ETERNAL ENERGY CORP. WARRANT TO PURCHASE SHARES OF COMMON STOCK
THIS
WARRANT AND THE UNDERLYING SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”) OR QUALIFIED UNDER ANY
APPLICABLE SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED,
HYPOTHECATED OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT AND QUALIFICATION UNDER SUCH STATE SECURITIES
LAWS OR AN OPINION OF COUNSEL OR OTHER EVIDENCE SATISFACTORY TO THE COMPANY
THAT
SUCH REGISTRATION AND/OR QUALIFICATION IS NOT REQUIRED.
WARRANT
TO PURCHASE SHARES OF COMMON STOCK
| No. __________________________________ |
, 2006
|
THIS
CERTIFIES THAT,
for
value received, _______________, a _______________ (the “Investor”),
or
Investor’s assigns (Investor and Investor’s assigns being the “Holder”),
is
entitled to subscribe for and purchase at any time during the Exercise Period
from Eternal Energy Corp., a Nevada corporation, with its principal office
located at 0000 Xxxx Xxxxxxxxx Xxxx., Xxxxx 000, Xxxxxxxxx, Xxxxxxxx
00000 (the
“Company”),
a
number of shares of Common Stock equal to the Share Number at a per share price
equal to the Exercise Price in effect at such time. This Warrant is issued
in
conjunction with the shares of the Company’s Common Stock issued pursuant to the
Subscription Agreement dated as of _________ ___, 2006 by and between the
Company and the Investor.
1. DEFINITIONS.
As used
herein, the following terms shall have the following respective
meanings:
(a) “Aggregate
Warrant Price” shall mean the dollar value obtained by multiplying $1.00 by
________.
(b) “Common
Stock” shall mean the common stock of the Company.
(c) “Exercise
Period” shall mean the period commencing on the original date of issuance of
this Warrant and ending on the second anniversary of the date
hereof.
(d) “Exercise
Price” shall mean $1.00 per share of Common Stock.
(e) “Exercise
Shares” shall mean any Common Stock acquired upon exercise of this
Warrant.
(f) “Share
Number”, at any time, shall mean (i) the Aggregate Warrant Price minus the
aggregate exercise price previously paid upon exercise of this Warrant, divided
by (ii) the Exercise Price then in effect.
2. EXERCISE
OF WARRANT.
2.1 General;
Exercise of Warrant.
(a) The
rights represented by this Warrant may be exercised as a whole or in part at
any
time during the Exercise Period, by delivery of the following to the Company
at
its address set forth above (or at such other address as it may designate by
notice in writing to the Holder):
(i) An
executed Notice of Exercise in the form attached hereto;
(ii) Payment
of the Exercise Price either in cash or by check; and
(iii) This
Warrant.
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(b) Upon
the
exercise of the rights represented by this Warrant, a certificate or
certificates for the Exercise Shares so purchased, registered in the name of
the
Holder or persons affiliated with the Holder, if the Holder so designates (and
such designation is in compliance with applicable securities laws and any
shareholders, investor rights or similar agreement), shall be issued and
delivered to the Holder as promptly as practicable after the rights represented
by this Warrant shall have been so exercised.
(c) The
person in whose name any certificate or certificates for Exercise Shares are
to
be issued upon exercise of this Warrant shall be deemed to have become the
holder of record of such shares on the date on which this Warrant was
surrendered and payment of the Exercise Price was made, irrespective of the
date
of delivery of such certificate or certificates, except that, if the date of
such surrender and payment is a date when the stock transfer books of the
Company are closed, such person shall be deemed to have become the holder of
such shares at the close of business on the next succeeding date on which the
stock transfer books are open.
2.2 Net
Issue
Exercise.
(a) In
lieu
of paying the Exercise Price in cash or by check as provided in Section 2.1,
the
Holder may elect a “Net Issue Exercise” pursuant to which the Holder will
receive Exercise Shares equal to the value (as determined below) of this Warrant
(or the portion thereof being exercised) by surrender of this Warrant at the
principal office of the Company together with an executed Notice of Exercise
in
the form attached hereto in which event the Company shall issue to the Holder
a
number of Exercise Shares computed using the following formula:
X
=
Y
(A-B)
A
Where
X
=
the number of Exercise Shares to be issued to the Holder;
Y
=
the number of Exercise Shares purchasable under the Warrant or, if only a
portion of the Warrant is being exercised, the portion of the Warrant being
exercised (at the date of such exercise);
A
=
the Fair Market Value of one share of the Company’s Common Stock (at the date of
such exercise); and
B
=
the Exercise Price (as adjusted to the date of such exercise).
(b) For
purposes of the above calculation, “Fair Market Value” shall be determined as
follows:
(i) If
the
Common Stock is listed on any established stock exchange or a national market
system, including, without limitation, The Nasdaq Stock Market’s National
Market, the Fair Market Value of a share of Common Stock will be the average
closing sales price for such stock (or the closing bid, if no sales are
reported) as quoted on that system or exchange (or the system or exchange with
the greatest volume of trading in Common Stock), over the five (5) trading
day
period ending on the trading day immediately preceding the day the Warrant
is
being exercised, as reported in the Wall Street Journal or any other source
the
Company considers reliable.
(ii) If
the
Common Stock is quoted on The Nasdaq Stock Market (but
not
on The Nasdaq Stock Market’s National Market) or is regularly quoted elsewhere
by recognized securities dealers but selling prices are not reported, the Fair
Market Value of a share of Common Stock will be the average mean between the
high bid and low asked prices for the Common Stock over the five (5) trading
day
period ending on the trading day immediately preceding the day the Warrant
is
being exercised, as reported in the Wall Street Journal or any other source
the
Company considers reliable.
(iii) If
the
Common Stock is not traded as set forth above, the Fair Market Value will be
determined in good faith by the Board of Directors of the Company.
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(c) If
this
Warrant is not exercised in full by a Net Issue Exercise, then, the “Share
Number” in effect immediately after such partial exercise shall be appropriately
adjusted to take into account the effect of the Net Issue Exercise.
3. COVENANTS
OF THE COMPANY.
3.1 Covenants
as to Exercise Shares.
The
Company covenants and agrees that all Exercise Shares that may be issued upon
the exercise of the rights represented by this Warrant will, upon issuance,
be
validly issued and outstanding, fully paid and nonassessable, and free from
all
taxes, liens and charges with respect to the issuance thereof. The Company
further covenants and agrees that the Company will at all times during the
Exercise Period have authorized and reserved, free from preemptive rights,
a
sufficient number of shares of its Common Stock to provide for the exercise
of
the rights represented by this Warrant. If at any time during the Exercise
Period the number of authorized but unissued shares of Common Stock shall not
be
sufficient to permit exercise of this Warrant, the Company will take such
corporate action as may, in the opinion of its counsel, be necessary to increase
its authorized but unissued shares of Common Stock to such number of shares
as
shall be sufficient for such purposes.
3.2 No
Impairment.
Except
and to the extent as waived or consented to by the Holder, the Company will
not,
by amendment of its Articles of Incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by
the
Company, but will at all times in good faith assist in the carrying out of
all
the provisions of this Warrant and in the taking of all such action as may
be
necessary or appropriate in order to protect the exercise rights of the Holder
against impairment.
3.3 Notices
of Record Date.
In the
event of any taking by the Company of a record of the holders of any class
of
securities for the purpose of determining the holders thereof who are entitled
to receive any dividend (other than a cash dividend which is the same as cash
dividends paid in previous quarters) or other distribution, the Company shall
mail to the Holder, at least ten (10) days prior to the date specified herein,
a
notice specifying the date on which any such record is to be taken for the
purpose of such dividend or distribution.
4. REPRESENTATIONS
OF HOLDER.
4.1 Acquisition
of Warrant for Personal Account.
The
Holder represents and warrants that it is acquiring the Warrant and any shares
of capital stock issued or issuable upon exercise or conversion of the Warrant
for investment purposes only and not with a view to or for resale in connection
with any distribution or public offering thereof within the meaning of the
Act
(as defined below). The Holder also represents that the entire legal and
beneficial interests of the Warrant and Exercise Shares the Holder is acquiring
is being acquired for, and will be held for, the account of the Holder only.
4.2 Accredited
Investor Status.
The
Holder represents and warrants that it is an “accredited investor” as such term
is defined in Rule 501 under the Securities Act of 1933, as amended (the
“Act”).
The
Holder shall provide the Company with such additional information as the Company
may reasonably request with respect to the Holder’s status as an “accredited
investor.”
4.3 Securities
Are Not Registered.
(a) The
Holder understands that the Warrant and the Exercise Shares have not been
registered under the Act, on the basis that no distribution or public offering
of the stock of the Company is to be effected, or registered or qualified under
any applicable state securities laws. The Holder realizes that the basis for
the
exemption may not be present if, notwithstanding its representations, the Holder
has a present intention of acquiring the securities for a fixed or determinable
period in the future, selling (in connection with a distribution or otherwise),
granting any participation in, or otherwise distributing the securities. The
Holder has no such present intention.
(b) The
Holder recognizes that the Warrant and the Exercise Shares must be held
indefinitely unless they are subsequently registered under the Act or an
exemption from such registration is available. Except as otherwise agreed by
the
Company in the Registration Rights Agreement (the form of which is attached
hereto as Exhibit 4.3(b)), the Company has no obligation to register the Warrant
or the Exercise Shares of the Company, or to comply with any exemption from
such
registration.
3
(c) The
Holder is aware that neither the Warrant nor the Exercise Shares may be sold
pursuant to Rule 144 adopted under the Act unless certain conditions are met,
including, among other things, the existence of a public market for the shares,
the availability of certain current public information about the Company, the
resale following the required holding period under Rule 144 and the number
of
shares being sold during any three (3) month period not exceeding specified
limitations. For so long as the Warrants are outstanding and for the two-year
period thereafter, the Company will use its best efforts to satisfy these
conditions.
(d) The
Holder is aware of the Company’s business affairs and financial condition and
has acquired sufficient information about the Company, including the letter
of
intention executed by Clearant, at or about the date of this Warrant, which
that
is deemed to relate to the Company, to reach an informed and knowledgeable
decision regarding its investment in the Company. The Holder is experienced
in
making investments of this type and has such knowledge and background in
financial and business matters that the Holder is capable of evaluating the
merits and risks of this investment and protecting its own interests. The Holder
has had an opportunity to ask questions of, and receive answers from, the
Company and its officers and employees regarding the business, financial affairs
and other aspects of the Company, and has further had the opportunity to obtain
information (to the extent the Company possesses or can acquire such information
without unreasonable effort or expense) which the Holder deems necessary to
evaluate an investment in the Company and to verify the accuracy of information
otherwise provided to the Holder.
4.4 Disposition
of Warrant and Exercise Shares.
(a) Except
for transfers by the Holder to its affiliates in compliance with all applicable
securities laws, the Holder further agrees not to make any disposition of all
or
any part of the Warrant or Exercise Shares in any event unless and
until:
(i) The
Company shall have received a letter secured by the Holder from the Securities
and Exchange Commission stating that no action will be recommended to the
Commission with respect to the proposed disposition; or
(ii) There
is
then in effect a registration statement under the Act covering such proposed
disposition and such disposition is made in accordance with said registration
statement; or
(iii) The
Holder shall have shall have furnished the Company with an opinion of counsel,
reasonably satisfactory to the Company, for the Holder to the effect that such
disposition will not require registration of such Warrant or Exercise Shares
under the Act or any applicable state securities laws.
(b) The
Holder understands and agrees that all certificates evidencing the Exercise
Shares to be issued to the Holder may bear the following legend (in addition
to
any legend required under applicable state securities laws, the Company’s
Bylaws, or as provided elsewhere in this Warrant):
THESE
SECURITIES HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“SECURITIES ACT”) OR QUALIFIED UNDER ANY APPLICABLE SECURITIES LAWS. THEY MAY
NOT BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR TRANSFERRED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND
QUALIFICATION UNDER SUCH STATE SECURITIES LAWS OR AN OPINION OF COUNSEL OR
OTHER
EVIDENCE SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION AND/OR QUALIFICATION
IS NOT REQUIRED.
5. ADJUSTMENTS
AND NOTICES.
The
Exercise Price and the number of Exercise Shares issuable upon exercise of
this
Warrant shall be subject to adjustment from time to time in accordance with
this
Section 5.
5.1 Subdivision,
Stock Dividends or Combinations.
In case
the Company shall at any time after the commencement of the Exercise Period
subdivide the outstanding Common Stock or shall issue a stock dividend with
respect to the Common Stock, the Exercise Price in effect immediately prior
to
such subdivision or the issuance of such dividend shall be proportionately
decreased, and in case the Company shall at any time after the commencement
of
the Exercise Period combine the outstanding shares of Common Stock, the Exercise
Price in effect immediately prior to such combination shall be proportionately
increased, in each case effective at the close of business on the date of such
subdivision, dividend or combination, as the case may be.
4
5.2 Reclassification,
Exchange, Substitution, In-Kind Distribution.
Upon
any reclassification, exchange, substitution or other event after the
commencement of the Exercise Period that results in a change of the number
and/or class of the securities issuable upon exercise or conversion of this
Warrant or upon the payment after the commencement of the Exercise Period of
a
dividend in securities or property other than shares of Common Stock, the Holder
shall be entitled to receive, upon exercise or conversion of this Warrant,
the
number and kind of securities and property that Holder would have received
if
this Warrant had been exercised or converted immediately before the record
date
for such reclassification, exchange, substitution, or other event or immediately
prior to the record date for such dividend. The Company or its successor shall
promptly issue to Holder a new warrant for such new securities or other
property. The new warrant shall provide for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided for in this Section
5 including, without limitation, adjustments to the Warrant Price and to the
number of securities or property issuable upon exercise or conversion of the
new
warrant. The provisions of this Section 5.2 shall similarly apply to successive
reclassifications, exchanges, substitutions, or other events and successive
dividends.
5.3 Consolidation,
Merger, Sale and the Like.
In case
of any (i) merger or consolidation of the Company into or with another
corporation where the Company is not the surviving corporation (but including
a
merger for the purpose of reincorporating in a new domicile) (ii) sale, transfer
or lease (but not including a transfer or lease by pledge or mortgage to a
bona
fide lender) of all or substantially all of the assets of the Company or
(iii) sale by the Company’s shareholders of 50% or more of the Company’s
outstanding securities in one or more related transactions, the Company, or
such
successor or purchasing corporation, as the case may be, shall duly execute
and
deliver to the Holder hereof a new warrant so that the Holder shall have the
right to receive upon exercise or conversion of the unexercised or unconverted
portion of this Warrant, at a total purchase price not to exceed that payable
upon the exercise or conversion of the unexercised or unconverted portion of
this Warrant, and in lieu of shares of Common Stock theretofore issuable upon
exercise or conversion of this Warrant, the kind and amount of shares of stock,
or other securities, money and other property in lieu of such shares of stock,
receivable upon or as a result of such reorganization, merger or sale by a
holder of the number of shares of Common Stock for which this Warrant is
exercisable or convertible immediately prior to such event. 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 5. The provisions
of
this Section 5.3 shall similarly apply to successive reorganizations,
mergers, and sales.
5.4 In
each
case of an adjustment or readjustment of the Exercise Price pursuant to this
Section 5, the Company, at its expense, shall compute such adjustment or
readjustment in accordance with the provisions hereof and prepare a certificate
showing such adjustment or readjustment, and shall mail such certificate, by
first class mail, postage prepaid, to the Holder at the Holder’s address as
shown in the Company’s books. The certificate shall set forth such adjustment or
readjustment, showing in reasonable detail the facts upon which such adjustment
or readjustment is based, including a statement of , if applicable, the type
and
amount, if any, of other property which at the time would be received upon
exercise of this Warrant.
6. FRACTIONAL
SHARES.
No
fractional shares shall be issued upon the exercise of this Warrant as a
consequence of any adjustment pursuant hereto. All Exercise Shares (including
fractions) issuable upon exercise of this Warrant may be aggregated for purposes
of determining whether the exercise would result in the issuance of any
fractional share. No payments shall be made by the Company in respect of any
fractional shares otherwise issuable pursuant to this Warrant.
7. NO
SHAREHOLDER RIGHTS.
This
Warrant in and of itself shall not entitle the Holder to any voting rights
or
other rights as a shareholder of the Company.
8. TRANSFER
OF WARRANT.
Subject
to applicable laws, the restriction on transfer set forth on the first page
of
this Warrant and in Section 4.4 and the terms of any applicable shareholders,
investor rights or similar agreement, this Warrant and all rights hereunder
are
transferable, by the Holder in person or by duly authorized attorney, upon
delivery of this Warrant and the form of assignment attached hereto to any
transferee designated by Xxxxxx, provided that the transferee shall have signed
an investment letter in form and substance satisfactory to the Company and
agreed to be bound by the provisions of this Warrant. Notwithstanding anything
to the contrary, no partial transfer of this Warrant shall be
permitted.
5
9. LOST,
STOLEN, MUTILATED OR DESTROYED WARRANT.
If this
Warrant is lost, stolen, mutilated or destroyed, the Company may, on such terms
as to indemnity or otherwise as it may reasonably impose (which shall, in the
case of a mutilated Warrant, include the surrender thereof), issue a new Warrant
of like denomination and tenor as the Warrant so lost, stolen, mutilated or
destroyed. Any such new Warrant shall constitute an original contractual
obligation of the Company, whether or not the allegedly lost, stolen, mutilated,
or destroyed Warrant shall be at any time enforceable by anyone.
10. NOTICES,
ETC.
All
notices and other communications required or permitted hereunder shall be in
writing and shall be sent by express mail or other form of rapid communications,
if possible, and if not then such notice or communication shall be mailed by
first-class mail, postage prepaid, addressed in each case to the party entitled
thereto at the following addresses: (a) if to the Company, to Eternal Energy
Corp., Attention: Chief Executive Officer, 0000
Xxxx
Xxxxxxxxx Xxxx., Xxxxx 000, Xxxxxxxxx, Xxxxxxxx 00000,
and (b)
if to the Holder, to such address as originally furnished to the Company by
the
Holder, or at such other address as one party may furnish to the other in
writing. Notice shall be deemed effective on the date dispatched if by personal
delivery, two days after mailing if by express mail, or three days after mailing
if by first-class mail.
11. AMENDMENT.
This
Warrant may be amended or otherwise modified only by a writing signed by the
Company and the Holder.
12. ACCEPTANCE.
Receipt
of this Warrant by the Holder shall constitute acceptance of and agreement
to
all of the terms and conditions contained herein.
13. GOVERNING
LAW.
This
Warrant and all rights, obligations and liabilities hereunder shall be governed
by the internal laws of the State of Nevada.
[NEXT
PAGE IS SIGNATURE PAGE]
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IN
WITNESS WHEREOF, the Company has caused this Warrant to be executed by its
duly
authorized officer as of the date first written above.
| ETERNAL ENERGY CORP., a Nevada corporation | ||
| |
|
|
| By: | /s/ | |
|
Name: |
||
|
Title:
|
||
ATTEST:
7
NOTICE
OF EXERCISE
1. The
undersigned hereby elects to purchase ________ shares of the Common Stock of
Eternal Energy Corp. (the “Company”),
pursuant to the terms of the attached Warrant, and tenders herewith payment
of
the exercise price in full pursuant to the terms of Section 2.1 of the
attached Warrant, or
by net
issue exercise pursuant to the terms of Section 2.2 of the attached
Warrant,
together
with all applicable transfer taxes, if any.
2. Please
issue a certificate or certificates representing said shares of Common Stock
in
the name of the undersigned or in such other name as is specified
below:
| Name | |
| (Address) | |
3. The
undersigned represents that (i) the aforesaid shares of Common Stock are being
acquired for the account of the undersigned for investment purposes only 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; (ii) the undersigned is aware of the Company’s business affairs and
financial condition, and has acquired sufficient information about the Company
to reach an informed and knowledgeable decision regarding its investment in
the
Company; (iii) the undersigned is experienced in making investments of this
type
and has such knowledge and background in financial and business matters that
the
undersigned is capable of evaluating the merits and risks of this investment
and
protecting the undersigned’s own interests; (iv) the undersigned is an
“accredited investor” as defined in Rule 501 under the Securities Act of 1933,
as amended (the “Securities
Act”),
(v)
the undersigned understands that the shares of Common Stock issuable upon
exercise of this Warrant have not been registered under the Securities Act
by
reason of a specific exemption from the registration provisions of the
Securities Act, which exemption depends upon, among other things, the bona
fide
nature of the investment intent as expressed herein, and, because such
securities have not been registered under the Securities Act, they must be
held
indefinitely unless subsequently registered under the Securities Act or an
exemption from such registration is available; (vi) the undersigned is aware
that the aforesaid shares of Common Stock may not be sold pursuant to Rule
144
adopted under the Securities Act unless certain conditions are met and until
the
undersigned has held the shares for the number of years prescribed by Rule
144;
and (vii) the undersigned agrees not to make any disposition of all or any
part
of the aforesaid shares of Common Stock unless and until there is then in effect
a registration statement under the Securities Act covering such proposed
disposition and such disposition is made in accordance with said registration
statement, or the undersigned has provided the Company with an opinion of
counsel satisfactory to the Company, stating that such registration is not
required.
|
(Date)
|
(Signature)
(Print
name)
|
8
ASSIGNMENT
FORM
(To
assign the foregoing Warrant, execute this form and supply required information.
Do not use this form to purchase shares.)
FOR
VALUE RECEIVED,
the
foregoing Warrant and all rights evidenced thereby are hereby assigned
to
Name:
________________
Address:
(Please
Print)
Dated:
________________, _____
Holder’s
Signature:
Holder’s
Address:
NOTE:
The
signature to this Assignment Form must correspond with the name as it appears
on
the face of the Warrant, without alteration or enlargement or any change
whatever. Officers of corporations and those acting in a fiduciary or other
representative capacity should file proper evidence of authority to assign
the
foregoing Warrant.
9
