THIS WARRANT AND THE SHARES ISSUABLE UPON THE EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. EXCEPT AS
OTHERWISE SET FORTH HEREIN OR IN A SECURITIES PURCHASE AGREEMENT DATED AS OF
MARCH 23, 2006, NEITHER THIS WARRANT NOR ANY OF SUCH SHARES MAY BE SOLD,
TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
FOR SUCH SECURITIES UNDER SAID ACT OR, AN OPINION OF COUNSEL, IN FORM,
SUBSTANCE AND SCOPE, CUSTOMARY FOR OPINIONS OF COUNSEL IN COMPARABLE
TRANSACTIONS, THAT REGISTRATION IS NOT REQUIRED UNDER SUCH ACT OR UNLESS SOLD
PURSUANT TO RULE 144 OR REGULATION S UNDER SUCH ACT.
Right to Purchase 260,000 Shares of Common Stock, par value $.00001 per share
STOCK PURCHASE WARRANT (SERIES A WARRANT)
-----------------------------------------
THIS CERTIFIES THAT, for value received, NEW MILLENNIUM CAPITAL
PARTNERS II, LLC or its registered assigns, is entitled to purchase
from Palomar Enterprises, Inc., a Nevada corporation (the Company),
at any time or from time to time during the period specified in
Paragraph 2 hereof, 260,000 fully paid and nonassessable shares of
the Company's Common Stock, par value $.00001 per share (the Common Stock),
at an exercise price per share equal to $.13 (the Exercise Price). The
term Warrant Shares, as used herein, refers to the shares of Common Stock
purchasable hereunder. The Warrant Shares and the Exercise Price are
subject to adjustment as provided in Paragraph 4 hereof. The term Warrants
means this Warrant and the other warrants issued pursuant to that certain
Securities Purchase Agreement, dated March 23, 2006, by and among the
Company and the Buyers listed on the execution page thereof (the
Securities Purchase Agreement).
This Warrant is subject to the following terms, provisions, and
conditions:
1. Manner of Exercise; Issuance of Certificates; Payment for Shares.
Subject to the provisions hereof, this Warrant may be exercised by the
holder hereof, in whole or in part, by the surrender of this Warrant,
together with a completed exercise agreement in the form attached hereto
(the Exercise Agreement), to the Company during normal business hours on
any business day at the Company's principal executive offices (or such other
office or agency of the Company as it may designate by notice to the holder
hereof), and upon (i) payment to the Company in cash, by certified or
official bank check or by wire transfer for the account of the Company of
the Exercise Price for the Warrant Shares specified in the Exercise Agreement
or (ii) if the resale of the Warrant Shares by the holder is not then
registered pursuant to an effective registration statement under the
Securities Act of 1933, as amended (the Securities Act), delivery to the
Company of a written notice of an election to effect a Cashless Exercise
(as defined in Section 11(c) below) for the Warrant Shares specified in the
Exercise Agreement. The Warrant Shares so purchased shall be deemed to be
issued to the holder hereof or such holders designee, as the record owner
of such shares, as of the close of business on the date on which this Warrant
shall have been surrendered, the completed Exercise Agreement shall have
been delivered, and payment shall have been made for such shares as set
forth above. Certificates for the Warrant Shares so purchased, representing
the aggregate number of shares specified in the Exercise Agreement, shall
be delivered to the holder hereof within a reasonable time, not exceeding
five (5) business days, after this Warrant shall have been so exercised.
The certificates so delivered shall be in such denominations as may be
requested by the holder hereof and shall be registered in the name of such
holder or such other name as shall be designated by such holder. If this
Warrant shall have been exercised only in part, then, unless this Warrant
has expired, the Company shall, at its expense, at the time of delivery of
such certificates, deliver to the holder a new Warrant representing the
number of shares with respect to which this Warrant shall not then have been
exercised. In addition to all other available remedies at law or in equity,
if the Company fails to deliver certificates for the Warrant Shares within
five (5) business days after this Warrant is exercised, then the Company
shall pay to the holder in cash a penalty (the Penalty) equal to 2% of the
number of Warrant Shares that the holder is entitled to multiplied by the
Market Price (as hereinafter defined) for each day that the Company fails to
deliver certificates for the Warrant Shares. For example, if the holder is
entitled to 100,000 Warrant Shares and the Market Price is $2.00, then the
Company shall pay to the holder $4,000 for each day that the Company fails
to deliver certificates for the Warrant Shares. The Penalty shall be paid
to the holder by the fifth day of the month following the month in which it
has accrued.
Notwithstanding anything in this Warrant to the contrary, in no
event shall the holder of this Warrant be entitled to exercise a number of
Warrants (or portions thereof) in excess of the number of Warrants
(or portions thereof) upon exercise of which the sum of (i) the number of
shares of Common Stock beneficially owned by the holder and its affiliates
(other than shares of Common Stock which may be deemed beneficially owned
through the ownership of the unexercised Warrants and the unexercised or
unconverted portion of any other securities of the Company (including the
Notes (as defined in the Securities Purchase Agreement)) subject to a
limitation on conversion or exercise analogous to the limitation contained
herein) and (ii) the number of shares of Common Stock issuable upon exercise
of the Warrants (or portions thereof) with respect to which the
determination described herein is being made, would result in beneficial
ownership by the holder and its affiliates of more than 4.9% of the
outstanding shares of Common Stock. For purposes of the immediately
preceding sentence, beneficial ownership shall be determined in accordance
with Section 13(d) of the Securities Exchange Act of 1934, as amended, and
Regulation 13D-G thereunder, except as otherwise provided in clause (i) of
the preceding sentence. Notwithstanding anything to the contrary contained
herein, the limitation on exercise of this Warrant set forth herein may not
be amended without (i) the written consent of the holder hereof and the
Company and (ii) the approval of a majority of shareholders of the Company.
2. Period of Exercise.
This Warrant is exercisable at any time or from time to time on or after
the date on which this Warrant is issued and delivered pursuant to the terms
of the Securities Purchase Agreement and before 6:00 p.m., New York, New
York time on the seventh (7th) anniversary of the date of issuance
(the Exercise Period).
3. Certain Agreements of the Company.
The Company hereby covenants and agrees as follows:
(a) Shares to be Fully Paid. All Warrant Shares will, upon
issuance in accordance with the terms of this Warrant, be validly issued,
fully paid, and nonassessable and free from all taxes, liens, and charges
with respect to the issue thereof.
(b) Reservation of Shares. During the Exercise Period, the
Company shall at all times have authorized, and reserved for the purpose of
issuance upon exercise of this Warrant, a sufficient number of shares of
Common Stock to provide for the exercise of this Warrant.
(c) Listing. The Company shall promptly secure the listing of
the shares of Common Stock issuable upon exercise of the Warrant upon each
national securities exchange or automated quotation system, if any, upon
which shares of Common Stock are then listed (subject to official notice of
issuance upon exercise of this Warrant) and shall maintain, so long as any
other shares of Common Stock shall be so listed, such listing of all shares
of Common Stock from time to time issuable upon the exercise of this Warrant;
and the Company shall so list on each national securities exchange or
automated quotation system, as the case may be, and shall maintain such
listing of, any other shares of capital stock of the Company issuable upon
the exercise of this Warrant if and so long as any shares of the same class
shall be listed on such national securities exchange or automated quotation
system.
(d) Certain Actions Prohibited. The Company will not, by
amendment of its charter 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 by it hereunder, 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 reasonably be
requested by the holder of this Warrant in order to protect the exercise
privilege of the holder of this Warrant against dilution or other
impairment, consistent with the tenor and purpose of this Warrant. Without
limiting the generality of the foregoing, the Company (i) will not increase
the par value of any shares of Common Stock receivable upon the exercise of
this Warrant above the Exercise Price then in effect, and (ii) will take all
such actions as may be necessary or appropriate in order that the Company
may validly and legally issue fully paid and nonassessable shares of Common
Stock upon the exercise of this Warrant.
(e) Successors and Assigns. This Warrant will be binding upon
any entity succeeding to the Company by merger, consolidation, or
acquisition of all or substantially all the Company's assets.
4. Antidilution Provisions.
During the Exercise Period, the Exercise Price and the number of Warrant
Shares shall be subject to adjustment from time to time as provided in this
Paragraph 4.
In the event that any adjustment of the Exercise Price as required
herein results in a fraction of a cent, such Exercise Price shall be rounded
up to the nearest cent.
(a) Adjustment of Exercise Price and Number of Shares upon
Issuance of Common Stock. Except as otherwise provided in Paragraphs 4(c)
and 4(e) hereof, if and whenever on or after the date of issuance of this
Warrant, the Company issues or sells, or in accordance with Paragraph 4(b)
hereof is deemed to have issued or sold, any shares of Common Stock for no
consideration or for a consideration per share (before deduction of
reasonable expenses or commissions or underwriting discounts or allowances
in connection therewith) less than the Market Price on the date of issuance
(a Dilutive Issuance), then immediately upon the Dilutive Issuance, the
Exercise Price will be reduced to a price determined by multiplying the
Exercise Price in effect immediately prior to the Dilutive Issuance by a
fraction, (i) the numerator of which is an amount equal to the sum of (x)
the number of shares of Common Stock actually outstanding immediately prior
to the Dilutive Issuance, plus (y) the quotient of the aggregate
consideration, calculated as set forth in Paragraph 4(b) hereof, received
by the Company upon such Dilutive Issuance divided by the Market Price in
effect immediately prior to the Dilutive Issuance, and (ii) the denominator
of which is the total number of shares of Common Stock Deemed Outstanding
(as defined below) immediately after the Dilutive Issuance.
(b) Effect on Exercise Price of Certain Events. For purposes
of determining the adjusted Exercise Price under Paragraph 4(a) hereof, the
following will be applicable:
(i) Issuance of Rights or Options. If the Company in
any manner issues or grants any warrants, rights or options, whether or not
immediately exercisable, to subscribe for or to purchase Common Stock or
other securities convertible into or exchangeable for Common Stock
(Convertible Securities) (such warrants, rights and options to purchase
Common Stock or Convertible Securities are hereinafter referred to as
Options) and the price per share for which Common Stock is issuable upon
the exercise of such Options is less than the Market Price on the date of
issuance or grant of such Options, then the maximum total number of shares of
Common Stock issuable upon the exercise of all such Options will, as of the
date of the issuance or grant of such Options, be deemed to be outstanding
and to have been issued and sold by the Company for such price per share.
For purposes of the preceding sentence, the price per share for which
Common Stock is issuable upon the exercise of such Options is determined by
dividing (i) the total amount, if any, received or receivable by the
Company as consideration for the issuance or granting of all such Options,
plus the minimum aggregate amount of additional consideration, if any,
payable to the Company upon the exercise of all such Options, plus, in the
case of Convertible Securities issuable upon the exercise of such Options,
the minimum aggregate amount of additional consideration payable upon the
conversion or exchange thereof at the time such Convertible Securities first
become convertible or exchangeable, by (ii) the maximum total number of
shares of Common Stock issuable upon the exercise of all such Options
(assuming full conversion of Convertible Securities, if applicable). No
further adjustment to the Exercise Price will be made upon the actual
issuance of such Common Stock upon the exercise of such Options or upon the
conversion or exchange of Convertible Securities issuable upon exercise of
such Options.
(ii) Issuance of Convertible Securities. If the Company
in any manner issues or sells any Convertible Securities, whether or not
immediately convertible (other than where the same are issuable upon the
exercise of Options) and the price per share for which Common Stock is
issuable upon such conversion or exchange is less than the Market Price on
the date of issuance, then the maximum total number of shares of Common
Stock issuable upon the conversion or exchange of all such Convertible
Securities will, as of the date of the issuance of such Convertible
Securities, be deemed to be outstanding and to have been issued and sold by
the Company for such price per share. For the purposes of the preceding
sentence, the price per share for which Common Stock is issuable upon such
conversion or exchange is determined by dividing (i) the total amount, if
any, received or receivable by the Company as consideration for the issuance
or sale of all such Convertible Securities, plus the minimum aggregate
amount of additional consideration, if any, payable to the Company upon the
conversion or exchange thereof at the time such Convertible Securities first
become convertible or exchangeable, by (ii) the maximum total number of
shares of Common Stock issuable upon the conversion or exchange of all such
Convertible Securities. No further adjustment to the Exercise Price will be
made upon the actual issuance of such Common Stock upon conversion or
exchange of such Convertible Securities.
(iii) Change in Option Price or Conversion Rate. If
there is a change at any time in (i) the amount of additional consideration
payable to the Company upon the exercise of any Options; (ii) the amount of
additional consideration, if any, payable to the Company upon the conversion
or exchange of any Convertible Securities; or (iii) the rate at which any
Convertible Securities are convertible into or exchangeable for Common Stock
(other than under or by reason of provisions designed to protect against
dilution), the Exercise Price in effect at the time of such change will be
readjusted to the Exercise Price which would have been in effect at such
time had such Options or Convertible Securities still outstanding provided
for such changed additional consideration or changed conversion rate, as the
case may be, at the time initially granted, issued or sold.
(iv) Treatment of Expired Options and Unexercised
Convertible Securities. If, in any case, the total number of shares of
Common Stock issuable upon exercise of any Option or upon conversion or
exchange of any Convertible Securities is not, in fact, issued and the
rights to exercise such Option or to convert or exchange such Convertible
Securities shall have expired or terminated, the Exercise Price then in
effect will be readjusted to the Exercise Price which would have been in
effect at the time of such expiration or termination had such Option or
Convertible Securities, to the extent outstanding immediately prior to such
expiration or termination (other than in respect of the actual number of
shares of Common Stock issued upon exercise or conversion thereof), never
been issued.
(v) Calculation of Consideration Received. If any
Common Stock, Options or Convertible Securities are issued, granted or sold
for cash, the consideration received therefor for purposes of this Warrant
will be the amount received by the Company therefor, before deduction of
reasonable commissions, underwriting discounts or allowances or other
reasonable expenses paid or incurred by the Company in connection with such
issuance, grant or sale. In case any Common Stock, Options or Convertible
Securities are issued or sold for a consideration part or all of which shall
be other than cash, the amount of the consideration other than cash
received by the Company will be the fair value of such consideration, except
where such consideration consists of securities, in which case the amount
of consideration received by the Company will be the Market Price thereof as
of the date of receipt. In case any Common Stock, Options or Convertible
Securities are issued in connection with any acquisition, merger or
consolidation in which the Company is the surviving corporation, the amount
of consideration therefor will be deemed to be the fair value of such
portion of the net assets and business of the non-surviving corporation as
is attributable to such Common Stock, Options or Convertible Securities, as
the case may be. The fair value of any consideration other than cash or
securities will be determined in good faith by the Board of Directors of the
Company.
(vi) Exceptions to Adjustment of Exercise Price. No
adjustment to the Exercise Price will be made (i) upon the exercise of any
warrants, options or convertible securities granted, issued and outstanding
on the date of issuance of this Warrant; (ii) upon the grant or exercise of
any stock or options which may hereafter be granted or exercised under any
employee benefit plan, stock option plan or restricted stock plan of the
Company now existing or to be implemented in the future, so long as the
issuance of such stock or options is approved by a majority of the
independent members of the Board of Directors of the Company or a majority
of the members of a committee of independent directors established for such
purpose; or (iii) upon the exercise of the Warrants.
(c) Subdivision or Combination of Common Stock. If the
Company at any time subdivides (by any stock split, stock dividend,
recapitalization, reorganization, reclassification or otherwise) the shares
of Common Stock acquirable hereunder into a greater number of shares, then,
after the date of record for effecting such subdivision, the Exercise Price
in effect immediately prior to such subdivision will be proportionately
reduced. If the Company at any time combines (by reverse stock split,
recapitalization, reorganization, reclassification or otherwise) the shares
of Common Stock acquirable hereunder into a smaller number of shares, then,
after the date of record for effecting such combination, the Exercise Price
in effect immediately prior to such combination will be proportionately
increased.
(d) Adjustment in Number of Shares. Upon each adjustment of
the Exercise Price pursuant to the provisions of this Paragraph 4, the
number of shares of Common Stock issuable upon exercise of this Warrant
shall be adjusted by multiplying a number equal to the Exercise Price in
effect immediately prior to such adjustment by the number of shares of
Common Stock issuable upon exercise of this Warrant immediately prior to
such adjustment and dividing the product so obtained by the adjusted Exercise
Price.
(e) Consolidation, Merger or Sale. In case of any
consolidation of the Company with, or merger of the Company into any other
corporation, or in case of any sale or conveyance of all or substantially
all of the assets of the Company other than in connection with a plan of
complete liquidation of the Company, then as a condition of such
consolidation, merger or sale or conveyance, adequate provision will be made
whereby the holder of this Warrant will have the right to acquire and
receive upon exercise of this Warrant in lieu of the shares of Common Stock
immediately theretofore acquirable upon the exercise of this Warrant, such
shares of stock, securities or assets as may be issued or payable with
respect to or in exchange for the number of shares of Common Stock
immediately theretofore acquirable and receivable upon exercise of this
Warrant had such consolidation, merger or sale or conveyance not taken place.
In any such case, the Company will make appropriate provision to insure
that the provisions of this Paragraph 4 hereof will thereafter be
applicable as nearly as may be in relation to any shares of stock or
securities thereafter deliverable upon the exercise of this Warrant.
The Company will not effect any consolidation, merger or sale or conveyance
unless prior to the consummation thereof, the successor corporation (if
other than the Company) assumes by written instrument the obligations under
this Paragraph 4 and the obligations to deliver to the holder of this Warrant
such shares of stock, securities or assets as, in accordance with the
foregoing provisions, the holder may be entitled to acquire.
(f) Distribution of Assets. In case the Company shall declare
or make any distribution of its assets (including cash) to holders of
Common Stock as a partial liquidating dividend, by way of return of capital
or otherwise, then, after the date of record for determining shareholders
entitled to such distribution, but prior to the date of distribution, the
holder of this Warrant shall be entitled upon exercise of this Warrant for
the purchase of any or all of the shares of Common Stock subject hereto, to
receive the amount of such assets which would have been payable to the
holder had such holder been the holder of such shares of Common Stock on the
record date for the determination of shareholders entitled to such
distribution.
(g) Notice of Adjustment. Upon the occurrence of any event
which requires any adjustment of the Exercise Price, then, and in each such
case, the Company shall give notice thereof to the holder of this Warrant,
which notice shall state the Exercise Price resulting from such adjustment
and the increase or decrease in the number of Warrant Shares purchasable at
such price upon exercise, setting forth in reasonable detail the method of
calculation and the facts upon which such calculation is based. Such
calculation shall be certified by the Chief Financial Officer of the Company.
(h) Minimum Adjustment of Exercise Price. No adjustment of
the Exercise Price shall be made in an amount of less than 1% of the Exercise
Price in effect at the time such adjustment is otherwise required to be made
, but any such lesser adjustment shall be carried forward and shall be made
at the time and together with the next subsequent adjustment which, together
with any adjustments so carried forward, shall amount to not less than 1%
of such Exercise Price.
(i) No Fractional Shares. No fractional shares of Common
Stock are to be issued upon the exercise of this Warrant, but the Company
shall pay a cash adjustment in respect of any fractional share which would
otherwise be issuable in an amount equal to the same fraction of the Market
Price of a share of Common Stock on the date of such exercise.
(j) Other Notices. In case at any time:
(i) the Company shall declare any dividend upon the
Common Stock payable in shares of stock of any class or make any other
distribution (including dividends or distributions payable in cash out of
retained earnings) to the holders of the Common Stock;
(ii) the Company shall offer for subscription pro rata
to the holders of the Common Stock any additional shares of stock of any
class or other rights;
(iii) there shall be any capital reorganization of the
Company, or reclassification of the Common Stock, or consolidation or merger
of the Company with or into, or sale of all or substantially all its assets
to, another corporation or entity; or
(iv) there shall be a voluntary or involuntary
dissolution, liquidation or winding up of the Company;
then, in each such case, the Company shall give to the holder of this
Warrant (a) notice of the date on which the books of the Company shall close
or a record shall be taken for determining the holders of Common Stock
entitled to receive any such dividend, distribution, or subscription rights
or for determining the holders of Common Stock entitled to vote in respect of
any such reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation or winding-up and (b) in the case of any such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding-up, notice of the date (or, if not then known, a
reasonable approximation thereof by the Company) when the same shall take
place. Such notice shall also specify the date on which the holders of
Common Stock shall be entitled to receive such dividend, distribution, or
subscription rights or to exchange their Common Stock for stock or other
securities or property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation, or
winding-up, as the case may be. Such notice shall be given at least 30 days
prior to the record date or the date on which the Company's books are
closed in respect thereto. Failure to give any such notice or any defect
therein shall not affect the validity of the proceedings referred to in
clauses (i), (ii), (iii) and (iv) above.
(k) Certain Events. If any event occurs of the type
contemplated by the adjustment provisions of this Paragraph 4 but not
expressly provided for by such provisions, the Company will give notice of
such event as provided in Paragraph 4(g) hereof, and the Company's Board of
Directors will make an appropriate adjustment in the Exercise Price and the
number of shares of Common Stock acquirable upon exercise of this Warrant so
that the rights of the holder shall be neither enhanced nor diminished by
such event.
(l) Certain Definitions.
(i) Common Stock Deemed Outstanding shall mean the
number of shares of Common Stock actually outstanding (not including shares
of Common Stock held in the treasury of the Company), plus (x) pursuant to
Paragraph 4(b)(i) hereof, the maximum total number of shares of Common Stock
issuable upon the exercise of Options, as of the date of such issuance or
grant of such Options, if any, and (y) pursuant to Paragraph 4(b)(ii) hereof,
the maximum total number of shares of Common Stock issuable upon conversion
or exchange of Convertible Securities, as of the date of issuance of such
Convertible Securities, if any.
(ii) Market Price, as of any date, (i) means the
average of the last reported sale prices for the shares of Common Stock on
the OTCBB for the five (5) Trading Days immediately preceding such date as
reported by Bloomberg, or (ii) if the OTCBB is not the principal trading
market for the shares of Common Stock, the average of the last reported sale
prices on the principal trading market for the Common Stock during the same
period as reported by Bloomberg, or (iii) if market value cannot be
calculated as of such date on any of the foregoing bases, the Market Price
shall be the fair market value as reasonably determined in good faith by (a)
the Board of Directors of the Company or, at the option of a
majority-in-interest of the holders of the outstanding Warrants by (b) an
independent investment bank of nationally recognized standing in the
valuation of businesses similar to the business of the corporation. The
manner of determining the Market Price of the Common Stock set forth in the
foregoing definition shall apply with respect to any other security in
respect of which a determination as to market value must be made hereunder.
(iii) Common Stock, for purposes of this Paragraph 4,
includes the Common Stock, par value $.00001 per share, and any additional
class of stock of the Company having no preference as to dividends or
distributions on liquidation, provided that the shares purchasable pursuant
to this Warrant shall include only shares of Common Stock, par value $.00001
per share, in respect of which this Warrant is exercisable, or shares
resulting from any subdivision or combination of such Common Stock, or in
the case of any reorganization, reclassification, consolidation, merger, or
sale of the character referred to in Paragraph 4(e) hereof, the stock or
other securities or property provided for in such Paragraph.
5. Issue Tax.
The issuance of certificates for Warrant Shares upon the exercise of this
Warrant shall be made without charge to the holder of this Warrant or such
shares for any issuance tax or other costs in respect thereof, provided that
the Company shall not be required to pay any tax which may be payable in
respect of any transfer involved in the issuance and delivery of any
certificate in a name other than the holder of this Warrant.
6. No Rights or Liabilities as a Shareholder.
This Warrant shall not entitle the holder hereof to any voting rights or
other rights as a shareholder of the Company. No provision of this Warrant,
in the absence of affirmative action by the holder hereof to purchase
Warrant Shares, and no mere enumeration herein of the rights or privileges
of the holder hereof, shall give rise to any liability of such holder for
the Exercise Price or as a shareholder of the Company, whether such
liability is asserted by the Company or by creditors of the Company.
7. Transfer, Exchange, and Replacement of Warrant.
(a) Restriction on Transfer. This Warrant and the rights
granted to the holder hereof are transferable, in whole or in part, upon
surrender of this Warrant, together with a properly executed assignment in
the form attached hereto, at the office or agency of the Company referred to
in Paragraph 7(e) below, provided, however, that any transfer or assignment
shall be subject to the conditions set forth in Paragraph 7(f) hereof and
to the applicable provisions of the Securities Purchase Agreement. Until
due presentment for registration of transfer on the books of the Company,
the Company may treat the registered holder hereof as the owner and holder
hereof for all purposes, and the Company shall not be affected by any notice
to the contrary. Notwithstanding anything to the contrary contained herein,
the registration rights described in Paragraph 8 are assignable only in
accordance with the provisions of that certain Registration Rights Agreement,
dated March 23, 2006, by and among the Company and the other signatories
thereto (the Registration Rights Agreement).
(b) Warrant Exchangeable for Different Denominations. This
Warrant is exchangeable, upon the surrender hereof by the holder hereof at
the office or agency of the Company referred to in Paragraph 7(e) below, for
new Warrants of like tenor representing in the aggregate the right to
purchase the number of shares of Common Stock which may be purchased
hereunder, each of such new Warrants to represent the right to purchase such
number of shares as shall be designated by the holder hereof at the time of
such surrender.
(c) Replacement of Warrant. Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction, or
mutilation of this Warrant and, in the case of any such loss, theft, or
destruction, upon delivery of an indemnity agreement reasonably satisfactory
in form and amount to the Company, or, in the case of any such mutilation,
upon surrender and cancellation of this Warrant, the Company, at its expense,
will execute and deliver, in lieu thereof, a new Warrant of like tenor.
(d) Cancellation; Payment of Expenses. Upon the surrender of
this Warrant in connection with any transfer, exchange, or replacement as
provided in this Paragraph 7, this Warrant shall be promptly canceled by the
Company. The Company shall pay all taxes (other than securities transfer
taxes) and all other expenses (other than legal expenses, if any, incurred
by the holder or transferees) and charges payable in connection with the
preparation, execution, and delivery of Warrants pursuant to this Paragraph
7.
(e) Register. The Company shall maintain, at its principal
executive offices (or such other office or agency of the Company as it may
designate by notice to the holder hereof), a register for this Warrant, in
which the Company shall record the name and address of the person in whose
name this Warrant has been issued, as well as the name and address of each
transferee and each prior owner of this Warrant.
(f) Exercise or Transfer Without Registration. If, at the
time of the surrender of this Warrant in connection with any exercise,
transfer, or exchange of this Warrant, this Warrant (or, in the case of any
exercise, the Warrant Shares issuable hereunder), shall not be registered
under the Securities Act of 1933, as amended (the Securities Act) and
under applicable state securities or blue sky laws, the Company may require,
as a condition of allowing such exercise, transfer, or exchange, (i) that
the holder or transferee of this Warrant, as the case may be, furnish to the
Company a written opinion of counsel, which opinion and counsel are
acceptable to the Company, to the effect that such exercise, transfer, or
exchange may be made without registration under said Act and under
applicable state securities or blue sky laws, (ii) that the holder or
transferee execute and deliver to the Company an investment letter in form
and substance acceptable to the Company and (iii) that the transferee be an
accredited investor as defined in Rule 501(a) promulgated under the
Securities Act; provided that no such opinion, letter or status as an
accredited investor shall be required in connection with a transfer
pursuant to Rule 144 under the Securities Act. The first holder of this
Warrant, by taking and holding the same, represents to the Company that
such holder is acquiring this Warrant for investment and not with a view to
the distribution thereof.
8. Registration Rights.
The initial holder of this Warrant (and certain assignees thereof) is
entitled to the benefit of such registration rights in respect of the
Warrant Shares as are set forth in Section 2 of the Registration Rights
Agreement.
9. Notices.
All notices, requests, and other communications required or permitted to
be given or delivered hereunder to the holder of this Warrant shall be in
writing, and shall be personally delivered, or shall be sent by certified
or registered mail or by recognized overnight mail courier, postage prepaid
and addressed, to such holder at the address shown for such holder on the
books of the Company, or at such other address as shall have been furnished
to the Company by notice from such holder. All notices, requests, and other
communications required or permitted to be given or delivered hereunder to
the Company shall be in writing, and shall be personally delivered, or shall
be sent by certified or registered mail or by recognized overnight mail
courier, postage prepaid and addressed, to the office of the Company at
0000 X. Xxxxxx Xxxxxx, Xxxxx 000-0000, Xxxxxx Xxxx, XX 00000, Attention:
Chief Executive Officer, or at such other address as shall have been
furnished to the holder of this Warrant by notice from the Company. Any
such notice, request, or other communication may be sent by facsimile, but
shall in such case be subsequently confirmed by a writing personally
delivered or sent by certified or registered mail or by recognized overnight
mail courier as provided above. All notices, requests, and other
communications shall be deemed to have been given either at the time of the
receipt thereof by the person entitled to receive such notice at the address
of such person for purposes of this Paragraph 9, or, if mailed by
registered or certified mail or with a recognized overnight mail courier
upon deposit with the United States Post Office or such overnight mail
courier, if postage is prepaid and the mailing is properly addressed, as
the case may be.
10. Governing Law.
THIS WARRANT SHALL BE ENFORCED, GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO
BE PERFORMED ENTIRELY WITHIN SUCH STATE, WITHOUT REGARD TO THE PRINCIPLES OF
CONFLICT OF LAWS. THE PARTIES HERETO HEREBY SUBMIT TO THE EXCLUSIVE
JURISDICTION OF THE UNITED STATES FEDERAL COURTS LOCATED IN NEW YORK, NEW
YORK WITH RESPECT TO ANY DISPUTE ARISING UNDER THIS WARRANT, THE AGREEMENTS
ENTERED INTO IN CONNECTION HEREWITH OR THE TRANSACTIONS CONTEMPLATED HEREBY
OR THEREBY. BOTH PARTIES IRREVOCABLY WAIVE THE DEFENSE OF AN INCONVENIENT
FORUM TO THE MAINTENANCE OF SUCH SUIT OR PROCEEDING. BOTH PARTIES FURTHER
AGREE THAT SERVICE OF PROCESS UPON A PARTY MAILED BY FIRST CLASS MAIL SHALL
BE DEEMED IN EVERY RESPECT EFFECTIVE SERVICE OF PROCESS UPON THE PARTY IN
ANY SUCH SUIT OR PROCEEDING. NOTHING HEREIN SHALL AFFECT EITHER PARTY'S
RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW. BOTH PARTIES
AGREE THAT A FINAL NON-APPEALABLE JUDGMENT IN ANY SUCH SUIT OR PROCEEDING
SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON
SUCH JUDGMENT OR IN ANY OTHER LAWFUL MANNER. THE PARTY WHICH DOES NOT
PREVAIL IN ANY DISPUTE ARISING UNDER THIS WARRANT SHALL BE RESPONSIBLE FOR
ALL FEES AND EXPENSES, INCLUDING ATTORNEYS FEES, INCURRED BY THE PREVAILING
PARTY IN CONNECTION WITH SUCH DISPUTE.
11. Miscellaneous.
(a) Amendments. This Warrant and any provision hereof may only
be amended by an instrument in writing signed by the Company and the holder
hereof.
(b) Descriptive Headings. The descriptive headings of the
several paragraphs of this Warrant are inserted for purposes of reference
only, and shall not affect the meaning or construction of any of the
provisions hereof.
(c) Cashless Exercise. Notwithstanding anything to the
contrary contained in this Warrant, if the resale of the Warrant Shares by
the holder is not then registered pursuant to an effective registration
statement under the Securities Act, this Warrant may be exercised by
presentation and surrender of this Warrant to the Company at its principal
executive offices with a written notice of the holders intention to effect
a cashless exercise, including a calculation of the number of shares of
Common Stock to be issued upon such exercise in accordance with the terms
hereof (a Cashless Exercise). In the event of a Cashless Exercise, in
lieu of paying the Exercise Price in cash, the holder shall surrender this
Warrant for that number of shares of Common Stock determined by multiplying
the number of Warrant Shares to which it would otherwise be entitled by a
fraction, the numerator of which shall be the difference between the then
current Market Price per share of the Common Stock and the Exercise Price,
and the denominator of which shall be the then current Market Price per
share of Common Stock. For example, if the holder is exercising 100,000
Warrants with a per Warrant exercise price of $0.75 per share through a
cashless exercise when the Common Stocks current Market Price per share is
$2.00 per share, then upon such Cashless Exercise the holder will receive
62,500 shares of Common Stock.
(d) Remedies. The Company acknowledges that a breach by it of
its obligations hereunder will cause irreparable harm to the holder, by
vitiating the intent and purpose of the transaction contemplated hereby.
Accordingly, the Company acknowledges that the remedy at law for a breach
of its obligations under this Warrant will be inadequate and agrees, in the
event of a breach or threatened breach by the Company of the provisions of
this Warrant, that the holder shall be entitled, in addition to all other
available remedies at law or in equity, and in addition to the penalties
assessable herein, to an injunction or injunctions restraining, preventing
or curing any breach of this Warrant and to enforce specifically the terms
and provisions thereof, without the necessity of showing economic loss and
without any bond or other security being required.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the Company has caused this Warrant to be
signed by its duly authorized officer.
PALOMAR ENTERPRISES, INC.
By: _______________________________
Xxxxx Xxxxxxxxxxx
Chief Executive Officer
Dated as of March 23, 2006
FORM OF EXERCISE AGREEMENT
Dated: ________ __, 200_
To: ______________________
The undersigned, pursuant to the provisions set forth in the within
Warrant, hereby agrees to purchase ________ shares of Common Stock covered
by such Warrant, and makes payment herewith in full therefor at the price
per share provided by such Warrant in cash or by certified or official bank
check in the amount of, or, if the resale of such Common Stock by the
undersigned is not currently registered pursuant to an effective registration
statement under the Securities Act of 1933, as amended, by surrender of
securities issued by the Company (including a portion of the Warrant) having
a market value (in the case of a portion of this Warrant, determined in
accordance with Section 11(c) of the Warrant) equal to $_________. Please
issue a certificate or certificates for such shares of Common Stock in the
name of and pay any cash for any fractional share to:
Name: ______________________________
Signature:
Address:____________________________
_____________________________
Note: The above signature should correspond exactly with the name on the
face of the within Warrant, if applicable.
and, if said number of shares of Common Stock shall not be all the shares
purchasable under the within Warrant, a new Warrant is to be issued in the
name of said undersigned covering the balance of the shares purchasable
thereunder less any fraction of a share paid in cash.
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and
transfers all the rights of the undersigned under the within Warrant,
with respect to the number of shares of Common Stock covered thereby set
forth hereinbelow, to:
Name of Assignee Address
No of Shares
, and hereby irrevocably constitutes and appoints
___________________________________ as agent and attorney-in-fact to
transfer said Warrant on the books of the within-named corporation, with
full power of substitution in the premises.
Dated: ________ __, 200_
In the presence of:
______________________________
Name:______________________________
Signature:_________________________
Title of Signing Officer or Agent (if any):
______________________________
Address: ______________________________
______________________________
Note: The above signature should correspond exactly with the name on the
face of the within Warrant, if applicable.
