EXHIBIT 10.1

 

2013 NOTEHOLDER MODIFICATION AGREEMENT

 

THIS 2013 NOTEHOLDER MODIFICATION AGREEMENT (the "Agreement"), dated and
effective as of February 16, 2016 (the "Effective Date") is by and between
MIDWEST ENERGY EMISSIONS CORP., a Delaware corporation ("Company") and each of
the investors listed on Exhibit A attached hereto and made a part hereof (each a
"Holder" and with the secured promissory notes issued to all the Holders in 2013
being collectively, the "Notes" and each a "Note") pursuant to the 2013 offering
of up to $6,000,000 of Notes by Company and pursuant to which RICHARD GALTERIO
is serving as "Noteholder Agent" for the Holders of the Notes, with authority to
enter into this Agreement on behalf of each of the Holders pursuant to the
Noteholder Agency Appointment Agreement among the Holders of the Notes, Company
and Noteholder Agent.

 

RECITALS

 

0.1 Each Note contains a most favored nations ("MFN") provision which provides
that following the Company's completion of an equity or equity-linked new
financing (each a "New Financing"), the Company shall provide the Holder written
notice thereof and a 60 day period in which to exchange the Notes at a value
equal to the outstanding principal balance plus accrued outstanding interest
into the same securities as issued in the New Financing. By allonge effective as
of August 14, 2014 to each then currently outstanding Note there was a carveout
from the MFN clause in order to allow the Company to enter into a financing
transaction with respect to amounts loaned to the Company from AC Midwest
Energy, LLC, a Delaware limited liability company ("AC Midwest") which comprised
the "New Loan" as defined in the allonge.

 

0.2 Attached as Exhibit A is a list of the Holders of the 2013 Notes and the
amount of shares purchasable by each of them with respect to the warrants that
were issued to them in connection with the original funding of their respective
Notes (as to each Holder, his her or its "2013 Warrant," and as to all the
Holders, the "2013 Warrants"), as well as the currently outstanding principal
amount of their respective Notes (as to each Holder, the "2013 Note Current
Principal Amount").

 

0.3 On November 16, 2015 the Company entered into an additional financing
transaction with AC Midwest (the "November 16, 2015 Financing Transaction")
whereby it entered into a second amendment to its first amended financing
agreement and issued to AC Midwest a warrant to purchase up to 5,000,000 shares
of Common Stock at $0.35 per share (the "5,000,000 Share Warrant"), immediately
exercisable as to up to 3,600,000 shares, and AC Midwest, among other things:
(i) provided a waiver of prior loan covenant defaults and reset certain
covenants; (ii) advanced $600,000 to the Company (the "$600,000 Loan") as
evidenced by a 12% secured promissory note convertible into Common Stock at
$0.50 per share; and agreed that upon request by the Company and provided
certain conditions to funding were met, to loan up to (a) $400,000 on January
29, 2016 (the "$400,000 Loan"); and (b) up to $1,000,000 between February 1,
2016 and June 15, 2016 (the $1,000,000 Loan), with both loans to have
substantially similar terms to those of the initial $600,000 advance and to free
up for exercise the right to purchase one additional share of Common Stock for
each $1.00 of additional advance (i.e. up to the full remaining 1,400,000 shares
if the full $1,400,000 was advanced).

 

 1

 

 

0.4 On January 28, 2016 the Company, along with its subsidiary, MES, Inc.
entered into Amendment No. 3 to Financing Agreement and Reaffirmation of
Guaranty with AC Midwest ("Amendment No. 3"), which provided among other things
for: (i) the issuance of a letter of credit by AC Midwest's bank (Silicon Valley
Bank) in favor of Bank of America, N.A., to permit the Company to enter into
contract number 100088 for Mercury Capture Program with a prospective customer,
(ii) the deemed effective funding of a note from Company to AC Midwest to the
extent of draws under the Silicon Valley Bank letter of credit; and (iii) the
issuance of a warrant to purchase 2,000,000 shares of common stock subject to
adjustment as provided for in the warrant contained in Amendment No. 3 (the
"Amendment No. 3 Warrant"). For purposes of this Agreement, each of: (a) the
transactions set forth in Amendment No. 3 as well as (b) any subsequent
transaction entered into by the Company or any of its subsidiaries involving the
issuance of equity or equity linked securities by the Company or any of its
subsidiaries to a third party providing financial accommodations to or for the
benefit of the Company or any of its subsidiaries for the primary purpose of
enabling the Company or any of its subsidiaries to procure or maintain one or
more contracts with a current or prospective customer is hereinafter referred to
as a "Sales Accommodation Transaction."

 

0.5 The parties disagree as to whether the MFN provision would apply to the
November 16, 2015 Financing Transaction and in order to resolve their respective
differences are desirous of entering into this Agreement.

 

NOW THEREFORE, in consideration of the premises and covenants contained herein
and other good and valuable consideration, the receipt and sufficiency of which
are acknowledged, the parties agree as follows:

 

1. Recitals. The recitals set forth above are incorporated by reference herein
and made a part hereof as if fully rewritten.

 

2. Repricing of 2013 Warrants and Issuance of 2016 Warrants. The Company hereby
agrees that the exercise price for each share of Common Stock purchasable with
respect to the 2013 Warrants held by currently outstanding Holders of Notes (all
of whom are referenced in Exhibit A, attached) is hereby reduced to $0.35 per
share of Common Stock. In addition, effective as of the Effective Date, the
Company agrees to issue to such currently outstanding Holders of Notes in the
aggregate, no later than 15 days following the Effective Date, warrants to
purchase up to 1,600,000 shares of Common Stock at $0.35 per share, exercisable
at any time on or before November 15, 2020, in accordance with the form attached
hereto as Exhibit B (each a "2016 Warrant" and collectively, the "2016
Warrants"), and with the number of shares purchasable per 2016 Warrant allocable
to each currently outstanding Holder of Notes to be as set forth in the 2016
Warrant Shares column of Exhibit A (determined as to each such Holder by the
product of 1,600,000 times a fraction, the numerator of which is the current
principal balance of the Holder's 2013 Note, and the denominator of which is
$1,645,000, and then rounding such amount up or down to the nearest whole
share). It is agreed and understood that each of the Holders of Notes which have
been converted or repaid and have a current Note balance of zero (the
"Terminated Notes" all of which Terminated Notes are referenced as showing a $0
balance in Exhibit A, attached) is not being issued any of the 2016 Warrants and
is not having any of his, her or its 2013 Warrants repriced pursuant to the
provisions of this Section 2 with respect to those Terminated Notes and the 2013
Warrants corresponding thereto.

 

 2

 

 

3. MFN. In consideration for the undertakings of the Company set forth herein,
including those set forth in Section 2 above, each of the Holders and their
successors in interest and assigns (by execution on their behalf by Noteholder
Agent) hereby agrees that the Holders shall not be entitled to any rights
pursuant to Section 10 of the Holder's Note (the MFN clause section) with
respect to any securities issued by the Company to AC Midwest or its affiliates,
or any other third party, with respect to any of the following: (i) any of the
securities issued or hereafter to be issued by the Company pursuant to the
November 16, 2015 Financing Transaction (including but not limited to: (a) the
funding of the $600,000 Loan, the $400,000 Loan or the $1,000,000 Loan; and (b)
the number of shares purchasable under the 5,000,000 Share Warrant, including
the original 3,600,000 shares exercisable thereunder and any increase in the
right to purchase from 3,600,000 shares to an amount up to 5,000,000 shares in
the aggregate; (ii) any subsequent funding of a loan or establishment of such
other credit facility or credit enhancement of a credit facility to or for the
benefit of the Company by AC Midwest or any of its Affiliates, or any other
third party (each a "Subsequent Loan"), provided that the Subsequent Loan is not
convertible into shares of Common Stock of the Company at a per share price less
than $0.50 per share, and provided further that any equity or equity linked
securities (such as warrants, rights to purchase stock or equity) issued in
connection with such Subsequent Loan shall: (A) not exceed the right to acquire
one share of Common Stock for each $1.00 of principal amount advanced; and (B)
shall be exercisable or issuable at a price per share of not less than $0.35 per
share; (iii) any subsequent issuance of equity or equity linked securities to AC
Midwest or its Affiliates, or any other third party (each a "Subsequent Equity
Investment"), provided that the issuance price of the equity or equity linked
securities is not less than $0.50 per share of Common Stock, or if it is a
preferred stock, then the as-converted to Common Stock price, assuming
conversion of the preferred stock to Common Stock as of the date of issuance
shall not be less than $0.50 per share, and provided further that if there are
equity or equity-linked securities issued in connection with the issuance of
such equity or equity linked securities (such as warrants, rights to purchase
stock or equity), then the amount of such equity or equity linked securities
shall: (A) not exceed the right to acquire one share of Common Stock for each
$1.00 of equity purchased; and (B) shall be exercisable or issuable at a price
per share of not less than $0.35 per share. Any lowering of the effective
exercise, purchase or conversion price, or increase in the number, of securities
issued or to be issued by the Company as a result of adjustments per Section
4(a) or Section 4(b) below or pursuant to the operation of anti-dilution
adjustments contained in such debt or equity instruments shall not be deemed to
constitute a lowering of the effective exercise, purchase or conversion price,
or increase in the number, of such securities for purposes of application of the
MFN provisions of Section 10 of the Note; or (iv) any issuance or subsequent
issuance of equity or equity linked securities in connection with any Sales
Accommodation Transaction, including but not limited to Amendment No. 3 and the
Amendment No. 3 Warrant. Notwithstanding anything to the contrary contained
herein, nothing contained herein shall constitute an admission or agreement by
Company that Holders have a right to exchange their Notes for participation in
the November 16, 2015 Financing Transaction or the securities issued or issuable
therefrom.

 

4. Adjustment to Shares and Share Price Related to Section 3. For purposes of
inapplicability of the MFN clause of the Notes with respect to outstanding
securities issued by the Company to AC Midwest and with respect to subsequent
securities issuances to AC Midwest or its Affiliates, or any other third party,
pursuant to the terms of Section 3 (and not for purposes of the transactions
specified in Section 2), the following terms of this Section 4 shall apply:

 

(a)

Adjustments Upon Subdivision or Combination of Common Stock. If the Company
shall, at any time or from time to time after the Effective Date, subdivide (by
any stock split, recapitalization or otherwise) its outstanding shares of Common
Stock into a greater number of shares, the applicable $0.35 per share (for
equity-linked securities such as warrants) or $0.50 per share floor (for
conversion of debt to Common Stock or issuance of equity) in effect immediately
prior to the subdivision shall be proportionately reduced and the number of
shares of Common Stock issuable upon exercise of such equity-linked securities
shall be proportionately increased. If the Company at any time combines (by
combination, reverse stock split or otherwise) its outstanding shares of Common
Stock into a smaller number of shares, the applicable $0.35 per share (for the
equity-linked securities such as warrants) or $0.50 per share floor (for
conversion of debt to Common Stock or issuance of equity) in effect immediately
prior to the combination shall be proportionately increased and the number of
shares of Common Stock issuable upon exercise of such equity-linked securities
shall be proportionately decreased. Any adjustment under this Section 4(a) shall
become effective at the close of business on the date the dividend, subdivision
or combination becomes effective.

(b)

Merger Sale, Reclassification, Etc. In case of: (i) any consolidation or merger
(including a merger in which the Company is the surviving entity); (ii) any sale
or other disposition of all or substantially all of the Company's assets or
distribution of property to shareholders (other than distributions payable out
of earnings or retained earnings), or reclassification, change or conversion of
the outstanding securities of the Company or of any reorganization of the
Company (or any other corporation the stock or securities of which are at the
time receivable upon the exercise of any Subsequent Loan, Subsequent Equity
Investment or Sales Accommodation Transaction); or (iii) any similar corporate
reorganization on or after the date hereof, then and in each such case the
applicable $0.35 per share (for equity-linked securities) or $0.50 per share
floor (for conversion of debt to Common Stock or issuance of equity) shall be
equitably adjusted to account for such transaction.

 

 3

 

 

5. Reimbursement for Legal Fees. The Company agrees to reimburse Placement Agent
for legal fees and expenses accrued by Noteholders or their designees to
Greenberg Traurig, et al., in an amount not to exceed $7000, to be paid directly
to Greenberg Traurig.

 

6. Representations and Warranties.

 

(a)

By Company. The Company represents and warrants that this Agreement has been
duly authorized by proper corporate action and that entry into this Agreement is
not prohibited pursuant to any agreement to which it is subject.

(b)

By Agent. Agent represents and warrants that (i) he has the authority to enter
into this Agreement on behalf of the Holders of the Notes and the 2013 Warrants
with respect to the transactions contemplated herein and that the entry into
this Agreement is not prohibited pursuant to any agreement to which the Agent,
or to his actual knowledge, any of the Holders of the Notes or the 2013 Warrants
are subject, and (ii) this Agreement is the legal, valid and binding obligation
of each of the Holders of the Notes and the 2013 Warrants, enforceable against
each of the Holders of the Notes and the 2013 Warrants in accordance with its
terms.

 

7. Miscellaneous.

 

(a)

Counterparts. This Agreement may be executed by the parties hereto in several
counterparts, each of which shall be deemed to be an original and all of which
shall constitute together one and the same agreement.

(b)

Governing Law. The parties expressly agree that all the terms and provisions
hereof shall be construed in accordance with and governed by the laws of the
State of Ohio. The parties hereby agree that any dispute which may arise between
them arising out of or in connection with this Agreement shall be adjudicated
before a court located in Columbus, Ohio and they hereby submit to the exclusive
jurisdiction of the courts of the State of Ohio located in Columbus, Ohio and of
the federal courts in Ohio with respect to any action or legal proceeding
commenced by any party, and irrevocably waive any objection they now or
hereafter may have respecting the venue of any such action or proceeding brought
in such a court or respecting the fact that such court is an inconvenient forum.

(c)

Descriptive Heading, Etc. The descriptive headings of the several sections of
this Agreement are inserted for convenience only and shall not be deemed to
affect the meaning or construction of any of the provisions hereof.

(d)

Amendments, Modifications and Waivers. The provisions of this Agreement may from
time to time be amended, modified or waived, if such amendment, modification or
waiver is in writing and consented to by the Company and Agent on behalf of the
Holders, provided, however, that no such amendment, modification or waiver which
would modify this Section 6(d), or subject the Holders to any additional
obligations shall be made without the consent of the Holders in question.

(e)

Termination. This Agreement shall terminate upon the repayment or conversion, as
the case may be, of all of the Notes outstanding.

(f)

WAIVER OF JURY TRIAL. THE PARTIES HERETO KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVE TRIAL BY JURY WITH RESPECT TO ANY LITIGATION BASED ON OR IN
CONNECTION WITH THIS AGREEMENT AND AGREE THAT THIS PROVISION IS A MATERIAL
INDUCEMENT TO ENTER INTO THIS AGREEMENT.

 

[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]

 

 4

 

 

IN WITNESS WHEREOF, Noteholder Agent on behalf of each of the Holders named on
Exhibit A attached hereto and made a part hereof and the Company have executed
this 2013 Noteholder Modification Agreement as of the date set forth above and
which amends the Note issued by the Company to each of the currently outstanding
Holders of Notes named on Exhibit A hereto effective as of the date of execution
by Company set forth below (the "Effective Date").

 

COMPANY:

 

 

 

 

 

 

 

 

 

Midwest Energy Emissions Corp.

 

 

NOTEHOLDER AGENT:

 

 

 

 

 

 

 

By:

/s/ Richard H. Gross                              

/s/ Richard Galterio                                      

Name:

Richard H. Gross

 

 

RICHARD GALTERIO(1)

 

Title:

Chief Financial Officer

 

 

 

 

Effective Date: February 16, 2016

 

 

 

 

_______________

(1) On behalf of each of the Holders holding the Notes referenced on Exhibit A
with respect to their Notes and the 2013 Warrants held by them.

 

SIGNATURE PAGE
MEEC 2013 NOTEHOLDER MODIFICATION AGREEMENT

 

 5

 

 

EXHIBIT A
 
LIST OF NOTEHOLDERS (INITIALS ONLY)

 

Name

 

Note Number

 

Current Note Balance

 

 

2013 Warrant Shares

 

 

2016 Warrant Shares

 

DB

 

MEEC-VT-2013-01

 

$50,000

 

 

 

100,000

 

 

 

48,632

 

RB

 

MEEC-VT-2013-02

 

 

100,000

 

 

 

200,000

 

 

 

97,264

 

TE

 

MEEC-VT-2013-03

 

 

0

 

 

 

55,000(1)

 

 

0

 

SB

 

MEEC-VT-2013-04

 

 

100,000

 

 

 

200,000

 

 

 

97,264

 

LDR Revocable Living Trust.

 

MEEC-VT-2013-05

 

 

50,000

 

 

 

100,000

 

 

 

48,632

 

DDA and MAA

 

MEEC-VT-2013-06

 

 

20,000

 

 

 

40,000

 

 

 

19,453

 

AT & MT

 

MEEC-VT-2013-07

 

 

100,000

 

 

 

200,000

 

 

 

97,264

 

B Family Trust

 

MEEC-VT-2013-08

 

 

65,000

 

 

 

200,000(2)

 

 

63,222

 

CB

 

MEEC-VT-2013-09

 

 

50,000

 

 

 

100,000

 

 

 

48,632

 

DTMFS, LP

 

MEEC-VT-2013-10

 

 

100,000

 

 

 

200,000

 

 

 

97,264

 

JG

 

MEEC-VT-2013-11

 

 

10,000

 

 

 

20,000

 

 

 

9,726

 

PM

 

MEEC-VT-2013-12

 

 

5,000

 

 

 

10,000

 

 

 

4,863

 

TP & LP

 

MEEC-VT-2013-13

 

 

30,000

 

 

 

60,000

 

 

 

29,179

 

EHP and BKP

 

MEEC-VT-2013-14

 

 

150,000

 

 

 

300,000

 

 

 

145,897

 

DP

 

MEEC-VT-2013-15

 

 

40,000

 

 

 

80,000

 

 

 

38,906

 

JHP

 

MEEC-VT-2013-16

 

 

10,000

 

 

 

20,000

 

 

 

9,726

 

JOJ Trust

 

MEEC-VT-2013-17

 

 

30,000

 

 

 

60,000

 

 

 

29,179

 

WEB

 

MEEC-VT-2013-18

 

 

20,000

 

 

 

40,000

 

 

 

19,453

 

AP LLC

 

MEEC-VT-2013-19

 

 

0

 

 

 

100,000(1)

 

 

0

 

MJT and HPT

 

MEEC-VT-2013-20

 

 

0

 

 

 

20,000(1)

 

 

0

 

JAL

 

MEEC-VT-2013-21

 

 

50,000

 

 

 

100,000

 

 

 

48,632

 

SF

 

MEEC-VT-2013-22

 

 

30,000

 

 

 

60,000

 

 

 

29,179

 

JP

 

MEEC-VT-2013-23

 

 

100,000

 

 

 

200,000

 

 

 

97,264

 

MO

 

MEEC-VT-2013-24

 

 

25,000

 

 

 

50,000

 

 

 

24,316

 

CCB

 

MEEC-VT-2013-25

 

 

0

 

 

 

30,000(1)

 

 

0

 

RR

 

MEEC-VT-2013-26

 

 

125,000

 

 

 

250,000

 

 

 

121,581

 

JP

 

MEEC-VT-2013-27

 

 

50,000

 

 

 

100,000

 

 

 

48,632

 

GW & VW

 

MEEC-VT-2013-28

 

 

40,000

 

 

 

80,000

 

 

 

38,906

 

BMH

 

MEEC-VT-2013-29

 

 

50,000

 

 

 

100,000

 

 

 

48,632

 

JSL & RSL

 

MEEC-VT-2013-30

 

 

10,000

 

 

 

20,000

 

 

 

9,726

 

TJF

 

MEEC-VT-2013-31

 

 

0

 

 

 

200,000(1)

 

 

0

 

A Partners, LLC

 

MEEC-VT-2013-32

 

 

100,000

 

 

 

200,000

 

 

 

97,264

 

B Family Trust

 

MEEC-VT-2013-33

 

 

50,000

 

 

 

100,000

 

 

 

48,632

 

MR

 

MEEC-VT-2013-34

 

 

0

 

 

 

40,000(1)

 

 

0

 

WSL

 

MEEC-VT-2013-35

 

 

75,000

 

 

 

150,000

 

 

 

72,948

 

CJW

 

MEEC-VT-2013-36

 

 

10,000

 

 

 

20,000

 

 

 

9,726

 

Total:

 

 

 

$1,645,000

 

 

 

3,805,000

 

 

 

1,600,000

 

_______________

(1)

Investor still holds Warrants but because Note has been converted, 2013 Warrant
Shares not subject to repricing; total number of 2013 Warrant Shares subject to
repricing is 3,290,000 and total number of Warrant Shares not subject to
repricing is 515,000.

(2)

Investor has converted $35,000 of its Note but has not exercised any of the 2013
Warrant Shares. Because $35,000 of its Note has been converted, 70,000 of 2013
Warrant Shares not subject to repricing.

 

 

A-1

 

 

EXHIBIT B

 

FORM OF 2016 WARRANT

 

THIS WARRANT AND THE COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED UNLESS
REGISTERED UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE OR FOREIGN
SECURITIES LAWS, OR UNLESS AN OPINION OF COUNSEL HAS BEEN RENDERED TO THE
COMPANY, IN FORM AND SUBSTANCE SATISFACTORY TO THE COMPANY AND ITS COUNSEL, TO
THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED.

 

WARRANT

TO PURCHASE SHARES OF

COMMON STOCK, PAR VALUE $.001 PER SHARE OF MIDWEST ENERGY EMISSIONS CORP.

AT $0.35 PER SHARE

 

Warrant Certificate No.: [NUMBER]

 

Original Issue Date: ____, 2016

 

FOR VALUE RECEIVED, Midwest Energy Emissions Corp., a Delaware corporation (the
"Company"), hereby certifies that [NAME OF HOLDER], a [JURISDICTION AND TYPE OF
ENTITY], or its registered assigns (the "Holder"), is entitled to purchase from
the Company [SPECIFIED NUMBER] duly authorized, validly issued, fully paid and
non-assessable shares of Common Stock at a purchase price per share of $0.35
(the "Exercise Price"), all subject to the terms, conditions and adjustments set
forth below in this Warrant. Certain capitalized terms used herein are defined
in Section 1 hereof.

 

This Warrant has been issued in connection with the rights granted to Holder as
a result of the 2013 Note Modification Agreement to which this form of Warrant
is attached as Exhibit B.

 

1. Definitions. As used in this Warrant, the following terms have the respective
meanings set forth below:

 

"Aggregate Exercise Price" means an amount equal to the product of (a) the
number of Warrant Shares in respect of which this Warrant is then being
exercised pursuant to Section 3 hereof, multiplied by (b) the Exercise Price in
effect as of the Exercise Date in accordance with the terms of this Warrant.

 

"Board" means the Board of Directors of the Company.

 

"Business Day" means any day, except a Saturday, Sunday or legal holiday, on
which banking institutions in the city of Wilmington, Delaware are authorized or
obligated by law or executive order to close.

 

"Common Stock" means the common stock, par value $0.001 per share, of the
Company, and any capital stock into which such Common Stock shall have been
converted, exchanged or reclassified following the date hereof.

 

 B-1

 

 

"Company" has the meaning set forth in the preamble.

 

"Convertible Securities" means any securities (directly or indirectly)
convertible into or exchangeable for Common Stock, but excluding Options.

 

"Exercise Date" means, for any given exercise of this Warrant, the date on which
the conditions to such exercise as set forth in Section 3 shall have been
satisfied at or prior to 5:00 p.m., Delaware time, on a Business Day, including,
without limitation, the receipt by the Company of the Exercise Agreement, the
Warrant and the Aggregate Exercise Price.

 

"Exercise Agreement" has the meaning set forth in Section 3(a)(i).

 

"Exercise Period" has the meaning set forth in Section 2.

 

"Exercise Price" has the meaning set forth in the preamble. "Holder" has the
meaning set forth in the preamble.

 

"Options" means any warrants or other rights or options to subscribe for or
purchase Common Stock or Convertible Securities.

 

"Original Issue Date" means the date on which the Warrant was issued by the
Company. "Nasdaq" means The Nasdaq Stock Market, Inc.

 

"OTC Bulletin Board" means the OTC Bulletin Board.

 

"Person" means any individual, sole proprietorship, partnership, limited
liability company, corporation, joint venture, trust, incorporated organization
or government or department or agency thereof.

 

"SEC Filings" means the Company's most recent Annual Report on Form 10-K filed
with the SEC and any Form 10-Q and Form 8-K filed thereafter.

 

"Securities Act" means the Securities Act of 1933, as amended.

 

"Warrant" means this Warrant and all warrants issued upon division or
combination of, or in substitution for, this Warrant.

 

"Warrant Shares" means the shares of Common Stock of the Company then
purchasable upon exercise of this Warrant in accordance with the terms of this
Warrant.

 

 B-2

 

 

2. Term of Warrant. Subject to the terms and conditions hereof and the proviso
in this sentence, this Warrant may be exercised at any time or from time to time
after the date hereof and prior to 5:00 p.m., Delaware time, on November 15,
2020, provided, however, the Exercise Period and the right to exercise this
Warrant will terminate upon the closing of a sale of the Company (pursuant to
merger, stock sale, or otherwise).

 

3. Exercise of Warrant

 

(a) Exercise Procedure. This Warrant may be exercised on any Business Day, for
all or any part of the unexercised Warrant Shares, during the Exercise Period
upon

 

i. surrender of this Warrant to the Company at its then principal executive
offices (or an indemnification undertaking with respect to this Warrant in the
case of its loss, theft or destruction), together with an Exercise Agreement in
the form attached hereto as Exhibit A (each, an "Exercise Agreement"), duly
completed (including specifying the number of Warrant Shares to be purchased)
and executed; and

 

ii. payment to the Company of the Aggregate Exercise Price in accordance with
Section 3(b).

 

(b) Payment of the Aggregate Exercise Price. Payment of the Aggregate Exercise
Price shall be made by delivery to the Company of a certified or official bank
check payable to the order of the Company or by wire transfer of immediately
available funds to an account designated in writing by the Company, in the
amount of the Aggregate Exercise Price.

 

(c) Delivery of Stock Certificates. Upon receipt by the Company of the Exercise
Agreement, surrender of this Warrant (in accordance with Section 3(a) hereof)
and payment of the Aggregate Exercise Price (in accordance with Section 3(b)
hereof) or cashless exercise (in accordance with Section 3(i) hereof), the
Company shall, as promptly as practicable, and in any event within 30 Business
Days thereafter, execute (or cause to be executed) and deliver (or cause to be
delivered) to the Holder a certificate or certificates representing the Warrant
Shares issuable upon the exercise, together with cash in lieu of any fraction of
a share, as provided in Section 3(d) hereof. The stock certificate or
certificates delivered shall be, to the extent possible, in the denomination or
denominations as the exercising Holder shall reasonably request in the Exercise
Agreement and shall be registered in the name of the Holder or, subject to
compliance with Section 5 below, any other Person's name as shall be designated
in the Exercise Agreement. This Warrant shall be deemed to have been exercised
and the certificate or certificates of Warrant Shares shall be deemed to have
been issued, and the Holder or any other Person designated to be named therein
shall be deemed to have become a holder of record of the Warrant Shares for all
purposes, as of the Exercise Date.

 

(d) Fractional Shares. The Company shall not be required to issue a fractional
Warrant Share upon exercise of any Warrant. As to any fraction of a Warrant
Share that the Holder would otherwise be entitled to purchase upon the exercise,
the Company shall pay to the Holder an amount in cash (by delivery of a check or
by wire transfer of immediately available funds) equal to the product of (i) the
fraction multiplied by (ii) the Fair Market Value of one Warrant Share on the
Exercise Date.

 

(e) Delivery of New Warrant. Unless the purchase rights represented by this
Warrant shall have expired or shall have been fully exercised, the Company
shall, at the time of delivery of the certificate or certificates representing
the Warrant Shares being issued in accordance with Section 3(c)hereof, deliver
to the Holder a new Warrant evidencing the rights of the Holder to purchase the
unexpired and unexercised Warrant Shares called for by this Warrant. Such new
Warrant shall in all other respects be identical to this Warrant.

 

 B-3

 

 

(f) Valid Issuance of Warrant and Warrant Shares; Payment of Taxes. With respect
to the exercise of this Warrant, the Company represents, covenants and agrees:

 

i. This Warrant is, and any Warrant issued in substitution for or replacement of
this Warrant shall be, upon issuance, duly authorized and validly issued.

 

ii. All Warrant Shares issuable upon the exercise of this Warrant pursuant to
the terms hereof shall be, upon issuance, and the Company shall take all such
actions as may be necessary or appropriate in order that the Warrant Shares are,
validly issued, fully paid and non- assessable, issued without violation of any
preemptive or similar rights of any stockholder of the Company and free and
clear of all taxes, liens and charges.

 

iii. The Company shall take all commercially reasonable actions as may be
necessary to ensure that all Warrant Shares are issued without material
violation by the Company of any applicable law or governmental regulation.

 

iv. The Company shall pay all expenses in connection with, and all taxes and
other governmental charges that may be imposed with respect to, the issuance or
delivery of Warrant Shares upon exercise of this Warrant; provided, that the
Company shall not be required to pay any tax or governmental charge that may be
imposed with respect to any applicable withholding or the issuance or delivery
of the Warrant Shares to any Person other than the Holder, and no issuance or
delivery shall be made unless and until the Person requesting issuance has paid
to the Company the amount of the tax, or has established to the satisfaction of
the Company that the tax has been paid.

 

(g) Conditional Exercise. Notwithstanding any other provision hereof, if an
exercise of any portion of this Warrant is to be made in connection with a
public offering or a sale of the Company (pursuant to a merger, sale of stock,
or otherwise), such exercise may at the election of the Holder be conditioned
upon the consummation of such transaction, in which case such exercise shall not
be deemed to be effective until immediately prior to the consummation of such
transaction.

 

(h) Reservation of Shares. During the Exercise Period, the Company shall at all
times reserve and keep available out of its authorized but unissued Common Stock
or other securities constituting Warrant Shares, solely for the purpose of
issuance upon the exercise of this Warrant, the maximum number of Warrant Shares
issuable upon the exercise of this Warrant, and the par value per Warrant Share
shall at all times be less than or equal to the applicable Exercise Price. The
Company shall not increase the par value of any Warrant Shares receivable upon
the exercise of this Warrant above the Exercise Price then in effect, and shall
take all such actions as may be necessary or appropriate in order that the
Company may validly and legally issue fully paid and non-assessable shares of
Common Stock upon the exercise of this Warrant.

 

(i) Cashless Exercise. Notwithstanding any provisions herein to the contrary, in
lieu of exercising this Warrant in the manner set forth in Sections 3(a) and
3(b), the Holder may elect to exercise this Warrant, or a portion hereof, and to
pay for the Warrant Shares by way of cashless exercise. If the Holder wishes to
effect a cashless exercise, the Holder shall surrender this Warrant, with an
Exercise Agreement duly completed (including specifying the number of Warrant
Shares to be purchased) and executed, at the principal office of the Company, or
at such other office or agency as the Company may designate in writing prior to
the date of such exercise, in which event the Company shall issue to the Holder
the number of Warrant Shares computed according to the following equation:

 

 B-4

 

 

X = Y * ( A − B)

              A

 

X = the number of Warrant Shares to be issued to the Holder.

 

Y = the Warrant Shares purchasable under this Warrant or, if only a portion of
the Warrant is being exercised, the portion of the Warrant Shares being
exercised.

 

A = the Fair Market Value (defined below) of one share of Common Stock (on the
exercise date).

 

B = the Exercise Price (as adjusted pursuant to the provisions of this Warrant).

 

For purposes of this Section 3(i), the "Fair Market Value" of one share of
Common Stock on the exercise date shall have one of the following meanings:

 

i. if the Company's Common Stock is traded on a national securities exchange,
the Fair Market Value shall be deemed to be the average of the Closing Prices
over a five trading day period ending on the exercise date. For the purposes of
this Warrant, "Closing Price" means the final price at which one share of Common
Stock is traded during any trading day; or

 

ii. if the Company's Common Stock is actively traded over-the-counter, the Fair
Market Value shall be deemed to be the average of the closing sales price over
the thirty (30) day period ending three (3) days before the date of exercise; or

 

iii. if neither (1) nor (2) is applicable, the Fair Market Value shall be at the
highest price per share which the Company could obtain on the date of exercise
from a willing buyer (not a current employee or director) for shares of Common
Stock sold by the Company, from authorized but unissued shares, as determined in
good faith by the Company's Board of Directors.

 

4. Adjustment to Exercise Price and Number of Warrant Shares. The Exercise Price
and the number of Warrant Shares issuable upon exercise of this Warrant shall be
subject to adjustment from time to time as provided in this Section 4.

 

(a) Adjustment to Exercise Price and Warrant Shares Upon Subdivision or
Combination of Common Stock. If the Company shall, at any time or from time to
time after the Senior Loan Date, subdivide (by any stock split, recapitalization
or otherwise) its outstanding shares of Common Stock into a greater number of
shares, the Exercise Price in effect immediately prior to the subdivision shall
be proportionately reduced and the number of Warrant Shares issuable upon
exercise of this Warrant shall be proportionately increased. If the Company at
any time combines (by combination, reverse stock split or otherwise) its
outstanding shares of Common Stock into a smaller number of shares, the Exercise
Price in effect immediately prior to the combination shall be proportionately
increased and the number of Warrant Shares issuable upon exercise of this
Warrant shall be proportionately decreased. Any adjustment under this Section
4(a) shall become effective at the close of business on the date the dividend,
subdivision or combination becomes effective. If the conversion price per share
with respect to the Senior Loan Note is reduced below 50 cents per share (after
adjustments in the Senior Loan Note for subdivisions or combinations in any of
the categories outlined above in this Section 4(a) or due to the weighted
average anti-dilution adjustments), then the Exercise Price shall be adjusted to
the same price per share as is applicable to the Senior Loan Note.

 

 B-5

 

 

(b) Merger Sale, Reclassification, Etc.. In case of any (i) consolidation or
merger (including a merger in which the Company is the surviving entity), (ii)
sale or other disposition of all or substantially all of the Company's assets or
distribution of property to shareholders (other than distributions payable out
of earnings or retained earnings), or reclassification, change or conversion of
the outstanding securities of the Company or of any reorganization of the
Company (or any other corporation the stock or securities of which are at the
time receivable upon the exercise of this Warrant) or any similar corporate
reorganization on or after the date hereof, then and in each such case the
holder of this Warrant, upon the exercise hereof at any time thereafter shall be
entitled to receive, in lieu of the stock or other securities and property
receivable upon the exercise hereof prior to such consolidation, merger, sale or
other disposition, reclassification, change, conversion or reorganization, the
stock or other securities or property to which such holder would have been
entitled upon such consummation if such holder had exercised this Warrant
immediately prior thereto, all subject to further adjustment as provided in
Section 4(a) or 4(b); and in each such case, the terms of this Section 4 shall
be applicable to the shares of stock or other securities properly receivable
upon the exercise of this Warrant after such consolidation, merger, sale or
other disposition, reclassification, change, conversion or reorganization.

 

(c) Weighted Average Adjustment. If the Company Issues (hereinafter defined)
Additional Common Shares (defined hereunder) after the date of the Warrant and
the consideration per Additional Common Share is less than the Exercise Price in
effect immediately before such Issuance (a "Diluting Issuance"), other than with
respect to Excluded Securities (hereinafter defined), the Exercise Price in
effect immediately before such Diluting Issue shall be reduced, concurrently
with such Diluting Issuance, to a price (calculated to the nearest hundredth of
a cent) determined by multiplying the Exercise Price by a fraction:

 

i. the numerator of which is the number of shares of Common Stock outstanding
immediately before such Diluting Issuance plus the number shares of Common Stock
that the aggregate consideration received by Company for the Additional Common
Shares would purchase at the Exercise Price in effect immediately before such
Diluting Issuance, and

 

ii. the denominator of which is the number of shares of Common Stock outstanding
immediately before such Diluting Issuance plus the number of such Additional
Common Shares.

 

For purposes of clarity, the exercise shall be determined in accordance with the
following formula:

 

 EP2 = EP1 x (A + B) / (A + C)

 

For purposes of the foregoing formula, the following definitions shall apply:

 

i. "EP2" shall mean the Exercise Price in effect immediately after such Diluting
Issuance of Additional Common Shares;

 

ii. "EP1" shall mean the Exercise Price in effect immediately prior to such
Diluting Issuance of Additional Common Shares;

 

iii. "A" shall mean the number of shares of Common Stock outstanding and deemed
outstanding immediately prior to such Diluting Issuance of Additional Common
Shares;

 

iv. "B" shall mean the number of shares of Common Stock that would have been
issued if such Additional Common Shares had been issued at a price per share
equal to EP1 (determined by dividing the aggregate consideration received or
receivable by the Company in respect of such issue by EP1); and

 

 B-6

 

 

v. "C" shall mean the number of such Additional Common Shares issued in such
transaction.

 

As used herein the following terms shall have the following meanings:

 

vi. "Issue" means to grant, issue or sell Additional Common Shares, whichever of
the foregoing is the first to occur.

 

vii. "Additional Common Shares" means all Common Stock (including reissued
shares) Issued after the date of the Warrant during the term of the Warrant.

 

viii. "Excluded Securities" means any of the following: (a) shares of Common
Stock issued pursuant to any employee benefit plan which has been approved by
the Board of Directors of the Company, pursuant to which the Company's
securities may be issued to any employee, officer, director or consultant for
services provided to the Company and (b) issuances of Common Stock upon exercise
or conversion of currently outstanding derivative securities.

 

(d) Certificate as to Adjustment.

 

i. As promptly as reasonably practicable following any adjustment of the
Exercise Price, but in any event not later than 10 Business Days thereafter, the
Company shall furnish to the Holder a certificate of an executive officer
setting forth in reasonable detail such adjustment and the facts upon which it
is based and certifying the calculation thereof.

 

ii. As promptly as reasonably practicable following the receipt by the Company
of a written request by the Holder, but in any event not later than 10 Business
Days thereafter, the Company shall furnish to the Holder a certificate of an
executive officer certifying the Exercise Price then in effect and the number of
Warrant Shares or the amount, if any, of other shares of stock, securities or
assets then issuable upon exercise of the Warrant.

 

(e) Notices. In the event:

 

i. that the Company shall take a record of the holders of its Common Stock (or
other capital stock or securities at the time issuable upon exercise of the
Warrant) for the purpose of entitling or enabling them to receive any dividend
or other distribution, to vote at a meeting (or by written consent), to receive
any right to subscribe for or purchase any shares of capital stock of any class
or any other securities, or to receive any other security; or

 

ii. of any capital reorganization of the Company, any reclassification of the
Common Stock of the Company, any consolidation or merger of the Company with or
into another Person, or sale of all or substantially all of the Company's assets
to another Person; or the Company;

 

 B-7

 

 

iii. of the voluntary or involuntary dissolution, liquidation or winding-up of
the Company; then, and in each such case, the Company shall send or cause to be
sent to the Holder at least 20 days prior to the applicable record date or the
applicable expected effective date, as the case may be, for the event, a written
notice specifying, as the case may be, (A) the record date for the dividend,
distribution, meeting or consent or other right or action, and a description of
the dividend, distribution or other right or action to be taken at such meeting
or by written consent, or (B) the effective date on which the reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up is proposed to take place, and the date, if any is to be fixed, as of
which the books of the Company shall close or a record shall be taken with
respect to which the holders of record of Common Stock (or such other capital
stock or securities at the time issuable upon exercise of the Warrant) shall be
entitled to exchange their shares of Common Stock (or such other capital stock
or securities) for securities or other property deliverable upon the
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding-up, and the amount per share and character of the
exchange applicable to the Warrant and the Warrant Shares.

 

5. Transfer of Warrant. Subject to the transfer conditions referred to in the
legend endorsed hereon this Warrant and all rights hereunder are transferable in
whole or in part by the Holder without charge to the Holder, upon surrender of
this Warrant to the Company at its then principal executive offices with a
properly completed and duly executed Assignment in the form attached hereto as
Exhibit B, together with funds sufficient to pay any transfer taxes described in
Section 3(f)(iv) in connection with the making of such transfer. Upon such
compliance, surrender and delivery and, if required, such payment, the Company
shall execute and deliver a new Warrant or Warrants in the name of the assignee
or assignees and in the denominations specified in such instrument of
assignment, and shall issue to the assignor a new Warrant evidencing the portion
of this Warrant, if any, not so assigned and this Warrant shall promptly be
cancelled.

 

6. Holder Not Deemed a Stockholder; Limitations on Liability. Except as
otherwise specifically provided herein, prior to the issuance to the Holder of
the Warrant Shares to which the Holder is then entitled to receive upon the due
exercise of this Warrant, the Holder shall not be entitled to vote or receive
dividends or be deemed the holder of shares of capital stock of the Company for
any purpose, nor shall anything contained in this Warrant be construed to confer
upon the Holder, as such, any of the rights of a stockholder of the Company or
any right to vote, give or withhold consent to any corporate action (whether any
reorganization, issue of stock, reclassification of stock, consolidation,
merger, conveyance or otherwise), receive notice of meetings, receive dividends
or subscription rights, or otherwise. In addition, nothing contained in this
Warrant shall be construed as imposing any liabilities on the Holder to purchase
any securities (upon exercise of this Warrant or otherwise) or as a stockholder
of the Company, whether such liabilities are asserted by the Company or by
creditors of the Company

 

7. Replacement on Loss; Division and Combination.

 

(a) Replacement of Warrant on Loss. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and upon delivery of an indemnity reasonably satisfactory to it (it
being understood that a written indemnification agreement or affidavit of loss
of the Holder shall be a sufficient indemnity) and, in case of mutilation, upon
surrender of the Warrant for cancellation to the Company, the Company shall, at
its own expense, execute and deliver to the Holder, in lieu hereof, a new
Warrant of like tenor and exercisable for an equivalent number of Warrant Shares
as the Warrant lost, stolen, mutilated or destroyed; provided, that, in the case
of mutilation, no indemnity shall be required if this Warrant in identifiable
form is surrendered to the Company for cancellation.

 

(b) Division and Combination of Warrant. Subject to compliance with the
applicable provisions of this Warrant as to any transfer or other assignment
which may be involved in the division or combination, this Warrant may be
divided, or following any division of this Warrant, subsequently combined with
other Warrants, upon the surrender of this Warrant or Warrants to the Company at
its then principal executive offices, together with a written notice specifying
the names and denominations in which new Warrants are to be issued, signed by
the respective Holders or their agents or attorneys. Subject to compliance with
the applicable provisions of this Warrant as to any transfer or assignment which
may be involved in the division or combination, the Company shall, at its own
expense, execute and deliver a new Warrant or Warrants in exchange for the
Warrant or Warrants so surrendered in accordance with the notice. The new
Warrant or Warrants shall be of like tenor to the surrendered Warrant or
Warrants and shall be exercisable in the aggregate for an equivalent number of
Warrant Shares as the Warrant or Warrants so surrendered in accordance with such
notice.

 

 B-8

 

 

8. Compliance with the Securities Act.

 

(a) Agreement to Comply with the Securities Act; Legend. The Holder, by
acceptance of this Warrant, agrees to comply in all respects with the provisions
of this Section 8 and the restrictive legend requirements set forth on the face
of this Warrant and further agrees that the Holder shall not offer, sell or
otherwise dispose of this Warrant or any Warrant Shares to be issued upon
exercise hereof except under circumstances that will not result in a violation
of the Securities Act of 1933, as amended (the "Securities Act"). This Warrant
and all Warrant Shares issued upon exercise of this Warrant (unless registered
under the Securities Act) shall be stamped or imprinted with a legend in
substantially the following form (in addition to any legend required by state
securities laws):

  

"THIS WARRANT AND THE COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED UNLESS
REGISTERED UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE OR FOREIGN
SECURITIES LAWS, OR UNLESS AN OPINION OF COUNSEL HAS BEEN RENDERED TO THE
COMPANY, IN FORM AND SUBSTANCE SATISFACTORY TO THE COMPANY AND ITS COUNSEL, TO
THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED."

 

(b) Representations of the Holder. In connection with the issuance of this
Warrant, the Holder specifically represents, as of the date hereof, to the
Company by acceptance of this Warrant as follows:

 

i. The Holder is an "accredited investor" as defined by Rule 501 under the
Securities Act, and has such knowledge and experience in financial and business
matters that he/she/it is capable of evaluating the merits and risks of an
investment in this Warrant and the Warrant Shares to be issued upon exercise
hereof and of making an informed investment decision, and has the capacity to
protect the Holder's own interests.

 

ii. The Holder understands and acknowledges that this Warrant and the Warrant
Shares to be issued upon exercise hereof are "restricted securities" under the
federal securities laws, have not been, and will not be, registered under the
Securities Act or the securities laws of any state by reason of a specific
exemption from the registration provisions of the Securities Act and the
applicable state securities laws, the availability of which depends upon, among
other things, the bona fide nature of the investment intent and the accuracy of
the Holder's representations as expressed herein.

 

iii. Holder acknowledges and understands that this Warrant and the Warrant
Shares to be issued upon exercise hereof are being purchased for investment
purposes and not with a view to distribution or resale, nor with the intention
of selling, transferring or otherwise disposing of all or any part of this
Warrant or the Warrant Shares to be issued upon exercise hereof for any
particular price, or at any particular time, or upon the happening of any
particular event or circumstances, except selling, transferring, or disposing of
this Warrant or the Warrant Shares to be issued upon exercise hereof made in
full compliance with all applicable provisions of the Securities Act, the rules
and regulations promulgated by the Securities and Exchange Commission
thereunder, and applicable state securities laws; and that this Warrant and the
Warrant Shares to be issued upon exercise hereof are not a liquid investment.
The Company has no obligation or intention to register this Warrant or the
Warrant Shares to be issued upon exercise hereof for resale at this time, nor
has the Company made any representations, warranties, or covenants regarding the
registration of this Warrant and the Warrant Shares to be issued upon exercise
hereof.

 

 B-9

 

 

iv. The Holder acknowledges that this Warrant and the Warrant Shares to be
issued upon exercise hereof must be held indefinitely unless subsequently
registered under the Securities Act or unless an exemption from such
registration is available. The Holder is aware of the provisions of Rule 144
promulgated under the Securities Act which permit investors who have satisfied a
certain holding period such securities purchased in a private placement. The
Holder acknowledges that the Holder is not relying on the Company in any way to
satisfy the conditions precedent for resale of securities pursuant to Rule 144
under the Securities Act.

 

v. The Holder acknowledges that the Holder has had the opportunity to ask
questions of, and receive answers from the Company or any person acting on its
behalf concerning the Company and its business and to obtain any additional
information, to the extent possessed by the Company (or to the extent it could
have been acquired by the Company without unreasonable effort or expense)
necessary to verify the accuracy of the information received by the Holder. In
connection therewith, the Holder acknowledges that the Holder has had the
opportunity to discuss the Company's business, management and financial affairs
with the Company's management or any person acting on its behalf. The Holder has
received and reviewed all the information, both written and oral, that it
desires. Without limiting the generality of the foregoing, the Holder has been
furnished with or has had the opportunity to acquire, and to review, (i) copies
of the Company's most recent Annual Report on Form 10-K filed with the SEC and
any Form 10-Q and Form 8-K filed thereafter (the "SEC Filings"), and other
publicly available documents, and (ii) all information, both written and oral,
that it desires with respect to the Company's business, management, financial
affairs and prospects. In determining whether to make this investment, the
Holder has relied solely on the Subscription Agreement, the SEC Filings, the
Convertible Note and the Holder's own knowledge and understanding of the Company
and its business based upon the Holder's own due diligence investigations and
the information furnished pursuant to this paragraph. Except as set forth
herein, the Subscription Agreement and the Convertible Note, the Holder
understands that no person has been authorized to give any information or to
make any representations which were not furnished pursuant to this paragraph and
the Holder has not relied on any other representations or information.

 

vi. The Holder has all requisite legal and other power and authority to execute
and deliver this Warrant and to carry out and perform the Holder's obligations
under the terms of this Warrant. This Warrant constitutes a valid and legally
binding obligation of the Holder, enforceable in accordance with its terms, and
subject to laws of general application relating to bankruptcy, insolvency and
the relief of debtors and rules of law governing specific performance,
injunctive relief or other general principals of equity, whether such
enforcement is considered in a proceeding in equity or law.

 

vii. The Holder has not, and will not, incur, directly or indirectly, as a
result of any action taken by the Holder, any liability for brokerage or
finders' fees or agents' commissions or any similar charges in connection with
this Warrant.

 

viii. To the extent the Holder deems necessary, the Holder has reviewed with the
Holder's own tax advisors the federal, state, local and foreign tax consequences
of this investment and the transactions contemplated by this Warrant. The Holder
relies solely on such advisors and not on any statements or representations of
the Company or any of its agents, other than the statements or representations
set forth in the Subscription Agreement, the SEC Filings, herein and in the
Convertible Note. The Holder understands that the Holder (and not the Company)
shall be responsible for the Holder's own tax liability that may arise as a
result of this investment or the transactions contemplated by this Warrant.

 

ix. There are no actions, suits, proceedings or investigations pending against
the Holder or the Holder's properties before any court or governmental agency
(nor, to the Holder's knowledge, is there any threat thereof) which would impair
in any way the Holder's ability to enter into and fully perform the Holder's
commitments and obligations under this Warrant or the transactions contemplated
hereby.

 

 B-10

 

 

x. The execution, delivery and performance of and compliance with this Warrant,
and the issuance of the Securities will not result in any material violation of,
or conflict with, or constitute a material default under, any of Holder's
articles of incorporation, bylaws or other; governing documents, if applicable,
or any of the Holder's material agreements nor result in the creation of any
mortgage, pledge, lien, encumbrance or charge against any of the assets or
properties of the Holder or the Securities.

 

xi. Holder acknowledges that this Warrant and the Warrant Shares to be issued
upon exercise hereof are speculative and involve a high degree of risk and that
the Holder can bear the economic risk of the purchase of this Warrant and the
Warrant Shares to be issued upon exercise hereof, including a total loss of
his/her/its investment. Holder acknowledges that he/she/it has carefully
reviewed and considered the risk factors contained in the Subscription
Agreement, as well as the factors described under "Risk Factors" in the
Company's SEC Filings.

 

xii. The Holder recognizes that no federal, state or foreign agency has
recommended or endorsed the purchase of this Warrant and the Warrant Shares to
be issued upon exercise hereof.

 

xiii. Holder understands that any and all certificates representing this Warrant
and the Warrant Shares to be issued upon exercise hereof and any and all
securities issued in replacement thereof or in exchange therefor shall bear the
legend, or one substantially similar thereto, described in Section 8(a), which
Holder has read and understands.

 

xiv. In addition, the certificates representing this Warrant and the Warrant
Shares to be issued upon exercise hereof, and any and all securities issued in
replacement thereof or in exchange therefor, shall bear such legend as may be
required by the securities laws of the jurisdiction in which the Holder resides.

 

xv. Holder further represents that the address set forth below is his/her
principal residence (or, if the Holder is a corporation, partnership or other
entity, the address of its principal place of business).

 

xvi. The Holder represents that Holder has not received any general solicitation
or general advertising regarding the purchase of this Warrant and the Warrant
Shares to be issued upon exercise hereof.

 

xvii. The Holder further represents that the social security number or taxpayer
identification set forth below is correct, and the Holder is not subject to
backup withholding because (i) the Holder has not been notified that he/she/it
is subject to backup withholding as a result of a failure to report all interest
and dividends, or (ii) the Internal Revenue Service has notified the Holder that
he/she/it is no longer subject to backup withholding.

 

9. Warrant Register. The Company shall keep and properly maintain at its
principal executive offices books for the registration of the Warrant and any
transfers thereof. The Company may deem and treat the Person in whose name the
Warrant is registered on such register as the Holder thereof for all purposes,
and the Company shall not be affected by any notice to the contrary, except any
assignment, division, combination or other transfer of the Warrant effected in
accordance with the provisions of this Warrant.

 

10. Notices. All notices, requests, consents, claims, demands, waivers and other
communications hereunder shall be in writing and shall be deemed to have been
given: (a) when delivered by hand (with written confirmation of receipt); (b)
when received by the addressee if sent by a nationally recognized overnight
courier (receipt requested); (c) on the date sent by facsimile or e-mail of a
PDF document (with confirmation of transmission) if sent during normal business
hours of the recipient, and on the next Business Day if sent after normal
business hours of the recipient (with confirmation of transmission); or (d) on
the third day after the date mailed, by certified or registered mail, return
receipt requested, postage prepaid. Such communications must be sent to the
respective parties at the addresses indicated below (or at such other address
for a party as shall be specified in a notice given in accordance with this
Section 10).

 

 B-11

 

 

If to the Company:

Midwest Energy Emissions Corp.

670 D Enterprise Dr. Lewis Center, OH 43035

Telephone: 614-505-6115

Facsimile: 614-505-7377

E-Mail: rgross@midwestemissions.com

Attention: Chief Financial Officer

 

 

If to the Holder:

[Holder Address]

Facsimile: [Fax Number]

E-Mail: [E-Mail Address]

Attention: [Name (and Title, if Applicable) of Person]

 

11. Cumulative Remedies. Except to the extent expressly provided in Section 6 to
the contrary, the rights and remedies provided in this Warrant are cumulative
and are not exclusive of, and are in addition to and not in substitution for,
any other rights or remedies available at law, in equity or otherwise.

 

12. Equitable Relief. Each of the Company and the Holder acknowledges that a
breach or threatened breach by such party of any of its obligations under this
Warrant would give rise to irreparable harm to the other party hereto for which
monetary damages would not be an adequate remedy and hereby agrees that in the
event of a breach or a threatened breach by party of any obligation, the other
party hereto shall, in addition to any and all other rights and remedies that
may be available to it in respect of breach, be entitled to equitable relief,
including a restraining order, an injunction, specific performance and any other
relief that may be available from a court of competent jurisdiction.

 

13. Entire Agreement. This Warrant, together with the Convertible Note and the
Subscription Agreement, constitutes the sole and entire agreement of the parties
to this Warrant with respect to the subject matter contained herein, and
supersedes all prior and contemporaneous understandings and agreements, both
written and oral, with respect to such subject matter. In the event of any
inconsistency between the statements in the body of this Warrant, the
Convertible Note and the Subscription Agreement, the statements in the body of
this Warrant shall control.

 

14. Successor and Assigns. The Company may not assign this Agreement or its
rights and obligations hereunder without the prior written consent of the
Holder. This Warrant and the rights evidenced hereby shall be binding upon and
shall inure to the benefit of the parties hereto and the successors of the
Company and the successors and permitted assigns of the Holder. Such successors
and/or permitted assigns of the Holder shall be deemed to be a Holder for all
purposes hereunder.

 

15. No Third-Party Beneficiaries. This Warrant is for the sole benefit of the
Company and the Holder and their respective successors and, in the case of the
Holder, permitted assigns. Nothing herein, express or implied, is intended to or
shall confer upon any other Person any legal or equitable right, benefit or
remedy of any nature whatsoever, under or by reason of this Warrant.

 

16. Headings. The headings in this Warrant are for reference only and shall not
affect the interpretation of this Warrant.

 

 B-12

 

 

17. Amendment and Modification; Waiver. Except as otherwise provided herein,
this Warrant may only be amended, modified or supplemented by an agreement in
writing signed by each party hereto. No waiver by the Company or the Holder of
any of the provisions hereof shall be effective unless explicitly set forth in
writing and signed by the party so waiving. No waiver by any party shall operate
or be construed as a waiver in respect of any failure, breach or default not
expressly identified by such written waiver, whether of a similar or different
character, and whether occurring before or after that waiver. No failure to
exercise, or delay in exercising, any rights, remedy, power or privilege arising
from this Warrant shall operate or be construed as a waiver thereof; nor shall
any single or partial exercise of any right, remedy, power or privilege
hereunder preclude any other or further exercise thereof or the exercise of any
other right, remedy, power or privilege.

 

18. Severability. If any term or provision of this Warrant is invalid, illegal
or unenforceable in any jurisdiction, such invalidity, illegality or
unenforceability shall not affect any other term or provision of this Warrant or
invalidate or render unenforceable such term or provision in any other
jurisdiction.

 

19. Governing Law. This Warrant shall be governed by and construed in accordance
with the internal laws of the State of Delaware without giving effect to any
choice or conflict of law provision or rule (whether of the State of Delaware or
any other jurisdiction) that would cause the application of laws of any
jurisdiction other than those of the State of Delaware.

 

20. Submission to Jurisdiction. Any legal suit, action or proceeding arising out
of or based upon this Warrant or the transactions contemplated hereby may be
instituted in the federal courts of the United States of America or the courts
of the State of Delaware in each case located in the city of Wilmington, and
each party irrevocably submits to the exclusive jurisdiction of such courts in
any such suit, action or proceeding. Service of process, summons, notice or
other document by certified or registered mail to such party's address set forth
herein shall be effective service of process for any suit, action or other
proceeding brought in any such court. The parties irrevocably and
unconditionally waive any objection to the laying of venue of any suit, action
or any proceeding in such courts and irrevocably waive and agree not to plead or
claim in any such court that any such suit, action or proceeding brought in any
such court has been brought in an inconvenient forum.

 

21. Waiver of Jury Trial. Each party acknowledges and agrees that any
controversy which may arise under this Warrant is likely to involve complicated
and difficult issues and, therefore, each such party irrevocably and
unconditionally waives any right it may have to a trial by jury in respect of
any legal action arising out of or relating to this Warrant or the transactions
contemplated hereby.

 

22. Counterparts. This Warrant may be executed in counterparts, each of which
shall be deemed an original, but all of which together shall be deemed to be one
and the same agreement. A signed copy of this Warrant delivered by facsimile,
e-mail or other means of electronic transmission shall be deemed to have the
same legal effect as delivery of an original signed copy of this Warrant.

 

23. No Strict Construction. This Warrant shall be construed without regard to
any presumption or rule requiring construction or interpretation against the
party drafting an instrument or causing any instrument to be drafted.

 

[SIGNATURE PAGE FOLLOWS]

 

 B-13

 

 

The Company has duly executed this Warrant on the Original Issue Date.

 

 

ACCEPTED AND AGREED:

 

MIDWEST ENERGY EMISSIONS CORP.

 

 

 

 

   

 

 

By:

 

 

[Holder Name]

 

Name

 

 

 

 

Title 

 

 

 

 

 

 

 

 

 

 

 

   

By:

 

 

Name

 

 

 

 

Title

 

 

 

 

SSN or EIN:

 

 

 

 

 

 

 B-14

 

 

EXHIBIT A

 

EXERCISE AGREEMENT

 

(To be Signed Only on Exercise of Warrant)

 

 

TO: MIDWEST ENERGY EMISSIONS CORP.

 

The undersigned, pursuant to the provisions set forth in the attached Warrant
(No.______), hereby irrevocably elects to purchase_______shares of the Common
Stock covered by such Warrant.

 

The undersigned herewith makes payment of the full purchase price for the shares
at the price per share provided for in the Warrant of $0.50 per share, for an
Aggregate Exercise Price of $___, by delivery to the Company of a certified or
official bank check payable to the order of the Company or by wire transfer of
immediately available funds to an account designated in writing by the Company,
in the amount of the Aggregate Exercise Price (if cashless exercise, insert
"cashless").

 

The undersigned requests that the certificates for such shares be issued in the
name of, and delivered to____whose address is_______ .

 

Dated:______________

 

 

 

Signature must conform to name of holder as specified on the face of the
Warrant)

 

 

 

 

 

 

 

 

(Address)

 

 

 

 B-A-1

 

 

EXHIBIT B

 

ASSIGNMENT

 

(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 number of shares of Common Stock of
MIDWEST ENERGY EMISSIONS CORP. to 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 MIDWEST ENERGY
EMISSIONS CORP. with full power of substitution in the premises.

 

Transferees

 

Number Transferred

 

 

 

 

 

 

 

Dated:______________

 

 

 

 

 

Signature must conform to name of holder as specified on the face of the
Warrant)

 

 

 

 

 

Signed in the presence of:

 

 

 

 

 

(Address)

 

 

 

(Name)

 

 

 

 

 

 

 

ACCEPTED AND AGREED:

[TRANSFEREE]

 

 

 

 

 

 

 

(Name)

 

 

 

 

 

(Address)

 

 

 

B-B-1

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