Document:

Exhibit 4.3

 

FORM OF NOTE

 

[Face of QIB/AI/Reg S Note]

 

[Insert the Global Note Legend, if applicable, pursuant to the provisions of the Indenture]

 

[Insert the Private Placement Legend, if applicable, pursuant to the provisions of the Indenture]

 

[Insert the Regulation S Temporary Global Note Legend, if applicable, pursuant to the provisions of the Indenture]

 

THIS SECURITY IS SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER SET FORTH IN THE INDENTURE GOVERNING THIS SECURITY.  A COPY OF THE INDENTURE IS AVAILABLE, FREE OF CHARGE, UPON WRITTEN REQUEST TO ZAZA ENERGY CORPORATION, 1301 MCKINNEY STREET, SUITE 3000, HOUSTON, TEXAS 77010, ATTENTION: SCOTT GAILLE.

 

[Insert the Original Issue Discount Legend pursuant to the provisions of the Indenture]

 

 

CUSIP 144A: 98919T AB6

Reg S: U98837 AA2

AI: 98919T AC4

Registered: 98919T AD2

 

9.00% Convertible Senior Notes due 2017

 

	
No.              
    	
 
    	
 
    	
$                            
    

 

ZAZA ENERGY CORPORATION

 

promises to pay to                                  or registered assigns, the principal sum of $                                 DOLLARS (or such other amount as identified on the “Schedule of Increases and Exchanges of Interests in Global Note” attached hereto) on August 1, 2017.

 

Interest Payment Dates:  February 1 and August 1

 

Record Dates:  January 15 and July 15

 

	
Dated:   [                ],   2012
    	
 
    
	
 
    	
 
    
	
 
    	
ZAZA   ENERGY CORPORATION
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
 
    	
Name:
    
	
 
    	
 
    	
Title:
    

 

 

	
This   is one of the Notes referred to
    	
 
    
	
in   the within-mentioned Indenture:
    	
 
    
	
 
    	
 
    
	
WILMINGTON   TRUST, NATIONAL ASSOCIATION,
    	
 
    
	
  as   Trustee
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
By:
    	
 
    	
 
    
	
 
    	
Authorized Signatory
    	
 
    
	
 
    	
 
    
	
Dated:                   ,   2012
    	
 
    

 

 

[Back of Note]

9.00% Convertible Senior Notes due 2017

 

Capitalized terms used herein have the meanings assigned to them in the Indenture referred to below unless otherwise indicated.

 

INTEREST.  ZaZa Energy Corporation, a Delaware corporation (the “Company”), promises to pay interest on the principal amount of this Note at a rate of 9.00% per annum, from October 22, 2012 until maturity.  The Company will pay interest semi-annually in arrears on February 1 and August 1 of each year, or if any such day is not a Business Day, on the next succeeding Business Day (each, an “Interest Payment Date”).  Interest on the Notes will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of issuance; provided that if there is no existing Default in the payment of interest, and if this Note is authenticated between a record date referred to on the face hereof (each, a “Record Date”) and the next succeeding Interest Payment Date, interest shall accrue from such next succeeding Interest Payment Date; provided further that the first Interest Payment Date shall be February 1, 2013.  The Company will pay Defaulted Interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal, premium, if any, and interest (including any Interest Make-Whole Premium) (without regard to any applicable grace period), from time to time on demand at a rate equal to 2.0% per annum in excess of the then applicable interest rate on the Notes to the extent lawful.  Interest will be computed on the basis of a 360-day year of twelve 30-day months.  The Company will notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each Note and the date of the proposed payment.  The Company will fix or cause to be fixed each such special record date and payment date; provided that no such special record date may be less than 10 days prior to the related payment date for such Defaulted Interest.  At least 15 days before the special record date, the Company (or, upon the written request of the Company, the Trustee in the name and at the expense of the Company) will mail or cause to be sent to Holders a notice that states the special record date, the related payment date and the amount of such interest to be paid.  Defaulted Interest, if any, will be paid on regular Interest Payment Dates in the same manner as other interest is paid on the Notes.  All reference to “interest” in this Note and the Indenture mean the initial interest rate borne by the Notes and, if any, Defaulted Interest, Additional Interest and Special Interest (unless the Indenture states otherwise). Defaulted Interest will be in addition to any other interest payable from time to time with respect to the Notes.

 

METHOD OF PAYMENT.  The Company will pay interest on the Notes (except Defaulted Interest) to the Persons who are registered Holders of Notes at the close of business on January 15 or July 15 next preceding the Interest Payment Date, except as provided in Section 2.12 of the Indenture with respect to Defaulted Interest.  The Notes will be payable as to principal, premium, if any, and interest (including any Interest Make-Whole Premium, as described in the Indenture) at the office or agency of the Company maintained for such purpose, or, at the option of the Company, payment of interest may be made by check mailed to the Holders at their addresses set forth in the register of Holders; provided that (1) payment by wire transfer of immediately available funds will be required with respect to principal of and interest, and premium on, all Global Notes and all other Notes the Holders of which will have provided wire transfer instructions to the Company or the Paying Agent and (2) such payment by check may only be paid so long as no Event of Default under the Indenture is continuing.  Such payment will be in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts.  The principal of the Notes shall be payable only upon surrender of any Note at the specified offices of the Paying Agent. If the due date for payment of

 

 

the principal in respect of any Note is not a Business Day at the place in which it is presented for payment, the Holder thereof shall not be entitled to payment of the amount due until the next succeeding Business Day at such place.

 

REGISTRAR, PAYING AGENT AND CONVERSION AGENT.  Initially, Wilmington Trust, National Association, the Trustee under the Indenture, will act as Registrar, Paying Agent and Conversion Agent.  The Company may change any Registrar, Paying Agent or Conversion Agent without notice to any Holder.  The Company or any of its Subsidiaries may act in any such capacity; provided no Event of Default is continuing.

 

INDENTURE.  The Company issued the Notes under an Indenture dated as of October 22, 2012 (the “Indenture”) among the Company, the Guarantors and the Trustee.  The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended.  The Notes are subject to all such terms, and Holders are referred to the Indenture and such Act for a statement of such terms.  To the extent any provision of this Note conflicts with the express provisions of the Indenture, the provisions of the Indenture shall govern and be controlling.  The Indenture does not limit the aggregate principal amount of Notes that may be issued thereunder.

 

RANKING. This Note shall constitute a senior obligation of the Company.

 

PROVISIONAL REDEMPTION.  The Notes are redeemable at any time and from time to time on or after August 1, 2015 at the option of the Company if the Last Reported Sale Price of the Common Stock for 20 or more Trading Days in a period of 30 consecutive Trading Days ending on the Trading Day immediately prior to the date of the Redemption Notice exceeds 150% of the applicable Conversion Price in effect on each such Trading Day. The Redemption Price shall be equal to a cash amount equal to the sum of (i) 100% of the principal amount of Notes being redeemed, plus (ii) accrued and unpaid interest, if any to, but excluding, the Redemption Date. The Redemption Date must be a Business Day.

 

NOTICE OF REDEMPTION.  Notice of redemption will be mailed at least 30 days but not more than 60 days before the redemption date to each Holder whose Notes are to be redeemed at its registered address.  Notes in denominations larger than $2,000 may be redeemed in part but only in whole multiples of $1,000, unless all of the Notes held by a Holder are to be redeemed.

 

NO MANDATORY REDEMPTION.  The Company is not required to make mandatory redemption or sinking fund payments with respect to the Notes.

 

REPURCHASE AT THE OPTION OF THE HOLDER.

 

If there is a Fundamental Change, the Company will be required to make an offer (a “Fundamental Change Offer”) to each Holder to repurchase all of such Holder’s Notes (or such portion thereof specified by such Holder in minimum denominations of $2,000 and integral multiples of $1,000 in excess thereof) at a purchase price in cash equal to 100% of the aggregate principal amount thereof plus accrued and unpaid interest, plus the Interest Make-Whole Premium on the Notes repurchased (the “Fundamental Change Payment”).  Within 10 days following any Fundamental Change, the Company will mail a notice to each Holder setting forth the procedures governing the Fundamental Change Offer as required by the Indenture.

 

If the Company or a Restricted Subsidiary of the Company consummates an Asset Sale, the Company in circumstances specified in the Indenture may be required to

 

 

commence an offer to all Holders of Notes and all holders of other Indebtedness that is pari passu with the Notes containing provisions similar to those set forth in the Indenture with respect to offers to purchase or redeem with the proceeds of sales of assets (an “Asset Sale Offer”) pursuant to Section 3.06 of the Indenture to purchase the maximum principal amount of Notes and such other pari passu Indebtedness that may be purchased out of the Excess Proceeds at an offer price in cash in an amount equal to 100% of the principal amount thereof, plus accrued and unpaid interest thereon, in accordance with the procedures set forth in the Indenture.  Holders of Notes that are the subject of an offer to purchase will receive an Asset Sale Offer from the Company prior to any related purchase date and may elect to have such Notes purchased by completing the form entitled “Option of Holder to Elect Purchase” attached to the Notes.

 

DENOMINATIONS, TRANSFER, EXCHANGE.  The Notes are in registered form without coupons in minimum denominations of $2,000 and integral multiples of $1,000 in excess thereof.  The transfer of Notes may be registered and Notes may be exchanged as provided in the Indenture.  The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and the Company may require a Holder to pay any taxes and fees required by law or permitted by the Indenture.  The Company need not exchange or register the transfer of any Note or portion of a Note selected for purchase, except for the unpurchased portion of any Note being purchased in part.  Also, the Company need not exchange or register the transfer of any Notes for a period of 15 days before a selection of Notes to be purchased or during the period between a Record Date and the corresponding Interest Payment Date.  The Notes are also subject to certain restrictions on transfer set forth in the Indenture.

 

CONVERSION OF NOTES.  As provided in and subject to and upon compliance with the provisions of the Indenture, each Holder of a Note has the right, at such Holder’s option, to convert all or any portion (if the portion to be converted is at least $1,000 principal amount and the portion to remain unconverted is at least $2,000 principal amount) of such Note, at any time and from time to time until the close of business on the second Business Day immediately preceding the Maturity Date, into a number of shares of Common Stock determined in accordance with Article 11 of the Indenture.

 

In the event a Holder elects to exercise its right to convert its Notes, and such election occurs on or after May 1, 2013 but prior to August 1, 2017, such Holder shall be entitled to receive, in addition to the consideration that such Holder is entitled to receive upon conversion, a Interest Make-Whole Premium. The Company shall have thirty (30) days from the Conversion Date to pay the Interest Make-Whole Premium. The Company may pay any Interest Make-Whole Premium either in cash or, subject to shareholder approval if required by any applicable shareholder approval rules or listing standards of any national or regional securities exchange that are applicable to the Company, in Common Stock, at its election. If the Company elects to pay a Interest Make-Whole Premium in Common Stock, such stock will be valued at 95% of the simple average of the daily volume weighted average prices of the Common Stock for the 10 Trading Days ending on and including the Trading Day immediately preceding the Conversion Date.

 

No fractional shares will be issued upon any conversion, but an adjustment and payment in cash will be made, as provided in the Indenture, in respect of any fraction of a share which would otherwise be issuable upon the surrender of any Notes for conversion.

 

PERSONS DEEMED OWNERS.  The registered Holder of a Note may be treated as its owner for all purposes.  Only Holders have rights under the Indenture and this Note.

 

 

AMENDMENT, SUPPLEMENT AND WAIVER.  Subject to certain exceptions, the Indenture, the Notes or the Guarantees may be amended or supplemented with the consent of the Holders of at least a majority in aggregate principal amount of the then outstanding Notes, voting as a single class, and any existing Default or Event or Default or compliance with any provision of the Indenture, the Notes or the Guarantees may be waived with the consent of the Holders of a majority in aggregate principal amount of the then outstanding Notes, voting as a single class.  Without the consent of any Holder of a Note, the Indenture, the Notes or the Guarantees may be amended or supplemented to cure any ambiguity, defect or inconsistency and to effect certain other changes as set forth in the Indenture.

 

DEFAULTS AND REMEDIES.  If any Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in aggregate principal amount of the then outstanding Notes may declare all the Notes to be due and payable immediately.  Notwithstanding the foregoing, in the case of an Event of Default arising from certain payment defaults and certain events of bankruptcy or insolvency, all outstanding Notes will become due and payable immediately without further action or notice.  Holders may not enforce the Indenture or the Notes except as provided in the Indenture.  Subject to certain limitations, Holders of not less than a majority in aggregate principal amount of the then outstanding Notes may direct the Trustee in its exercise of any trust or power.  The Trustee may withhold from Holders of the Notes notice of any continuing Default or Event of Default (except a Default or Event of Default relating to the payment of principal or interest or premium, if any,) if it determines that withholding notice is in their interest.  The Holders of not less than a majority in aggregate principal amount of the then outstanding Notes by notice to the Trustee may, on behalf of the Holders of all of the Notes, rescind an acceleration or waive any existing Default or Event of Default and its consequences under the Indenture except a continuing Default or Event of Default in the payment of interest or premium, if any, on, or the principal of, the Notes.  The Company is required to deliver to the Trustee annually a statement regarding compliance with the Indenture, and the Company is required, upon becoming aware of any Default or Event of Default, to deliver to the Trustee a statement specifying such Default or Event of Default.

 

If the Company so elects, the sole remedy for an Event of Default relating to the Company’s failure to comply with the reporting obligations under Section 4.11 of the Indenture will, for the 90 days after the occurrence of such Event of Default, consist exclusively of the right to receive Special Interest on the principal amount of the Notes.

 

TRUSTEE DEALINGS WITH COMPANY.  The Trustee, in its individual or any other capacity, may make loans to, accept deposits from, and perform services for the Company or its Affiliates, and may otherwise deal with the Company or its Affiliates, as if it were not the Trustee.

 

NO RECOURSE AGAINST OTHERS.  No director, officer, employee, incorporator or stockholder of the Company or any Guarantor, as such, will have any liability for any obligations of the Company or the Guarantors under the Notes, the Indenture or the Guarantees or for any claim based on, in respect of, or by reason of, such obligations or their creation.  Each Holder of Notes by accepting a Note waives and releases all such liability.  The waiver and release are part of the consideration for issuance of the Notes.

 

AUTHENTICATION.  This Note will not be valid until authenticated by the manual signature of the Trustee or an authenticating agent.

 

ABBREVIATIONS.  Customary abbreviations may be used in the name of a Holder or an assignee, such as:  TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT

 

 

TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act).

 

CUSIP NUMBERS.  Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Notes.  No representation is made as to the accuracy of such numbers either as printed on the Notes or as contained in any offer to purchase, and reliance may be placed only on the other identification numbers placed thereon.

 

GOVERNING LAW.  THE LAW OF THE STATE OF NEW YORK WILL GOVERN AND BE USED TO CONSTRUE THE INDENTURE, THIS NOTE AND THE GUARANTEES.

 

The Company will furnish to any Holder upon written request and without charge a copy of the Indenture.  Requests may be made to:

 

ZaZa Energy Corporation

1301 McKinney Street, Suite 3000

Houston, Texas 77010

Attention: Scott Gaille

Facsimile: (713) 595-1919

 

 

ASSIGNMENT FORM

 

To assign this Note, fill in the form below:

 

	
(I) or   (we) assign and transfer this Note to:
    	
 
    
	
 
    	
(Insert assignee’s legal name)
    
	
 
    
	
 
    
	
(Insert assignee’s soc. sec. or tax I.D. no.)
    
	
 
    
	
 
    
	
 
    
	
 
    
	
 
    
	
 
    
	
 
    
	
 
    
	
(Print or type assignee’s name, address and zip code)
    

 

and irrevocably appoint                                                                                                                                                                              to transfer this Note on the books of the Company.  The agent may substitute another to act for him.

 

	
Date:
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
Your   Signature:
    	
 
    
	
 
    	
 
    	
(Sign   exactly as your name appears on the face of the Note[s])
    

 

	
Signature   Guarantee*:
    	
 
    	
 
    	
 
    

 

*                                         Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Trustee).

 

 

Option of Holder to Elect Purchase

 

If you want to elect to have this Note purchased by the Company pursuant to Section 4.12 or 4.13 of the Indenture, check the appropriate box below:

 

	
 ̈   Section 4.12
    	
 
    	
 ̈   Section 4.13
    

 

If you want to elect to have only part of the Note purchased by the Company pursuant to Section 4.12 or Section 4.13 of the Indenture, state the amount you elect to have purchased:

 

	
$                                  
    
	
 
    	
 
    	
 
    
	
Date:
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
Your   Signature:
    	
 
    
	
 
    	
 
    	
(Sign   exactly as your name appears on the face of the Note[s])
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
Tax   Identification No.:
    	
 
    
	
 
    	
 
    	
 
    
	
Signature   Guarantee*:
    	
 
    	
 
    	
 
    
							

 

*                                         Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Trustee).

 

 

SCHEDULE OF INCREASES OR EXCHANGES OF INTERESTS IN THE GLOBAL NOTE *

 

The following exchanges of a part of this Global Note for an interest in another Global Note or for a Definitive Note, or exchanges of a part of another Global Note or Definitive Note for an interest in this Global Note, or increases in the principal amount of the Global Note, have been made:

 

	
Date of Exchange
   or Increase
    	
 
    	
Amount of
   decrease in
   Principal Amount 
   of 
   this Global Note
    	
 
    	
Amount of
   increase in
   Principal Amount 
   of 
   this Global Note
    	
 
    	
Principal Amount 
   of this Global Note
   following such
   decrease 
   (or increase)
    	
 
    	
Signature of
   authorized officer
   of Trustee or
   Custodian
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    

 

*                 This schedule should be included only if the Note is issued in global form.Exhibit 4.4

 

WAIVER AND AMENDMENT NO. 3 TO SECURITIES PURCHASE AGREEMENT

 

This WAIVER AND AMENDMENT NO. 3 TO SECURITIES PURCHASE AGREEMENT (this “Amendment”), is made and entered into effective as of the 16th day of October, 2012, by and among ZAZA ENERGY CORPORATION, a Delaware corporation (the “Company”), and each of the holders of Securities (as defined in the Securities Purchase Agreement, as defined below) that is a signatory to this Amendment.

 

RECITALS

 

1.                                       The Company and the holders of the Securities are parties to that certain Securities Purchase Agreement dated February 21, 2012, as amended by (a) a letter agreement dated as of March 1, 2012, (b) a letter agreement dated as of March 22, 2012, (c) that certain Waiver and Amendment No. 1 to Securities Purchase Agreement dated as of June 8, 2012, as amended by that certain letter agreement dated as of June 28, 2012, and (d) that certain Waiver and Amendment No. 2 to Securities Purchase Agreement dated as of July 25, 2012 (as amended, the “Existing Securities Purchase Agreement”; and as amended by this Amendment and as may be further amended, restated, supplemented or otherwise modified from time to time, the “Securities Purchase Agreement”).

 

2.                                       Pursuant to the Existing Securities Purchase Agreement, the Company issued, and the holders of Notes purchased, (a) the Company’s 8.00% Senior Secured Notes due February 21, 2017, in the aggregate principal amount of $100,000,000 (collectively, the “Notes”) and (b) the Company’s warrants to purchase 26,315,789 shares of the Company’s Common Stock.

 

3.                                       The Company has informed the holders of Securities that Events of Default as set forth on Schedule A attached hereto have occurred and are continuing as of the date hereof (such Events of Default being referred to herein as the “Specified Defaults”).

 

4.                                       The Company has requested the holders of Securities to waive the Specified Defaults.

 

5.                                       The Company also desires to amend certain provisions of the Existing Securities Purchase Agreement.

 

6.                                       The holders of the Securities have agreed to (a) waive the Specified Defaults and (b) make such amendments, in each case subject to the terms and conditions set forth in this Amendment.

 

AGREEMENT

 

NOW, THEREFORE, for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto hereby covenant and agree to be bound as follows:

 

 

Section 1.                                          Capitalized Terms.  Capitalized terms used and not otherwise defined herein shall have the meanings assigned to them in the Securities Purchase Agreement unless the context otherwise requires.

 

Section 2.                                          Amendments to Existing Securities Purchase Agreement.  Subject to the satisfaction of the conditions precedent set forth in Section 3 hereof, the Existing Securities Purchase Agreement is hereby amended as set forth below.  Such amendments are referred to herein collectively as the “Amendments”.

 

a)                                      Paragraph 5F(5) of the Existing Securities Purchase Agreement is hereby amended and restated in its entirety as follows:

 

“For purposes of this paragraph 5F, the term ‘Fundamental Change’ shall mean an event or series of events by which any of the following occurs:

 

(i)                                     a “person” or “group” within the meaning of Section 13(d) of the Exchange Act (other than a “person” or “group” comprised solely of Permitted Holders) files a Schedule TO or any schedule, form or report under the Exchange Act disclosing that such person or group has become the direct or indirect ultimate beneficial owner of common equity of the Company representing more than 50% of the voting power of the outstanding Common Stock; provided, however, that notwithstanding anything herein to the contrary, a Fundamental Change shall be deemed to have occurred if the Permitted Holders, as a group, acquire beneficial ownership in excess of 75,976,851 shares of Common Stock (as appropriately adjusted for stock splits and similar transactions); provided, however, that if at any time the Permitted Holders, taken as a group, own less than 50% of the then outstanding Common Stock, a Fundamental Change will be deemed to have occurred if the Permitted Holders thereafter become the direct or indirect ultimate beneficial owners of common equity of the Company representing more than 50% of the voting power of the outstanding Common Stock;

 

(ii)                                  the consummation of: (A) any sale, lease or other transfer in one transaction or a series of related transactions of all or substantially all of the consolidated assets of the Company and the Subsidiaries, taken as a whole, to any Person or Persons (other than one of the Guarantors to the extent permitted pursuant to paragraph 7B(6)); or (B) any transaction or series of related transactions in connection with which (whether by means of exchange, liquidation, consolidation, merger, combination, reclassification, recapitalization, acquisition or otherwise) all of the Common Stock is exchanged for, converted into, acquired for, or constitutes solely the right to receive, other securities, other property, assets or cash, but excluding any merger, consolidation, share exchange or acquisition of the Company with or by another person pursuant to which the persons that beneficially owned, directly or indirectly, the Company’s voting shares immediately prior to such transaction beneficially own, directly or indirectly, immediately after such transaction, shares of the surviving, continuing or acquiring corporation’s stock representing more than 50% of the total outstanding voting power of all outstanding classes of stock of the surviving, continuing or acquiring corporation in substantially the same proportions (relative to each other) as immediately prior to such transaction;

 

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(iii)                               the Company’s stockholders approve and adopt a plan of liquidation or dissolution of the Company or a sale of all or substantially all of the Company’s assets; or

 

(iv)                              the Common Stock (or other common stock or depositary shares or receipts in respect thereof into which the Warrants are then convertible) ceases to be listed or quoted on any of The New York Stock Exchange, The NASDAQ Capital Market, The NASDAQ Global Market or The NASDAQ Global Select Market (or any of their respective successors).”

 

b)                                      Paragraph 7B(2) of the Existing Securities Purchase Agreement is hereby amended by (a) deleting the text “and” at the end of clause (xv) thereof, (ii) deleting the period at the end of clause (xvi) thereof and substituting in lieu thereof the following text:  “; and”, and (iii) inserting the following new clause (xvii) after the end of clause (xvi) thereof:

 

“(xvii)                Debt in an aggregate principal amount of up to $40,000,000 issued pursuant to (A) those certain separate Note Purchase Agreements, each dated as of October 16, 2012, by and between the Company and the respective purchasers party thereto (collectively, the “Note Purchase Agreements”) and (B) that certain Indenture to be entered into by and among the Company, the Guarantors party thereto and Wilmington Trust, National Association, as Trustee (the “Indenture”), a copy of which is attached as Schedule A to each Note Purchase Agreement, and without giving effect to any amendment or modification to such Indenture other than immaterial changes thereto.”

 

Section 3.                                          Effectiveness of Waivers and Amendments.  The waivers in Section 5 of this Amendment and the Amendments shall become effective upon satisfaction (or waiver by the Required Holders) of all of the following conditions:

 

(a)                                  Amendment.  Execution and delivery of this Amendment by the Company and the Required Holders, and execution and delivery of the Guarantor Acknowledgement attached hereto by the Guarantors.

 

(b)                                 Issuance of New Warrant Certificates.  Execution and delivery of a Warrant certificate, in the form attached hereto as Exhibit A, by the Company to each Warrant Holder, which is exercisable for the number of Warrant Shares set forth next to such Warrant Holder’s name on Schedule B, it being agreed that such number reflects only the initial adjustments required pursuant to Section 7 of the Warrants.  Upon issuance, the Warrant certificate shall be deemed to replace the Warrant certificate issued to such Warrant Holder on February 21, 2012.

 

(c)                                  Note Purchase Agreement.  The Company shall deliver a true and correct copy, certified by the Secretary of the Company, of the final form of the Note Purchase Agreement and the fully executed Indenture.

 

(d)                                 Representations and Warranties.  The representations and warranties in Section 4 shall be true and correct in all respects on the date hereof.

 

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(e)                                  Expenses.  The Company shall have paid the reasonable fees and disbursements of the holders of the Securities’ special counsel in accordance with Section 9 below.

 

Section 4.                                          Representations and Warranties.  To induce the holders of the Securities to enter into this Amendment and to consent to the Amendment, the Company hereby represents and warrants to each of the holders of Securities that:

 

(a)                                  the execution, delivery and performance of this Amendment have been duly authorized by all requisite corporate authority or other action on the part of the Company, this Amendment has been duly executed and delivered by the Company, and this Amendment constitutes the legal, valid and binding obligations of the Company, enforceable against the Company in accordance with its terms;

 

(b)                                 each of the representations and warranties set forth in the Securities Purchase Agreement and the other Transaction Documents are true and correct in all material respects as of the date hereof, except to the extent that such representations and warranties expressly relate to an earlier date, in which case such representations and warranties shall have been true and correct in all material respects as of such earlier date and except as disclosed in the First Amendment;

 

(c)                                  after giving effect to the transactions contemplated hereby, no Default or Event of Default has occurred and is continuing as of the date hereof; and

 

(d)                                 no events have taken place and no circumstances exist at the date hereof which would give any Credit Party a basis to assert a defense, offset or counterclaim to any claim of any holder of a Security with respect to the obligations of the Credit Parties.

 

Section 5.                                          Waiver of the Specified Defaults.  Subject to the satisfaction of the applicable conditions specified in Section 3, the Required Holders hereby waive the Specified Defaults; provided that on or prior to October 31, 2012, the Company shall have delivered, or shall have caused ZaZa Development to deliver, (a) an updated Schedule 9A(1) to the Securities Purchase Agreement, (b) a legal opinion of Andrews Kurth LLP, special counsel to ZaZa Development, (c) a certificate of a Responsible Officer of ZaZa Development certifying that ZaZa Development has received all consents and approvals required by paragraph 9Q of the Securities Purchase Agreement, and (d) any other documents or deliverables that the Collateral Agent or the Required Holders shall reasonably request in connection with ZaZa Development; provided, further, that such waivers shall cease to be effective, and such Specified Defaults shall be reinstated and be deemed to be continuing, if the Company or ZaZa Development fails to provide to the Collateral Agent and the holders of the Securities the foregoing items by October 31, 2012.  These waivers shall not extend beyond the terms expressly set forth herein, nor impair any right or power accruing to the holders of Securities with respect to any other Default or Event of Default or any Default or Event of Default which occurs after the date hereof.  Nothing contained herein shall be deemed to imply any willingness of the holders of Securities to agree to, or otherwise prejudice any rights of the holders of Securities with respect to, any similar waiver that may be requested by the Company.

 

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Section 6.                                          Transaction Document.  This Amendment shall be deemed to constitute a Transaction Document for all purposes under the Securities Purchase Agreement.

 

Section 7.                                          Effect of Amendment.  Except as set forth expressly herein, all terms of the Securities Purchase Agreement shall be and remain in full force and effect.  The execution, delivery and effectiveness of this Amendment shall not operate as a waiver of any right, power or remedy of the holders of Notes under the Securities Purchase Agreement, nor constitute a waiver of any provision of the Securities Purchase Agreement, except as expressly provided herein.  Any and all notices, requests, certificates and other instruments executed and delivered after the execution and delivery of this Amendment may refer to the Securities Purchase Agreement without making specific reference to this Amendment, but nevertheless all such references shall include this Amendment unless the context otherwise requires.

 

Section 8.                                          Release.

 

(a)                                  In consideration of the agreements of the holders of Securities contained herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, each Credit Party, on behalf of itself and its successors, assigns, and other legal representatives, hereby absolutely, unconditionally and irrevocably releases, remises and forever discharges each holder of Securities, and its successors and assigns, and its present and former shareholders, partners, members, managers, consultants, affiliates, subsidiaries, divisions, predecessors, directors, officers, attorneys, employees, agents and other representatives, and all persons acting by, through, under or in concert with any of them (each holder of Securities and all such other Persons being hereinafter referred to collectively as the “Releasees” and individually as a “Releasee”) of and from all demands, actions, causes of action, suits, covenants, contracts, controversies, agreements, promises, sums of money, accounts, bills, reckonings, damages and any and all other claims, counterclaims, defenses, recoupment, rights of setoff, demands and liabilities whatsoever (individually, a “Claim” and collectively, “Claims”) of every name and nature, known or unknown, contingent or mature, suspected or unsuspected, both at law and in equity, which any Credit Party or any of its respective successors, assigns, or other legal representatives may now or hereafter own, hold, have or claim to have against the Releasees or any of them for, upon, or by reason of any circumstance, action, cause or thing whatsoever which arises at any time on or prior to the day and date of this Amendment, including, without limitation, for or on account of, or in relation to, or in any way in connection with the Securities Purchase Agreement, or any of the other Transaction Documents or transactions thereunder or related thereto.

 

(b)                                 Each Credit Party understands, acknowledges and agrees that the release set forth above may be pleaded as a full and complete defense and may be used as a basis for an injunction against any action, suit or other proceeding which may be instituted, prosecuted or attempted in breach of the provisions of such release.

 

(c)                                  Each Credit Party agrees that no fact, event, circumstance, evidence or transaction which could now be asserted or which may hereafter be discovered shall affect in any manner the final, absolute and unconditional nature of the release set forth above.

 

5

 

(d)                                 In entering into this Amendment, each Credit Party has consulted with, and has been represented by, legal counsel and expressly disclaims any reliance on any representations, acts or omissions by any of the Releasees and hereby agrees and acknowledges that the validity and effectiveness of the release set forth above does not depend in any way on any such representations, acts and/or omissions or the accuracy, completeness or validity hereof.  The provisions of this Section shall survive the termination of this Amendment and the other Transaction Documents and the payment in full of the Notes.

 

(e)                                  Each Credit Party acknowledges and agrees that the release set forth above may not be changed, amended, waived, discharged or terminated orally.

 

Section 9.                                          Fees and Expenses; Indemnification.  Whether or not the Amendments in Section 2 hereof and/or the waivers in Section 5 hereof become effective, the Company agrees to pay on demand all reasonable costs and expenses of the holders of the Securities (including the reasonable fees and expenses of the holders of the Securities’ special counsel) in connection with the preparation, negotiation, execution and delivery of this Amendment as provided in paragraph 13B(1) of the Securities Purchase Agreement.  Nothing in this Section shall limit the Company’s obligations pursuant to paragraphs 13B(1) and 13B(2) of the Securities Purchase Agreement.

 

Section 10.                                   Governing Law.  THIS AMENDMENT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE INTERNAL LAW OF THE STATE OF NEW YORK, EXCLUDING CHOICE-OF-LAW PRINCIPLES OF THE LAW OF SUCH STATE THAT WOULD PERMIT THE APPLICATION OF THE LAWS OF A JURISDICTION OTHER THAN SUCH STATE.

 

Section 11.                                   Severability.  Whenever possible, each provision of this Amendment and any other statement, instrument or transaction contemplated hereby or thereby or relating hereto or thereto shall be interpreted in such manner as to be effective, valid and enforceable under the applicable law of any jurisdiction, but, if any provision of this Amendment or any other statement, instrument or transaction contemplated hereby or thereby or relating hereto or thereto shall be held to be prohibited, invalid or unenforceable under the applicable law, such provision shall be ineffective in such jurisdiction only to the extent of such prohibition, invalidity or unenforceability, without invalidating or rendering unenforceable the remainder of such provision or the remaining provisions of this Amendment or any other statement, instrument or transaction contemplated hereby or thereby or relating hereto or thereto in such jurisdiction, or affecting the effectiveness, validity or enforceability of such provision in any other jurisdiction.

 

Section 12.                                   Counterparts.  This Amendment may be executed by one or more of the parties hereto in any number of separate counterparts, each of which shall be deemed an original and all of which, taken together, shall be deemed to constitute one and the same instrument.  Delivery of an executed counterpart of this Amendment by facsimile transmission or by electronic mail in pdf form shall be as effective as delivery of a manually executed counterpart hereof.

 

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Section 13.                                   Binding Nature.  This Amendment shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns.

 

Section 14.                                   Entire Understanding.  The Existing Securities Purchase Agreement, together with this Amendment, set forth the entire understanding of the parties with respect to the matters set forth herein, and shall supersede any prior negotiations or agreements, whether written or oral, with respect thereto.

 

Section 15.                                   Headings.  The headings of the sections of this Amendment are inserted for convenience only and shall not be deemed to constitute a part of this Amendment.

 

[The remainder of this page is intentionally left blank.]

 

7

 

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of the date and year first above written.

 

 

	
 
    	
ZAZA   ENERGY CORPORATION
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/   Todd A. Brooks
    
	
 
    	
Name:
    	
Todd   A. Brooks
    
	
 
    	
Title:
    	
President   and CEO
    

 

 

	
 
    	
MSDC ZEC INVESTMENTS, LLC
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/   Marcello Liguori
    
	
 
    	
Name:
    	
Marcello   Liguori
    
	
 
    	
Title:
    	
Vice   President
    

 

 

	
 
    	
SENATOR SIDECAR MASTER FUND LP
    
	
 
    	
 
    
	
 
    	
By:
    	
Senator   Investment Group LP, its
    
	
 
    	
investment   manager
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
 
    	
By:
    	
/s/   Evan Gartenlaub
    
	
 
    	
 
    	
Name:
    	
Evan   Gartenlaub
    
	
 
    	
 
    	
Title:
    	
General Counsel
    

 

 

	
 
    	
O-CAP OFFSHORE MASTER FUND, L.P.
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
Name:
    	
 
    
	
 
    	
Title:
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
O-CAP PARTNERS, L.P.
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
Name:
    	
 
    
	
 
    	
Title:
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
CAPITAL VENTURES INTERNATIONAL
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
Name:
    	
 
    
	
 
    	
Title:
    	
 
    
	
 
    	
 
    
	
 
    	
TALARA MASTER FUND, LTD.
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
Name:
    	
 
    
	
 
    	
Title:
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
BLACKWELL PARTNERS, LLC
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
Name:
    	
 
    
	
 
    	
Title:
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
PERMAL TALARA LTD.
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
Name:
    	
 
    
	
 
    	
Title:
    	
 
    

 

 

	
 
    	
WINMILL INVESTMENTS LLC
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
Name:
    	
 
    
	
 
    	
Title:
    	
 
    

 

 

GUARANTOR ACKNOWLEDGEMENT

 

Each of the undersigned hereby acknowledges and agrees to the terms of the Waiver and Amendment No. 3 to Securities Purchase Agreement, effective as of October 16, 2012 (the “Amendment”), including, without limitation, Section 8 of the Amendment, amending that certain Securities Purchase Agreement, dated February 21, 2012, as amended (as amended, the “Securities Purchase Agreement”), among ZaZa Energy Corporation, a Delaware corporation, and the holders of Securities party thereto.  Each of the undersigned hereby confirms that the Guaranty Agreement to which the undersigned are a party remains in full force and effect after giving effect to the Amendment and continues to be the valid and binding obligation of each of the undersigned, enforceable against each of the undersigned in accordance with its terms.

 

Capitalized terms used herein but not defined are used as defined in the Securities Purchase Agreement.

 

Effective as of October 16, 2012.

 

	
 
    	
ZAZA   HOLDINGS, INC.,
    
	
 
    	
a   Delaware corporation
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:   
    	
/s/   Todd A. Brooks
    
	
 
    	
Name:
    	
Todd   A. Brooks
    
	
 
    	
Title:
    	
CEO
    
	
 
    	
 
    
	
 
    	
ZAZA   ENERGY, LLC,
    
	
 
    	
a   Texas limited liability company
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:   
    	
/s/   Todd A. Brooks
    
	
 
    	
Name:
    	
Todd   A. Brooks
    
	
 
    	
Title:
    	
Manager
    
	
 
    	
 
    
	
 
    	
TOREADOR   RESOURCES CORPORATION,
    
	
 
    	
a   Delaware corporation
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:   
    	
/s/   Tony Vermeire
    
	
 
    	
Name:
    	
Tony   Vermeire
    
	
 
    	
Title:
    	
President
    

 

[Signature Page to Amendment No. 3 to SPA]

 

 

	
 
    	
ZAZA   ENERGY DEVELOPMENT, LLC,
    
	
 
    	
a   Texas limited liability company
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:   
    	
/s/   Todd A. Brooks
    
	
 
    	
Name:
    	
Todd   A. Brooks
    
	
 
    	
Title:
    	
Manager
    

 

[Signature Page to Amendment No. 3 to SPA]

 

 

Schedule A

 

Specified Defaults

 

1.                                       The Event of Default occurring under paragraph 8A(iv) of the Securities Purchase Agreement as a result of the Credit Parties’ breach of certain representations and warranties in the Transaction Documents in connection with the failure to disclose the existence of ZaZa Energy Development, LLC, a Texas limited liability company and wholly owned Subsidiary of ZaZa LLC (“ZaZa Development”).

 

2.                                       The Event of Default occurring under paragraph 8A(v) of the Securities Purchase Agreement as a result of the Company’s failure to deliver in a timely manner the agreements, documents, instruments and other deliverables required pursuant to paragraph 6K of the Securities Purchase Agreement in connection with ZaZa Development.

 

 

Schedule B

 

	
Warrant Holder
    	
 
    	
WR-#
    	
 
    	
Adjusted Warrant
   Shares
    	
 
    
	
MSDC ZEC INVESTMENTS, LLC
    	
 
    	
WR-1
    	
 
    	
10,890,490
    	
 
    
	
SENATOR SIDECAR MASTER FUND LP
    	
 
    	
WR-2
    	
 
    	
12,251,800
    	
 
    
	
O-CAP OFFSHORE MASTER FUND, L.P.
    	
 
    	
WR-3
    	
 
    	
285,876
    	
 
    
	
O-CAP PARTNERS, L.P.
    	
 
    	
WR-4
    	
 
    	
394,780
    	
 
    
	
CAPITAL VENTURES INTERNATIONAL
    	
 
    	
WR-5
    	
 
    	
1,633,573
    	
 
    
	
TALARA MASTER FUND, LTD.
    	
 
    	
WR-6
    	
 
    	
340,327
    	
 
    
	
BLACKWELL PARTNERS, LLC
    	
 
    	
WR-7
    	
 
    	
585,363
    	
 
    
	
PERMAL TALARA LTD.
    	
 
    	
WR-8
    	
 
    	
435,620
    	
 
    
	
WINMILL INVESTMENTS LLC
    	
 
    	
WR-9
    	
 
    	
408,394
    	
 
    

 

 

Exhibit A

 

Form of Warrant

 

 

THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SUCH ACT AND ANY APPLICABLE STATE SECURITIES LAWS.

 

THE HOLDER OF THIS WARRANT IS ENTITLED TO THE BENEFITS OF THE LOCK-UP AGREEMENT DATED AS OF FEBRUARY 21, 2012 AMONG THE COMPANY AND THE RESTRICTED STOCKHOLDERS (AS DEFINED THEREIN).

 

This Warrant is issued in replacement of the original Warrant issued on February 21, 2012, pursuant to the Securities Purchase Agreement dated as of February 21, 2012 to reflect certain amendments and certain adjustments resulting from the original issuance of $40 million of 9% Convertible Senior Notes due 2017 by the Company on the date hereof.  If any provision of this Warrant is found to conflict with such Securities Purchase Agreement, the provisions of such Securities Purchase Agreement shall prevail.

 

	
No. WR-[   ]
    	
CUSIP: 98919T 118
    

 

ZAZA ENERGY CORPORATION

 

COMMON STOCK PURCHASE WARRANT

 

ZaZa Energy Corporation, a Delaware corporation (together with any corporation which shall succeed to or assume the obligations of ZaZa Energy Corporation hereunder, the “Company”), hereby certifies that, for value received, [        ] (the “Investor”), or its assigns, is entitled, subject to the terms set forth below, to purchase from the Company at any time during the Exercise Period (as defined in Section 12 hereof) up to [  ] fully paid and non-assessable shares of Common Stock (as defined in Section 12 hereof), at a purchase price per share equal to the Exercise Price (as defined in Section 12 hereof).  The number of shares of Common Stock for which this Warrant is exercisable and the Exercise Price are subject to adjustment as provided herein.

 

This Warrant is issued pursuant to the Securities Purchase Agreement (as amended and in effect from time to time, the “Purchase Agreement”), dated as of February 21, 2012, between the Company and the purchasers named therein, a copy of which is on file at the principal office of the Company.  The holder of this Warrant shall be entitled to all of the benefits and shall be subject to all of the obligations of the Purchase Agreement.

 

1.                                       DEFINITIONS.  Terms defined in the Purchase Agreement and not otherwise defined herein are used herein with the meanings so defined.  Certain terms are used in this Warrant as specifically defined in Section 12 hereof.

 

 

2.                                       EXERCISE OF WARRANT.

 

2.1.                              Exercise.  This Warrant may be exercised prior to its expiration pursuant to Section 2.5 hereof by the holder hereof at any time or from time to time during the Exercise Period, by submitting the form of subscription attached hereto (“the Exercise Notice”) duly executed by such holder, to the Company at its principal office, indicating whether the holder is electing to purchase a specified number of shares by paying the Aggregate Exercise Price as provided in Section 2.2 or is electing to exercise this Warrant as to a specified number of shares pursuant to the net exercise provisions of Section 2.3.  On or before the first Trading Day following the date on which the Company has received the Exercise Notice, the Company shall transmit by facsimile an acknowledgement of confirmation of receipt of the Exercise Notice.This Warrant shall be deemed exercised for all purposes as of the close of business on the day on which the holder has delivered the Exercise Notice to the Company.  The Aggregate Purchase Price, if any, shall be paid by wire transfer to the Company within two business days of the date of exercise and prior to the time the Company issues the certificates evidencing the shares issuable upon such exercise.  In the event the Warrant is not exercised in full, the Company may, at its expense, require the Holder, after such partial exercise, to promptly return this Warrant to the Company and the Company will forthwith issue and deliver to or upon the order of the holder hereof a new Warrant or Warrants of like tenor, in the name of the holder hereof or as such holder (upon payment by such holder of any applicable transfer taxes) may request, calling in the aggregate on the face or faces thereof for the number of shares of Common Stock equal (without giving effect to any adjustment therein) to the number of such shares called for on the face of this Warrant minus the number of such shares (without giving effect to any adjustment therein) for which this Warrant shall have been exercised.

 

2.2.                              Payment of Exercise Price by Wire Transfer.   If the holder elects to purchase a specified number of shares by paying the Aggregate Exercise Price, the holder shall pay such amount by wire transfer of immediately available funds to an account designated in advance by the Company.

 

2.3.                              Net Exercise.  The holder may also elect to exercise this Warrant at any time or from time to time, by receiving shares of Common Stock equal to the number of shares determined pursuant to the following formula:

 

	
 
    	
X  =   Y (A - B)
    	
 
    
	
 
    	
           A
    	
 
    

 

where,

 

	
X   =
    	
 
    	
the   number of shares of Common Stock to be issued to Holder;
    
	
 
    	
 
    	
 
    
	
Y   =
    	
 
    	
the   number of shares of Common Stock as to which this Warrant is to be exercised   (as indicated on the subscription form);
    
	
 
    	
 
    	
 
    
	
A   =
    	
 
    	
the   volume weighted average price of the Common Stock quoted on the Nasdaq   Capital Market or any other U.S. exchange on which the Common Stock is   listed, whichever is applicable, as posted by Bloomberg L.P. (or such other   reference reasonably relied upon by the Company if not so published) for the   five (5) Trading Days ending on the Trading Day immediately preceding   the date of exercise; and
    
	
 
    	
 
    	
 
    
	
B   =
    	
 
    	
the   Exercise Price.
    

 

2.4.                              Antitrust Notification.  If the holder of this Warrant determines, in its sole judgment upon the advice of counsel, that an exercise of this Warrant pursuant to the terms hereof would be subject to the provisions of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”), the Company shall file, within seven (7) business days after receiving notice from

 

2

 

such holder of the applicability of the HSR Act and a request to so file, with the United States Federal Trade Commission (the “FTC”) and the United States Department of Justice (the “DOJ”) the notification and report form and any supplemental information required to be filed by it pursuant to the HSR Act in connection with the exercise of this Warrant.  Any such notification and report form and supplemental information will be in full compliance with the requirements of the HSR Act.  The Company will furnish to such holder promptly (but in no event more than five (5) business days) such information and assistance as such holder may reasonably request in connection with the preparation of any filing or submission required to be filed by such holder under the HSR Act.  The Company shall respond promptly after receiving any inquiries or requests for additional information from the FTC or the DOJ (and in no event more than three (3) business days after receipt of such inquiry or request).  The Company shall keep such holder apprised periodically and at such holder’s request of the status of any communications with, and any inquiries or requests for additional information from, the FTC or the DOJ.  The Company shall bear all filing or other fees required to be paid by the Company and such holder (or the “ultimate parent entity” of such holder, if any) under the HSR Act or any other applicable law in connection with such filings and all costs and expenses (including, without limitation, reasonable attorneys’ fees and expenses) incurred by the Company and such holder in connection with the preparation of such filings and responses to inquiries or requests.  In the event that this Section 2.4 is applicable to any exercise of this Warrant, the purchase by such holder of the Exercise Shares subject to such exercise, and the payment by such holder of the Exercise Price therefor, shall be subject to the expiration or earlier termination of the waiting period under the HSR Act (with the exercise date of this Warrant being deemed to be the date immediately following the date of such expiration or early termination).

 

2.5.                              Termination.  This Warrant shall terminate upon the earlier to occur of (i) exercise in full or (ii) the expiration of the Exercise Period.

 

2.6                                 Required Conversion.  If (a) for a forty-five (45) consecutive Trading Day period from and after the date that is forty-five (45) Trading Days prior to the third anniversary of the Closing but prior to the expiration of this Warrant, the daily volume weighted average price of the Common Stock quoted on the Nasdaq Capital Market or any other U.S. exchange on which the Common Stock is listed, whichever is applicable, as posted by Bloomberg L.P. (or such other reference reasonably relied upon by the Company if not so published) is greater than or equal to $10.00 per share and (b) for each of those forty-five (45) consecutive trading days at least an average of Fifty Thousand (50,000) shares of the Common Stock are traded per day during such period (in each case, as appropriately adjusted for stock splits, combinations, reorganizations, reclassifications and the like) (the “Early Termination Event”), then the Company shall have the right, by giving written notice in accordance with Section 18 of the Early Termination Event to the Holder within thirty (30) calendar days of the occurrence of the Early Termination Event, to require such Holder to exercise this Warrant in full pursuant to this Section 2; provided, however, that if on any day during such forty-five consecutive Trading Day period when the condition set forth in the preceding clause (a) is satisfied, the condition set forth in the preceding clause (b) is not satisfied, the Company shall be entitled to treat such day as if it was not a Trading Day for the purposes of determining whether an Early Termination Event has occurred.  If, on the 10th business day following written notice from the Company notifying the Holder of the occurrence of the Early Termination Event, the Holder has not elected to exercise this Warrant in full for all the then unexercised Warrant Shares, this Warrant shall be deemed automatically exercised on such 10th business day pursuant to the net exercise provisions in Section 2.3 above; provided, however, that until the Holder has complied with the Warrant delivery and any other obligations under Section 2.1, the Company shall have no obligation to deliver share certificates.

 

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3.                                       REGISTRATION RIGHTS.  The holder of this Warrant has certain rights to require the Company to register its resale of the Warrant Shares under the Securities Act and any blue sky or securities laws of any jurisdictions within the United States at the time and in the manner specified in the Purchase Agreement.

 

4.                                       DELIVERY OF STOCK CERTIFICATES ON EXERCISE.  As soon as practicable after any exercise of this Warrant and in any event within three (3) Trading Days thereafter, the Company shall, at its expense (including the payment by it of any applicable issue or stamp taxes), cause to be issued in the name of and delivered to the holder, or as the holder may direct, a certificate or certificates evidencing the number of fully paid and nonassessable shares of Common Stock (or Other Securities, as applicable) (which number shall be rounded up to the nearest whole share in the event any fractional share may otherwise be issuable upon such exercise) to which the holder shall be entitled on such exercise, in such denominations as may be requested by the holder, which certificate or certificates shall be free of restrictive and trading legends (except for any such legends as may be required under the Securities Act).  In lieu of delivering physical certificates for the shares of Common Stock (or Other Securities) issuable upon any exercise of this Warrant, provided the Company’s transfer agent is participating in the Depository Trust Company (“DTC”) Fast Automated Securities Transfer (“FAST”) program or a similar program, upon request of the holder, the Company shall use commercially reasonable efforts to cause its transfer agent to electronically transmit such shares of Common Stock (or Other Securities) issuable upon exercise of this Warrant to the holder (or its designee), by crediting the account of the holder’s (or such designee’s) broker with DTC through its Deposit Withdrawal Agent Commission system (provided that the same time periods herein as for stock certificates shall apply) as instructed by the holder (or its designee).

 

5.                                       ADJUSTMENT FOR DIVIDENDS, DISTRIBUTIONS AND RECLASSIFICATIONS.

 

5.1.  Distribution of Assets; Spin-Off.  If the Company shall declare or make any dividend or other distribution of its assets (or rights to acquire its assets) to holders of Common Stock, by way of return of capital or otherwise (including, without limitation, any distribution of cash, stock or other securities, property or options by way of a Spin-Off, dividend, reclassification, corporate rearrangement or other similar transaction, but excluding cash dividends which are prohibited by Section 5.2 hereof and excluding stock dividends or stock splits adjustments in respect of which are provided for in Section 7 hereof) (a “Distribution”), at any time after the issuance of this Warrant, then, in each such case:

 

(a)                                  (i) the Exercise Price in effect immediately prior to the close of business on the record date fixed for the determination of holders of Common Stock entitled to receive the Distribution shall be reduced, effective as of the close of business on such record date, to a price determined by multiplying such Exercise Price by a fraction of which:

 

(A)                              the numerator shall be the Market Price of the Common Stock on the Trading Day immediately preceding such record date minus the Fair Market Value of the Distribution applicable to one share of Common Stock, and

 

(B)                                the denominator shall be the Market Price of the Common Stock on the Trading Day immediately preceding such record date;

 

4

 

and (ii) the number of Warrant Shares obtainable upon exercise of this Warrant shall be increased to a number of shares equal to the number of shares of Common Stock obtainable immediately prior to the close of business on the record date fixed for the determination of holders of Common Stock entitled to receive the Distribution multiplied  by the reciprocal of the fraction set forth in the immediately preceding clause (i) of this Section 5.1(a); and

 

(b)                                 Notwithstanding the provisions of the foregoing clause (a), in the event of a Spin-Off in which the Distribution is of common stock of a subsidiary of the Company, then (i) the Exercise Price in effect immediately prior to the close of business on the record date fixed for the determination of holders of Common Stock entitled to receive such 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:

 

(A)                              the numerator shall be the Market Price of the Common Stock on the Trading Day immediately preceding such record date minus the Fair Market Value of the Distribution applicable to one share of Common Stock, and

 

(B)                                the denominator shall be the Market Price of the Common Stock on the Trading Day immediately preceding such record date;

 

and (ii) the holder of this Warrant shall receive an additional warrant to purchase common stock of such company, 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 common stock of such company that would have been issuable or distributed to the holder of this Warrant pursuant to the Distribution had the holder exercised this Warrant for cash for the full number of shares of Common Stock on the face of this Warrant (notwithstanding the requirement that this Warrant be exercised pursuant to the net exercise provisions of Section 2.3) immediately prior to such record date and with an exercise price equal to the amount by which the Exercise Price of this Warrant was decreased with respect to the Distribution pursuant to the terms of the preceding clause (i) of this Section 5.1(b).

 

5.2.  Cash Dividends.  For so long as any Warrants are outstanding, no cash dividend shall be declared or paid or set aside for payment on any shares of the Company’s Common Stock or any parity or junior stock thereto.

 

5.3.  Other Events.  If any event occurs of the type contemplated by the provisions of this Section 5 but not expressly provided for by such provisions, then the Company’s Board of Directors, acting in good faith and consistent with their fiduciary duties, shall make an appropriate adjustment in the Exercise Price and the number of shares of Common Stock obtainable upon exercise of this Warrant so as to protect the rights of the holders of the Warrant.

 

6.                                       ADJUSTMENT FOR REORGANIZATION, CONSOLIDATION, MERGER, ETC.

 

6.1.  Certain  Adjustments.  In case at any time or from time to time, the Company shall (i) effect a capital reorganization, reclassification or recapitalization, (ii) consolidate with or merge into any other person, or (iii) transfer all or substantially all of its properties or assets to any other person under any plan or arrangement contemplating the dissolution of the Company, then in each such case, this Warrant shall thereafter be exercisable for the same kind and amounts of securities (including shares of stock) or other assets, or both, which were issuable or distributable to the holders of 

 

5

 

outstanding Common Stock upon such reorganization, reclassification, recapitalization, consolidation, merger or transfer, in respect of that number of shares of Common Stock for which this Warrant could have been exercised immediately prior to such reorganization, reclassification, recapitalization, consolidation, merger or transfer; and, in any such case, appropriate adjustments (as determined in good faith by the Board of Directors of the Company) shall be made to assure that the provisions set forth herein shall thereafter be applicable, as nearly as reasonably may be practicable, in relation to any securities or other assets thereafter deliverable upon the exercise of this Warrant.

 

6.2.  Continuation of Terms.  Upon any reorganization, consolidation, merger or transfer (and any dissolution following any transfer) referred to in this Section 6, this Warrant shall continue in full force and effect and the terms hereof shall be applicable to the shares of stock and other securities and property receivable on the exercise of this Warrant after the consummation of such reorganization, consolidation or merger or the effective date of dissolution following any such transfer, as the case may be, and shall be binding upon the issuer of any such stock or other securities, including, in the case of any such transfer, the person acquiring all or substantially all of the properties or assets of the Company, whether or not such person shall have expressly assumed the terms of this Warrant as provided in Section 8 hereof.

 

7.                                       ADJUSTMENTS FOR ISSUANCE OF COMMON STOCK AND AMOUNT OF OUTSTANDING COMMON STOCK.

 

7.1.  General.  If at any time there shall occur any stock split, stock dividend, reverse stock split or other subdivision of the Company’s Common Stock (“Stock  Event”), then the number of shares of Common Stock to be received by the holder of this Warrant shall be appropriately adjusted such that the proportion of the number of shares issuable hereunder to the total number of shares of the Company (on a fully diluted basis) prior to such Stock Event is equal to the proportion of the number of shares issuable hereunder after such Stock Event to the total number of shares of the Company (on a fully-diluted basis) after such Stock Event.  The Exercise Price shall be proportionately decreased or increased upon the occurrence of any Stock Event; provided that in no event will the Exercise Price be less than the par value of the Common Stock.

 

7.2.                              Other Securities.  In case any Other Securities shall have been issued, or shall then be subject to issue upon the conversion or exchange of any stock (or Other Securities) of the Company (or any other issuer of Other Securities or any other entity referred to in Section 6 hereof) or to subscription, purchase or other acquisition pursuant to any rights or options granted by the Company (or such other issuer or entity), the holder hereof shall be entitled to receive upon exercise hereof such amount of Other Securities (in lieu of or in addition to Common Stock) as is determined in accordance with the terms hereof, treating all references to Common Stock herein as references to Other Securities to the extent applicable, and the computations, adjustments and readjustments provided for in this Section 7 with respect to the number of shares of Common Stock issuable upon exercise of this Warrant shall be made as nearly as possible in the manner so provided and applied to determine the amount of Other Securities from time to time receivable on the exercise of the Warrant, so as to provide the holder of the Warrant with the benefits intended by this Section 7 and the other provisions of this Warrant.

 

7.3.                              Adjustments for Dilutive and Other Events.

 

(a)                                  Issuance of Additional Shares of Common Stock.  If at any time on or after the Closing Day, the Company shall issue any Additional Shares of Common Stock (including Additional 

 

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Shares of Common Stock deemed to be issued pursuant to Section 7.3(b) below), at a price per share (the “Offering  Price”) which is lower than the greater of (x) the Exercise Price or (y) 90% of the Market Price on the date of entry into the definitive agreement providing for such issuance, then the number of shares of Common Stock to be received by the holder of this Warrant upon the exercise hereof shall be adjusted to that number determined by multiplying (a) the number of shares of Common Stock purchasable hereunder immediately prior thereto by (b) a fraction (i) the numerator of which shall be the sum of (A) the number of shares of Common Stock Deemed Outstanding immediately prior to the issuance of such shares of Common Stock plus (B) the number of shares of Common Stock issued in the subject transaction and (ii) the denominator of which shall be an amount equal to the sum of (x) the number of shares of Common Stock Deemed Outstanding immediately prior to the issuance of such shares of Common Stock plus (y) the quotient of (1) the Offering Price multiplied  by the number of shares of Common Stock so issued by the Company, divided  by (2) the Reference Price in effect immediately prior to the issuance of such shares.  The provisions of this Section 7.3 shall not apply to (i) any issuance of additional Common Stock for which an adjustment is provided under Section 7.1 hereof, and (ii) the issuance of up to 7,000,000 shares of Common Stock, whether upon the grant of restricted stock, the grant or exercise of options, or otherwise, pursuant to equity compensation plans for officers, directors, employee and consultants that are approved (or subject to approval) by the shareholders of the Company; provided that grants of options, restricted stock grants, or other awards for not more than 2,000,000 shares of Common Stock (as appropriately adjusted for stock splits, combinations, reorganizations, reclassifications and the like) shall be scheduled to vest under such equity compensation plans in any calendar year (collectively, the “Excluded Compensation Issuances”).  When any adjustment is required to be made to the number of shares hereunder pursuant to this Section 7.3(a), the Exercise Price shall be reduced to a price (calculated to the nearest cent) as is equal to the quotient obtained by dividing (x) the product of the Exercise Price multiplied by the number of shares of Common Stock issuable upon exercise of this Warrant, in each case as in effect immediately before such adjustment, by (y) the number of shares of Common Stock issuable upon exercise of this Warrant immediately after giving effect to such adjustment.

 

(b)                                 Issue of Options and Convertible Securities Deemed Issue of Additional Shares of Common Stock.  If the Company at any time or from time to time on or after the Closing Day shall issue any Options (other than Excluded Compensation Issuances) or Convertible Securities, then the maximum number of shares of Common Stock (as set forth in the instrument relating thereto without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or, in the case of Convertible Securities and Options therefor, the conversion or exchange of such Convertible Securities, shall be deemed to be Additional Shares of Common Stock issued as of the time of such issue, or, in case a record date shall have been fixed for such issuance, as of the close of business on such record date, provided that Additional Shares of Common Stock shall not be deemed to have been issued unless the consideration per share (determined pursuant to Section 7.3(c) below) of such Additional Shares of Common Stock would be less than the Reference Price in effect on the date of and immediately prior to such issue, or such record date, as the case may be, and provided further that in any such case in which Additional Shares of Common Stock are deemed to be issued (i) no further adjustment in the number of shares of Common Stock for which this Warrant is exerciseable shall be made upon the subsequent issue of Convertible Securities or shares of Common Stock upon the exercise of such Options or conversion or exchange of such Convertible Securities, and (ii) upon the expiration or termination of any unexercised Option, the number of shares of Common Stock for which this Warrant is then exerciseable shall be readjusted, and the Additional Shares of Common Stock deemed issued as the result of the original issue of such Option shall not be deemed issued for the purpose of such 

 

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readjustment; provided, however, that with respect to any Options or Convertible Securities issued by the Company for which there is a subsequent adjustment which increases the number of shares of Common Stock issuable upon conversion or exercise of such Options or Convertible Securities or an adjustment which decreases the exercise price or conversion price of such Options or Convertible Securities, then an adjustment to the number of shares of Common Stock for which this Warrant is exerciseable shall be made under this Section 7.3 upon any such adjustment to such Options or Convertible Securities as if such Options or Convertible Securities were deemed to have been cancelled and reissued.

 

(c)                                  Determination of Consideration.  For purposes of this Section 7.3, the consideration received by the Company for the issue of any Additional Shares of Common Stock shall be computed as follows:

 

(i)                                     Cash and Property:  Such consideration shall:

 

(A)  insofar as it consists of cash, be equal to the total cash received by the Company, excluding amounts paid or payable for accrued interest or accrued dividends;

 

(B)  insofar as it consists of property other than cash, be computed at the Fair Market Value thereof at the time of entry into the definitive agreement providing for such issue determined as provided below; and

 

(C)  in the event Additional Shares of Common Stock are issued together with other shares or securities or other assets of the Company for consideration which covers both, be the proportion of such consideration so received that is allocated to such Additional Shares of Common Stock, computed as provided in or pursuant to clauses (A) and (B) above.

 

If the Company shall issue (or shall be deemed to issue) Additional Shares of Common Stock for no consideration (other than Excluded Compensation Issuances), such Additional Shares of Common Stock shall be deemed to have been issued for consideration equal to $.01 per share.

 

(ii)                                  Options and Convertible Securities.  The consideration per share received by the Company for Additional Shares of Common Stock deemed to have been issued pursuant to Section 7.3(b), relating to Options and Convertible Securities, shall be determined by dividing

 

(A)                              the total amount, if any, received or receivable by the Company as consideration for the issue of such Options or Convertible Securities, plus the minimum aggregate amount of additional consideration (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such consideration) payable to the Company upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities, by

 

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(B)                                the maximum number of shares of Common Stock (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or the conversion or exchange of such Convertible Securities.

 

8.                                       NO DILUTION OR IMPAIRMENT.  The Company will not, by amendment of its Certificate of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of the Warrant, but will at all times in good faith assist in the carrying out of all such terms and in taking all such action as may be necessary or appropriate in order to protect the rights of the holder of the Warrant against dilution.  Without limiting the generality of the foregoing, the Company (i) will not increase the par value of any shares of stock receivable on the exercise of the Warrant above the amount payable therefor on such exercise, (ii) will take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and non-assessable shares of stock on the exercise of the Warrant from time to time outstanding, including by (A) preparing an Information Statement on Schedule 14C (the “Information Statement”) relating to the approval by written consent of the issuance of the Warrant Shares under this Warrant, and all other shares issuable by the Company pursuant to other instruments dated as of February 21, 2012, as required by Nasdaq Listing Rule 5635, (B) filing the Information Statement with the Securities and Exchange Commission (the “SEC”), (C) using its best efforts to cause the Information Statement to be cleared by the SEC as promptly as practicable and (D) disseminating the Information Statement to the shareholders of the Company, and (iii) subject to Section 15, will not transfer all or substantially all of its properties and assets to any other entity (corporate or otherwise), or consolidate with or merge into any other entity or permit any such entity to consolidate with or merge with the Company (if the Company is not the surviving entity), unless such other entity shall expressly assume in writing and will be bound by all the terms of this Warrant and the Purchase Agreement.

 

9.                                       CERTIFICATE AS TO ADJUSTMENTS.  In each case of any event that may require any adjustment or readjustment in the shares of Common Stock issuable on the exercise of this Warrant, the Company at its expense will promptly prepare a certificate setting forth such adjustment or readjustment, or stating the reasons why no adjustment or readjustment is being made, and showing, in detail, the facts upon which any such adjustment or readjustment is based, including a statement of (i) the number of shares of Common Stock Deemed Outstanding, and (ii) the number of shares of Common Stock to be received upon exercise of this Warrant, in effect immediately prior to such adjustment or readjustment and as adjusted and readjusted (if required by Section 7) on account thereof.  The Company will forthwith mail a copy of each such certificate to each holder of a Warrant, and will, on the written request at any time of any holder of a Warrant, furnish to such holder a like certificate setting forth the calculations used to determine such adjustment or readjustment.

 

10.                                 NOTICES OF RECORD DATE.  In the event of:

 

(a)                                  any taking by the Company of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend or other distribution, or any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right; or

 

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(b)                                 any capital reorganization of the Company, any reclassification or recapitalization of the capital stock of the Company or any transfer of all or substantially all the assets of the Company to or any consolidation or merger of the Company with or into any other Person or any other Fundamental Change; or

 

(c)                                  any voluntary or involuntary dissolution, liquidation or winding-up of the Company;

 

then, and in each such event, the Company will mail or cause to be mailed to the holder of this Warrant a notice specifying (i) the date on which any such record is to be taken for the purpose of such dividend, distribution or right, and stating the amount and character of such dividend, distribution or right, or (ii) the date on which any such reorganization, reclassification, recapitalization, transfer, consolidation, merger, dissolution, liquidation or winding-up is anticipated to take place, and the time, if any is to be fixed, as of which the holders of record of Common Stock (or Other Securities) shall be entitled to exchange their shares of Common Stock (or Other Securities) for securities or other property deliverable on such reorganization, reclassification, recapitalization, transfer, consolidation, merger, dissolution, liquidation or winding-up.  Such notice shall be mailed at least thirty (30) days prior to the date specified in such notice on which any such action is to be taken.

 

11.                                 RESERVATION OF STOCK ISSUABLE ON EXERCISE OF WARRANT.  The Company will at all times reserve and keep available, solely for issuance and delivery on the exercise of this Warrant, a number of shares of Common Stock equal to the total number of shares of Common Stock from time to time issuable upon exercise of this Warrant, and, from time to time, will take all steps necessary to amend its Certificate of Incorporation to provide sufficient reserves of shares of Common Stock issuable upon exercise of this Warrant.

 

12.                                 DEFINITIONS.  As used herein the following terms, unless the context otherwise requires, have the following respective meanings:

 

Additional Shares of Common Stock means all shares of Common Stock issued (or, pursuant to Section 7.3(b) hereof, deemed to be issued) by the Company after the Closing Day, including without limitation any treasury shares sold or otherwise transferred by the Company, but excluding shares of Common Stock issued or issuable by reason of a dividend, stock split, split-up or other distribution on shares of Common Stock for which an adjustment is made pursuant to Section 7.1 hereof, but excluding shares of Common Stock issued or issuable as Excluded Compensation Issuances.

 

Aggregate Exercise Price means, in connection with the exercise of this Warrant at any time, an amount equal to the product obtained by multiplying (i) the Exercise Price times (ii) the number of shares of Common Stock for which this Warrant is being exercised at such time.

 

Common Stock means (i) the Company’s Common Stock, $.01 par value per share, (ii) any other capital stock of any class or classes (however designated) of the Company, the holders of which shall have the right, without limitation as to amount, either to all or to a share of the balance of current dividends and liquidating dividends after the payment of dividends and distributions on any shares entitled to preference, and (iii) any other securities into which or for which any of the securities described in clauses (i), or (ii) above have been converted or exchanged pursuant to a plan of recapitalization, reorganization, merger, sale of assets or otherwise.

 

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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 issuable at such time upon conversion of any Convertible Securities and Options (other than this Warrant and any other warrants issued under the Purchase Agreement) then outstanding to the extent such Convertible Security or Option is (i) convertible, exercisable or exchangeable at such time and (ii) convertible, exercisable or exchangeable at a price that is less than the Fair Market Value of a share of Common Stock issuable upon such conversion, exercise or exchange at such time.

 

Convertible Securities means any evidences of Indebtedness, shares (other than Common Stock) or other securities directly or indirectly convertible into or exchangeable for Common Stock.

 

Exercise Period means the period commencing on the six month anniversary of the Closing Day under the Purchase Agreement and ending on the fifth anniversary of such date.

 

Exercise Price means $3.04 per share.

 

Exercise Shares means the shares of Common Stock for which this Warrant is then being exercised.

 

Fair Market Value means, with respect to any security or other property, the fair market value of such security or other property as determined unanimously by the Board of Directors, acting in good faith.  If the Board of Directors is unable to unanimously agree to the fair market value, it will have an independent third-party appraisal conducted by a nationally-recognized valuation company and the determination of such company shall be final.

 

Fundamental Change means an event or series of events by which any of the following occurs:

 

(i)                                     a “person” or “group” within the meaning of Section 13(d) of the Exchange Act (other than a “person” or “group” comprised solely of Permitted Holders) files a Schedule TO or any schedule, form or report under the Exchange Act disclosing that such person or group has become the direct or indirect ultimate beneficial owner of common equity of the Company representing more than 50% of the voting power of the outstanding Common Stock; provided, however, that notwithstanding anything herein to the contrary, a Fundamental Change shall be deemed to have occurred if the Permitted Holders, as a group, acquire beneficial ownership in excess of 75,976,851 shares of Common Stock (as appropriately adjusted for stock splits and similar transactions); provided, however, that if at any time the Permitted Holders, taken as a group, own less than 50% of the then outstanding Common Stock, a Fundamental Change will be deemed to have occurred if the Permitted Holders thereafter become the direct or indirect ultimate beneficial owners of common equity of the Company representing more than 50% of the voting power of the outstanding Common Stock;

 

(ii)                                  the consummation of: (A) any sale, lease or other transfer in one transaction or a series of related transactions of all or substantially all of the consolidated assets of the Company and the Subsidiaries, taken as a whole, to any Person or Persons (other than, so long as any amounts remain outstanding with respect to the Notes, one of the Guarantors to the extent permitted pursuant to Purchase Agreement, and after all amounts with respect to the Notes have been discharged, one of the Subsidiaries); or (B) any transaction or series of related transactions in connection with which (whether by means of exchange, liquidation, consolidation, merger, combination, reclassification, recapitalization, acquisition or otherwise) all of the Common Stock is exchanged for, converted into, 

 

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acquired for, or constitutes solely the right to receive, other securities, other property, assets or cash, but excluding any merger, consolidation, share exchange or acquisition of the Company with or by another person pursuant to which the persons that beneficially owned, directly or indirectly, the Company’s voting shares immediately prior to such transaction beneficially own, directly or indirectly, immediately after such transaction, shares of the surviving, continuing or acquiring corporation’s stock representing more than 50% of the total outstanding voting power of all outstanding classes of stock of the surviving, continuing or acquiring corporation in substantially the same proportions (relative to each other) as immediately prior to such transaction; or

 

(iii)                               the Company’s stockholders approve and adopt a plan of liquidation or dissolution of the Company or a sale of all or substantially all of the Company’s assets.

 

Market Price means, with respect to the Common Stock, on any given day, the closing sale price or, if no closing sale price is reported, the last reported sale price of the shares of the Common Stock on the Nasdaq Capital Market on such date.  If the Common Stock is not traded on the Nasdaq Capital Market on any date of determination, the Market Price of the Common Stock on such date of determination means the closing sale price as reported in the composite transactions for the principal U.S. national or regional securities exchange on which the Common Stock is so listed or quoted, or, if no closing sale price is reported, the last reported sale price on the principal U.S. national or regional securities exchange on which the Common Stock is so listed or quoted, or if the Common Stock is not so listed or quoted on a U.S. national or regional securities exchange, the last quoted bid price for the Common Stock in the over-the-counter market as reported by Pink Sheets LLC or similar organization, or, if that bid price is not available, the market price of the Common Stock on that date as determined by a nationally recognized independent investment banking firm retained by the Company for this purpose.

 

Option means any rights, options or warrants to subscribe for, purchase or otherwise acquire Common Stock or Convertible Securities.

 

Other Securities refers to any stock (other than Common Stock) and other securities of the Company or any other entity (corporate or otherwise) (i) which the holder of this Warrant at any time shall be entitled to receive, or shall have received, on the exercise of this Warrant, in lieu of or in addition to Common Stock, or (ii) which at any time shall be issuable or shall have been issued in exchange for or in replacement of Common Stock or Other Securities, in each case pursuant to Section 5 or 6 hereof.

 

Permitted Holders means Todd Brooks, John Hearn, Gaston Kearby, their respective heirs and any Permitted Transferees (as defined in the Lock-Up Agreement) of the foregoing.

 

Preliminary Fundamental Change means, with respect to the Company, (A) the execution of a definitive agreement for a transaction or (B) the recommendation that stockholders tender in response to a tender or exchange offer, in the case of both (A) and (B), that would reasonably be expected to result in a Fundamental Change.

 

Principal Market means, at any time, the securities exchange, quotation system or over-the-counter trading facility on which the Common Stock is then principally traded or quoted at such time.

 

Reference Price means, on any date of determination, the greater of (i) the Market Price per share as of such date and (ii) the Exercise Price.

 

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Spin-Off means a transaction in which the Company spins off or otherwise divests itself of a part of its business or operations or disposes all or a part of its assets in a transaction in which the Company does not receive compensation for such business, operations or assets, but causes securities of a subsidiary of the Company or another entity to be distributed or otherwise issued to security holders of the Company,

 

Trading Day means, at any time, a day on which the Principal Market is open for the general trading or quotation of securities and the Common Stock is traded or quoted thereon without suspension or interruption.

 

13.                                 LIMITATION ON BENEFICIAL OWNERSHIP.  Notwithstanding the foregoing, the holder shall not be entitled to receive shares of Common Stock upon exercise of this Warrant to the extent (but only to the extent) that such receipt would cause the holder to become, directly or indirectly, a “beneficial owner” (within the meaning of Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder) of a number of shares of Common Stock which exceeds the Maximum Percentage of the shares of Common Stock outstanding at such time.  This limitation on beneficial ownership shall be terminated (i) upon 61 days’ notice to the Company by the holder or (ii) immediately on the date that is 30 days prior to the expiration of the Exercise Period.  Any purported delivery of shares of Common Stock upon exercise of this Warrant shall be void and have no effect to the extent (but only to the extent) that such delivery would result in the holder becoming the beneficial owner of more than the Maximum Percentage of the shares of Common Stock outstanding at such time.  If any delivery of shares of Common Stock owed to the holder upon exercise of this Warrant is not made, in whole or in part, as a result of this limitation, the Company’s obligation to make such delivery shall not be extinguished and the Company shall deliver such shares of Common Stock as promptly as practicable after the holder gives notice to the Company that such delivery would not result in such limitation being triggered.  For purposes of this Section 13, (a) the term “Maximum Percentage” shall mean initially 5%; provided, that if at any time after the Closing Day the Holder Group beneficially owns in excess of 5% of the outstanding shares of Common Stock (excluding any shares issuable under this Warrant and any other convertible security including a similar limitation), then the Maximum Percentage shall automatically increase to 10% so long as the Holder Group owns in excess of 5% of the outstanding shares of Common Stock (excluding any shares issuable under this Warrant and any other convertible security including a similar limitation), and (b) the term “Holder Group” shall mean the holder of this Warrant plus any other person with which such holder is considered to be part of a group under Section 13 of the Exchange Act or with which such holder otherwise files reports under Sections 13 and/or 16 of the Exchange Act.  The limitations in this Section 13 shall not have an effect on any calculation or payment due to the Holder of this Warrant pursuant to Section 15 hereof.

 

14.                                 LIMITATION ON CONVERSION.  Notwithstanding anything herein to the contrary, the number of Warrant Shares issuable upon exercise of this Warrant at any given time, when combined with the aggregate number of Warrant Shares previously issued upon conversion of this Warrant and any other warrant issued by the Company on the Closing Day, pursuant to the Purchase Agreement, may not, in the absence of approval by the Company’s shareholders in accordance with applicable law and the rules and regulations of the Principal Market, exceed 19.9% of the number of shares of Common Stock issued and outstanding immediately prior to the issuance of such warrants.  Upon receipt of such requisite approval, the Company shall deliver to the Holder a certificate, in form reasonably satisfactory to the Holder, certifying that the limitation contained in this Section 14 has been duly removed by the Company and is no longer applicable to this Warrant.

 

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15.                                 FUNDAMENTAL CHANGE.  Upon the occurrence of a Fundamental Change, the Company shall, upon the consummation of such Fundamental Change, make an offer to repurchase all of this Warrant at the option value of the Warrant using Black-Scholes calculation methods and making the assumptions described in the Black-Scholes methodology described in Exhibit A.  Such offer shall be made within ten (10) business days following the consummation of such Fundamental Change, and shall remain open for a period of not less than twenty (20) business days nor more than thirty (30) business days.  Payment of such purchase price by the Company to the holder of this Warrant, if tendered pursuant to such offer to purchase, shall be due in cash promtly upon termination of such offer period.  The Company will comply with all the applicable provisions of Rule 13e-4 and any other tender offer rules under the Exchange Act, if required, in connection with any offer by the Company to repurchase this Warrant and to the extent necessary to comply therewith, the time periods specified herein shall be extended accordingly.  The fact that this Warrant may be exercised on a cashless net exercise basis as provided in Section 2.3 shall not have any effect on any calculation or payment due to the Holder of this Warrant pursuant to this Section 15.  The Company agrees that it will not take any action resulting in a Preliminary Fundamental Change or a Fundamental Change in the absence of definitive documentation providing for such repurchase of the Warrant pursuant to this Section 15.

 

16.                                 WARRANT AGENT.  The Company may, by written notice to the holder of this Warrant, appoint an agent for the purpose of issuing Common Stock on the exercise of this Warrant pursuant to Section 2 hereof, and exchanging or replacing this Warrant pursuant to the Purchase Agreement, or any of the foregoing, and thereafter any such issuance, exchange or replacement, as the case may be, shall be made at such office by such agent.

 

17.                                 REMEDIES.  The Company stipulates that the remedies at law of the holder of this Warrant in the event of any default or threatened default by the Company in the performance of or compliance with any of the terms of this Warrant are not and will not be adequate, and that such terms may be specifically enforced by a decree for the specific performance of any agreement contained herein or by an injunction against a violation of any of the terms hereof or otherwise.

 

18.                                 NOTICES.  All notices and other communications from the Company to the holder of this Warrant shall be mailed by first class registered or certified mail, postage prepaid, or sent by overnight courier (or sent in the form of a telex or telecopy) at such address as may have been furnished to the Company in writing by such holder or, until any such holder furnishes to the Company an address, then to, and at the address of, the last holder of this Warrant who has so furnished an address to the Company.

 

19.                                 MISCELLANEOUS.  In case any provision of this Warrant shall be invalid, illegal or unenforceable, or partially invalid, illegal or unenforceable, the provision shall be enforced to the extent, if any, that it may legally be enforced and the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.  This Warrant and any term hereof may be changed, waived, discharged or terminated only by a statement in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought.  This Warrant shall be governed by and construed in accordance with the domestic substantive laws (and not the conflict of law rules) of the State of New York.  The headings in this Warrant are for purposes of reference only, and shall not limit or otherwise affect any of the terms hereof.

 

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IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its duly authorized officer.

 

Dated as of October     , 2012

 

	
 
    	
ZAZA   ENERGY CORPORATION
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
Title:
    	
 
    

 

15

 

FORM OF SUBSCRIPTION

 

(To be signed only on exercise

of Common Stock Purchase Warrant)

 

TO:                            ZaZa Energy Corporation

 

1.                         The undersigned Holder of the attached Warrant hereby elects to exercise its purchase right under such Warrant to purchase shares of Common Stock of ZaZa Energy Corporation, a Delaware corporation (the “Company”), as follows (check one or more, as applicable):

 

o                                    to exercise the Warrant to purchase                      shares of Common Stock and to pay the Aggregate Exercise Price therefor by wire transfer of United States funds to the account of the Company, which transfer has been made prior to or as of the date of delivery of this Form of Subscription pursuant to the instructions of the Company;

 

and/or

 

o                                    to exercise the Warrant with respect to                          shares of Common Stock pursuant to the net exercise provisions specified in Section 2.3 of the Warrant.

 

2.                         Please issue a stock certificate or certificates representing the appropriate number of shares of Common Stock in the name of the undersigned or in such other name(s) as is specified below:

 

	
Name:
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
Address:
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
TIN:
    	
 
    	
 
    	
 
    

 

 

	
 
    	
 
    	
Dated:
    	
 
    
	
(Signature   must conform exactly to name of Holder
   as specified on the face of the Warrant)
    	
 
    	
 
    	
 
    

 

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FORM OF ASSIGNMENT

(To be signed only on transfer of Warrant)

 

For value received, the undersigned hereby sells, assigns, and transfers unto                          the right represented by the within Warrant to purchase         shares of Common Stock of ZaZa Energy Corporation, a Delaware corporation, to which the within Warrant relates, and appoints                                attorney to transfer such right on the books of ZaZa Energy Corporation, with full power of substitution in the premises.

 

	
 
    	
 
    	
[insert   name of Holder]
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
Dated:
    	
 
    	
 
    	
By:
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
Title:
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
[insert   address of Holder]
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
Signed   in the presence of:
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
					

 

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EXHIBIT A

 

Black-Scholes Assumptions

 

For the purpose of this Exhibit A:

 

“Acquiror” means (A) the third party that has entered into definitive document for a transaction, or (B) the offeror in the event of a tender or exchange offer, which could reasonably result in a Fundamental Change upon consummation.

 

	
Underlying Security Price:
    	
·                  In the event   of a merger or acquisition, (A) in the event of an “all cash” deal, the   cash per share offered to the Company’s stockholders by the Acquiror; (B) in   the event of an “all stock” deal, (1) in the event of a fixed exchange   ratio transaction, the product of (i) the average of the Market Price of   the Acquiror’s common stock for the ten trading day period ending on the day   preceding the date of the Preliminary Fundamental Change and (ii) the   number of Acquiror’s shares being offered for one share of Common Stock and   (2) in the event of a fixed value transaction, the value offered by the   Acquiror for one share of Common Stock; (C) in the event of a   transaction contemplating various forms of consideration for each share of   Common Stock, the cash portion, if any, shall be valued as clause (A) above   and the stock portion shall be valued as clause (B) above and any other   forms of consideration shall be valued by the Board of Directors of the   Company in good faith, without applying any discounts to such consideration.

·                  In the event   of all other Fundamental Change events, the average of the Market Price of   the Common Stock for the ten trading day period beginning on the date of the   Preliminary Fundamental Change.
    
	
 
    	
 
    
	
Exercise   Price:
    	
The   Exercise Price as adjusted and then in effect for the Warrant.
    
	
Dividend   Rate:
    	
The   Company’s annualized dividend yield as of the date of the Preliminary   Fundamental Change in the event of a Fundamental Change (the “Reference Date”).
    
	
Interest   Rate:
    	
The   applicable U.S. 5 year treasury note risk free rate as of the Reference   Date.
    
	
Model   Type:
    	
Black-Scholes
    
	
Exercise   Type:
    	
American
    
	
Put   or Call:
    	
Call
    
	
Trade   Date:
    	
The   Reference Date
    
	
Expiration   Date:
    	
The   expiration of the Exercise Period
    
	
Settle   Date:
    	
The   Reference Date plus one business day
    

 

 

	
Exercise Delay:
    	
0
    
	
Volatility:
    	
The   average daily volatility over the previous six months for the Common Stock as   listed by Bloomberg L.P., as of the Reference Date; provided, however, that   if the Underlying Security Price on the Reference Date is at least $10 per   share, then the Volatility shall be no more than 40%.
    

 

Such valuation of the Warrant based on the Black-Scholes methodology shall not be discounted in any way. If the holder disputes such Black-Scholes valuation pursuant to this Exhibit A as calculated by the Company, the Company and the holder will choose a mutually-agreeable firm to compute the valuation of the Warrant using the guidelines above, and such valuation shall be final. The fees and expenses of such firm shall be borne equally by the Company and the holder.  In the event that a new warrant is issued by a company in a Spin-Off from the Company pursuant to Section 5.1(b) of the Warrant, references in this Exhibit A to such spun-off company’s “Dividend Rate” and “Volatility” shall refer those of the Company unless at the time of such measurement, such spun-off company has been trading in the public markets for at least 6 months.

 

2

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