Form of $1.75 Warrant



 






Exhibit 4.1




FORM OF WARRANT



NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES
INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF (I) IN THE ABSENCE OF (A) EFFECTIVE REGISTRATION STATEMENT FOR
THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL, IN A
FORM REASONABLY ACCEPTABLE TO THE COMPANY, THAT SUCH TRANSFER MAY BE MADE WITHOUT REGISTRATION OR
QUALIFICATION UNDER SAID ACT OR (II) UNLESS SUCH TRANSFER IS MADE PURSUANT TO RULE 144 UNDER SAID
ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE
MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.




SMARTVIDEO TECHNOLOGIES, INC.




WARRANT




Warrant No.:                     



Number of Shares:                    



Date of Issuance: October ___, 2005 (“Issuance Date”)




     SmartVideo Technologies, Inc., a Delaware corporation (the “Company”), hereby certifies that,
for value received, the receipt and sufficiency of which are hereby acknowledged, [NAME OF HOLDER],
the registered holder hereof or its permitted assigns (the “Holder”), is entitled, subject to the
terms set forth below, to purchase from the Company, at the Exercise Price (as defined below) then
in effect, at any time or times on or after the date hereof, but not after 11:59 p.m., New York
Time, on the Expiration Date (as defined below), [NUMBER OF SHARES (___)] fully paid nonassessable
shares of Common Stock (as defined below) (the “Warrant Shares”). Except as otherwise defined
herein, capitalized terms in this Warrant shall have the meanings set forth in Section 16. This
Warrant (including all Warrants issued in exchange, transfer or replacement hereof, the “Warrants”)
is one of the Warrants (the “SPA Warrants”) issued pursuant to Section 1 of that certain Securities
Purchase Agreement, dated as of October ___, 2005 (the “Subscription Date"), among the Company and
the investors (the “Buyers”) referred to therein (the “Securities Purchase Agreement”).




1.    EXERCISE OF WARRANT.




     (a) Mechanics of Exercise. Subject to the terms and conditions hereof
(including, without limitation, the limitations set forth in Section 1(f)), this Warrant may
be exercised by the Holder on any day on or after the date hereof, 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 or wire transfer of immediately available funds or (B) by notifying the



 









 







Company that this Warrant is being exercised pursuant to a Cashless Exercise (as defined in
Section 1(d)). Upon exercise in full of this Warrant, the Holder shall deliver the original
Warrant in order to effect an exercise hereunder, or, in the alternative, an affidavit of
lost instrument in form reasonably satisfactory to the Company. 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 Business
Day following the date on which the Company has received each of the Exercise Notice and the
Aggregate Exercise Price (or notice of a Cashless Exercise) (the “Exercise Delivery
Documents”), the Company shall transmit by facsimile an acknowledgment of confirmation of
receipt of the Exercise Delivery Documents to the Holder and the Company’s transfer agent
(the “Transfer Agent”). On or before the third Business Day following the date on which the
Company has received all of the Exercise Delivery Documents (the “Share Delivery Date”), the
Company shall (X) provided that the Transfer Agent is participating in The Depository Trust
Company (“DTC”) Fast Automated Securities Transfer Program and if the Holder is entitled to
receive shares not bearing a legend pursuant to Section 2(g) of the Securities Purchase
Agreement, upon the request of the Holder, credit such aggregate number of shares of Common
Stock 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 Agent Commission 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 shares of Common Stock to which the Holder is
entitled pursuant to such exercise. Upon delivery of the Exercise Notice and Aggregate
Exercise Price referred to in clause (ii)(A) above or notification to the Company of a
Cashless Exercise referred to in Section 1(d), 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 of delivery of the certificates
evidencing such Warrant Shares. If this Warrant is submitted in connection with any
exercise pursuant to this Section 1(a) 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 Business Days after any exercise and at its own expense, issue a new Warrant (in
accordance with Section 7(d)) representing the right to purchase the number of Warrant
Shares purchasable immediately prior to such exercise under this Warrant, less the number of
Warrant Shares with respect to which this Warrant is exercised. No fractional shares of
Common Stock are to be issued upon the exercise of this Warrant, but rather the number of
            shares of Common Stock 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.




     (b) Exercise Price. For purposes of this Warrant, “Exercise Price” means
$1.75, subject to adjustment as provided herein.




     (c) Company’s Failure to Timely Deliver Securities. If the Company shall fail
for any reason or for no reason to issue to the Holder within three (3) Business
Days of receipt of the Exercise Delivery Documents, a certificate for the number of
            shares of Common Stock to which the Holder is entitled and register such shares of



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Common
Stock on the Company’s share register or 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, then, in addition to all other remedies available to the Holder,
the Company shall pay in cash to the Holder on each day after such third Business Day that
the issuance of such shares of Common Stock is not timely effected an amount equal to 1.5%
of the product of (A) the sum of the number of shares of Common Stock not issued to the
Holder on a timely basis and to which the Holder is entitled and (B) the Closing Sale Price
of the shares of Common Stock on the trading day immediately preceding the last possible
date which the Company could have issued such shares of Common Stock to the Holder without
violating Section 1(a). In addition to the foregoing, if within three (3) trading days
after the Company’s receipt of the facsimile copy of a Exercise Notice the Company shall
fail to issue and transmit for delivery a certificate to the Holder and register such shares
of Common Stock on the Company’s share register or credit the Holder’s balance account with
DTC for the number of shares of Common Stock to which the Holder is entitled upon such
holder’s exercise hereunder, 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 (a “Buy-In"), then the Company shall, within three
Business 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, 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) shall terminate, or (ii) promptly honor its obligation to deliver to the
Holder a certificate or certificates representing such shares of Common Stock 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) the Closing Bid Price on the date of
exercise.




     (d) Cashless Exercise. Notwithstanding anything contained herein to the
contrary, if a Registration Statement (as defined in the Registration Rights Agreement)
covering 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, 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 = (A x B) – (A x C)

	B

	For purposes of the foregoing formula:








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




B= the Closing Sale Price of the shares of Common Stock (as reported by Bloomberg) on the
date immediately preceding the date of the Exercise Notice.




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



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     (e) 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 13.




     (f) Limitations on Exercises. The Company shall not effect the exercise of
this Warrant, and the Holder shall not have the right to exercise this Warrant, to the
extent that after giving effect to such exercise, such Person (together with such Person’s
affiliates) would beneficially own in excess of 4.99% of the shares of Common Stock
outstanding immediately after giving effect to such exercise. For purposes of the foregoing
sentence, the aggregate number of shares of Common Stock beneficially owned by such Person
and its affiliates shall include the number of shares of Common Stock issuable upon exercise
of this Warrant with respect to which the determination of such sentence is being made, but
shall exclude shares of Common Stock which would be issuable upon (i) exercise of the
remaining, unexercised portion of this Warrant beneficially owned by such Person and its
affiliates and (ii) exercise or conversion of the unexercised or unconverted portion of any
other securities of the Company beneficially owned by such Person and its affiliates
(including, without limitation, any convertible notes or convertible preferred stock or
warrants) subject to a limitation on conversion or exercise analogous to the limitation
contained herein. Except as set forth in the preceding sentence, for purposes of this
paragraph, beneficial ownership shall be calculated in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended. For purposes of this Warrant, in determining
the number of outstanding shares of Common Stock, the Holder may rely on the number of
outstanding shares of Common Stock as reflected in (1) the Company’s most recent Form
10-KSB, Form 10-QSB, Current Report on Form 8-K or other public filing with the Securities
and Exchange Commission, as the case may be, (2) a more recent public announcement by the
Company or (3) any other notice by the Company or the Transfer Agent setting forth the
number of shares of Common Stock outstanding. For any reason at any time, upon the written
or oral request of the Holder, the Company shall within one Business Day confirm orally and
in writing to the Holder the number of shares of Common Stock then outstanding. In any
case, the number of outstanding shares of Common Stock shall be determined after giving
effect to the conversion or exercise of securities of the Company, including the SPA
Warrants, by the Holder and its affiliates since the date as of which such number of
outstanding shares of Common Stock was reported.



     2.    ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES. The Exercise Price
and the number of Warrant Shares shall be adjusted from time to time as follows:



          (a)    Adjustment upon Issuance of Common Stock. If and whenever on or after the
Subscription Date, the Company issues or sells, or in accordance with this Section 2 is deemed to
have issued or sold, any shares of Common Stock (including the issuance or sale of shares of Common
Stock owned or held by or for the account of the Company, but excluding Excluded Securities) for a
consideration per share (the “New Issuance Price”) 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 after such Dilutive Issuance the Exercise
Price then in effect shall be reduced to an amount equal to
the New Issuance Price. Upon each such adjustment of the Exercise Price hereunder, the number
of Warrant Shares shall be adjusted to the number of shares of Common Stock determined by




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multiplying the Exercise Price in effect immediately prior to such adjustment by the number of
Warrant Shares acquirable upon exercise of this Warrant immediately prior to such adjustment and
dividing the product thereof by the Exercise Price resulting from such adjustment. For purposes of
determining the adjusted Exercise Price under this Section 2(a), the following shall be applicable:




          (i) Issuance of Options. If the Company in any manner grants any Options and the
lowest price per share for which one share of Common Stock is issuable upon the exercise of any
such Option or upon conversion, exercise or exchange of any Convertible Securities issuable upon
exercise of any such Option is less than the Applicable Price, then such share of Common Stock
shall be deemed to be outstanding and to have been issued and sold by the Company at the time of
the granting or sale of such Option for such price per share. For purposes of this Section
2(a)(i), the “lowest price per share for which one share of Common Stock is issuable upon exercise
of any such Option or upon conversion, exercise or exchange of any Convertible Securities” shall be
equal to the sum of the lowest amounts of consideration (if any) received or receivable by the
Company with respect to any one share of Common Stock upon the granting or sale of the Option, upon
exercise of the Option and upon conversion, exercise or exchange of any Convertible Security
issuable upon exercise of such Option. No further adjustment of the Exercise Price or number of
Warrant Shares shall be made upon the actual issuance of such Common Stock or of such Convertible
Securities upon the exercise of such Options or upon the actual issuance of such Common Stock upon
conversion, exercise or exchange of such Convertible Securities.




          (ii) Issuance of Convertible Securities. If the Company in any manner issues or sells
any Convertible Securities and the lowest price per share for which one share of Common Stock is
issuable upon the conversion, exercise or exchange thereof is less than the Applicable Price, then
such share of Common Stock 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 for such price per
share. For the purposes of this Section 2(a)(ii), the “lowest price per share for which one share
of Common Stock is issuable upon the conversion, exercise or exchange” shall be equal to the sum of
the lowest amounts of consideration (if any) received or receivable by the Company with respect to
one share of Common Stock upon the issuance or sale of the Convertible Security and upon
conversion, exercise or exchange of such Convertible Security. No further adjustment of the
Exercise Price or number of Warrant Shares shall be made upon the actual issuance of such Common
Stock upon conversion, exercise or exchange of such Convertible Securities, and if any such issue
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 2(a), no
further adjustment of the Exercise Price or number of Warrant Shares shall be made by reason of
such issue or sale.




          (iii) Change in Option Price or Rate of Conversion. If the purchase price provided
for in any Options, the additional consideration, if any, payable upon the issue, conversion,
exercise or exchange of any Convertible Securities, or the rate at which any Convertible Securities
are convertible into or exercisable or exchangeable for Common Stock increases or decreases at any
time, the Exercise Price and the number of Warrant Shares in effect at the time of such increase or
decrease shall be adjusted to the Exercise Price and the number of Warrant Shares which would have
been in effect at such time had such Options or Convertible Securities provided for such increased
or decreased purchase price, additional consideration or
increased or decreased conversion rate, as the case may be, at the time initially granted,
issued or sold. For purposes of this Section 2(a)(iii), if the terms of any Option or Convertible
Security




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that was outstanding as of the date of issuance of this Warrant are increased or decreased
in the manner described in the immediately preceding sentence, then such Option or Convertible
Security and the 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 2(a) shall be made if such adjustment would result in an increase of the Exercise
Price then in effect or a decrease in the number of Warrant Shares.




          (b) Calculation of Consideration Received. In case any Option is issued in connection
with the issue or sale of other securities of the Company, together comprising one integrated
transaction in which no specific consideration is allocated to such Options by the parties thereto,
the Options will be deemed to have been issued for a consideration of $0.0001. If any Common
Stock, Options or Convertible Securities are issued or sold or deemed to have been issued or sold
for cash, the consideration received therefor will be deemed to be the net amount received by the
Company therefor. If any 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 securities, in which
case the amount of consideration received by the Company will be the Closing Sale Price of such
security on the date of receipt. If any 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
Common Stock, Options or Convertible Securities, as the case may be. The fair value of any
consideration other than cash or securities will be determined jointly by the Board of Directors of
the Company and the holders of SPA Warrants representing at least a majority of the shares of
Common Stock obtainable upon exercise of the SPA Warrants then outstanding. If such parties are
unable to reach agreement within 10 days after the occurrence of an event requiring valuation (the
“Valuation Event”), the fair value of such consideration will be determined within 15 Business Days
after the tenth day following the Valuation Event by an independent, reputable appraiser jointly
selected by the Company and the holders of SPA Warrants representing at least a majority of the
shares of Common Stock obtainable upon exercise of the SPA Warrants then outstanding. 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. Notwithstanding
anything else contained herein to the contrary, no penalties hereunder shall accrue to the Holder
of this Warrant during the period of time that there is a good faith dispute between the Company
and the Holder relating to the fair value of consideration received by the Company in connection
with the issuance of any Common Stock, Options or Convertible Securities.




          (c) Record Date. If the Company takes a record of the holders of Common Stock for the
purpose of entitling them (A) to receive a dividend or other distribution payable in Common Stock,
Options or in Convertible Securities or (B) to subscribe for or purchase Common Stock, Options or
Convertible Securities, then such record date will 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.




          (d) Adjustment upon Subdivision or Combination of Common Stock. If the Company at any
time after the date of issuance of this Warrant 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




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such subdivision will be proportionately reduced and the number of Warrant Shares will be
proportionately increased. If the Company at any time after the date of issuance of this Warrant
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 2(b) shall become effective at the
close of business on the date the subdivision or combination becomes effective.




          (e) Other Events. If any event occurs of the type contemplated by the provisions of
this Section 2 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 of Directors will make an appropriate adjustment in the
Exercise Price and the number of Warrant Shares so as to protect the rights of the holder of this
Warrant; provided that no such adjustment pursuant to this Section 2(c) will increase the Exercise
Price or decrease the number of Warrant Shares as otherwise determined pursuant to this Section 2.




     3.    RIGHTS UPON DISTRIBUTION OF ASSETS. If the Company shall declare or make any
dividend or other distribution of its assets (or rights to acquire its assets) to holders of Common
Stock, by way of return of capital or otherwise (including, without limitation, any distribution of
cash, stock or other securities, property or options by way of a dividend, spin off,
reclassification, corporate rearrangement or other similar transaction) (a “Distribution”), at any
time after the issuance of this Warrant, then, in each such case:



          (a) any Exercise Price in effect immediately prior to the close of business on the record date
fixed for the determination of holders of Common Stock entitled to receive the Distribution shall
be reduced, effective as of the close of business on such record date, to a price determined by
multiplying such Exercise Price by a fraction of which (i) the numerator shall be the Closing Bid
Price of the Common Stock on the trading day immediately preceding such record date minus the value
of the Distribution (as determined in good faith by the Company’s Board of Directors) applicable to
one share of Common Stock, and (ii) the denominator shall be the Closing Bid Price of the Common
Stock on the trading day immediately preceding such record date; and




          (b) the number of Warrant Shares shall be increased to a number of shares equal to the number
of shares of Common Stock obtainable immediately prior to the close of business on the record date
fixed for the determination of holders of Common Stock entitled to receive the Distribution
multiplied by the reciprocal of the fraction set forth in the immediately preceding paragraph (a);
provided that in the event that the Distribution is of common stock (“Other Common Stock”) of a
company whose common stock is traded on a national securities exchange or a national automated
quotation system, then the holder of this Warrant may elect to receive a warrant to purchase Other
Common Stock in lieu of an increase in the number of Warrant Shares, the terms of which shall be
identical to those of this Warrant, except that such warrant shall be exercisable into the number
of shares of Other Common Stock that would have been payable to the holder of this Warrant pursuant
to the Distribution had the holder exercised this Warrant immediately prior to such record date and
with an aggregate exercise price equal to the product of the amount by which the exercise price of
this Warrant was decreased with respect
to the Distribution pursuant to the terms of the immediately preceding paragraph (a) and the number
of Warrant Shares calculated in accordance with the first part of this paragraph (b).




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     4.    FUNDAMENTAL TRANSACTIONS. The Company shall not enter into or be party to a
Fundamental Transaction unless (a) 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 (4) pursuant to written agreements in form and substance satisfactory to
the Required Holders and approved by the Required Holders prior to such Fundamental Transaction,
including agreements to deliver to each holder of Warrants in exchange for such Warrants a security
of the Successor Entity evidenced by a written instrument substantially similar in form and
substance to this Warrant, including, without limitation, an adjusted exercise price equal to the
value for the shares of Common Stock reflected by the terms of such Fundamental Transaction, and
exercisable for a corresponding number of shares of capital stock equivalent to the shares of
Common Stock acquirable and receivable upon exercise of this Warrant (without regard to any
limitations on the exercise of this Warrant) prior to such Fundamental Transaction, and
satisfactory to the Required Holders and (b) 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 occurrence of any Fundamental Transaction, the Successor Entity shall succeed to,
and be substituted for (so that from and after the date of such Fundamental Transaction, the
provisions of this Warrant 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 with the same effect as if such Successor Entity had been named as
the Company herein. Upon consummation of the 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, in lieu of the shares of the Common
Stock (or other securities, cash, assets or other property) purchasable upon the exercise of the
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
the Holder would have been entitled to receive upon the happening of such Fundamental Transaction
had this Warrant been exercised immediately prior to 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 consummation of any Fundamental Transaction pursuant to which
holders of shares of Common Stock are entitled to receive securities or other assets with respect
to or in exchange for shares of Common Stock (a “Corporate Event”), the Company shall make
appropriate provision to insure that the Holder will thereafter have the right to receive upon an
exercise of this Warrant at any time after the consummation of the Fundamental Transaction but
prior to the Expiration Date, in lieu of the shares of the Common Stock (or other securities, cash,
assets or other property) purchasable upon the exercise of the 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 the Holder would have been
entitled to receive upon the happening of such Fundamental Transaction had the Warrant been
exercised immediately prior to such Fundamental Transaction. Provision made pursuant to the
preceding sentence shall be in a form and substance reasonably satisfactory to the Required
Holders. The provisions of this Section shall apply similarly and equally to successive
Fundamental Transactions and Corporate Events. Provision made pursuant to the preceding sentence
shall be in a form and substance satisfactory to the Required Holders. The provisions of this
Section shall apply similarly and equally to successive Fundamental Transactions and Corporate
Events and shall be applied without regard to any limitations on the exercise of this Warrant.
Notwithstanding the foregoing, if the Successor Entity is not a publicly traded
corporation whose common stock is quoted on or listed for trading on an Eligible Market, such
Successor Entity agrees to pay the Holder, at the closing of the transactions contemplated by such
Fundamental Transaction, for the outstanding Warrants immediately prior to the effective time of



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such Fundamental Transaction and in consideration of the cancellation of each such outstanding
Warrant, an amount in cash determined according to the Black-Scholes Option Pricing Method.




     5. NONCIRCUMVENTION. The Company hereby covenants and agrees that the Company will
not, by amendment of its Certificate of Incorporation or through any reorganization, transfer of
assets, consolidation, merger, 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 the provisions of this Warrant and take all
action as may be required to protect the rights of the holder of this Warrant. Without limiting
the generality of the foregoing, the Company (i) will 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,
(ii) will 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 (iii) will, so long as any of the SPA Warrants are outstanding, take all action
necessary to reserve and keep available out of its authorized and unissued Common Stock, solely for
the purpose of effecting the exercise of the SPA Warrants, 100% of the number of shares of Common
Stock as shall from time to time be necessary to effect the exercise of the SPA Warrants then
outstanding (without regard to any limitations on exercise).



     6. HOLDER NOT DEEMED A STOCKHOLDER. Except as otherwise specifically provided herein,
no holder, solely in such Person’s capacity as a holder, of this Warrant shall be entitled to vote
or receive dividends or be deemed the holder of shares of the Company for any purpose, nor shall
anything contained in this Warrant be construed to confer upon the holder hereof, solely in such
Person’s capacity as a holder of this Warrant, any of the rights of a shareholder 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, prior to the issuance
to the holder of this Warrant of the Warrant Shares which such Person is then entitled to receive
upon the due exercise of this Warrant. In addition, nothing contained in this Warrant shall be
construed as imposing any liabilities on such 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 6, the
Company will provide the holder of this Warrant 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.



     7. REISSUANCE OF WARRANTS.



          (a) Transfer of Warrant. If this Warrant is to be transferred, the holder shall
surrender this Warrant to the Company, whereupon the Company will forthwith issue and deliver upon
the order of the holder of this Warrant a new Warrant (in accordance with Section 7(d)), registered
as the holder of this Warrant may request, representing the right to purchase the number of Warrant
Shares being transferred by the Holder and, if less then the total number of Warrant Shares then
underlying this Warrant is being transferred, a new Warrant (in accordance with Section 7(d)) to
the holder of this Warrant representing the right to purchase the number of Warrant Shares not
being transferred.




          (b) Lost, Stolen or Mutilated Warrant. Upon receipt by the Company 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, of any indemnification undertaking by the
holder of this Warrant to the Company in customary form and, in the case of mutilation, upon




- 9 -









 







surrender and cancellation of this Warrant, the Company shall execute and deliver to the Holder a
new Warrant (in accordance with Section 7(d)) representing the right to purchase the Warrant Shares
then underlying this Warrant.




          (c) Warrant Exchangeable for Multiple Warrants. This Warrant is exchangeable, upon
the surrender hereof by the Holder at the principal office of the Company, for a new Warrant or
Warrants (in accordance with Section 7(d)) representing in the aggregate the right to purchase the
number of Warrant Shares then underlying this Warrant, and each such new Warrant will represent the
right to purchase such portion of such Warrant Shares as is designated by the holder of this
Warrant at the time of such surrender; provided, however, that no Warrants for fractional shares of
Common Stock shall be given.




          (d) Issuance of New Warrants. Whenever the Company is required to issue a new Warrant
pursuant to the terms of this Warrant, such new Warrant (i) shall be of like tenor with this
Warrant, (ii) shall represent, as indicated on the face of such new Warrant, the right to purchase
the Warrant Shares then underlying this Warrant (or in the case of a new Warrant being issued
pursuant to Section 7(a) or Section 7(c), the Warrant Shares designated by the holder of this
Warrant which, when added to the number of shares of Common Stock underlying the other new Warrants
issued in connection with such issuance, does not exceed the number of Warrant Shares then
underlying this Warrant), (iii) shall have an issuance date, as indicated on the face of such new
Warrant which is the same as the Issuance Date, and (iv) shall have the same rights and conditions
as this Warrant.




     8. NO SHORT TRANSACTIONS. During the term of the Warrant, the Holder, and any Person
who shall have a beneficial ownership interest (within the meaning of Rule 13d-3 under the
Securities Exchange Act of 1934, as amended), or a direct or indirect pecuniary interest (within
the meaning of Rule 16a-1(a)(2) under the Securities Exchange Act of 1934, as amended) in the
Warrant Shares, shall not, directly or indirectly, make any short sale or maintain any short
position, establish or maintain a “put equivalent position” (within the meaning of Rule 16-a-1(h)
under the Securities Exchange Act of 1934, as amended), enter into any swap, derivative transaction
or other arrangement that transfers to another, in whole or in part, any of the economic
consequences of ownership of the Common Stock (whether any such transaction is to be settled by
delivery of Common Stock, other securities, cash or other consideration) or any securities
convertible into, exercisable for or exchangeable for Common Stock of the Company.



     9. NOTICES. Whenever notice is required to be given under this Warrant, unless
otherwise provided herein, such notice shall be given in accordance with Section 9(g) of the
Securities Purchase Agreement. The Company shall provide the holder of this Warrant with prompt
written notice of all actions taken pursuant to this Warrant, including in reasonable detail a
description of such action and the reason therefore. Without limiting the generality of the
foregoing, the Company will give written notice to the holder of this Warrant (i) immediately upon
any adjustment of the Exercise Price, setting forth in reasonable detail, and certifying, the
calculation of such adjustment and (ii) at least fifteen 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 Common Stock, (B) with respect to any grants, issues or sales of any Options, Convertible
Securities or rights to purchase stock, warrants, securities or other property to holders 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 such holder.



- 10 -









 





     10. AMENDMENT AND WAIVER. Except as otherwise provided herein, the provisions of this
Warrant may be amended and the Company may take any action herein prohibited, or omit to perform
any act herein required to be performed by it, only if the Company has obtained the written consent
of the holders of SPA Warrants representing at least a majority of the shares of Common Stock
obtainable upon exercise of the SPA Warrants then outstanding; provided that no such action may
increase the exercise price of any SPA Warrant or decrease the number of shares or class of stock
obtainable upon exercise of any SPA Warrant without the written consent of the holder of this
Warrant. No such amendment shall be effective to the extent that it applies to less than all of
the holders of the SPA Warrants then outstanding.



     11. GOVERNING LAW. This Warrant shall be construed and enforced in accordance with,
and all questions concerning the construction, validity, interpretation and performance of this
Warrant shall be governed by, the internal laws of the State of Delaware, without giving effect to
any choice of law or conflict of law provision or rule (whether of the State of Delaware or any
other jurisdictions) that would cause the application of the laws of any jurisdictions other than
the State of Delaware.



     12. CONSTRUCTION; HEADINGS. This Warrant shall be deemed to be jointly drafted by the
Company and all the Buyers and shall not be construed against any person as the drafter hereof.
The headings of this Warrant are for convenience of reference and shall not form part of, or affect
the interpretation of, this Warrant.



     13. 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 Business Days of
receipt of the Exercise Notice giving rise to such dispute, as the case may be, to the holder of
this Warrant. If the holder of this Warrant and the Company are unable to agree upon such
determination or calculation of the Exercise Price or the Warrant Shares within three Business Days
of such disputed determination or arithmetic calculation being submitted to the Holder, then the
Company shall, within two 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 of this Warrant 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 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.



     14. REMEDIES, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF. The remedies
provided in this Warrant shall be cumulative and in addition to all other remedies available under
this Warrant, the Securities Purchase Agreement and the Registration Rights Agreement, at law or in
equity (including a decree of specific performance and/or other injunctive relief), and nothing
herein shall limit the right of the holder of this Warrant to pursue actual damages for any failure
by the Company to comply with the terms of this Warrant. The Company acknowledges that a breach by
it of its obligations hereunder will cause irreparable harm to the holder of this Warrant and that
the remedy at law for any such breach may be
inadequate. The Company therefore agrees that, in the event of any such breach or threatened
breach, the holder of this Warrant shall be entitled, in addition to all other available remedies,
to



- 11 -









 







an injunction restraining any breach, without the necessity of showing economic loss and without
any bond or other security being required.



     15. TRANSFER. This Warrant may be offered for sale, sold, transferred or assigned
without the consent of the Company, except as may otherwise be required by Section 2(f) of the
Securities Purchase Agreement.



     16. CERTAIN DEFINITIONS. For purposes of this Warrant, the following terms shall have
the following meanings:



          (a) “Approved Stock Plan” means any employee benefit plan which has been approved by the Board
of Directors of the Company, pursuant to which the Company’s securities may be issued to any
employee, officer or director for services provided to the Company.




          (b) “Bloomberg” means Bloomberg Financial Markets.




          (c) “Business Day” means any day other than Saturday, Sunday or other day on which commercial
banks in The City of New York are authorized or required by law to remain closed.




          (d) “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 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 “pink sheets” by Pink Sheets LLC (formerly the
National Quotation Bureau, Inc.). If the Closing Bid Price or the 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 14. All such determinations to be appropriately adjusted for any
stock dividend, stock split, stock combination or other similar transaction during the applicable
calculation period.




          (e) “Common Stock” means (i) the Company’s common stock, par value $0.001 per share, and (ii)
any capital stock into which such Common Stock shall have been changed or any capital stock
resulting from a reclassification of such Common Stock.




          (f) “Convertible Securities” means any stock or securities (other than Options) directly or
indirectly convertible into or exercisable or exchangeable for Common Stock.




- 12 -









 








          (g) “Eligible Market” means the Principal Market, The New York Stock Exchange, Inc., the
American Stock Exchange, the Nasdaq National Market or The Nasdaq SmallCap Market.




          (h) “Excluded Securities” means any Common Stock issued or issuable: (i) in connection with
any Approved Stock Plan; (ii) upon exercise of the Warrants; (iii) pursuant to a bona fide “best
efforts” or firm commitment underwritten public offering with a nationally recognized underwriter
which generates gross proceeds to the Company in excess of $25,000,000 (other than an
“at-the-market offering” as defined in Rule 415(a)(4) under the 1933 Act and “equity lines”); (iv)
upon conversion of any Options or Convertible Securities which are outstanding on the day
immediately preceding the Subscription Date, provided that the terms of such Options or Convertible
Securities are not amended, modified or changed on or after the Subscription Date; (v) in
connection with acquisitions or strategic investments (including, without limitation, any licensing
or distribution arrangements) unanimously approved by the Board of Directors of the Company; or
(vi) securities in amounts that are not material issued to commercial banks or financial
institutions, the primary business of which is not making equity-related loans) or lessors in
connection with commercial credit arrangements, equipment financings or similar transactions, where
the principal consideration for such transaction is not the issuance of such securities.




          (i) “Expiration Date” means the sixty month anniversary of the Issuance Date.




          (j) “Fundamental Transaction” means that the Company shall, directly or indirectly, in one or
more related transactions, (i) consolidate or merge with or into (whether or not the Company is the
surviving corporation) another Person, or (ii) sell, assign, transfer, convey or otherwise dispose
of all or substantially all of the properties or assets of the Company to another Person, or (iii)
allow another Person to make a purchase, tender or exchange offer that is accepted by the holders
of more than the 50% of either the outstanding shares of Common Stock (not including any shares of
Common Stock 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), or (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 the 50% of the outstanding shares of Common Stock (not including any shares of
Common Stock held by the other Person or other Persons making or party to, or associated or
affiliated with the other Persons making or party to, such stock purchase agreement or other
business combination), or (v) reorganize, recapitalize or reclassify its Common Stock.




          (k) “Options” means any rights, warrants or options to subscribe for or purchase Common Stock
or Convertible Securities.




          (l) “Parent Entity” of a Person means an entity that, directly or indirectly, controls the
applicable Person and whose common stock or equivalent equity security is quoted or listed on an
Eligible Market, or, if there is more than one such Person or Parent Entity, the Person or Parent
Entity with the largest public market capitalization as of the date of consummation of the
Fundamental Transaction.




          (m) “Person” means an individual, a limited liability company, a partnership, a joint venture,
a corporation, a trust, an unincorporated organization, any other entity and a government or any
department or agency thereof.




- 13 -









 








          (n) “Principal Market” means the OTC Bulletin Board.




          (o) “Registration Rights Agreement” means that certain registration rights agreement dated the
Subscription Date by and among the Company and the Buyers.




          (p) “Required Holders” means the holders of the SPA Warrants representing at least a majority
of shares of Common Stock underlying the SPA Warrants then outstanding.




          (q) “Successor Entity” means the Person (or, if so elected by the Required Holders, the Parent
Entity) formed by, resulting from or surviving any Fundamental Transaction or the Person (or, if so
elected by the Required Holders, the Parent Entity) with which such Fundamental Transaction shall
have been entered into.




[Signature Page Follows]




- 14 -









 







IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed as of the Issuance Date
set out above.




	 	 	 	 	 
	 	SMARTVIDEO TECHNOLOGIES, INC.

 	 
	 	By:  	 	 
	 	 	        Name:  	Richard E. Bennett, Jr. 	 
	 	 	        Title:  	President & CEO 	 
	 




- 15 -









 








EXHIBIT A




EXERCISE NOTICE




TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS

WARRANT




SMARTVIDEO TECHNOLOGIES, INC.




To:      SmartVideo Technologies, Inc.





     The undersigned is the holder of Warrant No. ___(the “Warrant”) issued by SmartVideo
Technologies, Inc., a Delaware corporation (the “Company”). Capitalized terms used herein and not
otherwise defined shall have the respective meanings set forth in the Warrant.



     1. The Warrant is currently exercisable to purchase a total of ___Warrant
Shares.



     2. The undersigned holder hereby exercises its right to purchase ___Warrant Shares
pursuant to the Warrant.



     3. 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.



     4. Pursuant to this exercise, the Company shall deliver to the holder ___Warrant
Shares in accordance with the terms of the Warrant.



     5. Following this exercise, the Warrant shall be exercisable to purchase a total of
___Warrant Shares.



     Please issue the Warrant Shares in the following name and to the following address:



	 	 	 
	Issue to:
	 	 
	 

	 	 
	 
	 	 
	 

	 	 
	 
	 	 
	 

	 	 





	 	 	 
	Account Number:
	 	 
	 

	 	 
	(if electronic book entry transfer)






	 	 	 
	DTC Participant Number:
	 	 
	 

	 	 
	  (if electronic book entry transfer)






Date: _______________ , ______




	 
	 
   
Name of Registered Holder







	 	 	 	 	 
	 	 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 



 









 






	 	 	 	 	 



ACKNOWLEDGMENT





     The Company hereby acknowledges this Exercise Notice and hereby directs Continental Stock
Transfer and Trust Company to issue the above indicated number of shares of Common Stock in
accordance with the Transfer Agent Instructions dated October ___, 2005 from the Company and
acknowledged and agreed to by Continental Stock Transfer and Trust Company.



	 	 	 	 	 
	 	SMARTVIDEO TECHNOLOGIES, INC. 

 	 
	 	By:  	 	 
	 	 	       Name:  	Richard E. Bennett, Jr. 	 
	 	 	       Title:  	President & CEO 	 



 









 






	 	 	 	 	 



FORM OF ASSIGNMENT





     [To be completed and signed only upon transfer of Warrant]



     FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto
___ the right represented by the within Warrant to purchase
___ shares of Common Stock of SmartVideo Technologies, Inc. to which the within Warrant
relates and appoints ___ attorney to transfer said right on the books of SmartVideo
Technologies, Inc. with full power of substitution in the premises.



	 	 	 	 
	Dated:                                        ,                     

	 	Registered Holder:
	 
	 	 
	 

	 	 
	 

	 	(Signature must conform in all respects to name of
holder as specified on the face of the Warrant)
	 
	 	 
	 
	 	 
	 

	 	 
	 

	 	Address of Transferee
	 
	 	 
	 
	 	 
	 

	 	 
	 
	 	 
	 
	 	 
	 

	 	 
	 
	 	 
	 
	 	 
	In the presence of: