EXHIBIT 10.2

 

 

THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE
STATE SECURITIES LAWS. THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF
THIS WARRANT MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN
THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THIS WARRANT AND THE
SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT UNDER THE SECURITIES ACT OF
1933, AS AMENDED, AND APPLICABLE STATE SECURITIES LAWS, OR (B) AN OPINION OF
COUNSEL selected by the holder, IN A generally acceptable FORM, THAT
REGISTRATION IS NOT REQUIRED UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAWS
OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT.
NOTWITHSTANDING THE FOREGOING, THIS WARRANT AND THE SECURITIES ISSUABLE UPON
EXERCISE OF THIS WARRANT MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN
ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THIS WARRANT AND THE
SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT, PROVIDED SUCH PLEDGE IS MADE
IN COMPLIANCE WITH APPLICABLE FEDERAL AND STATE SECURITIES LAWS.

 

MIDWEST ENERGY EMISSIONS CORP.

 

WARRANT TO PURCHASE COMMON STOCK

 

Warrant Certificate No.: AC Midwest-2
Number of Shares of Common Stock: 5,000,000
Original Issue Date: November 16, 2015

 

FOR VALUE RECEIVED, Midwest Energy Emissions Corp., a Delaware corporation (the
"Company"), hereby certifies that AC Midwest Energy LLC, a Delaware limited
liability company, or its registered assigns (the "Holder") is entitled to
purchase from the Company 5,000,000 duly authorized, validly issued, fully paid
and nonassessable shares of Common Stock at the Exercise Price (as hereinafter
defined), subject to the terms, conditions and adjustments set forth in this
Warrant to Purchase Common Stock (including any Warrants to Purchase Common
Stock issued in exchange, transfer or replacement hereof, this "Warrant").

 

This Warrant has been issued pursuant to the terms of that certain Financing
Agreement, dated as of August 14, 2015, as amended by Waiver and Amendment to
Financing Agreement, dated as of March 16, 2015 and Waiver and Amendment No. 2
to Financing Agreement, dated as of the Original Issue Date set forth above
(collectively, as so amended and as such may be further amended, restated,
modified or supplemented from time to time, the "Financing Agreement"), by and
among the Company, the Holder and the other parties thereto. Capitalized terms
used but not otherwise defined herein shall have the respective meanings
ascribed to them in the Financing Agreement.

 

 1

 

 

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

 

"Aggregate Exercise Price" has the meaning set forth in Section 3(b).

 

"Applicable Price" has the meaning set forth in Section 4(a).

 

"Authorization Failure Shares" has the meaning set forth in Section 3(g).

 

"Authorized Share Failure" has the meaning set forth in Section 3(g). 

 

"Black Scholes Value" means the value of the unexercised portion of this Warrant
remaining on the date of the Holder's request pursuant to Section 6(b) which
value is calculated using the Black Scholes Option Pricing Model obtained from
the "OV" function on Bloomberg utilizing (a) an underlying price per share equal
to the greater of (i) the highest Closing Sale Price of the Common Stock during
the period beginning on the Trading Day immediately preceding the earlier to
occur of (A) the public announcement of the applicable Fundamental Transaction
or (B) the consummation of the applicable Fundamental Transaction, and ending on
the Trading Day of the Holder's request pursuant to Section 6(b) and (ii) the
sum of the price per share being offered in cash in the applicable Fundamental
Transaction, if any, plus the value of the non-cash consideration being offered
in the applicable Fundamental Transaction, if any, (b) a strike price equal to
the Exercise Price in effect on the date of the Holder's request pursuant to
Section 6(b), (c) a risk-free interest rate corresponding to the U.S. Treasury
rate for a period equal to the greater of (i) the remaining term of this Warrant
as of the date of the Holder's request pursuant to Section 6(b) and (ii) the
remaining term of this Warrant as of the date of consummation of the applicable
Fundamental Transaction or as of the date of the Holder's request pursuant to
Section 6(b) if such request is prior to the date of the consummation of the
applicable Fundamental Transaction, (d) a zero cost of borrow, and (e) an
expected volatility equal to the greater of 100% and the 100 day volatility
obtained from the "HVT" function on Bloomberg (determined utilizing a 365 day
annualization factor) as of the Trading Day immediately following the earliest
to occur of (i) the public disclosure of the applicable Fundamental Transaction
and (ii) the consummation of the applicable Fundamental Transaction.

  

"Bloomberg" means Bloomberg Financial Markets.

 

"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 New York are authorized or obligated
by law or executive order to close.

 

"Buy-In Price" has the meaning set forth in Section 3(d).

 

"Cashless Exercise" has the meaning set forth in Section 3(e).

 

 2

 

  

"Closing Bid Price" and "Closing Sale Price" means, for any security as of any
date, the last closing bid price and last closing trade price, respectively, for
such security on the Principal Market, as reported by Bloomberg, or, if the
Principal Market begins to operate on an extended hours basis and does not
designate the closing bid price or the closing trade price, as the case may be,
then the last bid price or the last trade price, respectively, of such security
prior to 4:00:00 p.m., New York time, as reported by Bloomberg, or, if the
Principal Market is not the principal securities exchange or trading market for
such security, the last closing bid price or last trade price, respectively, of
such security on the principal securities exchange or trading market where such
security is listed or traded as reported by Bloomberg, or if the foregoing do
not apply, the last closing bid price or last trade price, respectively, of such
security in the over-the-counter market on the electronic bulletin board for
such security as reported by Bloomberg, or, if no closing bid price or last
trade price, respectively, is reported for such security by Bloomberg, the
average of the bid prices, or the ask prices, respectively, of any market makers
for such security as reported in the OTC Link or "pink sheets" by OTC Markets
Group Inc. (formerly Pink OTC Markets Inc.). If the Closing Bid Price or Closing
Sale Price cannot be calculated for a security on a particular date on any of
the foregoing bases, the Closing Bid Price or the Closing Sale Price, as the
case may be, of such security on such date shall be the fair market value as
mutually determined by the Company and the Holder. If the Company and the Holder
are unable to agree upon the fair market value of such security, then such
dispute shall be resolved pursuant to Section 12. All such determinations to be
appropriately adjusted for any stock dividend, stock split, stock combination,
reclassification or other similar transaction during the applicable calculation
period.

 

"Common Stock" means the common stock, par value $.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.

 

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

 

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

 

"Corporate Event" has the meaning set forth in Section 6(a).

 

"DTC" has the meaning set forth in Section 3(b).

 

"Dilutive Issuance" has the meaning set forth in Section 4(a).

 

"Distribution" has the meaning set forth in Section 5. 

 

 3

 

 

"Excluded Issuances" means any issuance or sale (or deemed issuance or sale in
accordance with Section 4) by the Company after the Original Issue Date of
shares of Common Stock issued or issuable with respect to any of the following:
(a) upon conversion of the Note or the Prior Convertible Notes; (b) upon
exercise each of the following warrants which were issued as of the date hereof:
(i) this Warrant, (ii) the New Warrants (as defined in the Allonge to the Prior
Senior Convertible Notes); and (iii) the warrants to be issued to the Placement
Agent; (c) interest on the Note or Prior Senior Convertible Notes as a result of
in kind payments of Common Stock in lieu of cash; (d) upon exercise of the
existing warrants to the extent outstanding as of the Original Issue Date,
including, without limitation: (i) the warrants issued in connection with the
Prior Convertible Notes; (ii) the warrants issued to each of Arthur Peterson and
James Stanley on September 19, 2013; and (iii) the warrants issued to View Trade
Securities, Inc. between July 30, 2013 and May 8, 2014 to purchase up to an
aggregate of 572,750 shares of Common Stock at an exercise price of $0.50 per
share; (e) pursuant to the employment agreements with each of R. Alan Kelley,
John F. Norris, Jr., Richard H. Gross and Marc Sylvester as in existence on
August 14, 2014 (the "Executive Employment Agreements"); (f) upon exercise of
the following existing options to the extent outstanding as of the Original
Issue Date: (i) the options issued pursuant to the 2005 Stock Option Plan (as
amended in 2009); (ii) the options issued in connection with the Executive
Employment Agreements; and (iii) the options issued to each of Keith McGee and
Jim Trettel on January 1, 2014 (the forgoing clauses (a) through (f)
collectively, the "Existing Issuance Obligations");(g) in connection with the
acquisition of any interest in an entity not affiliated with the Company
(whether by merger, purchase of substantially all of the assets, purchase of
stock or other otherwise) which is consented to by the Holder; and (h) pursuant
to or in connection with any strategic alliance, joint venture or corporate
partnership, each with an entity not affiliated with the Company which is
consented to by the Holder. Notwithstanding the foregoing, if the total amount
of consideration provided for in any Existing Issuance Obligation, or the
additional consideration, if any, payable upon the exercise of any Existing
Issuance Obligation decreases at any time or from time to time following the
Original Issue Date (an "Existing Issuance Adjustment", and the resulting
difference, an "Existing Issuance Shortfall"), then the amount of Common Stock
that could have been purchased with the Existing Issuance Shortfall prior to the
Existing Issuance Adjustment shall be excluded from the foregoing definition of
Excluded Issuances. By way of example and not by way of limitation, if on the
Original Issue Date there is an existing outstanding warrant to purchase 100
shares of Common Stock at an exercise price of $0.50 per share, which exercise
price is adjusted after the Original Issue Date to $0.40 per share (an Existing
Issuance Adjustment), the resulting Existing Issuance Shortfall would be $10.00,
and the amount of Common Stock that could have been purchased with the Existing
Issuance Shortfall prior to the Existing Issuance Adjustment ($10.00 divided by
an exercise price of $0.50 per share, which yields 20 shares of Common Stock)
shall be excluded from the foregoing definition of Excluded Issuances.

 

"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 11:59 p.m., New York time, on a Business Day,
including, without limitation, the receipt by the Company of the Exercise
Notice, the Warrant and the Aggregate Exercise Price.

 

"Exercise Notice" has the meaning set forth in Section 3(b).

 

"Exercise Price" has the meaning set forth in Section 3(c).

 

"Financing Agreement" has the meaning set forth in the preamble.

 

"Financing Securities" means the Notes issued pursuant to the Financing
Agreement. 

 

 4

 

 

"Fundamental Transaction" means one or more related transactions in which (a)
Company or any of its Subsidiaries shall, directly or indirectly: (i)
consolidate or merge with or into (whether or not Company or one or more of the
Subsidiaries are the surviving corporation) another Person, (ii) sell, assign,
transfer, lease, license, convey or otherwise dispose of all or substantially
all of the properties or assets of Company or one or more of the Subsidiaries
(to the extent that such Subsidiary sale would comprise all or substantially all
of the assets of the Company and its Subsidiaries on a consolidated basis) to
another Person, (iii) allow another Person to make a purchase, tender or
exchange offer that is accepted by the holders of more than fifty percent (50%)
of the outstanding shares of Common Stock or other equity interests (not
including any shares of Common Stock of other equity interests held by the
Person or Persons making or party to, or associated or affiliated with the
Persons making or party to, such purchase, tender or exchange offer), (iv)
consummate a stock purchase agreement or other business combination (including,
without limitation, a reorganization, recapitalization, spin-off or scheme of
arrangement) with another Person whereby such other Person acquires more than
fifty percent (50%) of the outstanding shares of Common Stock or equity
interests of the Company or any of the Subsidiaries (provided that if such
transaction is with Holder or its Affiliates, then the shares of Common Stock
purchasable from conversion of the Note or exercise of this Warrant shall not be
included in the shares to be acquired for purposes of such event being a
Fundamental Transaction) or (v) reorganize, recapitalize or reclassify its
Common Stock or other equity interests, (b) that with respect to Company, any
"person" or "group" (within the meaning of Sections 13(d) and 14(d) of the
Exchange Act) is or shall become the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of fifty percent (50%) of
the aggregate ordinary voting power represented by issued and outstanding Common
Stock, or (c) the entering into any other instrument or transaction structured
in a manner to circumvent, or that circumvents, the intent of this definition in
which case this definition shall be construed and implemented in a manner
otherwise than in strict conformity with the terms of this definition to the
extent necessary to correct this definition or any portion of this definition
which be defective or inconsistent with the intended treatment of such
instrument or transaction.

 

"Group" means a "group" as that term is used in Section 13(d) of the 1934 Act
and as defined in Rule 13d-5 thereunder.

 

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

 

"Initial Exercise Price" has the meaning set forth in Section 3(c).

 

"Minimum Ownership Percentage" has the meaning set forth in Section 4(f).

 

"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 stated as the Original Issue Date on the
first page of this Warrant, the date on which the Warrant was issued by the
Company pursuant to the Financing Agreement.

 

 5

 

  

"Ownership Percentage Adjustment" has the meaning set forth in Section 4(f).

 

"Parent Entity" of a Person means an entity that, directly or indirectly,
controls the applicable Person, including such entity whose common shares or
common stock or equivalent equity security is quoted or listed on an Eligible
Market (or, if so elected by the Holder, any other market, exchange or quotation
system), or, if there is more than one such Person or such entity, the Person or
such entity designated by the Holder or in the absence of such designation, such
Person or entity with the largest public market capitalization as of the date of
consummation of the Fundamental Transaction.

 

"Person" means any individual, sole proprietorship, partnership, limited
liability company, corporation, joint venture, trust, unincorporated
organization or any other entity and a government or department or agency
thereof.

 

"Principal Market" means the OTC QB.

 

"Purchase Rights" has the meaning set forth in Section 6.

 

"Required Reserve Amount" has the meaning set forth in Section 3(g).

 

"Share Delivery Date" has the meaning set forth in Section 3(b).

 

"Successor Capital Stock" has the meaning set forth in Section 6(a). 

 

"Successor Entity" means one or more Person or Persons (or, if so elected by the
Holder, the Company or Parent Entity) formed by, resulting from or surviving any
Fundamental Transaction or one or more Person or Persons (or, if so elected by
the Holder, the Company or the Parent Entity) with which such Fundamental
Transaction shall have been entered into.

 

"Trading Day" means any day on which the Common Stock is traded on the Principal
Market, or, if the Principal Market is not the principal trading market for the
Common Stock, then on the principal securities exchange or securities market on
which the Common Stock is then traded; provided that "Trading Day" shall not
include any day on which the Common Stock is scheduled to trade on such exchange
or market for less than 4.5 hours or any day that the Common Stock is suspended
from trading during the final hour of trading on such exchange or market (or if
such exchange or market does not designate in advance the closing time of
trading on such exchange or market, then during the hour ending at 4:00:00 p.m.,
New York time).

 

 6

 

  

"Transfer Agent" has the meaning set forth in Section 3(b).

 

"Unavailable Warrant Shares" has the meaning set forth in Section 3(d).

 

"Valuation Event" has the meaning set forth in Section 4(b)(iv).

 

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

 

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

   

2. Term of Warrant. Subject to the terms and conditions hereof, at any time or
from time to time on or after the Original Issue Date and until 11:59 p.m., New
York time, on the fifth anniversary of the Original Issue Date or, if such day
is not a Business Day or Trading Day, on the next preceding Business Day or
Trading Day, the Holder hereof may exercise this Warrant for all or any part of
the Warrant Shares purchasable hereunder (subject to adjustment as provided
herein).

 

3. Exercise of Warrant.

 

(a) Manner of Exercise of Warrant. Subject to adjustment as provided herein,
this Warrant shall only be exercisable and Warrant Shares shall only be
purchasable according to the following schedule:

 

(i) This Warrant shall be exercisable for 3,600,000 Warrant Shares and such
3,600,000 Warrant Shares shall be purchasable on the Original Issue Date.

 

(ii) This Warrant shall be exercisable for an additional 400,000 Warrant Shares
and such additional 400,000 Warrant Shares shall be purchasable on January 29,
2016, but only in the event the Company has sold to the Holder the second New
Note pursuant to the Waiver and Amendment No. 2 to Financing Agreement, and
Reaffirmation of Guaranty dated as of the Original Issue Date among the Company,
the Holder and MES, Inc., a North Dakota corporation (the "Second Amendment").

 

(iii) This Warrant shall be exercisable for up to an additional 1,000,000
Warrant Shares and such additional up to 1,000,000 Warrant Shares shall be
purchasable on the date of the issuance of the third New Note to the Holder, and
but only in the event that the Company has sold the third New Note to the Holder
pursuant to the Second Amendment, provided, however, that in the event the
original principal amount of the third New Note is less than $1,000,000, then
the number of additional Warrant Shares for which this Warrant will be
exercisable and which therefore will be purchasable pursuant to this subsection
(iii) shall be proportionately reduced. For illustration purposes only, in the
event the third New Note is in the original principal amount of $500,000, then
the number of additional Warrant Shares for which this Warrant will be
exercisable and therefore purchasable by the Holder pursuant to this subsection
(iii) shall equal 500,000 Warrant Shares.

 

 7

 

  

(b) Mechanics of Exercise. Subject to the terms and conditions hereof, this
Warrant may be exercised by the Holder at any time or times on or after the
Original Issue Date, in whole or in part, by (i) delivery of a written notice,
in the form attached hereto as Exhibit A (the "Exercise Notice"), of the
Holder's election to exercise this Warrant and (ii) (A) payment to the Company
of an amount equal to the applicable Exercise Price multiplied by the number of
Warrant Shares as to which this Warrant is being exercised (the "Aggregate
Exercise Price") in cash by wire transfer of immediately available funds, or (B)
if the provisions of Section 3(e) are applicable, by notifying the Company that
this Warrant is being exercised pursuant to a Cashless Exercise. The Holder
shall not be required to deliver the original Warrant in order to effect an
exercise hereunder. Execution and delivery of the Exercise Notice with respect
to less than all of the Warrant Shares shall have the same effect as
cancellation of the original Warrant and issuance of a new Warrant evidencing
the right to purchase the remaining number of Warrant Shares. On or before the
first (1st) Trading Day following the date on which the Company has received the
Exercise Notice, the Company shall transmit by facsimile an acknowledgment of
confirmation of receipt of the Exercise Notice to the Holder and the Company's
transfer agent (the "Transfer Agent"). On or before the third (3rd) Trading Day
following the date on which the Company has received the Exercise Notice, so
long as the Holder delivers the Aggregate Exercise Price (or notice of a
Cashless Exercise) on or prior to the second (2nd) Trading Day following the
date on which the Company has received the Exercise Notice (the "Share Delivery
Date") (provided that if the Aggregate Exercise Price has not been delivered by
such date, the Share Delivery Date shall be one (1) Trading Day after the
Aggregate Exercise Price (or notice of a Cashless Exercise) is delivered), the
Company shall (X) provided that the Transfer Agent is participating in The
Depository Trust Company ("DTC") Fast Automated Securities Transfer Program,
credit such aggregate number of Warrant Shares to which the Holder is entitled
pursuant to such exercise to the Holder's or its designee's balance account with
DTC through its Deposit / Withdrawal At Custodian system, or (Y) if the Transfer
Agent is not participating in the DTC Fast Automated Securities Transfer
Program, issue and dispatch by overnight courier to the address as specified in
the Exercise Notice, a certificate, registered in the Company's share register
in the name of the Holder or its designee, for the number of Warrant Shares to
which the Holder is entitled pursuant to such exercise. The Company shall be
responsible for all fees and expenses of the Transfer Agent and all fees and
expenses with respect to the issuance of Warrant Shares via DTC, if any. Upon
delivery of the Exercise Notice, the Holder shall be deemed for all corporate
purposes to have become the holder of record of the Warrant Shares with respect
to which this Warrant has been exercised, irrespective of the date such Warrant
Shares are credited to the Holder's DTC account or the date of delivery of the
certificates evidencing such Warrant Shares, as the case may be. If this Warrant
is submitted in connection with any exercise pursuant to this Section 3(b) and
the number of Warrant Shares represented by this Warrant submitted for exercise
is greater than the number of Warrant Shares being acquired upon an exercise,
then the Company shall as soon as practicable and in no event later than three
(3) Trading Days after any exercise and at its own expense, issue a new Warrant
representing the right to purchase the number of Warrant Shares issuable
immediately prior to such exercise under this Warrant, less the number of
Warrant Shares with respect to which this Warrant is exercised. No fractional
Warrant Shares are to be issued upon the exercise of this Warrant, but rather
the number of Warrant Shares to be issued shall be rounded up to the nearest
whole number. The Company shall pay any and all taxes which may be payable with
respect to the issuance and delivery of Warrant Shares upon exercise of this
Warrant. The Company's obligations to issue and deliver Warrant Shares in
accordance with the terms and subject to the conditions hereof are absolute and
unconditional, irrespective of any action or inaction by the Holder to enforce
the same, any waiver or consent with respect to any provision hereof, the
recovery of any judgment against any Person or any action to enforce the same,
or any setoff, counterclaim, recoupment, limitation or termination. 

 

 8

 

 

(c) Exercise Price.

 

(i) This Warrant may be exercised at a price equal to $0.35 per share (referred
to herein as the "Initial Exercise Price"), as the same may be adjusted
proportionately from time to time upon the occurrence of the adjustment events
set forth in Section 4 below. 

 

(d) Company's Failure to Timely Deliver Securities. If the Company shall fail
for any reason or for no reason to issue to the Holder on or prior to the Share
Delivery Date either (i) if the Transfer Agent is not participating in the DTC
Fast Automated Securities Transfer Program, a certificate for the number of
shares of Common Stock to which the Holder is entitled and register such shares
of Common Stock on the Company's share register or if the Transfer Agent is
participating in the DTC Fast Automated Securities Transfer Program, to credit
the Holder's balance account with DTC, for such number of shares of Common Stock
to which the Holder is entitled upon the Holder's exercise of this Warrant, or
(ii) if any required Registration Statement (as defined in the
Investor/Registration Rights Agreement) covering the resale of the Warrant
Shares that are the subject of the Exercise Notice (the "Unavailable Warrant
Shares") is not available for the resale of such Unavailable Warrant Shares and
the Company fails to promptly, but in no event later than as required pursuant
to the Investor/Registration Rights Agreement (A) so notify the Holder and (B)
deliver the Warrant Shares electronically without any restrictive legend by
crediting such aggregate number of Warrant Shares to which the Holder is
entitled pursuant to such exercise to the Holder's or its designee's balance
account with DTC through its Deposit/Withdrawal At Custodian system, and if on
or after such Trading Day the Holder purchases (in an open market transaction or
otherwise) shares of Common Stock to deliver in satisfaction of a sale by the
Holder of shares of Common Stock issuable upon such exercise that the Holder
anticipated receiving from the Company, then the Company shall, within three (3)
Trading Days after the Holder's request and in the Holder's discretion, either
(i) pay cash to the Holder in an amount equal to the Holder's total purchase
price (including brokerage commissions and other out-of-pocket expenses, if any)
for the shares of Common Stock so purchased (the "Buy-In Price"), at which point
the Company's obligation to deliver such certificate (and to issue such shares
of Common Stock) or credit such Holder's balance account with DTC for such
shares of Common Stock shall terminate, or (ii) promptly honor its obligation to
deliver to the Holder a certificate or certificates representing such shares of
Common Stock or credit such Holder's balance account with DTC, as applicable,
and pay cash to the Holder in an amount equal to the excess (if any) of the
Buy-In Price over the product of (A) such number of shares of Common Stock,
times (B) any trading price of the Common Stock selected by the Holder in
writing as in effect at any time during the period beginning on the applicable
Exercise Date and ending on the applicable Share Delivery Date. Nothing shall
limit the Holder's right to pursue any other remedies available to it hereunder,
at law or in equity, including, without limitation, a decree of specific
performance and/or injunctive relief with respect to the Company's failure to
timely deliver certificates representing shares of Common Stock (or to
electronically deliver such shares of Common Stock) upon the exercise of this
Warrant as required pursuant to the terms hereof.

 

 9

 

  

(e) Cashless Exercise. Notwithstanding anything contained herein to the
contrary, the Holder may, in its sole discretion, exercise this Warrant in whole
or in part and, in lieu of making the cash payment otherwise contemplated to be
made to the Company upon such exercise in payment of the Aggregate Exercise
Price, elect instead to receive upon such exercise the "Net Number" of shares of
Common Stock determined according to the following formula (a "Cashless
Exercise"):

 

Net Number =

Y (A - B)

 

A

 

 

For purposes of the foregoing formula

 

Y

=

the total number of shares with respect to which this Warrant is then being
exercised.

A

=

the Closing Sale Price of one share of Common Stock on the Trading Day
immediately preceding the date of the applicable Exercise Notice

B

=

the Exercise Price then in effect for the applicable Warrant Shares at the time
of such exercise.

 

For purposes of Rule 144(d) promulgated under the 1933 Act, as in effect on the
date hereof, it is intended that the Warrant Shares issued in a Cashless
Exercise shall be deemed to have been acquired by the Holder, and the holding
period for the Warrant Shares shall be deemed to have commenced, on the Original
Issue Date.

 

(f) Disputes. In the case of a dispute as to the determination of the Exercise
Price or the arithmetic calculation of the Warrant Shares, the Company shall
promptly issue to the Holder the number of Warrant Shares that are not disputed
and resolve such dispute in accordance with Section 12.

 

(g) Insufficient Authorized Shares. If at any time while this Warrant remains
outstanding the Company does not have a sufficient number of authorized and
unreserved shares of Common Stock to satisfy its obligation to reserve for
issuance upon exercise of this Warrant at least a number of shares of Common
Stock equal to 100% of the number of shares of Common Stock as shall from time
to time be necessary to effect the exercise of all of this Warrant then
outstanding (the "Required Reserve Amount" and the failure to have such
sufficient number of authorized and unreserved shares of Common Stock, an
"Authorized Share Failure"), then the Company shall immediately take all action
necessary to increase the Company's authorized shares of Common Stock to an
amount sufficient to allow the Company to reserve the Required Reserve Amount
for this Warrant then outstanding. Without limiting the generality of the
foregoing, as soon as practicable after the date of the occurrence of an
Authorized Share Failure, but in no event later than sixty (60) days after the
occurrence of such Authorized Share Failure, the Company shall hold a meeting of
its shareholders for the approval of an increase in the number of authorized
shares of Common Stock. In connection with such meeting, the Company shall
provide each shareholder with a proxy statement and shall use its best efforts
to solicit its shareholders' approval of such increase in authorized shares of
Common Stock and to cause its Board to recommend to the shareholders that they
approve such proposal. Notwithstanding the foregoing, if any such time of an
Authorized Share Failure, the Company is able to obtain the written consent of a
majority of the shares of its issued and outstanding Common Stock to approve the
increase in the number of authorized shares of Common Stock, the Company may
satisfy this obligation by obtaining such consent and submitting for filing with
the SEC an Information Statement on Schedule 14C. In the event that upon any
exercise of this Warrant, the Company does not have sufficient authorized shares
to deliver in satisfaction of such exercise (such unavailable number of shares
of Common Stock, the "Authorization Failure Shares"), then unless the Holder
elects to void such attempted exercise, the Holder may require the Company to
pay to the Holder, within three (3) Trading Days of the applicable exercise, in
lieu of delivering such Authorization Failure Shares, cash in an amount equal to
the sum of (i) the product of (A) such number of Authorization Failure Shares
and (B) the greatest Closing Sale Price of the shares of Common Stock on any
Trading Day during the period commencing on the date the Holder delivers the
applicable Exercise Notice with respect to such Authorization Failure Shares to
the Company and ending on the date of such issuance and payment under this
Section 3(g) and (ii) to the extent the Holder purchases (in an open market
transaction or otherwise) shares of Common Stock to deliver in satisfaction of a
sale by the Holder of Authorization Failure Shares, any brokerage commissions
and other out-of-pocket expenses, if any, incurred by the Holder in connection
therewith.

 

 

 10

 

  

4. Certain Adjustment Events. In order to prevent dilution of the purchase
rights granted under this Warrant, the number of Warrant Shares issuable upon
exercise of this Warrant shall be adjusted from time to time as set forth in
this Section 4; provided that this Section 4 will not apply to the issuance or
sale of shares of Common Stock owned or held by or for the account of the
Company or deemed to have been issued or sold by the Company in connection with
any Excluded Issuances.

 

(a) Adjustment to Number of Warrant Shares Upon Issuance of Common Stock. Except
in the case of an event described in Sections 4(d) or 6(a), if and whenever on
or after the Original Issue Date, the Company issues or sells, or in accordance
with this Section 4(a) is deemed to have issued or sold, any shares of Common
Stock without consideration or for consideration per share less than a price
(the "Applicable Price") equal to the Exercise Price in effect immediately prior
to such issue or sale or deemed issuance or sale (the foregoing a "Dilutive
Issuance"), then immediately following such Dilutive Issuance, the number of
Warrant Shares issuable upon exercise of this Warrant shall be increased to a
number equal to the product obtained by multiplying (i) the number of Warrant
Shares issuable upon exercise of this Warrant immediately prior to such Dilutive
Issuance, by (ii) a fraction (which shall in no event be less than one) (A) the
numerator of which shall be the number of shares of Common Stock then
outstanding immediately after such Dilutive Issuance; and (B) the denominator of
which shall be the sum of (1) the number of shares of Common Stock then
outstanding immediately prior to such Dilutive Issuance plus (2) the aggregate
number of shares of Common Stock which the aggregate amount of consideration, if
any, received by Company upon such Dilutive Issuance would purchase at the
Applicable Price.

 

(b) Effect of Certain Adjustment Events on Adjustment to Number of Warrant
Shares. For purposes of determining the adjusted number of Warrant Shares under
Section 4(a), the following shall be applicable:

 

 (i) Issuance of Options. If the Company in any manner grants or sells any
Options and the price per share (determined in accordance with Section 4(b)(v))
for which Common Stock is issuable upon the exercise of such Options, or upon
conversion, exercise or exchange of Convertible Securities issuable upon
exercise of such Options, is less than the Applicable Price, then the total
maximum number of shares of Common Stock issuable upon the exercise of such
Options, or upon conversion, exercise or exchange of the total maximum amount of
Convertible Securities issuable upon exercise of such Options, shall be deemed
to be outstanding and to have been issued and sold by the Company at the time of
the grant or sale of such Options at a price per share equal to the quotient
obtained by dividing (A) the sum (which sum shall constitute the applicable
consideration received for purposes of Section 4(a)) of (1) the total amount, if
any, received or receivable by Company as consideration for the grant or sale of
all such Options, plus (2) the minimum aggregate amount of additional
consideration payable to Company upon the exercise of all such Options, plus
(3), in the case of such Options which relate to Convertible Securities, the
minimum aggregate amount of additional consideration, if any, payable to Company
upon the issuance or sale of all such Convertible Securities and the conversion,
exercise or exchange of all such Convertible Securities, by (B) the total
maximum number of shares of Common Stock issuable upon the exercise of all such
Options or upon the conversion, exercise or exchange of all Convertible
Securities issuable upon the exercise of all such Options. Except as
contemplated in Section 4(b)(iii), no further adjustment of the number of
Warrant Shares shall be made upon the actual issuance of such shares of Common
Stock or of such Convertible Securities upon the exercise of such Options or
upon the actual issuance of such shares of Common Stock upon conversion,
exercise or exchange of such Convertible Securities issuable upon exercise of
such Options. 

 

 11

 

  

(ii) Issuance of Convertible Securities. If the Company in any manner issues or
sells any Convertible Securities and the price per share (determined in
accordance with Section 4(b)(v)) for which Common Stock is issuable upon the
conversion, exercise or exchange of such Convertible Securities is less than the
Applicable Price, then the total maximum number of shares of Common Stock
issuable upon conversion, exercise or exchange of such Convertible Securities
shall be deemed to be outstanding and to have been issued and sold by the
Company at the time of the issuance or sale of such Convertible Securities at a
price per share equal to the quotient obtained by dividing (A) the sum (which
sum shall constitute the applicable consideration received for purposes of
Section 4(a)) of (1) the total amount, if any, received or receivable by Company
as consideration for the grant or sale of such Convertible Securities, plus (2)
the minimum aggregate amount of additional consideration payable to Company upon
the conversion, exercise or exchange of all such Convertible Securities, by (B)
the total maximum number of shares of Common Stock issuable upon the conversion,
exercise or exchange of all such Convertible Securities. Except as contemplated
in Section 4(b)(iii), no further adjustment of the number of Warrant Shares
shall be made upon the actual issuance of such shares of Common Stock upon
conversion, exercise or exchange of such Convertible Securities, and if any such
issuance or sale of such Convertible Securities is made upon exercise of any
Options for which adjustment of this Warrant has been or is to be made pursuant
to other provisions of this Section 4(a), no further adjustment of the number of
Warrant Shares shall be made by reason of such issuance or sale.

 

(iii) Change in Terms of Options or Convertible Securities. If the total amount
of consideration provided for in any Options or Convertible Securities, the
additional consideration, if any, payable upon the exercise of any Options or
upon issue, conversion, exercise or exchange of any Convertible Securities, the
rate at which any Convertible Securities are convertible into or exercisable or
exchangeable for shares of Common Stock, or the maximum number of shares of
Common Stock issuable in connection with any Options or Convertible Securities
increases or decreases at any time, then the number of Warrant Shares issuable
upon exercise of this Warrant at the time of such increase or decrease shall be
adjusted to the number of Warrant Shares, which would have been in effect at
such time had such Options or Convertible Securities still outstanding provided
for such increased or decreased consideration, additional consideration,
increased or decreased conversion rate or maximum number of shares, as the case
may be, at the time initially granted, issued or sold. For purposes of this
Section 4(b)(iii), if the terms of any Option or Convertible Security that was
outstanding as of the Original Issue Date are increased or decreased in the
manner described in the immediately preceding sentence, then such Option or
Convertible Security and the shares of Common Stock deemed issuable upon
exercise, conversion or exchange thereof shall be deemed to have been issued as
of the date of such increase or decrease. No adjustment pursuant to this Section
4(b)(iii) shall be made if such adjustment would result in a decrease of the
number of Warrant Shares.

 

(iv) Treatment of Expired or Terminated Options or Convertible Securities. Upon
expiration or termination of all or portion of any unexercised Option or all or
any portion of any unconverted or unexchanged Convertible Security, for which
any adjustment was made pursuant to this Section 4 (including, without
limitation, upon redemption or purchase for consideration of all or any portion
of such Option or Convertible Security by Company), the number of Warrant Shares
then issuable upon exercise of this Warrant shall forthwith be changed pursuant
to the provisions of this this Section 4 to that number of Warrant Shares which
would have been in effect at the time of such expiration or termination had such
unexercised Option, or any portion thereof, or such unconverted or unexchanged
Convertible Security, or any portion thereof, to the extent outstanding
immediately prior to such expiration or termination, never been issued; provided
that this Section 4(b)(iv) will not apply to the extent the Warrant is
exercised.

  

 12

 

  

(v) Calculation of Consideration Received. If any shares of Common Stock,
Options or Convertible Securities are issued or sold or deemed to have been
issued or sold for no specially allocated consideration in connection with the
issue or sale of other securities of the Company, together comprising one
integrated transaction, the amount of consideration therefor shall be deemed to
be the fair value of such portion of the aggregate consideration received by the
Company in such transaction as is attributable to such shares of Common Stock,
Options or Convertible Securities, as the case may be. If any shares of Common
Stock, Options or Convertible Securities are issued or sold or deemed to have
been issued or sold for cash, the consideration therefor will be deemed to be
the net amount received by the Company therefor. If any shares of Common Stock,
Options or Convertible Securities are issued or sold for a consideration other
than cash, the amount of such consideration received by the Company will be the
fair value of such consideration, except where such consideration consists of
publicly traded securities, in which case the amount of consideration received
by the Company will be the Closing Sale Price of such publicly traded securities
on the date of receipt. If any shares of Common Stock, Options or Convertible
Securities are issued to the owners of the non-surviving entity in connection
with any merger in which the Company is the surviving entity, the amount of
consideration therefor will be deemed to be the fair value of such portion of
the net assets and business of the non-surviving entity as is attributable to
such shares of Common Stock, Options or Convertible Securities, as the case may
be. The fair value of any consideration other than cash or publicly traded
securities will be determined jointly by the Company and the Holder. If such
parties are unable to reach agreement within ten (10) days after the occurrence
of an event requiring valuation (the "Valuation Event"), the fair value of such
consideration will be determined within five (5) Business Days after the tenth
(10th) day following the Valuation Event by an independent, reputable appraiser
jointly selected by the Company and the Holder. The determination of such
appraiser shall be final and binding upon all parties absent manifest error and
the fees and expenses of such appraiser shall be borne by the Company.

 

(vi) Record Date. If the Company shall take a record of the holders of its
Common Stock for the purpose of entitling them (A) to receive a dividend or
other distribution payable in Common Stock, Options or Convertible Securities or
(B) to subscribe for or purchase Common Stock, Options or Convertible
Securities, then such record date shall be deemed to be the date of the issue or
sale of the shares of Common Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other distribution or the
date of the granting of such right of subscription or purchase, as the case may
be.

 

(c) Voluntary Adjustment By Company. The Company may at any time during the term
of this Warrant, with the prior written consent of the Holder, reduce the then
current Exercise Price to any amount and for any period of time deemed
appropriate by the Board of the Company

 

 13

 

  

(d) Adjustments Upon Subdivision or Combination of Shares of Common Stock. If
the Company at any time on or after the Original Issue Date subdivides (by any
stock split, stock dividend, recapitalization or otherwise) one or more classes
of its outstanding shares of Common Stock into a greater number of shares, the
Exercise Price in effect immediately prior to such subdivision will be
proportionately reduced and the number of Warrant Shares will be proportionately
increased. If the Company at any time on or after the Original Issue Date
combines (by combination, reverse stock split or otherwise) one or more classes
of its outstanding shares of Common Stock into a smaller number of shares, the
Exercise Price in effect immediately prior to such combination will be
proportionately increased and the number of Warrant Shares will be
proportionately decreased. Any adjustment under this Section 4(d) shall become
effective at the close of business on the date the subdivision or combination
becomes effective.

 

(e) Certain Events. In the event that the Company (or any of the Company's
Subsidiaries) shall take any action to which the provisions hereof are not
strictly applicable, or, if applicable, would not operate to protect the Holder
from dilution or if any event occurs of the type contemplated by the provisions
of this Section 4 but not expressly provided for by such provisions (including,
without limitation, the granting of stock appreciation rights, phantom stock
rights or other rights with equity features), then the Company's Board shall in
good faith determine and implement an appropriate adjustment in the Exercise
Price and the number of Warrant Shares (if applicable) so as to protect the
rights of the Holder; provided that no such adjustment pursuant to this Section
4(e) will increase the Exercise Price or decrease the number of Warrant Shares
as otherwise determined pursuant to this Section 4; providedfurther that if the
Holder does not accept such adjustments as appropriately protecting its
interests hereunder against such dilution, then the Company's Board and the
Holder shall agree, in good faith, upon an independent investment bank of
nationally recognized standing to make such appropriate adjustments, whose
determination shall be final and binding and whose fees and expenses shall be
borne by the Company.

 

(f) Additional Adjustments to Maintain Minimum Ownership Percentage of Warrant
Coverage. The Company hereby agrees that the aggregate number of Warrant Shares
purchasable upon exercise of this Warrant, from time to time, shall not be less
than an amount equal to twelve hundredths of one percent (0.12%) of the
aggregate number of then outstanding shares of capital stock of the Company (as
determined on a fully diluted basis) for every 100,000 Warrant Shares
purchasable upon exercise with the result that if this Warrant is exercised in
full for all the Warrant Shares possibly issuable under this Warrant, the
aggregate number of Warrant Shares purchasable upon exercise of this Warrant
will not be less than an amount equal to six percent (6%) of the aggregate
number of then outstanding shares of capital stock of the Company (as determined
on a fully diluted basis) (the "Minimum Ownership Percentage"). If on any
Exercise Date the aggregate number of Warrant Shares purchasable upon exercise
of this Warrant would yield less than the Minimum Ownership Percentage for the
number of Warrant Shares purchased, then the number of Warrant Shares issuable
upon such exercise and the remaining number of Warrant Shares purchasable upon
an exercise of this Warrant, including without limitation the Warrant Shares
issuable under Sections 3(a)(ii) and (iii), whether or not the conditions for
the exercise of such portions of this Warrant have been met, shall be increased
to preserve the Minimum Ownership Percentage and the Exercise Price in effect
immediately prior to such increase shall be proportionately reduced so as to
protect the economic value of this Warrant as a whole (an "Ownership Percentage
Adjustment"). On or within three (3) Trading Days of any Exercise Date, the
Company shall notify the Holder of any Ownership Percentage Adjustment, with
such notice to serve as an addendum to this Warrant. Following the Ownership
Percentage Adjustment, if any, occurring with the first Exercise Date after June
30, 2016, there shall be no further adjustments made pursuant to this Section
4(f). However, for the avoidance of doubt, the remaining provisions of this
Warrant that impact adjustments shall remain in full force and effect.

  

 14

 

 

5. Other Distributions. If the Company shall declare or make any dividend or
other distribution of its assets (or rights to acquire its assets) to holders of
shares of Common Stock, by way of return of capital or otherwise (including,
without limitation, any distribution of cash, stock or other securities,
property, options, evidence of indebtedness or any other assets by way of a
dividend, spin off, reclassification, corporate rearrangement, scheme of
arrangement or other similar transaction) (a "Distribution"), at any time after
the issuance of this Warrant, then, in each such case, the Holder shall be
entitled to participate in such Distribution to the same extent that the Holder
would have participated therein if the Holder had held the number of shares of
Common Stock acquirable upon complete exercise of this Warrant immediately
before the date of which a record is taken for such Distribution, or, if no such
record is taken, the date as of which the record holders of shares of Common
Stock are to be determined for the participation in such Distribution.

 

6. Fundamental Transactions; Black Scholes Redemption Right.

 

(a) Fundamental Transactions. The Company shall not enter into or be party to a
Fundamental Transaction unless (i) the Successor Entity assumes in writing all
of the obligations of the Company under this Warrant and the other Transaction
Documents in accordance with the provisions of this Section 6(a) pursuant to
written agreements in form and substance satisfactory to the Holder and approved
by the Holder prior to such Fundamental Transaction, including agreements, if so
requested by the Holder, to deliver to the Holder in exchange for this Warrant a
security of the Successor Entity evidenced by a written instrument substantially
similar in form and substance to this Warrant, including, without limitation,
which is exercisable for a corresponding number of shares of capital stock of
the Successor Entity (the "Successor Capital Stock") equivalent to the shares of
Common Stock acquirable and receivable upon exercise of this Warrant prior to
such Fundamental Transaction, and satisfactory to the Holder, and with an
exercise price which applies the Exercise Price hereunder to such shares of
Successor Capital Stock (but taking into account the relative value of the
shares of Common Stock pursuant to such Fundamental Transaction and the value of
such shares of Successor Capital Stock, such adjustments to the number of shares
of Successor Capital Stock and such exercise price being for the purpose of
protecting the economic value of this Warrant immediately prior to the
occurrence or consummation of such Fundamental Transaction), and (ii) the
Successor Entity (including its Parent Entity) is a publicly traded corporation
whose common stock is quoted on or listed for trading on an Eligible Market.
Upon the consummation of each Fundamental Transaction, the Successor Entity
shall succeed to, and be substituted for (so that from and after the date of the
applicable Fundamental Transaction, the provisions of this Warrant and the other
Transaction Documents referring to the "Company" shall refer instead to the
Successor Entity), and may exercise every right and power of the Company and
shall assume all of the obligations of the Company under this Warrant and the
other Transaction Documents with the same effect as if such Successor Entity had
been named as the Company herein. Upon consummation of each Fundamental
Transaction, the Successor Entity shall deliver to the Holder confirmation that
there shall be issued upon exercise of this Warrant at any time after the
consummation of the Fundamental Transaction, as elected by the Holder solely at
its option, shares of Common Stock, Successor Capital Stock or, in lieu of the
shares of Common Stock or Successor Capital Stock (or other securities, cash,
assets or other property purchasable upon the exercise of this Warrant prior to
such Fundamental Transaction), such shares of stock, securities, cash, assets or
any other property whatsoever (including warrants or other purchase or
subscription rights), which for purposes of clarification may continue to be
shares of Common Stock, if any, that the Holder would have been entitled to
receive upon the happening of such Fundamental Transaction or the record,
eligibility or other determination date for the event resulting in such
Fundamental Transaction, had this Warrant been exercised immediately prior to
such Fundamental Transaction or the record, eligibility or other determination
date for the event resulting in such Fundamental Transaction, as adjusted in
accordance with the provisions of this Warrant. In addition to and not in
substitution for any other rights hereunder, prior to the occurrence or
consummation of any Fundamental Transaction pursuant to which holders of shares
of Common Stock are entitled to receive securities, cash, assets or other
property with respect to or in exchange for shares of Common Stock (a "Corporate
Event"), the Company shall make appropriate provision to insure that, and any
applicable Successor Entity shall ensure that, and it shall be a required
condition to the occurrence or consummation of such Corporate Event that, the
Holder will thereafter have the right to receive upon exercise of this Warrant
at any time after the occurrence or consummation of the Corporate Event, shares
of Common Stock or Successor Capital Stock or, if so elected by the Holder, in
lieu of the shares of Common Stock (or other securities, cash, assets or other
property) purchasable upon the exercise of this Warrant prior to such Corporate
Event (but not in lieu of such items still issuable under Sections 5 and 6(a),
which shall continue to be receivable on the Common Stock or on the such shares
of stock, securities, cash, assets or any other property otherwise receivable
with respect to or in exchange for shares of Common Stock), such shares of
stock, securities, cash, assets or any other property whatsoever (including
warrants or other purchase or subscription rights and any shares of Common
Stock) which the Holder would have been entitled to receive upon the occurrence
or consummation of such Corporate Event or the record, eligibility or other
determination date for the event resulting in such Corporate Event, had this
Warrant been exercised immediately prior to such Corporate Event or the record,
eligibility or other determination date for the event resulting in such
Corporate Event. Provision made pursuant to the preceding sentence shall be in a
form and substance reasonably satisfactory to the Holder. The provisions of this
Section 6(a) shall apply similarly and equally to successive Fundamental
Transactions and Corporate Events.

  

 15

 

 

(b) Black Scholes Redemption Right. Notwithstanding the provisions of Section
6(a) above, in the event of the consummation of a Fundamental Transaction that
is an all-cash transaction, a "Rule 13e-3 transaction" as defined in Rule 13e-3
under the 1934 Act or a Fundamental Transaction involving a Successor Entity not
traded on an Eligible Market, then at the request of the Holder delivered at any
time commencing on the earliest to occur of (i) the public disclosure of the
Fundamental Transaction or (ii) the consummation of the Fundamental Transaction,
through the date that is ninety (90) days after the public disclosure of the
consummation of such Fundamental Transaction by the Company pursuant to a
Current Report on Form 8-K filed with the SEC, the Company or the Successor
Entity, as the case may be, shall purchase this Warrant from the Holder on the
later of (x) the date of consummation of the Fundamental Transaction and (y) the
fifth Trading Day following the date of such request, in each case by paying to
the Holder cash in an amount equal to the Black Scholes Value. 

 

7. 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,
whereupon the Company shall execute and deliver a new Warrant or Warrants in the
name of the assignee or assignees and in the denominations as the Holder may
request, and shall issue to the Holder a new Warrant evidencing the portion of
this Warrant, if any, not so assigned and this Warrant shall promptly be
cancelled.

 

8. 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. Notwithstanding this Section 8, the Company shall
provide the Holder with copies of the same notices and other information given
to the stockholders of the Company generally, contemporaneously with the giving
thereof to the stockholders. 

 

 16

 

  

9. 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 such Warrant for cancellation to the Company, the Company at its
own expense shall 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 so 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 such division or combination, this Warrant may be
divided or, following any such 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 such 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 such
notice. Such 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.

 

10. No Impairment. The Company hereby covenants and agrees that the Company will
not, by amendment of its Articles of Incorporation or Bylaws, or through any
reorganization, transfer of assets, consolidation, merger, scheme of
arrangement, dissolution, issue or sale of securities, or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the terms
of this Warrant, and will at all times in good faith carry out all of the
provisions of this Warrant and take all action as may be required to protect the
rights of the Holder. Without limiting the generality of the foregoing, the
Company (a) shall not increase the par value of any shares of Common Stock
receivable upon the exercise of this Warrant above the Exercise Price then in
effect, (b) shall take all such actions as may be necessary or appropriate in
order that the Company may validly and legally issue fully paid and
nonassessable shares of Common Stock upon the exercise of this Warrant, and (c)
shall, so long as any of the Warrants are outstanding, take all action necessary
to reserve and keep available out of its authorized and unissued shares of
Common Stock, solely for the purpose of effecting the exercise of the Warrants,
100% of the number of shares of Common Stock as shall from time to time be
necessary to effect the exercise of the Warrants then outstanding.

 

 17

 

 

11. Notices.

 

(a)  Notification of Certain Events. The Company shall provide the Holder with
prompt written notice of all actions taken pursuant to this Warrant, including
in reasonable detail a description of such action and the reason therefor.
Without limiting the generality of the foregoing, the Company will give written
notice to the Holder (i) immediately upon each adjustment of the Exercise Price
and the number of Warrant Shares, setting forth in reasonable detail, and
certifying, the calculation of such adjustment(s) and (ii) at least fifteen (15)
days prior to the date on which the Company closes its books or takes a record
(A) with respect to any dividend or distribution upon the shares of Common
Stock, (B) with respect to any grants, issuances or sales of any Options,
Convertible Securities or rights to purchase stock, warrants, securities or
other property to holders of shares of Common Stock or (C) for determining
rights to vote with respect to any Fundamental Transaction, dissolution or
liquidation, provided in each case that such information shall be made known to
the public prior to or in conjunction with such notice being provided to the
Holder and (iii) at least ten (10) Trading Days prior to the consummation of any
Fundamental Transaction. It is expressly understood and agreed that the time of
execution specified by the Holder in each Exercise Notice shall be definitive
and may not be disputed or challenged by the Company.

 

(b) Disclosure. Upon receipt or delivery by the Company of any notice in
accordance with the terms of this Warrant, unless the Company has in good faith
determined that the matters relating to such notice do not constitute material,
nonpublic information relating to the Company or its Subsidiaries, the Company
shall within one (1) Business Day after any such receipt or delivery publicly
disclose such material, nonpublic information on a Current Report on Form 8-K or
otherwise. In the event that the Company believes that a notice contains
material, nonpublic information relating to the Company or its Subsidiaries, the
Company so shall indicate to such Holder contemporaneously with delivery of such
notice, and in the absence of any such indication, the Holder shall be allowed
to presume that all matters relating to such notice do not constitute material,
nonpublic information relating to the Company or its Subsidiaries.

 

(c) Form of Notice. Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Warrant must be in
writing and will be deemed to have been delivered: (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile (provided,
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) one Business Day after deposit with
an overnight courier service, in each case properly addressed to the party to
receive the same. The addresses and facsimile numbers for such communications
shall be:

 

If to the Company :

 

Midwest Energy Emissions Corp.

Attn: Richard H. Gross, CFO

670 D Enterprise Drive

Lewis Center, OH 43035

Phone: (614) 505-6115 x104

Fax: (614) 505-7377

E-mail: rgross@midwestemissions.com

 

With a copy (for informational purposes only):

 

Kaye Cooper Kay & Rosenberg, LLP

Attn: David M. Kaye

30A Vreeland Road, Suite 230

Florham Park, New Jersey 07932

Phone: (973) 443-0670

Fax: (973) 443-0609

E-mail: dmkaye@kcfkr.com

 

 18

 

 

If to the Holder:

 

AC Midwest Energy LLC

c/o Alterna Capital Partners LLC

Attn: Samir Patel

15 River Road, Suite 320

Wilton, Connecticut 06897

Phone: (203) 210-7672

Fax: (203) 563-9210

E-Mail: samir.patel@alternacapital.com

 

With copies to (for informational purposes only):

 

Sugar Felsenthal Grais & Hammer LLP

Attn: Jonathan P. Friedland

30 North LaSalle Street-Suite 3000

Chicago, IL 60602

Phone: (312) 704-2770

Fax: (312) 372-7951

E-Mail: jfriedland@sugarfgh.com

 

and

 

Qashu & Schoenthaler LLP

Attn: Vanessa J. Schoenthaler

495 Madison Avenue, 12th Floor

New York, New York 10017

Phone: (646) 274-1450

Fax: (866) 313-3040

E-Mail: vschoenthaler@qsllp.com

 

or to such other address and/or facsimile number and/or email and/or to the
attention of such other Person as the recipient party has specified by written
notice given to each other party five days prior to the effectiveness of such
change. Written confirmation of receipt (A) given by the recipient of such
notice, consent, waiver or other communication, (B) mechanically or
electronically generated by the sender's facsimile machine containing the time,
date, recipient facsimile number and an image of the first page of such
transmission or (C) provided by an overnight courier service shall be rebuttable
evidence of personal service, receipt by facsimile, e-mail or receipt from an
overnight courier service in accordance with clauses (i), (ii) or (iii) above,
respectively.

 

 19

 

  

12. Dispute Resolution. In the case of a dispute as to the determination of the
Exercise Price or the arithmetic calculation of the Warrant Shares, the Company
shall submit the disputed determinations or arithmetic calculations via
facsimile within two (2) Business Days of receipt of the Exercise Notice giving
rise to such dispute, as the case may be, to the Holder. If the Holder and the
Company are unable to agree upon such determination or calculation of the
Exercise Price or the Warrant Shares within three (3) Business Days of such
disputed determination or arithmetic calculation being submitted to the Holder,
then the Company shall, within two (2) Business Days submit via facsimile (a)
the disputed determination of the Exercise Price to an independent, reputable
investment bank selected by the Company and approved by the Holder or (b) the
disputed arithmetic calculation of the Warrant Shares to the Company's
independent, outside accountant. The Company shall cause at its expense the
investment bank or the accountant, as the case may be, to perform the
determinations or calculations and notify the Company and the Holder of the
results no later than ten (10) Business Days from the time it receives the
disputed determinations or calculations. Such investment bank's or accountant's
determination or calculation, as the case may be, shall be binding upon all
parties absent demonstrable error.

 

13. Cumulative Remedies. Except to the extent expressly provided in Section 9 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.

  

14. 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 such party of any such obligations,
the other party hereto shall, in addition to any and all other rights and
remedies that may be available to it in respect of such 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.

 

15. Entire Agreement. This Warrant, together with the Financing Agreement and
the other Transaction Documents, 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 Financing
Agreement, or any of the other Transaction Documents, the statements in the body
of this Warrant shall control.

 

16. Successor and Assigns. 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.

 

17. 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 and 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.

 

 20

 

  

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

 

19. 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.

 

20. 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.

 

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

 

22. 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 New York in each case located in the city of New York and County
of New York, 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.

 

23. 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.

 

24. Counterparts/Electronic Signatures. 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.

 

25. 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]

 

 21

 

 

IN WITNESS WHEREOF, the Company has caused this Warrant to Purchase Common Stock
to be duly executed on the Original Issue Date.

 

 

MIDWEST ENERGY EMISSIONS CORP.

 

    By:/s/ Richard H. Gross

 

 

Name:  

Richard H. Gross

 

 

Title:  

Chief Financial Officer

 

 

Accepted and Agreed:

 

AC MIDWEST ENERGY LLC

 

   By:/s/ Samir Patel

 

Name:  

Samir Patel

 

Title:  

Manager

 

   

 22

 

 

EXHIBIT A

 

EXERCISE NOTICE
TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS
WARRANT TO PURCHASE COMMON STOCK
 
MIDWEST ENERGY EMISSIONS CORP

 

The undersigned holder, pursuant to the provisions set forth in the attached
Warrant (No.____), hereby exercised the right to purchase ________ shares of the
Common Stock covered by such Warrant. Capitalized terms used but not otherwise
defined herein shall have the respective meanings ascribed to them in the
Warrant.

 

1. Form of Exercise. The Holder intends that payment of the Exercise Price shall
be made as:

 

____________ a "Cash Exercise" with respect to ____________ Warrant Shares;
and/or

 

____________ a "Cashless Exercise" with respect to ____________ Warrant Shares.

 

2. Payment of Exercise Price. In the event that the holder has elected a Cash
Exercise with respect to some or all of the Warrant Shares to be issued pursuant
hereto, the holder shall pay the Aggregate Exercise Price in the sum of
$____________ to the Company in accordance with the terms of the Warrant.

 

3. Delivery of Warrant Shares. The Company shall deliver to Holder, or its
designee or agent as specified below, __________ Warrant Shares in accordance
with the terms of the Warrant. Delivery shall be made to Holder, or for its
benefit, as follows:

 

__________ Check here if requesting delivery as a certificate to the following
name and to the following address:

 

Issue to:

 

 

 

 

 

 

__________ Check here if requesting delivery by Deposit/Withdrawal at Custodian
as follows:

 

DTC Participant:

 

DTC Number:  

 

Account Number:

 

 

 

Date:  _______________ __, _____________

 

____________________________________
Name of Registered Holder

 

By:     _________________________________
Name:
Title:

 

 23

 

 

ACKNOWLEDGMENT

 

The Company hereby acknowledges this Exercise Notice and hereby directs Transfer
Online to issue the above indicated number of shares of Common Stock in
accordance with the Transfer Agent Instructions dated _________________________
from the Company and acknowledged and agreed to by Transfer Online.

 

 

 

MIDWEST ENERGY EMISSIONS CORP.

 

    By:

 

 

Name:  

 

 

Title:  

 

 

 

 

 

24

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