be payable in respect of any transfer involved in the issue of any Warrant Certificates or any certificates for Warrant Shares in a name other than that of the registered holder of a Warrant Certificate surrendered upon the exercise of a Warrant, and the Company shall not be required to issue or deliver such Warrant Certificates unless or until the person or persons requesting the issuance thereof have paid to the Company the amount of such tax or have established to the satisfaction of the Company that such tax has been paid.

 

SECTION 8.         Mutilated or Missing Warrant Certificates .  If any Warrant Certificate is mutilated, lost, stolen or destroyed, the Company shall issue and the Warrant Agent shall countersign, in exchange and substitution for and upon cancellation of the mutilated Warrant Certificate, or in lieu of and substitution for the Warrant Certificate lost, stolen or destroyed, a new Warrant Certificate of like tenor and representing an equivalent number of Warrants, but only upon receipt of indemnity and evidence in each case satisfactory to the Company and the Warrant Agent of such loss, theft or destruction of such Warrant Certificate.  Applicants for such new Warrant Certificates shall pay such reasonable charges as the Company may prescribe.

 

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SECTION 9.          Reservation of Warrant Shares .

 

9.1          The Company shall at all times reserve and keep available, free from preemptive rights, out of the aggregate of its authorized but unissued Common Stock or its authorized and issued Common Stock held in its treasury, for the purpose of enabling it to satisfy any obligation to issue Warrant Shares upon exercise of Warrants, the maximum number of shares of Common Stock which may then be deliverable upon the exercise of all outstanding Warrants.  The Warrant Agent is not required to verify availability of such shares set aside by the Company.

 

9.2          The Company or, if appointed, the transfer agent for the Common Stock (the “ Transfer Agent ”) and every subsequent transfer agent for any shares of the Company’s Common Stock issuable upon the exercise of any of the Warrants is hereby irrevocably authorized and directed at all times to reserve such number of authorized shares as shall be required for such purpose.  The Company shall keep a copy of this Agreement on file with the Transfer Agent and with every subsequent transfer agent for any shares of the Company’s Common Stock issuable upon the exercise of the Warrants.  The Warrant Agent is hereby irrevocably authorized to requisition from time to time from such Transfer Agent the stock certificates required to honor outstanding Warrants upon exercise thereof in accordance with the terms of this Agreement.  The Company shall supply such Transfer Agent with duly executed certificates for such purposes and shall provide or otherwise make available any cash which may be payable as provided in Section 12 hereof.  The Company shall furnish such Transfer Agent a copy of all notices of adjustments and certificates related thereto, transmitted to each holder pursuant to Section 13 hereof.

 

9.3          Before taking any action which would cause an adjustment pursuant to Section 11 hereof to reduce the Exercise Price below the then par value (if any) of the Warrant Shares, the Company shall take any commercially reasonable corporate action which may, in the opinion of its counsel (which may be counsel employed by the Company), be necessary in order that the Company may validly and legally issue fully paid and nonassessable Warrant Shares at the Exercise Price as so adjusted.

 

9.4          The Company shall, upon exercise of Warrants and payment of the Exercise Price therefor, issue Warrant Shares that are fully paid, nonassessable, free of preemptive rights and free from all taxes, liens, charges and security interests with respect to the issue thereof.

 

SECTION 10.       Obtaining Stock Exchange Listings; State Registration .  The Company shall from time to time take all commercially reasonable actions which may be necessary so that the Warrant Shares, immediately upon their issuance upon the exercise of Warrants, will be listed on the principal securities exchanges and markets within the United States of America, if any, on which other shares of Common Stock are then listed.  To the extent that the Common Stock is not listed on a national securities exchange or there is no exemption from state “blue sky” securities laws for the issuance of the Warrant Shares, the Company will take all commercially reasonable actions necessary so that the Warrant Shares are registered in all states in which the holders of the Warrants reside.

 

SECTION 11.       Adjustment of Number of Warrant Shares . The number of Warrant Shares issuable upon the exercise of each Warrant is subject to adjustment from time to time upon the occurrence of the events enumerated in this Section 11.  For purposes of this Section 11, “Common Stock” means shares now or hereafter authorized of any class of common stock of the Company and any other stock of the Company, however designated, that has the right (subject to any prior rights of any class or series of preferred stock) to participate in any distribution of the assets or earnings of the Company without limit as to per share amount.

 

 

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11.1         Adjustment for Change in Capital Stock . If the Company:  (i) pays a dividend or makes a distribution on its Common Stock in either case in shares of its Common Stock; (ii) subdivides its outstanding shares of Common Stock into a greater number of shares; (iii) combines its outstanding shares of Common Stock into a smaller number of shares; (iv) makes a distribution on its Common Stock in shares of its capital stock other than Common Stock; or (v) issues by reclassification of its Common Stock any shares of its capital stock, then the number of shares of Common Stock issuable upon exercise of each Warrant immediately prior to such action shall be proportionately adjusted so that the holder of any Warrant thereafter exercised shall receive the aggregate number and kind of shares of capital stock of the Company which he would have owned immediately following such action if such Warrant had been exercised immediately prior to such action.  The adjustment shall become effective immediately after the record date in the case of a dividend or distribution and immediately after the effective date in the case of a subdivision, combination or reclassification.  Such adjustment shall be made successively whenever any event listed above shall occur.

 

11.2         Adjustment for Rights Issue .

 

(a)           If the Company distributes any rights, options or warrants to all holders of its Common Stock entitling them to purchase shares of Common Stock at a price per share less than the Closing Price per share on the Business Day immediately preceding the ex-dividend date for such distribution of rights, options or warrants, the number of shares of Common Stock issuable upon exercise of each Warrant is to be adjusted in accordance with the following formula:

 

N’= N x ((O+A) / (O+(A x (P/M))))

 

where:

 

N’ =       the adjusted number of shares of Common Stock issuable upon exercise of each Warrant.

N =        the current number of shares of Common Stock issuable upon exercise of each Warrant.

O =        the number of shares of Common Stock outstanding on the record date for such distribution.

A =        the number of additional shares of Common Stock issuable pursuant to such rights or warrants.

P  =        the purchase price per share of the additional shares.

M =       the Closing Price per share of Common Stock on the record date.

 

(b)           The adjustment is to be made successively whenever any such rights, options or warrants are issued and is to become effective immediately after the record date for the determination of stockholders entitled to receive the rights, options or warrants.  If at the end of the period during which such rights, options or warrants are exercisable, not all rights, options or warrants have been exercised, the number of shares of Common Stock issuable upon exercise of each Warrant is to be immediately readjusted to what it would have been if “N” in the above formula had been the number of shares actually issued.

 

11.3         Adjustment for Other Distributions .

 

(a)           If the Company distributes to all holders of its Common Stock any of its assets (including cash) or debt securities or any rights, options or warrants to purchase debt securities, assets or other securities of the Company (other than Common Stock), the number of shares of Common Stock issuable upon exercise of each Warrant is to be adjusted in accordance with the formula:

 

 

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N’ = N x (M / (M-F))

 

where:

 

N’ =       the adjusted number of shares of Common Stock issuable upon exercise of each Warrant.

N =        the current number of shares of Common Stock issuable upon exercise of each Warrant.

M =       the Closing Price per share of Common Stock on the Business Day immediately preceding the ex dividend date for such distribution.

F =         the fair market value on the ex dividend date for such distribution of the assets, securities, rights or warrants distributable to one share of Common Stock after taking into account, in the case of any rights, options or warrants, the consideration required to be paid upon exercise thereof.  The Board of Directors shall reasonably determine the fair market value in good faith.

 

(b)           The adjustment is to be made successively whenever any such distribution is made and shall become effective immediately after the record date for the determination of stockholders entitled to receive such distribution.

 

(c)           If any adjustment is made pursuant to this Section 11.3 as a result of the issuance of rights, options or warrants and at the end of the period during which any such rights, options or warrants are exercisable, not all such rights, options or warrants shall have been exercised, the Warrant shall be immediately readjusted as if “F” in the above formula was the fair market value on the ex-dividend date for such distribution of the indebtedness or assets actually distributed upon exercise of such rights, options or warrants divided by the number of shares of Common Stock outstanding on the ex-dividend date for such distribution.  Notwithstanding anything to the contrary contained in this subsection (c), if “M−F” in the above formula is less than $1.00, the Company may elect to, and if “M−F” or is a negative number, the Company shall, in lieu of the adjustment otherwise required by this Section 11.3, distribute to the holders of the Warrants, upon exercise thereof, the evidences of indebtedness, assets, rights, options or warrants (or the proceeds thereof) which would have been distributed to such holders had such Warrants been exercised immediately prior to the record date for such distribution.

 

11.4         Defined Terms; When De Minimis Adjustment May Be Deferred .

 

(a)           As used in this Section 11:

 

(i)           “Closing Price” of the Common Stock on any date of determination means: the closing sale price for the regular trading session (without considering after hours or other trading outside regular trading session hours) of the Common Stock (regular way) as reported in the composite transactions for the principal United States securities exchange on which the Common Stock is so listed on that date (or, if no closing price is reported, the last reported sale price during that regular trading session),  if the Common Stock is not so reported, the last quoted sales price for the Common Stock in the over the counter market as reported by the OTC Bulletin Board, the National Quotation Bureau or similar organization, or if the Common Stock is not so quoted, the average of the mid-point of the last bid and ask prices for the Common Stock from at least three nationally recognized investment-banking firms that the Company selects for this purpose;

 

(ii)           “ex-dividend date” means the first date on which the shares of Common Stock trade on the applicable exchange or in the applicable market, regular way, without the right to receive the issuance or distribution in question;

 

 

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(iii)           “trading day” means, with respect to the Common Stock or any other security, a day during which (A) trading in the Common Stock or such other security generally occurs, (B) there is no market disruption event (as defined below) and (C) a Closing Price for the Common Stock or such other security (other than a Closing Price referred to in the next to last clause of such definition) is available for such day; provided that if the Common Stock or such other security is not admitted for trading or quotation on or by any exchange, bureau or other organization, “trading day” will mean any Business Day;

 

(iv)           “market disruption event” means, with respect to the Common Stock or any other security, the occurrence or existence of more than one-half hour period in the aggregate or any scheduled trading day for the Common Stock or such other security of any suspension or limitation imposed on trading (by reason of movements in price exceeding limits permitted by the stock exchange or otherwise) in the Common Stock or such other security or in any options, contract, or future contracts relating to the Common Stock or such other security, and such suspension or limitation occurs or exists at any time before 1:00 p.m.  (New York time) on such day; and

 

(v)           “Business Day” means, any day which is not a Saturday, a Sunday or any other day on which banks in the City of New York, New York, are authorized or required by law to close.

 

(b)           No adjustment in the number of shares of Common Stock issuable upon exercise of each Warrant need be made unless the adjustment would require an increase or decrease of at least 1% in such number.  Any adjustments that are not made are to be carried forward and taken into account in any subsequent adjustment.

 

(c)           All calculations under this Section 11 are to be made to the nearest cent or to the nearest 1/100th of a share, as the case may be.

 

11.5         When No Adjustment Required .

 

(a)           No adjustment need be made for a transaction referred to in Sections 11.2-11.3 if Warrant holders are to participate, without requiring the Warrants to be exercised, in the transaction on a basis and with notice that the Board of Directors of the Company reasonably determines to be fair and appropriate in light of the basis and notice on which holders of Common Stock participate in the transaction.

 

(b)           No adjustment need be made for a change in the par value or no par value of the Common Stock.

 

(c)           To the extent the Warrants become convertible into cash, no adjustment need be made thereafter as to the amount of cash into which such Warrants are exercisable.  Interest will not accrue on the cash.

 

11.6         Notice of Adjustment ..  Whenever the number of shares of Common Stock issuable upon exercise of each Warrant is adjusted, the Company shall provide the notices required by Section 13 hereof.

 

 

11

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11.7         Notice of Certain Transactions .

 

(a)          The Company shall mail to Warrant holders a notice stating the proposed record date for a dividend or distribution or the proposed effective date of a subdivision, combination, reclassification, consolidation, merger, transfer, lease, liquidation or dissolution if:

 

(i)           the Company takes any action that would require an adjustment in the Exercise Price pursuant to this Section 11, and if the Company does not arrange for Warrant holders to participate pursuant to Section 11.5;