Contract
Exhibit
10.17
THIS
WARRANT HAS BEEN ACQUIRED FOR INVESTMENT AND HAS NOT BEEN REGISTERED UNDER
THE
SECURITIES ACT OF 1933, AS AMENDED (“SECURITIES ACT”), OR APPLICABLE STATE
SECURITIES LAWS. THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON
EXERCISE OF THIS WARRANT (“WARRANT SHARES”) MAY NOT BE SOLD, PLEDGED, ASSIGNED
OR OTHERWISE TRANSFERRED, NOR WILL ANY ASSIGNEE, VENDEE, PLEDGEE, TRANSFEREE
OR
ENDORSEE HEREOF OR THEREOF BE RECOGNIZED BY THE ISSUER AS HAVING ACQUIRED THE
WARRANT OR ANY WARRANT SHARES FOR ANY PURPOSE, UNLESS (I) A REGISTRATION
STATEMENT UNDER THE SECURITIES ACT WITH RESPECT TO SUCH SECURITIES SHALL THEN
BE
IN EFFECT AND SUCH TRANSFER HAS BEEN QUALIFIED UNDER ALL APPLICABLE STATE
SECURITIES LAWS OR (II) AN EXEMPTION FROM SUCH REGISTRATION AND QUALIFICATION
SHALL BE AVAILABLE UNDER THE SECURITIES ACT AND SUCH LAWS, SUPPORTED BY AN
OPINION OF COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED, WHICH OPINION AND
COUNSEL ARE REASONABLY ACCEPTABLE TO THE COMPANY. THIS WARRANT AND THE COMPANY’S
SUBSCRIPTION AGREEMENT, INCLUDING THE REGISTRATION RIGHTS AGREEMENT, WITH THE
WARRANT HOLDER SET FORTH THE COMPANY’S OBLIGATIONS TO REGISTER FOR RESALE THE
WARRANT SHARES. A COPY OF SUCH SUBSCRIPTION AGREEMENT AND REGISTRATION RIGHTS
AGREEMENT IS AVAILABLE FOR INSPECTION AT THE COMPANY’S OFFICE.
THIS
WARRANT MAY NOT, IN ANY EVENT, BE TRANSFERRED TO ANY PERSON OR ENTITY THAT
IS
NOT AN ACCREDITED INVESTOR WITHIN THE MEANING OF RULE 501, PROMULGATED UNDER
THE
SECURITIES ACT.
_______Warrants
Void
after 5:00 p.m., California time on ___________, 2011
COMMON
STOCK
PURCHASE
WARRANT
OF
CYBER
MERCHANTS EXCHANGE, INC.
CYBER
MERCHANTS EXCHANGE, INC., a California corporation (the “Company”), hereby
certifies that, for value received,
______________ (the
“Initial Warrant Holder”, and together with any subsequent holder hereof, the
“Warrant Holder” and collectively with all other holders of Warrants issued
pursuant to the Subscription Agreements (as defined below), the “Warrant
Holders”) is the owner of the number of common stock purchase warrants
(“Warrants”) specified above, each of which entitles the holder thereof to
purchase, at any time during the period commencing on the Commencement Date
(as
defined in Section
2.1)
and
ending on the Expiration Date (as defined Section
2.7),
one
fully paid and non-assessable share of common stock, no par value per share,
of
the Company (“Common Stock”) at a purchase price equal to the Exercise Price (as
defined in Section
1.2)
in
lawful money of the United States of America. These Warrants are part of the
duly authorized issuance of Series B Convertible Preferred Stock (“Series B
Preferred Stock”) for aggregate proceeds in the maximum amount of $10,000,000
and attached Warrants to purchase shares of Common Stock, issued or to be issued
by the Company pursuant to Subscription Agreements between the Company and
the
holders of the Series B Preferred Stock, (the “Subscription Agreements”) and a
certain private placement memorandum dated July 10, 2006, as amended or
supplemented (the “Private Placement”).
1. WARRANT;
EXERCISE PRICE.
1.1 Each
Warrant shall entitle the Warrant Holder the right to purchase one share of
Common Stock (individually, a “Warrant Share” severally, the “Warrant Shares”),
subject to adjustment as provided in Section
8.
1.2 The
purchase price payable upon exercise of each Warrant (“Exercise Price”) shall be
$0.326 per share, subject to adjustment as provided in Section
8.
2. EXERCISE
OF WARRANTS; EXPIRATION DATE.
2.1 Exercise
of Warrant
(a) Exercise
for Cash.
The
Warrants are exercisable during the period commencing on ___________, 2006
(“Commencement Date”) and ending on the Expiration Date (as defined below in
Section
2.7),
in
whole, or from time to time, in part, at the option of the Warrant Holder,
upon
delivery to the Company, the Company’s Transfer Agent and the Company’s counsel,
or such other person as the Company may designate, a duly completed and executed
form of exercise attached hereto (indicating exercise by payment of the Exercise
Price) and payment of an amount equal to the then applicable Exercise Price
multiplied by the number of Warrant Shares then being purchased upon such
exercise.
The
payment of the Exercise Price shall be in cash or by certified check or official
bank check, payable to the order of the Company.
(b) Cashless
Exercise.
In lieu
of exercising Warrants pursuant to Section 2.1(a), provided that a valid Company
prospectus covering the public re-sale of the Warrant Shares is not available
to
the Warrant Holder, Warrants may be exercised in whole, or from time to time,
in
part, at the option of the Warrant Holder, upon surrender of the Warrants to
the
Company, or such other person as the Company may designate, together with a
duly
completed and executed form of exercise attached hereto (indicating exercise
by
cashless exercise), specifying the number of Warrants to be exercised. The
number of Warrant Shares to be issued to the Warrant Holder upon such cashless
exercise shall be computed using the following formula:
2
|
X
=
(P)(Y)(A-B)/A
|
|||
|
Where
|
X
=
|
the
number of shares of Warrant Shares to be issued to the Warrant Holder
for
the Warrants being converted.
|
|
|
P
=
|
the
number of Warrants being converted expressed as a decimal
fraction.
|
||
|
Y =
|
the
total number of Warrant Shares issuable upon exercise of the Warrants
in
full.
|
||
|
A
=
|
the
fair market value of one Warrant Share which shall mean the “last sale
price” as determined in accordance withSection
2.4.
|
||
|
B
=
|
The
Exercise Price on the date of conversion.
|
||
2.2 Each
exercise of a Warrant shall be deemed to have been effected immediately prior
to
the close of business on the day on which such Warrant shall have been
surrendered to the Company as provided in Section
2.1.
At such
time, the person or persons in whose name or names any certificates for Warrant
Shares shall be issuable upon such exercise in accordance with Section
2.3
shall be
deemed to have become the holder or holders of record of the Warrant Shares
represented by such certificates.
2.3 Subject
to the provisions of Section
2.5,
6.3
and
6.4,
not
later than three (3) trading days after the exercise of this Warrant pursuant
to
Section
2.2,
in full
or in part, the Company, at its expense, will cause to be issued in the name
of,
and delivered to, the Warrant Holder, or, subject to the terms and conditions
hereof, to such other individual or entity as such Warrant Holder may
direct:
(a) a
certificate or certificates for the number of full Warrant Shares to which
such
Warrant Holder shall be entitled upon such exercise plus, in lieu of any
fractional share to which such Warrant Holder would otherwise be entitled,
cash
in an amount determined pursuant to Section
2.4
hereof,
and
(b) in
case
such exercise is in part only (including as a result of Section
2.5,
6.3
and
6.4
hereof),
a new Warrant or Warrants (dated the date hereof) of like tenor, stating on
the
face or faces thereof the number of shares currently stated on the face of
this
Warrant minus the number of such shares purchased by the Warrant Holder upon
such exercise as provided in Section
2.1.
(c) If
within
three (3) Trading Days after receipt by the Company, the Company’s transfer
agent and the Company’s counsel of the facsimile copy of a Notice of Exercise
the Company shall fail to issue and deliver a certificate to the Warrant Holder
or credit such Warrant Holder's balance account with DTC for the number of
shares of Common Stock to which such Warrant Holder is entitled upon such
Warrant Holder's exercise of the Warrant, and if on or after such Trading Day
the Warrant Holder purchases (in an open market transaction or in another bona
fide transaction) Common Stock to deliver in satisfaction of a sale by the
Warrant Holder of the Common Stock issuable upon such exercise that the Warrant
Holder anticipated receiving from the Company (a "Buy-In"),
then
the Company shall, within three (3) Trading Days after the Warrant Holder's
request and in the Warrant Holder's discretion, either (i) pay cash to the
Warrant Holder in an amount equal to the Warrant Holder's total purchase price
(including brokerage commissions, if any) for the Common Stock so purchased
(the "Buy-In
Price"),
at
which point the Company's obligation to deliver such certificate (and to issue
such Common Stock) shall terminate, or (ii) promptly honor its obligation to
deliver to the Warrant Holder a certificate or certificates representing such
Common Stock and pay cash to the Warrant Holder in an amount equal to the excess
(if any) of the Buy-In Price over the product of (A) such number of shares
of
Common Stock, times (B) the Closing Price on the date of exercise. “Closing
Price”
means,
for any date, the price determined by the first of the following clauses that
applies: (a) if the Common Stock is then listed on a Principal Market other
than
the Over-the-Counter Bulletin Board, the last trading price per share of the
Common Stock for such date (or the nearest preceding date) on such Principal
Market as reported by Bloomberg Financial L.P. (based on a Trading Day from
9:30
a.m. Eastern Time to 4:02 p.m. Eastern Time); (b) if the Common Stock is quoted
on the Over-the-Counter Bulletin Board, the most recent bid price per share
of
the Common Stock for such date (or the nearest preceding date) on the
Over-the-Counter Bulletin Board; (c) if the Common Stock is not then listed
or
quoted on the OTC Bulletin Board and if prices for the Common Stock are then
reported in the “Pink Sheets” published by the National Quotation Bureau
Incorporated (or a similar organization or agency succeeding to its functions
of
reporting prices), the most recent bid price per share of the Common Stock
so
reported; or (d) in all other cases, the fair market value of a share of Common
Stock as determined by an independent appraiser selected in good faith by the
Holder and reasonably acceptable to the Company.
3
The
Company shall, upon request of the Holder, use its best efforts to deliver
any
certificate or certificates required to be delivered by the Company hereunder
electronically through the Depository Trust Corporation or another established
clearing corporation performing similar functions, if available.
2.4 The
Company shall not be required upon the exercise of this Warrant to issue any
fractional shares, but shall make an adjustment thereof in cash on the basis
of
the “last sale price” (as defined below) of the Company’s Common Stock on the
trading day immediately prior to the date of exercise. For purposes of this
Section
2.4,
“last
sale price” means (i) if the Common Stock is listed on a national securities
exchange or the Nasdaq National Market or Nasdaq Capital Market, the last
trading price per share of the Common Stock for such date, (ii) if the Common
Stock is quoted on the NASD OTC Bulletin Board (or successor such as the
Bulletin Board Exchange), the closing bid price of the Common Stock on such
date, (iii) if the Common Stock is traded in the residual over-the-counter
market, the closing bid price for the Common Stock for such date as reported
by
the Pink Sheets, LLC or similar publisher of such quotations, and (iv) if the
fair market value of the Common Stock cannot be determined pursuant to clause
(i), (ii) or (iii) above, such price as the Board of Directors of the Company
shall determine, in good faith.
2.5 In
the
event of a dispute between the Company and a Warrant Holder as to (i) the
calculation of the Exercise Price (including, without limitation, the
calculation of any adjustment to the Exercise Price following any adjustment
thereof), or (ii) the number of Warrant Shares issuable upon exercising any
Warrants, the Company shall issue to such Warrant Holder the number of Warrant
Shares that are not disputed in accordance with the time period set forth in
Section
2.3
hereof,
and shall submit the disputed calculations to a certified public accounting
firm
of national reputation (other than the Company’s regularly retained accountants)
by such date. The Company shall cause such accountant to calculate the Exercise
Price in accordance herewith and to notify the Company and such Holder of the
results in writing no later than five (5) business Days following the day on
which such accountant received the disputed calculations (the “Dispute
Procedure”). Such accountant’s calculation shall be deemed conclusive absent
manifest error or fraud. The fees of any such accountant shall be borne by
the
party whose calculations were most at variance with those of such
accountant.
4
2.6 If
the
Company fails to deliver to the Holder a certificate or certificates
representing the Warrant Shares and cash in lieu of any fractional shares in
accordance with Section
2.3,
then
the Warrant Holder will have the right to rescind the exercise of the applicable
Warrants.
2.7 The
term
“Expiration Date” shall mean 5:00 p.m., California time on ____________, 2011
[five-year anniversary of the closing date], or if such date shall in the State
of California be a holiday or a day on which banks are authorized to close,
then
5:00 p.m., California time the next following day which in the State of
California is not a holiday or a day on which banks are authorized to
close.
2.8 The
Warrants are not redeemable by the Company.
3. REGISTRATION
AND TRANSFER ON COMPANY BOOKS.
3.1 The
Company (or an agent of the Company) will maintain a register containing the
names and addresses of the Warrant Holders. Any Warrant Holder may change its,
his or her address as shown on the warrant register by written notice to the
Company requesting such change.
3.2 The
Company shall register upon its books any transfer of a Warrant upon surrender
of same as provided in Section
5.
4. RESERVATION
OF SHARES.
Immediately following the completion of the Authorized Shares Increase (as
defined in Section 6.3), the Company will at all times reserve and keep
available, solely for issuance and delivery upon the exercise of this Warrant,
such Warrant Shares and other stock, securities and property, as from time
to
time shall be issuable upon the exercise of this Warrant. The Company covenants
that all Warrant Shares so issuable when issued will be duly and validly issued
and fully paid and non-assessable.
5. EXCHANGE,
LOSS OR MUTILATION OF WARRANTS.
Warrants are exchangeable, without expense, at the option of the Warrant Holder,
upon presentation and surrender hereof to the Company for other warrants of
different denominations entitling the holder thereof to purchase in the
aggregate the same number of shares of Common Stock purchasable hereunder on
the
same terms and conditions as provided herein. Subject to the provisions of
Section
6,
if
applicable, this Warrant may be divided or combined with other warrants which
carry the same rights upon presentation hereof at the Company’s office together
with a written notice specifying the names and denominations in which new
Warrants are to be issued and signed by the Warrant Holder hereof. The term
“Warrant” as used herein includes any Warrants into which this Warrant may be
divided or exchanged. Upon receipt by the Company of reasonable evidence of
the
ownership and the loss, theft, destruction or mutilation of this Warrant and,
in
the case of loss, theft or destruction, receipt of indemnity reasonably
satisfactory to the Company, or, in the case of mutilation, upon surrender
and
cancellation of the mutilated Warrant, the Company shall execute and deliver
in
lieu thereof a new Warrant of like tenor and date representing an equal number
of Warrants.
5
6. LIMITATION
ON EXERCISE AND SALES.
6.1 The
Warrant Holder acknowledges that the Warrants and the Warrant Shares have not
been registered under the Securities Act and the rules and regulations
thereunder, or any successor legislation, and agrees not to sell, pledge,
distribute, offer for sale, transfer or otherwise dispose of any Warrant, or
any
Warrant Shares issued upon its exercise, in
except
in compliance with the requirements of Section
6.2.
6.2 The
Warrants and the rights granted to the Warrant Holder are transferable only
to
accredited investors 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 agent of the Company; provided,
however, that
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 Sharers issuable hereunder), shall not be registered
for
resale under the Securities Act or under applicable state securities or blue
sky
laws, then the Company may require, as a condition of allowing such exercise,
transfer or exchange (i) 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 the Securities Act or under
applicable state securities or blue sky laws, (ii) that any transferee of the
Warrant execute and deliver to the Company a document containing investment
representations and warranties substantially similar to those set forth in
the
Subscription Agreement pursuant to which the Initial Warrant Holder acquired
this Warrant, and (iii) prior to exercise of the Warrant, the Warrant Holder
shall have executed the form of exercise annexed hereto.
6.3 Notwithstanding
the foregoing, in the event of an exercise of any Warrant prior to such time
that the Company increases its authorized shares of Common Stock, as described
in the Subscription Agreements (“Authorized Shares Increase”), unless sufficient
shares of Common Stock are otherwise available, the Company shall be obligated
to effect such exercise and deliver a certificate or certificates pursuant
to
Section
2.5
only
upon completion of such Authorized Shares Increase.
6.4 The
Company shall not issue Warrant Shares upon an exercise of Warrants in an amount
which results in the Warrant Holder and its affiliates beneficially owning
an
aggregate of more the 4.99% of the outstanding Common Stock of the Company,
after giving effect to the issuance of Warrant Shares upon such exercise, with
beneficial ownership being determined by reference to Rule 13d-3 under the
Securities Exchange Act of 1934, as amended. For the purposes hereof, the
determination of beneficial ownership shall exclude shares of Common Stock
issuable upon exercise or conversion of the unexercised or nonconverted portion
of any other securities of the Company (including, without limitation, any
other
Warrants) subject to a limitation on conversion or exercise analogous to the
limitation contained herein beneficially owned by such Warrant Holder or any
of
its affiliates.
6
6.5 Certificates
delivered to the Warrant Holder upon exercise hereof shall be imprinted with
a
legend in substantially the following form if such Warrant Shares are not
registered at the time of exercise:
“This
security has been acquired for investment and has not been registered under
the
Securities Act of 1933, as amended (the “Act”), or applicable state securities
or “blue sky” laws. This security may not be sold, pledged, assigned or
otherwise transferred nor will any assignee, pledgee, vendee, transferee,
endorsee thereof be recognized by the issuer as having acquired such securities
for any purpose unless (i) a registration statement under the Act with respect
to such security shall then be in effect and such transfer has been qualified
under all applicable state securities or “blue sky” laws or (ii) an exemption
therefrom shall be available under the Act and such laws, supported by an
opinion of counsel that such registration is not required, which opinion and
counsel are reasonably satisfactory to the Company and its
counsel.”
7. REGISTRATION
RIGHTS OF WARRANT HOLDER.
The
Initial Warrant Holder (and certain assignees thereof) is entitled to the
benefit of such registration rights in respect of Warrant Shares in accordance
with and subject to the terms and conditions of the Registration Rights
Agreement executed and delivered by the Initial Warrant Holder and the Company.
8. ADJUSTMENT
OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES DELIVERABLE.
The
Exercise Price and the number of Warrant Shares purchasable pursuant to each
Warrant shall be subject to adjustment from time to time as hereinafter set
forth in this Section
8:
(a) If
the
Company shall (i) issue any shares of its Common Stock as a stock dividend
or
(ii) subdivide the number of outstanding shares of its Common Stock into a
greater number of shares, the Exercise Price shall be proportionately reduced
and the number of Warrant Shares at that time purchasable pursuant to this
Warrant shall be proportionately increased. If the Company shall reduce the
number of outstanding shares of Common Stock by combining such shares into
a
smaller number of shares, the Exercise Price per Warrant Share shall be
proportionately increased and the number of Warrant Shares at that time
purchasable pursuant to this Warrant shall be proportionately decreased. If
the
Company shall, at any time during the life of this Warrant, declare a dividend
payable in cash on its Common Stock and shall at substantially the same time
offer to its stockholders a right to purchase new Common Stock from the proceeds
of such dividend or for an amount substantially equal to the dividend, for
purposes of this Warrant, all Common Stock so issued shall be deemed to have
been issued as a stock dividend. Any dividend paid or distributed upon the
Common Stock in stock of any other class of securities convertible into shares
of Common Stock shall be treated as a dividend paid in Common Stock to the
extent that shares of Common Stock are issuable upon conversion
thereof.
(b) If
the
Company shall be recapitalized by reclassifying its outstanding Common Stock,
(other than a change in par value or a subdivision or combination as provided
in
Section
8(a)),
or the
Company or a successor corporation shall consolidate or merge with or convey
all
or substantially all of its or of any successor corporation’s property and
assets to any other corporation or corporations (any such other corporations
being included within the meaning of the term “successor corporation”
hereinbefore used), then, as a condition of such recapitalization,
consolidation, merger or conveyance, lawful and adequate provision shall be
made
whereby the Warrant Holder shall thereafter have the right to receive upon
the
exercise hereof the kind and amount of shares of stock or other securities
or
property which such Warrant Holder would have been entitled to receive if,
immediately prior to any such reorganization or reclassification, such Warrant
Holder had held the number of shares of Common Stock which were then purchasable
upon the exercise of this Warrant. In any such case, appropriate adjustment
shall be made in the application of the provisions set forth herein with respect
to the rights and interest thereafter of the Warrant Holder such that the
provisions set forth in this Section
8
(including provisions with respect to adjustment of the Exercise Price and
number of shares purchasable upon the exercise of this Warrant) shall thereafter
be applicable, as nearly as may be in relation to any shares of stock or other
securities or property thereafter deliverable upon the exercise of this
Warrant.
7
(c) Adjustment
of Exercise Price
(i) Except
as
provided in Section
8(a)(iii),
whenever the Company issues or sells, or, pursuant to any provision of
Section
8(a)(ii),
is
deemed to have issued or sold, any shares of Common Stock for a consideration
per share less than eighty percent (80%) of the then applicable Exercise Price,
then, immediately upon such issuance or sale, the Exercise Price shall be
reduced to one hundred twenty-five percent (125%) of the lowest per share price
of Common Stock in such issuance or sale or deemed issuance or
sale.
(ii) Any
grant
by the Company (whether directly or by assumption in a merger or otherwise,
in
any manner) of any warrants, rights to subscribe for, or options to purchase
any
Common Stock (collectively, the “Options”) or any issuance or sale by the
Company (whether directly or by assumption in a merger or otherwise, in any
manner) of any security convertible into or exchangeable for shares of Common
Stock (“Convertible Securities”) shall be deemed to be an issuance of Common
Stock, whether or not immediately exercisable or convertible. The number of
shares of Common Stock deemed to be issued shall be equal to the maximum number
of shares of Common Stock issuable upon the exercise of such Options or
conversion of such Convertible Securities. The price per share of Common Stock
in such deemed issuance or sale of Common Stock shall be determined by dividing
the amount determined in (A) below, by the amount determined in (B)
below:
(A)
the
sum of (x) the total amount, if any, received or receivable by the Company
as
consideration for the granting of such Options or issuance of such Convertible
Securities, plus (y) the minimum aggregate amount of additional consideration
payable to the Company upon the full exercise of all such Options or the full
conversion of all such Convertible Securities (“Total Consideration”);
(B)
the
total maximum number of shares of Common Stock issuable upon the exercise of
such Options or the conversion of such Convertible Securities.
For
purposes of this Section
8(c)(ii),
in the
event that there is a change in the Total Consideration for any Options or
Convertible Securities, as determined above (a “Price Change”), at any time
(including, but not limited to, changes designed to protect against dilution),
the price per share of Common Stock in such deemed issuance or sale of Common
Stock shall be readjusted immediately to the price per share of Common Stock
which would have been in effect if such Options or Convertible Securities had
provided for such Price Change at the time initially granted, issued or sold.
Except as otherwise provided in the preceding sentence, no adjustment of the
price per share of Common Stock in such deemed issuance or sale of Common Stock
under this Section
8(c)(ii)
shall be
made upon the exercise of the Options or upon the conversion of the Convertible
Securities.
8
(iii) Notwithstanding
anything in this Warrant to the contrary, no downward adjustment shall be made
to the Exercise Price under this Section
8(c):
(1) for
the issuance of Common Stock upon conversion of the Company’s Series A Preferred
Stock issued pursuant to that certain Exchange Agreement, dated July 7, 2006,
by
and among the Company, Prime Fortune Enterprises, Ltd. and the stockholders
of
Prime Fortune Enterprises, Ltd. (the “Exchange Agreement”), in accordance with
the Certificate of Determination of the Series A Preferred Stock, (2) for the
issuance of Common Stock to Worldwide Gateway Co., Ltd. pursuant to the Exchange
Agreement, (3) for the issuance of Common Stock to Infosmart Group Limited’s
legal counsel for fees in connection with the Exchange Agreement and the Private
Placement, (4) for the issuance of Common Stock upon the exercise of Warrants
(including any Warrants issued to the placement agents) pursuant to the terms
of
such Warrants, or upon conversion of shares of Series B Preferred Stock pursuant
to terms of the Certificate of Determination of the Series B Preferred Stock,
issued in connection with the Private Placement, or (5) for the issuance of
Common Stock (whether directly or through Options or other Convertible
Securities) to employees or directors of the Company pursuant to an equity
incentive plan or agreement approved by the Company’s shareholders. If the
amount of Registration Default Payments (as defined in the Registration Rights
Agreement") paid or payable, in the aggregate, to any Purchaser exceeds the
Registration Default Payment Cap (as defined in the Registration Rights
Agreement"), the Exercise Price shall be reduced on the last business day of
each subsequent calendar month by an amount equal to the quotient of (i) the
sum
of any Registration Default Payments that would have been due to the Holder
on
such date without regard to the Registration Default Payment Cap, and (ii)
the
maximum number of shares of Common Stock issuable to such Holder upon the full
exercise of the Warrants (as adjusted in accordance with this Section 8);
provided, however, that the Exercise Price shall not be adjusted below a minimum
Exercise Price of $0.15.
(d) The
Exercise Price then in effect will be reset downward by such percentage of
the
Exercise Price that is determine by dividing (x) the 2007 Net Income Deficiency
(as defined below) by (y) ten million dollars ($10,000,000), subject to a
maximum cumulative downward adjustment of fifty percent (50%) of the initial
Exercise Price as of the date hereof (as adjusted for any prior adjustments
to
the Exercise Price other than for this Section
8(d))
(the
“Maximum Reset”). The “2007 Net Income Deficiency” shall mean the amount equal
to nine million dollars ($9,000,000) less the Company’s 2007 Adjusted Net Income
(as hereinafter defined). For the purposes hereof, the Company’s “2007 Adjusted
Net Income” shall mean the consolidated net income (or loss) of the Company for
the twelve (12) month period ending December 31, 2007 determined in accordance
with U.S. generally accepted accounting principles consistently applied
(“GAAP”), plus, to the extent separately identified in the statement of net
income (or loss) for such period, the non-cash charges incurred by the Company
as a result of the issuance of the securities in connection with the Private
Placement for any amortization of the warrants issued to investors or the
placement agent or amortization relating to the beneficial conversion feature
(if any) of the Series B Preferred Stock. No later than one hundred twenty
(120)
days after the end of the twelve month period ended December 31, 2007, the
Company shall deliver to the Warrant Holder in accordance with Section
18
audited
financial statements prepared in accordance with GAAP for and as of the end
of
such period. In the event that the Company fails to timely deliver such
financial statements to the Warrant Holder as herein provided, the Exercise
Price then in effect shall be immediately adjusted downward by the Maximum
Reset.
9
(e) If
the
Company shall sell all or substantially all of its property or dissolve,
liquidate, or wind up its affairs, lawful provision shall be made as part of
the
terms of any such sale, dissolution, liquidation or winding up, so that the
holder of this Warrant may thereafter receive upon exercise hereof in lieu
of
each Warrant Share that it would have been entitled to receive, the same kind
and amount of any securities or assets as may be issuable, distributable or
payable upon any such sale, dissolution, liquidation or winding up with respect
to each share of Common Stock of the Company, provided, however, that in any
case of any such sale or of dissolution, liquidation or winding up, the right
to
exercise this Warrant shall terminate on a date fixed by the Company; such
date
so fixed to be not earlier than 5:00 p.m., Eastern time, on the forty-fifth
(45th)
day
next succeeding the date on which notice of such termination of the right to
exercise this Warrant has been given by mail to the registered holder of this
Warrant at its address as it appears on the books of the Company.
(f) No
adjustment in the per share Exercise Price shall be required unless such
adjustment would require an increase or decrease in the Exercise Price by at
least $0.01; provided, however, that any adjustments that by reason of this
subsection are not required to be made shall be carried forward and taken into
account in any subsequent adjustment. All calculations under this Section
8
shall be
made to the nearest cent or to the nearest 1/100th of a share, as the case
may
be.
(g) 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 Section
8
and in
the taking of all such actions as may be necessary or appropriate in order
to
protect against impairment of the rights of the Warrant Holder to adjustments
in
the Exercise Price.
(h) Upon
the
happening of any event requiring an adjustment of the Exercise Price hereunder,
the Company shall give written notice thereof within five (5) business days
to
the Warrant Holder stating the adjusted Exercise Price and the adjusted number
of Warrant Shares resulting from such event and setting forth in reasonable
detail the method of calculation and the facts upon which such calculation
is
based.
9. VOLUNTARY
ADJUSTMENT BY THE COMPANY.
The
Company may, at its option, at any time during the term of the Warrants, reduce
the then current Exercise Price to any amount deemed appropriate by the Board
of
Directors of the Company and/or extend the date of the expiration of the
Warrants.
10. RIGHTS
OF THE HOLDER.
The
Warrant Holder shall not, by virtue hereof, be entitled to any rights of a
stockholder in the Company, either at law or equity, and the rights of the
Warrant Holder are limited to those expressed in the Warrant and are not
enforceable against the Company except to the extent set forth herein.
10
11. NOTICES
OF RECORD DATE.
In
case: (a) the Company shall take a record of the holders of its Common Stock
(or
other stock or securities at the time deliverable upon the exercise of this
Warrant) for the purpose of entitling or enabling them to receive any dividend
or other distribution, or to receive any right to subscribe for or purchase
any
shares of any class or any other securities, or to receive any other right,
or
(b) of any capital reorganization of the Company, any reclassification of the
capital stock of the Company, any consolidation or merger of the Company with
or
into another corporation (other than a consolidation or merger in which the
Company is the surviving entity), or any transfer of all or substantially all
of
the assets of the Company, or (c) of the voluntary or involuntary dissolution,
liquidation or winding-up of the Company, then, and in each such case, the
Company will mail or cause to be mailed to the Warrant Holder a notice
specifying, as the case may be: (i) the date on which a record is to be taken
for the purpose of such dividend, distribution or right, and stating the amount
and character of such dividend, distribution or right, or (ii) the effective
date on which such reorganization, reclassification, consolidation, merger,
transfer, dissolution, liquidation or winding-up is to take place, and the
time,
if any is to be fixed, as of which the holders of record of Common Stock (or
such other stock or securities at the time deliverable upon the exercise of
this
Warrant) shall be entitled to exchange their shares of Common Stock (or such
other stock or securities) for securities or other property deliverable upon
such reorganization, reclassification, consolidation, merger, transfer,
dissolution, liquidation or winding-up. Such notice shall be mailed at least
twenty (20) days prior to the record date or effective date for the event
specified in such notice, provided that the failure to mail such notice shall
not affect the legality or validity of any such action.
12. SUCCESSORS.
The
rights and obligations of the parties to this Warrant will inure to the benefit
of and be binding upon the parties hereto and their respective permitted heirs,
successors, assigns, pledgees, transferees and purchasers.
13. CHANGE
OR WAIVER.
Any
term of this Warrant may be changed or waived only by an instrument in writing
signed by the party against whom enforcement of the change or waiver is sought.
14. HEADINGS.
The
headings in this Warrant are for purposes of reference only and shall not limit
or otherwise affect the meaning of any provision of this Warrant.
15. GOVERNING
LAW.
This
Warrant shall be governed by and construed in accordance with the laws of the
State of California as such laws are applied to contracts made and to be fully
performed entirely within that state between residents of that
state.
16. JURISDICTION
AND VENUE.
The
Company (i) agrees that any legal suit, action or proceeding arising out of
or
relating to this Warrant shall be instituted exclusively in the federal courts
located in Los Angeles, California, U.S.A., (ii) waives any objection to the
venue of any such suit, action or proceeding and the right to assert that such
forum is not a convenient forum, and (iii) irrevocably consents to the
jurisdiction of the federal courts located in Los Angeles, California, U.S.A.
in
any such suit, action or proceeding, and the Company further agrees to accept
and acknowledge service or any and all process that may be served in any such
suit, action or proceeding in the federal courts located in Los Angeles,
California, U.S.A. in person or by certified mail addressed as provided in
the
following Section.
11
17. AMENDMENT
AND WAIVER.
Any
amendment or waiver of any of the terms or conditions of the Warrants by the
Company must be in writing and must be duly executed by or on its behalf. Any
of
the terms or conditions of the Warrants may be amended or waived by the Warrant
Holders only upon the written consent of Warrant Holders representing 75% of
the
Warrants then outstanding. Any such amendment or waiver shall be binding on
all
Warrant Holders whether they consented or not or whether their consent was
solicited or not. The failure of a party to exercise any of its rights hereunder
or to insist upon strict adherence to any term or condition hereof on any one
occasion shall not be construed as a waiver or deprive that party of the right
thereafter to insist upon strict adherence to the terms and conditions of this
Warrant at a later date. Further, no waiver of any of the terms and conditions
of this Warrant shall be deemed to or shall constitute a waiver of any other
term of condition hereof (whether or not similar).
18. MAILING
OF NOTICES, ETC.
All
notices and other communications under this Warrant (except payment) shall
be in
writing and shall be sufficiently given if delivered to the addressees in
person, by Federal Express or similar overnight courier service, or if mailed,
postage prepaid, by certified mail, return receipt requested, as follows:
| Registered Holder: | To his or her last known address as indicated on the Company’s books and records. |
| The Company: | To the Company’s Chief Executive Officer at the address of the Company’s principal office as set forth in the last filing by the Company with the SEC |
or
to
such other address as any of them, by notice to the others, may designate from
time to time. Notice shall be deemed given (a) when personally delivered, (b)
the scheduled delivery date if sent by Federal Express or other overnight
courier service or (c) the fifth day after sent by certified mail.
12
IN
WITNESS WHEREOF, the Company has caused this Warrant to be signed by its duly
authorized officer as of the _____ day of _______________, 2006.
| CYBER MERCHANTS EXCHANGE, INC. | ||
| |
|
|
| : | By: | |
|
Name: |
||
| Title | ||
Notice
of Exercise
To
Be
Executed by the Warrant Holder
In
Order
to Exercise Warrants
The
undersigned Warrant Holder hereby irrevocably elects to exercise ______ Warrants
represented by this Warrant by:
(check
one)
¨
payment
of the Exercise Price in cash pursuant to Section 2.1(a) of the
Warrant
¨
the
cashless exercise option pursuant to Section 2.1(b) of the Warrant
for
the
shares of Common Stock issuable upon the exercise of such Warrants, and requests
that certificates for such shares of Common Stock shall be issued in the name
of
PLEASE
INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
(please
print or type name and address)
and
be
delivered to
(please
print or type name and address)
and
if
such number of Warrants shall not be all the Warrants evidenced by this Warrant,
that a new Warrant for the balance of such Warrants be registered in the name
of, and delivered to, the registered Warrant Holder at the address stated
above.
The
undersigned hereby represents and warrants to the Company that it is an
“Accredited Investor” within the meaning of Rule 501(c) of the Securities Act of
1933, as amended (the “Securities Act”), and is acquiring these securities for
its own account and not with a view to, or for sale in connection with, any
distribution thereof, nor with any present intention of distributing or selling
the same. The undersigned further represents that it does not have any contract,
agreement, understanding or arrangement with any person to sell, transfer or
grant the shares of Common Stock issuable under this Warrant. The undersigned
understands that the shares it will be receiving are “restricted securities”
under Federal securities laws inasmuch as they are being acquired from CYBER
MERCHANTS EXCHANGE, INC., in transactions not including any public offering
and
that under such laws, such shares may only be sold pursuant to an effective
and
current registration statement under the Securities Act or an exemption from
the
registration requirements of the Securities Act and any other applicable
restrictions including the requirements of state securities and “blue sky” laws,
in which event a legend or legends will be placed upon the certificate(s)
representing the Common Stock issuable under this Warrant denoting such
restrictions. The undersigned understands and acknowledges that the Company
will
rely on the accuracy of these representations and warranties in issuing the
securities underlying the Warrant.
Dated:_________________
_________________________________
(Signature
of Registered Holder)
ASSIGNMENT
FORM
To
be
executed by the Warrant Holder
In
order
to Assign Warrants
FOR
VALUE
RECEIVED,____________________________________ hereby sell, assigns and transfer
unto
PLEASE
INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
(Please
print or type name and address)
______________________
of the Warrants represented by this Warrant, and hereby irrevocably constitutes
and appoints ________________________ Attorney to transfer this Warrant on
the
books of the Company, with full power of substitution in the
premises.
Dated:______________________ ____________________________________________
(Signature
of Registered Holder)
____________________________________________
(Signature
Guaranteed)
