Exhibit 10.86

 

THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE SHARES ISSUABLE UPON
EXERCISE OF THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE
TRANSFERRED EXCEPT UPON DELIVERY TO THE COMPANY OF AN OPINION OF COUNSEL
SATISFACTORY IN FORM AND SUBSTANCE TO IT THAT SUCH TRANSFER WILL NOT VIOLATE THE
SECURITIES ACT OF 1933, AS AMENDED

 

THE TRANSFER OF THIS WARRANT IS RESTRICTED AS DESCRIBED HEREIN.

 

Path 1 Network Technologies Inc.

 

Warrant for the Purchase of Shares of Common Stock,

par value $0.001 per Share

 

No. W-            

               Shares

 

THIS CERTIFIES that, for value received,                     , whose address is
                     (the “Holder”), is entitled to subscribe for and purchase
from Path 1 Network Technologies Inc., a Delaware corporation (the “Company”),
upon the terms and conditions set forth herein,              shares of the
Company’s Common Stock, par value $0.001 per share (“Common Stock”), at a price
of $3.25 per share, subject to adjustment as provided herein (the “Exercise
Price”). As used herein the term “this Warrant” shall mean and include this
Warrant and any Common Stock or Warrants hereafter issued as a consequence of
the exercise or transfer of this Warrant in whole or in part. This Warrant is
issued pursuant to a Securities Purchase Agreement, dated as of April 26, 2005,
among the Company and the parties named therein (the “Purchase Agreement”).

 

The number of shares of Common Stock issuable upon exercise of the Warrants (the
“Warrant Shares”) and the Exercise Price may be adjusted from time to time as
hereinafter set forth. The Warrant Shares are entitled to the benefits, and
subject to the obligations, set forth in the Registration Rights Agreement,
dated as of April 26, 2005, among the Company, the Holder and certain other
parties (the “Registration Rights Agreement”).

 

1. Exercise Period. This Warrant may be exercised at any time or from time to
time during the period commencing at 10:00 A.M. Pacific time on May
            , 2005 (the “Issue Date”) and ending at 5:00 P.M. Pacific Time on
May             , 2010 (the “Exercise Period”).

 

2. Procedure for Exercise; Effect of Exercise.

 

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(a) Cash Exercise. This Warrant may be exercised, in whole or in part, by the
Holder during normal business hours on any business day during the Exercise
Period by (i) the presentation and surrender of this Warrant to the Company at
its principal office along with a duly executed Notice of Exercise (in the form
attached to this Warrant) specifying the number of Warrant Shares to be
purchased, and (ii) delivery of payment to the Company of the Exercise Price for
the number of Warrant Shares specified in the Notice of Exercise by cash, wire
transfer of immediately available funds to a bank account specified by the
Company, or by certified or bank cashier’s check.

 

(b) Cashless Exercise. This Warrant may also be exercised by the Holder through
a cashless exercise, as described in this Section 2(b). In such case, this
Warrant may be exercised, in whole or in part, by the Holder during normal
business hours on any business day during the Exercise Period by the
presentation and surrender of this Warrant to the Company at its principal
office along with a duly executed Notice of Exercise specifying the number of
Warrant Shares to be applied to such exercise. The number of shares of Common
Stock to be issued upon exercise of this Warrant pursuant to this Section 2(b)
shall equal the value of this Warrant (or the portion thereof being canceled)
computed as of the date of delivery of this Warrant to the Company using the
following formula:

 

X = Y(A-B)

A

 

Where:

 

X = the number of shares of Common Stock to be issued to Holder under this
Section 2(b);

 

Y = the number of Warrant Shares identified in the Notice of Exercise as being
applied to the subject exercise;

 

A = the Current Market Price on such date; and

 

B = the Exercise Price on such date

 

For purposes of this Section 2(b), Current Market Price shall have the
definition provided in Section 6(g).

 

The Company acknowledges and agrees that this Warrant was issued on the Issue
Date. Consequently, the Company acknowledges and agrees that, if the Holder
conducts a cashless exercise pursuant to this Section 2(b), the period during
which the Holder held this Warrant may, for purposes of Rule 144 promulgated
under the Securities Act of 1933, as amended (the “Securities Act”), be “tacked”
to the period during which the Holder holds the Warrant Shares received upon
such cashless exercise.

 

Notwithstanding the foregoing, the Holder may conduct a cashless exercise
pursuant to this Section 2(b) only after the first anniversary of the Issue
Date, and then only in the event that a registration statement covering the
resale of the Warrant Shares is not then effective and available to the Holder
for resales of Warrant Shares at the time that the Holder wishes to conduct such
cashless exercise.

 

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(c) Effect of Exercise. Upon receipt by the Company of this Warrant and a Notice
of Exercise, together with proper payment of the Exercise Price (or pursuant to
a cashless exercise as provided in this Section 2), the Company agrees that such
Warrant Shares shall be deemed to be issued to the Holder as the record holder
of such Warrant Shares as of the close of business on the date on which this
Warrant has been surrendered and payment has been made for such Warrant Shares
in accordance with this Warrant and the Holder shall be deemed to be the holder
of record of the Warrant Shares, notwithstanding that the stock transfer books
of the Company shall then be closed or that certificates representing such
Warrant Shares shall not then be actually delivered to the Holder. A stock
certificate or certificates for the Warrant Shares specified in the Notice of
Exercise shall be delivered to the Holder as promptly as practicable, and in any
event within five business days, thereafter (such fifth business day being
referred to as the “Delivery Date”). The stock certificate(s) so delivered shall
be in any such denominations as may be reasonably specified by the Holder in the
Notice of Exercise. If this Warrant should be exercised in part only, the
Company shall, upon surrender of this Warrant for cancellation, execute and
deliver a new Warrant evidencing the right of the Holder to purchase the balance
of the Warrant Shares subject to purchase hereunder.

 

(d) Failure to Deliver Warrant Shares. In the event that the Company fails for
any reason to deliver to the Holder the number of Warrant Shares specified in
the applicable Notice of Exercise (without any restrictive legend if permitted
by the terms of the Purchase Agreement) on or before the Delivery Date therefor
(an “Exercise Default”), the Company shall pay to the Holder payments (“Exercise
Default Payments”) in the amount of (i) (N/365) multiplied by (ii) the aggregate
Exercise Price of the Warrant Shares which are the subject of such Exercise
Default multiplied by (iii) the lower of fifteen percent (15%) per annum and the
maximum rate permitted by applicable law (the “Default Interest Rate”), where
“N” equals the number of days elapsed between the original Delivery Date of such
Warrant Shares and the date on which all of such Warrant Shares are issued and
delivered to the Holder. Cash amounts payable hereunder shall be paid on or
before the fifth (5th) business day of each calendar month following the
calendar month in which such amount has accrued. The Holder’s rights and
remedies hereunder are cumulative, and no right or remedy is exclusive of any
other. In addition to the amounts specified herein, the Holder shall have the
right to pursue all other remedies available to it at law or in equity
(including, without limitation, a decree of specific performance and/or
injunctive relief). Nothing herein shall limit the Holder’s right to pursue
actual damages for the Company’s failure to issue and deliver Warrant Shares on
the applicable Delivery Date (including, without limitation, damages relating to
any purchase of Common Stock by the Holder to make delivery on a sale effected
in anticipation of receiving Warrant Shares upon exercise, such damages to be in
an amount equal to (A) the aggregate amount paid by the Holder for the Common
Stock so purchased minus (B) the aggregate amount of net proceeds, if any,
received by the Holder from the sale of the Warrant Shares issued by the Company
pursuant to such exercise).

 

(e) Exercise Limitations. In no event shall a Holder be permitted to exercise
this Warrant, or part hereof, if, upon such exercise, the number of shares of
Common Stock beneficially owned by the Holder (other than shares which would
otherwise be deemed

 

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beneficially owned except for being subject to a limitation on conversion or
exercise analogous to the limitation contained in this paragraph (e)), would
exceed 4.99% of the number of shares of Common Stock then issued and
outstanding. As used herein, beneficial ownership shall be determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, and the rules thereunder. To the extent that the limitation contained
in this Section 2(e) applies, the submission of an Exercise Notice by the Holder
shall be deemed to be the Holder’s representation that this Warrant is
exercisable pursuant to the terms hereof and the Company shall be entitled to
rely on such representation without making any further inquiry as to whether
this paragraph (e) applies. Nothing contained herein shall be deemed to restrict
the right of a Holder to exercise this Warrant, or part thereof, at such time as
such exercise will not violate the provisions of this paragraph (e). This
paragraph (e) may not be amended unless such amendment is approved by the
holders of a majority of the Common Stock then outstanding; provided, however,
that the limitations contained in this paragraph (e) shall cease to apply upon
sixty (60) days’ prior written notice from the Holder to the Company.

 

3. Registration of Warrants; Transfer of Warrants. Any Warrants issued upon the
transfer or exercise in part of this Warrant shall be numbered and shall be
registered in a Warrant Register as they are issued. The Company shall be
entitled to treat the registered holder of any Warrant on the Warrant Register
as the owner in fact thereof for all purposes and shall not be bound to
recognize any equitable or other claim to or interest in such Warrant on the
part of any other person, and shall not be liable for any registration or
transfer of Warrants which are registered or to be registered in the name of a
fiduciary or the nominee of a fiduciary unless made with the actual knowledge
that a fiduciary or nominee is committing a breach of trust in requesting such
registration or transfer, or with the knowledge of such facts that its
participation therein amounts to bad faith. This Warrant shall be transferable
only on the books of the Company upon delivery thereof duly endorsed by the
Holder or by its duly authorized attorney or representative, or accompanied by
proper evidence of succession, assignment, or authority to transfer. In all
cases of transfer by an attorney, executor, administrator, guardian, or other
legal representative, duly authenticated evidence of his or its authority shall
be produced. Upon any registration of transfer, the Company shall deliver a new
Warrant or Warrants to the person entitled thereto. This Warrant may be
exchanged, at the option of the Holder thereof, for another Warrant, or other
Warrants of different denominations, of like tenor and representing in the
aggregate the right to purchase a like number of Warrant Shares, upon surrender
to the Company or its duly authorized agent.

 

4. Restrictions on Transfer.

 

(a) The Holder, as of the date of issuance hereof, represents to the Company
that such Holder is acquiring the Warrants for its own account for investment
purposes and not with a view to the distribution thereof or of the Warrant
Shares. Notwithstanding any provisions contained in this Warrant to the
contrary, this Warrant and the related Warrant Shares shall not be transferable
except pursuant to the proviso contained in the following sentence or upon the
conditions specified in this Section 4, which conditions are intended, among
other things, to insure compliance with the provisions of the Securities Act and
applicable state law in respect of the transfer of this Warrant or such Warrant
Shares. The

 

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Holder by acceptance of this Warrant agrees that the Holder will not transfer
this Warrant or the related Warrant Shares prior to delivery to the Company of
an opinion of the Holder’s counsel (as such opinion and such counsel are
described in Section 4(b) hereof) or until registration of such Warrant Shares
under the Securities Act has become effective or after a sale of such Warrant or
Warrant Shares has been consummated pursuant to Rule 144 or Rule 144A under the
Securities Act; provided, however, that the Holder may freely transfer this
Warrant or such Warrant Shares (without delivery to the Company of an opinion of
counsel) (i) to one of its nominees, affiliates or a nominee thereof, (ii) to a
pension or profit-sharing fund established and maintained for its employees or
for the employees of any affiliate, (iii) from a nominee to any of the
aforementioned persons as beneficial owner of this Warrant or such Warrant
Shares, (iv) to a qualified institutional buyer, so long as such transfer is
effected in compliance with Rule 144A under the Securities Act, or (v) to an
accredited investor (as such term is defined in Regulation D under the
Securities Act) giving equivalent investment intent representations and
agreements.

 

(b) The Holder, by its acceptance hereof, agrees that prior to any transfer of
this Warrant or of the related Warrant Shares (other than as permitted by
Section 4(a) hereof or pursuant to a registration under the Securities Act), the
Holder will give written notice to the Company of its intention to effect such
transfer, together with an opinion of such counsel for the Holder as shall be
reasonably acceptable to the Company, to the effect that the proposed transfer
of this Warrant and/or such Warrant Shares may be effected without registration
under the Securities Act. Upon delivery of such notice and opinion to the
Company, the Holder shall be entitled to transfer this Warrant and/or such
Warrant Shares in accordance with the intended method of disposition specified
in the notice to the Company.

 

(c) Each stock certificate representing Warrant Shares issued upon exercise or
exchange of this Warrant shall bear the following legend unless the opinion of
counsel referred to in Section 4(b) states such legend is not required:

 

“THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE TRANSFERRED EXCEPT UPON
DELIVERY TO THE CORPORATION OF AN OPINION OF COUNSEL SATISFACTORY IN FORM AND
SUBSTANCE TO IT THAT SUCH TRANSFER WILL NOT VIOLATE THE SECURITIES ACT OF 1933,
AS AMENDED.”

 

The Holder understands that the Company may place, and may instruct any transfer
agent or depository for the Warrant Shares to place, a stop transfer notation in
the securities records in respect of the Warrant Shares.

 

5. Reservation of Shares. The Company shall at all times during the Exercise
Period reserve and keep available out of its authorized and unissued Common
Stock, solely for the purpose of providing for the exercise of the rights to
purchase all Warrant Shares granted pursuant to the Warrants, such number of
shares of Common Stock as shall, from time to time, be sufficient therefor. The
Company covenants that all shares of Common Stock issuable upon

 

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exercise of this Warrant, upon receipt by the Company of the full Exercise Price
therefor (or pursuant to a cashless exercise), and all shares of Common Stock
issuable upon conversion of this Warrant, shall be validly issued, fully paid,
non-assessable, and free of preemptive rights, and free from all taxes, claims,
liens, charges and other encumbrances.

 

6. Exercise Price Adjustments. The Exercise Price shall be subject to adjustment
from time to time as follows:

 

(a) (i) In the event that the Company shall (A) pay a dividend or make a
distribution to all its stockholders, in shares of Common Stock, on any class of
capital stock of the Company or any subsidiary which is not directly or
indirectly wholly owned by the Company, (B) split or subdivide its outstanding
Common Stock into a greater number of shares, or (C) combine its outstanding
Common Stock into a smaller number of shares, then in each such case the
Exercise Price and number of underlying shares of Common Stock in effect
immediately prior thereto shall be adjusted so that the Holder of a Warrant
thereafter surrendered for Exercise shall be entitled to receive the number of
shares of Common Stock that such Holder would have owned or have been entitled
to receive after the occurrence of any of the events described above had such
Warrant been exercised immediately prior to the occurrence of such event. An
adjustment made pursuant to this Section 6(a)(i) shall become effective
immediately after the close of business on the record date in the case of a
dividend or distribution (except as provided in Section 6(e) below) and shall
become effective immediately after the close of business on the effective date
in the case of such subdivision, split or combination, as the case may be. Any
shares of Common Stock issuable in payment of a dividend shall be deemed to have
been issued immediately prior to the close of business on the record date for
such dividend for purposes of calculating the number of outstanding shares of
Common Stock under clause (ii) below.

 

(ii) In the event that the Company shall commit to issue or distribute New
Securities (as defined in the Purchase Agreement), in any such case at a price
per share less than the Current Market Price per share on the earliest of (A)
the date the Company shall enter into a firm contract for such issuance or
distribution, (B) the record date for the determination of stockholders entitled
to receive any such New Securities, if applicable, or (C) the date of actual
issuance or distribution of any such New Securities (provided that the issuance
of Common Stock upon the exercise of New Securities that are rights, warrants,
options or convertible or exchangeable securities (“New Derivative Securities”)
will not cause an adjustment in the Exercise Price if no such adjustment would
have been required at the time such New Derivative Security was issued), then
the Exercise Price in effect immediately prior to such earliest date shall be
adjusted so that the Exercise Price shall equal the price determined by
multiplying the Exercise Price in effect immediately prior to such earliest date
by the fraction:

 

(x) whose numerator shall be (I) the number of shares of Common Stock
outstanding on such date plus (II) the number of shares of Common Stock which
the aggregate offering price of the total number of New Securities so offered
would have purchased at such Current Market Price (such amount, with respect to
any New

 

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Derivative Securities, determined by multiplying the total number of shares of
Common Stock subject thereto by the exercise price of such New Derivative
Securities, and dividing the product so obtained by such Current Market Price),
and

 

(y) whose denominator shall be (I) the number of shares of Common Stock
outstanding on such date plus (II) the number of additional shares of Common
Stock to be issued or distributed or receivable upon exercise of any such New
Derivative Security.

 

Such adjustment shall be made successively whenever any such New Securities are
issued. In determining whether any New Derivative Securities entitle the holders
to subscribe for or purchase shares of Common Stock at less than such Current
Market Price, and in determining the aggregate offering price of shares of
Common Stock so issued, there shall be taken into account any consideration
received by the Company for such Common Stock or New Derivative Securities, the
value of such consideration, if other than cash, to be determined by the Board
of Directors of the Company (the “Board of Directors”), whose determination
shall be conclusive and described in a certificate filed with the records of
corporate proceedings of the Company. If any New Derivative Security to purchase
or acquire Common Stock, the issuance of which resulted in an adjustment in the
Exercise Price pursuant to this subsection (ii) shall expire and shall not have
been exercised, the Exercise Price shall immediately upon such expiration be
recomputed to the Exercise Price which would have been in effect had the
adjustment of the Exercise Price made upon the issuance of such New Derivative
Security been made on the basis of offering for subscription, purchase or
issuance, as the case may be, only of that number of shares of Common Stock
actually purchased or issued upon the actual exercise of such New Derivative
Security.

 

(iii) No adjustment in the Exercise Price shall be required unless the
adjustment would require an increase or decrease of at least 1% in the Exercise
Price then in effect; provided, however, that any adjustments that by reason of
this Section 6(a) are not required to be made shall be carried forward and taken
into account in any subsequent adjustment. All calculations under this Section
6(a) shall be made to the nearest cent or nearest 1/100th of a share.

 

(iv) The Company from time to time may reduce the Exercise Price by any amount
for any period of time in the discretion of the Board of Directors.

 

(v) In the event that, at any time as a result of an adjustment made pursuant to
Sections 6(a)(i) through 6(a)(iii) above, the Holder of any Warrant thereafter
surrendered for exercise shall become entitled to receive any shares of the
Company other than shares of the Common Stock, thereafter the number of such
other shares so receivable upon exercise of any such Warrant shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Common Stock contained in
Sections 6(a)(i) through 6(a)(iv) above, and the other provisions of this
Section 6(a) with respect to the Common Stock shall apply on like terms to any
such other shares.

 

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(vi) For avoidance of doubt, and notwithstanding anything herein to the
contrary, any adjustment of the Conversion Price of the Company’s Series B 7%
Convertible Preferred Stock pursuant to paragraph 7(j) of its Certificate of
Designations, and any corresponding adjustment of the conversion price of the
Company’s 7% Convertible Preferred Stock, shall result in no adjustment of the
Exercise Price of this Warrant.

 

(b) In case of any reclassification of the Common Stock (other than in a
transaction to which Section 6(a)(i) applies), any consolidation of the Company
with, or merger of the Company into, any other entity, any merger of another
entity into the Company (other than a merger that does not result in any
reclassification, conversion, exchange or cancellation of outstanding shares of
Common Stock of the Company), any sale or transfer of all or substantially all
of the assets of the Company or any compulsory share exchange, pursuant to which
share exchange the Common Stock is converted into other securities, cash or
other property, then lawful provision shall be made as part of the terms of such
transaction whereby the Holder of a Warrant then outstanding shall have the
right thereafter, during the period such Warrant shall be exercisable, to
exercise such Warrant only for the kind and amount of securities, cash and other
property receivable upon the reclassification, consolidation, merger, sale,
transfer or share exchange by a holder of the number of shares of Common Stock
of the Company into which a Warrant might have been exercised immediately prior
to the reclassification, consolidation, merger, sale, transfer or share exchange
assuming that such holder of Common Stock failed to exercise rights of election,
if any, as to the kind or amount of securities, cash or other property
receivable upon consummation of such transaction subject to adjustment as
provided in Section 6(a) above following the date of consummation of such
transaction. The provisions of this Section 6(b) shall similarly apply to
successive reclassifications, consolidations, mergers, sales, transfers or share
exchanges.

 

(c) If:

 

  (i) the Company shall take any action which would require an adjustment in the
Exercise Price pursuant to Section 6(a); or

 

  (ii) the Company shall authorize the granting to the holders of its Common
Stock generally of rights, warrants or options to subscribe for or purchase any
shares of any class or any other rights, warrants or options; or

 

  (iii) there shall be any reclassification or change of the Common Stock (other
than a subdivision or combination of its outstanding Common Stock or a change in
par value) or any consolidation, merger or statutory share exchange to which the
Company is a party and for which approval of any stockholders of the Company is
required, or the sale or transfer of all or substantially all of the assets of
the Company; or

 

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  (iv) there shall be a voluntary or involuntary dissolution, liquidation or
winding up of the Company;

 

then, in each such case, the Company shall cause to be filed with the transfer
agent for the Warrants and shall cause to be mailed to each Holder at such
Holder’s address as shown on the books of the transfer agent for the Warrants,
as promptly as possible, but at least 15 days prior to the applicable date
hereinafter specified, a notice stating (A) the date on which a record is to be
taken for the purpose of such dividend, distribution or granting of rights,
warrants or options, or, if a record is not to be taken, the date as of which
the holders of Common Stock of record to be entitled to such dividend,
distribution or rights, warrants or options are to be determined, or (B) the
date on which such reclassification, change, consolidation, merger, statutory
share exchange, sale, transfer, dissolution, liquidation or winding-up is
expected to become effective or occur, and the date as of which it is expected
that holders of Common Stock of record shall be entitled to exchange their
shares of Common Stock for securities or other property deliverable upon such
reclassification, change, consolidation, merger, statutory share exchange, sale,
transfer, dissolution, liquidation or winding up. Failure to give such notice or
any defect therein shall not affect the legality or validity of the proceedings
described in this Section 6(c).

 

(d) Whenever the Exercise Price is adjusted as herein provided, the Company
shall promptly file with the transfer agent for the Warrants a certificate of an
officer of the Company setting forth the Exercise Price after the adjustment and
setting forth a brief statement of the facts requiring such adjustment and a
computation thereof. The Company shall promptly cause a notice of the adjusted
Exercise Price to be mailed to each Holder.

 

(e) In any case in which Section 6(a) provides that an adjustment shall become
effective immediately after a record date for an event and the date fixed for
such adjustment pursuant to Section 6(a) occurs after such record date but
before the occurrence of such event, the Company may defer until the actual
occurrence of such event (i) issuing to the Holder of any Warrants exercised
after such record date and before the occurrence of such event the additional
shares of Common Stock issuable upon such conversion by reason of the adjustment
required by such event over and above the Common Stock issuable upon such
exercise before giving effect to such adjustment, and (ii) paying to such holder
any amount in cash in lieu of any fraction pursuant to Section 6(i).

 

(f) In case the Company shall take any action affecting the Common Stock, other
than actions described in this Section 6, which in the opinion of the Board of
Directors would materially adversely affect the exercise right of the Holders,
the Exercise Price may be adjusted, to the extent permitted by law, in such
manner, if any, and at such time, as the Board of Directors may determine to be
equitable in the circumstances.

 

(g) For the purpose of any computation under this Warrant, the “Current Market
Price” means, when used with respect to a share of Common Stock as of any date,
the volume weighted average price of the Common Stock as reported on the
American Stock Exchange for the ten (10) consecutive trading days immediately
preceding (but not including) such date, or, in case the Common Stock is listed
on a national securities exchange other than American Stock Exchange, the volume
weighted average price of the Common Stock on the ten

 

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(10) consecutive trading days immediately preceding (but not including) such
date as reported for consolidated transactions with respect to securities listed
on the principal national securities exchange on which the Common Stock is
listed or admitted to trading or, if the Common Stock is not listed or admitted
to trading on the American Stock Exchange or any national securities exchange,
the volume weighted average price of the Common Stock on the ten (10)
consecutive trading days immediately preceding (but not including) such date in
the over-the-counter market, as reported by the National Association of
Securities Dealers, Inc. Automated Quotations System or such other system then
in use or, if the Common Stock is not quoted by any such organization, the
volume weighted average price of the Common Stock as of the ten (10) consecutive
trading days immediately preceding (but not including) such date furnished by a
New York Stock Exchange member firm selected by the Company, or if the Common
Stock is not quoted by any such organization and no such New York Stock Exchange
member firm is able to provide such prices, such price as is determined by the
Independent Directors in good faith. “Independent Directors” means directors of
the Company that (i) are not 5% or greater stockholders of the Company or the
designee of any such stockholder, (ii) are not officers or employees of the
Company, any of its subsidiaries or of a stockholder referred to above in clause
(i), (iii) are not Related Persons, and (iv) do not have relationships that, in
the opinion of the Board of Directors, would interfere with their exercise of
independent judgment in carrying out the responsibilities of the directors, and
“Related Person” means an individual related to an officer, director or employee
of the Company or any of its affiliates which relation is by blood, marriage or
adoption and not more remote than first cousin.

 

(h) Upon each adjustment of the Exercise Price, this Warrant shall thereafter
evidence the right to purchase, at the adjusted Exercise Price, that number of
shares (calculated to the nearest hundredth) obtained by dividing (i) the
product obtained by multiplying the number of shares purchasable upon exercise
of this Warrant prior to adjustment of the number of shares by the Exercise
Price in effect prior to adjustment of the Exercise Price, by (ii) the Exercise
Price in effect after such adjustment of the Exercise Price.

 

(i) The Company shall not be required to issue fractions of shares of Common
Stock or other capital stock of the Company upon the exercise of this Warrant.
If any fraction of a share would be issuable on the exercise of this Warrant (or
specified portions thereof), the Company shall purchase such fraction for an
amount in cash equal to the same fraction of the Current Market Price of such
share of Common Stock on the date of exercise of this Warrant.

 

7. Transfer Taxes. The issuance of any shares or other securities upon the
exercise of this Warrant, and the delivery of certificates or other instruments
representing such shares or other securities, shall be made without charge to
the Holder for any tax or other charge in respect of such issuance. The Company
shall not, however, be required to pay any tax which may be payable in respect
of any transfer involved in the issue and delivery of any certificate in a name
other than that of the Holder and the Company shall not be required to issue or
deliver any such certificate unless and until the person or persons requesting
the issue thereof shall have paid to the Company the amount of such tax or shall
have established to the satisfaction of the Company that such tax has been paid.

 

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8. Loss or Mutilation of Warrant. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction, or mutilation of
any Warrant (and upon surrender of any Warrant if mutilated), and upon
reimbursement of the Company’s reasonable incidental expenses and delivery of an
undertaking to indemnify the Company against losses, the Company shall execute
and deliver to the Holder thereof a new Warrant of like date, tenor, and
denomination.

 

9. No Rights as a Stockholder. The Holder of any Warrant shall not have, solely
on account of such status, any rights of a stockholder of the Company, either at
law or in equity, or to any notice of meetings of stockholders or of any other
proceedings of the Company, except as provided in this Warrant.

 

10. Governing Law. This Warrant shall be construed in accordance with the laws
of the State of California applicable to contracts made and performed within
such State, without regard to principles of conflicts of law.

 

11. Redemption of Warrants.

 

(a) The Warrants will be redeemable at the option of the Company, in whole or in
part (a “Warrant Redemption”), from and after the time that the closing price of
the Common Stock on each Trading Day occurring during for any period of 10
consecutive Trading Days (a “Warrant Redemption Period”) equals or exceeds 200%
of the Current Market Price as of the Closing Date (as defined in the Purchase
Agreement); provided, however, that each Optional Redemption Condition (as
defined in the Certificate of Designations, but with references therein to
“Optional Redemption Period” changed to “Warrant Redemption Period”) must be
satisfied during the Warrant Redemption Period and at all times thereafter
through the date on which such Warrants are redeemed (the “Warrant Redemption
Date”). The redemption price will be equal to $0.25 per Warrant (the “Warrant
Redemption Price”), payable in cash.

 

(b) The Corporation shall deliver, in accordance with the notice delivery
provisions of the Purchase Agreement, notice of a Warrant Redemption (a “Warrant
Redemption Notice”) to each Holder, not less than 30 nor more than 60 days prior
to the date fixed in such notice as the Warrant Redemption Date. Such notice
shall state (i) that the Company has elected to redeem all or a portion of the
Warrants, as specified in such notice, (ii) the Warrant Redemption Price, (iii)
the Warrant Redemption Date, and (iv) any other information required by
applicable law to be included therein. A Warrant Redemption Notice, once
delivered by the Company, shall be irrevocable unless the Company ceases to
satisfy all of the Optional Redemption Conditions at any time after delivering
such notice, in which case such notice shall be deemed revoked. On or after the
Warrant Redemption Date, (i) the Holder shall deliver this Warrant to the
Company at the place designated in the Warrant Redemption Notice and,
immediately upon such delivery, the Company shall pay the Warrant Redemption
Price to the Holder by wire transfer of immediately available funds to such
account as the Holder shall designate in writing prior to the Warrant Redemption
Date. In case less than all the Warrants represented by this Warrant are
redeemed, a new Warrant shall be issued to the Holder representing the
unredeemed Warrants.

 

11

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(c) If a Warrant Redemption Notice has been given pursuant to this Section 11,
and the Holder shall, prior to the close of business on the Warrant Redemption
Date, provide the Company with a Notice of Exercise pursuant to Section 2 above
with respect to the exercise of any or all of the Warrants to be redeemed, then
such redemption shall not become effective as to such Warrants to be exercised,
and such exercise shall become effective as provided in Section 2 above.

 

(d) In every case of redemption of less than all of the outstanding Warrants
issued pursuant to the Purchase Agreement, the Warrants to be redeemed shall be
selected pro rata based on the number of Warrants then owned by each Holder .

 

Dated: May     , 2005

 

PATH 1 NETWORK TECHNOLOGIES INC. By:        

John R. Zavoli,

   

President & CEO

 

12

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FORM OF ASSIGNMENT

 

(To be executed by the registered holder if such holder desires to transfer the
attached Warrant.)

 

FOR VALUE RECEIVED,                                           hereby sells,
assigns, and transfers unto                      a Warrant to purchase
                     shares of Common Stock, par value $0.001 per share, of Path
1 Network Technologies Inc. (the “Company”), together with all right, title, and
interest therein, and does hereby irrevocably constitute and appoint
                                         attorney to transfer such Warrant on
the books of the Company, with full power of substitution.

 

Dated:     By:        

Signature

 

The signature on the foregoing Assignment must correspond to the name as written
upon the face of this Warrant in every particular, without alteration or
enlargement or any change whatsoever.

 

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To: Path 1 Network Technologies Inc.

     6215 Ferris Square

     Suite 140

     San Diego, California 92121

     Attention: President

 

NOTICE OF EXERCISE

 

The undersigned hereby exercises his or its rights to purchase             
Warrant Shares covered by the within Warrant and tenders payment herewith in the
amount of $             by [tendering cash or delivering a certified check or
bank cashier’s check, payable to the order of the Company] [surrendering
             shares of Common Stock received upon exercise of the attached
Warrant, which shares have a Current Market Price equal to such payment] in
accordance with the terms thereof, and requests that certificates for such
securities be issued in the name of, and delivered to:

 

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(Print Name, Address and Social Security

or Tax Identification Number)

 

and, if such number of Warrant Shares shall not be all the Warrant Shares
covered by the within Warrant, that a new Warrant for the balance of the Warrant
Shares covered by the within Warrant be registered in the name of, and delivered
to, the undersigned at the address stated below.

 

Dated:     By:        

Print Name

     

Signature

 

Address: