exv10w3



 





Exhibit 10.3




EXECUTION COPY



THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN
CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISPOSITION MAY BE EFFECTED
WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO UNLESS SUCH SALE OR DISPOSITION IS
EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED.




Warrant No. 1




Date of Issuance: December 27, 2006




MBI FINANCIAL INC.




Warrant to Purchase Shares of Common Stock



MBI FINANCIAL INC, a Nevada corporation (the “Company”), for value received, hereby
certifies that Old Master Cimabue Holdings, Limited, or its registered assigns (the “Registered
Holder”), is entitled, subject to the terms set forth below, to purchase from the Company at
any time on or before December 27, 2013 (the “Expiration Date”) up to 1,720,595 shares of
common stock of the Company (the “Shares”), subject to adjustment as provided herein (the
“Initial Warrant Amount”), at a purchase price of $0.27 per Share. For purposes hereof,
the term “registered assigns” shall mean, with respect to Old Master Cimabue Holdings Limited,
those entities that are affiliates of the Registered Holder (including without limitation, any
investment fund managed by the Registered Holder’s investment manager, and any investor in any such
investment fund). The Shares, and the purchase price per Share, each as adjusted from time to time
pursuant to the provisions of this Warrant, are hereinafter referred to as the “Warrant
Shares” and the “Exercise Price,” respectively.




This Warrant is issued to the Registered Holder pursuant to a credit agreement (the “Credit
Agreement”) dated as of December 27, 2006 between the Company and the Registered Holder. All
capitalized terms used but not defined in this Warrant shall have the respective meanings given to
them in the Credit Agreement.




     1. Exercise.



          (a) This Warrant may be exercised by the Registered Holder, at any time on or prior to the
Expiration Date, in whole or in part, by surrendering this Warrant, with the purchase form appended
hereto as Exhibit A duly executed by such Registered Holder or by such Registered Holder’s
duly authorized attorney, at the principal office of the Company, or at such other office or agency
as the Company may designate, accompanied by payment in full by cash, check or wire transfer of the
Exercise Price payable in respect of the number of Warrant Shares purchased upon such exercise.




          (b) Each exercise of this Warrant shall be deemed to have been effected immediately prior to
the close of business on the day on which this Warrant shall have been surrendered to the Company
as provided in Section 1(a) above. At such time, the person or persons in whose name or names any
certificates for Warrant Shares shall be issuable upon such




 









 







exercise as provided in Section 1(d) below shall be deemed to have become the holder or
holders of record of the Warrant Shares represented by such certificates.




          (c) In lieu of exercising this Warrant in the manner provided above in Section 1(a), the
Registered Holder may elect to receive Shares equal to the value of this Warrant (or the portion
thereof being canceled) by surrender of this Warrant at the principal office of the Company
together with notice of such election in which event the Company shall issue to such Registered
Holder a number of Warrant Shares computed using the following formula:




X =
Y (A - B)

      A




	 	 	 	 	 	 	 
	Where

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

	 	Y
	 	=
	 	The number of Warrant Shares purchasable under this Warrant
or if only a portion of this Warrant is being exercised, the portion of this
Warrant being cancelled (at the date of such calculation).
	 
	 	 	 	 	 	 
	 

	 	A
	 	=
	 	The fair market value of one Warrant Share (at the date of
such calculation).
	 
	 	 	 	 	 	 
	 

	 	B
	 	=
	 	The Exercise Price (as adjusted to the date of such
calculation).






          For purposes of this Section 1(c), the fair market value of Warrant Shares on the date of
calculation shall mean with respect to each Warrant Share, the average of the last traded price of
the Shares on the ten (10) business days prior to exercise, or if no such price is available, the
fair market value of Warrant Shares shall be at the highest price per Share which the Company could
obtain on the date of calculation from a willing buyer (not a current employee, manager or director
of the Company) for Shares sold by the Company, from authorized but unissued Shares, as determined
in good faith by the Board of Directors (or other body exercising similar functions), unless the
Company is at such time subject to a merger, acquisition or sale of all or substantially all of the
assets of the Company, in which case the fair market value of Warrant Shares shall not be less than
the value determined in connection with such merger, acquisition or sale.




          (d) As soon as practicable after the exercise of this Warrant in full or in part, and in any
event within ten (10) days thereafter, the Company at its expense will cause to be issued in the
name of, and delivered to, the Registered Holder, or as such Holder (upon payment by such Holder of
any applicable transfer taxes) may direct:




               (i) a certificate or certificates for the number of Warrant Shares to which such Registered
Holder shall be entitled or evidence that such number of Warrant Shares have been credited to a
brokerage account in the name of the Registered Holder, and



               (ii) in case such exercise is in part only, a new warrant or warrants (dated the date hereof)
of like tenor, calling in the aggregate on the face or faces thereof for the number of Warrant
Shares equal (without giving effect to any adjustment therein) to the number of such Shares called
for on the face of this Warrant minus the number of such Shares purchased by the Registered Holder
upon such exercise as provided in Section 1(a) above.



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     2. Adjustments.



          (a) If outstanding Shares shall be subdivided into a greater number of Shares or a dividend in
Shares shall be paid in respect of outstanding Shares, the Exercise Price in effect immediately
prior to such subdivision or at the record date of such dividend shall simultaneously with the
effectiveness of such subdivision or immediately after the record date of such dividend be
proportionately reduced. If outstanding Shares shall be combined into a smaller number of Shares,
the Exercise Price in effect immediately prior to such combination shall, simultaneously with the
effectiveness of such combination, be proportionately increased. When any adjustment is required
to be made in the Exercise Price, the number of Warrant Shares purchasable upon the exercise of
this Warrant shall be changed to the number determined by dividing (i) an amount equal to the
number of Shares issuable upon the exercise of this Warrant immediately prior to such adjustment,
multiplied by the Exercise Price in effect immediately prior to such adjustment, by (ii) the
Exercise Price in effect immediately after such adjustment.




          (b) In case of any reclassification or change of the outstanding securities of the Company or
of any reorganization of the Company or any similar company reorganization on or after the date
hereof, then and in each such case the holder of this Warrant, upon the exercise hereof at any time
after the consummation of such reclassification, change or reorganization, shall be entitled to
receive, in lieu of the Shares or other securities and property receivable upon the exercise hereof
prior to such consummation, the stock or other securities or property to which such holder would
have been entitled upon such consummation if such holder had exercised this Warrant immediately
prior thereto, all subject to further adjustment as provided in this Section 2; and in each such
case, the terms of this Section 2 shall be applicable to the shares of stock or other securities
properly receivable upon the exercise of this Warrant after such consummation.




          (c) If at any time while this Warrant, or any portion hereof, is outstanding and unexpired
there shall be (i) a reorganization (other than a combination, reclassification, exchange or
subdivision of shares otherwise provided for herein), (ii) a merger or consolidation of the Company
with or into another company or other entity in which the Company is not the surviving entity, or a
reverse triangular merger in which the Company is the surviving entity but the Shares outstanding
immediately prior to the merger are converted by virtue of the merger into other property, whether
in the form of securities, cash, or otherwise, or (iii) a sale or transfer of the Company’s
properties and assets as, or substantially as, an entirety to any other person or entity, then, as
a part of such reorganization, merger, consolidation, sale or transfer, lawful provision shall be
made so that the holder of this Warrant shall thereafter be entitled to receive upon exercise of
this Warrant, during the period specified herein and upon payment of the Exercise Price then in
effect, the number of shares of stock or other securities or property of the successor company or
entity resulting from such reorganization, merger, consolidation, sale or transfer that a holder of
Shares deliverable upon exercise of this Warrant would have been entitled to receive in such
reorganization, consolidation, merger, sale or transfer if this Warrant had been exercised
immediately before such reorganization, merger, consolidation, sale or transfer, all subject to
further adjustment as provided in this Section 2. The foregoing provisions of this Section 2(c)
shall similarly apply to successive reorganizations, consolidations, mergers, sales and transfers
and to the stock or securities of any other company or entity that are at the time receivable upon
the exercise of this Warrant. If the per-Share consideration payable to the Registered Holder for
Shares in connection with any such transaction is in a form other than cash





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or marketable securities, then the value of such consideration shall be determined in good
faith by the Company’s Board of Directors (or other body exercising similar functions), as
applicable. In all events, appropriate adjustment (as determined in good faith by the Company’s
Board of Directors (or other body exercising similar functions), as applicable) shall be made in
the application of the provisions of this Warrant with respect to the rights and interests of the
Registered Holder after the transaction, to the end that the provisions of this Warrant shall be
applicable after that event, as near as reasonably may be, in relation to any shares or other
property deliverable after that event upon exercise of this Warrant.




          (d) If the Company (A) issues or sells any Shares or convertible securities, warrants, options
or other rights to subscribe for or to purchase or exchange for, Shares (“Convertible Securities”),
or (B) directly or indirectly effectively reduces the conversion, exercise or exchange price for
any Convertible Securities which are then outstanding, at or to an effective Per Share Selling
Price (as defined below) which is less than the then current Exercise Price, then in each such case
the Exercise Price in effect immediately prior to such issue or sale or record date, as applicable,
shall be automatically reduced effective concurrently with such issue or sale to an amount
determined by multiplying the Exercise Price then in effect by a fraction, (x) the numerator of
which shall be the sum of (1) the number of Shares outstanding immediately prior to such issue or
sale, plus (2) the number of Shares which the aggregate consideration received by the Company for
such additional Shares or Convertible Securities would purchase at such Exercise Price and (y) the
denominator of which shall be the number of Shares outstanding immediately after such issue or
sale; provided, however that no such fraction shall in any event be greater than one (1). For the
purposes of the foregoing adjustments, in the case of the issuance of any Convertible Securities,
the maximum number of Shares issuable upon exercise, exchange or conversion of such Convertible
Securities shall be deemed to be outstanding, provided that no further adjustment shall be made
upon the actual issuance of Shares upon exercise, exchange or conversion of such Convertible
Securities, and provided further that to the extent such Convertible Securities expire or terminate
unconverted or unexercised, then at such time the Exercise Price shall be readjusted as if such
portion of such Convertible Securities had not been issued. “Per Share Selling Price” shall
include the amount actually paid by third parties for each Share in a sale or issuance by the
Company. In the event a fee is paid by the Company in connection with such transaction directly or
indirectly to such third party or its affiliates, any such fee shall be deducted from the selling
price pro rata to all Shares sold in the transaction to arrive at the Per Share Selling Price. A
sale of Shares shall include the sale or issuance of Convertible Securities, and in such
circumstances the Per Share Selling Price of the Shares covered thereby shall also include the
exercise, exchange or conversion price thereof (in addition to the consideration received by the
Company upon such sale or issuance less the fee amount as provided above). In case of any such
security issued in a transaction in which the purchase price or the conversion, exchange or
exercise price is directly or indirectly subject to adjustment or reset based on a future date or
specified or contingent events directly or indirectly related to the business of the Company or
otherwise (but excluding standard stock split anti-dilution provisions), the Per Share Selling
Price shall be deemed to be the lowest conversion, exchange, exercise or reset price at which such
securities are converted, exchanged, exercised or rest or might have been converted, exchanged,
exercised or reset, or the lowest adjustment, as the case may be, over the life of such securities.
If Shares are issued for a consideration other than cash, the Per Share Selling Price shall be the
fair value of such consideration as determined in good faith by independent certified public
accountants mutually acceptable to the Company and the





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Registered Holder. In the event the Company directly or indirectly effectively reduces the
conversion, exercise or exchange price for any Convertible Securities which are then outstanding,
then the Per Share Selling Price shall equal such effectively reduced conversion, exercise or
exchange price.




          (d) When any adjustment or readjustment is required to be made in the Exercise Price or in the
kind and amount of stock or other securities or property into which this Warrant is exercisable,
the Company shall promptly mail to the Registered Holder a certificate setting forth the Exercise
Price after such adjustment and setting forth a brief statement of the facts requiring such
adjustment. Such certificate shall also set forth the kind and amount of stock or other securities
or property into which this Warrant shall be exercisable following the occurrence of any of the
events specified in Section 2(a), (b), (c) or (d) above.




     3. Default Warrant Share Increase.



          (a) If a Default (as defined in the Credit Agreement) occurs under the Credit Agreement, and
such Default is cured during the applicable grace period by the Borrower, then the number of
Warrant Shares represented by this Warrant shall automatically be increased to 3,624,708 shares,
which number of Shares shall be subject to adjustment as set forth in Section 2 hereof (the
“New Warrant Amount”), and the Exercise Price shall be equal to (a) the original exercise
price multiplied by (b) the quotient of the Initial Warrant Amount divided by the New Warrant
Amount.




          (b) If a Default (as defined in the Credit Agreement) occurs under the Credit Agreement, and
such Default is not cured by the Borrower during the applicable grace period, if any, then the
number of Warrant Shares represented by this Warrant shall automatically be increased to 32,691,313
Shares, which number of Shares shall be subject to adjustment as set forth in Section 2 hereof (the
“Default Warrant Amount”), and the Exercise Price shall be equal to (a) the Exercise Price
in effect prior to the occurrence of such Event of Default, multiplied by (b) the quotient of the
Initial Warrant Amount (or New Warrant Amount, as applicable) divided by the Default Warrant
Amount.




     4. Transfers.



          (a) Each holder of this Warrant acknowledges that this Warrant, the Warrant Shares have not
been registered under the Securities Act of 1933, as amended (the “Securities Act”), and
agrees not to sell, pledge, distribute, offer for sale, transfer or otherwise dispose of this
Warrant or any Warrant Shares issued upon its exercise except pursuant to (i) an effective
registration statement under the Securities Act as to this Warrant or such Warrant Shares and
registration or qualification of this Warrant or such Warrant Shares under applicable Blue Sky or
state securities law then in effect or (ii) an exemption from such registration and qualification.
Each certificate or other instrument for Warrant Shares issued upon the exercise of this Warrant
shall bear a legend substantially to the foregoing effect.




          (b) Subject to the provisions of Section 4(a) hereof, this Warrant and all rights hereunder
are transferable, in whole or in part, upon surrender of the Warrant with a properly





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executed assignment (in the form of Exhibit B hereto) at the principal office of the
Company; provided that at no time will the number of Holders exceed four (4).




          (c) Until any transfer of this Warrant is made in the Company’s warrant register, the Company
may treat the Registered Holder of this Warrant as the absolute owner hereof for all purposes;
provided, however, that if and when this Warrant is properly assigned in blank, the
Company may (but shall not be required to) treat the bearer hereof as the absolute owner hereof for
all purposes, notwithstanding any notice to the contrary.




          (d) The Company will maintain a register containing the names and addresses of the Registered
Holders of this Warrant. Any Registered Holder may change such Registered Holder’s address as
shown on the warrant register by written notice to the Company requesting such change.




     5. No Impairment. The Company will not, by amendment of its charter or through
reorganization, consolidation, merger, dissolution, sale of assets or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will
at all times in good faith assist in the carrying out of all such terms and in the taking of all
such action as may be necessary or appropriate in order to protect the rights of the holder of this
Warrant against impairment.



     6. Liquidating Dividends. If the Company pays a dividend or makes a distribution on
the Warrant Shares payable otherwise than in cash out of earnings or earned surplus (determined in
accordance with generally accepted accounting principles) except for a dividend payable in Warrant
Shares ( a “Liquidating Dividend”), then the Company will pay or distribute to the
Registered Holder of this Warrant, upon the exercise hereof, in addition to the Warrant Shares
purchased upon such exercise, the Liquidating Dividend which would have been paid to such
Registered Holder if such Holder had been the owner of record of such Warrant Shares immediately
prior to the date on which a record was taken for such Liquidating Dividend or, if no record was
taken, the date as of which the record holders of Warrant Shares entitled to such dividends or
distribution were determined.



     7. Notices of Certain Transactions. In case:



          (a) the Company shall take a record of the holders of its Shares (or other stock or securities
at the time deliverable upon the exercise of this Warrant) for the purpose of entitling or enabling
them to receive any dividend or other distribution, or to receive any right to subscribe for or
purchase any shares of stock of any class or any other securities, or to receive any other right,
to subscribe for or purchase any shares of stock of any class or any other securities, or to
receive any other right, or




          (b) of any capital reorganization of the Company, any reclassification of the capital stock of
the Company, or any merger (other than a consolidation or merger in which the Company is the
surviving entity), or any transfer of all or substantially all of the assets of the Company, or




          (c) any tender offer for all or part of its outstanding Shares, or




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          (d) of the voluntary or involuntary dissolution, liquidation or winding-up of the Company, or




          (e) of any redemption of the Shares or mandatory conversion of the Shares into other
securities of the Company,



then, and in each such case, the Company will mail or cause to be mailed to the Registered Holder
of this Warrant a notice specifying, as the case may be, (i) the date on which a record is to be
taken for the purpose of such dividend, distribution or right, and stating the amount and character
of such dividend, distribution or right, or (ii) the effective date on which such reorganization,
reclassification, consolidation, merger, transfer, offering, dissolution, liquidation, winding-up,
redemption or conversion is to take place, and the time, if any is to be fixed, as of which the
holders of record of Shares (or such other stock or securities at the time deliverable upon such
reorganization, reclassification, consolidation, merger, transfer, offering, dissolution,
liquidation, winding-up, redemption or conversion). Such notice shall be mailed at least ten (10)
days prior to the record date or effective date for the event specified in such notice.




     8. Reservation of Stock. The Company will at all times reserve and keep available,
solely for the issuance and delivery upon the exercise of this Warrant, such number of Shares and
other stock, securities and property, as from time to time shall be issuable upon the exercise of
this Warrant.



     9. Registration Rights. The Company shall, no later than 30 days after the
consummation of the New Financing, file a registration statement with the U.S. Securities and
Exchange Commission covering the Warrant Shares and use all commercially reasonable efforts to
cause such registration statement to become effective within 180 thereafter. In addition, as soon
as practicable after the date hereof, and on issuance of the New Warrants and the Default Warrants,
the Company shall register the additional Warrant Shares into which this Warrant is exercisable
under the Securities Act at no cost to the Registered Holder. The Registered Holder shall not be
required to make any representations or warranties or agree to any lock up or restrictions on sale
with respect to such registration. This registration right shall enure to the benefit of the
Registered Holder and its registered assigns.



     10. Exchange of Warrants. Upon the surrender by the Registered Holder of any Warrant
or Warrants, properly endorsed, to the Company at the principal office of the Company, the Company
will, subject to the provisions of Section 4 hereof, issue and deliver to or upon the order of such
Holder, at the Company’s expense, a new Warrant or Warrants of like tenor, in the name of such
Registered Holder or as such Registered Holder (upon payment by such Registered Holder of any
applicable transfer taxes) may direct, calling in the aggregate on the face or faces thereof for
the number of Warrant Shares called for on the face or faces of the Warrant or Warrants so
surrendered.



     11. Replacement of Warrants. Upon receipt of evidence reasonably satisfactory to the
Company of the loss, theft, destruction or mutilation of this Warrant and (in the case of loss,
theft or destruction) upon delivery of an indemnity agreement (with surety if reasonably required)
in an amount reasonably satisfactory to the Company, or (in the case of mutilation)



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upon surrender and cancellation of this Warrant, the Company will issue, in lieu thereof, a
new Warrant of like tenor.




     12. Mailing of Notices. Any notice required or permitted pursuant to this Warrant
shall be in writing and shall be deemed sufficient when delivered personally or by overnight
courier or sent out and received by fax or three business days after being deposited in the U.S.
mail, as certified or registered mail, with postage prepaid, addressed (a) if to the Registered
Holder, to: Old Master Cimabue Holdings, Limited, c/o Maricorp Services Ltd., 4th Floor, West Wind
Building, 70 Harbour Drive, PO Box 2075GT, George Town, Grand Cayman, Cayman Islands, British West
Indies, with a copy to Old Master Capital, LLC, 152 West 57th Street, 6th Floor, New York, New York
10038, Attention: Mr. Matt Kishlansky, Facsimile no.:(212) 974-0404 or to the address or facsimile
number of the Registered Holder most recently furnished in writing to the Company and (b) if to the
Company, to MBI Financial Inc., 1845 Woodall Rodgers Freeway, Suite 1225, Dallas, Texas 75201,
Facsimile no.: (214) 468-0001: attn: Patrick McGeeney, or to the address subsequently modified by
written notice to the Registered Holder.



     13. No Rights as Shareholder. Until the exercise of this Warrant, the Registered
Holder of this Warrant shall not have or exercise any rights by virtue hereof as a shareholder of
the Company.



     14. No Fractional Shares. No fractional Warrant Shares will be issued in connection
with any exercise hereunder.



     15. Amendment or Waiver. No term of this Warrant may be amended or waived without the
prior written consent of the Company and the Registered Holder.



     16. Representations of Holder. The Registered Holder hereby represents and warrants
to the Company that: (a) it has had access to and is familiar with information concerning the
Company’s business, affairs, financial condition, and prospects; (b) it is able to fend for itself
in the transactions contemplated by this Warrant and has the ability to bear the economic risks of
its investment; (c) it is acquiring the Warrant for investment and not with a view towards
distribution to the public within the meaning of the Securities Act; and (d) it is an “accredited
investor” within the meaning of Rule 501 under Regulation D promulgated under the Securities Act.



     17. Headings. The headings in this Warrant are for purposes of reference only and
shall not limit or otherwise affect the meaning of any provision of this Warrant.



     18. Governing Law. This Warrant shall be governed, construed and interpreted in
accordance with the laws of the State of New York, without giving effect to principles of conflicts
of law.



[signature page follows]




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MBI FINANCIAL INC. 




	 	 	 	 	 
	By:

	 	 
	 	 
	 	 	 	 	 
	Name: 
	 	 	 	 
	 	 	 	 	 
	Title:
	 	 	 	 
	 	 	 	 	 





Accepted and Agreed:




Old Master Cimabue Holdings, Limited




	 	 	 	 	 
	By:
	 	 	 	 
	 

	 	 

	 	 
	 	 
	Title:
	 	 	 	 
	 

	 	 	 	 





 









 





EXECUTION COPY




EXHIBIT A




PURCHASE FORM




			
	To: MBI FINANCIAL INC.
	 	Dated:                              






     The undersigned, pursuant to the provisions set forth in the attached Warrant, hereby
irrevocably elects to purchase ___ Warrant Shares covered
by Warrant Number ___ and herewith
makes payment of $___, representing the full purchase price for such shares at the price per
Share provided for in such Warrant.



	 	 	 	 	 	 	 
	 

	 	Signature:	 	 	 	 
	 

	 	 	 	 

	 	 
	 	 
	 

	 	Address:	 	 	 	 
	 

	 	 	 	 

	 	 







 









 








EXECUTION COPY




EXHIBIT B




ASSIGNMENT FORM




     FOR
VALUE RECEIVED, ___ hereby sells, assigns and
transfers all of the rights of the undersigned under the attached Warrant with respect to the
number of Warrant Shares covered thereby set forth below, unto:



          Name of Assignee                                                            
 Address                                                            No. of Shares            
                  




	 	 	 	 	 	 	 	 	 	 	 
	Dated:

	 	 	 	 	 	Signature:	 	 	 	 
	 

	 	 

	 	 	 	 	 	 

	 	 
	 

	 	 	 	 	 	 	 	 

	 	 
	 	 
	 

	 	 
	 	 	 	Witness: