EXHIBIT 10.4
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAWS. NO SALE OR DISPOSITION MAY BE EFFECTED
WITHOUT (i) AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO, (ii) AN OPINION
OF COUNSEL FOR THE HOLDER, REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH
REGISTRATION IS NOT REQUIRED, (iii) RECEIPT OF A NO-ACTION LETTER(S) FROM THE
APPROPRIATE GOVERNMENTAL AUTHORITY(IES), OR (iv) OTHERWISE COMPLYING WITH THE
PROVISIONS OF SECTION 8 OF THIS WARRANT.
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TAYLOR MADISON CORP.
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CLASS B WARRANT TO PURCHASE SHARES
OF COMMON STOCK (this "WARRANT")
Warrant No.: B - 000
Xxxxxx Xxxxxxx Corp., a Florida corporation (the "COMPANY"), hereby certifies
that, for value received, _______________________(the "HOLDER"), or registered
assigns, is the registered holder of a warrant (the "WARRANT") to subscribe for
and purchase ___________ shares of the fully paid and nonassessable Common Stock
(as adjusted pursuant to Section 4 hereof, the "WARRANT SHARES")(1) of
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the Company, at the price of $.80 per share (such price and such other price as
shall result, from time to time, from the adjustments specified in Section 4
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hereof is herein referred to as the "WARRANT PRICE"), subject to the provisions
and upon the terms and conditions hereinafter set forth. As used herein, (a)
the term "COMMON STOCK" shall mean the Company's presently authorized Common
Stock, par value $.001 per share, and any stock into or for which such Common
Stock may hereafter be converted or exchanged, (b) the term "DATE OF GRANT"
shall mean June __, 2005, and (c) the term "OTHER WARRANTS" shall mean any
warrant issued upon transfer or partial exercise of this Warrant. The term
"WARRANT" as used herein shall be deemed to include Other Warrants unless the
context hereof or thereof clearly requires otherwise.
The Warrant evidenced by this warrant certificate is a portion of a series of
like warrants (collectively, the "SERIES WARRANTS") exercisable for the purchase
of up to an aggregate of ______ shares of the Company's Common Stock (the
"SERIES WARRANT SHARES"), on the Date of Grant, which Series Warrants are
evidenced by certificates of like tenor (the "SERIES WARRANT CERTIFICATES") that
have been issued pursuant to that certain Securities Purchase Agreement dated of
even date herewith (the "SECURITIES PURCHASE AGREEMENT"), between the Company,
the Holder, and other investors a party thereto.
1. Term. The purchase right represented by this Warrant is
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exercisable, in whole or in part, at any time after June __, 2005 (the "INITIAL
EXERCISE DATE") and from time to time thereafter through and including the close
of business on the date five years from the date that a Registration Statement
on Form SB-2 (or an alternative available form if the Company is not eligible to
file a Form SB-2) covering the Warrants and underlying Warrant Shares, the
shares of Common Stock issuable on exercise of the Warrants (the "EXPIRATION
DATE"); provided, however, that in the event that any portion of this Warrant is
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unexercised as of the Expiration Date, the terms of Section 2(b), below, shall
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apply.
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(1) Upon completion of this offering, the Company intends on effecting a
1-for-31 reverse stock split (the "Reverse Stock Split"). The amount
calculated above equals the number of Warrant Shares on a post-Reverse
Stock Split Basis. On a pre-Reverse Stock Split basis, the number of
Warrant Shares equals
2. Exercise; Expiration; Redemption.
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a. Method of Exercise; Payment; Issuance of New Warrant. Subject to
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Section 1 hereof, the purchase right represented by this Warrant may be
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exercised by the holder hereof, in whole or in part and from time to time after
the Initial Exercise Date, by the surrender of this Warrant (with the notice of
exercise form attached hereto as Exhibit A duly executed) at the principal
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office of the Company and by the payment to the Company of an amount equal to
the then applicable Warrant Price multiplied by the number of Warrant Shares
then being purchased. The person or persons in whose name(s) any certificate(s)
representing shares of Common Stock shall be issuable upon exercise of this
Warrant shall be deemed to have become the holder(s) of record of, and shall be
treated for all purposes as the record holder(s) of, the shares represented
thereby (and such shares shall be deemed to have been issued) immediately prior
to the close of business on the date or dates upon which this Warrant is
exercised. In the event of any exercise of the rights represented by this
Warrant, certificates for the shares of stock so purchased shall be delivered to
the holder hereof as soon as possible and in any event within thirty (30) days
after such exercise and, unless this Warrant has been fully exercised, a new
Warrant representing the portion of the Warrant Shares, if any, with respect to
which this Warrant shall not then have been exercised shall also be issued to
the holder hereof as soon as possible and in any event within such thirty
(30)-day period.
b. Expiration. In the event that any portion of this Warrant is
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unexercised as of the Expiration Date, such portion of this Warrant shall
automatically expire, and the Holder shall have no rights with respect to such
unexercised portion of this Warrant.
3. Stock Fully Paid; Reservation of Shares. All Warrant Shares that
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may be issued upon the exercise of the rights represented by this Warrant will,
upon issuance pursuant to the terms and conditions herein, be fully paid and
nonassessable, and free from all taxes (other than any taxes determined with
respect to, or based upon, the income of the person to whom such shares are
issued), liens and charges (other than liens or charges created by actions of
the holder of this Warrant or the person to whom such shares are issued), and
pre-emptive rights with respect to the issue thereof. During the period within
which the rights represented by this Warrant may be exercised, the Company will
at all times have authorized, and reserved for the purpose of the issue upon
exercise of the purchase rights evidenced by this Warrant, a sufficient number
of shares of its Common Stock to provide for the exercise of the rights
represented by this Warrant.
4. Adjustment of Warrant Price and Number of Shares. The number and
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kind of securities purchasable upon the exercise of this Warrant and the Warrant
Price shall be subject to adjustment from time to time upon the occurrence of
certain events, as follows:
a. Adjustment for Initial Errors. The Company hereby acknowledges that
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the number of Series Warrant Shares constituting the initial number of
securities purchasable upon the exercise of the Series Warrants (the "EXERCISE
QUANTITY") was based upon the Company's representations as to the amount of
outstanding Common Stock (on a fully diluted basis excluding shares issuable
pursuant to employee and director stock options) on the Date of Grant, as set
forth in Securities Purchase Agreement. If for any reason it shall hereafter be
determined that the actual amount of Common Stock outstanding as of the Date of
Grant caused the calculation of the Exercise Quantity to be erroneous, then the
Company or the holder (whichever shall discover such error) shall notify the
other of such determination and the Company shall forthwith reissue the Warrant
or the Series Warrants, as the case may be, with an appropriate proportional
adjustment in said number to be effective from the Date of Grant.
2
b. Reclassification or Merger. In case of any reclassification, change
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or conversion of securities of the class issuable upon exercise of this Warrant
(other than a change in par value, or from par value to no par value, or from no
par value to par value, or as a result of a subdivision or combination), or in
case of any merger of the Company with or into another corporation (other than a
merger with another corporation in which the Company is the acquiring and the
surviving corporation and which does not result in any reclassification or
change of outstanding securities issuable upon exercise of this Warrant), or in
case of any sale of all or substantially all of the assets of the Company, the
Company, or such successor or purchasing corporation, as the case may be, shall
duly execute and deliver to the holder of this Warrant a new Warrant (in form
and substance satisfactory to the holder of this Warrant), so that the holder of
this Warrant shall have the right to receive, at a total purchase price not to
exceed that payable upon the exercise of the unexercised portion of this
Warrant, and in lieu of the shares of Common Stock theretofore issuable upon
exercise of this Warrant, the kind and amount of shares of stock, other
securities, money and property receivable upon such reclassification, change or
merger by a holder of the number of shares of Common Stock then purchasable
under this Warrant. Such new Warrant shall provide for adjustments that shall
be as nearly equivalent as may be practicable to the adjustments provided for in
this Section 4. The provisions of this Section 4(b) shall similarly apply to
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successive reclassifications, changes, mergers and transfers.
c. Subdivision or Combination of Shares. If at any time while this
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Warrant remains outstanding and unexpired the Company shall subdivide or combine
its outstanding shares of Common Stock, the Warrant Price shall be
proportionately decreased in the case of a subdivision or increased in the case
of a combination, effective at the close of business on the date the subdivision
or combination becomes effective.
d. Stock Dividends. If at any time while this Warrant is outstanding
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and unexpired the Company shall pay a dividend with respect to Common Stock
payable in Common Stock, then the Warrant Price shall be adjusted, from and
after the date of determination of stockholders entitled to receive such
dividend or distribution, to that price determined by multiplying the Warrant
Price in effect immediately prior to such date of determination by a fraction
(i) the numerator of which shall be the total number of shares of Common Stock
outstanding immediately prior to such dividend, and (ii) the denominator of
which shall be the total number of shares of Common Stock outstanding
immediately after such dividend.
e. Sales to Affiliates. If at any time while this Warrant is
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outstanding and unexpired the Company shall sell or grant shares of its equity
securities or rights, options, warrants or convertible or exchangeable
securities of the Company to any Affiliate of the Company, in all instances at
below fair market value, then the Warrant Price shall be reduced, from and after
the date of such sale, to the lesser of (i) the price to such Affiliate of the
Company and (ii) that price determined by multiplying the Warrant Price in
effect immediately prior to such date of sale by a fraction (x) the numerator of
3
which shall be the total number of shares of Common Stock outstanding
immediately prior to such dividend, and (y) the denominator of which shall be
the total number of shares of Common Stock outstanding immediately after such
sale. The number of shares for which the Warrant is exercisable shall be
proportionately increased so that the aggregate Warrant Price shall remain the
same. In the event such sale is not so consummated, the Warrant Price shall
again be adjusted to the Warrant Price that would then be in effect if the
Affiliate of the Company had not so purchased such shares, but such subsequent
adjustment shall not affect the number of Warrant Shares issued upon any
exercise of the Warrant prior to the date such subsequent adjustment was made.
As used herein, "AFFILIATE OF THE COMPANY" shall mean (1) any Person (other than
a purchaser of Series A Preferred Stock or any Affiliate of such purchaser) that
directly or indirectly through one or more intermediaries, Controls or is
Controlled by or is under common Control with the Company, (2) any owner,
shareholder or director of the Company, and (3) any spouse or any person related
by birth or marriage to any Affiliate of the Company described in clauses (1)
and (2) above and "CONTROL" shall mean the possession, directly or indirectly,
of the power to direct or cause the direction of the management or policies of a
Person, whether through the ownership of voting securities, by contract or
otherwise.
f. Rights Offerings. In case the Company shall, at any time after the
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Date of Grant, issue rights, options or warrants to the holders of equity
securities of the Company, entitling them to subscribe for or purchase shares of
Common Stock (or securities convertible or exchangeable into Common Stock) at a
price per share of Common Stock (or having a conversion or exchange price per
share of Common Stock if a security convertible or exchangeable into Common
Stock) less than the fair market value per share of Common Stock on the record
date for such issuance (or the date of issuance, if there is no record date),
the Warrant Price to be in effect on and after such record date (or issuance
date, as the case may be) shall be determined by multiplying the Warrant Price
in effect immediately prior to such record date (or issuance date, as the case
may be) by a fraction (i) the numerator of which shall be the number of shares
of Common Stock outstanding on such record date (or issuance date, as the case
may be) plus the number of shares of Common Stock which the aggregate offering
price of the total number of shares of such Common Stock so to be offered (or
the aggregate initial exchange or conversion price of the exchangeable or
convertible securities so to be offered) would purchase at such fair market
value on such record date (or issuance date, as the case may be) and (ii) the
denominator of which shall be the number of shares of Common Stock outstanding
on such record date (or issuance date, as the case may be) plus the number of
additional shares of Common Stock to be offered for subscription or purchase (or
into which the convertible securities to be offered are initially exchangeable
or convertible). In case such purchase or subscription price may be paid in
part or in whole in a form other than cash, the fair value of such consideration
shall be determined by the Board of Directors of the Company in good faith as
set forth in a duly adopted board resolution certified by the Company's
Secretary or Assistant Secretary. Such adjustment shall be made successively
whenever such an issuance occurs; and in the event that such rights, options,
warrants, or convertible or exchangeable securities are not so issued or expire
or cease to be convertible or exchangeable before they are exercised, converted,
or exchanged (as the case may be), then the Warrant Price shall again be
adjusted to be the Warrant Price that would then be in effect if such issuance
had not occurred, provided however, the Company shall adjust the number of
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Warrant Shares issued upon any exercise of this Warrant after the adjustment
4
required pursuant to this Section 4(f) but prior to the date such subsequent
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adjustment is made, in order to equitably reflect the fact that such rights,
options, warrants, or convertible or exchangeable securities were not so issued
or expired or ceased to be convertible or exchangeable before they were
exercised, converted, or exchanged (as the case may be).
g. Special Distributions. In case the Company shall fix a record date
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for the making of a distribution to all holders of shares of Common Stock
(including any such distribution made in connection with a consolidation or
merger in which the Company is the surviving corporation) or evidences of
indebtedness or assets (other than dividends and distributions referred to in
Sections 4(c) and 4(d) above and other than cash dividends) or of subscription
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rights, options, warrants, or exchangeable or convertible securities containing
the right to subscribe for or purchase shares of any class of equity securities
of the Company (excluding those referred to in Section 4(e) above), the Warrant
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Price to be in effect on and after such record date shall be adjusted by
multiplying the Warrant Price in effect immediately prior to such record date by
a fraction (i) the numerator of which shall be the fair market value per share
of Common Stock on such record date, less the fair value (as determined by the
Board of Directors of the Company in good faith as set forth in a duly adopted
board resolution certified by the Company's Secretary or Assistant Secretary) of
the portion of the assets or evidences of indebtedness so to be distributed or
of such subscription rights, options, warrants, or exchangeable or convertible
securities applicable to one (1) share of the Common Stock outstanding as of
such record date, and (ii) the denominator of which shall be such fair market
value per share of Common Stock. Such adjustment shall be made successively
whenever such a record date is fixed; and in the event that such distribution is
not so made, the Warrant Price shall again be adjusted to be the Warrant Price
which would then be in effect if such record date had not been fixed, but such
subsequent adjustment shall not affect the number of Warrant Shares issued upon
any exercise of this Warrant prior to the date such subsequent adjustment was
made.
h. Other Issuances of Securities. In case the Company or any
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Subsidiary shall, at any time after the Date of Grant, issue shares of Common
Stock, or rights, options, warrants or convertible or exchangeable securities
containing the right to subscribe for or purchase shares of Common Stock
(excluding (i) shares, rights, options, warrants, or convertible or exchangeable
securities or issued in any of the transactions described in Sections 4(b),
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4(c), 4(d), 4(e), 4(f) or 4(g) above, (ii) shares issued upon the exercise of
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such rights, options or warrants or upon conversion or exchange of such
convertible or exchangeable securities, (iii) this Warrant and any shares issued
upon exercise thereof, (iv) shares or options issued to employees or directors
of the Company, (v) warrants issued as compensation or in lieu of payment in
connection with legitimate business arrangements and (vi) shares issues upon
conversion of the shares of the Company's preferred stock outstanding on the
date of this Warrant), at a price per share of Common Stock (determined in the
case of such rights, options, warrants, or convertible or exchangeable
securities by dividing (x) the total amount receivable by the Company in
consideration of the sale and issuance of such rights, options, warrants, or
convertible or exchangeable securities, plus the total minimum consideration
payable to the Company upon exercise, conversion, or exchange thereof by (y) the
total maximum number of shares of Common Stock covered by such rights, options,
warrants, or convertible or exchangeable securities) lower than the fair market
value per share of Common Stock on the date the Company fixes the offering price
5
of such shares, rights, options, warrants, or convertible or exchangeable
securities, then the Warrant Price shall be adjusted so that it shall equal the
price determined by multiplying the Warrant Price in effect immediately prior
thereto by a fraction (i) the numerator of which shall be the sum of (A) the
number of shares of Common Stock outstanding immediately prior to such sale and
issuance plus (B) the number of shares of Common Stock which the aggregate
consideration received (determined as provided below) for such sale or issuance
would purchase at such fair market value per share, and (ii) the denominator of
which shall be the total number of shares of Common Stock outstanding
immediately after such sale and issuance. Such adjustment shall be made
successively whenever such an issuance is made. For the purposes of such
adjustment, the maximum number of shares of Common Stock which the holder of any
such rights, options, warrants or convertible or exchangeable securities shall
be entitled to subscribe for or purchase shall be deemed to be issued and
outstanding as of the date of such sale and issuance and the consideration
received by the Company therefor shall be deemed to be the consideration
received by the Company for such rights, options, warrants, or convertible or
exchangeable securities, plus the minimum consideration or premium stated in
such rights, options, warrants, or convertible or exchangeable securities to be
paid for the shares of Common Stock covered thereby. In case the Company shall
sell and issue shares of Common Stock, or rights, options, warrants, or
convertible or exchangeable securities containing the right to subscribe for or
purchase shares of Common Stock for a consideration consisting, in whole or in
part, of property other than cash or its equivalent, then in determining the
price per share of Common Stock and the consideration received by the Company
for purposes of the first sentence of this Section 4(h), the Board of Directors
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of the Company shall determine, in good faith, the fair value of said property,
and such determination shall be described in a duly adopted board resolution
certified by the Company's Secretary or Assistant Secretary. In case the
Company shall sell and issue rights, options, warrants, or convertible or
exchangeable securities containing the right to subscribe for or purchase shares
of Common Stock together with one (1) or more other securities as a part of a
unit at a price per unit, then in determining the price per share of Common
Stock and the consideration received by the Company for purposes of the first
sentence of this Section 4(h), the Board of Directors of the Company shall
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determine, in good faith, which determination shall be described in a duly
adopted board resolution certified by the Company's Secretary or Assistant
Secretary, the fair value of the rights, options, warrants, or convertible or
exchangeable securities then being sold as part of such unit. Such adjustment
shall be made successively whenever such an issuance occurs, and in the event
that such rights, options, warrants, or convertible or exchangeable securities
expire or cease to be convertible or exchangeable before they are exercised,
converted, or exchanged (as the case may be), then the Warrant Price shall again
be adjusted to the Warrant Price that would then be in effect if such sale and
issuance had not occurred, but such subsequent adjustment shall not affect the
number of Warrant Shares issued upon any exercise of the Warrant prior to the
date such subsequent adjustment is made.
i. Adjustment of Number of Shares. Upon each adjustment in the Warrant
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Price, the number of Warrant Shares purchasable hereunder shall be adjusted, to
the nearest whole share, to the product obtained by multiplying the number of
Warrant Shares purchasable immediately prior to such adjustment in the Warrant
Price by a fraction, the numerator of which shall be the Warrant Price
immediately prior to such adjustment and the denominator of which shall be the
Warrant Price immediately thereafter.
6
j. Determination of Fair Market Value. For purposes of this Section 4,
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"FAIR MARKET VALUE" of a share of Common Stock as of a particular date (the
"DETERMINATION DATE") shall mean (i) if shares of Common Stock are traded on a
national securities exchange (an "EXCHANGE"), the weighted average of the
closing prices of a share of the Common Stock of the Company on the last five
(5) trading days prior to the Determination Date reported on such Exchange as
reported in The Wall Street Journal (weighted with respect to the trading volume
with respect to each such day), (ii) if shares of Common Stock are not traded on
an Exchange but trade in the over-the-counter market and such shares are quoted
on the National Association of Securities Dealers Automated Quotations System
("NASDAQ"), the weighted average of the closing prices of a share of the Common
Stock of the Company on the last five (5) trading days prior to the
Determination Date reported on NASDAQ as reported in The Wall Street Journal
(weighted with respect to the trading volume with respect to each such day),
(iii) if such shares are an issue for which last sale prices are not reported on
NASDAQ, the average of the closing bid and ask prices, in each case on the last
five (5) trading days (or if the relevant price or quotation did not exist on
any of such days, the relevant price or quotation on the next preceding business
day on which there was such a price or quotation) prior to the Determination
Date as reported by the National Quotation Bureau, Incorporated, or any other
successor organization, (iv) if no bid and asked prices are reported for the
Common Stock by the National Quotation Bureau, Incorporated or any other
successor organization for such day, the average of the high and low bid and
asked price of any of the market makers for the Common Stock as reported in
the "pink sheets" by the Pink Sheets, LLC on the last five (5) trading days, or
(v) if no price can be determined on the basis of the above methods of
valuation, then the judgment of valuation shall be determined in good faith by
the Board of Directors of the Company, which determination shall be described in
a duly adopted board resolution certified by the Company's Secretary or
Assistant Secretary. If the Board of Directors of the Company is unable to
determine any Valuation (as defined below), or if the holders of at least fifty
percent (50%) of all of the Warrant Shares then issuable hereunder
(collectively, the "REQUESTING HOLDERS") disagree with the Board's determination
of any Valuation by written notice delivered to the Company within five (5)
business days after the determination thereof by the Board of Directors of the
Company is communicated to holders of the Warrants affected thereby, which
notice specifies a majority-in-interest of the Requesting Holders' determination
of such Valuation, then the Company and a majority-in-interest of the Requesting
Holders shall select a mutually acceptable investment banking firm of national
reputation which has not had a material relationship with the Company or any
officer of the Company within the preceding two (2) years, which shall determine
such Valuation. Such investment banking firm's determination of such Valuation
shall be final, binding and conclusive on the Company and the holders of all of
the Warrants issued hereunder and then outstanding. Any and all costs and fees
of such investment banking firm shall be borne equally by the Company and the
Requesting Holders, however, if the Valuation is within 90% of either party's
valuation, then the other party shall pay all of the costs and fees of such
investment banking firm. For purposes of this Section 4(j), the term
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"VALUATION" shall mean the determination, to be made initially by the Board of
Directors of the Company, of the fair market value per share of Common Stock
pursuant to clause (v) above.
k. Subsequent Changes. If, at any time after any adjustment of the
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Warrant Price shall have been made hereunder as the result of any issuance, sale
or grant of any rights, options, warrants or convertible or exchangeable
securities, any of such rights, options or warrants or the rights of conversion
7
or exchange associated with such convertible or exchangeable securities shall
expire by their terms or any of such rights, options, warrants or convertible or
exchangeable securities shall be repurchased by the Company or a Subsidiary for
a consideration per underlying share of Common Stock not exceeding the amount of
such consideration received by the Company in connection with the issuance, sale
or grant of such rights, options, warrants or convertible or exchangeable
securities, the Warrant Price then in effect shall forthwith be increased to the
Warrant Price that would have been in effect if such expiring right, option or
warrant or rights of conversion or exchange or such repurchased rights, options,
warrants or convertible or exchangeable securities had never been issued.
Similarly, if at any time after any such adjustment of the Warrant Price shall
have been made pursuant to Section 4(h) above (i) any additional aggregate
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consideration is received or becomes receivable by the Company in connection
with the issuance of exercise of such rights, options, warrants or convertible
or exchangeable securities or (ii) there is a reduction in the conversion or
exchange ratio applicable to such convertible or exchangeable securities so that
fewer shares of Common Stock will be issuable upon the conversion or exchange
thereof or there is a decrease in the number of shares of Common Stock issuable
upon exercise of such rights, options or warrants (except where such reduction
or decrease results from a combination of shares described in Section 4(c)
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above), the Warrant Price then in effect shall be forthwith readjusted to the
Warrant Price that would have been in effect had such changes taken place at the
time that such rights, options, warrants or convertible or exchangeable
securities were initially issued, granted or sold. In no event shall any
readjustment under this Section 4(k) affect the validity of any Warrant Shares
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issued upon any exercise of this Warrant prior to such readjustment.
5. Notice of Adjustments. Whenever the Warrant Price or the number of
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Warrant Shares purchasable hereunder shall be adjusted pursuant to Section 4
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hereof, the Company shall deliver to the holder of this Warrant a certificate
signed by its chief financial officer setting forth, in reasonable detail, the
event requiring the adjustment, the amount of the adjustment, the method by
which such adjustment was calculated, and the Warrant Price and the number of
Warrant Shares purchasable hereunder after giving effect to such adjustment.
6. Dividends. Intentionally omitted.
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7. Fractional Shares. No fractional shares of Common Stock will be
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issued in connection with any exercise hereunder, but in lieu of such fractional
shares the Company shall make a cash payment therefor based on the fair market
value (as determined in accordance with Section 4(j) above) of a share of Common
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Stock on the date of exercise.
8. Compliance with Securities Act; Disposition of Warrant or Warrant
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Shares.
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a. Compliance with Securities Act. The holder of this Warrant, by
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acceptance hereof, agrees that this Warrant and the shares of Common Stock to be
issued upon exercise hereof are being acquired for investment and that such
holder will not offer, sell or otherwise dispose of this Warrant, or any shares
of Common Stock to be issued upon exercise hereof except under circumstances
which will not result in a violation of the Securities Act. Upon exercise of
this Warrant, the holder hereof shall confirm in writing, by executing the form
attached as Schedule 1 to Exhibit A hereto, that the shares of Common Stock so
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purchased are being acquired for investment and not with a view toward
distribution or resale. This Warrant and all shares of Common Stock issued upon
8
exercise of this Warrant (unless registered under the Securities Act) shall be
stamped or imprinted with a legend in substantially the following form:
"THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. NO SALE OR DISPOSITION
MAY BE EFFECTED WITHOUT (i) AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO,
(ii) AN OPINION OF COUNSEL FOR THE HOLDER, REASONABLY SATISFACTORY TO THE
COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED, (iii) RECEIPT OF A NO-ACTION
LETTER(S) FROM THE APPROPRIATE GOVERNMENTAL AUTHORITY(IES), OR (iv) OTHERWISE
COMPLYING WITH THE PROVISIONS OF SECTION 8 OF THE WARRANT UNDER WHICH THESE
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SECURITIES WERE ISSUED DIRECTLY OR INDIRECTLY."
In addition, in connection with the issuance of this Warrant, the holder
specifically represents to the Company by acceptance of this Warrant as follows:
(1) The holder is aware of the Company's business affairs and financial
condition, and has acquired information about the Company sufficient to reach an
informed and knowledgeable decision to acquire this Warrant. The holder has
executed a confidentiality agreement and will hold all information governed by
that agreement in accordance with the terms of such agreement. The holder is
acquiring this Warrant for its own account for investment purposes only and not
with a view to, or for the resale in connection with, any "distribution" thereof
for purposes of the Securities Act.
(2) The holder understands that this Warrant and the Warrant Shares
have not been registered under the Securities Act in reliance upon a specific
exemption therefrom, which exemption depends upon, among other things, the bona
fide nature of the holder's investment intent as expressed herein. In this
connection, the holder understands that, in the view of the SEC, the statutory
basis for such exemption may be unavailable if the holder's representation was
predicated solely upon a present intention to hold the Warrant and the Warrant
Shares for the minimum capital gains period specified under applicable tax laws,
for a deferred sale, for or until an increase or decrease in the market price of
the Warrant and the Warrant Shares, or for a period of one (1) year or any other
fixed period in the future.
(3) The holder further understands that this Warrant and the Warrant
Shares must be held indefinitely unless subsequently registered under the
Securities Act and any applicable state securities laws, or unless exemptions
from registration are otherwise available.
(4) The holder is aware of the provisions of Rule 144 and 144A,
promulgated under the Securities Act, which, in substance, permit limited public
resale of "restricted securities" acquired, directly or indirectly, from the
issuer thereof (or from an affiliate of such issuer), in a non-public offering
subject to the satisfaction of certain conditions, if applicable, including,
among other things: the availability of certain public information about the
Company, the resale occurring not less than one (1) year after the party has
purchased and paid for the securities to be sold; the sale being made through a
broker in an unsolicited "broker's transaction" or in transactions directly with
a market maker (as said term is defined under the Securities Exchange Act of
1934, as amended) and the amount of securities being sold during any three-month
period not exceeding the specified limitations stated therein.
9
(5) The holder further understands that at the time it wishes to sell
this Warrant and the Warrant Shares there may be no public market upon which to
make such a sale, and that, even if such a public market then exists, the
Company may not be satisfying the current public information requirements of
Rule 144 and 144A, and that, in such event, the holder may be precluded from
selling this Warrant and the Warrant Shares under Rule 144 and 144A even if the
one (1)-year minimum holding period had been satisfied.
(6) The holder further understands that in the event all of the
requirements of Rule 144 and 144A are not satisfied, registration under the
Securities Act, compliance with Regulation A, or some other registration
exemption will be required; and that, notwithstanding the fact that Rule 144 and
144A is not exclusive, the Staff of the SEC has expressed its opinion that
persons proposing to sell private placement securities other than in a
registered offering and otherwise than pursuant to Rule 144 and 144A will have a
substantial burden of proof in establishing that an exemption from registration
is available for such offers or sales, and that such persons and their
respective brokers who participate in such transactions do so at their own risk.
b. Exchange. This Warrant may be exchanged, without payment of any
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service charge, for one (1) or more new Warrants of like tenor exercisable for
the same aggregate number of shares of Common Stock upon surrender to the
Company by the registered holder hereof in person or by legal representative or
by attorney duly authorized in writing and, upon issuance of the new Warrant or
Warrants, the surrendered Warrant shall be cancelled and disposed of by the
Company.
c. Disposition of Warrant or Warrant Shares. With respect to any
-----------------------------------------
offer, sale or other disposition of this Warrant, or any Warrant Shares acquired
pursuant to the exercise of this Warrant prior to registration of such Warrant
or Warrant Shares, the holder hereof and each subsequent holder of this Warrant
agrees to give written notice to the Company prior thereto, describing briefly
the manner thereof, together with a written opinion of such holder's counsel, if
reasonably requested by the Company, to the effect that such offer, sale or
other disposition may be effected without registration or qualification (under
the Securities Act as then in effect or any federal or state law then in effect)
of this Warrant or such Warrant Shares and indicating whether or not under the
Securities Act certificates for this Warrant or such Warrant Shares to be sold
or otherwise disposed of require any restrictive legend as to applicable
restrictions on transferability in order to ensure compliance with applicable
law. Promptly upon receiving such written notice and reasonably satisfactory
opinion, if so requested, the Company, as promptly as practicable, shall notify
such holder that such holder may sell or otherwise dispose of this Warrant or
such Warrant Shares, all in accordance with the terms of the notice delivered to
the Company. If a determination has been made pursuant to this Section 8(c)
------------
that the opinion of counsel for the holder is not reasonably satisfactory to the
Company, the Company shall so notify the holder promptly after such
determination has been made and neither this Warrant nor any Warrant shall be
sold or otherwise disposed of until such disagreement has been resolved. The
foregoing notwithstanding, this Warrant or such Warrant Shares may (i) as to
such federal laws, be offered, sold or otherwise disposed of in accordance with
Rule 144 and 144A under the Securities Act, provided that the Company shall have
10
been furnished with such information as the Company may reasonably request to
provide a reasonable assurance that the provisions of Rule 144 and 144A have
been satisfied and (ii) be offered, sold, distributed or otherwise transferred
to Affiliates of the Holder without regard to this Section 8, but only if the
----------
Company is in receipt of an opinion of counsel as to the permissibility of such
transfer under federal and state securities laws and an investor representation
letter from the transferee, in form and substance reasonably satisfactory to the
Company . Each certificate representing this Warrant or the Warrant Shares thus
transferred (except a transfer pursuant to Rule 144) shall bear a legend as to
the applicable restrictions on transferability in order to ensure compliance
with such laws, unless in the aforesaid opinion of counsel for the holder, such
legend is not required in order to ensure compliance with such laws. The
Company may issue stop transfer instructions to its transfer agent or, if acting
as its own transfer agent, the Company may stop transfer on its corporate books,
in connection with such restrictions. As used herein, "AFFILIATE OF THE HOLDER"
shall mean (x) any owner, shareholder, partner or member of the Holder, and (y)
any other Person that directly or indirectly, through one or more
intermediaries, Controls or is Controlled by or is under common Control with the
Holder.
9. Rights as Stockholders; Information. Except as otherwise set forth
------------------------------------
in Section 6 above, no holder of this Warrant, as such, shall be entitled to
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vote or be deemed the holder of Common Stock or any other securities of the
Company which may at any time be issuable on the exercise hereof for any
purpose, nor shall anything contained herein be construed to confer upon the
holder of this Warrant, as such, any of the rights of a stockholder of the
Company or any right to vote for the election of the directors or upon any
matter submitted to stockholders at any meeting thereof, or to receive notice of
meetings, until this Warrant shall have been exercised and the Warrant Shares
purchasable upon the exercise hereof shall have become deliverable, as provided
herein. The foregoing notwithstanding, the Company will transmit to the holder
of this Warrant such information, documents and reports as are generally
distributed to the holders of any class or series of the securities of the
Company concurrently with the distribution thereof to the stockholders.
10. Additional Rights.
------------------
10.1 Mergers. In the event that the Company undertakes to (i) sell,
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lease, exchange, convey or otherwise dispose of all or substantially all of its
property or business, or (ii) merge into or consolidate with any other
corporation (other than a wholly-owned Subsidiary), or effect any transaction
(including a merger or other reorganization) or series of related transactions,
in which more than fifty percent (50%) of the voting power of the Company is
disposed of, the Company will use its best efforts to provide at least thirty
(30) days notice of the terms and conditions of the proposed transaction. The
Company shall cooperate with the holder in consummating the sale of this Warrant
in connection with any such transaction.
10.2 Right to Convert Warrant into Common Stock; Net Issuance.
----------------------------------------------------------------
a. Right to Convert. In addition to and without limiting the rights of
----------------
the holder under the terms of this Warrant, the holder shall have the right to
convert this Warrant or any portion thereof (the "CONVERSION RIGHT") into shares
11
of Common Stock as provided in this Section 10.2 at any time or from time to
------------
time during the term of this Warrant. Upon exercise of the Conversion Right
with respect to a particular number of shares subject to this Warrant (the
"CONVERTED WARRANT SHARES"), the Company shall deliver to the holder (without
payment by the holder of any exercise price or any cash or other consideration)
that number of shares of fully paid and nonassessable Common Stock equal to the
quotient obtained by dividing (i) the value of this Warrant (or the specified
portion hereof) on the Conversion Date (as defined in Section 10.2(b) hereof),
---------------
which value shall be equal to (A) the aggregate fair market value of the
Converted Warrant Shares issuable upon exercise of this Warrant (or the
specified portion hereof) on the Conversion Date less (B) the aggregate Warrant
Price of the Converted Warrant Shares immediately prior to the exercise of the
Conversion Right by (ii) the fair market value of one (1) share of Common Stock
on the Conversion Date. No fractional shares shall be issuable upon exercise of
the Conversion Right, and, if the number of shares to be issued determined in
accordance with the foregoing formula is other than a whole number, the Company
shall pay to the holder an amount in cash equal to the fair market value of the
resulting fractional share on the Conversion Date.
b. Method of Exercise. The Conversion Right may be exercised by the
--------------------
holder by the surrender of this Warrant at the principal office of the Company
together with a written statement specifying that the holder thereby intends to
exercise the Conversion Right and indicating the number of shares subject to
this Warrant which are being surrendered (referred to in Section 10.2(a) hereof
---------------
as the Converted Warrant Shares) in exercise of the Conversion Right. Such
conversion shall be effective upon receipt by the Company of this Warrant
together with the aforesaid written statement, or on such later date as is
specified therein (the "CONVERSION DATE"). Certificates for the shares issuable
upon exercise of the Conversion Right and, if applicable, a new warrant
evidencing the balance of the shares remaining subject to this Warrant, shall be
issued as of the Conversion Date and shall be delivered to the holder within
thirty (30) days following the Conversion Date.
c. Determination of Fair Market Value. For purposes of this Section
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10.2, "fair market value" of a share of Common Stock shall have the meaning set
----
forth in Section 4(j) above, provided however, if the shares of Common Stock
------------- ------------------
are traded, then "fair market value" shall be determined by the closing price,
the last sales price or the average of the closing bid and ask prices, as
applicable, on the date of exercise.
11. Representations and Warranties. The Company represents and
--------------------------------
warrants to the holder of this Warrant as follows:
a. The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Florida, and has all required power
and authority to own and operate its properties and assets, to carry on its
business as now conducted and proposed to be conducted, to issue this Warrant,
and to carry out the transactions contemplated hereby and thereby.
b. The Company is in good standing wherever necessary to carry on its
present business and operations, except in jurisdictions in which the failure to
be in good standing has not had and reasonably could not be expected to have a
Material Adverse Effect.
12
c. Intentionally Omitted.
d. This Warrant has been duly authorized and executed by the Company
and is a valid and binding obligation of the Company enforceable in accordance
with its terms, subject to laws of general application relating to bankruptcy,
insolvency and the relief of debtors and the rules of law or principles at
equity governing specific performance, injunctive relief and other equitable
remedies;
e. The Warrant Shares have been duly authorized and reserved for
issuance by the Company and, when issued in accordance with the terms hereof,
will be validly issued, fully paid and nonassessable;
f. The rights, preferences, privileges and restrictions granted to or
imposed upon the Common Stock and the holders thereof are as set forth in the
certificate of incorporation of the Company, as amended to the Date of Grant (as
so amended, the "CHARTER"), a true and complete copy of which has been delivered
to the original holder of this Warrant;
g. The execution and delivery of this Warrant are not, and the issuance
of the Warrant Shares upon exercise of this Warrant in accordance with the terms
hereof will not be, inconsistent with the Charter or by-laws of the Company, do
not and will not contravene, in any material respect, any governmental rule or
regulation, judgment or order applicable to the Company, and do not and will not
conflict with or contravene any provision of, or constitute a default under, any
indenture, mortgage, contract or other instrument of which the Company is a
party or by which it is bound or require the consent or approval of, the giving
of notice to, the registration or filing with or the taking of any action in
respect of or by, any Federal, state or local government authority or agency or
other person, except for the filing of notices pursuant to federal and state
securities laws, which filings will be effected by the time required thereby;
h. There are no actions, suits, audits, investigations or proceedings
pending or, to the knowledge of the Company, threatened against the Company in
any court or before any governmental commission, board or authority which, if
adversely determined, will have a material adverse effect on the ability of the
Company to perform its obligations under this Warrant;
i. The authorized capital stock of the Company, and the number of such
shares issued and outstanding, are set forth in the schedules to the Securities
Purchase Agreement immediately prior to the Date of Grant. All such outstanding
shares have been validly issued and are fully paid, nonassessable shares free of
preemptive rights;
j. Except as set forth in the schedules to the Stock Purchase
Agreement, there are no subscriptions, rights, options, warrants, or calls
relating to any shares of the Company's capital stock, including any right of
conversion or exchange under any outstanding security or other instrument; and
k. The Company is not subject to any obligation (contingent or
otherwise) to repurchase or otherwise acquire or retire any shares of its
capital stock or any security convertible into or exchangeable for any of its
capital stock.
13
12. Modification and Waiver. This Warrant and any provision hereof may
-----------------------
be changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of the same is sought.
13. Notices. Unless otherwise specifically provided herein, all
-------
communications under this Warrant shall be in writing and shall be deemed to
have been duly given (i) on the date of service if served personally on the
party to whom notice is to be given, (ii) on the day of transmission if sent by
facsimile transmission to the number shown on the books of the Company, and
telephonic confirmation of receipt is obtained promptly after completion of
transmission, (iii) on the day after delivery to Federal Express or similar
overnight courier, or (iv) on the fifth day after mailing, if mailed to the
party to whom notice is to be given, by first class mail, registered or
certified, postage prepaid, and properly addressed, return receipt requested, to
each such holder at its address as shown on the books of the Company or to the
Company at the address indicated therefor on the signature page of this Warrant.
Any party hereto may change its address for purposes of this Section 13 by
----------
giving the other party written notice of the new address in the manner set forth
herein.
14. Binding Effect on Successors. This Warrant shall be binding upon
------------------------------
any corporation succeeding the Company by merger, consolidation or acquisition
of all or substantially all of the Company's assets, and all of the obligations
of the Company relating to the Common Stock issuable upon the exercise or
conversion of this Warrant shall survive the exercise, conversion and
termination of this Warrant and all of the covenants and agreements of the
Company shall inure to the benefit of the successors and assigns of the holder
hereof. The Company will, at the time of the exercise or conversion of this
Warrant, in whole or in part, upon request of the holder hereof but at the
Company's expense, acknowledge in writing its continuing obligation to the
holder hereof in respect of any rights to which the holder hereof shall continue
to be entitled after such exercise or conversion in accordance with this
Warrant; provided, that the failure of the holder hereof to make any such
--------
request shall not affect the continuing obligation of the Company to the holder
hereof in respect of such rights.
15. Lost Warrants or Stock Certificates. The Company covenants to the
------------------------------------
holder hereof that, upon receipt of evidence reasonably satisfactory to the
Company of the loss, theft, destruction or mutilation of this Warrant or any
stock certificate and, in the case of any loss, theft or destruction, upon
receipt of an executed lost securities bond or indemnity reasonably satisfactory
to the Company, or in the case of any such mutilation upon surrender and
cancellation of such Warrant or stock certificate, the Company will make and
deliver a new Warrant or stock certificate, of like tenor, in lieu of the lost,
stolen, destroyed or mutilated Warrant or stock certificate.
16. Descriptive Headings. The descriptive headings of the several
---------------------
paragraphs of this Warrant are inserted for convenience only and do not
constitute a part of this Warrant.
17. Governing Law. This Warrant shall be construed and enforced in
--------------
accordance with, and the rights of the parties shall be governed by, the laws of
the State of Florida.
14
18. Survival of Representations, Warranties and Agreements. All
-----------------------------------------------------------
representations and warranties of the Company and the holder hereof contained
herein shall survive the Date of Grant, the exercise or conversion of this
Warrant (or any part hereof) and the termination or expiration of rights
hereunder and shall terminate three years after the date of this Agreement. All
agreements of the Company and the holder hereof contained herein shall survive
indefinitely until, by their respective terms, they are no longer operative.
19. Remedies. In case any one (1) or more of the covenants and
--------
agreements contained in this Warrant shall have been breached, the holders
hereof (in the case of a breach by the Company), or the Company (in the case of
a breach by a holder), may proceed to protect and enforce their or its rights
either by suit in equity and/or by action at law, including, but not limited to,
an action for damages as a result of any such breach and/or an action for
specific performance of any such covenant or agreement contained in this
Warrant.
20. Acceptance. Receipt of this Warrant by the holder hereof shall
----------
constitute acceptance of and agreement to the foregoing terms and conditions.
21. No Impairment of Rights. The Company will not, by amendment of its
-----------------------
Charter or through any other means, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times in good
faith assist in the carrying out of all such terms and in the taking of all such
action as may be necessary or appropriate in order to protect the rights of the
holder of this Warrant against impairment.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed on
its behalf by one of its officers thereunto duly authorized.
TAYLOR MADISON CORP.
By:
-----------------------------
Name:
---------------------------
Its:
----------------------------
Dated: June __, 2005.
NOTICE TO FLORIDA RESIDENTS:
-------------------------------------------------
WHERE SALES ARE MADE TO FIVE OR MORE PERSONS IN FLORIDA (EXCLUDING CERTAIN
INSTITUTIONAL PURCHASERS DESCRIBED IN SECTION 517.061(7) OF THE FLORIDA
SECURITIES AND INVESTOR PROTECTION ACT) (THE "ACT"), ANY SUCH SALE MADE PURSUANT
TO SECTION 517.061(11) OF THE ACT SHALL BE VOIDABLE BY THE PURCHASER EITHER
WITHIN THREE DAYS AFTER THE FIRST TENDER OF CONSIDERATION IS MADE BY SUCH
PURCHASER TO THE ISSUER, OR AN AGENT OF THE ISSUER, OR AN ESCROW AGENT OR WITHIN
THREE DAYS AFTER THE AVAILABILITY OF THAT PRIVILEGE IS COMMUNICATED TO SUCH
PURCHASER, WHICHEVER OCCURS LATER.
15
EXHIBIT A
NOTICE OF EXERCISE
To: TAYLOR MADISON CORP.
1. The undersigned hereby elects to purchase shares of Common Stock of
------
Taylor Madison Corp. pursuant to the terms of the attached Warrant, and tenders
herewith payment of the purchase price of such shares in full.
2. Please issue a certificate or certificates representing said shares in
the name of the undersigned or in such other name or names as are specified
below:
-----------------------------
(Name)
-----------------------------
-----------------------------
(Address)
3. The undersigned represents that the aforesaid shares are being acquired
for the account of the undersigned for investment and not with a view to, or for
resale in connection with, the distribution thereof and that the undersigned has
no present intention of distributing or reselling such shares. In support
thereof, the undersigned has executed an Investment Representation Statement
attached hereto as Schedule 1.
-----------------------------
(Signature)
----------------------
(Date)
16
