EXHIBIT 4.1
WARRANT AGREEMENT
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE HEREOF
HAVE NOT BEEN REGISTERED UNDER EITHER THE SECURITIES ACT OF 1933, AS AMENDED
("ACT") OR APPLICABLE STATE SECURITIES LAWS ("STATE ACTS") AND SHALL NOT BE
SOLD, PLEDGED, HYPOTHECATED, DONATED, OR OTHERWISE TRANSFERRED (WHETHER OR NOT
FOR CONSIDERATION) BY THE HOLDER EXCEPT UPON THE ISSUANCE TO THE COMPANY OF AN
OPINION OF COUNSEL OR SUBMISSION TO THE COMPANY OF SUCH EVIDENCE AS MAY BE
SATISFACTORY TO COUNSEL TO THE COMPANY, IN EACH SUCH CASE, TO THE EFFECT THAT
ANY SUCH TRANSFER SHALL NOT BE IN VIOLATION OF THE ACT AND THE STATE ACTS.
WARRANT TO PURCHASE 1,881,250 SHARES OF COMMON STOCK
TERAFORCE TECHNOLOGY CORPORATION
(a Delaware corporation)
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▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Not Transferable or Exercisable Except
upon Conditions Herein Specified
TERAFORCE TECHNOLOGY CORPORATION, a Delaware corporation ("Company"),
hereby certifies that ODYSSEY CAPITAL, LLC, its registered successors and
permitted assigns registered on the books of the Company maintained for such
purposes, as the registered holder hereof ("Holder"), for value received, is
entitled to purchase from the Company the number of fully paid and
non-assessable shares of Common Stock of the Company, $.01 par value ("Shares"
or "Common Stock"), stated above at the purchase price per Share set forth in
Section 1(b) below (the number of Shares and Exercise Price being subject to
adjustment as hereinafter provided) upon the terms and conditions herein
provided.
RECITALS
WHEREAS, Odyssey Capital, LLC was engaged by the Company to serve as
its non-exclusive financial advisor and pursuant to such engagement, the Company
is hereby issuing to Holder, a warrant to purchase shares of Common Stock (this
"Warrant"), subject to the following terms and conditions:
1. Exercise of Warrants.
(a) Subject to subsection (b) of this Section 1, upon presentation and
surrender of this Warrant Agreement, with the attached Purchase Form duly
executed, at the principal office of the Company, or at such other place as the
Company may designate by notice to the Holder hereof, together with a certified
or bank cashier's check payable to the order of the Company in the amount of the
Exercise Price times the number of Shares being purchased (or in the case of
exercise pursuant to Section 1(c)(i) or (ii), as set forth in such sections),
the Company shall deliver to the Holder hereof, as promptly as practicable,
certificates representing the Shares being purchased. This Warrant may be
exercised in whole or in part; and, in case of exercise hereof in part only, the
Company, upon surrender hereof, will deliver to the Holder a new Warrant
Agreement or Warrant Agreements of like tenor entitling the Holder to purchase
the number of Shares as to which this Warrant has not been exercised.
WARRANT AGREEMENT AUGUST 4, 2003
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(b) This Warrant may be exercised at a price of $0.16 per share (the
"Exercise Price"); provided however, that the Exercise Price shall be subject to
adjustment pursuant to Section 6(b). The Warrant shall expire upon the close of
business July 31, 2007.
(c) The Exercise Price shall be payable at the time of exercise. The
Exercise Price may be paid in cash (by cashiers' check) or by: (i) surrender of
shares of Common Stock of the Company already owned by the Holder, having a
Market Price (as defined below) equal to the Exercise Price per share; or (ii)
upon surrender of the Warrant at the principal office of the Company together
with notice of election, in which event the Company shall issue Holder a number
of Shares computed using the following formula:
X = Y (A-B)/A
where: X = the number of Shares to be issued to Holder (not to exceed
the number of Shares set forth on the cover page of this
Warrant Agreement, as adjusted pursuant to the provisions of
Section 6 of this Warrant Agreement).
Y = the number of Shares for which the Warrant is being
exercised.
A = the Market Price of one Share (for purposes of this
Section 1(c)), the "Market Price" shall be defined as the
average closing price on the exchange on which the Common
Stock trades for the five trading days prior to the date of
exercise of this Warrant Agreement; provided if the Common
Stock does not trade on any exchange, the Market Price shall
equal the average closing bid price in the over-the-counter
market for the five trading days prior to the date of exercise
of this Warrant Agreement, as reported by the National
Association of Securities Dealers Automated Quotation System;
and, provided further, that if the common stock is not quoted
or listed by any organization, the fair value of the common
stock, as determined by the Board of Directors of the Company,
whose determination shall be conclusive, shall be used).
B = the Exercise Price.
2. Exchange and Transfer of Warrant.
At any time prior to the exercise hereof, upon presentation and
surrender to the Company, this Warrant (a) may be exchanged, alone or with other
Warrants of like tenor registered in the name of the Holder, for another Warrant
or other Warrants of like tenor in the name of such Holder exercisable for the
same aggregate number of Shares as the Warrant or Warrants surrendered, but (b)
may not be sold, transferred, hypothecated, or assigned, in whole or in part,
without the prior written consent of the Company.
3. Rights and Obligations of Warrant Holder.
(a) The Holder of this Warrant Agreement shall not, by virtue hereof,
be entitled to any rights of a stockholder in the Company, either at law or in
equity; provided, however, that in the event that any certificate representing
the Shares is issued to the Holder hereof upon exercise of this Warrant, such
Holder shall, for all purposes, be deemed to have become the holder of record of
such Shares on the date on which this Warrant Agreement, together with a duly
executed Purchase Form, was surrendered and payment of the Exercise Price was
made, irrespective of the date of delivery of such Share certificate. The rights
of the Holder of this Warrant are limited to those expressed herein and the
Holder of this Warrant, by his acceptance hereof, consents to and agrees to be
bound by and to comply with all the provisions of this Warrant Agreement,
including, without limitation, all the obligations imposed upon the Holder
hereof by Sections 2 and 5 hereof. In addition, the Holder of this Warrant
Agreement, by accepting the same, agrees that the Company may deem and treat the
person in whose name this Warrant Agreement is registered on the books of the
Company maintained for such
WARRANT AGREEMENT AUGUST 4, 2003
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purposes as the absolute, true and lawful owner for all purposes whatsoever,
notwithstanding any notation of ownership or other writing thereon, and the
Company shall not be affected by any notice to the contrary.
(b) No Holder of this Warrant Agreement shall be entitled to vote or
receive dividends or to be deemed the holder of Shares for any purpose, nor
shall anything contained in this Warrant Agreement be construed to confer upon
any Holder of this Warrant Agreement any of the rights of a stockholder of the
Company or any right to vote, give or withhold consent to any action by the
Company, whether upon any recapitalization, issue of stock, reclassification of
stock, consolidation, merger, conveyance or otherwise, receive notice of
meetings or other action affecting stockholders (except for notices provided for
herein), receive dividends, subscription rights, or otherwise, until this
Warrant shall have been exercised and the Shares purchasable upon the exercise
thereof shall have become deliverable as provided herein; provided, however,
that any such exercise on any date when the stock transfer books of the Company
shall be closed shall constitute the person in whose name the certificate for
those Shares are to be issued as the record holder thereof for all purposes at
the opening of business on the next succeeding day on which such stock transfer
books are open, and the Warrant surrendered shall not be deemed to have been
exercised, in whole or in part as the case may be, until the next succeeding day
on which stock transfer books are open for the purpose of determining
entitlement to dividends on the Company's common stock.
4. Shares Underlying Warrant.
The Company covenants and agrees that all Shares delivered upon
exercise of this Warrant shall, upon delivery and payment therefor, be duly and
validly authorized and issued, fully paid and non-assessable, and free from all
stamp taxes, liens and charges with respect to the purchase thereof.
5. Representations and Warranties of Holder; Disposition of
Warrant or Shares.
(a) The Holder acknowledges that it has had access to all material
information concerning the Company which it has requested. The Holder also
acknowledges that it has had the opportunity to, and has to its satisfaction,
questioned the officers of the Company with respect to this Warrant. The Holder
is purchasing the Warrant and any Common Stock issued upon exercise thereof for
investment for its own account only and not with a view to, or for resale in
connection with, any "distribution" thereof in violation of the Act or State
Acts. The Holder further represents that it understands that the Warrant and
Common Stock to be issued upon exercise thereof have not been registered under
the Act or State Acts by reason of specific exemptions therefrom, which
exemptions depend upon, among other things, the bona fide nature of the Holder's
investment intent as expressed herein. The Holder is an "accredited investor" as
defined in Regulation D promulgated under the Act.
(b) The Holder of this Warrant Agreement and any transferee hereof or
of the Shares issuable upon the exercise of the Warrant Agreement, by their
acceptance hereof, hereby understand and agree that the Warrant, and the Shares
issuable upon the exercise hereof, have not been registered under either the Act
or State Acts and shall not be sold, pledged, hypothecated, or otherwise
transferred (whether or not for consideration) except upon the issuance to the
Company of an opinion of counsel favorable to the Company or its counsel or
submission to the Company of such evidence as may be satisfactory to the Company
or its counsel, in each such case, to the effect that any such transfer shall
not be in violation of the Act or the State Acts. It shall be a condition to the
transfer of this Warrant that any transferee of this Warrant deliver to the
Company his written agreement to accept and be bound by all of the terms and
conditions of this Warrant Agreement.
(c) The stock certificates of the Company that will evidence the shares
of Common Stock with respect to which this Warrant may be exercisable will be
imprinted with a conspicuous legend in substantially the following form:
WARRANT AGREEMENT AUGUST 4, 2003
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"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER EITHER THE SECURITIES ACT OF 1933 ("ACT") OR
THE SECURITIES LAWS OF ANY STATE ("STATE ACTS"). SUCH
SECURITIES SHALL NOT BE SOLD, PLEDGED, HYPOTHECATED, OR
OTHERWISE TRANSFERRED (WHETHER OR NOT FOR CONSIDERATION) AT
ANY TIME WHATSOEVER EXCEPT UPON REGISTRATION OR UPON DELIVERY
TO THE COMPANY OF AN OPINION OF ITS COUNSEL SATISFACTORY TO
THE COMPANY OR ITS COUNSEL THAT REGISTRATION IS NOT REQUIRED
FOR SUCH TRANSFER OR THE SUBMISSION OF SUCH OTHER EVIDENCE AS
MAY BE SATISFACTORY TO THE COMPANY OR ITS COUNSEL TO THE
EFFECT THAT ANY SUCH TRANSFER SHALL NOT BE IN VIOLATION OF THE
ACT, STATE ACTS OR ANY RULE OR REGULATION PROMULGATED
THEREUNDER."
(d) The Company has granted Holder registration rights to the shares
underlying this Warrant, as set forth in the Registration Rights Agreement
between the Company and the Holder dated July 3, 2003.
6. Adjustments.
The number of Shares purchasable upon the exercise of each Warrant is
subject to adjustment from time to time upon the occurrence of any of the events
enumerated below:
(a) If at any time after the date of this Warrant and so long as this
Warrant is outstanding, there is (i) a stock split, stock dividend, subdivision,
or similar distribution with respect to the Common Stock, (ii) a combination of
the Common Stock, or (iii) a sale or issuance of Common Stock, or exchangeable
for its Common Stock, or any rights, options or warrants to subscribe for or to
purchase of its Common Stock, then, in such event, the Exercise Price shall be
adjusted in accordance with (b) below.
(b) Immediately upon the effective date of any event requiring
adjustment pursuant to (a), the Company shall adjust the Exercise Price then in
effect (to the nearest whole cent) as follows:
(i) If the Company (A) shall pay a stock dividend or otherwise
make a distribution or distributions on shares of its Common Stock
payable in shares of Common Stock, (B) subdivide outstanding shares of
Common Stock into a larger number of shares, (C) combine outstanding
shares of Common Stock into a smaller number of shares, or (D) issue by
reclassification of shares of Common Stock any shares of capital stock
of the Company, 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 before such event and
of which the denominator shall be the number of shares of Common Stock
outstanding after such event. Any adjustment made pursuant to this
subparagraph (i) shall become effective immediately after the record
date for the determination of stockholders 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.
(ii) If the Company shall distribute to all holders of Common
Stock evidences of its indebtedness or assets or rights or warrants to
subscribe for or purchase any security (excluding those referred to in
subparagraph (i) above), then in each such case the Exercise Price
shall be determined by multiplying the Exercise Price in effect
immediately prior to the record date fixed for determination of
stockholders entitled to receive such distribution by a fraction of
which the denominator shall be the Market Price of Common Stock
determined as of the record date mentioned above, and of which the
numerator shall be such Market Price of the Common Stock on such record
date less the then 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 Common Stock as determined by the Company's
board of directors in good faith; provided, however, that if the Holder
disputes such amount, the Holder may select a nationally recognized or
major regional investment banking firm or firm of independent certified
WARRANT AGREEMENT AUGUST 4, 2003
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public accountants of recognized standing (an "Appraiser") paid for by
the Holder and the Company equally, in which case the fair market value
shall be equal to the average of the determinations by the Company's
board of directors and such Appraiser. 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.
(iii) In case the Company (A) consolidates with or merges into
any other entity and is not the continuing or surviving entity of such
consolidation or merger, or (B) permits any other entity to consolidate
with or merge into the Company and the Company is the continuing or
surviving Company but, in connection with such consolidation or merger,
the Common Stock is changed into or exchanged for common stock or other
securities of any other entity or cash or any other assets, or (C)
transfers all or substantially all of its properties and assets to any
other entity, or (D) effects a reorganization or reclassification of
the equity of the Company in such a way that holders of Common Stock
shall be entitled to receive stock, securities, cash or assets with
respect to or in exchange for Common Stock, then, and in each such
case, proper provision shall be made so that, upon the exercise of the
Warrant at any time after the consummation of such consolidation,
merger, transfer, reorganization or reclassification, the Holder shall
be entitled to receive (at the Exercise Price in effect for Common
Stock issuable upon such exercise of the Warrant immediately prior to
such consummation), in lieu of Common Stock issuable upon such exercise
of the Warrant prior to such consummation, the stock and other
securities, cash and assets to which the Holder would have been
entitled upon such consummation if such Holder had so exercised the
Warrant immediately prior thereto.
(iv) In the event that the Company issues or sells any Common
Stock or securities which are convertible into or exchangeable for its
Common Stock, or any rights, options or warrants to subscribe for or to
purchase its Common Stock for "Consideration" (as defined below) at a
price per share ("Per Share Selling Price") which is less than the
Exercise Price in effect immediately prior to the time of such issue or
sale, then the Exercise Price shall be adjusted downward to equal such
lower Per Share Selling Price effective concurrently with such issue or
sale. Notwithstanding the foregoing, the foregoing adjustments shall
not apply to the issuance of (A) shares of Common Stock upon exercise
of rights, options, warrants and other convertible securities
outstanding on the date of this Warrant and have been disclosed in the
Company's Form 10-K for fiscal year ended December 31, 2002 and the
Company's Form 10-Q for the quarter ended March 31, 2003, or (B) shares
of Common Stock issued upon the exercise of stock options granted
pursuant to the Company's employee stock option plan in effect from
time to time (and as amended if approved by the stockholders of the
Company).
For purposes of this subparagraph (iv), the following provisions will
be applicable:
(V) In the case of an issue or sale for cash of
shares of Common Stock, the "Consideration" received by the
Company therefor shall be deemed to be the amount of cash
received, before deducting therefrom any commissions or
expenses paid by the Company.
(W) In case of the issuance (otherwise than upon
conversion or exchange of obligations or shares of stock of
the Company) of additional shares of Common Stock for a
consideration other than cash or a consideration partly other
than cash, the amount of the consideration other than cash
received by the Company for such shares shall be deemed to be
the fair value of such consideration as determined in good
faith by the Company's board of directors.
WARRANT AGREEMENT AUGUST 4, 2003
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(X) In the case of the issuance by the Company in any
manner of any rights to subscribe for or to purchase shares of
Common Stock, or any options for the purchase of shares of
Common Stock or stock convertible into Common Stock, all
shares of Common Stock or stock convertible into Common Stock
to which the holders of such rights or options shall be
entitled to subscribe for or purchase pursuant to such rights
or options shall be deemed to be outstanding as of the date of
the offering of such rights or the granting of such options,
as the case may be, and the minimum aggregate consideration
named in such rights or options for the shares of Common Stock
or stock convertible into Common Stock covered thereby, plus
the consideration, if any, received by the Company for such
rights or options, shall be deemed to be the "Consideration"
received by the Company (as of the date of the offering of
such rights or the granting of such options, as the case may
be) for the issuance of such shares.
(Y) In case of the issuance or issuances by the
Company in any manner of any obligations or of any shares of
stock of the Company that shall be convertible into or
exchangeable for Common Stock, all shares of Common Stock
issuable upon the conversion or exchange of such obligations
or shares shall be deemed to be issued as of the date such
obligations or shares are issued, and the amount of the
"Consideration" received by the Company for such additional
shares of Common Stock shall be deemed to be the total of (x)
the amount of consideration received by the Company upon the
issuance of such obligations or shares, as the case may be,
plus (y) the minimum aggregate consideration, if any, other
than such obligations or shares, receivable by the Company
upon such conversion or exchange, except in adjustment of
dividends.
(Z) The amount of the "Consideration" received by the
Company upon the issuance of any rights or options referred to
in subparagraph (X) above or upon the issuance of any
obligations or shares which are convertible or exchangeable as
described in subparagraph (Y) above, and the amount of the
consideration, if any, other than such obligations or shares
so convertible or exchangeable, receivable by the Company upon
the exercise, conversion or exchange thereof shall be
determined in the same manner provided in subparagraphs (V)
and (W) above with respect to the consideration received by
the Company in case of the issuance of additional shares of
Common Stock; provided, however, that if such obligations or
shares of stock so convertible or exchangeable are issued in
payment or satisfaction of any dividend upon any stock of the
Company other than Common Stock, the amount of the
"Consideration" received by the Company upon the original
issuance of such obligations or shares of stock so convertible
or exchangeable shall be deemed to be the value of such
obligations or shares of stock, as of the date of the adoption
of the resolution declaring such dividend, as determined by
the board of directors as of that date. Upon the expiration of
any rights or options referred to in subparagraph (X), or the
termination of any right of conversion or exchange referred to
in subparagraph (Y), or any change in the number of shares of
Common Stock deliverable upon exercise of such options or
rights or upon conversion of or exchange of such convertible
or exchangeable securities, the Exercise Price then in effect
shall forthwith be readjusted to such Exercise Price as would
have obtained had the adjustments made upon the issuance of
such options, rights or convertible or exchangeable securities
been made upon the basis of the delivery of only the number of
shares of Common Stock actually delivered or to be delivered
upon the exercise of such rights or options or upon the
conversion or exchange of such securities.
(c) Upon each adjustment of the Exercise Price pursuant to (b) above,
the Warrant outstanding prior to such adjustment in the Exercise Price shall
thereafter evidence the right to purchase, at the adjusted Exercise Price, that
number of shares of Common Stock (calculated to the nearest hundredth) obtained
by (i) multiplying the number of shares of Common Stock issuable upon exercise
of the Warrant prior to adjustment
WARRANT AGREEMENT AUGUST 4, 2003
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of the number of shares of Common Stock by the Exercise Price in effect prior to
adjustment of the Exercise Price and (ii) dividing the product so obtained by
the Exercise Price in effect after such adjustment of the exercise price.
(d) In case the Company (i) consolidates with or merges into any other
entity and is not the continuing or surviving entity of such consolidation or
merger, or (ii) permits any other entity to consolidate with or merge into the
Company and the Company is the continuing or surviving Company but, in
connection with such consolidation or merger, the Common Stock is changed into
or exchanged for common stock or other securities of any other entity or cash or
any other assets, or (iii) transfers all or substantially all of its properties
and assets to any other entity, or (iv) effects a reorganization or
reclassification of the equity of the Company in such a way that holders of
Common Stock shall be entitled to receive stock, securities, cash or assets with
respect to or in exchange for Common Stock, then, and in each such case, proper
provision shall be made so that, upon the exercise of this Warrant at any time
after the consummation of such consolidation, merger, transfer, reorganization
or reclassification, the Holder shall be entitled to receive (at the aggregate
Exercise Price in effect for Common Stock issuable upon such exercise of this
Warrant immediately prior to such consummation), in lieu of Common Stock
issuable upon such exercise of this Warrant prior to such consummation, the
stock and other securities, cash and assets to which such Holder would have been
entitled upon such consummation if such Holder had so exercised this Warrant
immediately prior thereto.
7. Loss or Destruction.
Upon receipt of evidence satisfactory to the Company of the loss,
theft, destruction or mutilation of this Warrant Agreement and, in the case of
any such loss, theft or destruction, upon delivery of an indemnity agreement or
bond satisfactory in form, substance and amount to the Company or, in the case
of any such mutilation, upon surrender and cancellation of this Warrant
Agreement, the Company will execute and deliver, in lieu thereof, a new Warrant
Agreement of like tenor.
8. Survival.
The various representations, warranties, rights and obligations of the
Holder hereof as set forth herein shall survive the exercise of the Warrants
represented hereby and the surrender of this Warrant Agreement.
9. Notices.
Whenever any notice, payment of any purchase price, or other
communication is required to be given or delivered under the terms of this
Warrant, it shall be in writing and delivered by hand delivery or United States
registered or certified mail, return receipt requested, postage prepaid (or
similar delivery if outside of the United States), and will be deemed to have
been given or delivered on the date such notice, purchase price or other
communication is so delivered or posted, as the case may be; and, if to the
Company, it will be addressed to the address specified on the cover page hereof,
and if to the Holder, it will be addressed to the registered Holder at its, his
or his address as it appears on the books of the Company.
TERAFORCE TECHNOLOGY CORPORATION
By:
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Name:
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Title:
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WARRANT AGREEMENT AUGUST 4, 2003
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HOLDER:
ODYSSEY CAPITAL, LLC
By:
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Name:
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Title:
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WARRANT AGREEMENT AUGUST 4, 2003
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PURCHASE FORM
(To be signed only upon exercise of Warrant)
To TERAFORCE TECHNOLOGY CORPORATION:
The undersigned, the holder of the enclosed Warrant, hereby irrevocably
elects to exercise the purchase right represented by such Warrant for, and to
purchase thereunder, _________* shares of Common Stock of TeraForce Technology
Corporation and herewith makes payment of $_______________ therefor, and
requests that the certificate or certificates for such shares be issued in the
name of and delivered to the undersigned.
Dated:
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(Signature must conform in all respects to
name of holder as specified on the face of
the enclosed Warrant)
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(Address)
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(SSN#)
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(*) Insert here the number of shares called for on the face of the Warrant
without making any adjustment for additional Common Stock or any other
stock or other securities or property or cash which, pursuant to the
adjustment provisions of the Warrant Agreement pursuant to which the
Warrant was granted, may be delivered upon exercise.
WARRANT AGREEMENT AUGUST 4, 2003
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