Document:

ex102.htm

Exhibit 10.2

 

NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS.  THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A 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.

 

 

Provision Holding, Inc.

 

Warrant To Purchase Common Stock

 

	Warrant No.: 2010-1 	 	 	 Issuance Date:   May 26, 2010

 

Number of Warrant Shares:  20,000,000

Initial Exercise Price:  $0.12 per share

Provision Holding, Inc., a Nevada corporation (“Company”), hereby certifies that, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Socius CG II, Ltd., a Bermuda exempted company, the holder hereof or its designees or assigns (“Holder”), is entitled, subject to the terms set forth herein, to purchase from the Company, at the Exercise Price then in effect, upon exercise of this Warrant to Purchase Common Stock (including any warrant issued in exchange, transfer or replacement hereof, the “Warrant”), at any time or times after issuance of the Warrant and until 11:59 p.m. Eastern time on the fifth anniversary of the Issuance Date, subject to acceleration pursuant to Section 3.3 hereof, that number of duly authorized, validly issued, fully paid and non-assessable shares of Common Stock set forth above and as adjusted herein (the “Warrant Shares”); provided, however, that this Warrant may only be exercised, from time to time, for that number of shares of Common Stock with an Aggregate Exercise Price equal to up to 135% of the cumulative amount of Tranche Purchase Prices under Tranche Notices delivered prior to or on the date of exercise.

 

 

 

 

  

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This Warrant is issued pursuant to the Preferred Stock Purchase Agreement dated

 

May 26, 2010, by and among the Company and the investor referred to therein (the “Purchase Agreement”).  Except as otherwise defined herein, capitalized terms in this Warrant shall have the meanings set forth in ARTICLE 13 hereof.

 

This Warrant shall consist of and be exercisable in tranches (each, a “Warrant Tranche”), with a separate tranche being created upon each delivery of a Tranche Notice under the Purchase Agreement.  Each Warrant Tranche will grant to the Holder the right, for a five-year period commencing on the applicable Tranche Notice Date, to exercise the Warrant and purchase up to a number of shares of Common Stock with an Aggregate Exercise Price equal to 135% of the Tranche Purchase Price for the applicable Tranche Notice.  Attached to this Warrant is a schedule (the “Warrant Tranche Schedule”) that sets forth the issuance date, the number of Warrant Shares, and the Exercise Price for each Warrant Tranche.  The Warrant Tranche Schedule shall be updated by the Company, with an updated copy provided to the Holder, promptly following each exercise of this Warrant.  No portion of this Warrant shall vest or be exercisable except under the Warrant Tranches.

 

In no event shall the Company be permitted to deliver a Tranche Notice if the number of registered shares underlying this Warrant is insufficient to cover the portion of the Warrant that will vest and become exercisable in connection with such Tranche Notice.  If the number of registered shares underlying this Warrant is or becomes insufficient to permit the Company to issue registered shares upon exercise of this Warrant, the Company shall promptly amend the Registration Statement to include more shares thereunder, with such amendment to be filed sufficiently in advance of the date the Company intends to deliver a Tranche Notice so as to ensure that registered shares are available to Holder on the Tranche Notice Date.

 

ARTICLE 1

 

EXERCISE OF WARRANT.

 

1.1 Mechanics of Exercise.

 

1.1.1 Subject to the terms and conditions hereof, this Warrant may be exercised by the Holder on any day on or after the Issuance Date, in whole or in part, by (i) delivery of a written notice to the Company, in the form attached hereto as Appendix 1 (the “Exercise Notice”), of the Holder’s election to exercise this Warrant, and (ii) 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”), with such payment made, at Investor’s option, (x) in cash or by wire transfer of immediately available funds, (y) by the issuance and delivery of a recourse promissory note substantially in the form attached hereto as Appendix 2 (each, a “Recourse Note”), or (z) if applicable, by cashless exercise pursuant to Section 1.3.

 

1.1.2 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.

 

1.1.3 On the Trading Day on which the Company has received each of the Exercise Notice and the Aggregate Exercise Price (the “Exercise Delivery Documents”) from the Holder by 6:30 p.m. Eastern time, or on the next Trading Day if the Exercise Delivery Documents are received after 6:30 p.m. Eastern time or on a non-Trading Day (in each case, the “Exercise Delivery Date”), the Company shall transmit (i) a facsimile acknowledgment of confirmation of receipt of the Exercise Delivery Documents to the Holder, and (ii) an electronic copy of its share issuance instructions to the Holder and to the Company’s transfer agent (the “Transfer Agent”), with such transmissions to comply with the notice provisions contained in Section 6.2 of the Purchase Agreement, and shall instruct and authorize the Transfer Agent to credit such aggregate number of freely-tradable Warrant Shares to which the Holder is entitled to receive upon such exercise to the Holder’s or its designee’s balance account with The Depository Trust Company (DTC) through the Fast Automated Securities Transfer (FAST) Program through its Deposit Withdrawal Agent Commission (DWAC) system, with such credit to occur no later than 12:00 p.m. Eastern Time on the Trading Day following the Exercise Delivery Date, time being of the essence; provided, however, that if the Warrant Shares are not credited as DWAC Shares by 12:00 p.m. Eastern Time on the Trading Day following the Exercise Delivery Date, then the Tranche Closing Date applicable to the Exercise Notice shall be extended by one Trading Day for each Trading Day that timely credit of DWAC Shares is not made.

 

1.1.4 Upon delivery of the Exercise Delivery Documents, 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.  If any portion of the Warrant is exercised by Holder in connection with a Tranche Notice, such portion shall be deemed exercised (i) on the Tranche Notice Date, if exercised by 6:30 p.m. Eastern time on the Tranche Notice Date, or (ii) on the next Trading Day, if exercised by Investor after 6:30 p.m. Eastern Time on the Tranche Notice Date or on any other date, in each case with Holder deemed to be a holder of record as of such date.

 

1.1.5 If this Warrant is exercised and the number of Warrant Shares represented by this Warrant is greater than the number of Warrant Shares being acquired upon such exercise, then the Company shall, as soon as practicable and in no event later than one Trading Day after such exercise, update the Tranche Exercise Schedule to reflect the revised number of Warrant Shares for which this Warrant is then exercisable and deliver a copy of the updated Tranche Exercise Schedule to the Holder.  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.

 

 

 

  

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1.2 Adjustments to Exercise Price and Number of Shares.  In addition to other adjustments specified herein, the Exercise Price of this Warrant and the number of shares of Common Stock issuable upon exercise shall be adjusted as follows:

 

1.2.1 Exercise Price.  The “Exercise Price” per share of Common Stock underlying this Warrant, subject to further adjustment as provided herein, shall be as follows:

 

(i) with respect to the Warrant issued on the Effective Date and until the first Tranche Notice Date, the number of shares set forth on the face of this Warrant, which is a number of shares of Common Stock equal to the Maximum Placement multiplied by 135%, with the resulting sum divided by the Closing Bid Price of a share of Common Stock on the Trading Day prior to the Effective Date, and (ii) with respect to the portion of this Warrant issued on the Effective Date and until the first Tranche Notice Date, the amount per Warrant Share set forth on the face of this Warrant, which is equal to Closing Bid Price for the Common Stock on the Trading Day prior to the Effective Date, and (ii) with respect to the portion of this Warrant that becomes exercisable on any Tranche Notice Date (including the first Tranche Notice Date), an amount per Warrant Share equal to the Closing Bid Price of a share of Common Stock on such Tranche Notice Date.

 

1.2.2 Number of Shares.  The number of Warrant Shares underlying this Warrant and each Warrant Tranche, subject to further adjustment as provided herein, shall be, with respect to the portion of this Warrant that becomes exercisable on any Tranche Notice Date including the first Tranche Notice Date, a number of shares equal to the Tranche Purchase Price set forth in the applicable Tranche Notice multiplied by 135%, with the resulting sum divided by the Closing Bid Price of a share of Common Stock on the Tranche Notice Date.  For example, if the Tranche Purchase Price is $1,000,000 and the Closing Bid Price is $0.50, then the number of Warrant Shares underlying that Warrant Tranche shall be $1,000,000 x 135% = $1,350,000 divided by $0.50 = 2,700,000 shares of Common Stock.  (In the foregoing example, following issuance of 2,700,000 Warrant Shares, the number of shares underlying this Warrant would be decreased by such 4,700,000 shares.)  On each Tranche Notice Date, the number of Warrant Shares underlying the related Warrant Tranche shall vest and become exercisable, and the aggregate number of Warrant Shares underlying this Warrant that are currently exercisable shall automatically adjust up or down to account for the change in the number of Warrant Shares covered by the new Warrant Tranche and for any Warrant Shares issued upon any prior or simultaneous exercise of this Warrant.  If at any time the Holder reasonably believes that the number of Warrant Shares included in the Registration Statement is not sufficient to cover all exercises under this Warrant, then the Company shall amend such Registration Statement to include the additional number of Warrant Shares that may be required to provide such coverage.

 

1.3 Cashless Exercise.  Notwithstanding anything contained herein to the contrary, if at any time there is not a current, valid and effective registration statement covering the Warrant Shares that are the subject of the Exercise Notice (the “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 =                                (B-C) x A

                                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 average of the Closing Bid Prices of the shares of Common Stock (as reported by Bloomberg) for the five (5) consecutive Trading Days ending 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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1.4 Company’s Failure to Timely Deliver Securities.  If the Company shall fail for any reason or for no reason to credit to the Holder’s balance account with DTC, by 12:00 p.m. Eastern time on the Trading Day following the Exercise Delivery Date, the 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 Trading 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 Bid 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 1.1.  In addition to the foregoing, if after the Company’s receipt of an Exercise Notice the Company shall fail to timely (pursuant to Section 1.1.3 hereof) credit the Holder’s balance account with DTC for the number of shares of Common Stock to which the Holder is entitled upon the Holder’s exercise hereunder, and 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 one Trading Day 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 credit such Holder’s balance account with DTC for the number of Warrant Shares to which the Holder is entitled upon the Holder’s exercise hereunder and to issue such Warrant Shares shall terminate, or (ii) promptly honor its obligation to credit such Holder’s balance account with DTC for the number of Warrant Shares to which the Holder is entitled upon the Holder’s exercise hereunder 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 sold by Holder in satisfaction of its obligations, times (B) the Closing Bid Price on the date of exercise.

 

1.5 Exercise Limitation.  Notwithstanding any other provision, at no time may the Holder (a) exercise this Warrant such that the number of Warrant Shares to be received pursuant to such exercise exceeds 135.0% of the aggregate of all Tranche Purchase Prices under and in connection with all Tranche Notices delivered pursuant to the Purchase Agreement prior to the date of exercise; or (b) exercise this Warrant such that the number of Warrant Shares to be received pursuant to such exercise, aggregated with all other shares of Common Stock or other voting securities of the Company then owned or deemed beneficially owned by the Holder and its affiliates, would result in the Holder and its affiliates owning or being deemed to beneficially own more than 9.99% of the Common Stock or other voting securities of the Company outstanding on the date of exercise, with such ownership percentage determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder (the “Holder Ownership Limit”).  In addition, as of any date, the aggregate number of shares of Common Stock into which this Warrant is exercisable within 61 days, together with all other shares of Common Stock or other voting securities of the Company owned or deemed beneficially owned by Holder and its affiliates, shall not exceed the Holder Ownership Limit.

 

1.6 Activity Restrictions.  For so long as Holder or any of its affiliates holds this Warrant or any Warrant Shares, neither Holder nor any affiliate will:  (i) vote any shares of Common Stock owned or controlled by it, solicit any proxies, or seek to advise or influence any Person with respect to any voting securities of the Company; (ii) engage or participate in any actions, plans or proposals which relate to or would result in (a) acquiring additional securities of the Company, alone or together with any other Person, which would result in exceeding the Holder Ownership Limit, (b) an extraordinary corporate transaction, such as a merger, reorganization or liquidation, involving Company or any of its subsidiaries, (c) a sale or transfer of a material amount of assets of the Company or any of its subsidiaries, (d) any change in the present board of directors or management of the Company, including any plans or proposals to change the number or term of directors or to fill any existing vacancies on the board, (e) any material change in the present capitalization or dividend policy of the Company, (f) any other material change in the Company’s business or corporate structure, including but not limited to, if the Company is a registered closed-end investment company, any plans or proposals to make any changes in its investment policy for which a vote is required by Section 13 of the Investment Company Act of 1940, (g) changes in the Company’s charter, bylaws or instruments corresponding thereto or other actions which may impede the acquisition of control of the Company by any Person, (h) causing a class of securities of the Company to be delisted from a national securities exchange or to cease to be authorized to be quoted in an inter-dealer quotation system of a registered national securities association, (i) a class of equity securities of the Company becoming eligible for termination of registration pursuant  to Section 12(g)(4) of the Act, or (j) any action, intention, plan or arrangement similar to any of those enumerated above; or (iii) request the Company or its directors, officers, employees, agents or representatives to amend or waive any provision of this Section 1.6.

 

 

  

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1.7 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.

 

1.8 Insufficient Authorized Shares.  If at any time while any portion of 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 110% of the number of shares of Common Stock as shall from time to time be necessary to effect the exercise of the portion of the Warrant then outstanding (the “Required Reserve Amount”) (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 the portion of the Warrant then outstanding.  Without limiting the generality of the foregoing sentence, as soon as practicable after the date of the occurrence of an Authorized Share Failure, but in no event later than 90 days after the occurrence of such Authorized Share Failure, the Company shall hold a meeting of its stockholders 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 stockholder with a proxy statement and shall use its best efforts to solicit its stockholders’ approval of such increase in authorized shares of Common Stock and to cause its board of directors to recommend to the stockholders that they approve such proposal.

 

ARTICLE 2

 

ADJUSTMENT UPON SUBDIVISION OR COMBINATION OF COMMON STOCK

 

If the Company at any time on or after the Issuance 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 Issuance 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 ARTICLE 2 shall become effective at the close of business on the date the subdivision or combination becomes effective.

 

ARTICLE 3

 

PURCHASE RIGHTS; FUNDAMENTAL TRANSACTIONS

 

3.1 Purchase Rights.  In addition to any adjustments pursuant to ARTICLE 2 above, if at any time the Company grants, issues or sells any Options, Convertible Securities or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of shares of Common Stock (the “Purchase Rights”), then the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired if the Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Warrant (without regard to any limitations on the exercise of this Warrant) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, 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 grant, issue or sale of such Purchase Rights.

 

3.2 Fundamental Transactions.  The Company shall not enter into or be party to a Fundamental Transaction unless the Successor Entity assumes in writing all of the obligations of the Company under this Warrant in accordance with the provisions of this Section 3.2 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 this Warrant in exchange for such Warrant 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.  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 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 the Holder would have been entitled to receive upon the happening of such Fundamental Transaction had this Warrant been converted 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, in lieu of the shares of the Common 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 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; provided, however, that in the event the Fundamental Transaction involves the issuance of cash or freely tradable securities by an issuer listed on the New York Stock Exchange or the Nasdaq Stock Market, then the ability to exercise this Warrant shall expire on the consummation of that 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 3.2  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.

 

 

 

  

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3.3 Purchase of Warrant.  Notwithstanding the foregoing Section 3.2, in the event of a Fundamental Transaction other than one in which the Successor Entity is a Public Successor Entity that assumes this Warrant such that this Warrant shall be exercisable for the publicly traded common stock of such Public Successor Entity, at the request of the Holder delivered before the 90th day after the effective date of such Fundamental Transaction, the Company (or the Successor Entity) shall purchase this Warrant from the Holder by paying to the Holder, within five (5) Trading Days after such request (or, if later, on the effective date of the Fundamental Transaction), cash in an amount equal to the value of the remaining unexercised portion of this Warrant on the date of such consummation, which value shall be determined by use of the Black Scholes Option Pricing Model using a volatility equal to the 100 day average historical price volatility prior to the date of the public announcement of such Fundamental Transaction.

 

ARTICLE 4

 

NONCIRCUMVENTION

 

The Company hereby covenants and agrees that the Company will not, by amendment of its certificate or articles of incorporation, articles of association, bylaws, or any other organization documents, 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 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 (i) 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, (ii) 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 (iii) shall, so long as any portion of this Warrant remains 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 this Warrant, 110% of the number of shares of Common Stock as shall from time to time be necessary to effect the exercise of this Warrant then outstanding (without regard to any limitations on exercise).

 

ARTICLE 5                                

 

WARRANT HOLDER NOT DEEMED A STOCKHOLDER

 

Except as otherwise specifically provided herein, the Holder, solely in such Person’s capacity as a holder of this Warrant, shall not be entitled to vote or receive dividends or be deemed the holder of share capital of the Company for any purpose, nor shall anything contained in this Warrant be construed to confer upon the Holder, solely in such Person’s capacity as the Holder of this Warrant, 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, prior to the issuance to the Holder 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 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 ARTICLE 5, 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.

 

ARTICLE 6

 

REISSUANCE OF WARRANTS

 

6.1 Transfer of Warrant.  If this Warrant is to be transferred in whole or in part, the Holder shall surrender this Warrant to the Company, whereupon the Company will forthwith issue and deliver upon the order of the Holder a new Warrant (in accordance with Section 6.4), registered as the Holder 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 6.4) to the Holder representing the right to purchase the number of Warrant Shares not being transferred.

 

6.2 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 to the Company in customary form and, in the case of mutilation, upon surrender and cancellation of this Warrant, the Company shall execute and deliver to the Holder a new Warrant (in accordance with Section 6.4) representing the right to purchase the Warrant Shares then underlying this Warrant.

 

6.3 Exchangeable for Multiple Warrant.  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 6.4) 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 at the time of such surrender; provided, however, that no Warrant for fractional shares of Common Stock shall be given.

 

6.4 Issuance of New Warrant.  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 6.1 or Section 6.3, the Warrant Shares designated by the Holder which, when added to the number of shares of Common Stock underlying the other new Warrant 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.

 

ARTICLE 7

 

NOTICES

 

Whenever notice is required to be given under this Warrant, unless otherwise provided herein, such notice shall be given in accordance with Section 6.2 of the Purchase Agreement.  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 therefore.  Without limiting the generality of the foregoing, the Company will give written notice to the Holder (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 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 as such 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.

 

 

 

  

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ARTICLE 8

 

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 Required Holders; provided that except as set forth in this Warrant no such action may increase the exercise price of any Warrant or decrease the number of shares or class of stock obtainable upon exercise of any Warrant without the written consent of the Holder.  No such amendment shall be effective to the extent that it applies to less than all of the holders of this Warrant.

 

ARTICLE 9

 

GOVERNING LAW

 

This Warrant shall be governed by and 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 New York, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of New York or any other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State of New York.

 

ARTICLE 10

 

CONSTRUCTION; HEADINGS

 

This Warrant shall be deemed to be jointly drafted by the Company and the Holder 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.

 

ARTICLE 11

 

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 2 Trading 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 Trading Days of such disputed determination or arithmetic calculation being submitted to the Holder, then the Company shall, within 2 Trading Days submit via facsimile (a) the disputed determination of the Exercise Price or arithmetic calculation to an independent, reputable investment bank or independent registered public accounting firm selected by Holder subject to Company’s approval, which may not be unreasonably withheld or delayed, or (b) the disputed arithmetic calculation of the Warrant Shares to the Company’s independent registered public accounting firm.  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 3 Trading 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.

 

 

  

7

  

 

 

ARTICLE 12 

 

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

 

ARTICLE 13 

 

DEFINITIONS

 

For purposes of this Warrant, in addition to the terms defined elsewhere herein, the following terms shall have the following meanings:

 

13.1 “Bloomberg” means Bloomberg Financial Markets.

 

13.2 “Closing Bid Price” means, for any security as of any date, the last closing bid price for such security on the Trading Market, as reported by Bloomberg, or, if the Trading Market begins to operate on an extended hours basis and does not designate the closing bid price, then the last bid price of such security prior to 4:00 p.m., Eastern time, as reported by Bloomberg, or, if the Trading Market is not the principal securities exchange or trading market for such security, the last closing bid price of such security on the principal securities exchange or trading market where such security is listed, quoted or traded as reported by Bloomberg, or if the foregoing do not apply, the last closing bid price 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 is reported for such security by Bloomberg, the average of the bid prices 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 cannot be calculated for a security on a particular date on any of the foregoing bases, the Closing Bid Price of such security on such date shall be the fair market value as mutually determined by the Company and Holder.  If the Company and Holder are unable to agree upon the fair market value of such security, then such dispute shall be resolved pursuant to ARTICLE 11.  All such determinations to be appropriately adjusted for any stock dividend, stock split, stock combination or other similar transaction during the applicable calculation period.

 

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

 

13.4 “Common Stock Deemed Outstanding” means, at any given time, the number of shares of Common Stock actually outstanding at such time, plus the number of shares of Common Stock deemed to be outstanding pursuant to Section 3.1 hereof regardless of whether the Options or Convertible Securities are actually exercisable at such time, but excluding any shares of Common Stock owned or held by or for the account of the Company or issuable upon exercise of this Warrant.

 

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

 

13.6 “DWAC Shares” means all Warrant Shares issued or issuable to Holder or any Affiliate, successor or assign of Holder pursuant to this Warrant, all of which shall be (a) issued in electronic form, (b) freely tradable and without restriction on resale, and (c) timely credited by Company to the specified Deposit/Withdrawal at Custodian (DWAC) account with DTC under its Fast Automated Securities Transfer (FAST) Program or any similar program hereafter adopted by DTC performing substantially the same function, in accordance with instructions issued to and countersigned by the Transfer Agent of the Company.

 

13.7 “Eligible Market” means the Trading Market, The New York Stock Exchange, Inc., The NASDAQ Global Select Market, The NASDAQ Global Market, The NASDAQ Capital Market, the NYSE Amex or the OTC Bulletin Board, but does not include the Pink Sheets.

 

13.8 “Fundamental Transaction” has the meaning set forth in the Purchase Agreement.

 

13.9 “Maximum Placement” has the meaning set forth in the Purchase Agreement.

 

 

  

8

  

 

 

13.10 “Options” means any rights, warrants or options to subscribe for or purchase shares of Common Stock or Convertible Securities.

 

13.11 “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.

 

13.12 “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.

 

13.13 “Public Successor Entity” means a Successor Entity that is a publicly traded corporation whose stock is quoted or listed for trading on an Eligible Market.

 

13.14 “Required Holders” means the Holders of this Warrant representing at least a majority of shares of Common Stock underlying this Warrant as then outstanding.

 

13.15 “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.

 

13.16 “Trading Day” means any day on which the Common Stock is traded on an Eligible Market; provided that it shall not include any day on which the Common Stock (a) is suspended from trading, or (b) is scheduled to trade on such exchange or market for less than 5 hours.

 

13.17 “Trading Market” means the OTC Bulletin Board, the NASDAQ Capital Market, the NASDAQ Global Market, the NASDAQ Global Select Market, the NYSE Amex, or the New York Stock Exchange, whichever is at the time the principal trading exchange or market for the Common Stock, but does not include the Pink Sheets inter-dealer electronic quotation and trading system.

 

13.18 “Tranche Closing Date” has the meaning set forth in the Purchase Agreement.

 

13.19 “Tranche Notice” has the meaning set forth in the Purchase Agreement.

 

13.20 “Tranche Notice Date” has the meaning set forth in the Purchase Agreement.

 

13.21 “Tranche Purchase Price” has the meaning set forth in the Purchase Agreement.

 

 

  

9

  

 

 

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

 

	 	 
PROVISION HOLDING, INC.

	 
	 	 	 	 
	
 

	
By: 

	/s/ 	 
	 	 	Name: Curt Thornton	 
	 	 	Title:   President and Chief Executive Officer	 
	 	 	 	 

 

 

 

 

  

10

  

 

 

 

Warrant Exercise Schedule

 

	
Exercise Date

	
Number of Warrant Shares

	
Exercise Price

Per Share

	
Aggregate Exercise Price

	
Dollar Amount Remaining

	  	  	  	  	  

 

  

11

  

 

APPENDIX 1

 

EXERCISE NOTICE

 

 

PROVISION HOLDING, INC.

 

The undersigned hereby exercises the right to purchase ________________ shares of Common Stock (“Warrant Shares”) of Provision Holding, Inc., a Nevada corporation (“Company”), evidenced by the attached Warrant to Purchase Common Stock (“Warrant”).  Capitalized terms used herein and not otherwise defined shall have the respective meanings set forth in the Warrant.  The Holder intends that payment of the Exercise Price shall be made as:

 

___           Cash Exercise with respect to ____________ Warrant Shares

___           Cashless Exercise with respect to ____________ Warrant Shares

___           Recourse Note Exercise with respect to ____________ Warrant Shares

           Please issue

___           A certificate or certificates representing said shares of Common Stock in the namespecified below

	
  

	
___

	
Said shares in electronic form to the Deposit/Withdrawal at Custodian (DWAC) account with Depository Trust Company (DTC) specified below.

 

                                                      

Holder Name

By:   ____________________________________________

                                                   

Name:  __________________________________________

                                                              

Title:   ___________________________________________                                                   

 

  

12

  

ACKNOWLEDGMENT

 

The Company hereby acknowledges the foregoing Exercise Notice and hereby directs [_________]  to issue the above indicated number of shares of Common Stock as specified above, in accordance with the Transfer Agent Instructions dated [_________] from the Company, and acknowledged and agreed to by the transfer agent.

 

	 	 
PROVISION HOLDING, INC.

	 
	 	 	 	 
	
 

	
By: 

	/s/ 	 
	 	 	Name 	 
	 	 	Title 	 
	 	 	 	 

 

 

 

  

13

  

 

APPENDIX 2

 

FORM OF NOTE

 

 

 

 

SECURED PROMISSORY NOTE

$[_____________]                                                                                                           Date:           [________], 20[__]

 

FOR VALUE RECEIVED, [_____________] (“Borrower”) promises to pay to the order of Provision Holding, Inc. (“Lender”), at [________], or at such other place as Lender may from time to time designate in writing, the principal sum of $[________], with interest, as follows:

1. Interest.  The principal balance outstanding from time to time under this Secured Promissory Note (this “Note”), shall bear interest from and after the date hereof at the rate of 2.0% per year.  Interest shall be calculated on a simple interest basis and the number of days elapsed during the period for which interest is being calculated.  Payments of interest will be due on each annual anniversary of the date of this Note; provided that Borrower will not be in default hereunder for failure to make any annual interest payment when due (other than on the Maturity Date) and the amount of interest not paid when due shall be added to the principal balance of this Note and such amount will thereafter accrue interest at the rate set forth above.

 

2. Payments.  If not sooner paid, the entire unpaid principal balance, interest thereon and any other charges due and payable under this Note shall be due and payable on the fourth anniversary of the date of this Note (“Maturity Date”); provided, however, that no payments on this Note will be due or payable so long as either (a) Lender is in default under any preferred stock purchase agreement for Series B Preferred Stock with Borrower or any Warrant issued pursuant thereto, any loan agreement or other material agreement entered into with Borrower, or (b) there are any shares of Series B Preferred Stock of Lender issued or outstanding (each, a “Non-Payment Event”).  Upon the termination or cure of any Non-Payment Event, Borrower’s obligation to pay amounts outstanding on this Note will immediately be reinstated.  Borrower shall have the right to prepay all or any part of the principal balance of this Note at any time without penalty or premium.  In the event that Lender redeems all or a portion of any shares of Series B Preferred Stock then held by Borrower, the proceeds of any such redemption will be applied by Borrower to pay down the accrued interest and outstanding principal of this Note and Lender will be permitted to offset the full amount of such proceeds against amounts outstanding under this Note.  All payments on this Note shall be first applied to interest, then to reduce the outstanding principal balance hereof.

 

3. Full Recourse Note.  THIS IS A FULL RECOURSE PROMISSORY NOTE.  Accordingly, notwithstanding that Borrower’s obligations under this Note are secured by the Collateral, in the event of a material default hereunder, Lender shall have full recourse to all the other assets of Borrower.  Moreover, Lender shall not be required to proceed against or exhaust any Collateral, or to pursue any Collateral in any particular order, before Lender pursues any other remedies against Borrower or against any of Borrower’s assets.

 

4. Security

 

a. Pledge.  As security for the due and prompt payment and performance of all payment obligations under this Note and any modifications, replacements and extensions hereof (collectively, “Secured Obligations”), Borrower hereby pledges and grants a security interest to Lender in all of Borrower’s right, title, and interest in and to all of the following, now owned or hereafter acquired or arising (together the “Collateral”):

 

i. Publicly traded shares of common stock, preferred stock, bonds, notes and/or debentures (collectively, “Pledged Securities”) with a fair market value on the date hereof at least equal to the principal amount of this Note, based upon the trading price of such securities on the OTC Bulletin Board, NASDAQ Capital Market, NASDAQ Global Market, NASDAQ Global Select Market, NYSE Amex, or New York Stock Exchange;

 

ii. all rights of Borrower with respect to or arising out of the Pledged Securities, including voting rights, and all equity and debt securities and other property distributed or distributable with respect thereto as a result of merger, consolidation, dissolution, reorganization, recapitalization, stock split, stock dividend, reclassification, exchange, redemption, or other change in capital structure; and

 

 

 

 

 

  

14

  

iii. all proceeds, replacements, substitutions, accessions and increases in any of the Collateral.

 

b. Replacement Securities.  So long as any Secured Obligations remain outstanding, in the event that Borrower sells or disposes of any Pledged Securities, Borrower shall promptly provide replacement securities of equal or greater value than such Pledged Securities.

 

c. Rights With Respect to Distributions.  So long as no default shall have occurred and be continuing under this Note, Borrower shall be entitled to receive any and all dividends and distributions made with respect to the Pledged Securities and any other Collateral.  However, upon the occurrence and during the continuance of any default, Lender shall have the sole right (unless otherwise agreed by Lender) to receive and retain dividends and distributions and apply them to the outstanding balance of this Note or hold them as Collateral, at Lender’s election.

 

d. Voting Rights.  So long as no default shall have occurred and be continuing under this Note, Borrower shall be entitled to exercise all voting rights pertaining to the Pledged Securities and any other Collateral.  However, upon the occurrence and during the continuance of any default, all rights of Borrower to exercise the voting rights that Borrower would otherwise be entitled to exercise with respect to the Collateral shall cease and (unless otherwise agreed by Lender) all such rights shall thereupon become vested in Lender, which shall thereupon have the sole right to exercise such rights.

 

e. Financing Statement; Further Assurances.  Borrower agrees, concurrently with executing this Note, that Lender may file a UCC-1 financing statement relating to the Collateral in favor of Lender, and any similar financing statements in any jurisdiction in which Lender reasonably determines such filing to be necessary.  Borrower further agrees that at any time and from time to time Borrower shall promptly execute and deliver all further instruments and documents that Lender may request in order to perfect and protect the security interest granted hereby, or to enable Lender to exercise and enforce its rights and remedies with respect to any Collateral following an event of default.  In addition, following an event of default, Borrower shall deliver the Collateral, including original certificates or other instruments representing the Pledged Securities, to Lender to hold as secured party, and Borrower shall, if requested by Lender, execute a securities account control agreement.

 

f. Powers of Lender.  Borrower hereby appoints Lender as Borrower’s true and lawful attorney-in-fact to perform any and all of the following acts, which power is coupled with an interest, is irrevocable until the Secured Obligations are paid and performed in full, and may be exercised from time to time by Lender in its discretion:  To take any action and to execute any instrument which Lender may deem reasonably necessary or desirable to accomplish the purposes of this Section 4(f) and, more broadly, this Note including, without limitation:  (i) to exercise voting and consent rights with respect to Collateral in accordance with this Note, (ii) during the continuance of any default hereunder, to receive, endorse and collect all instruments or other forms of payment made payable to Borrower representing any dividend, interest payment or other distribution in respect of the Collateral or any part thereof and to give full discharge for the same, when and to the extent permitted by this Note, (iii) to perform or cause the performance of any obligation of Borrower hereunder in Borrower’s name or otherwise, (iv) during the continuance of any default hereunder, to liquidate any Collateral pledged to Lender hereunder and to apply proceeds thereof to the payment of the Secured Obligations or to place such proceeds into a cash collateral account or to transfer the Collateral into the name of Lender, all at Lender’s sole discretion, (v)  to enter into any extension, reorganization or other agreement relating to or affecting the Collateral, and, in connection therewith, to deposit or surrender control of the Collateral, (vi) to accept other property in exchange for the Collateral, (vii) to make any compromise or settlement Lender deems desirable or proper, and (viii) to execute on Borrower’s behalf and in Borrower’s name any documents required in order to give Lender a continuing first lien upon the Collateral or any part thereof.

 

5. Additional Terms

 

a. No Waiver.  The acceptance by Lender of payment of a portion of any installment when due or an entire installment but after it is due shall neither cure nor excuse the default caused by the failure of Borrower timely to pay the whole of such installment and shall not constitute a waiver of Lender’s right to require full payment when due of any future or succeeding installments.

 

b. Default.  Any one or more of the following shall constitute a “default” under this Note:  (i) a default in the payment when due of any amount hereunder, (ii) Borrower’s refusal to perform any material term, provision or covenant under this Note, (iii) the commencement of any liquidation, receivership, bankruptcy, assignment for the benefit of creditors or other debtor-relief proceeding by or against Borrower, (iv) the transfer by Borrower of any Pledged Securities without being replaced by Pledged Securities in accordance with Section 4(b), and (iv) the levying of any attachment, execution or other process against Borrower, the Collateral or any material portion thereof.

 

 

 

  

15

  

 

c. Default Rights

 

i. Upon the occurrence of any payment default Lender may, at its election, declare the entire balance of principal and interest under this Note immediately due and payable.  A delay by Lender in exercising any right of acceleration after a default shall not constitute a waiver of the default or the right of acceleration or any other right or remedy for such default.  The failure by Lender to exercise any right of acceleration as a result of a default shall not constitute a waiver of the right of acceleration or any other right or remedy with respect to any other default, whenever occurring.  

 

ii. Further, upon the occurrence of any material non-monetary default, following 30 days notice from Lender to Borrower specifying the default and demanded manner of cure for such non-monetary default, Lender shall thereupon and thereafter have any and all of the rights and remedies to which a secured party is entitled after a default under the applicable Uniform Commercial Code, as then in effect.  In addition to Lender’s other rights and remedies, Borrower agrees that, upon the occurrence of default, Lender may in its sole discretion do or cause to be done any one or more of the following:

 

(a) Proceed to realize upon the Collateral or any portion thereof as provided by law, and without liability for any diminution in price which may have occurred, sell the Collateral or any part thereof, in such manner, whether at any public or private sale, and whether in one lot as an entirety, or in separate portions, and for such price and other terms and conditions as is commercially reasonable given the nature of the Collateral.

 

(b) If notice to Borrower is required, give written notice to Borrower at least ten days before the date of sale of the Collateral or any portion thereof.

 

(c) Transfer all or any part of the Collateral into Lender’s name or in the name of its nominee or nominees.

 

(d) Vote all or any part of the Collateral (whether or not transferred into the name of Lender ) and give all consents, waivers and ratifications in respect of the Collateral and otherwise act with respect thereto, as though Lender were the outright owner thereof.

 

iii. Borrower acknowledges that all or part of foreclosure of the Collateral may be restricted by state or federal securities laws, Lender may be unable to effect a public sale of all or part of the Collateral, that a public sale is or may be impractical and inappropriate and that, in the event of such restrictions, Lender thus may be compelled to resort to one or more private sales to a restricted group of purchasers who will be obliged to agree, among other things, to acquire the Collateral for their own account, for investment and not with a view to its distribution or resale.  Borrower agrees that if reasonably necessary Lender may resort to one or more sales to a single purchaser or a restricted or limited group of purchasers.  Lender shall not be obligated to make any sale or other disposition, unless the terms thereof shall be satisfactory to it.

 

iv. If, in the opinion of Lender based upon written advice of counsel, any consent, approval or authorization of any federal, state or other governmental agency or authority should be necessary to effectuate any sale or other disposition of any Collateral, Borrower shall execute all such applications and other instruments as may reasonably be required in connection with securing any such consent, approval or authorization, and will otherwise use its commercially reasonable best efforts to secure the same.

 

v. The rights, privileges, powers and remedies of Lender shall be cumulative, and no single or partial exercise of any of them shall preclude the further or other exercise of any of them.  Any waiver, permit, consent or approval of any kind by Lender of any default hereunder, or any such waiver of any provisions or conditions hereof, must be in writing and shall be effective only to the extent set forth in writing.  Any proceeds of any disposition of the Collateral, or any part thereof, may be applied by Lender to the payment of expenses incurred by Lender in connection with the foregoing, and the balance of such proceeds shall be applied by Lender toward the payment of the Secured Obligations.

 

d. No Oral Waivers or Modifications.  No provision of this Note may be waived or modified orally, but only in a writing signed by Lender and Borrower.

 

e. Attorney Fees.  The prevailing party in any action by Lender to collect any amounts due under this Note shall be entitled to recover its reasonable attorneys fees and costs.

 

f. Governing Law.  This Note has been executed and delivered in, and is to be construed, enforced, and governed according to the internal laws of, the State of New York without regard to its principles of conflict of laws that would require or permit the application of the laws of any other jurisdiction.

 

g. Severability.  Whenever possible, each provision of this Note shall be interpreted in such manner as to be effective and valid under applicable law.  However, if any provision of this Note shall be held to be prohibited by or invalid under applicable law, it shall be ineffective only to the extent of such prohibition or invalidity without invalidating the remainder of that provision or the other provisions of this Note.

 

h. Entire Agreement.  This Note contains the entire understanding of the parties with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral or written, with respect to such matters.

 

                                                      

By:       ___________________________

                                               

Name:  ___________________________

                                                              

Title:    ___________________________                                                  

 

 

 

 

16gec-ex101toform8k_jun22010.htm

Exhibit 10.1

AGREEMENT

This Agreement and Mutual Release (the “Agreement”), dated June 1, 2010 is entered into by GEC Holding, LLC, a Delaware limited liability company (“GEC”), Frederick M. Pevow, Jr., an individual and sole member of GEC (together with GEC, “Pevow”), and Gateway Energy Corporation, a Delaware corporation (the “Company”).

 

WHEREAS, Pevow has been conducting the consent solicitation (the “Consent Solicitation”) described in the definitive consent statement on Schedule 14A filed by Pevow with the Securities and Exchange Commission (the “SEC”) on April 2, 2010 (the “Consent Statement”).

 

WHEREAS, on May 18 and 19, 2010, six members of the board of directors of the Company (the “Board”) resigned (the “Resignations”), which resulted in six vacancies on the Board and John A. Raasch (“Raasch”) remaining as the sole member of the Board.

 

WHEREAS, pursuant to the powers granted to the Board under Article II, Section 2 of the Bylaws of the Company, Raasch has the power to appoint directors to fill the vacancies created by the Resignations.

 

WHEREAS, in reliance upon the terms and conditions of this Agreement, Raasch intends to appoint directors to fill vacancies created by the Resignations as set forth herein.

 

WHEREAS, the Company and Pevow have agreed that it is in their mutual interests to enter into this Agreement, among other things, to set forth certain agreements concerning the composition of the Board, the resolution of the Consent Solicitation and certain other matters, as hereinafter described.

 

NOW, THEREFORE, in consideration of the foregoing premises and the representations, warranties and agreements contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto mutually agree as follows:

 

1.   Pursuant to the powers granted to the Board under Article II, Section 2 of the Bylaws of the Company (the “Bylaws”), the Board shall promptly appoint (and in no event later than June 2, 2010) the following persons as directors to fill the vacancies created by the Resignations:  Frederick M. Pevow, Jr., Perin Greg deGeurin, David F. Huff, John O. Niemann, Jr., Paul G. VanderLinden, III and a seventh director to be mutually agreed upon (acting in good faith) by Pevow, the Company and John Raasch promptly following the date hereof (such persons who are appointed to the Board being referred to collectively here as the “Appointed Directors”).  Upon the appointment of the five individuals noted in the foregoing sentence (which shall be evidenced by board resolutions in form and substance reasonably satisfactory to Pevow) and subject to the continued satisfaction of Sections 2 through 6, Pevow shall immediately cease all efforts, direct or indirect, in furtherance of the Consent Solicitation and shall not deliver or otherwise use any stockholder consents obtained in the Consent Solicitation.  At the same time, the Company shall immediately cease all direct or indirect consent revocation activities relating to the Consent Solicitation.

 

  

  

  

2.   The Appointed Directors and Raasch shall serve as directors on the Board through the conclusion of the Company’s 2010 annual meeting of the stockholders (including through any adjournments or postponements thereof) scheduled for August 18, 2010 (the “2010 Annual Meeting”), or until their successors are duly elected and qualified.

 

3.   Each of the Company and Pevow shall use its reasonable best efforts to cause the Board and the Nominating Committee thereof to nominate each of the Appointed Directors or any Replacement Candidate (as defined below) and Raasch (together, the “2010 Nominees”) (other than in the case of her, his or their inability or refusal to serve), to stand for election as directors at the 2010 Annual Meeting of stockholders.

 

4.   Each of the Company and Pevow shall use its reasonable best efforts to support the election to the Board of each of the 2010 Nominees at the 2010 Annual Meeting, including, without limitation, recommending that the Company’s stockholders vote in favor of the election of the 2010 Nominees and soliciting proxies in favor of the election of the 2010 Nominees.

 

5.   In the case of the death, disability or resignation of any Appointed Director (or any replacement therefor), Pevow shall have the exclusive right to identify a candidate to serve as a replacement director to the Nominating Committee (a “Replacement Candidate”).  The Replacement Candidate shall be promptly reviewed and recommended by the Nominating Committee of the Board and elected by the Board, provided that the Nominating Committee or the Board does not advance a reasonable objection to such Replacement Candidate (in which case such Replacement Candidate shall not be recommended or elected, as the case may be), and provided further that if the Nominating Committee or the Board does advance a reasonable objection to such Replacement Candidate, Pevow shall be entitled to designate a further Replacement Candidate subject to the terms herein, until such time as a Replacement Candidate is elected to the Board.  In the event that the Board or the Nominating Committee objects (whether reasonably or otherwise) to any Replacement Candidate designated by Pevow, the Board shall waive the provisions of Article I, Section 1 of the Bylaws with respect to any nominees for director Pevow wishes to submit for stockholder action at the 2010 Annual Meeting.

 

6.   The Company shall issue a press release substantially in the form attached hereto as Exhibit B (the “Press Release”) as soon as practicable on or after the date hereof (and in no event later than June 2, 2010) and the Company shall file a corresponding Form 8-K that includes both the Press Release and this Agreement.  Pevow shall file a corresponding amendment to its Schedule 13D originally filed with the SEC on February 11, 2010 (as amended, the “Schedule 13D”).  Neither of the Company nor Pevow shall make any public announcement or statement that is inconsistent with or contrary to the statements made in the Press Release, except as required by law or the rules of any stock exchange or with the prior written consent of the other party.

 

  

2

  

7.   In the event that the Board elects Pevow as Chief Executive Officer and President of the Company and Pevow agrees to so serve, his initial base salary shall be at a rate of $175,000 until the Company’s 2011 annual meeting of the stockholders and the Board and Mr. Pevow shall promptly negotiate in good faith a mutually agreeable employment agreement, which employment agreement would set forth Mr. Pevow’s entire compensation package, including such base salary, benefits and the terms of any incentive or equity compensation.

 

8.   Each of the Company and Pevow acknowledge and agree that (a) a breach or a threatened breach by either party hereto may give rise to irreparable injury inadequately compensable in damages and accordingly each party shall be entitled to injunctive relief, without proof of actual damages, to prevent a breach or threatened breach of the provisions hereof and to enforce specifically the terms and provisions hereof solely in the Court of Chancery of the State of Delaware, (b) no party shall plead in defense for any such relief that there would be an adequate remedy at law, (c) any applicable right or requirement that a bond be posted by either party is waived and (d) such remedies shall not be the exclusive remedies for a breach of this Agreement, but will be in addition to all other remedies available at law or in equity.  Each of the parties hereto expressly acknowledges and agrees that sufficient consideration was delivered to it in connection with its agreements hereunder and each agrees not to raise lack of consideration as a defense against the enforcement of this Agreement.

 

9.   Pevow, for the benefit of the Company and each of the Company’s present and former officers, directors, agents, employees, attorneys and assigns, in their capacity as such (the Company and each such person being a “Company Released Person”), hereby forever waives and releases, and covenants not to sue, any of the Company Released Persons for any individual claim or cause of action based on any act, omission, or failure to act by the Company Released Persons, whether known or unknown, which act, omission or failure to act occurred prior to the date hereof in connection with the Resignations, the termination of, and severance payments to, Robert Panico and Christopher Rasmussen (but only to the extent disclosed in the Company’s Form 8-K filed with the SEC on May 26, 2010), the Consent Solicitation and the Company’s defense thereof including the Company’s consent revocation solicitation; provided, however, this waiver and release and covenant not to sue shall not include the right to sue to enforce the terms of this Agreement and does not extend to acts which are criminal or which do not relate to the Consent Solicitation.

 

10.   The Company, for the benefit of Pevow and each of Pevow’s present and former officers, directors, stockholders, Board nominees, agents, employees, attorneys and assigns, in their capacity as such (each such person being a “Pevow Released Person”), hereby forever waives and releases and covenants not to sue, for any claim or cause of action based on any act, omission or failure to act by such Pevow Released Person, whether known or unknown, which act, omission or failure to act occurred prior to the date hereof in connection with the Consent Solicitation and the Company’s defense thereof; provided, however, that this waiver and release and covenant not to sue shall not include the right to sue to enforce the terms of this Agreement and does not extend to acts which are criminal or which do not relate to the Consent Solicitation.

 

11.   All notices and other communications under this Agreement shall be in writing and shall be given (and shall be deemed to have been duly given upon receipt) by delivery in person or by facsimile, or by Federal Express or registered or certified mail, postage pre-paid, return receipt requested, as follows:

 

 

  

3

  

If to the Company:

 

Gateway Energy Corporation

1415 Louisiana, Suite 4100

Houston, TX 77001

Fax:  (713) 336-0855

with a copy (which shall not constitute notice) to:

Craig L. Evans

Stinson Morrison Hecker LLP

1201 Walnut, Suite 2900

Kansas City, MO 64106

Fax:  (816) 412-1129

If to Pevow:

Mr. Frederick M. Pevow, Jr.

GEC Holding, LLC

910 Oak Valley Drive

Houston, TX 77024

Fax:  (713) 722-0858

with a copy (which shall not constitute notice) to:

Timothy D. Rampe

Davis Graham & Stubbs LLP

1550 Seventeenth Street

Denver, CO 80202

Fax:  (303) 893-1379

12.   This Agreement may be executed by the signatories hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute one and the same instrument.

 

13.   Each of the parties hereto (a) consents to submit itself to the personal jurisdiction of the Court of Chancery of the State of Delaware in the event any dispute arises out of this Agreement or the transactions contemplated by this Agreement, (b) agrees that it shall not attempt to deny or defeat such personal jurisdiction by motion or other request for leave from such court, (c) agrees that it shall not bring any action relating to this Agreement or the transactions contemplated by this Agreement in any court other than the Court of Chancery of the State of Delaware, and each of the parties irrevocably waives the right to trial by jury, (d) agrees to waive any bonding requirement under any applicable law, in the case any other party seeks to enforce the terms by way of equitable relief and (e) irrevocably consents to service of process by first class certified mail, return receipt requested, postage prepaid, to the address of such party’s principal place of business or as otherwise provided by applicable law. THIS AGREEMENT SHALL BE GOVERNED IN ALL RESPECTS, INCLUDING VALIDITY, INTERPRETATION AND EFFECT, BY THE LAWS OF THE STATE OF DELAWARE APPLICABLE TO CONTRACTS EXECUTED AND TO BE PERFORMED WHOLLY WITHIN SUCH STATE WITHOUT GIVING EFFECT TO THE CHOICE OF LAW PRINCIPLES OF SUCH STATE.

 

  

4

  

14.   This Agreement constitutes the only agreement among the parties hereto with respect to the subject matter hereof and supersedes all prior agreements, understandings, negotiations and discussions whether oral or written.  This Agreement shall inure to the benefit of the parties hereto and their respective successors and permitted assigns.  This Agreement may not be assigned by any party without the express written consent of the other parties.  No amendment, modification, supplement or waiver of any provision of this Agreement may in any event be effective unless in writing and signed by the party or parties affected thereby.  This Agreement is not intended to confer upon any person other than the parties hereto any rights or remedies hereunder.

 

15.   The Company represents and warrants that, subject to applicable Delaware corporate law, (a) the Company has the power and authority to execute, deliver and carry out the terms and provisions of this Agreement and to consummate the transactions contemplated hereby, (b) this Agreement has been duly and validly authorized, executed and delivered by the Company, constitutes a valid and binding obligation and agreement of the Company and is enforceable against the Company in accordance with its terms and (c) neither the execution of this Agreement nor the consummation of any of the transactions contemplated hereby nor the fulfillment of any of the terms hereof will conflict with, or result in a breach or violation of, or result in the imposition of any lien, charge or encumbrance upon any property or assets of the Company or any of its subsidiaries pursuant to the terms of, any (i) indenture, contract, lease, mortgage, deed of trust, note agreement, loan agreement or other agreement, obligation, instrument or arrangement to which the Company or any of its subsidiaries is a party or bound or to which its or their property or assets are subject or (ii) governance documents of the Company.

 

16.   Pevow represents and warrants that (a) each of the Appointed Directors is prepared to act independently as a director of the Company and there are no agreements or understandings among the Appointed Directors or with any other person or entity relating to the matter set forth herein other than as disclosed to the Company or disclosed in the Schedule 13D, (b) Pevow has the power and authority to execute, deliver and carry out the terms and provisions of this Agreement and to consummate the transactions contemplated hereby, (c) this Agreement has been duly and validly authorized, executed and delivered by Pevow, constitutes a valid and binding obligation and agreement of Pevow and is enforceable against Pevow in accordance with its terms and (d) neither the execution of this Agreement nor the consummation of any of the transactions contemplated hereby nor the fulfillment of any of the terms hereof will conflict with, or result in a breach or violation of, any (i) indenture, contract, lease, mortgage, deed of trust, note agreement, loan agreement or other agreement, obligation, instrument or arrangement to which Pevow is a party or bound or (ii) governance documents of GEC Holding, LLC.

 

17.   In the event that the Board determines after the date hereof to reimburse Pevow for his expenses incurred in connection with the Consent Solicitation, the Company shall reimburse Pevow for all actual out-of-pocket fees and expenses (up to a maximum amount of $300,000) incurred by Pevow in connection with the Consent Solicitation and all matters relating thereto, including without limitation, all proxy advisory fees and expenses, court costs, printing and mailing fees and expenses and legal fees and expenses in connection with the Consent Solicitation, preparation of the Consent Statement and all other SEC filings by Pevow (including without limitation the Schedule 13D and all amendments thereto), preparation and negotiation of this Agreement and preparation, negotiation and enforcement of the voting and other agreements disclosed in the Schedule 13D.  Such reimbursement shall be payable as follows:  (i) $75,000 payable within one business day of the date hereof, (ii) $75,000 payable on or before June 30, 2010 and (iii) the remaining amount (subject to the $300,000 cap) payable in the form of a promissory note executed and delivered by the Company on the date hereof and substantially in the form attached hereto as Exhibit A.

 

  

5

  

18.   If any provision of this Agreement or the application thereof to any person or circumstances is determined, to any extent, to be invalid or unenforceable, the remainder of this Agreement, or the application of such term or provision to persons or circumstances other than those as to which the same is held invalid or unenforceable, will not be affected thereby, and each term and provision of this Agreement will be valid and enforceable to the fullest extent permitted by law. 

 

 

[signature page follows]

 

 

 

  

6

  

IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the duly authorized signatories of the parties as of the date hereof.

	
GATEWAY ENERGY CORPORATION

	  	  
	  	  	  
	  	  	  
	
By:

	
/s/ John A. Raasch

	  	  
	  	
John A. Raasch

	  	  
	  	
Chief Executive Officer and President

	  	  
	  	  	  	  
	  	  	  	  
	  	  	  	  
	  	/s/ Frederick M. Pevow, Jr.	  	  
	  	
 
Frederick M. Pevow, Jr.

	  	  
	  	
 

	  	  
	  	  	  	  
	  	  	  	  
	  	  	  	  
	  	  	  	  
	  	  	  	  
	
GEC HOLDING, LLC

	  	  
	  	  	  
	  	  	  
	
By:

	
/s/ Frederick M. Pevow, Jr.

	  	  
	
Name:

	
Frederick M. Pevow, Jr.

	  	  
	
Title:

	  	  	  
	  	  	  
	  	  	  
	  	  	  

  

7

  

Exhibit A

 

PROMISSORY NOTE

 

Houston, Texas

 

	
 

	  $150,000.00   	  June 1, 2010

 

FOR VALUE RECEIVED, on or before June 30, 2011 and in accordance with the schedule attached hereto as Annex A, Gateway Energy Corporation (“Maker”) promises to pay to the holder hereof (“Payee”) in lawful money of the United States of America, the principal sum of One Hundred and Fifty Thousand Dollars ($150,000.00).  Interest shall accrue on the outstanding principal balance at a rate equal to thirteen percent (13%) per year, from the date hereof until this Note is paid in full.  The principal balance of this Note and all accrued and unpaid interest shall be due and payable in accordance with the schedule set forth on Annex A.

 

This Note may be prepaid in whole or in part at any time without limitation or penalty.  Payments of principal and interest with respect to this Note are to be made in lawful money of the United States of America by wire transfer to an account maintained by the holder with a bank located in the United States as designated in writing by the holder or, if no such account is specified, payment shall be sent to the address of the holder as shown in the records of the Maker at the close of business on the business day immediately preceding any payment date.  If any payment on this Note shall become due and payable on a day that is not a business day, such payment shall be made on the next succeeding business day and any such extended time of the payment or interest shall not be included in computing interest at the rate this Note bears in connection with such payment.  Each payment received hereunder shall, at the option of the holder, be applied first to accrued but unpaid interest, and thereafter to installments of principal then due.

 

This Note shall become immediately due and payable upon the earlier to occur of the insolvency of, general assignment for the benefit of creditors by, initiation of any proceedings under any state or federal bankruptcy, insolvency, moratorium or reorganization law or regulation by or against, or the appointment of a receiver for, all or any portion of the property of Maker.

 

Maker agrees to pay all costs and expenses incurred by the holder arising out of, or relating to, the enforcement or collection of the indebtedness evidenced by this Note, including reasonable attorneys’ fees and court costs.

 

The obligation of Maker evidenced by this Note arose in the State of Texas and this Note shall be governed by and construed under the laws of Texas.

 

  

8

  

To the extent permitted by law, Maker and all endorsers, sureties, accommodation parties and guarantors hereof jointly and severally, waive presentment for payment, demand, notice of nonpayment, notice of protest and protest of this Note and all other notices and demands required by law, and hereby consent to any and all extensions of time or modifications that may be granted with respect to the payment or other provisions of this Note and to the release of any collateral or other security, or any part thereof, and agree that additional makers, endorsers, guarantors, accommodation parties or sureties may become parties hereto without notice to them and without affecting their liability hereunder, and further agree that it shall not be necessary for the holder to resort to legal remedies against any of them before proceeding against any other of them and agree that no release of a Maker or one or more of the endorsers, guarantors, accommodation parties, or sureties, whether by operation of law or by any act of the holder of this Note, shall release any other Maker, endorser, guarantor, accommodation party or surety.

 

It is not intended to charge interest at a rate in excess of the maximum rate of interest that Payee may charge to Maker under applicable usury and other laws, but if, notwithstanding, interest in excess of such rate shall be paid hereunder, the interest rate on this Note shall be adjusted to the maximum permitted under applicable law during the period or periods that the interest rate otherwise provided herein would exceed such rate and any excess amount applied at Payee’s option to reduce the outstanding principal balance of this Note or to be returned to Maker.

 

 

	  	
GATEWAY ENERGY CORPORATION

	  	  
	  	  
	  	  
	  	
By:

	  
	  	
Title:

	  

  

  

  

Annex A

	
Payment Date

	
Principal Payment

	
Interest Payment

	
Total Payment

	
June 30, 2010

	
$11,772.59

	
$1,625.00

	
$13,397.59

	
July 31, 2010

	
$11,900.13

	
$1,497.46

	
$13,397.59

	
August 31, 2010

	
$12,029.05

	
$1,368.54

	
$13,397.59

	
September 30, 2010

	
$12,159.36

	
$1,238.23

	
$13,397.59

	
October 31, 2010

	
$12,291.09

	
$1,106.50

	
$13,397.59

	
November 30, 2010

	
$12,424.24

	
$973.35

	
$13,397.59

	
December 31, 2010

	
$12,558.83

	
$838.76

	
$13,397.59

	
January 31, 2011

	
$12,694.89

	
$702.70

	
$13,397.59

	
February 28, 2011

	
$12,832.42

	
$565.17

	
$13,397.59

	
March 31, 2011

	
$12,971.44

	
$426.15

	
$13,397.59

	
April 30, 2011

	
$13,111.96

	
$285.63

	
$13,397.59

	
May 31, 2011

	
$13,254.01

	
$143.58

	
$13,397.59

  

9

  

Exhibit B

 

NEWS RELEASE

 

Gateway Energy Corporation Announces Agreement with Frederick Pevow

HOUSTON, June 2, 2010 -- Gateway Energy Corporation (OTC Bulletin Board: GNRG; “Gateway”) announced today that it has reached an agreement with Frederick M. Pevow, Jr. to settle issues relating to the ongoing consent solicitation campaign.

 

Under the terms of the agreement, Gateway will appoint Perin Greg deGeurin, David Fairfax Huff, John O. Niemann, Jr., Frederick M. Pevow, Jr. and Paul G. VanderLinden, III to Gateway’s board of directors.  These individuals will serve with John Raasch on the reconstituted board of directors, following the recent resignations of six of the members of Gateway’s board.  The new Board may consider appointing a seventh director, who, pursuant to the agreement, would be reasonably acceptable to Messrs. Pevow and Raasch.

 

Mr. Pevow has agreed that, if elected Chief Executive Officer and President of Gateway, his base salary will be $175,000 until the 2011 annual stockholders’ meeting.  In addition, Gateway will reimburse Mr. Pevow for the expenses incurred in connection with the consent solicitation, up to $300,000, of which $150,000 will be payable in cash and the balance pursuant to a promissory note.

 

Gateway’s Chief Executive Officer and President, John Raasch, commented, “This agreement allows us to put the distraction of the consent solicitation behind us, and to focus on Gateway’s business.  I am looking forward to working with Fred and the other new board members to continue to improve Gateway’s performance, and to create value for the stockholders of Gateway.  The new board members will bring valuable insight and perspective to allow us to build Gateway’s business.”

 

Mr. Pevow, in turn, commented, “I agree with John.  It is time to move forward.  Let’s get started.”

 

Mr. deGeurin is the president and co-owner of DeGeurin Realty, Inc., a commercial and residential real estate brokerage. Mr. deGeurin has been the president and co-owner of DeGeurin Realty, Inc. since 1989. Mr. deGeurin graduated from the University of Texas at Austin with a bachelor of arts from the School of Communications.

 

Mr. Huff is the president and co-owner of Progressive Pumps & Controls Corporation, a distributor of oilfield pumps and related accessories, a position he has held since January 2009. Mr. Huff was the vice president of Progressive Pumps & Controls from November 2006 to December 2008. He was self-employed from March 2006 to October 2006. Mr. Huff was the chief financial officer of Academy Sports & Outdoors from April 2005 to March 2006. Mr. Huff was formerly an investment banker for Bank of America and Bear, Stearns & Co. Inc., specializing in the energy sector. He graduated with a bachelor of science in accounting and finance from the University of Texas at Austin and earned a masters in business administration from the Wharton School, University of Pennsylvania.

 

  

10

  

Mr. Niemann is the president and chief operating officer of Arthur Andersen LLP, and has been since 2003. He previously served on the administrative board of Arthur Andersen LLP and on the board of partners of Andersen Worldwide. He began his career at Arthur Andersen in 1978 and served as a partner since 1987 and in increasing responsibilities in senior management positions, since 1992. Mr. Niemann has served on the board of directors of many Houston area non-profit organizations, including Strake Jesuit College Preparatory School (past chair of the board), The Regis School of the Sacred Heart (past chair of the board), The Houston Symphony, The Alley Theatre and Taping for the Blind, Inc. He graduated with a bachelor of arts in managerial studies (magna cum laude) and a masters in accounting from Rice University and received a juris doctor (summa cum laude) from the South Texas College of Law.

 

Mr. Pevow is a private investor. He was the president of Pevow and Associates, Inc., which provided investment and interim CFO consulting services to companies in the energy, power and chemicals industries, from February 2006 to December 2008.  He was the interim chief financial officer and a member of the board of directors of Texas Petrochemicals, Inc. from May 2004 to January 2006.  He also served on the board of directors of Abraxas Petroleum Corporation. He was formerly a senior investment banker to the energy industry with Smith Barney Inc. and CIBC World Markets.  Mr. Pevow graduated with a bachelor of arts in the Plan II Honors Program, University of Texas at Austin.

 

Mr. VanderLinden has been manager of market development of Radoil, Inc., a manufacturer of oil and gas equipment, since January 2009. He was the president, chief operating officer and co-founder of Gulfshore Midstream Pipelines, Ltd., from 2001 until its sale to Gateway in August 2007. He was an owner and co-founder of SeaCrest Company LLC and served as vice president from June 1997 until the formation of Gulfshore Midstream Pipelines, Ltd., in 2001. He has over 30 years of experience in the natural gas pipeline industry and held positions at Pan Energy, Natural Gas Pipeline Company of America and United Gas Pipe Line. Mr. VanderLinden graduated with a bachelor of science in Geology from Eastern New Mexico University.

 

About Gateway Energy

 

Gateway Energy Corporation owns and operates natural gas gathering, transportation and distribution systems in Texas, Texas state waters and in federal waters of the Gulf of Mexico off the Texas and Louisiana coasts. Gateway gathers offshore wellhead natural gas production and liquid hydrocarbons from producers, and then aggregates this production for processing and transportation to other pipelines. Gateway also transports gas through its onshore systems for non-affiliated shippers and through its affiliated distribution system and makes sales of natural gas to end users.

 

Safe Harbor Statement

 

Certain of the statements included in this press release, which express a belief, expectation or intention, as well as those regarding future financial performance or results, or which are not historical facts, are “forward-looking” statements as that term is defined in the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended. The words “expect”, “plan”, “believe”, “anticipate”, “project”, “estimate”, and similar expressions are intended to identify forward-looking statements. These forward-looking statements are not guarantees of future performance or events and such statements involve a number of risks, uncertainties and assumptions, including but not limited to industry conditions, prices of crude oil and natural gas, regulatory changes, general economic conditions, interest rates, competition, and other factors. Should one or more of these risks or uncertainties materialize or should the underlying assumptions prove incorrect, actual results and outcomes may differ materially from those indicated in the forward-looking statements, which speak only as of the date hereof. The Company undertakes no obligation to republish revised forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

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