Document:

exv4w2

 

Exhibit 4.2

EXECUTION COPY

WARRANT

NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES
INTO WHICH THESE SECURITIES ARE EXERCISEABLE 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, IN A FORM
REASONABLY ACCEPTABLE TO THE COMPANY, 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.

GREENHUNTER ENERGY, INC.

Warrant To Purchase Common Stock

Warrant No.: A-1

Number of Shares of Common Stock: 410,000

Date of Issuance: March 12, 2007 (“Issuance Date”)

     GreenHunter Energy, Inc., a Delaware corporation (the “Company”), hereby certifies that, for
good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, West
Coast Opportunity Fund, LLC, the registered holder hereof or its permitted assigns (the “Holder”),
is entitled, subject to the terms set forth below, to purchase from the Company, at the Exercise
Price (as defined below) then in effect, upon surrender of this Warrant to Purchase Common Stock
(including any Warrants to Purchase Common Stock issued in exchange, transfer or replacement
hereof, the “Warrant”), at any time or times on or after the date hereof, but not after 11:59 p.m.,
New York Time, on the Expiration Date (as defined below), 1,500,000 fully paid nonassessable shares
of Common Stock (as defined below) (the “Warrant Shares”). Except as otherwise defined herein,
capitalized terms in this Warrant shall have the meanings set forth in Section 15. This Warrant is
one of the Warrants to purchase Common Stock (the “SPA Warrants”) issued pursuant to Section 1 of
that certain Securities Purchase Agreement, dated as of March 9, 2007 (the ”Subscription Date”), by
and among the Company and the investors (the ”Buyers”) referred to therein (the “Securities
Purchase Agreement”).

     1. EXERCISE OF WARRANT.

          (a) Mechanics of Exercise. Subject to the terms and conditions hereof (including,
without limitation, the limitations set forth in Section 1(f)), this Warrant may be exercised by
the Holder on any day on or after the date hereof, in whole or in part, by (i) delivery of a
written notice, in the form attached hereto as Exhibit A (the “Exercise Notice”), of the
 

 

 

Holder’s election to exercise this Warrant and (ii) payment to the Company of an amount equal
to the applicable Exercise Price multiplied by the number of Warrant Shares as to which this
Warrant is being exercised (the “Aggregate Exercise Price”) in cash or wire transfer of immediately
available funds. The Holder shall not be required to deliver the original Warrant in order to
effect an exercise hereunder. Execution and delivery of the Exercise Notice with respect to less
than all of the Warrant Shares shall have the same effect as cancellation of the original Warrant
and issuance of a new Warrant evidencing the right to purchase the remaining number of Warrant
Shares. On or before the first Business Day following the date on which the Company has received
each of the Exercise Notice and the Aggregate Exercise Price (the “Exercise Delivery Documents”),
the Company shall transmit by facsimile an acknowledgment of confirmation of receipt of the
Exercise Delivery Documents to the Holder and the Company’s transfer agent (the ”Transfer Agent”).
On or before the third Business Day following the date on which the Company has received all of the
Exercise Delivery Documents (the “Share Delivery Date”), the Company shall (X) provided that the
Transfer Agent is participating in The Depository Trust Company (“DTC”) Fast Automated Securities
Transfer Program, upon the request of the Holder, credit such aggregate number of shares of Common
Stock to which the Holder is entitled pursuant to such exercise to the Holder’s or its designee’s
balance account with DTC through its Deposit Withdrawal Agent Commission system, or (Y) if the
Transfer Agent is not participating in the DTC Fast Automated Securities Transfer Program, issue
and dispatch by overnight courier to the address as specified in the Exercise Notice, a
certificate, registered in the Company’s share register in the name of the Holder or its designee,
for the number of shares of Common Stock to which the Holder is entitled pursuant to such exercise.
Upon delivery of the Exercise Notice and Aggregate Exercise Price referred to in clause (ii)
above, the Holder shall be deemed for all corporate purposes to have become the holder of record of
the Warrant Shares with respect to which this Warrant has been exercised, irrespective of the date
of delivery of the certificates evidencing such Warrant Shares. If this Warrant is submitted in
connection with any exercise pursuant to this Section 1(a) and the number of Warrant Shares
represented by this Warrant submitted for exercise is greater than the number of Warrant Shares
being acquired upon an exercise, then the Company shall as soon as practicable and in no event
later than five Business Days after any exercise and at its own expense, issue a new Warrant (in
accordance with Section 7(d)) representing the right to purchase the number of Warrant Shares
purchasable immediately prior to such exercise under this Warrant, less the number of Warrant
Shares with respect to which this Warrant is exercised. No fractional shares of Common Stock are
to be issued upon the exercise of this Warrant, but rather the number of shares of Common Stock to
be issued shall be rounded to the nearest whole number. The Company shall pay any and all taxes
which may be payable with respect to the issuance and delivery of Warrant Shares upon exercise of
this Warrant.

          (b) Exercise Price. For purposes of this Warrant, “Exercise Price” means $7.50,
subject to adjustment as provided herein.

          (c) Company’s Failure to Timely Deliver Securities. If within three (3) trading days
after the Company’s receipt of the facsimile copy of a Exercise Notice the Company shall fail to
issue and deliver a certificate to the Holder and register such shares of Common Stock on the
Company’s share register or credit the Holder’s balance account with DTC for the number of shares
of Common Stock to which the Holder is entitled upon such holder’s exercise
 

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hereunder, and if on or
after such Trading Day the Holder purchases (in an open market
transaction or in another bona fide transaction) shares of Common Stock to deliver in
satisfaction of a sale by the Holder of shares of Common Stock issuable upon such exercise that the
Holder anticipated receiving from the Company (a “Buy-In”), then the Company shall, within three
Business Days after the Holder’s request and in the Holder’s discretion, either (i) pay cash to the
Holder in an amount equal to the Holder’s total purchase price (including brokerage commissions, if
any) for the shares of Common Stock so purchased (the “Buy-In Price”), at which point the Company’s
obligation to deliver such certificate (and to issue such shares of Common Stock) shall terminate,
or (ii) promptly honor its obligation to deliver to the Holder a certificate or certificates
representing such shares of Common Stock and pay cash to the Holder in an amount equal to the
excess (if any) of the Buy-In Price over the product of (A) such number of shares of Common Stock,
times (B) the Closing Bid Price on the date of exercise.

          (d) 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.

          (e) Limitations on Exercises.

               (i) Beneficial Ownership. The Company shall not effect the exercise of this Warrant,
and the Holder shall not have the right to exercise this Warrant, to the extent that after giving
effect to such exercise, such Person (together with such Person’s affiliates) would beneficially
own in excess of 9.99% of the shares of Common Stock outstanding immediately after giving effect to
such exercise other than with respect to a forced exercise by the Company pursuant to Section 1(f).
For purposes of the foregoing sentence, the aggregate number of shares of Common Stock
beneficially owned by such Person and its affiliates shall include the number of shares of Common
Stock issuable upon exercise of this Warrant with respect to which the determination of such
sentence is being made, but shall exclude shares of Common Stock which would be issuable upon (i)
exercise of the remaining, unexercised portion of this Warrant beneficially owned by such Person
and its affiliates and (ii) exercise or conversion of the unexercised or unconverted portion of any
other securities of the Company beneficially owned by such Person and its affiliates (including,
without limitation, any convertible notes or convertible preferred stock or warrants) subject to a
limitation on conversion or exercise analogous to the limitation contained herein. Except as set
forth in the preceding sentence, for purposes of this paragraph, beneficial ownership shall be
calculated in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended.
For purposes of this Warrant, in determining the number of outstanding shares of Common Stock, the
Holder may rely on the number of outstanding shares of Common Stock as reflected in (1) the
Company’s most recent Form 10-K, Form 10-Q, Current Report on Form 8-K or other public filing with
the Securities and Exchange Commission, as the case may be, (2) a more recent public announcement
by the Company or (3) any other notice by the Company or the Transfer Agent setting forth the
number of shares of Common Stock outstanding. For any reason at any time, upon the written or oral
request of the Holder, the Company shall within two (2) Business Day confirm orally and in writing
to the Holder the number of shares of Common Stock then outstanding. In any case, the number of
outstanding shares of Common Stock shall be

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determined after giving effect to the conversion or
exercise of securities of the Company, including the SPA Securities and the SPA Warrants, by the
Holder and its affiliates since the
date as of which such number of outstanding shares of Common Stock was reported. By written notice
to the Company, the Holder may increase or decrease the Maximum Percentage to any other percentage
not in excess of 9.99% specified in such notice; provided that (i) any such increase will not be
effective until the sixty-first (61st) day after such notice is delivered to the
Company, and (ii) any such increase or decrease will apply only to the Holder and not to any other
holder of SPA Warrants.

          (f) Forced Exercise by the Company. The Company may force the Holder to exercise its
Warrants, in whole or in part, at any time all of the Exercise Conditions are satisfied. Provided
the Exercise Conditions have all been satisfied, the Company may provide notice (the “Company
Conversion Notice”) to the Holder at any time within (7) Business Days after the occurrence of such
events indicating the Company’s desire to have the Warrants exercised. The Holder shall have five
(5) Business Days after receipt of such Company Conversion Notice to exercise the Warrants with
either the payment of the Aggregate Exercise Price or through a Cashless Exercise as provided in
Section 1(a) above. The Company shall promptly deliver the Warrant Shares issued on conversion of
a Warrant to the Holder (without further action by the Holder being required).

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

          (a) Adjustment upon Issuance of New Warrants. If and whenever on or after the
Subscription Date the Company issues or sells, or in accordance with this Section 2 is deemed to
have issued or sold, any warrants for an exercise price per share (the “New Securities Issuance
Price”) less than a price (the “Applicable Price”) equal to the Exercise Price in effect
immediately prior to such issue or sale or deemed issuance or sale (the foregoing a “Dilutive
Issuance”), then immediately after such Dilutive Issuance, the Exercise Price then in effect shall
be reduced to an amount equal to the New Securities Issuance Price.

          (b) Adjustment upon Issuance of shares of Common Stock ) Other than as provided in
Section 2(a), if and whenever on or after the Subscription Date the Company issues or sells, or in
accordance with this Section 2 is deemed to have issued or sold, any shares of Common Stock
(including the issuance or sale of shares of Common Stock owned or held by or for the account of
the Company, but excluding Excluded Securities (as defined in the Certificate of Designations) for
a consideration per share less than a price (the “Applicable Price”) equal to $5.00 (the foregoing
a “Dilutive Issuance"), then immediately after such Dilutive Issuance, the Exercise Price then in
effect shall be reduced to an amount equal to the product of (A) the Exercise Price in effect
immediately prior to such Dilutive Issuance and (B) the quotient determined by dividing (1) the sum
of (I) the product derived by multiplying the Exercise Price in effect immediately prior to such
Dilutive Issuance and the number of Common Stock Deemed Outstanding immediately prior to such
Dilutive Issuance plus (II) the consideration, if any, received by the Company upon such Dilutive
Issuance, by (2) the product derived by multiplying

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(I) the Exercise Price in effect immediately
prior to such Dilutive Issuance by (II) the number of Common Stock Deemed Outstanding immediately
after such Dilutive Issuance.

          (c) Upon each such adjustment of the Exercise Price hereunder, in the case of Section 2(a) or
2(b), as applicable, the number of Warrant Shares shall be adjusted to the number of shares of
Common Stock determined by multiplying the Exercise Price in effect immediately prior to such
adjustment by the number of Warrant Shares acquirable upon exercise of this Warrant immediately
prior to such adjustment and dividing the product thereof by the Exercise Price resulting from such
adjustment. For purposes of determining the adjusted Exercise Price under this Section 2, the
following shall be applicable:

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

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

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exchange of such Convertible Securities, and if any
such issue or sale of
such Convertible Securities is made upon exercise of any Options for
which adjustment of this Warrant has been or is to be made pursuant to other
provisions of this Section 2(a), no further adjustment of the Exercise Price
or number of Warrant Shares shall be made by reason of such issue or sale.

     (iii) Change in Option Price or Rate of Conversion. If the
purchase price provided for in any Options, the additional consideration, if
any, payable upon the issue, conversion, exercise or exchange of any
Convertible Securities, or the rate at which any Convertible Securities are
convertible into or exercisable or exchangeable for shares of Common Stock
increases or decreases at any time, the Exercise Price and the number of
Warrant Shares in effect at the time of such increase or decrease shall be
adjusted to the Exercise Price and the number of Warrant Shares which would
have been in effect at such time had such Options or Convertible Securities
provided for such increased or decreased purchase price, additional
consideration or increased or decreased conversion rate, as the case may be,
at the time initially granted, issued or sold. For purposes of this Section
2(c)(iii), if the terms of any Option or Convertible Security that was
outstanding as of the date of issuance of this Warrant are increased or
decreased in the manner described in the immediately preceding sentence,
then such Option or Convertible Security and the shares of Common Stock
deemed issuable upon exercise, conversion or exchange thereof shall be
deemed to have been issued as of the date of such increase or decrease. No
adjustment pursuant to this Section 2(a) shall be made if such adjustment
would result in an increase of the Exercise Price then in effect or a
decrease in the number of Warrant Shares.

     (iv) Calculation of Consideration Received. In case any Option
is issued in connection with the issue or sale of other securities of the
Company, together comprising one integrated transaction in which no specific
consideration is allocated to such Options by the parties thereto, the
Options will be deemed to have been issued for a consideration of $0.01. If
any shares of Common Stock, Options or Convertible Securities are issued or
sold or deemed to have been issued or sold for cash, the consideration
received therefor will be deemed to be the net amount received by the
Company therefor. If any shares of Common Stock, Options or Convertible
Securities are issued or sold for a consideration other than cash, the
amount of such consideration received by the Company will be the fair value
of such consideration, except where such consideration consists of
securities, in which case the amount of

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consideration received by the
Company will be the Closing Sale Price of such security on the date of
receipt. If any shares of Common Stock, Options or Convertible Securities
are issued to the owners of the non-surviving entity in connection with any
merger in which the Company is the surviving entity, the amount of
consideration therefor will be deemed
to be the fair value of such portion of the net assets and business of
the non-surviving entity as is attributable to such shares of Common Stock,
Options or Convertible Securities, as the case may be. The fair value of
any consideration other than cash or securities will be determined jointly
by the Company and the Required Holders. If such parties are unable to
reach agreement within ten (10) days after the occurrence of an event
requiring valuation (the “Valuation Event”), the fair value of such
consideration will be determined within five (5) Business Days after the
tenth day following the Valuation Event by an independent, reputable
appraiser jointly selected by the Company and the Required Holders. The
determination of such appraiser shall be final and binding upon all parties
absent manifest error and the fees and expenses of such appraiser shall be
borne by the Company.

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

          (d) Adjustment upon Subdivision or Combination of shares of Common Stock. If the
Company at any time on or after the Subscription 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 Subscription Date combines
(by combination, reverse stock split or otherwise) one or more classes of its outstanding shares of
Common Stock into a smaller number of shares, the Exercise Price in effect immediately prior to
such combination will be proportionately increased and the number of Warrant Shares will be
proportionately decreased. Any adjustment under this Section 2(b) shall become effective at the
close of business on the date the subdivision or combination becomes effective.

          (e) Other Events. If any event occurs of the type contemplated by the provisions of
this Section 2 but not expressly provided for by such provisions (including, without limitation,
the granting of stock appreciation rights, phantom stock rights or other rights with

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equity
features), then the Company’s Board of Directors will make an appropriate adjustment in the
Exercise Price and the number of Warrant Shares so as to protect the rights of the Holder; provided
that no such adjustment pursuant to this Section 2(c) will increase the Exercise Price or decrease
the number of Warrant Shares as otherwise determined pursuant to this Section 2.

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

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

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

     4. PURCHASE RIGHTS; FUNDAMENTAL TRANSACTIONS.

          (a) Purchase Rights. In addition to any adjustments pursuant to Section 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

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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.

          (b) Fundamental Transactions. The Company shall not enter into or be party to a
Fundamental Transaction unless (i) the Successor Entity assumes in writing (with the purchase of
at least a majority of the outstanding shares of the Company’s Common Stock automatically
constituting an assumption in writing) all of the obligations of the Company under this Warrant and
the other Transaction Documents in accordance with the provisions of this Section (4)(b), including
agreements to deliver to each holder of Warrants in exchange for such Warrants a security of the
Successor Entity evidenced by a written instrument substantially similar in form and substance to
this Warrant, including, without limitation, an adjusted exercise price equal to the value for the
shares of Common Stock reflected by the terms of such Fundamental Transaction, and exercisable for
a corresponding number of shares of capital stock equivalent to the shares of Common Stock
acquirable and receivable upon exercise of this Warrant (without regard to any limitations on the
exercise of this Warrant) prior to such Fundamental Transaction, and reasonably 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 the Warrant prior to such Fundamental Transaction, such shares of stock,
securities, cash, assets or any other property whatsoever (including warrants or other purchase or
subscription rights) which the Holder would have been entitled to receive upon the happening of
such Fundamental Transaction had this Warrant been 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 but prior to the Expiration Date, in lieu of the shares of the Common Stock
(or other securities, cash, assets or other property) purchasable upon the exercise of the Warrant
prior to such Fundamental Transaction, such shares of stock, securities, cash, assets or any other
property whatsoever (including warrants or other purchase or subscription rights) which the Holder
would have been entitled to receive upon the happening of

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such Fundamental Transaction had the
Warrant been exercised immediately prior to such Fundamental Transaction. Provision made pursuant
to the preceding sentence shall be in a form and substance reasonably satisfactory to the Required
Holders. The provisions of this Section shall apply similarly and equally to successive
Fundamental Transactions and Corporate Events and shall be applied without regard to any
limitations on the exercise of this Warrant.

     5. NONCIRCUMVENTION. The Company hereby covenants and agrees that the Company will
not, by amendment of its Articles of Incorporation, Bylaws or through any reorganization, transfer
of assets, consolidation, merger, scheme of arrangement, dissolution, issue or sale of securities,
or any other voluntary action, avoid or seek to avoid the observance or performance of any of the
terms of this Warrant, and will at all times in good faith carry out all 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 of the SPA Warrants are outstanding, take
all action necessary to reserve and keep available out of its authorized and unissued shares of
Common Stock, solely for the purpose of effecting the exercise of the SPA Warrants, 120% of the
number of shares of Common Stock as shall from time to time be necessary to effect the exercise of
the SPA Warrants then outstanding (without regard to any limitations on exercise).

     6. WARRANT HOLDER NOT DEEMED A SHAREHOLDER. 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 shareholder
of the Company or any right to vote, give or withhold consent to any corporate action (whether any
reorganization, issue of stock, reclassification of stock, consolidation, merger, conveyance or
otherwise), receive notice of meetings, receive dividends or subscription rights, or otherwise,
prior to the issuance to the Holder of 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 shareholder of the Company, whether such liabilities
are asserted by the Company or by creditors of the Company. Notwithstanding this Section 6, the
Company shall provide the Holder with copies of the same notices and other information given to the
shareholders of the Company generally, contemporaneously with the giving thereof to the
shareholders.

     7. REISSUANCE OF WARRANTS.

          (a) Transfer of Warrant. Subject to compliance with applicable securities laws, If
this Warrant is to be transferred, the Holder shall surrender this Warrant to the Company,
whereupon the Company will forthwith issue and deliver upon the order of the Holder a new Warrant
(in accordance with Section 7(d)), registered as the Holder may request, representing the

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right to
purchase the number of Warrant Shares being transferred by the Holder and, if less then the total
number of Warrant Shares then underlying this Warrant is being transferred, a new Warrant (in
accordance with Section 7(d)) to the Holder representing the right to purchase the number of
Warrant Shares not being transferred.

          (b) Lost, Stolen or Mutilated Warrant. Upon receipt by the Company of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant, and, in the case of loss, theft or destruction, of any indemnification
undertaking by the Holder 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 7(d)) representing the right to purchase the Warrant Shares
then underlying this Warrant.

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

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

-11-

 

     8. NOTICES. Whenever notice is required to be given under this Warrant, unless
otherwise provided herein, such notice shall be given in accordance with Section 9(f) of the
Securities 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 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.

     9. AMENDMENT AND WAIVER. The terms of this Warrant and all other Warrants may be
amended, and the observance of any term therein may be waived, but only with the written consent of
both the Company and the holders of Warrants evidencing 75% in number of the total number of shares
of Common Stock at the time purchasable upon the exercise of all then outstanding Warrants,
provided that no such action may change the Current Warrant Price, without the written consent of
both the Company and the holders of Warrants representing at
least 90% in number of the total number of shares of Common Stock at the time purchasable upon
the exercise of all then outstanding Warrants.

     10. GOVERNING LAW. THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE INTERNAL LAWS OF THE STATE OF DELAWARE, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
NOTWITHSTANDING SUCH CHOICE OF LAW, THE COMPANY HEREBY IRREVOCABLY SUBMITS ITSELF AND EACH OTHER
RELATED PERSON TO THE NON-EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS SITTING IN THE
STATE OF TEXAS AND THE COUNTY OF DALLAS AND AGREES AND CONSENTS THAT SERVICE OF PROCESS MAY BE MADE
UPON IT OR ANY OF ITS SUBSIDIARIES IN ANY LEGAL PROCEEDING RELATING TO THE OPERATIVE DOCUMENTS OR
THE OBLIGATIONS BY ANY MEANS ALLOWED UNDER TEXAS OR FEDERAL LAW. THE COMPANY IRREVOCABLY WAIVES,
TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE
TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY
SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.

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

-12-

 

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

     13. 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 and the other Transaction Documents, 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 right 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.

     14. TRANSFER. This Warrant may be offered for sale, sold, transferred or assigned
without the consent of the Company, except as may otherwise be required by applicable securities
laws and Section 2(g) of the Securities Purchase Agreement.

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

          (a) “10-Day Average Price” per share of Common Stock, for purposes of any provision herein at
the date specified in such provision, shall mean the average closing price of the Common Stock on
the Market on which the Common Stock is listed or quoted for the ten day period immediately prior
to such date in question.

          (b) “Bloomberg” means Bloomberg Financial Markets.

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

-13-

 

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

          (e) “Common Stock” means (i) the Company’s shares of Common Stock, par value $.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.

          (f) “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 Sections 2(c)(i) and 2(c)(ii) 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 conversion and exercise,
as applicable, of the SPA Securities and the Warrants.

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

          (h) “Exercise Conditions” means all of the following conditions: (i) 6 months have elapsed
from the Date the Registration Statement (as defined in the Registration Rights Agreement) is
declared effective, (ii) the 10-Day Average Price per share of the Common Stock is greater than or
equal to twelve dollars and fifty cents ($12.50) (as adjusted for splits, recapitalization and the
like) (iii) the average daily trading volume for the shares of Common Stock over the same 10 day
period referenced in (ii) above equals or exceeds 10,000 shares and (iv) all of the Warrant Shares
have been registered for resale pursuant to the Securities Act of 1933, as amended.

-14-

 

          (i) “Expiration Date” means the date five (5) years after the Issuance Date or, if such date
falls on a day other than a Business Day or on which trading does not take place on the Market (a
“Holiday”), the next date that is not a Holiday.

          (j) “Fundamental Transaction” means that the Company shall, directly or indirectly, in one or
more related transactions, (i) consolidate or merge with or into (whether or not the Company is the
surviving corporation) another Person, or (ii) sell, assign, transfer, convey or otherwise dispose
of all or substantially all of the properties or assets of the Company to another Person, or (iii)
allow another Person to make a purchase, tender or exchange offer that is accepted by the holders
of more than the 50% of either the outstanding shares of Common Stock (not including any shares of
Common Stock held by the Person or Persons making or party to, or associated or affiliated with the
Persons making or party to, such purchase, tender or exchange offer), or (iv) consummate a stock
purchase agreement or other business combination (including, without limitation, a reorganization,
recapitalization, spin-off or scheme of arrangement) with another Person whereby such other Person
acquires more than the 50% of the outstanding shares of Common Stock (not including any shares of
Common Stock held by the other Person or other Persons making or party to, or associated or
affiliated with the other Persons making or party to, such stock purchase agreement or other
business combination), or (v) reorganize, recapitalize or reclassify its Common Stock, or (vi) any
“person” or “group” (as these terms are used for purposes of Sections 13(d) and 14(d) of the
Exchange Act) is or shall become the “beneficial owner” (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of 50% of the aggregate ordinary voting power represented by
issued and outstanding
Common Stock. Notwithstanding anything stated herein to the contrary, a sale of all or any
portion of the Company’s Legacy Operations or Legacy Operations Assets (as either term is defined
in the Certificate of Designations setting forth the terms of the Company’s Series A Convertible
Preferred Stock) shall not constitute a Fundamental Transaction.

          (k) “Market” means with respect to any security, The New York Stock Exchange, Inc., the Nasdaq
Global Select Market, the Nasdaq Global Market or The Nasdaq Capital Market, the American Stock
Exchange or the OTC Bulletin Board.

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

          (m) “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 a
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.

          (n) “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.

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

-15-

 

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

          (q) “SPA Securities” means the Preferred Shares issued pursuant to the Securities Purchase
Agreement.

          (r) “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.

     16. So long as any of the Warrants remains outstanding, the Company shall maintain an office
in Grapevine, Texas where the Warrants may be presented for exercise, transfer, division or
combination as in this Warrant provided. Such office shall be at 3129 Bass Pro Dr., Grapevine,
Texas 76051 unless and until the Company shall designate and maintain some other office for such
purposes and give written notice thereof to the holders of all outstanding Warrants.

[Signature Page Follows]

-16-

 

     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.

	 	 	 	 	 	 	 	 	 
	 	 	GREENHUNTER ENERGY, INC.	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	By:	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 

	 	 	 	Name:
	 	Michael K. Studer	 	 
	 

	 	 	 	Title:
	 	President	 	 

 

 

EXHIBIT A

EXERCISE NOTICE

TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS

WARRANT TO PURCHASE COMMON STOCK

GREENHUNTER ENERGY, INC.

     The undersigned holder hereby exercises the right to purchase                      of the shares
of Common Stock (“Warrant Shares”) of GreenHunter Energy, Inc., a Delaware corporation (the
“Company”), evidenced by the attached Warrant to Purchase Common Stock (the “Warrant”).
Capitalized terms used herein and not otherwise defined shall have the respective meanings set
forth in the Warrant.

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

                               a “Cash Exercise” with respect to                      Warrant
Shares; and/or

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

     3. Delivery of Warrant Shares. The Company shall deliver to the holder                      Warrant
Shares in accordance with the terms of the Warrant.

Date:                      __, ______

	 	 	 
	 

     Name of Registered Holder

	 	 

	 	 	 	 	 
	By:
	 	 	 	 
	 

	 	 

Name:

Title:
	 	 

 

 

ACKNOWLEDGMENT

     The Company hereby acknowledges this Exercise Notice and hereby directs [Insert Name of
Transfer Agent] to issue the above indicated number of shares of Common Stock in accordance with
the Transfer Agent Instructions dated                     , 2007 from the Company and acknowledged and
agreed to by [Insert Name of Transfer Agent].

	 	 	 	 	 	 	 
	 	 	GREENHUNTER ENERGY, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 

Name:

Title:exv4w3

 

Exhibit 4.3

EXECUTION COPY

WARRANT

NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES
INTO WHICH THESE SECURITIES ARE EXERCISEABLE 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, IN A FORM
REASONABLY ACCEPTABLE TO THE COMPANY, 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.

GREENHUNTER ENERGY, INC.

Warrant To Purchase Common Stock

Warrant No.:                     

Number of Shares of Common Stock:                     

Date of Issuance: April 5, 2007 (“Issuance Date”)

GreenHunter Energy, Inc., a Delaware corporation (the “Company”), hereby certifies that, for good
and valuable consideration, the receipt and sufficiency of which are hereby acknowledged,
                    , the registered holder hereof or its permitted assigns (the “Holder”), is entitled,
subject to the terms set forth below, to purchase from the Company, at the Exercise Price (as
defined below) then in effect, upon surrender of this Warrant to Purchase Common Stock (including
any Warrants to Purchase Common Stock issued in exchange, transfer or replacement hereof, the
“Warrant”), at any time or times on or after the date hereof, but not after 11:59 p.m., New York
Time, on the Expiration Date (as defined below),                      fully paid nonassessable shares of Common
Stock (as defined below) (the “Warrant Shares”). Except as otherwise defined herein, capitalized
terms in this Warrant shall have the meanings set forth in Section 15.

     1. EXERCISE OF WARRANT.

          (a) Mechanics of Exercise. Subject to the terms and conditions hereof, this Warrant
may be exercised by the Holder on any day on or after the date hereof, in whole or in part, by (i)
delivery of a written notice, in the form attached hereto as Exhibit A (the “Exercise
Notice”), of the Holder’s election to exercise this Warrant and (ii) payment to the Company of an
amount equal to the applicable Exercise Price multiplied by the number of Warrant Shares as to
which this Warrant is being exercised (the “Aggregate Exercise Price”) in cash or wire transfer of
immediately available funds. The Holder shall not be required to deliver the original Warrant in
order to effect an exercise hereunder. Execution and delivery of the Exercise Notice
 

 

 

with respect to less than all of the Warrant Shares shall have the same effect as cancellation
of the original Warrant and issuance of a new Warrant evidencing the right to purchase the
remaining number of Warrant Shares. On or before the first Business Day following the date on
which the Company has received each of the Exercise Notice and the Aggregate Exercise Price (the
“Exercise Delivery Documents”), the Company shall transmit by facsimile an acknowledgment of
confirmation of receipt of the Exercise Delivery Documents to the Holder and the Company’s transfer
agent (the ”Transfer Agent”). On or before the third Business Day following the date on which the
Company has received all of the Exercise Delivery Documents (the “Share Delivery Date”), the
Company shall (X) provided that the Transfer Agent is participating in The Depository Trust Company
(“DTC”) Fast Automated Securities Transfer Program, upon the request of the Holder, credit such
aggregate number of shares of Common Stock to which the Holder is entitled pursuant to such
exercise to the Holder’s or its designee’s balance account with DTC through its Deposit Withdrawal
Agent Commission system, or (Y) if the Transfer Agent is not participating in the DTC Fast
Automated Securities Transfer Program, issue and dispatch by overnight courier to the address as
specified in the Exercise Notice, a certificate, registered in the Company’s share register in the
name of the Holder or its designee, for the number of shares of Common Stock to which the Holder is
entitled pursuant to such exercise. Upon delivery of the Exercise Notice and Aggregate Exercise
Price referred to in clause (ii) above, the Holder shall be deemed for all corporate purposes to
have become the holder of record of the Warrant Shares with respect to which this Warrant has been
exercised, irrespective of the date of delivery of the certificates evidencing such Warrant Shares.
If this Warrant is submitted in connection with any exercise pursuant to this Section 1(a) and the
number of Warrant Shares represented by this Warrant submitted for exercise is greater than the
number of Warrant Shares being acquired upon an exercise, then the Company shall as soon as
practicable and in no event later than five Business Days after any exercise and at its own
expense, issue a new Warrant (in accordance with Section 7(d)) representing the right to purchase
the number of Warrant Shares purchasable immediately prior to such exercise under this Warrant,
less the number of Warrant Shares with respect to which this Warrant is exercised. No fractional
shares of Common Stock are to be issued upon the exercise of this Warrant, but rather the number of
shares of Common Stock to be issued shall be rounded to the nearest whole number. The Company
shall pay any and all taxes which may be payable with respect to the issuance and delivery of
Warrant Shares upon exercise of this Warrant.

          (b) Exercise Price. For purposes of this Warrant, “Exercise Price” means $7.50,
subject to adjustment as provided herein.

          (c) Company’s Failure to Timely Deliver Securities. If within three (3) trading days
after the Company’s receipt of the facsimile copy of a Exercise Notice the Company shall fail to
issue and deliver a certificate to the Holder and register such shares of Common Stock on the
Company’s share register or credit the Holder’s balance account with DTC for the number of shares
of Common Stock to which the Holder is entitled upon such holder’s exercise hereunder, and if on or
after such Trading Day the Holder purchases (in an open market transaction or in another bona fide
transaction) shares of Common Stock to deliver in satisfaction of a sale by the Holder of shares of
Common Stock issuable upon such exercise that the Holder anticipated receiving from the Company (a
“Buy-In”), then the Company shall, within three Business Days after the Holder’s request and in the
Holder’s discretion, either (i) pay cash to the Holder in an amount equal to the Holder’s total
purchase price (including brokerage

-2-

 

commissions, if any) for the shares of Common Stock so purchased (the “Buy-In Price”), at
which point the Company’s obligation to deliver such certificate (and to issue such shares of
Common Stock) shall terminate, or (ii) promptly honor its obligation to deliver to the Holder a
certificate or certificates representing such shares of Common Stock and pay cash to the Holder in
an amount equal to the excess (if any) of the Buy-In Price over the product of (A) such number of
shares of Common Stock, times (B) the Closing Bid Price on the date of exercise.

          (d) 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.

          (e) Forced Exercise by the Company. The Company may force the Holder to exercise its
Warrants, in whole or in part, at any time all of the Exercise Conditions are satisfied. Provided
the Exercise Conditions have all been satisfied, the Company may provide notice (the “Company
Conversion Notice”) to the Holder at any time within (7) Business Days after the occurrence of such
events indicating the Company’s desire to have the Warrants exercised. The Holder shall have five
(5) Business Days after receipt of such Company Conversion Notice to exercise the Warrants with the
payment of the Aggregate Exercise Price. The Company shall promptly deliver the Warrant Shares
issued on conversion of a Warrant to the Holder (without further action by the Holder being
required).

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

          (a) Adjustment upon Issuance of New Warrants. If and whenever on or after the
Issuance Date the Company issues or sells, or in accordance with this Section 2 is deemed to have
issued or sold, any warrants for an exercise price per share (the “New Securities Issuance Price”)
less than a price equal to the Exercise Price in effect immediately prior to such issue or sale or
deemed issuance or sale (the foregoing a “Dilutive Issuance”), then immediately after such Dilutive
Issuance, the Exercise Price then in effect shall be reduced to an amount equal to the New
Securities Issuance Price.

          (b) Adjustment upon Issuance of shares of Common Stock Other than as provided in
Section 2(a), if and whenever on or after the Issuance Date the Company issues or sells, or in
accordance with this Section 2 is deemed to have issued or sold, any shares of Common Stock
(including the issuance or sale of shares of Common Stock owned or held by or for the account of
the Company, but excluding Excluded Securities, for a consideration per share less than a price
(the “Applicable Price”) equal to $5.00 (the foregoing a “Dilutive Issuance"), then immediately
after such Dilutive Issuance, the Exercise Price then in effect shall be reduced to an amount equal
to the product of (A) the Exercise Price in effect immediately prior to such Dilutive Issuance and
(B) the quotient determined by dividing (1) the sum of (I) the product derived by multiplying the
Exercise Price in effect immediately prior to such Dilutive Issuance and the number of Common Stock
Deemed Outstanding immediately prior to such Dilutive Issuance plus (II) the consideration, if any,
received by the Company upon such Dilutive Issuance, by (2) the product derived by multiplying (I)
the Exercise Price in effect immediately

-3-

 

prior to such Dilutive Issuance by (II) the number of Common Stock Deemed Outstanding
immediately after such Dilutive Issuance.

          (c) Upon each such adjustment of the Exercise Price hereunder, in the case of Section 2(a) or
2(b), as applicable, the number of Warrant Shares shall be adjusted to the number of shares of
Common Stock determined by multiplying the Exercise Price in effect immediately prior to such
adjustment by the number of Warrant Shares acquirable upon exercise of this Warrant immediately
prior to such adjustment and dividing the product thereof by the Exercise Price resulting from such
adjustment. For purposes of determining the adjusted Exercise Price under this Section 2, the
following shall be applicable:

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

     (ii) Issuance of Convertible Securities. If the Company in any
manner issues or sells any Convertible Securities and the lowest price per
share for which one share of shares of Common Stock is issuable upon the
conversion, exercise or exchange thereof is less than the Applicable Price,
then such share of shares of Common Stock shall be deemed to be outstanding
and to have been issued and sold by the Company at the time of the issuance
or sale of such Convertible Securities for such price per share. For the
purposes of this Section 2(c)(ii), the “lowest price per share for which one
share of shares of Common Stock is issuable upon the conversion, exercise or
exchange” shall be equal to the sum of the lowest amounts of consideration
(if any) received or receivable by the Company with respect to one
share of shares of Common Stock upon the issuance or sale of the Convertible Security
and upon conversion, exercise or exchange of such Convertible Security. No
further adjustment of the

-4-

 

Exercise Price or number of Warrant Shares shall be made upon the
actual issuance of such shares of Common Stock upon conversion, exercise or
exchange of such Convertible Securities, and if any such issue or sale of
such Convertible Securities is made upon exercise of any Options for which
adjustment of this Warrant has been or is to be made pursuant to other
provisions of this Section 2(a), no further adjustment of the Exercise Price
or number of Warrant Shares shall be made by reason of such issue or sale.

     (iii) Change in Option Price or Rate of Conversion. If the
purchase price provided for in any Options, the additional consideration, if
any, payable upon the issue, conversion, exercise or exchange of any
Convertible Securities, or the rate at which any Convertible Securities are
convertible into or exercisable or exchangeable for shares of Common Stock
increases or decreases at any time, the Exercise Price and the number of
Warrant Shares in effect at the time of such increase or decrease shall be
adjusted to the Exercise Price and the number of Warrant Shares which would
have been in effect at such time had such Options or Convertible Securities
provided for such increased or decreased purchase price, additional
consideration or increased or decreased conversion rate, as the case may be,
at the time initially granted, issued or sold. For purposes of this Section
2(c)(iii), if the terms of any Option or Convertible Security that was
outstanding as of the date of issuance of this Warrant are increased or
decreased in the manner described in the immediately preceding sentence,
then such Option or Convertible Security and the shares of Common Stock
deemed issuable upon exercise, conversion or exchange thereof shall be
deemed to have been issued as of the date of such increase or decrease. No
adjustment pursuant to this Section 2(a) shall be made if such adjustment
would result in an increase of the Exercise Price then in effect or a
decrease in the number of Warrant Shares.

     (iv) Calculation of Consideration Received. In case any Option
is issued in connection with the issue or sale of other securities of the
Company, together comprising one integrated transaction in which no specific
consideration is allocated to such Options by the parties thereto, the
Options will be deemed to have been issued for a consideration of $0.01. If
any shares of Common Stock, Options or Convertible Securities are issued or
sold or deemed to have been issued or sold for cash, the consideration
received therefor will be deemed to be the net amount received by the
Company therefor. If any shares of Common Stock, Options or Convertible
Securities are issued or sold for a consideration other than cash, the
amount of such consideration received by the Company will be the fair value
of such consideration, except where such consideration consists of
securities, in which case the amount of consideration received by the
Company will be the Closing Sale Price of such security on the date of
receipt. If any shares of Common Stock,

-5-

 

Options or Convertible Securities are issued to the owners of the
non-surviving entity in connection with any merger in which the Company is
the surviving entity, the amount of consideration therefor will be deemed to
be the fair value of such portion of the net assets and business of the
non-surviving entity as is attributable to such shares of Common Stock,
Options or Convertible Securities, as the case may be. The fair value of
any consideration other than cash or securities will be determined jointly
by the Company and the Required Holders. If such parties are unable to
reach agreement within ten (10) days after the occurrence of an event
requiring valuation (the “Valuation Event”), the fair value of such
consideration will be determined within five (5) Business Days after the
tenth day following the Valuation Event by an independent, reputable
appraiser jointly selected by the Company and the Required Holders. The
determination of such appraiser shall be final and binding upon all parties
absent manifest error and the fees and expenses of such appraiser shall be
borne by the Company.

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

          (d) Adjustment upon Subdivision or Combination of shares 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 Section 2(b) shall become effective at the close of business on the date the
subdivision or combination becomes effective.

          (e) Other Events. If any event occurs of the type contemplated by the provisions of
this Section 2 but not expressly provided for by such provisions (including, without limitation,
the granting of stock appreciation rights, phantom stock rights or other rights with equity
features), then the Company’s Board of Directors will make an appropriate adjustment in the
Exercise Price and the number of Warrant Shares so as to protect the rights of the Holder; provided
that no such adjustment pursuant to this Section 2(c) will increase the Exercise Price or decrease
the number of Warrant Shares as otherwise determined pursuant to this Section 2.

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

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

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

     4. PURCHASE RIGHTS; FUNDAMENTAL TRANSACTIONS.

          (a) Purchase Rights. In addition to any adjustments pursuant to Section 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

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which the record holders of shares of Common Stock are to be determined for the grant, issue
or sale of such Purchase Rights.

          (b) Fundamental Transactions. The Company shall not enter into or be party to a
Fundamental Transaction unless (i) the Successor Entity assumes in writing (with the purchase of
at least a majority of the outstanding shares of the Company’s Common Stock automatically
constituting an assumption in writing) all of the obligations of the Company under this Warrant in
accordance with the provisions of this Section (4)(b), including agreements to deliver to each
holder of Warrants in exchange for such Warrants a security of the Successor Entity evidenced by a
written instrument substantially similar in form and substance to this Warrant, including, without
limitation, an adjusted exercise price equal to the value for the shares of Common Stock reflected
by the terms of such Fundamental Transaction, and exercisable for a corresponding number of shares
of capital stock equivalent to the shares of Common Stock acquirable and receivable upon exercise
of this Warrant (without regard to any limitations on the exercise of this Warrant) prior to such
Fundamental Transaction. Upon the occurrence of any Fundamental Transaction, the Successor Entity
shall succeed to, and be substituted for (so that from and after the date of such Fundamental
Transaction, the provisions of this Warrant referring to the “Company” shall refer instead to the
Successor Entity), and may exercise every right and power of the Company and shall assume all of
the obligations of the Company under this Warrant with the same effect as if such Successor Entity
had been named as the Company herein. Upon consummation of the Fundamental Transaction, the
Successor Entity shall deliver to the Holder confirmation that there shall be issued upon exercise
of this Warrant at any time after the consummation of the Fundamental Transaction, in lieu of the
shares of the Common Stock (or other securities, cash, assets or other property) purchasable upon
the exercise of the Warrant prior to such Fundamental Transaction, such shares of stock,
securities, cash, assets or any other property whatsoever (including warrants or other purchase or
subscription rights) which the Holder would have been entitled to receive upon the happening of
such Fundamental Transaction had this Warrant been 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 but prior to the Expiration Date, in lieu of the shares of the Common Stock
(or other securities, cash, assets or other property) purchasable upon the exercise of the Warrant
prior to such Fundamental Transaction, such shares of stock, securities, cash, assets or any other
property whatsoever (including warrants or other purchase or subscription rights) which the Holder
would have been entitled to receive upon the happening of such Fundamental Transaction had the
Warrant been exercised immediately prior to such Fundamental Transaction. Provision made pursuant
to the preceding sentence shall be in a form and substance reasonably satisfactory to the Required
Holders. The provisions of this Section shall apply similarly and equally to successive
Fundamental Transactions and Corporate Events and shall be applied without regard to any
limitations on the exercise of this Warrant.

     5. NONCIRCUMVENTION. The Company hereby covenants and agrees that the Company will
not, by amendment of its Articles of Incorporation, Bylaws or through any

-8-

 

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 of the Warrants are
outstanding, take all action necessary to reserve and keep available out of its authorized and
unissued shares of Common Stock, solely for the purpose of effecting the exercise of the Warrants.

     6. WARRANT HOLDER NOT DEEMED A SHAREHOLDER. 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 shareholder
of the Company or any right to vote, give or withhold consent to any corporate action (whether any
reorganization, issue of stock, reclassification of stock, consolidation, merger, conveyance or
otherwise), receive notice of meetings, receive dividends or subscription rights, or otherwise,
prior to the issuance to the Holder of 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 shareholder of the Company, whether such liabilities
are asserted by the Company or by creditors of the Company. Notwithstanding this Section 6, the
Company shall provide the Holder with copies of the same notices and other information given to the
shareholders of the Company generally, contemporaneously with the giving thereof to the
shareholders.

     7. REISSUANCE OF WARRANTS.

          (a) Transfer of Warrant. Subject to compliance with applicable securities laws, If
this Warrant is to be transferred, the Holder shall surrender this Warrant to the Company,
whereupon the Company will forthwith issue and deliver upon the order of the Holder a new Warrant
(in accordance with Section 7(d)), 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 7(d)) to the Holder representing the right to purchase the number of
Warrant Shares not being transferred.

          (b) Lost, Stolen or Mutilated Warrant. Upon receipt by the Company of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this
Warrant, and, in the case of loss, theft or destruction, of any indemnification undertaking by the
Holder 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

-9-

 

(in accordance with Section 7(d)) representing the right to purchase the Warrant Shares then
underlying this Warrant.

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

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

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     8. NOTICES. Whenever notice is required to be given under this Warrant, unless
otherwise provided herein, such notice shall be given in accordance with Section 9(f) of the
Securities 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 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.

     9. AMENDMENT AND WAIVER. The terms of this Warrant and all other Warrants may be
amended, and the observance of any term therein may be waived, but only with the written consent of
both the Company and the holders of Warrants evidencing 75% in number of the total number of shares
of Common Stock at the time purchasable upon the exercise of all then outstanding Warrants,
provided that no such action may change the Current Warrant Price, without the written consent of
both the Company and the holders of Warrants representing at least 90% in number of the total
number of shares of Common Stock at the time purchasable upon the exercise of all then outstanding
Warrants.

     10. GOVERNING LAW. THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE INTERNAL LAWS OF THE STATE OF DELAWARE, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
NOTWITHSTANDING SUCH CHOICE OF LAW, THE COMPANY HEREBY IRREVOCABLY SUBMITS ITSELF AND EACH OTHER
RELATED PERSON TO THE NON-EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS SITTING IN THE
STATE OF TEXAS AND THE COUNTY OF DALLAS AND AGREES AND CONSENTS THAT SERVICE OF PROCESS MAY BE MADE
UPON IT OR ANY OF ITS SUBSIDIARIES IN ANY LEGAL PROCEEDING RELATING TO THE OPERATIVE DOCUMENTS OR
THE OBLIGATIONS BY ANY MEANS ALLOWED UNDER TEXAS OR FEDERAL LAW. THE COMPANY IRREVOCABLY WAIVES,
TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE
TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY
SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.

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

-11-

 

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

     13. 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 and the other Transaction Documents, 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 right 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.

     14. TRANSFER. This Warrant may be offered for sale, sold, transferred or assigned
without the consent of the Company, except as may otherwise be required by applicable securities
laws.

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

          (a) “10-Day Average Price” per share of Common Stock, for purposes of any provision herein at
the date specified in such provision, shall mean the average closing price of the Common Stock on
the Market on which the Common Stock is listed or quoted for the ten day period immediately prior
to such date in question.

          (b) “Bloomberg” means Bloomberg Financial Markets.

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

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

          (e) “Common Stock” means (i) the Company’s shares of Common Stock, par value $.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.

          (f) “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 Sections 2(c)(i) and 2(c)(ii) 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 the Warrants.

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

          (h) “Excluded Securities” means any Common Stock issued or deemed to be issued (A) in
connection with any employee benefit plan which has been approved by the Board of Directors of the
Corporation, pursuant to which the Corporation’s securities may be issued to any employee, officer,
consultant or director for services provided to the Corporation; (B) upon issuance of
shares upon exercise of the Warrants; (C) issued upon exercise of Options or Convertible Securities
which are outstanding on the date immediately preceding the Issuance Date, provided that such
issuance of Common Stock upon exercise of such Options or Convertible Securities is made pursuant
to the terms of such Options or Convertible Securities in effect on the date immediately preceding
the Issuance Date and such Options or Convertible Securities are not amended after the date
immediately preceding the Issuance Date; (D) in

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connection with any acquisition by the Company, whether through an acquisition of stock or a
merger of any business, assets or technologies the primary purpose of which is not to raise equity
capital; and (E) issued in connection with any share split, share dividend, recapitalization or
similar transaction by the Corporation for which adjustment is made pursuant to Section 2(d).

          (i) “Exercise Conditions” means all of the following conditions: (i) two years has elapsed
from the Issuance Date and (ii) the 10-Day Average Price per share of the Common Stock is greater
than or equal to twelve dollars and fifty cents ($12.50) (as adjusted for splits, recapitalization
and the like).

          (j) “Expiration Date” means the date five (5) years after the Issuance Date or, if such date
falls on a day other than a Business Day or on which trading does not take place on the Market (a
“Holiday”), the next date that is not a Holiday.

          (k) “Fundamental Transaction” means that the Company shall, directly or indirectly, in one or
more related transactions, (i) consolidate or merge with or into (whether or not the Company is the
surviving corporation) another Person, or (ii) sell, assign, transfer, convey or otherwise dispose
of all or substantially all of the properties or assets of the Company to another Person, or (iii)
allow another Person to make a purchase, tender or exchange offer that is accepted by the holders
of more than the 50% of either the outstanding shares of Common Stock (not including any shares of
Common Stock held by the Person or Persons making or party to, or associated or affiliated with the
Persons making or party to, such purchase, tender or exchange offer), or (iv) consummate a stock
purchase agreement or other business combination (including, without limitation, a reorganization,
recapitalization, spin-off or scheme of arrangement) with another Person whereby such other Person
acquires more than the 50% of the outstanding shares of Common Stock (not including any shares of
Common Stock held by the other Person or other Persons making or party to, or associated or
affiliated with the other Persons making or party to, such stock purchase agreement or other
business combination), or (v) reorganize, recapitalize or reclassify its Common Stock, or (vi) any
“person” or “group” (as these terms are used for purposes of Sections 13(d) and 14(d) of the
Exchange Act) is or shall become the “beneficial owner” (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of 50% of the aggregate ordinary voting power represented by
issued and outstanding Common Stock. Notwithstanding anything stated herein to the contrary, a
sale of all or any portion of the Company’s Legacy Operations or Legacy Operations Assets (as
either term is defined in the Certificate of Designations setting forth the terms of the Company’s
Series A Convertible Preferred Stock) shall not constitute a Fundamental Transaction.

          (l) “Market” means with respect to any security, The New York Stock Exchange, Inc., the Nasdaq
Global Select Market, the Nasdaq Global Market or The Nasdaq Capital Market, the American Stock
Exchange or the OTC Bulletin Board.

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

          (n) “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 a
Market, or, if there is more than one such Person or Parent Entity, the

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Person or Parent Entity with the largest public market capitalization as of the date of
consummation of the Fundamental Transaction.

          (o) “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.

          (p) “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.

     16. MAINTAIN OFFICE. .So long as any of the Warrants remains outstanding, the Company
shall maintain an office in Grapevine, Texas where the Warrants may be presented for exercise,
transfer, division or combination as in this Warrant provided. Such office shall be at 3129 Bass
Pro Dr., Grapevine, Texas 76051 unless and until the Company shall designate and maintain some
other office for such purposes and give written notice thereof to the holders of all outstanding
Warrants.

[Signature Page Follows]

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     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.

	 	 	 	 	 	 	 	 	 
	 	 	GREENHUNTER ENERGY, INC.	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	By:	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 

	 	 	 	Name:
	 	Michael K. Studer	 	 
	 

	 	 	 	Title:
	 	President	 	 

 

 

EXHIBIT A

EXERCISE NOTICE

TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS

WARRANT TO PURCHASE COMMON STOCK

GREENHUNTER ENERGY, INC.

     The undersigned holder hereby exercises the right to purchase                      of the shares
of Common Stock (“Warrant Shares”) of GreenHunter Energy, Inc., a Delaware corporation (the
“Company”), evidenced by the attached Warrant to Purchase Common Stock (the “Warrant”).
Capitalized terms used herein and not otherwise defined shall have the respective meanings set
forth in the Warrant.

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

                               a “Cash Exercise” with respect to                      Warrant
Shares; and/or

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

     3. Delivery of Warrant Shares. The Company shall deliver to the holder                      Warrant
Shares in accordance with the terms of the Warrant.

Date:                      __,                     

	 	 	 
	 

     Name of Registered Holder

	 	 

	 	 	 	 	 
	By:
	 	 	 	 
	 

	 	 

Name:

Title:
	 	 

 

 

ACKNOWLEDGMENT

     The Company hereby acknowledges this Exercise Notice and hereby directs [Insert Name of
Transfer Agent] to issue the above indicated number of shares of Common Stock in accordance with
the Transfer Agent Instructions dated                     , 2007 from the Company and acknowledged and
agreed to by [Insert Name of Transfer Agent].

	 	 	 	 	 	 	 
	 	 	GREENHUNTER ENERGY, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 

Name:

Title:

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