Document:

Exhibit 10.14

 

FORM OF
 DYNAMIC OFFSHORE RESOURCES, INC.
 STOCKHOLDERS AGREEMENT

 

This Stockholders Agreement (“Agreement”) is entered into as of [·], 2012 by and among Dynamic Offshore Resources, Inc., a Delaware corporation (the “Company”), R/C Dynamic Holdings, L.P., a Delaware limited partnership (“R/C Dynamic Holdings”),  R/C Energy IV Direct Partnership, L.P., a Delaware limited partnership (“R/C Direct” and, together with R/C Dynamic Holdings, “Riverstone”), Michel B. Moreno, G. M. McCarroll, SESI, L.L.C., a Delaware limited liability company (“SESI”), Superior Energy Investments, LLC, a Delaware limited liability company (“SEI” and together with SESI, “Superior”), and each other person listed as a Stockholder on the signature pages hereof or who from time to time may execute and deliver a counterpart signature page and become a party hereto (each, a “Party” and collectively, the “Parties”).

 

RECITALS

 

WHEREAS, in connection with, and in consideration of, the transactions contemplated by the Company’s Registration Statement on Form S-1, (File No. 333-176521) initially filed with the Commission (as hereinafter defined) on August 26, 2011 and declared effective by the Commission under the Securities Act (as hereinafter defined) on [·], 2012 in connection with the Company’s initial public offering of its common stock (the “Initial Public Offering”), the Company and the Stockholders (as hereinafter defined) desire to enter into this Agreement to provide for certain matters with respect to the composition of the Board of Directors (as defined below) and the ownership and transfer of the Common Stock (as hereinafter defined) now held of record or beneficially by, or hereafter acquired by, the Stockholders.

 

AGREEMENT

 

NOW, THEREFORE, in consideration of the foregoing and the mutual agreements set forth herein and other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the Parties, intending to be legally bound, hereby agree as follows:

 

SECTION 1.                            DEFINITIONS:

 

(a)                      As used in this Agreement, the following terms have the following meanings set forth below.

 

“Affiliate” of a Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with the first Person.  For purposes of this definition, “control” means possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through ownership of voting securities, by agreement or otherwise.

 

“Board of Directors” means the board of directors of the Company.

 

 

“Business Day” means any day other than a Saturday, Sunday or legal holiday on which banks in New York, New York are authorized or obligated by law to close.

 

“Bylaws” means the Bylaws of the Company in effect on the date hereof, and as thereafter further amended in accordance with the terms hereof and thereof and pursuant to applicable law.

 

“Charitable Organization” means a “charitable organization” as described by Section 501(c)(3) of the Internal Revenue Code of 1986, as in effect from time to time.

 

“Class I,” “Class II” and “Class III” shall have the respective meanings specified in the Bylaws.

 

“Commission” means the Securities and Exchange Commission.

 

“Common Stock” means the common stock, par value $0.01 per share, of the Company, together with each class of security into which such common stock may be converted or for which such common stock may be exercised or exchanged.

 

“Company Sale” means any transaction or series of transactions as a result of which one or more Affiliated Persons or a “group” of Persons (within the meaning of Section 13(d) under the Securities Exchange Act of 1934, as amended) (other than, in each case, the Stockholders and their Affiliates) acquires (i) equity securities of the Company possessing the voting power sufficient to elect a majority of the members of the Board of Directors of the Company or its successor(s) (whether such transaction is effected by merger, consolidation, recapitalization, sale or transfer of the Company’s equity or otherwise, but excluding any Exempt Transfers) or (ii) all or substantially all of the assets of the Company and its subsidiaries.

 

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

 

“Exempt Transfer” means:

 

(i)                                     a Transfer by any Party that is an individual of all or any shares of its Common Stock by way of a gift (i) to a Family Member of such Party, on the condition that such transferee agrees to be bound by the terms of this Agreement, (ii) to a trust or other entity that is not a Management Trust Stockholder whose sole and exclusive beneficiaries are such Party and/or Family Members of such Party, on the condition that such transferee agrees to be bound by the terms of this Agreement or (iii) that is a bona fide charitable gift to a Charitable Organization, provided that the aggregate amount of shares of Common Stock Transferred by any such Party pursuant to this subsection (iii) shall not exceed ten percent (10%) of the number of shares of Common Stock held by such Party on the date of this Agreement;

 

(ii)                                  a Transfer by Superior of all or any shares of its Common Stock to a Permitted Superior Transferee, on the condition that such Permitted Superior Transferee agrees to be bound by the terms of this Agreement; and

 

(iii)                               a Transfer by R/C Direct or R/C Dynamic Holdings of all or any of their respective shares of Common Stock to a Permitted Riverstone Transferee.

 

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“Family Member” means, with respect to each Party that is an individual, a spouse, lineal ancestor, lineal descendant, legally adopted child, brother or sister of such Party, or a lineal descendant or legally adopted child of a brother or sister of such Party.

 

“Governmental Authority” means any United States, foreign, supra-national, federal, state, provincial, local or self-regulatory governmental, regulatory or administrative authority, agency, division, body, organization or commission or any judicial or arbitral body.

 

“Independent Director” means an individual that is independent within the meaning of “independent director” under the New York Stock Exchange rules or the rules of such other national securities exchange on which the Common Stock is then listed for trading.

 

“Management Stockholders” means the Stockholders other than Riverstone and any Permitted Riverstone Transferee, Superior and any Permitted Superior Transferee, any Management Trust Stockholder and Michel B. Moreno.

 

“Management Trust Stockholder” means each of the Stockholders listed on Exhibit C hereto.

 

“Necessary Action” means, with respect to a specified result, all actions (to the extent such actions are permitted by law and, in the case of any action by the Company that requires a vote or other action on the part of the Board of Directors, to the extent such action is consistent with the fiduciary duties that the Directors may have in such capacity) necessary to cause such result, including (i) voting or providing a written consent or proxy with respect to the shares of Common Stock, (ii) causing the adoption of stockholders’ resolutions and amendments to the organizational documents of the Company, (iii) executing agreements and instruments, and (iv) making, or causing to be made, with governmental, administrative or regulatory authorities, all filings, registrations or similar actions that are required to achieve such result.

 

“Other Stockholders” means, collectively, any Party, other than the Riverstone Stockholders, which is issued Common Stock or becomes the beneficial owner of any Common Stock or is Transferred any Common Stock by any other Person.

 

“Permitted Riverstone Transferee” means (i) any Affiliate of R/C Direct or R/C Dynamic Holdings, (ii) any other investment fund sponsored and managed or co-managed by Riverstone Holdings LLC, TC Group, L.L.C. or an Affiliate of either of them (the “C/R Sponsor”), or (iii) any investor in any of the foregoing where the C/R Sponsor retains direct or indirect control over voting and disposition.

 

“Permitted Superior Transferee” means any Affiliate of Superior.

 

“Permitted Transferee” means any Person to which any Stockholder Transfers his, her or its Common Stock pursuant to an Exempt Transfer.

 

“Person” means any natural person, corporation, limited partnership, general partnership, limited liability company, joint stock company, joint venture, association, company, trust or other organization, or any Governmental Authority.

 

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“Registration Rights Agreement” means that certain Registration Rights Agreement, dated as of [·], 2012, by and between the Company, Riverstone, and the other parties thereto, as amended, restated or otherwise modified from time to time.

 

“Riverstone Entities” means, collectively, R/C Dynamic Holdings, R/C Direct and their respective Permitted Riverstone Transferees.

 

“Riverstone Majority” means Riverstone Stockholders who, in the aggregate, hold more than 50% of the Common Stock held by all Riverstone Stockholders.

 

“Riverstone Stockholders” means, collectively, (i) Riverstone and (ii) any Permitted Riverstone Transferee which is issued Common Stock or becomes the beneficial owner of any Common Stock or is Transferred any Common Stock by any other Person.

 

“Securities Act” means the Securities Act of 1933, as amended.

 

“Stockholders” means the Riverstone Stockholders and the Other Stockholders, collectively.

 

“Subsidiaries” of the Company means, collectively, each entity (i) of which the Company (either alone or through or together with one or more other Subsidiaries) owns, directly or indirectly, more than 50% of the capital stock or other equity securities of such entity, the holders of which are generally entitled to vote for the election of the board of directors or other governing body of, or otherwise control the business and affairs of, such entity or (ii) the operations of which are consolidated with the Company for financial reporting purposes.

 

“Superior Stockholders” means, collectively, (i) Superior and (ii) any Permitted Superior Transferee which is issued Common Stock or becomes the beneficial owner of any Common Stock or is Transferred any Common Stock by any other Person.

 

“Third Party Purchaser” means any Person, other than a Stockholder or their Permitted Transferees, who purchases or intends to purchase Common Stock from any Stockholder or their Permitted Transferees.

 

“Transfer” means sell, transfer, convey, assign, pledge, hypothecate or otherwise dispose of or encumber.

 

“Vested Options” means any options to acquire Common Stock now or hereafter issued by the Company pursuant to one or more equity or stock option plans adopted by the Board of Directors that are, at the time in question, exercisable in accordance with their terms (including any options which become exercisable as a result of or upon the consummation of any transaction giving rise to any relevant right hereunder).

 

(b)                     The following terms have the meanings defined for such terms in the Sections set forth below:

 

	
Term
    	
 
    	
Section
    
	
Agreement
    	
 
    	
Preamble
    

 

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Bring-Along   Notice
    	
 
    	
4(b)
    
	
Bring-Along   Right
    	
 
    	
4(a)
    
	
Company
    	
 
    	
Preamble
    
	
Initial   Public Offering
    	
 
    	
Recitals
    
	
Lock-up   Release Date
    	
 
    	
3(a)
    
	
Management   Director
    	
 
    	
2(a)
    
	
Party
    	
 
    	
Preamble
    
	
purchaser   representative
    	
 
    	
5(a)
    
	
R/C   Direct
    	
 
    	
Preamble
    
	
R/C   Dynamic Holdings
    	
 
    	
Preamble
    
	
Riverstone
    	
 
    	
Preamble
    
	
Riverstone   Directors
    	
 
    	
2(a)
    
	
Sale   Notice
    	
 
    	
5(b)
    
	
Tag-Along   Notice
    	
 
    	
5(c)
    
	
Tag-Along   Right
    	
 
    	
5(a)
    
	
Tag-Along   Stockholder
    	
 
    	
5(a)
    
	
SEI
    	
 
    	
Preamble
    
	
SESI
    	
 
    	
Preamble
    
	
Superior
    	
 
    	
Preamble
    
	
Third   Party Terms
    	
 
    	
4(b)
    

 

(c)                                  Unless the context of this Agreement otherwise requires, (i) words of any gender include each other gender; (ii) words using the singular or plural number also include the plural or singular number, respectively; (iii) the terms “hereof,” “herein,” “hereby” and derivative or similar words refer to this entire Agreement; (iv) the term “Section” refers to the specified Section of this Agreement; (v) the word “including” shall mean “including, without limitation”, and (vi) the word “or” shall be disjunctive but not exclusive.

 

(d)                                 References to agreements and other documents shall be deemed to include all subsequent amendments and other modifications thereto.

 

(e)                                  References to statutes shall include all regulations promulgated thereunder and references to statutes or regulations shall be construed as including all statutory and regulatory provisions consolidating, amending or replacing the statute or regulation.

 

(f)                                    The language used in this Agreement shall be deemed to be the language chosen by the Parties to express their mutual intent, and no rule of strict construction shall be applied against either Party.

 

SECTION 2.                            BOARD OF DIRECTORS

 

(a)                                  Nomination.  The Board of Directors shall consist of five (5) Directors; provided that, within one (1) year of the effective date of the registration statement relating to the Initial Public Offering, the Board of Directors shall be expanded to add two (2) additional Independent Director(s) and the Company and the Stockholders shall take all Necessary Actions to increase the size of the Board of Directors to add such Independent Director(s).  The Company will not decrease or otherwise increase the number of Directors without the consent

 

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of the Riverstone Stockholders constituting a Riverstone Majority (so long as the Riverstone Stockholders hold in the aggregate five percent (5%) or more of the then-outstanding shares of Common Stock).  The Company and the Stockholders shall take all Necessary Actions to cause the Board of Directors to consist of members designated as follows:

 

(i)                                     three (3) nominees designated by the Riverstone Stockholders constituting a Riverstone Majority (the “Riverstone Directors”), which Riverstone Directors shall initially be               ,                and               ; provided that (A) the number of Riverstone Directors to be designated by R/C Dynamic Holdings (or its designee) shall be reduced to two (2) Directors at such time as the Riverstone Stockholders in the aggregate hold less than twenty-five percent (25%) of the then-outstanding shares of Common Stock, (B) the number of Riverstone Directors to be designated by R/C Dynamic Holdings (or its designee) shall be reduced to one (1) Director at such time as the Riverstone Stockholders in the aggregate hold less than ten percent (10%) of the then-outstanding shares of Common Stock, (C) the Riverstone Stockholders shall have no right to designate any members of the Board of Directors pursuant to this Section 2(a)(i) at such time as the Riverstone Stockholders in the aggregate hold less than five percent (5%) of the then-outstanding shares of Common Stock, and (D) at any given time, each Riverstone Director shall be in a different class of Directors as each of the other Riverstone Directors;

 

(ii)                                  the Chief Executive Officer of the Company (the “Management Director”), which Management Director shall initially be G. M. McCarroll.  The Other Stockholders hereby grant by R/C Dynamic Holdings (and its designee, as applicable) an irrevocable proxy, coupled with an interest, to take all Necessary Action (including the right to vote the shares of Common Stock held by such Other Stockholder), in the event that the Management Director at any time ceases to be employed by the Company or its Subsidiaries for any reason to cause the resignation or removal of such Management Director; and

 

(iii)                               each additional nominee designated by the Board of Directors or a committee designated by the Board of Directors, which designee shall initially be Robert Fulton.

 

The Company shall cause the individuals designated in accordance with Section 2(a) to be nominated for election to the Board of Directors, shall solicit proxies in favor thereof, and at each meeting of the stockholders of the Company at which directors of the Company are to be elected, shall recommend that the stockholders of the Company elect to the Board of Directors each such individual nominated for election at such meeting.

 

Notwithstanding the foregoing, this Section 2(a) confers upon the Riverstone Stockholders the right, but not the obligation, to designate members of the Board of Directors, and any Riverstone Stockholder may, at its option, elect not to exercise any such right to designate a member or members of the Board of Directors; provided that no election by any Riverstone Stockholder to refrain from exercising any such right shall in any way affect such Stockholder’s obligations under this Agreement.

 

(b)                     Classes of the Board of Directors.  The members of the Board of Directors shall be allocated among the three classes of the Board of Directors as follows:  (i) so long as the

 

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Riverstone Stockholders have the right to designate three Riverstone Directors, one Riverstone Director shall be allocated to each of Class I, Class II and Class III; and (ii) so long as the Riverstone Stockholders have the right to designate three Riverstone Directors, (A) the Management Director shall be allocated to Class III, and (B) one Independent Director shall be allocated to Class I (and any new director position created as a result of the expansion of the Board of Directors prior to the first anniversary of the Effective Date shall be allocated to Class II or Class III).

 

(c)                      Voting Agreement.  At each election of directors held after the date hereof (or each written consent in lieu thereof), each Stockholder agrees to vote all shares of Common Stock entitled to vote in the election of directors owned or held of record by such Stockholder, and to take any other Necessary Actions, to elect (or to execute such written consent consenting to the election of) the nominees designated pursuant to subsection (a) above.  The voting agreements contained herein are coupled with an interest and may not be revoked or amended except as set forth in this Agreement.

 

(d)                     Removal.  If Stockholders representing a Riverstone Majority provide written notice to each other Stockholder entitled to vote in the election of directors indicating that such Stockholders desire to remove a director previously designated by a Riverstone Majority, then such director shall be removed, and each Stockholder hereby agrees to vote all shares of Common Stock owned or held of record by such Stockholder to effect such removal.  Notwithstanding the foregoing, no director designated by a Riverstone Majority shall be removed, with or without cause, without the prior written consent of a Riverstone Majority.

 

(e)                      Vacancies.  If a vacancy is created on the Board of Directors at any time by the death, disability, retirement, resignation or removal (with or without cause) of a director nominated pursuant to Section 2(a)(i), the Riverstone Majority who previously designated such director shall be entitled to designate a replacement director to fill such vacancy, and each Stockholder then entitled to vote in the election of directors hereby agrees to vote all voting shares of Common Stock owned or held of record by it for the individual designated to fill such vacancy by the Riverstone Majority; provided, that such designee may not previously have been a director who was removed for cause.

 

SECTION 3.                            PROVISIONS REGARDING TRANSFERS

 

(a)                                  Notwithstanding anything to the contrary set forth in this Agreement or the Registration Rights Agreement, except for the shares of Common Stock sold in the Initial Public Offering, that number of shares of Common Stock set forth opposite a Management Stockholder’s name on Exhibit D hereto or as otherwise approved by R/C Dynamic Holdings and R/C Direct, prior to the date (the “Lock-up Release Date”) that is the earlier of (x) the date that is the second anniversary of the date hereof and (y) the date on which the Riverstone Stockholders have received cash proceeds in an amount equal to their aggregate Unreturned Contribution Account and Preferred Return (in each case as defined in the Amended and Restated Limited Partnership Agreement of Dynamic Offshore Holding, LP as in effect immediately prior to the consummation of the reorganization transactions undertaken in connection with the Initial Public Offering) as of immediately prior to the consummation of the reorganization transactions undertaken in connection with the Initial Public Offering, no

 

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Management Stockholder shall Transfer or enter into any binding commitment to Transfer any shares of Common Stock except (i) in compliance with the terms of Section 4 or Section 5 hereof or (ii) pursuant to an Exempt Transfer.  In the event that R/C Dynamic Holdings and R/C Direct do not respond to a request to approve a Transfer pursuant to the immediately preceding sentence within ten (10) Business Days of receipt of a written request delivered in accordance with Section 7(f), R/C Dynamic Holdings and R/C Direct shall be deemed to have approved such Transfer on the terms set forth in such written request.  It shall be a condition to any Transfer pursuant to the preceding clause (ii) that (A) the Permitted Transferee (and any trustee(s) of any trust that is a Permitted Transferee) (other than a Charitable Organization) shall agree to become a party to this Agreement as a “Stockholder” for all purposes hereof and shall complete, execute and deliver to the Company a signature page in the form attached as Exhibit A hereto acknowledging that such Permitted Transferee agrees to be bound by the terms hereof and (B) such Transfer is either exempt from the registration requirements of the Securities Act and the applicable securities laws of any state or that such registration requirements have been complied with.  Any attempted Transfer of any Common Stock not in accordance with the provisions of this Section 3 shall be null and void and neither the Company nor any transfer agent of such Common Stock shall give any effect to such attempted Transfer in violation hereof.  Other than shares of Common Stock sold in the Initial Public Offering, each Stockholder represents and warrants that, as of the date hereof, such Stockholder does not have any present plan or intention to transfer the Common Stock received pursuant to the consummation of the reorganization transactions undertaken in connection with the Initial Public Offering.

 

(b)                                 Notwithstanding anything to the contrary set forth in this Agreement, no provision of this Agreement shall restrict or prohibit in any manner any Transfer by a Riverstone Stockholder of shares of Common Stock to any member or general or limited partner of such Riverstone Stockholder and the Parties agree that no such Transfer shall be conditioned on any agreement of such transferee, and no such transferor shall be required to cause such transferee to, agree to be bound by the terms of this Agreement.

 

(c)                                  Each Party agrees to notify the Company and the Stockholders in writing at least three (3) Business Days prior to acquiring any shares of Common Stock after the date hereof and agrees not to acquire any such shares without delivering such notice prior to such acquisition.

 

SECTION 4.                            BRING-ALONG RIGHTS

 

(a)                                  So long as the Riverstone Stockholders collectively hold at least forty-five percent (45%) of the issued and outstanding shares of Common Stock, in connection with any proposed Company Sale, the Riverstone Stockholders shall have the right (a “Bring-Along Right”), but not the obligation, to cause all, but not less than all, Other Stockholders (other than any Superior Stockholder) to tender for purchase to the Third Party Purchaser in such Company Sale, a number of shares of Common Stock (including Common Stock issuable upon exercise of Vested Options) equaling the amount derived by multiplying (i) the total number of shares of Common Stock proposed to be purchased by the Third Party Purchaser by (ii) a fraction, the numerator of which is the total number of shares of Common Stock held by such Other Stockholder (which shall, for the purpose of this Section 4(a), be deemed to include all

 

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Common Stock issuable upon exercise of all Vested Options held by such Other Stockholder and any restricted shares of Common Stock held by such Other Stockholder) and the denominator of which is the total number of then outstanding shares of Common Stock (which shall, for the purpose of this Section 4(a), be deemed to include all Common Stock issuable upon exercise of all Vested Options then outstanding and all restricted shares of Common Stock then outstanding).

 

(b)                                 Any Riverstone Stockholder that elects to exercise its Bring-Along Right shall so notify each of the Other Stockholders (other than any Superior Stockholder) pursuant to a written notice (each, a “Bring-Along Notice”) delivered to such Other Stockholders at least 10 Business Days prior to the date on which the Riverstone Stockholder expects the proposed Company Sale that triggered such Bring-Along Right to be consummated.  Each Bring-Along Notice shall set forth: (i) the name of the Third Party Purchaser and the amount of Common Stock proposed to be purchased by such Third Party Purchaser, (ii) the proposed amount and form of consideration and the terms and conditions of payment offered by the Third Party Purchaser and a summary of any other material terms pertaining to the Transfer (“Third Party Terms”), together with a copy of any written documents constituting the offer or proposal of the Third Party Purchaser and (iii) the number of shares of Common Stock and/or Vested Options that such Other Stockholder is required to sell pursuant to the Bring-Along Right; provided, however, that the aggregate consideration payable for Vested Options sold to a Third Party Purchaser pursuant to the Bring-Along Right shall be (A) the aggregate consideration payable with respect to the Common Stock issuable upon exercise of such Vested Options, minus (B) the aggregate exercise price payable upon the exercise of such Vested Options.  The terms and conditions applicable to such purchase and sale of any shares of Common Stock and Vested Options purchased from any Other Stockholder pursuant to this Section 4 shall otherwise be the same as the terms and conditions applicable to such Riverstone Stockholders, including the timing of purchase, sale and payment.

 

(c)                                  Upon the receipt of a Bring-Along Notice by an Other Stockholder (other than any Superior Stockholder), each such Other Stockholder shall be obligated to sell the number of shares of Common Stock and Vested Options required to be sold by such Stockholder as set forth in the Bring-Along Notice on the Third Party Terms, on the terms and subject to the conditions generally applicable to all Stockholders selling to the Third Party Purchaser in connection with such transaction(s) and subject to the consummation of such transaction(s) in accordance with their terms.

 

(d)                                 At the closing of the Transfer to any Third Party Purchaser pursuant to this Section 4, the Third Party Purchaser shall remit to each applicable Other Stockholder the consideration for the Common Stock and Vested Options to be sold by such Other Stockholder (less any portion of the consideration to be escrowed or otherwise held back in accordance with the Third Party Terms; provided, however, that such escrow or hold back is pro rata among all Stockholders and other parties selling securities in such transaction), against delivery by such Stockholder of the certificates (if any) representing such Common Stock, duly endorsed for Transfer or with duly executed stock powers or similar instruments, and such other instruments of Transfer or acknowledgments of cancellation of any Vested Options to be sold by such Stockholder, in each case, as may be reasonably requested by the Third Party Purchaser and the Company, and the compliance by such Stockholder with any other conditions to closing

 

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generally applicable to all Stockholders selling Common Stock in such transaction; provided, no such condition shall require such Stockholder to undertake or agree to bear joint and several liability with any other party thereto or to bear more than such Stockholder’s proportionate share of any indemnification obligations.

 

SECTION 5.                            TAG-ALONG RIGHTS

 

(a)                                  In the event that a Riverstone Stockholder proposes to Transfer all or any portion of the Common Stock then held by such Riverstone Stockholder to a Third Party Purchaser prior to the Lock-up Release Date, other than pursuant to an Exempt Transfer, each of the Management Stockholders and their respective Permitted Transferees and each of the Management Trust Stockholders (collectively, the “Tag-Along Stockholders”) shall have the right (the “Tag-Along Right”) to sell in their discretion up to the same percentage of such Tag-Along Stockholder’s Common Stock as all Riverstone Stockholders are proposing to sell in such a transaction by requesting that such Third Party Purchaser purchase from such Tag-Along Stockholder up to the number of shares of Common Stock equal to the number derived by multiplying (i) the total number of shares of Common Stock that the proposed Third Party Purchaser(s) have agreed or committed to purchase by (ii) a fraction, the numerator of which is the total number of shares of Common Stock owned by such Tag-Along Stockholder (other than shares issuable upon the exercise of Vested Options of such Tag-Along Stockholder, but including unvested restricted shares of Common Stock held by such Stockholder if the proposed Transfer would constitute a Company Sale and including any shares to be issued upon any exercise of Vested Options conditioned upon the consummation of the Transfer), and the denominator of which is the total number of shares of Common Stock then outstanding (other than shares issuable upon the exercise of then-outstanding Vested Options, but including unvested restricted shares of Common Stock then outstanding if the proposed Transfer would constitute a Company Sale and including any shares issuable upon the exercise of Vested Options conditioned upon the consummation of such Transfer).  Notwithstanding the foregoing, or any other provision contained herein, the aggregate number of shares of Common Stock that each Management Stockholder and his or her Permitted Transferees or each Management Trust Stockholder shall have the right to sell pursuant to this Section 5 in connection with all such sales prior to the Lock-up Date shall not exceed such Stockholder’s “Tag-Along Sale Cap” set forth next to such Stockholder’s name on Exhibit B.  Any shares of Common Stock purchased from Tag-Along Stockholders pursuant to this Section 5(a) shall be purchased upon the same terms and conditions (including timing of purchase and payment) as such proposed Transfer by such Riverstone Stockholder.

 

(b)                                 If any Riverstone Stockholder proposes to make a Transfer triggering the Tag-Along Right, such Riverstone Stockholder shall send a written notice (each, a “Sale Notice”) to all of Tag-Along Stockholders at least ten (10) Business Days prior to the date on which such Riverstone Stockholder expects to consummate such Transfer.  Each Sale Notice shall set forth the Third Party Terms applicable to the proposed Transfer, the maximum number of shares of Common Stock the Tag-Along Stockholder to whom the Sale Notice is delivered is entitled to sell pursuant to the Tag-Along Right and the anticipated closing date of the Transfer, and shall be accompanied by a copy of any written documents reflecting the terms and conditions agreed to by the Riverstone Stockholder and the Third Party Purchaser.

 

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(c)                                  Each Tag-Along Stockholder that desires to exercise the Tag-Along Right shall deliver a written notice (each, a “Tag-Along Notice”) to that effect to the Riverstone Stockholder proposing to sell Common Stock within five (5) Business Days following receipt of the Sale Notice from such Riverstone Stockholder.  The Tag-Along Notice shall state the number of shares of Common Stock (not to exceed the amount determined in accordance with Section 5(a)) that such Tag-Along Stockholder proposes to include in such Transfer to the Third Party Purchaser, and shall constitute the Tag-Along Stockholder’s binding agreement to sell its shares on the terms and subject to the conditions as are specified in or accompany the Sale Notice.  If the Third Party Purchaser does not purchase the specified number of shares of Common Stock from the Tag-Along Stockholders on the same terms and conditions as specified in the Sale Notice and at the same time as the Third Party Purchaser purchases Common Stock from such Riverstone Stockholder, then such Riverstone Stockholder shall not be entitled to sell any shares of Common Stock to the proposed Third Party Purchaser in the proposed Transfer unless such Riverstone Stockholder or its designee concurrently purchases from each such Tag-Along Stockholder the number of shares of Common Stock of such Tag-along Stockholder as is specified in the Tag-Along Notice, on the Third Party Terms.

 

(d)                                 At the closing of the Transfer to any Third Party Purchaser pursuant to this Section 5, the Third Party Purchaser shall remit to each Tag-Along Stockholder the consideration for the Common Stock of such Tag-Along Stockholder sold pursuant hereto (less any such consideration to be escrowed or otherwise held back in accordance with the Third Party Terms; provided, however, that such escrow or hold back is pro rata among all sellers of Common Stock participating in such transaction), against delivery by such Tag-Along Stockholder of certificates (if any) representing such Common Stock, duly endorsed for Transfer or with duly executed stock powers or similar instruments, or such other instrument of Transfer of such Common Stock as may be reasonably requested by the Third Party Purchaser and the Company, and the compliance by such Stockholder with any other conditions to closing generally applicable to all Stockholders selling Common Stock in such transaction; provided that no such condition shall require such Stockholder to undertake or agree to bear joint and several liability with any other party thereto or to bear more than such Stockholder’s proportionate share of any indemnification obligations.

 

(e)                                  If any Transfer described in a Tag-Along Notice has not been consummated in accordance with the terms set forth in the Tag-Along Notice within one hundred and eighty (180) days after the expiration of the five (5) Business Day election period specified in Section 5(c), or if the terms of such proposed Transfer have been modified in any material respect from those set forth in the Tag-Along Notice, such Transfer may not be completed without first providing a new Tag-Along Notice to the Tag-Along Stockholders and allowing another opportunity for such Stockholders to elect to exercise their Tag-Along Right set forth in this Section 5.

 

SECTION 6.                            COOPERATION

 

(a)                                  If the Company or any Riverstone Stockholder enters into any negotiation with respect to any transaction which could give rise to the issuance of Securities (as defined in the Securities Act)  to a Stockholder for which Rule 506 (or any similar rule then in effect) promulgated under the Securities Act may be available, each such Stockholder shall, if

 

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requested by the Company, appoint for such Stockholder a “purchaser representative” (as such term is defined in Rule 501 of the Securities Act) reasonably acceptable to the Company to advise such Stockholder in connection with such transaction.  If such purchaser representative is designated by the Company, the Company shall pay the fees and expenses of such purchaser representative, but if any Stockholder appoints another purchaser representative, such Stockholder shall be responsible for the fees and expenses of the purchaser representative so appointed.

 

(b)                                 Subject to the applicable provisions of the Registration Rights Agreement, each of the Stockholders agrees that in any transaction in which such Stockholder sells some or all of the Common Stock and/or Vested Options held by such Stockholder (pursuant to this Agreement or otherwise, and whether structured as a sale of equity, merger, recapitalization, sale of assets or otherwise), such Stockholder shall bear his, her or its pro rata portion of the costs of such transaction (based upon the percentage that the number of shares of Common Stock that are sold for such Stockholder in such transaction bears to the total number of shares of Common Stock that are sold in such transaction) to the extent such costs are incurred for the benefit of all holders of Common Stock and are not otherwise paid by the Company or the acquiring party.

 

(c)                                  If any action by the Other Stockholders is required in connection with any transaction giving rise to a Bring-Along Right or any Company Sale, each of the Other Stockholders shall take such actions as may be reasonably requested by the Company or the Riverstone Stockholders in connection therewith, so long as the Company and the Riverstone Stockholders are then in compliance with the terms of this Agreement and the Riverstone Stockholders take the same or equivalent action as is being requested of the Other Stockholders.  Without limiting the generality of the foregoing, each of the Other Stockholders agrees that he, she or it (i) shall consent to and raise no objections against such transaction, (ii) shall execute any Common Stock purchase agreement, merger agreement or other agreement in reasonably customary form entered into with the Third Party Purchaser with respect to such transaction memorializing the definitive Third Party Terms of such transaction and any ancillary agreement with respect thereto, so long as such agreements do not place disproportionate costs, expenses, risks or potential liability on the Other Stockholders as compared to any other Stockholders, (iii) shall vote the Common Stock held by such Other Stockholder in favor of such transaction, (iv) shall use its reasonable best efforts to cause its Director nominee to vote in favor of such transaction (including without limitation by removal or replacement of any such Director) and (v) shall refrain from the exercise of dissenters’ appraisal rights with respect to such transaction.

 

SECTION 7.                            MISCELLANEOUS

 

(a)                                  Legends.  All certificates representing shares of Common Stock issued to or acquired by any of the Stockholders prior to or in connection with the execution of this Agreement bear the following legend:

 

“THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR THE SECURITIES LAWS OF ANY

 

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STATE AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND SUCH LAWS OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS THEREOF.”

 

“THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER AND CERTAIN OTHER AGREEMENTS SET FORTH IN A STOCKHOLDERS AGREEMENT BETWEEN THE ISSUER AND THE INITIAL HOLDER HEREOF DATED AS OF [·], 2012. A COPY OF SUCH AGREEMENT SHALL BE FURNISHED WITHOUT CHARGE BY THE ISSUER TO THE HOLDER HEREOF UPON WRITTEN REQUEST.”

 

Upon the execution of this Agreement, in addition to any other legend that the Company may deem advisable under the Securities Act and applicable state securities laws, all certificates, if any, representing shares of capital stock of the Company issued by the Company to any of the Stockholders shall bear the following legend, and the shares represented by such certificates shall be subject to the applicable provisions of this Agreement:

 

“THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND SUCH LAWS OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS THEREOF.”

 

“THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER AND CERTAIN OTHER AGREEMENTS SET FORTH IN A STOCKHOLDERS AGREEMENT BETWEEN THE ISSUER AND THE INITIAL HOLDER HEREOF DATED AS OF [·], 2012. A COPY OF SUCH AGREEMENT SHALL BE FURNISHED WITHOUT CHARGE BY THE ISSUER TO THE HOLDER HEREOF UPON WRITTEN REQUEST.”

 

(b)                                 Successors, Assigns and Transferees.  This Agreement shall be binding upon and inure to the benefit of the Parties hereto and their respective legal representatives, heirs, legatees, successors, and permitted assigns (including, without limitation, successors to the Company, whether by merger or otherwise) and any other transferee of the Common Stock and shall also apply to any Common Stock acquired by the Stockholders after the date hereof.

 

(c)                                  Specific Performance.  Each Party, in addition to being entitled to exercise all rights provided herein or granted by law, including recovery of damages, shall be entitled to specific performance of each other Party’s obligations under this Agreement. The Parties agree that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by any of them of the provisions of this Agreement and each hereby agrees to waive the defense in any action for specific performance that a remedy at law would be adequate.

 

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(d)                                 Governing Law.  This Agreement shall be governed by and construed in accordance with the internal laws, and not the law of conflicts, of the State of Delaware.

 

(e)                                  Interpretation.  The headings of the Sections contained in this Agreement are solely for the purpose of reference, are not part of the agreement of the Parties and shall not affect the meaning or interpretation of this Agreement.

 

(f)                                    Notices.  All notices and other communications provided for or permitted hereunder shall be in writing and shall be deemed to have been duly given and received when delivered by overnight courier or hand delivery, when sent by telecopy, or five days after mailing if sent by registered or certified mail (return receipt requested) postage prepaid, to the Parties at the following addresses (or at such other address for any Party as shall be specified by like notices, provided that notices of a change of address shall be effective only upon receipt thereof).

 

If to the Company, at:

 

G.M. McCarroll

President and Chief Executive Officer

1301 McKinney, Suite 900

Houston, Texas 77010

 

If to R/C Dynamic Holdings and R/C Direct, at:

 

R/C Dynamic Holdings, L.P.

R/C Energy IV Direct Holdings, L.P.

712 Fifth Avenue, 51st Floor

New York, NY 10019

Attention: N. John Lancaster

Telecopy No.: (212) 993-0077

 

with a copy to:

 

R/C Dynamic Holdings, L.P.

R/C Energy IV Direct Holdings, L.P.

712 Fifth Avenue, 51st Floor

New York, NY 10019

Attention: Stephen S. Coats

Telecopy No.: (212) 993-0077

 

If to any holder of Common Stock, to such Person’s address as set forth on the records of the Company.

 

(g)                                 Recapitalization, Exchange, Etc. Affecting the Company’s Equity Securities.  The provisions of this Agreement shall apply, to the full extent set forth herein, with respect to any and all Common Stock of the Company or any successor or assign of the Company (whether by merger, consolidation, sale of assets, conversion to a corporation or otherwise)

 

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that may be issued in respect of, in exchange for, or in substitution of, the Common Stock and shall be appropriately adjusted for any dividends, splits, reverse splits, combinations, recapitalizations, and the like occurring after the date hereof.  This Agreement shall also apply to any Common Stock acquired by the Stockholders at any time hereafter, whether as a result of exercising Vested Options, the vesting of restricted stock or otherwise without any further action by such Stockholder.  Notwithstanding the foregoing, or any other provision contained herein, this Agreement will terminate upon the later of (i) the consummation of a Company Sale and (ii) such date as the Riverstone Stockholders in the aggregate cease to hold five percent (5%) or more of the then-outstanding shares of Common Stock.  Notwithstanding anything to the contrary contained in this Agreement, in the event that acquisitions or intended acquisitions of shares of Common Stock by a Party would reasonably be likely to require the Parties to file periodic reports on Schedule 13D pursuant to the Exchange Act, upon written notice from the Company and the Riverstone Stockholders, this Agreement may be terminated with respect to such acquiring Party and such acquiring party shall no longer be subject to any of the rights or obligations set forth herein.

 

(h)                                 Counterparts.  This Agreement may be executed by facsimile signature and in two or more counterparts, each of which shall be deemed to be an original and all of which together shall be deemed to constitute one and the same agreement.

 

(i)                                     Severability.  In the event that any one or more of the provisions contained herein, or the application thereof in any circumstances, is held invalid, illegal, or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be in any way impaired thereby.

 

(j)                                     Amendment.  This Agreement may be amended and any provision hereof waived only by written document signed by each of the Parties.  Notwithstanding the foregoing, at any time hereafter, Permitted Transferees or other Persons acquiring shares of Common Stock in accordance with the terms hereof may be made parties hereto and treated as “Stockholders” for all purposes hereunder by executing a counterpart signature page in the form attached as Exhibit A hereto, which signature page shall be countersigned by the Company and shall be attached to this Agreement and become a part hereof without any further action of any other Party hereto.

 

(k)                                  Tax Withholding.  The Company shall be entitled to deduct and withhold from any cash or other payment to any Stockholder such amounts that the Company is required by any provision of federal, state, local, provincial or foreign tax law to be withheld with respect to the issuance, vesting, exercise, repurchase or cancellation of any Common Stock or any option to purchase Common Stock.  To the extent that amounts are so deducted and withheld by the Company, such deduced and withheld amounts shall be treated as having been paid to the Stockholder in respect of which such deduction and withholding was made, and the Company shall pay such withheld amounts to the applicable Governmental Authority.

 

(l)                                     Founding Stockholders.  The Stockholders and the Company acknowledge that, for purposes of the Bylaws and the Company’s certificate of incorporation, the term “Founding Stockholders” shall mean the Riverstone Stockholders, the Superior Stockholders, Michel B.

 

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Moreno, G.M. McCarroll and their respective Permitted Transferees.

 

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IN WITNESS WHEREOF, each of the undersigned has signed this Agreement as of the date first above written:

 

	
 
    	
DYNAMIC   OFFSHORE RESOURCES, INC.
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
 
    	
Name:
    
	
 
    	
 
    	
Title:
    
	
 
    	
 
    
	
 
    	
[Signature   blocks to be added]
    

 

17

 

EXHIBIT A

 

SIGNATURE PAGE
 TO THE
 STOCKHOLDERS AGREEMENT

 

By execution of this signature page,                                                                                                            hereby agrees to become a party to, be bound by the obligations of and receive the benefits of that certain Stockholders Agreement dated as of [·], 2012 by and among Dynamic Offshore Resources, Inc., a Delaware corporation, R/C Dynamic Holdings, L.P., a Delaware limited partnership, and certain other parties named therein, as amended from time to time thereafter.

 

	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
By:
    	
 
    
	
 
    	
 
    	
 
    	
Name:
    
	
 
    	
 
    	
 
    	
Title:
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
Notice   Address:
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
Accepted:
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
DYNAMIC   OFFSHORE RESOURCES, INC.
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
By:
    	
 
    	
 
    	
 
    
	
 
    	
Name:
    	
 
    	
 
    
	
 
    	
Title:
    	
 
    	
 
    

 

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EXHIBIT B

 

TAG-ALONG SALE CAP

 

	
Stockholder
    	
 
    	
Tag-Along Sale CapExhibit 4.7

 

PURSUANT TO THE TERMS OF SECTION 1 OF THIS WARRANT, ALL OR A PORTION OF THIS WARRANT MAY HAVE BEEN EXERCISED, AND THEREFORE THE ACTUAL NUMBER OF WARRANT SHARES REPRESENTED BY THIS WARRANT MAY BE LESS THAN THE AMOUNT SET FORTH ON THE FACE HEREOF.

 

LPATH, INC.

 

WARRANT TO PURCHASE COMMON STOCK

 

Warrant No.:

Number of Shares of Common Stock:

Date of Issuance: December ·, 2011 (“Issuance Date”)

 

Lpath, Inc., a Nevada corporation (the “Company”), hereby certifies that, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, [INVESTOR NAME], the registered holder hereof or its permitted assigns (the “Holder”), is entitled, subject to the terms set forth below, to purchase from the Company, at the Exercise Price (as defined below) then in effect, upon surrender of this Warrant to Purchase Common Stock (including any Warrants to Purchase Common Stock issued in exchange, transfer or replacement hereof, the “Warrant”), at any time or times on or after the Issuance Date (the “Exercisability Date”), but not after 11:59 p.m., New York time, on the Expiration Date (as defined below), [                           (                          )] fully paid nonassessable shares of Common Stock (as defined below)  (the “Warrant Shares”).  Except as otherwise defined herein, capitalized terms in this Warrant shall have the meanings set forth in Section 15.  This Warrant is the Warrant to purchase Common Stock (this “Warrant”) issued pursuant to (i) Section 2 of that certain Subscription Agreement (the “Subscription Agreement”), dated as of December ·, 2011 (the “Subscription Date”), by and between the Company and the Holder (the “Subscription Agreement”) and (ii) the Company’s Registration Statement on Form S-1 (File number 333-178352) (the “Registration Statement”).  This Warrant is one of a series of warrants containing substantially identical terms and conditions issued pursuant to subscription agreements that are substantially identical to the Subscription Agreement (collectively, the “Warrants”).

 

1.     EXERCISE OF WARRANT.

 

(a)   Mechanics of Exercise.  Subject to the terms and conditions hereof (including, without limitation, the limitations set forth in Section 1(d)), this Warrant may be exercised by the Holder on any day on or after the Exercisability Date, in whole or in part (but not as to fractional shares), by (i) delivery of a written notice, in the form attached hereto as Exhibit A (the “Exercise Notice”), of the Holder’s election to exercise this Warrant and (ii) if both (A) the Holder is not electing a Cashless Exercise (as defined below) pursuant to Section 1(d) of this Warrant and (B) a registration statement registering the issuance of the Warrant Shares under the Securities Act of 1933, as amended (the “Securities Act”), is effective and available for the issuance of the Warrant Shares, or an exemption from registration under the Securities Act is available for the issuance of the Warrant Shares, payment to the Company of an

 

 

amount equal to the applicable Exercise Price multiplied by the number of Warrant Shares as to which this Warrant is being exercised (the “Aggregate Exercise Price”) in cash or wire transfer of immediately available funds (a “Cash Exercise”) (the items under (i) and (ii) above, the “Exercise Delivery Documents”).  The Holder shall not be required to surrender this Warrant in order to effect an exercise hereunder; provided, however, that in the event that this Warrant is exercised in full or for the remaining unexercised portion hereof, the Holder shall deliver this Warrant to the Company for cancellation within a reasonable time after such exercise; provided, further, the execution and delivery of the Exercise Notice with respect to less than all of the Warrant Shares shall have the same effect as cancellation of the original Warrant and issuance of a new Warrant evidencing the right to purchase the remaining number of Warrant Shares.  On or before the first Trading Day following the date on which the Company has received the Exercise Delivery Documents (the date upon which the Company has received all of the Exercise Delivery Documents, the “Exercise Date”), the Company shall transmit by facsimile or e-mail transmission an acknowledgment of confirmation of receipt of the Exercise Delivery Documents to the Holder and the Company’s transfer agent for the Common Stock (the “Transfer Agent”). The Company shall deliver any objection to the Exercise Delivery Documents on or before the second Trading Day following the date on which the Company has received all of the Exercise Delivery Documents.  On or before the second Trading Day following the date on which the Company has received all of the Exercise Delivery Documents (the “Share Delivery Date”), the Company shall, (X) provided that the Transfer Agent is participating in The Depository Trust Company (“DTC”) Fast Automated Securities Transfer Program (the “FAST Program”) and so long as the certificates therefor are not required to bear a legend regarding restriction on transferability, upon the request of the Holder, credit such aggregate number of shares of Common Stock to which the Holder is entitled pursuant to such exercise to the Holder’s or its designee’s balance account with DTC through its Deposit Withdrawal Agent Commission system, or (Y), if the Transfer Agent is not participating in the FAST Program or if the certificates are required to bear a legend regarding restriction on transferability, issue and dispatch by overnight courier to the address as specified in the Exercise Notice, a certificate, registered in the Company’s share register in the name of the Holder or its designee, for the number of shares of Common Stock to which the Holder is entitled pursuant to such exercise.  Upon delivery of the Exercise Delivery Documents, the Holder shall be deemed for all corporate purposes to have become the holder of record of the Warrant Shares with respect to which this Warrant has been exercised, irrespective of the date such Warrant Shares are credited to the Holder’s DTC account or the date of delivery of the certificates evidencing such Warrant Shares, as the case may be.  If this Warrant is submitted in connection with any exercise pursuant to this Section 1(a) and the number of Warrant Shares represented by this Warrant submitted for exercise is greater than the number of Warrant Shares being acquired upon an exercise, then the Company shall as soon as practicable and in no event later than three Trading Days after any such submission and at its own expense, issue a new Warrant (in accordance with Section 7(e)) representing the right to purchase the number of Warrant Shares purchasable immediately prior to such exercise under this Warrant, less the number of Warrant Shares with respect to which this Warrant has been and/or is exercised.  The Company shall pay any and all taxes and other expenses of the Company (including overnight delivery charges) that may be payable with respect to the issuance and delivery of Warrant Shares upon exercise of this Warrant; provided, however, that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the registration of any certificates for Warrant Shares or Warrants in a name other than that of the Holder or an affiliate thereof.  The Holder shall be responsible for all other tax liability that may arise as a result of holding or transferring this Warrant or receiving Warrant Shares upon exercise hereof.

 

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

 

(c)   Company’s Failure to Timely Deliver Securities.  If the Company shall fail for any reason or for no reason to issue to the Holder within three (3) Business Days of the Exercise Date a certificate for the number of shares of Common Stock to which the Holder is entitled and register such shares of Common Stock on the Company’s share register or to credit the Holder’s balance account with DTC for such number of shares of Common Stock to which the Holder is entitled upon the Holder’s exercise of this Warrant, and if on or after such Trading Day the Holder purchases (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by the Holder of shares of Common Stock issuable upon such exercise that the Holder anticipated receiving from the Company (a “Buy-In”), then the Company shall, within three (3) Business Days after the Holder’s written request and in the Holder’s discretion, either (i) pay cash to the Holder in an amount equal to the Holder’s total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased (the “Buy-In Price”), at which point the Company’s obligation to deliver such certificate (and to issue such Warrant Shares) shall terminate, or (ii) promptly honor its obligation to deliver to the Holder a certificate or certificates representing such Warrant Shares and pay cash to the Holder in an amount equal to the excess (if any) of the Buy-In Price over the product of (A) such number of shares of Common Stock, times (B) the Closing Sale Price on the date of exercise.

 

(d)   Cashless Exercise.  Notwithstanding anything contained herein to the contrary, if a registration statement covering the Warrant Shares that are the subject of the Exercise Notice (the “Unavailable Warrant Shares”), or an exemption from registration, is not available for the resale of such Unavailable Warrant Shares, the Holder may, in its sole discretion, exercise this Warrant in whole or in part and, in lieu of making the cash payment otherwise contemplated to be made to the Company upon such exercise in payment of the Aggregate Exercise Price, elect instead to receive upon such exercise the “Net Number” of shares of Common Stock determined according to the following formula (a “Cashless Exercise”):

 

	
 
    	
Net Number = (A x B) - (A x C)
    	
 
    
	
 
    	
B
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
For purposes of the foregoing formula:
    
	
 
    	
 
    
	
 
    	
A= the total number of   shares with respect to which this Warrant is then being exercised.
    
	
 
    	
 
    
	
 
    	
B= the arithmetic average   of the Closing Sale Prices of the shares of Common Stock for the five   (5) consecutive Trading Days ending on the date immediately preceding   the date of the Exercise Notice.
    
	
 
    	
 
    
	
 
    	
C= the Exercise Price then   in effect for the applicable Warrant Shares at the time of such exercise.
    
				

 

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(e)   Rule 144.  For purposes of Rule 144(d) promulgated under the Securities Act, as in effect on the date hereof, assuming the Holder is not an affiliate of the Company, it is intended that the Warrant Shares issued in a Cashless Exercise shall be deemed to have been acquired by the Holder, and the holding period for the Warrant Shares shall be deemed to have commenced, on the date this Warrant was originally issued pursuant to the Subscription Agreement.

 

(f)    Disputes.  In the case of a dispute as to the determination of the Exercise Price or the arithmetic calculation of the Warrant Shares, the Company shall promptly issue to the Holder the number of Warrant Shares that are not disputed.

 

(g)   Beneficial Ownership.  The Company shall not effect the exercise of this Warrant, and the Holder shall not have the right to exercise this Warrant, to the extent that after giving effect to such exercise, such Person (together with such Person’s affiliates) would beneficially own in excess of 9.99% (the “Maximum Percentage”) of the shares of Common Stock outstanding immediately after giving effect to such exercise.  For purposes of the foregoing sentence, the aggregate number of shares of Common Stock beneficially owned by such Person and its affiliates shall include the number of shares of Common Stock issuable upon exercise of this Warrant with respect to which the determination of such sentence is being made, but shall exclude shares of Common Stock which would be issuable upon (i) exercise of the remaining, unexercised portion of this Warrant beneficially owned by such Person and its affiliates and (ii) exercise or conversion of the unexercised or unconverted portion of any other securities of the Company beneficially owned by such Person and its affiliates (including, without limitation, any convertible notes or convertible preferred stock or warrants) subject to a limitation on conversion or exercise analogous to the limitation contained herein.  Except as set forth in the preceding sentence, for purposes of this paragraph, beneficial ownership shall be calculated in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).  For purposes of this Warrant, in determining the number of outstanding shares of Common Stock, the Holder may rely on the number of outstanding shares of Common Stock as reflected in the most recent of (1) the Company’s most recent Form 10-K, Form 10-Q, Current Report on Form 8-K or other public filing with the Securities and Exchange Commission, as the case may be, (2) a more recent public announcement by the Company or (3) any other notice by the Company or the Transfer Agent setting forth the number of shares of Common Stock outstanding.  For any reason at any time, upon the written or oral request of the Holder, the Company shall within two (2) Business Days confirm to the Holder the number of shares of Common Stock then outstanding.  In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Warrant, by the Holder and its affiliates since the date as of which such number of outstanding shares of Common Stock was reported.  By written notice to the Company, the Holder may from time to time increase or decrease the Maximum Percentage to any other percentage not in excess of 9.99% specified in such notice; provided that (i) any such increase will not be effective until the sixty-first (61st) day after such notice is delivered to the Company, and (ii) any such increase or decrease will apply only to the Holder.  The

 

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provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 1(h) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended beneficial ownership limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to such limitation.  To the extent that the limitation contained in this Section 1(g) applies, the determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any affiliates) and of which portion of this Warrant is exercisable shall be in the sole discretion of the Holder, and the submission of a Notice of Exercise shall be deemed to be the Holder’s determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any affiliates) and of which portion of this Warrant is exercisable, in each case subject to such limitation, and the Company shall have no obligation to verify or confirm the accuracy of such determination.

 

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

 

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

 

3.     RIGHTS UPON DISTRIBUTION OF ASSETS.

 

(a)   If the Company, at any time while this Warrant is outstanding, shall distribute to all holders of Common Stock (and not to the Holders) evidences of its indebtedness or assets (including cash and cash dividends) or rights or warrants to subscribe for or purchase any security other than the Common Stock (including, without limitation, any distribution of cash, stock or other securities, property or options by way of a dividend, spin off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction), then in each such case the Exercise Price shall be adjusted by multiplying the Exercise Price in effect immediately prior to the record date fixed for determination of stockholders entitled to receive such distribution by a fraction of which the denominator shall be the Weighted Average Price determined as of the record date mentioned above, and of which the numerator shall be such Weighted Average Price on such record date less the then per share fair market value at such record date of the portion of such assets or evidence of indebtedness so distributed applicable to one outstanding share of the Common Stock as determined by the Board of Directors in good faith.  In either case the adjustments shall be described in a statement provided to the Holder of the portion of assets or evidences of indebtedness so distributed or such subscription rights applicable to one share of Common Stock.  Such adjustment shall be made whenever any such distribution is made and shall become effective immediately after the record date mentioned above.

 

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4.     FUNDAMENTAL TRANSACTIONS.

 

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

 

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5.     NONCIRCUMVENTION.  The Company hereby covenants and agrees that the Company will not, by amendment of its Certificate of Incorporation, Bylaws or through any reorganization, transfer of assets, consolidation, merger, scheme of arrangement, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, and will at all times in good faith comply with all the provisions of this Warrant and take all actions consistent with effectuating the purposes of this Warrant.  Without limiting the generality of the foregoing, the Company (i) shall not increase the par value of any shares of Common Stock receivable upon the exercise of this Warrant above the Exercise Price then in effect, (ii) shall take all such actions as may be reasonably necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock upon the exercise of this Warrant, and (iii) shall, so long as this Warrant is outstanding, take all action reasonably necessary to reserve and keep available out of its authorized and unissued shares of Common Stock, solely for the purpose of effecting the exercise of this Warrant, 100% of the number of shares of Common Stock issuable upon exercise of this Warrant then outstanding (without regard to any limitations on exercise).

 

6.     WARRANT HOLDER NOT DEEMED A STOCKHOLDER.  Except as otherwise specifically provided herein, the Holder, solely in such Person’s capacity as a holder of this Warrant, shall not be entitled to vote or receive dividends or be deemed the holder of share capital of the Company for any purpose, nor shall anything contained in this Warrant be construed to confer upon the Holder, solely in such Person’s capacity as the Holder of this Warrant, any of the rights of a stockholder of the Company or any right to vote, give or withhold consent to any corporate action (whether any reorganization, issue of stock, reclassification of stock, consolidation, merger, conveyance or otherwise), receive notice of meetings, receive dividends or subscription rights, or otherwise, prior to the issuance to the Holder of the Warrant Shares which such Person is then entitled to receive upon the due exercise of this Warrant.  In addition, nothing contained in this Warrant shall be construed as imposing any liabilities on the Holder to purchase any securities (upon exercise of this Warrant or otherwise) or as a stockholder of the Company, whether such liabilities are asserted by the Company or by creditors of the Company.

 

7.     REISSUANCE OF WARRANTS.

 

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

 

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(b)   Lost, Stolen or Mutilated Warrant.  Upon receipt by the Company of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant, and, in the case of loss, theft or destruction, of any indemnification undertaking by the Holder to the Company in customary form and, in the case of mutilation, upon surrender and cancellation of this Warrant, the Company shall execute and deliver to the Holder a new Warrant (in accordance with Section 7(d)) representing the right to purchase the Warrant Shares then underlying this Warrant.

 

(c)   Exchangeable for Multiple Warrants.  This Warrant is exchangeable, upon the surrender hereof by the Holder at the principal office of the Company, for a new Warrant or Warrants (in accordance with Section 7(d)) representing in the aggregate the right to purchase the number of Warrant Shares then underlying this Warrant, and each such new Warrant will represent the right to purchase such portion of such Warrant Shares as is designated by the Holder at the time of such surrender; provided, however, that no Warrants for fractional shares of Common Stock shall be given.  Notwithstanding anything to the contrary herein, in no event shall the original Warrant be subdivided into more than three (3) separate Warrants and such new Warrants shall not be further subdivided.

 

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

 

8.     NOTICES.  Whenever notice is required to be given under this Warrant, unless otherwise provided herein, such notice shall be given in accordance with Section 7 of Annex I to the Subscription Agreement.

 

9.     AMENDMENT AND WAIVER.  Except as otherwise provided herein, the provisions of this Warrant may be amended and the Company may take any action herein prohibited, or omit to perform any act herein required to be performed by it, only if the Company has obtained the written consent of the Required Holders.  Any such amendment shall apply to all Warrants and be binding upon all registered holders of such Warrants.

 

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

 

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

 

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12.   DISPUTE RESOLUTION.  In the case of a dispute as to the determination of the Exercise Price or the arithmetic calculation of the Warrant Shares, the Company shall submit the disputed determinations or arithmetic calculations via facsimile within two (2) Business Days of receipt of the Exercise Notice giving rise to such dispute, as the case may be, to the Holder.  If the Holder and the Company are unable to agree upon such determination or calculation of the Exercise Price or the Warrant Shares within three Business Days of such disputed determination or arithmetic calculation being submitted to the Holder, then the Company shall, within two (2) Business Days submit via facsimile (a) the disputed determination of the Exercise Price to an independent, reputable investment bank selected by the Company and approved by the Holder, which approval shall not be unreasonably withheld, or (b) the disputed arithmetic calculation of the Warrant Shares to the Company’s independent, outside accountant.  The Company shall cause the investment bank or the accountant, as the case may be, to perform the determinations or calculations and notify the Company and the Holder of the results no later than ten Business Days from the time it receives the disputed determinations or calculations.  The prevailing party in any dispute resolved pursuant to this Section 12 shall be entitled to the full amount of all reasonable expenses, including all costs and fees paid or incurred in good faith, in relation to the resolution of such dispute.  Such investment bank’s or accountant’s determination or calculation, as the case may be, shall be binding upon all parties absent demonstrable error.

 

13.   REMEDIES, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF.  The remedies provided in this Warrant shall be cumulative and in addition to all other remedies available under this Warrant, at law or in equity (including a decree of specific performance and/or other injunctive relief), and nothing herein shall limit the right of the Holder to pursue actual damages for any failure by the Company to comply with the terms of this Warrant.

 

14.   TRANSFER.  Subject to applicable federal and state securities laws, this Warrant may not be offered for sale, sold, transferred or assigned without the consent of the Company, such consent not to be unreasonably withheld or delayed.

 

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

 

(a)   “Bloomberg” means Bloomberg Financial Markets.

 

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

 

(c)   “Closing Bid Price” and “Closing Sale Price” means, for any security as of any date, the last closing bid price and last closing trade price, respectively, for such security on the Principal Market, as reported by Bloomberg, or, if the Principal Market begins to operate on an extended hours basis and does not designate the closing bid price or the closing trade price, as the case may be, then the last bid price or the last trade price, respectively,

 

9

 

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

 

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

 

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

 

(f)    “Eligible Market” means the Principal Market, The New York Stock Exchange, Inc., The NYSE Amex, The NASDAQ Capital Market, The NASDAQ Global Market or The NASDAQ Global Select Market.

 

(g)   “Expiration Date” means the fifth anniversary of the Exercisability Date or, if such date falls on a day other than a Trading Day or on which trading does not take place on the Principal Market, or, if the Principal Market is not the principal trading market for the Common Stock, then on the principal securities exchange or securities market on which the Common Stock is then traded (a “Holiday”), the next date that is not a Holiday.

 

(h)   “Fundamental Transaction” means that the Company shall, directly or indirectly, in one or more related transactions, (i) consolidate or merge with or into (whether or not the Company is the surviving corporation, unless the holders of the Company’s voting power immediately prior to such transaction or series of related transactions continue after such transaction or series of related transactions to have a majority of the voting power of the surviving entity) another Person (but excluding a migratory merger effected solely for the purpose of changing the jurisdiction of incorporation of the Company and/or a merger of the Company with or into a subsidiary solely to effect a change of name), or (ii) sell, assign, transfer, convey or otherwise dispose of all or substantially all of the properties or assets of the Company to another Person, or (iii) allow another Person to make a purchase, tender or exchange offer that is accepted by the holders of more than the 50% of the outstanding shares of Common Stock (not including any shares of Common Stock held by the Person or Persons making or party to, or

 

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associated or affiliated with the Persons making or party to, such purchase, tender or exchange offer), or (iv) consummate a stock purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with another Person whereby such other Person acquires more than the 50% of the outstanding shares of Common Stock (not including any shares of Common Stock held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock purchase agreement or other business combination), (v) reorganize, recapitalize or reclassify its Common Stock, or (vi) any “person” or “group” (as these terms are used for purposes of Sections 13(d) and 14(d) of the Exchange Act) is or shall become the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of 50% of the aggregate ordinary voting power represented by issued and outstanding Common Stock.

 

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

 

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

 

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

 

(l)    “Principal Market” means OTC Bulletin Board.

 

(m)  “Required Holders” as of any time means the Holders of at least a majority of the Warrants then outstanding.

 

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

 

(o)   “Trading Day” means any day on which the Common Stock are traded on the Principal Market, or, if the Principal Market is not the principal trading market for the Common Stock, then on the principal securities exchange or securities market on which the Common Stock are then traded; provided that “Trading Day” shall not include any day on which the Common Stock are scheduled to trade on such exchange or market for less than 4.5 hours or any day that the Common Stock are suspended from trading during the final hour of trading on such exchange or market (or if such exchange or market does not designate in advance the closing time of trading on such exchange or market, then during the hour ending at 4:00:00 p.m., New York time).

 

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(p)   “Weighted Average Price” means, for any security as of any date, the dollar volume-weighted average price for such security on the Principal Market during the period beginning at 9:30:01 a.m., New York time (or such other time as the Principal Market publicly announces is the official open of trading), and ending at 4:00:00 p.m., New York time (or such other time as the Principal Market publicly announces is the official close of trading), as reported by Bloomberg through its “Volume at Price” function or, if the foregoing does not apply, the dollar volume-weighted average price of such security in the over-the-counter market on the electronic bulletin board for such security during the period beginning at 9:30:01 a.m., New York time (or such other time as the Principal Market publicly announces is the official open of trading), and ending at 4:00:00 p.m., New York time (or such other time as the Principal Market publicly announces is the official close of trading), as reported by Bloomberg, or, if no dollar volume-weighted average price is reported for such security by Bloomberg for such hours, the average of the highest closing bid price and the lowest closing ask price of any of the market makers for such security as reported in the “pink sheets” by OTC Markets Inc. If the Weighted Average Price cannot be calculated for a security on a particular date on any of the foregoing bases, the Weighted Average Price of such security on such date shall be the fair market value as mutually determined by the Company and the Holder. If the Company and the Holder are unable to agree upon the fair market value of such security, then such dispute shall be resolved pursuant to Section 12 with the term “Weighted Average Price” being substituted for the term “Exercise Price.” All such determinations shall be appropriately adjusted for any stock dividend, stock split, stock combination or other similar transaction during the applicable calculation period.

 

[Signature Page Follows]

 

12

 

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

 

 

	
 
    	
 
    	
LPATH, INC.
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
By:
    	
 
    
	
 
    	
 
    	
Name:
    	
Scott   R. Pancoast
    
	
 
    	
 
    	
Title:   
    	
President   and Chief Executive Officer
    

 

 

EXHIBIT A

 

EXERCISE NOTICE

 

TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS

WARRANT TO PURCHASE COMMON STOCK

 

LPATH, INC.

 

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

 

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

 

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

 

a “Cashless Exercise” with respect to                         Warrant Shares.

 

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

 

3.  Delivery of Warrant Shares.  The Company shall deliver to the holder                      Warrant Shares in accordance with the terms of the Warrant and, after delivery of such Warrant Shares,                            Warrant Shares remain subject to the Warrant.

 

Date:                                    ,

 

	
 
    	
 
    
	
Name of Registered Holder
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
By:
    	
 
    	
 
    
	
 
    	
Name:
    	
 
    
	
 
    	
Title:
    	
 
    

 

[continued on the next page]

 

A-1

 

(Check one of the following)

 

o  The exercise of the attached Warrant was solicited by                                    (name of broker-dealer).

 

o  The exercise of the attached Warrant was unsolicited.

 

As required by FINRA Rule 5110(f)(2)(K), no solicitation fee will be payable to the underwriters with respect to the exercise of a Warrant if:

 

·   the market price of the underlying shares of Common Stock is lower than the exercise price of the Warrant at the time of exercise;

 

·   the Warrant is held in a discretionary account of an underwriter at the time of exercise, unless prior specific written approval for the exercise is received from the holder;

 

·   the arrangement to pay the solicitation fee is not disclosed in any prospectus provided to the holder of the Warrant at the time of exercise;

 

·   the Warrant is exercised in an unsolicited transaction; or

 

·   the holder of the Warrant has not confirmed in writing that exercise was solicited and that the underwriters solicited the exercise.

 

A-2

 

EXHIBIT B

 

ASSIGNMENT FORM

 

LPATH, INC.

 

(To assign the foregoing Warrant, execute this form and supply required information.  Do not use this form to purchase shares.)

 

FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby assigned to

 

 

	
Name:
    	
 
    
	
 
    	
(Please   Print)
    
	
 
    	
 
    
	
Address:
    	
 
    
	
 
    	
(Please   Print)
    
	
 
    	
 
    
	
Dated:                                          ,
    	
 
    
	
 
    	
 
    
	
Holder’s   Signature:
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
Holder’s   Address:
    	
 
    	
 
    	
 
    

 

 

NOTE:  The signature to this Assignment Form must correspond with the name as it appears on the face of the Warrant, without alteration or enlargement or any change whatever.  Officers of corporations and those acting in a fiduciary or other representative capacity should file proper evidence of authority to assign the foregoing Warrant.

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