EXHIBIT 10.3
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THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON
EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES
LAWS. THIS WARRANT AND THE COMMON STOCK ISSUABLE UPON
EXERCISE OF THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT AS TO THIS WARRANT UNDER SAID ACT AND
ANY APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO XXX.XXX, INC. THAT SUCH
REGISTRATION IS NOT REQUIRED.
Right to Purchase 1,143,000 Shares of Common Stock of
XXX.xxx, Inc.
(subject to adjustment as provided herein)
COMMON STOCK PURCHASE WARRANT
No. _________________ Issue Date: August 31, 2004
XXX.XXX, INC., a corporation organized under the laws of the State of
Delaware, hereby certifies that, for value received, LAURUS MASTER FUND, LTD.,
or assigns (the "Holder"), is entitled, subject to the terms set forth below, to
purchase from the Company (as defined herein) from and after the Issue Date of
this Warrant and at any time or from time to time before 5:00 p.m., New York
time, through the close of business August 31, 2009 (the "Expiration Date"), up
to 1,143,000 fully paid and nonassessable shares of Common Stock (as hereinafter
defined), $0.0005 par value per share, at the applicable Exercise Price per
share (as defined below). The number and character of such shares of Common
Stock and the applicable Exercise Price per share are subject to adjustment as
provided herein.
As used herein the following terms, unless the context otherwise
requires, have the following respective meanings:
(a) The term "Company" shall include XXX.xxx, Inc. and any
corporation which shall succeed, or assume the obligations of, XXX.xxx,
Inc. hereunder.
(b) The term "Common Stock" includes (i) the Company's Common
Stock, par value 0.01 per share; and (ii) any other securities into
which or for which any of the securities described in (a) may be
converted or exchanged pursuant to a plan of recapitalization,
reorganization, merger, sale of assets or otherwise.
(c) The term "Other Securities" refers to any stock (other
than Common Stock) and other securities of the Company or any other
person (corporate or otherwise) which the holder of the Warrant at any
time shall be entitled to receive, or shall have received, on the
exercise of the Warrant, in lieu of or in addition to Common Stock, or
which at any time shall be issuable or shall have been issued in
exchange for or in replacement of Common Stock or Other Securities
pursuant to Section 4 or otherwise.
(d) The "Exercise Price" applicable under this Warrant shall
be $0.35 [130% of the average closing price of Common Stock for the ten
(10) trading days immediately prior to the date hereof.] for each
shares acquired hereunder.
(e) Other capitalized terms used herein without definition
shall have the meanings ascribed to such terms in the Security
Agreement between the Company and the Holder dated as of the date
hereof (as amended, modified and supplemented, form time to time (the
"Security Agreement").
1. Exercise of Warrant.
1.1 Number of Shares Issuable upon Exercise. From and after
the date hereof through and including the Expiration Date, the Holder shall be
entitled to receive, upon exercise of this Warrant in whole or in part, by
delivery of an original or fax copy of an exercise notice in the form attached
hereto as Exhibit A (the "Exercise Notice"), shares of Common Stock of the
Company, subject to adjustment pursuant to Section 4.
1.2 Fair Market Value. For purposes hereof, the "Fair Market
Value" of a share of Common Stock as of a particular date (the "Determination
Date") shall mean:
(a) If the Company's Common Stock is traded on the American
Stock Exchange or another national exchange or is quoted on the
National or SmallCap Market of The Nasdaq Stock Market, Inc.
("Nasdaq"), then the closing or last sale price, respectively, reported
for the last business day immediately preceding the Determination Date.
(b) If the Company's Common Stock is not traded on the
American Stock Exchange or another national exchange or on the Nasdaq
but is traded on the NASD OTC Bulletin Board, then the mean of the
average of the closing bid and asked prices reported for the last
business day immediately preceding the Determination Date.
(c) Except as provided in clause (d) below, if the Company's
Common Stock is not publicly traded, then as determined in good faith
by and reflected in formal resolutions of the Company's Board of
Directors.
(d) If the Determination Date is the date of a liquidation,
dissolution or winding up, or any event deemed to be a liquidation,
dissolution or winding up pursuant to the Company's charter, then all
amounts to be payable per share to holders of the Common Stock pursuant
to the charter in the event of such liquidation, dissolution or winding
up, plus all other amounts to be payable per share in respect of the
Common Stock in liquidation under the charter, assuming for the
purposes of this clause (d) that all of the shares of Common Stock then
issuable upon exercise of the Warrant are outstanding at the
Determination Date.
1.3 Trustee for Warrant Holders. In the event that a bank or
trust company shall have been appointed as trustee for the holders of the
Warrant pursuant to Subsection 3.2, such bank or trust company shall have all
the powers and duties of a warrant agent (as hereinafter described) and shall
accept, in its own name for the account of the Company or such
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successor person as may be entitled thereto, all amounts otherwise payable to
the Company or such successor, as the case may be, on exercise of this Warrant
pursuant to this Section 1.
2. Procedure for Exercise.
2.1 Delivery of Stock Certificates, Etc., on Exercise. The
Company agrees that the shares of Common Stock purchased upon exercise of this
Warrant shall be deemed to be issued to the Holder as the record owner of such
shares as of the close of business on the date on which this Warrant shall have
been surrendered and payment made for such shares in accordance herewith. As
soon as practicable after the exercise of this Warrant in full or in part, and
in any event within three (3) business days thereafter, the Company at its
expense (including the payment by it of any applicable issue taxes) will cause
to be issued in the name of and delivered to the Holder, or as such Holder (upon
payment by such Holder of any applicable transfer taxes) may direct in
compliance with applicable securities laws, a certificate or certificates for
the number of duly and validly issued, fully paid and nonassessable shares of
Common Stock (or Other Securities) to which such Holder shall be entitled on
such exercise, plus, in lieu of any fractional share to which such holder would
otherwise be entitled, cash equal to such fraction multiplied by the then Fair
Market Value of one full share, together with any other stock or other
securities and property (including cash, where applicable) to which such Holder
is entitled upon such exercise pursuant to Section 1 or otherwise.
2.2 Exercise. Payment may be made either (i) in cash or by
certified or official bank check payable to the order of the Company equal to
the applicable aggregate Exercise Price, (ii) by delivery of the Warrant, or
shares of Common Stock and/or Common Stock receivable upon exercise of the
Warrant in accordance with Section (b) below, or (iii) by a combination of any
of the foregoing methods, for the number of Common Shares specified in such
Exercise Notice (as such exercise number shall be adjusted to reflect any
adjustment in the total number of shares of Common Stock issuable to the Holder
per the terms of this Warrant) and the Holder shall thereupon be entitled to
receive the number of duly authorized, validly issued, fully-paid and
non-assessable shares of Common Stock (or Other Securities) determined as
provided herein. Notwithstanding any provisions herein to the contrary, if the
Fair Market Value of one share of Common Stock is greater than the Exercise
Price (at the date of calculation as set forth below), in lieu of exercising
this Warrant for cash, the Holder may elect to receive 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 the properly endorsed Exercise Notice in which event the Company shall
issue to the Holder a number of shares of Common Stock computed using the
following formula:
X=Y (A-B)
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A
Where X = the number of shares of Common Stock to be issued to the
Holder
Y = the number of shares of Common Stock 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 calculation)
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A = the Fair Market Value of one share of the Company's Common
Stock (at the date of such calculation)
B = Exercise Price (as adjusted to the date of such
calculation)
3. Effect of Reorganization, Etc.; Adjustment of Exercise Price.
3.1 Reorganization, Consolidation, Merger, Etc. In case at any
time or from time to time, the Company shall (a) effect a reorganization, (b)
consolidate with or merge into any other person (other than any such
consolidation or merger involving the Company in which shares of the Company's
capital stock outstanding immediately prior to such consolidation or merger
continue to represent, or are converted or exchanged for shares of capital stock
which represent, immediately following such consolidation or merger at least a
majority, by voting power, of the capital stock of (i) the surviving or
resulting corporation, or (ii) if the surviving or resulting corporation is a
wholly owned subsidiary of another corporation immediately following such
consolidation or merger, the parent of such surviving or resulting corporation),
or (c) transfer all or substantially all of its properties or assets to any
other person under any plan or arrangement contemplating the dissolution of the
Company, then, in each such case, as a condition to the consummation of such a
transaction, proper and adequate provision shall be made by the Company whereby
the Holder of this Warrant, on the exercise hereof as provided in Section 1 at
any time after the consummation of such reorganization, consolidation or merger
or the effective date of such dissolution, as the case may be, shall receive, in
lieu of the Common Stock (or Other Securities) issuable on such exercise prior
to such consummation or such effective date, the stock and other securities and
property (including cash) to which such Holder would have been entitled upon
such consummation or in connection with such dissolution, as the case may be, if
such Holder had so exercised this Warrant, immediately prior thereto, all
subject to further adjustment thereafter as provided in Section 4.
3.2 Dissolution. In the event of any dissolution of the
Company following the transfer of all or substantially all of its properties or
assets, the Company, in accordance with Section 2.2 hereof, and concurrently
with any distributions made to holders of its Common Stock, shall at its expense
deliver or cause to be delivered to the Holder the stock and other securities
and property (including cash, where applicable) receivable by the Holder of the
Warrant pursuant to Section 3.1, or, if the Holder shall so instruct the
Company, to a bank or trust company specified by the Holder and having its
principal office in New York, NY as trustee for the Holder of the Warrant.
3.3 Continuation of Terms. Upon any reorganization,
consolidation, merger or transfer (and any dissolution following any transfer)
referred to in this Section 3, this Warrant shall continue in full force and
effect and the terms hereof shall be applicable to the shares of stock and other
securities and property receivable on the exercise of this Warrant after the
consummation of such reorganization, consolidation or merger or the effective
date of dissolution following any such transfer, as the case may be, and shall
be binding upon the issuer of any such stock or other securities, including, in
the case of any such transfer, the person acquiring all or substantially all of
the properties or assets of the Company, whether or not such person shall have
expressly assumed the terms of this Warrant as provided in Section 4. In the
event this Warrant does not continue in full force and effect after the
consummation of the
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transactions described in this Section 3, then the Company's securities and
property (including cash, where applicable) receivable by the Holders of the
Warrant will be delivered to Holder or the Trustee as contemplated by Section
3.2.
4. Extraordinary Events Regarding Common Stock. In the event that
the Company shall (a) issue additional shares of the Common Stock as a dividend
or other distribution on outstanding Common Stock, (b) subdivide its outstanding
shares of Common Stock, or (c) combine its outstanding shares of the Common
Stock into a smaller number of shares of the Common Stock, then, in each such
event, the Exercise Price shall, simultaneously with the happening of such
event, be adjusted by multiplying the Exercise Price by a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such event (calculated on a fully-diluted basis) and the
denominator of which shall be the number of shares of Common Stock outstanding
immediately after such event(calculated on a fully-diluted basis), and the
product so obtained shall thereafter be the Exercise Price then in effect. The
Exercise Price, as so adjusted, shall be readjusted in the same manner upon the
happening of any successive event or events described herein in this Section 4.
The number of shares of Common Stock that the holder of this Warrant shall
thereafter, on the exercise hereof as provided in Section 1, be entitled to
receive shall be adjusted to a number determined by multiplying the number of
shares of Common Stock that would otherwise (but for the provisions of this
Section 4) be issuable on such exercise by a fraction of which (a) the numerator
is the Exercise Price that would otherwise (but for the provisions of this
Section 4) be in effect, and (b) the denominator is the Exercise Price in effect
on the date of such exercise.
5. Certificate as to Adjustments. In each case of any adjustment
or readjustment in the shares of Common Stock (or Other Securities) issuable on
the exercise of the Warrant, the Company at its expense will promptly cause its
Chief Financial Officer or other appropriate designee to compute such adjustment
or readjustment in accordance with the terms of the Warrant and prepare a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based, including a
statement of (a) the consideration received or receivable by the Company for any
additional shares of Common Stock (or Other Securities) issued or sold or deemed
to have been issued or sold, (b) the number of shares of Common Stock (or Other
Securities) outstanding or deemed to be outstanding, and (c) the Exercise Price
and the number of shares of Common Stock to be received upon exercise of this
Warrant, in effect immediately prior to such adjustment or readjustment and as
adjusted or readjusted as provided in this Warrant. The Company will forthwith
mail a copy of each such certificate to the holder of the Warrant and any
Warrant agent of the Company (appointed pursuant to Section 11 hereof).
6. Reservation of Stock, Etc., Issuable on Exercise of Warrant.
The Company will at all times reserve and keep available, solely for issuance
and delivery on the exercise of the Warrant, shares of Common Stock (or Other
Securities) from time to time issuable on the exercise of the Warrant.
7. Assignment; Exchange of Warrant. Subject to compliance with
applicable securities laws, this Warrant, and the rights evidenced hereby, may
be transferred by any registered holder hereof (a "Transferor") in whole or in
part to any party that is neither a competitor of the Company nor a secured
creditor of the Company, and that any such transferee
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shall agree to succeed to all of Laurus' rights and obligations with respect
thereto, provided however, that no more than three (3) such assignments shall be
made by Laurus before the Expiration Date and no transferee or assignee shall
have any further rights of assignment. On the surrender for exchange of this
Warrant, with the Transferor's endorsement in the form of Exhibit B attached
hereto (the "Transferor Endorsement Form") and together with evidence reasonably
satisfactory to the Company demonstrating compliance with applicable securities
laws, which shall include, without limitation, a legal opinion from the
Transferor's counsel that such transfer is exempt from the registration
requirements of applicable securities laws, the Company at its expense but with
payment by the Transferor of any applicable transfer taxes) will issue and
deliver to or on the order of the Transferor thereof a new Warrant of like
tenor, in the name of the Transferor and/or the transferee(s) specified in such
Transferor Endorsement Form (each a "Transferee"), calling in the aggregate on
the face or faces thereof for the number of shares of Common Stock called for on
the face or faces of the Warrant so surrendered by the Transferor.
8. Replacement of Warrant. On 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 of this
Warrant, on delivery of an indemnity agreement or security reasonably
satisfactory in form and amount to the Company or, in the case of any such
mutilation, on surrender and cancellation of this Warrant, the Company at its
expense will execute and deliver, in lieu thereof, a new Warrant of like tenor.
9. Registration Rights. The Holder of this Warrant has been
granted certain registration rights by the Company. These registration rights
are set forth in a Registration Rights Agreement entered into by the Company and
Purchaser dated as of even date of this Warrant.
10. Maximum Exercise. (a) The Holder shall not be entitled to
exercise this Warrant on an exercise date, in connection with that number of
shares of Common Stock which would be in excess of the sum of (i) the number of
shares of Common Stock beneficially owned by the Holder and its affiliates on an
exercise date, and (ii) the number of shares of Common Stock issuable upon the
exercise of this Warrant with respect to which the determination of this proviso
is being made on an exercise date, which would result in beneficial ownership by
the Holder and its affiliates of more than 4.99% of the outstanding shares of
Common Stock of the Company on such date. For the purposes of the proviso to 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-3 thereunder. In connection with any obligation of
the Company to issue to the Holder of shares of Common Stock pursuant to the
terms hereof, the Holder will, prior to the exercise of this Warrant, inform the
Company of such Holder's beneficial ownership interest in the Company's Common
Stock. Notwithstanding the foregoing, the restriction described in this
paragraph may be revoked upon 75 days prior notice to the Company from the
Holder to the Company and is automatically null and void upon an Event of
Default under the Minimum Borrowing Note.
(b) Notwithstanding anything contained herein to the contrary,
the number of shares of Common Stock issuable by the Borrower and
acquirable by the Holder at a price below $0.24 per share pursuant to
the terms of this Warrant, the Note, the Security Agreement or any
Ancillary
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Agreement, shall not exceed an aggregate of 19.99% of the total issued
and outstanding shares (calculated in accordance with applicable
Principal Market rules and regulations) shares of the Borrower's Common
Stock (subject to appropriate adjustment for stock splits, stock
dividends, or other similar recapitalizations affecting the Common
Stock) or otherwise violate the Borrower's obligations under the rules
and regulations of the Principal Market (the "MAXIMUM COMMON STOCK
ISSUANCE"), unless the issuance of shares hereunder in excess of the
Maximum Common Stock Issuance shall first be approved by the Borrower's
shareholders. If at any point in time and from time to time the number
of shares of Common Stock issued pursuant to the terms of the exercise
of this Warrant, the Note, the Security Agreement or any Ancillary
Agreement, together with the number of shares of Common Stock that
would then be issuable by the Borrower to the Holder in the event of an
exercise of this Warrant or the conversion of the Minimum Borrowing
Note, would exceed the Maximum Common Stock Issuance but for this
Section 10(b) , the Borrower shall promptly call a shareholders meeting
to solicit shareholder approval as set forth in Section 13(u) of the
Security Agreement. Borrower shall not be obligated to issue such
shares of Common Stock in excess of the Maximum Common Stock Issuance
unless and until the Borrower obtains the Stockholder Approval in
accordance with applicable Principal Market rules and regulations and
Section 13(u) of the Security Agreement.
11. Warrant Agent. The Company may, by written notice to the each
Holder of the Warrant, appoint an agent for the purpose of issuing Common Stock
(or Other Securities) on the exercise of this Warrant pursuant to Section 1,
exchanging this Warrant pursuant to Section 7, and replacing this Warrant
pursuant to Section 8, or any of the foregoing, and thereafter any such
issuance, exchange or replacement, as the case may be, shall be made at such
office by such agent.
12. Transfer on the Company's Books. Until this Warrant is
transferred on the books of the Company, the Company may treat the registered
holder hereof as the absolute owner hereof for all purposes, notwithstanding any
notice to the contrary.
13. Notices, Etc. All notices and other communications from the
Company to the Holder of this Warrant shall be mailed by first class registered
or certified mail, postage prepaid, at such address as may have been furnished
to the Company in writing by such Holder or, until any such Holder furnishes to
the Company an address, then to, and at the address of, the last Holder of this
Warrant who has so furnished an address to the Company.
14. Miscellaneous. This Warrant and any term hereof may be
changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of such change, waiver, discharge
or termination is sought. This Warrant shall be governed by and construed in
accordance with the laws of State of New York without regard to principles of
conflicts of laws. Any action brought concerning the transactions contemplated
by this Warrant shall be brought only in the state courts of New York or in the
federal courts located in the state of New York; provided, however, that the
Holder may choose to waive this provision and bring an action outside the state
of New York. The individuals executing this Warrant on behalf of the Company
agree to submit to the jurisdiction of such courts and waive trial by jury. The
prevailing party shall be entitled to recover from the other party its
reasonable attorney's fees
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and costs. In the event that any provision of this Warrant is invalid or
unenforceable under any applicable statute or rule of law, then such provision
shall be deemed inoperative to the extent that it may conflict therewith and
shall be deemed modified to conform with such statute or rule of law. Any such
provision which may prove invalid or unenforceable under any law shall not
affect the validity or enforceability of any other provision of this Warrant.
The headings in this Warrant are for purposes of reference only, and shall not
limit or otherwise affect any of the terms hereof. The invalidity or
unenforceability of any provision hereof shall in no way affect the validity or
enforceability of any other provision. The Company acknowledges that legal
counsel participated in the preparation of this Warrant and, therefore,
stipulates that the rule of construction that ambiguities are to be resolved
against the drafting party shall not be applied in the interpretation of this
Warrant to favor any party against the other party.
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SIGNATURE PAGE FOLLOWS.]
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IN WITNESS WHEREOF, the Company has executed this Warrant as of the
date first written above.
XXX.XXX, INC.
WITNESS:
By: /s/ Xxxxxx X. XxXxxxxx
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/s/ Xxxx X. Xxxxxxx Name: Xxxxxx X. XxXxxxxx
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Xxxx X. Xxxxxxx
Title: Chief Financial Officer
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EXHIBIT A
FORM OF SUBSCRIPTION
(To Be Signed Only On Exercise Of Warrant)
TO: XXX.Xxx, Inc.
Attention: Chief Financial Officer
The undersigned, pursuant to the provisions set forth in the attached
Warrant (No.____), hereby irrevocably elects to purchase (check applicable box):
____________ ________ shares of the Common Stock covered by such Warrant;
or
____________ the maximum number of shares of Common Stock covered by such
Warrant pursuant to the cashless exercise procedure set forth
in Section 2.
The undersigned herewith makes payment of the full Exercise Price for
such shares at the price per share provided for in such Warrant, which is
$___________. Such payment takes the form of (check applicable box or boxes):
____________ $__________ in lawful money of the United States; and/or
____________ the cancellation of such portion of the attached Warrant as is
exercisable for a total of _______ shares of Common Stock
(using a Fair Market Value of $_______ per share for purposes
of this calculation); and/or
____________ the cancellation of such number of shares of Common Stock as
is necessary, in accordance with the formula set forth in
Section 2.2, to exercise this Warrant with respect to the
maximum number of shares of Common Stock purchasable pursuant
to the cashless exercise procedure set forth in Section 2.
The undersigned requests that the certificates for such shares be
issued in the name of, and delivered to ______________________________________
whose address is ______________________________________________________________.
The undersigned represents and warrants that all offers and sales by
the undersigned of the securities issuable upon exercise of the within Warrant
shall be made pursuant to registration of the Common Stock under the Securities
Act of 1933, as amended (the "Securities Act") or pursuant to an exemption from
registration under the Securities Act.
Dated:
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(Signature must conform to name of holder as
specified on the face of the Warrant)
Address:
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A-1
EXHIBIT B
FORM OF TRANSFEROR ENDORSEMENT
(To Be Signed Only On Transfer Of Warrant)
For value received, the undersigned hereby sells, assigns, and
transfers unto the person(s) named below under the heading "Transferees" the
right represented by the within Warrant to purchase the percentage and number of
shares of Common Stock of XXX.xxx, Inc. into which the within Warrant relates
specified under the headings "Percentage Transferred" and "Number Transferred,"
respectively, opposite the name(s) of such person(s) and appoints each such
person Attorney to transfer its respective right on the books of XXX.xxx, Inc.
with full power of substitution in the premises.
Percentage Number
Transferees Address Transferred Transferred
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----------------- ----------------- ----------------- ----------------
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Dated:
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(Signature must conform to name of holder
as specified on the face of the Warrant)
Address:
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---------------------------------
SIGNED IN THE PRESENCE OF:
-----------------------------------------
(Name)
ACCEPTED AND AGREED:
[TRANSFEREE]
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(Name)
B-1
