Document:

EX-10.11

 Exhibit 10.11 

RESTRICTED PAIRED SHARE AGREEMENT 

THIS RESTRICTED PAIRED SHARE AGREEMENT (this “Agreement”) is entered into by and among ESH Hospitality Holdings, LLC,
a Delaware limited liability company (“Holdings”), Extended Stay America, Inc., a Delaware corporation (the “Company”) and ESH Hospitality, Inc., a Delaware Corporation (“ESH REIT”) as of
November 12, 2013. 
 WHEREAS, certain employees of HVM L.L.C. received grants of Profit Units pursuant to the HVM Management
Incentive Plan, as amended, modified, supplemented or restated from time to time (the “HVM Incentive Plan”); 

WHEREAS, certain non-voting directors of the board of managers of Holdings (the “Board”) received grants of Profit
Units pursuant to the ESH Manager Incentive Plan, as amended, modified, supplemented or restated from time to time (the “ESH Manager Plan”); 

WHEREAS, each Profit Unit holder also received grants of Strategies Profit Units pursuant to the ESH Strategies Incentive Plan, and
also on November 12, 2013, the intellectual property assets held by ESH Hospitality Strategies Holdings LLC are being transferred to the Company and thereafter, ESH Hospitality Strategies Holdings LLC is being liquidated; 

WHEREAS, the Board has determined that conducting the business of ESH REIT in a corporate rather than a limited liability company form
is necessary to allow an offering of equity interests in ESH REIT; 
 WHEREAS, the Board has determined, in accordance with its
authority and rights pursuant to Section 13.01(b) of the Fourth Amended and Restated Limited Liability Agreement of Holdings, dated as of July 27, 2012, as amended, modified, supplemented or restated from time to time (the
“Holdings LLC Agreement”), to dissolve Holdings and to distribute to the Profit Unit holders certain Shares subject to the terms and conditions set forth herein; and 

WHEREAS, the Company and ESH REIT wish to enter into this Agreement with Holdings to set forth the terms and conditions of such Shares;

 NOW THEREFORE, the parties hereto agree as follows: 

1. Definitions. The capitalized terms herein not otherwise defined shall have the meaning ascribed to them in the Holdings LLC Agreement. For
purposes of this Agreement: 
 1.1. “Accelerated Shares” shall have the meaning set forth in Section 2.2(c). 

1.2. “Blackstone” means Blackstone Real Estate Partners VI L.P. and its affiliates. 

1.3. “Cause” shall mean means the occurrence or existence of any of the following (a) with respect to a Distributee who
is an employee of the Company or any of its subsidiaries, as 

  
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determined in good faith by the Company: (i) in the case of a Distributee whose employment with the Company is subject to the terms of an employment agreement which includes a definition of
“Cause,” the meaning set forth in such employment agreement during the period that such employment agreement remains in effect, and (ii) in all other cases (A) a material breach of such Distributee’s obligations under any
employment or other agreement with the Company; (B) any act of fraud, misappropriation, dishonesty, embezzlement or similar conduct against the Company or any of its Affiliates; or (C) conviction of a felony or any crime involving moral
turpitude, and (b) with respect to a Distributee who is a director of the Company or ESH REIT, the removal of such Distributee as a director from the board of directors of the Company or ESH REIT, as applicable, for cause. 

1.4. “Centerbridge” means Centerbridge Partners, LP and its affiliates. 

1.5. “Change in Control” shall mean the occurrence of any of the following: 

(a) An acquisition (other than directly from the Company) of any voting securities of Extended Stay America (the “Voting
Securities”) by any Person, immediately after which such Person has “Beneficial Ownership” (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of fifty percent (50%) or more of the combined
voting power of the Company’s then-outstanding Voting Securities; provided, however, that in determining whether a Change in Control has occurred pursuant to this Section 1.4(a), the acquisition of Voting Securities in a Non-Control
Acquisition (as hereinafter defined) shall not constitute a Change in Control. A “Non-Control Acquisition” shall mean an acquisition by (i) an employee benefit plan (or a trust forming a part thereof) maintained by
(A) the Company or (B) any corporation or other Person the majority of the voting power, voting equity securities or equity interest of which is owned, directly or indirectly, by the Company (for purposes of this definition, a
“Related Entity”), (ii) the Company or any Related Entity, (iii) any of the Principal Stockholders, or (iv) any Person in connection with a Non-Control Transaction (as hereinafter defined); 

(b) The individuals who, as of the effective date of this Agreement are members of the Board (the “Incumbent Board”), cease
for any reason to constitute at least a majority of the members of the Board; provided, however, that if the election, or nomination for election by the Company’s common stockholders, of any new director was approved by a vote of at
least two-thirds of the Incumbent Board, such new director shall, for purposes of this Agreement, be considered as a member of the Incumbent Board; provided further, however, that no individual shall be considered a member of the
Incumbent Board if such individual initially assumed office as a result of either an actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board (a “Proxy Contest”) including by reason
of any agreement intended to avoid or settle any Proxy Contest; 
 (c) The consummation of: 

 

	 	(1)	A merger, consolidation or reorganization (x) with or into the Company or (y) in which securities of the Company are issued (a “Merger”), unless such Merger is a Non-Control
Transaction. A “Non-Control Transaction” shall mean a Merger in which: 

  

	 	i.	the stockholders of the Company immediately before such Merger own directly or indirectly immediately following such Merger at least a majority of the combined voting power of the outstanding voting securities of
(1) the corporation resulting from such Merger (the “Surviving Corporation”), if fifty percent (50%) or more of the combined voting power of the then outstanding voting securities of the Surviving Corporation is not
Beneficially Owned, directly or indirectly, by another Person (a “Parent Corporation”), or (2) if there is one or more than one Parent Corporation, the ultimate Parent Corporation; 

  
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	 	ii.	the individuals who were members of the Board immediately prior to the execution of the agreement providing for such Merger constitute at least a majority of the members of the board of directors of (1) the
Surviving Corporation, if there is no Parent Corporation, or (2) if there is one or more than one Parent Corporation, the ultimate Parent Corporation; and 

  

	 	iii.	no Person other than (1) the Company or another corporation that is a party to the agreement of Merger, (2) any Related Entity, (3) any employee benefit plan (or any trust forming a part thereof) that,
immediately prior to the Merger, was maintained by the Company or any Related Entity, (4) any Principal Stockholder or (5) any Person who, immediately prior to the Merger, had Beneficial Ownership of Voting Securities representing more
than fifty percent (50%) of the combined voting power of the Company’s then-outstanding Voting Securities, has Beneficial Ownership, directly or indirectly, of fifty percent (50%) or more of the combined voting power of the
outstanding voting securities of (x) the Surviving Corporation, if there is no Parent Corporation, or (y) if there is one or more than one Parent Corporation, the ultimate Parent Corporation; 

 

	 	(2)	A complete liquidation or dissolution of the Company; or 

  

	 	(3)	The sale or other disposition of all or substantially all of the assets of the Company and its subsidiaries taken as a whole to any Person (other than (x) a transfer to a Related Entity or (y) the distribution
to the Company’s stockholders of the stock of a Related Entity or any other assets). 

 Notwithstanding the foregoing, a Change in
Control shall not be deemed to occur solely because any Person (the “Subject Person”) acquired Beneficial Ownership of more than the permitted amount of the then outstanding Voting Securities as a result of the acquisition of Voting
Securities by the Company which, by reducing the number of Voting Securities then outstanding, increases the proportional number of shares Beneficially Owned by the Subject Person; provided that if a Change in Control would occur (but for the
operation of this sentence) as a result of the acquisition of Voting Securities by the Company and, after such acquisition by the Company, 

  
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the Subject Person becomes the Beneficial Owner of any additional Voting Securities and such Beneficial Ownership increases the percentage of the then outstanding Voting Securities Beneficially
Owned by the Subject Person, then a Change in Control shall occur. 
 1.6. “Code” shall mean the Internal Revenue Code of
1986, as amended. 
 1.7. “Committee” shall refer to both the compensation committee of the board of directors of the
Company and the compensation committee of the board of directors of ESH REIT which shall act in concert with respect to administration of this Agreement. 

1.8. “Company Charter” shall mean the articles of incorporation of the Company. 

1.9. “Corporate Transaction” shall mean a merger, consolidation, reorganization, recapitalization or other similar change in
the capital stock of the Company or ESH REIT that is not a Change in Control. 
 1.10. “Distributee” shall mean a former
Profit Unit holder who receives Distributed Shares pursuant to this Agreement. 
 1.11. “Distributed Shares” shall have the
meaning set forth in Section 2.1. 
 1.12. “Distribution” shall mean the final liquidating distribution of Holdings.

 1.13. “ESH REIT Charter” shall mean the articles of incorporation of the ESH REIT. 

1.14. “Grant” shall mean a Distributee’s respective grant of Class B Units and/or Class C Units that was made under the
HVM Incentive Plan or ESH Manager Plan, as applicable, the terms of which were set forth in an award agreement. 
 1.15.
“IPO” shall mean the initial public offering of the Company and ESH REIT Company. 
 1.16. “Pairing
Agreement” shall mean the pairing agreement by and between the Company and ESH REIT dated as of November 12, 2013, as may be amended from time to time. 

1.17. “Paulson” means Paulson & Co. Inc. and its affiliates. 

1.18. “Principal Stockholders” include each of Blackstone, Centerbridge and Paulson. 

1.19. “Profit Units” shall mean those Class B Units and Class C Units as granted to participants under the HVM Incentive Plan
and ESH Manager Plan. 
 1.20. “Restricted Shares” shall have the meaning set forth in Section 2.2(b). 

1.21. “Securities Act” shall mean the Securities Act of 1933, as amended, and its accompanying rules and regulations. 

1.22. “Share” shall mean a share of Company common stock, par value $0.01, per share, and a share of ESH REIT Class B common
stock, par value $0.01, per share, that are stapled together and traded as a paired share pursuant to the terms of the Pairing Agreement, the Company Charter and the ESH REIT Charter. 

  
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 1.23. “Strategies Profit Units” shall mean Profit Units as defined in the Fourth
Amended and Restated Limited Liability Company Agreement of ESH Hospitality Strategies Holdings LLC, dated as of July 27, 2012, as amended, modified, supplemented or restated from time to time. 

1.24. “Termination of Service” means a termination of the Distributee’s employment with the Company and its subsidiaries
or service as a director of the Company and/or ESH REIT, for any reason, including by reason of the Distributee’s death or disability, in each case as determined by the Company or ESH REIT, as applicable, and which represents a “separation
from service” as defined in Treasury Regulation §1.409A-1(h), or results from the Distributee’s death or disability as defined in Treasury Regulation §1.409A-3(i)(4). 

1.25. “Vested Equivalent Amount” shall mean, for each Profit Unit holder who holds vested Profit Units as of
immediately prior to the Distribution, with respect to each outstanding Grant, an amount equal to the product of the following: (i) a fraction, the numerator of which is the number of vested Profit Units as of immediately prior to the
Distribution, and the denominator of which is the total number of Profit Units granted pursuant to such Grant, and (ii) the total number of Distributed Shares received by the Distributee in respect of his or her outstanding Profit Units
pursuant to such Grant in accordance with Section 2.1. 
 1.26. “Unrestricted Shares” shall have the meaning set forth
in Section 2.2(a). 
 1.27. “Unvested CIC Equivalent Amount” shall mean, for each Profit Unit holder who holds
unvested Profit Units as of immediately prior to the Distribution, with respect to each outstanding Grant, a number equal to the total number of Distributed Shares received by the Distributee in respect of his or her outstanding Profit
Units pursuant to such Grant in accordance with Section 2.1, divided by five (5). 
 1.28. “Unvested Equivalent
Amount” shall mean, for each Profit Unit holder who holds unvested Profit Units as of immediately prior to the Distribution, with respect to each outstanding Grant, an amount equal to the product of the following: (i) a
fraction, the numerator of which is the number of unvested Profit Units as of immediately prior to the Distribution (excluding the unvested Profit Units that are scheduled to vest only upon a Change of Control Transaction), and the
denominator of which is the total number of Profit Units granted pursuant to such Grant, and (ii) the total number of Distributed Shares received by the Distributee in respect of his or her outstanding Profit Units pursuant to such Grant in
accordance with Section 2.1. 
 2. Distributed Shares. 

2.1. In connection with the Distribution, each Profit Unit holder as of immediately prior to the Distribution shall receive a number of Shares
to be determined by the Board by applying the provisions of Section 4.03(b) of the Holdings LLC Agreement based on the value of (a) the Company and ESH REIT and (b) ESH Hospitality Strategies Holdings LLC as determined based on the
IPO price of the Shares, as adjusted for the effects of the tax distribution received in connection with certain pre-IPO restructuring transactions, if any (the “Distributed Shares”). 

  
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 2.2. A Distributee’s Distributed Shares in respect of each Grant shall consist of the
following: 
 (a) A number of Distributed Shares equal to the Vested Equivalent Amount which shall generally not be subject to forfeiture
(subject to Section 3.2) and shall be subject only to the transfer restrictions and ownership guidelines referred to in Section 2.3 (the “Unrestricted Shares”). 

(b) A number of Distributed Shares equal to the Unvested Equivalent Amount (the “Restricted Shares”). The Restricted Shares
shall be subject to the forfeiture provisions of Section 3 and to the transfer restrictions and ownership guidelines referred to in Section 2.3. The Restricted Shares shall continue to vest on the same vesting anniversary date as set forth
in the applicable award agreement that governed such Grant, provided that the Distributee remains in continuous service to the Company, its subsidiaries or ESH REIT through the applicable vesting date, as follows: 

 

	 	(1)	If Distributee’s Grant was 0% vested as of immediately prior to the Distribution, 25% of the Restricted Shares shall vest on each of the four vesting anniversary dates following the Distribution Date;

  

	 	(2)	If Distributee’s Grant was 20% vested as of immediately prior to the Distribution, 33 1/3% of the Restricted Shares shall vest on each of the three vesting anniversary dates following the Distribution Date;

  

	 	(3)	If Distributee’s Grant was 40% vested as of immediately prior to the Distribution, 50% of the Restricted Shares shall vest on each of the two vesting anniversary dates following the Distribution Date; or

  

	 	(4)	If Distributee’s Grant was 60% vested as of immediately prior to the Distribution, 100% of the Restricted Shares shall vest on the vesting anniversary date immediately following the Distribution Date.

 (c) A number of Distributed Shares equal to the Unvested CIC Equivalent Amount (the “Accelerated Shares”).
The Accelerated Shares shall not be subject to forfeiture but the Distributee shall not be permitted to Transfer (as defined below) such Accelerated Shares until the date on which all of the Restricted Shares in respect of such Grant
have vested or would have vested in accordance with Section 2.2(b) or, if earlier, Section 2.2(d). The Accelerated Shares shall also be subject to the transfer restrictions and ownership guidelines referred to in Section 2.3. 

(d) Notwithstanding Section 2.2(b), all of a Distributee’s then outstanding Restricted Shares that have not vested shall vest
immediately upon a Change in Control. 
 2.3. Notwithstanding anything to the contrary in this Agreement or otherwise, all of the
Distributed Shares received by a Distributee shall be subject to the restrictions on Transfer 

  
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set forth in Exhibit A and the stock ownership guidelines of the Company and ESH REIT as set forth in Exhibit B and Exhibit C, respectively. Unless otherwise determined by
the Company and ESH REIT, the Distributed Shares may not be sold, transferred, assigned or otherwise disposed of, and may not be pledged or otherwise hypothecated (any such transfer, assignment, disposition, pledge or hypothecation, a
“Transfer”) while (a) such Distributed Shares are subject to the restrictions on Transfer set forth on Exhibit A and the stock ownership guidelines of the Company and ESH REIT set forth on Exhibit B and Exhibit
C, respectively, and (b)(i) with respect to the Restricted Shares, while such Restricted Shares are subject to forfeiture to the Company and ESH REIT, as applicable and (ii) with respect to the Accelerated Shares, while such Accelerated
Shares are subject to the restrictions on Transfer set forth in Section 2.2(c); provided, however, that the foregoing shall not prohibit the Transfer of any such Distributed Shares pursuant to a definitive agreement executed by the
Company in connection with a Corporate Transaction. 
 2.4. The certificates, if any, evidencing the Distributed Shares will bear the
following legends when issued: 
 “THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“SECURITIES ACT”), OR THE SECURITIES, OR “BLUE SKY,” LAWS OF ANY STATE OR OTHER DOMESTIC OR FOREIGN JURISDICTION. THESE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO DISTRIBUTION AND RESALE AND MAY NOT
BE SOLD OR OFFERED FOR SALE EXCEPT PURSUANT TO A REGISTRATION STATEMENT IN EFFECT UNDER THE SECURITIES ACT AND OTHER APPLICABLE LAWS OR UNLESS THE DISTRIBUTEE DELIVERS TO THE COMPANY AND ESH REIT A WRITTEN OPINION OF COUNSEL REASONABLY SATISFACTORY
TO THE COMPANY AND ESH REIT THAT SUCH REGISTRATION IS NOT REQUIRED AND THAT AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE FOR SUCH TRANSACTIONS UNDER THE SECURITIES ACT AND OTHER APPLICABLE LAWS.” 

In addition, Holdings acknowledges that each certificate for Distributed Shares shall bear any additional legend required by any other
applicable domestic or foreign securities or blue sky laws, or as set forth in the Company’s certificate of incorporation or ESH REIT’s certificate of incorporation. 

Until such time as the Transfer of Distributed Shares is permitted under the restrictions on Transfer referenced in Section 2.3 and the
legends described above have been removed, the Company and ESH REIT will direct its transfer agent and registrar to maintain stop transfer instructions on record for the Distributed Shares, as applicable. 

2.5. The Distributee acknowledges the Distributed Shares have not been registered under the Securities Act, or under the securities laws of
any other jurisdiction. Rule 144 promulgated under the Securities Act is not presently available with respect to the sale of the Distributed Shares. Neither the Company nor ESH REIT is under any obligation, and has no current plan or intention, to
register or qualify the Distributed Shares for resale by the Distributees. The Distributee may not Transfer the Distributed Shares or any portion thereof 

  
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without compliance with (a) the Securities Act, applicable U.S. state securities laws, and any applicable securities laws of any other jurisdiction (or an exemption therefrom), and
(b) the restrictive legends set forth thereon. 
 2.6. Certificates or evidence of book-entry shares representing the Restricted Shares
shall be issued and held in escrow by the Company and ESH REIT, as applicable, and shall remain in the custody of the Company and ESH REIT, as applicable, until their delivery to the Distributee as set forth herein, subject to the Grantee’s
delivery of any document which the Committee, the Company or ESH REIT may, in its discretion, require as a condition to the delivery of Shares to the Distributee or his or her estate, including, but not limited to delivery of a stock power, duly
endorsed in blank, relating to the Restricted Shares. 
 3. Effect of Distributee’s Termination from Service. 

3.1. In the event of a Distributee’s Termination of Service for any reason, all the Distributee’s Restricted Shares that have not
vested as of immediately prior to the Termination of Service shall immediately terminate and be forfeited to each of the Company and ESH REIT, as applicable. 

3.2. In the event of a Distributee’s Termination of Service by the Company or ESH REIT, as applicable, for Cause, (i) all
Distributed Shares that remain subject to any restrictions on Transfer in accordance with Section 2.3; and (ii) all Accelerated Shares held by the Distributee as of immediately prior to the Termination of Service shall, in each case,
immediately terminate and be forfeited to each of the Company and ESH REIT, as applicable. 
 4. Rights as a Stockholder. Upon the
distribution of the Distributed Shares to the Distributee and the entry of the Distributee’s name as a stockholder of record on the books of the Company and ESH REIT, subject to the terms and conditions set forth in this Agreement applicable to
such Distributed Shares, the Distributee shall be entitled to all rights of a holder of a Share with respect to each Distributed Share unless and until (i) with respect to any Restricted Share or Accelerated Share, such Restricted Share or
Accelerated Share is forfeited pursuant to Section 3 of this Agreement or (ii) with respect to any Distributed Shares, any such Distributed Share is sold or otherwise disposed of pursuant to Section 2. Such rights shall include,
without limitation, the right to vote such Distributed Shares and the right to receive all dividends or other distributions paid or made with respect thereto at the same time as other holders of Shares. 

5. Interpretation/Administration. The Committee shall have the ability to (a) construe and interpret this Agreement, (b) establish,
amend and revoke rules and regulations for the administration of this Agreement, (c) enforce the provisions under this Agreement, including determining the duration and purposes for leaves of absence which may be granted to a Distributee on an
individual basis without constituting a Termination of Service for purposes of this Agreement; (d) cancel, with the consent of the Distributee, outstanding Restricted Shares or as otherwise permitted under the term of this Agreement;
(e) exercise its discretion with respect to the powers and rights granted to it as set forth in this Agreement; and (g) generally, exercise such powers and perform such acts as are deemed necessary or advisable to promote the best
interests of the Company and ESH REIT with respect to this Agreement. The Committee’s determinations under this Agreement need not be uniform and may be made by it selectively 

  
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among Distributees who receive Restricted Shares (whether or not such persons are similarly situated). All decisions and determinations by the Committee in the exercise of the above powers shall
be final, binding and conclusive upon each Distributee, the Company and ESH REIT. The parties agree that the amount of Distributed Shares as well as the amount of any Unrestricted Shares, Restricted Shares, or Accelerated Shares otherwise due to a
Distributee in connection with this Agreement, may be rounded, as appropriate, and may be adjusted for the effects of a tax distribution received in connection with certain pre-IPO restructuring transactions, if any. 

6. Effect of Certain Transactions. 

6.1. In connection with a Corporate Transaction, either: 

(a) The Restricted Shares and Accelerated Shares shall, unless otherwise provided in connection with the Corporate Transaction, continue
following the Corporate Transaction and shall be adjusted if and as provided for in the agreement or plan (in the case of a liquidation or dissolution) entered into or adopted in connection with the Corporate Transaction (the “Transaction
Agreement”), which may include, in the sole discretion of the Committee or the parties to the Corporate Transaction, the assumption or continuation of such Restricted Shares and Accelerated Shares by, or the substitution for such Restricted
Shares and Accelerated Shares of new awards of, the surviving, successor or resulting entity, or a parent or subsidiary thereof, or the Company or ESH REIT with such adjustments as to the number and kind of shares or other securities or property
subject to such new awards, and other terms of such new awards as the Committee or the parties to the Corporate Transaction shall agree, or 

(b) Outstanding Restricted Shares and Accelerated Shares shall terminate upon the consummation of the Corporate Transaction; provided,
however, that Restricted Shares and Accelerated Shares shall not be terminated without providing the holders of affected Restricted Shares and Accelerated Shares payment (in cash or other consideration upon or immediately following the
consummation of the Corporate Transaction, or, to the extent permitted by Section 409A of the Code, on a deferred basis) in respect of each Restricted Share and each Accelerated Share being cancelled of the per Share price to be paid or
distributed to stockholders in the Corporate Transaction, in each case with the value of any non-cash consideration to be determined by the Committee in good faith. 

6.2. Any action permitted under this Section 6 may be taken without the need for the consent of any Distributee. 

7. Compliance with Section 409A. All Distributed Shares distributed under this Agreement are intended not to be subject to
Section 409A of the Code. Notwithstanding this or any other provision of the Agreement to the contrary, the Committee may amend the Agreement or any Restricted Share distributed hereunder in any manner or take any other action that it
determines, in its sole discretion, is necessary, appropriate or advisable (including replacing any Restricted Share) to cause the Agreement distributed hereunder to comply with Section 409A of the Code and all regulations and other guidance
issued hereunder or to not be subject to Section 409A of the Code. Any such action, once taken, shall be deemed to be effective from the earliest date necessary to avoid a violation of Section 409A of the Code and shall be final, binding
and conclusive on all Distributees and other individuals having or claiming any right or interest under this Agreement. 

  
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 8. No Right to Continued Employment or Service. Nothing in this Agreement shall be interpreted or
construed to confer upon a Distributee any right with respect to the continuation of employment with the Company and its subsidiaries or continuation of service as a director of the Company or ESH REIT, nor shall this Agreement restrict in any way
or interfere with the rights of the Company and its subsidiaries or ESH REIT, as applicable, to terminate a Distributee’s employment or service at any time. 

9. Amendment. 
 9.1. This
Agreement shall not be amended, modified, suspended or terminated without the express consent of each of the Company and ESH REIT. 
 9.2.
No such amendment, modification, suspension or termination shall impair or adversely alter any Restricted Shares theretofore distributed under this Agreement, except with the consent of the Distributee, nor shall any amendment, modification,
suspension or termination deprive any Distributee of any Shares which he or she may have acquired as a result of the Distribution and pursuant to the terms of this Agreement. 

9.3. To the extent necessary under any applicable law, regulation or exchange requirement, no other amendment shall be effective unless
approved by the stockholders of the Company in accordance with applicable law, regulation or exchange requirement. 
 10. Governing Law. This
Agreement shall be governed by and construed in accordance with the laws of the State of Delaware without regard to conflict of laws principles. 

[Signature Page Follows] 

  
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 IN WITNESS WHEREOF, each of the parties has caused this Agreement to be duly executed and
delivered as of the day and year first written above. 
  

					
	ESH HOSPITALITY HOLDINGS LLC
		
	By:	 	 /s/ William D. Rahm

		 	Name:	 	William D. Rahm
		 	Title:	 	Vice President and Secretary
	
	EXTENDED STAY AMERICA, INC.
		
	By:	 	 /s/ Ross W. McCanless

		 	Name:	 	Ross W. McCanless
		 	Title:	 	Chief Legal Officer and General Counsel
	
	ESH HOSPITALITY, INC.
		
	By:	 	 /s/ Ross W. McCanless

		 	Name:	 	Ross W. McCanless
		 	Title:	 	Chief Legal Officer

  
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 EXHIBIT A 

Applicable Restrictions on Transfer 

Transfer Restrictions to Ensure Compliance with Securities Laws 

The Distributed Shares have not been registered under the Securities Act of 1933, as amended (the “Securities Act”), or the securities, or
“blue sky,” laws of any state or other domestic or foreign jurisdiction and may not be sold or offered for sale except pursuant to a registration statement in effect under the Securities Act and other applicable laws. Accordingly to ensure
compliance with securities laws, until the six month anniversary of a Distributee’s receipt of his or her Distributed Shares, no Transfer of such Distributed Shares prior to receipt shall be permitted without the consent of the Company and ESH
REIT, which consent may granted or withheld in the sole discretion of each of the Company and ESH REIT and/or which may be conditioned upon the Distributee delivering to the Company and ESH REIT a written opinion of counsel reasonably satisfactory
to the Company and ESH REIT that registration is not required and that an exemption from registration is available for the Transfer under the Securities Act and other applicable laws (a “No Registration Opinion”). On or after such
anniversary the Distributed Shares may be Transferred upon the delivery of a No Registration Opinion to the Company and ESH REIT, which requirement may be waived in the sole discretion of each of the Company and ESH REIT. 

Rule 144 
 In general, under Rule
144 of the Securities Act, as in effect on the date hereof, a person who is not an “affiliate” of the Company and/or ESH REIT at any time during the three months preceding a sale, and who has beneficially owned Shares for at least six
months, would be entitled to sell an unlimited number of Shares provided current public information about the Company and ESH REIT is available and, after owning such Shares for at least one year, would be entitled to sell an unlimited number of
Shares without restriction. Affiliates of the Company and/or ESH REIT who have beneficially owned Shares for at least six months are entitled to sell within any three-month period a number of Shares that does not exceed the greater of: 

 

	 	•	 	1% of the number of Shares then outstanding, which will equal approximately 2,004,500 Shares immediately after the IPO; or 

  

	 	•	 	the average weekly trading volume of the Shares on the NYSE during the four calendar weeks preceding the filing of a notice on Form 144 with respect to the sale. 

Sales under Rule 144 by affiliates of the Company or ESH REIT are also subject to manner of sale provisions and notice requirements and to the
availability of current public information about the Company and ESH REIT. An “affiliate” of the Company and/or ESH REIT is defined by the rules and regulations under the Securities Act as a person who “directly, or indirectly through
one or more intermediaries, controls, or is controlled by, or is under common control with” the Company and/or ESH REIT. Directors, executive officers, substantial stockholders and others, who by one means or another have the ability to
exercise control over the Company and/or ESH REIT, may be deemed to be “affiliates”. 

  
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 Lock-Up Agreements 

To the extent that any Distributee is subject to a lock-up agreement, the terms and conditions of such lock-up agreement shall govern the Distributee’s
Distributed Shares, to the extent applicable. 
 Transfer Agent Requirements for Transfers 

Distributees should note that independent of any opinion or other documentary requirement required or waived by the Company and/or ESH REIT, the transfer agent
for the Distributed Shares may require that a Distributee deliver a No Registration Opinion and/or other documentation from the Distributee regarding the absence of a requirement to register the proposed Transfer of the Shares. 

Each Distributee is urged to consult with his or her legal counsel to review the applicability of Rule 144 before selling Shares (including Shares acquired
under the Restricted Paired Share Agreement). 

  
 13Unassociated Document

NEITHER THIS SECURITY NOR THE SECURITIES FOR WHICH THIS SECURITY IS EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY.

HEALTH REVENUE ASSURANCE HOLDINGS, INC.

COMMON STOCK PURCHASE WARRANT

 

	Warrant Shares:  	 	Issuance Date:  November 12, 2013
	Warrant No.:	 	 

 

THIS COMMON STOCK PURCHASE WARRANT (the “Warrant”) certifies that, for value received, _________________or its assigns (the “Holder”) is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time from or after the date hereof and on or prior to the close of business on the 5 year anniversary of the date hereof (the “Termination Date”) but not thereafter, to subscribe for and purchase from Health Revenue Assurance Holdings, Inc., a Nevada corporation (the “Company”), up to _________________shares (as subject to adjustment hereunder, the “Warrant Shares”) of Common Stock. The purchase price of one share of Common Stock under this Warrant shall be equal to the Exercise Price, as defined in Section 2(b).

 

Section 1.                      Definitions.  Capitalized terms used and not otherwise defined herein shall have the meanings set forth in that certain Securities Purchase Agreement (the “Purchase Agreement”), dated November 12, 2013, among the Company and the purchasers signatory thereto.

 

Section 2.                      Exercise.

 

a)           Exercise of Warrant.  Exercise of the purchase rights represented by this Warrant may be made, in whole or in part, at any time or times on or after the Initial Exercise Date and on or before the Termination Date by delivery to the Company (or such other office or agency of the Company as it may designate by notice in writing to the registered Holder at the address of the Holder appearing on the books of the Company) of a duly executed facsimile copy of the Notice of Exercise form annexed hereto and within three (3) Trading Days of the date said Notice of Exercise is delivered to the Company, the Company shall have received payment of the aggregate Exercise Price of the shares thereby purchased by wire transfer or cashier’s check drawn on a United States bank or, if available, pursuant to the cashless exercise procedure specified in Section 2(c) below.  Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company until the Holder has purchased all of the Warrant Shares available hereunder and the Warrant has been exercised in full, in which case, the Holder shall surrender this Warrant to the Company for cancellation within three (3) Trading Days of the date the final Notice of Exercise is delivered to the Company. Subject to the provisions of Section 2(d)(iv) below, partial exercises of this Warrant resulting in purchases of a portion of the total number of Warrant Shares available hereunder shall have the effect of lowering the outstanding number of Warrant Shares purchasable hereunder in an amount equal to the applicable number of Warrant Shares purchased.  The Holder and the Company shall maintain records showing the number of Warrant Shares purchased and the date of such purchases. The Company shall deliver any objection to any Notice of Exercise Form within one (1) Business Day of receipt of such notice.  The Holder and any assignee, by acceptance of this Warrant, acknowledge and agree that, by reason of the provisions of this paragraph, following the purchase of a portion of the Warrant Shares hereunder, the number of Warrant Shares available for purchase hereunder at any given time may be less than the amount stated on the face hereof.

 

  

  

  

 

b)           Exercise Price.  The exercise price per share of the Common Stock under this Warrant shall be $0.30, subject to adjustment hereunder (the “Exercise Price”).

 

c)           Cashless Exercise.  This Warrant may also be exercised, in whole or in part, by means of a “cashless exercise” in which the Holder shall be entitled to receive a certificate for the number of Warrant Shares equal to the quotient obtained by dividing [(A-B) x (N)] by (A), where:

 

(A) = the volume weighted average price of the Common Stock on the principal Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (or an equivalent, reliable reporting service mutually acceptable to and hereafter designated by (i) the holders of Warrants exercisable for at least sixty-seven percent (67%) of the Warrant Shares then exercisable pursuant to all Warrants and (ii) the Company) on the Trading Day immediately preceding the date on which Holder elects to exercise this Warrant by means of a “cashless exercise,” as set forth in the applicable Notice of Exercise;

 

(B) = the Exercise Price of this Warrant, as adjusted hereunder; and

 

(N) = the number of Warrant Shares that would be issuable upon such full or partial exercise of this Warrant in accordance with the terms of this Warrant if such full or partial exercise were by means of a cash exercise rather than a cashless exercise.

 

  

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d)           Mechanics of Exercise.

 

(i)           Delivery of Certificates Upon Exercise.  Certificates for shares purchased hereunder shall be transmitted by the transfer agent to the Holder by crediting the account of the Holder’s prime broker with The Depository Trust Company (“DTC”) through its Deposit or Withdrawal at Custodian system (“DWAC”) if the Company is then a participant in such system and either (A) there is an effective registration statement permitting the issuance of the Warrant Shares to or resale of the Warrant Shares by the Holder or (B) the shares are eligible for resale by the Holder without volume or manner-of-sale limitations pursuant to Rule 144, and otherwise by physical delivery to the address specified by the Holder in the Notice of Exercise by the date that is three (3) Trading Days after the latest of (A) the delivery to the Company of the Notice of Exercise, (B) surrender of this Warrant (if required), and (C) payment of the aggregate Exercise Price as set forth above (including by cashless exercise) (such date, the “Warrant Share Delivery Date”).  The Warrant Shares shall be deemed to have been issued, and the Holder or any other person so designated to be named therein shall be deemed to have become a holder of record of such shares for all purposes, as of the date the Warrant has been exercised, with payment to the Company of the Exercise Price (or by cashless exercise) and all taxes required to be paid by the Holder, if any, pursuant to Section 2(d)(v) prior to the issuance of such shares, having been paid.

 

(ii)          Company's Failure to Timely Deliver Securities.  If the Company shall fail for any reason or for no reason to issue to the Holder by the applicable Warrant Share Delivery 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 Warrant Share Delivery Date 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 five (5) Trading Days after the Holder’s request and in the Holder’s discretion, either (i) pay cash to the Holder in an amount equal to the Holder’s total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased (the “Buy-In Price”), at which point the Company’s obligation to deliver such certificate (and to issue such shares of Common Stock) shall terminate, or (ii) promptly honor its obligation to deliver to the Holder a certificate or certificates representing such shares of Common Stock and pay cash to the Holder in an amount equal to the excess (if any) of the Buy-In Price over the product of (A) such number of shares of Common Stock, times (B) the Closing Sale Price (as defined in the Certificate of Designation) on the date of exercise.

 

  

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(iii)         Exercise Limitations.  The Company shall not effect any exercise of this Warrant, and a Holder shall not have the right to exercise any portion of this Warrant, to the extent that after giving effect to such issuance after exercise as set forth on the applicable Exercise Notice, such Holder (together with such Holder’s Affiliates, and any other Person whose beneficial ownership of Common Stock would be aggregated with the Holder’s for purposes of Section 13(d) of the Exchange Act and the applicable regulations of the Commission, including any “group” (a “Group”) of which the Holder is a member) would beneficially own a number of shares of Common Stock in excess of the Beneficial Ownership Limitation (as defined below); provided, however, that from immediately prior to a Fundamental Transaction, such restriction on the exercise of this Warrant shall not apply if the Holder, its Affiliates and any Group of which the Holder is a member would not, immediately following such Fundamental Transaction, beneficially own more than the Maximum Percentage (as defined below) of any class of equity securities registered under the Exchange Act of a Successor Entity (or of a surviving entity’s parent) in such Fundamental Transaction.  For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder, its Affiliates and any Group of which the Holder is a member shall include the number of shares of Common Stock issuable upon exercise of this Warrant with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (A) exercise of the remaining, nonexercised portion of this Warrant beneficially owned by the Holder or any of its Affiliates or any member of a Group of which the Holder is a member, and (B) exercise or conversion of the unexercised or nonconverted portion of any other securities of the Company (including, without limitation, any other Common Stock Equivalents) beneficially owned by the Holder or any of its Affiliates or any member of any Group of which the Holder is a member that are 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 Section 2(d)(iii), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder, it being acknowledged by the Holder that the Company is not representing to the Holder that such calculation is in compliance with Section 13(d) of the Exchange Act and the Holder is solely responsible for any schedules required to be filed in accordance therewith. To the extent that the limitation contained in this Section 2(d)(iii) applies, the determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder, its Affiliates and any Group of which the Holder is a member) 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 as to whether this Warrant is exercisable (in relation to other securities owned by the Holder, its Affiliates and any Group of which the Holder is a member) and of which portion of this Warrant is exercisable, in each case subject to the Beneficial Ownership Limitation, and the Company shall have no obligation to verify or confirm the accuracy of such determination. For purposes of this Section 2(d)(iii), in determining the number of outstanding shares of Common Stock, a Holder may rely on the number of outstanding shares of Common Stock as reflected in (A) the Company’s most recent periodic or annual report, as the case may be, (B) a more recent public announcement by the Company or (C) any more recent notice by the Company or the Company's transfer agent setting forth the number of shares of Common Stock outstanding.  Upon the written or oral request of a Holder (which may be by electronic mail), the Company shall within two (2) Trading Days confirm orally and in writing to the Holder (which may be by electronic mail) 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 any actual conversion or exercise of securities of the Company, including this Warrant, by the Holder or any of its Affiliates or any member of any Group of which the Holder is a member since the date as of which such number of outstanding shares of Common Stock was reported or confirmed to the Holder.  The “Beneficial Ownership Limitation” shall be 9.985% (as such percentage, upon not less than 61 days’ prior notice to the Company, may be increased or decreased pursuant to the following sentence, the “Maximum Percentage”) of the number of shares of Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon exercise of this Warrant.  A Holder may from time to time increase or decrease the Maximum Percentage of the Beneficial Ownership Limitation to any other percentage; provided, that any such increase or decrease (i) will not be effective until the sixty-first (61st) day after such notice is delivered to the Company and (ii) will apply only to such Holder.  The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 2(d)(iii) 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. The limitations contained in this paragraph shall apply to a successor holder of this Warrant.

 

  

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(iv)        Delivery of New Warrants Upon Exercise.  If this Warrant shall have been exercised in part, the Company shall, at the request of a Holder and upon surrender of this Warrant certificate, at the time of delivery of the certificate or certificates representing Warrant Shares, deliver to the Holder a new Warrant evidencing the rights of the Holder to purchase the unpurchased Warrant Shares called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant.

 

(v)         Rescission Rights.  If the Company fails to cause its transfer agent to transmit to the Holder a certificate or the certificates representing the Warrant Shares pursuant to Section 2(d)(i) by the Warrant Share Delivery Date, then the Holder, subject to Section 2(d)(ii) above, will have the right to rescind such exercise.

 

(vi)        No Fractional Shares or Scrip.  No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant.  As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such exercise, the Company shall, at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Exercise Price or round up to the next whole share.

 

(vii)       Charges, Taxes and Expenses.  Issuance of certificates for Warrant Shares shall be made without charge to the Holder for any issue or transfer tax (including related tax return preparation and filing costs of the Company) or other incidental expense in respect of the issuance of such certificate, all of which taxes and expenses shall be paid by the Company, and such certificates shall be issued in the name of the Holder or in such name or names as may be directed by the Holder; provided, however, that in the event certificates for Warrant Shares are to be issued in a name other than the name of the Holder, this Warrant when surrendered for exercise shall be accompanied by the Assignment Form attached hereto duly executed by the Holder and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto.  The Company shall pay all transfer agent fees required for same-day processing of any Notice of Exercise.

 

  

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(viii)      Closing of Books.  The Company will not close its stockholder books or records in any manner which prevents the timely exercise of this Warrant, pursuant to the terms hereof.

 

(ix)         Disputes.  In the case of a dispute as to the determination of the Exercise Price or the arithmetic calculation of the Warrant Shares, the Company shall promptly issue to the Holder the number of Warrant Shares that are not disputed and resolve such dispute in accordance with Section 5(k).

 

Section 3.                      Certain Adjustments.

 

a)           Stock Dividends and Splits.  If the Company, at any time while this Warrant is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions on shares of its Common Stock or any other equity or equity equivalent securities payable in shares of Common Stock (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon exercise of this Warrant), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of reverse stock split) outstanding shares of Common Stock into a smaller number of shares or (iv) issues by reclassification of shares of the Common Stock any shares of capital stock of the Company, then in each case the Exercise Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event, and the number of shares issuable upon exercise of this Warrant shall be proportionately adjusted such that the aggregate Exercise Price of this Warrant shall remain unchanged.  Any adjustment made pursuant to this Section 3(a) shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or reclassification.

 

b)           Subsequent Equity Sales.

 

(i)          From the date hereof until the second (2nd) anniversary of the original issuance date of this Warrant, if the Company or any Subsidiary thereof, as applicable, at any time while this Warrant is outstanding, shall sell or grant any option to purchase, or sell or grant any right to reprice, or otherwise dispose of or issue (or announce any offer, sale, grant or any option to purchase or other disposition) any Common Stock or Common Stock Equivalents, at a Consideration Per Share less than the Exercise Price then in effect (such lower price, the “Base Share Price” and such issuances collectively, a “Dilutive Issuance”) (it being understood and agreed that if the holder of the Common Stock or Common Stock Equivalents so issued shall at any time, whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share which are issued in connection with such issuance, be entitled to receive shares of Common Stock at an effective price per share that is less than the Exercise Price, such issuance shall be deemed to have occurred for less than the Exercise Price on such date of the Dilutive Issuance at such effective price), then simultaneously with the consummation of each Dilutive Issuance the Exercise Price shall be reduced to equal the Base Share Price.

 

  

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(ii)         Following the second (2nd) anniversary of the original issuance date of this Warrant, if the Company or any Subsidiary thereof, as applicable, at any time while this Warrant is outstanding, shall engage in a Dilutive Issuance, then simultaneously with the consummation of each Dilutive Issuance the Exercise Price shall be adjusted by multiplying the Exercise Price in effect immediately prior to such Dilutive Issuance by the quotient of the following formula:

 

	
  

	
(a)

	
The sum of (I) the number of shares of Common Stock outstanding immediately prior to such event (calculated on a fully-diluted basis taking into account all Common Stock Equivalents on an as-converted-to-common basis); plus (II) the quotient of (A) the Aggregate Consideration Receivable in respect of such event, divided by (B) the Exercise Price in effect immediately prior to such event; divided by

 

	
  

	
(b)

	
The sum of (I) the number of shares of Common Stock outstanding immediately prior to such event (calculated on a fully diluted basis taking into account all Common Stock Equivalents on an as-converted-to-common basis); plus (II)  the number of shares of Common Stock issued or sold in such event (or then issuable pursuant to Common Stock Equivalents issued or sold in such event).

 

(iii)        For purposes of this Section 3(b), “Aggregate Consideration Receivable” shall mean the aggregate amount paid to the Company or its Subsidiaries in connection with a Dilutive Issuance and, in the case of an issuance or sale of Common Stock Equivalents, or any amendment thereto, plus the aggregate consideration or premiums payable for conversion of any Common Stock Equivalents covered thereby; in each case without deduction for any fees, expenses or underwriters’ discounts.

 

(iv)        For purposes of this Section 3(b), “Consideration Per Share” shall mean the quotient of (a) the Aggregate Consideration Receivable in respect of such Common Stock or Common Stock Equivalents, divided by (b) the total number of shares of Common Stock issued or issuable under such Common Stock Equivalents as of such date.

 

(v)         Upon the expiration of any Common Stock Equivalents, with respect to which an adjustment was required to be made pursuant to Section 3(b), without the full exercise thereof, the Exercise Price under this Warrant shall upon such expiration be readjusted and shall thereafter be the Exercise Price as would have been effective (a) had only the Common Stock actually issued or sold upon exercise of such Common Stock Equivalent been taken into consideration for the adjustment in Section 3(b) and (b) had only the actual consideration received by the Company and its Subsidiaries upon such exercise plus the aggregate consideration, if any, actually received by the Company and its Subsidiaries for the issuance, sale or grant of all such Common Stock Equivalents, whether or not exercised; provided, however, no such readjustment shall have the effect of increasing the Exercise Price by an amount in excess of the amount of the reduction initially made in respect of the issuance, sale, or grant of such Common Stock Equivalents.

 

  

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(vi)        If, with respect to any of the Common Stock Equivalents with respect to which an adjustment was required to be made pursuant to Section 3(b), there is an increase or decrease in the consideration payable to the Company or its Subsidiaries in respect of the exercise thereof, or there is an increase or decrease in the number of shares of Common Stock issuable upon the exercise thereof (by change of rate or otherwise), the adjusted Exercise Price computed upon the original issue and sale thereof, and any subsequent adjustments based thereon, shall, upon any such increase or decrease becoming effective, be recomputed to reflect such increase or decrease insofar as it affects such Common Stock Equivalents which are outstanding at such time.

 

(vii)       Any adjustment required by this Section 3(b) shall be made whenever such Common Stock or Common Stock Equivalents are issued as part of the Dilutive Issuance.  Notwithstanding the foregoing, no adjustments shall be made, paid or issued under this Section 3(b) in respect of an Exempt Issuance.  The Company shall notify the Holder, in writing, no later than the Trading Day following the issuance or deemed issuance of any Common Stock or Common Stock Equivalents subject to this Section 3(b), indicating therein the applicable issuance price, or applicable reset price, exchange price, conversion price and other pricing terms (such notice, the “Dilutive Issuance Notice”).  For purposes of clarification, whether or not the Company provides a Dilutive Issuance Notice pursuant to this Section 3(b), upon the occurrence of any Dilutive Issuance, the Holder is entitled to receive a number of Warrant Shares based upon the Base Share Price regardless of whether the Holder accurately refers to the Base Share Price in the Notice of Exercise.

 

(viii)      Upon each adjustment of the Exercise Price pursuant to this Section 3(b), this Warrant shall thereafter evidence the right to receive, at the adjusted Exercise Price, that number of shares of Common Stock (rounded up to the nearest whole share) obtained by dividing (x) the product of the aggregate number of shares of Common Stock covered by this Warrant immediately prior to such adjustment and the Exercise Price in effect immediately prior to such adjustment of the Exercise Price by (y) the Exercise Price in effect immediately after such adjustment of the Exercise Price.

 

  

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c)           Subsequent Rights Offerings.  In addition to any adjustments pursuant to Section 3(a) above, if at any time the Company grants, issues or sells any Common Stock Equivalents or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of shares of Common Stock (the “Purchase Rights”), then the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired if the Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Warrant (without regard to any limitations on exercise hereof) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights.

 

d)           Pro Rata Distributions.  During such time as this Warrant is outstanding, if the Company shall declare or make any dividend or other distribution of its assets (or rights to acquire its assets) to holders of shares of Common Stock, by way of return of capital or otherwise (including, without limitation, any distribution of 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) (a “Distribution”), at any time after the issuance of this Warrant, then, in each such case, the Holder shall be entitled to participate in such Distribution to the same extent that the Holder would have participated therein if the Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Warrant (without regard to any limitations on exercise hereof) immediately before the date of which a record is taken for such Distribution, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the participation in such Distribution.

 

e)           Fundamental Transaction.  If, at any time while this Warrant is outstanding, (i) the Company, directly or indirectly, in one or more related transactions effects any merger or consolidation of the Company with or into another Person, (ii) the Company, directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of 50% or more of the outstanding Common Stock, (iv) the Company, directly or indirectly, in one or more related transactions effects any reclassification, reorganization or recapitalization of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property, or (v) the Company, directly or indirectly, in one or more related transactions consummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with another Person or group of Persons whereby such other Person or group acquires more than 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 or share purchase agreement or other business combination) (each a “Fundamental Transaction”), then, upon any subsequent exercise of this Warrant, the Holder shall have the right to receive, for each Warrant Share that would have been issuable upon such exercise immediately prior to the occurrence of such Fundamental Transaction, the number of shares of Common Stock of the successor or acquiring corporation or of the Company, if it is the

 

  

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surviving corporation, and any additional consideration (the “Alternate Consideration”) receivable as a result of such Fundamental Transaction by a holder of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such Fundamental Transaction.  For purposes of any such exercise, the determination of the Exercise Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Exercise Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration.  If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any exercise of this Warrant following such Fundamental Transaction.  Notwithstanding anything to the contrary, in the event of a Fundamental Transaction that is (1) an all cash transaction, (2) a “Rule 13e-3 transaction” as defined in Rule 13e-3 under the Exchange Act, or (3) a Fundamental Transaction involving a person or entity not traded on a national securities exchange, the Company or any Successor Entity (as defined below) shall, at the Holder’s option, exercisable at any time concurrently with, or within 30 days after, the consummation of the Fundamental Transaction, purchase this Warrant from the Holder by paying to the Holder an amount of cash equal to the Black Scholes Value of the remaining unexercised portion of this Warrant on the date of the consummation of such Fundamental Transaction.  “Black Scholes Value” means the value of this Warrant based on the Black and Scholes Option Pricing Model obtained from the “OV” function on Bloomberg, L.P. (“Bloomberg”) determined as of the Trading Day immediately following the first public announcement regarding the applicable Fundamental Transaction for pricing purposes and reflecting (A) a risk-free interest rate corresponding to the U.S. Treasury rate for a period equal to the time between the date of the public announcement of the applicable Fundamental Transaction and the Termination Date, (B) an expected volatility equal to the greater of 100% and the 100 day volatility obtained from the HVT function on Bloomberg as of the Trading Day immediately following the public announcement of the applicable Fundamental Transaction, (C) the underlying price per share used in such calculation shall be the sum of the price per share being offered in cash, if any, plus the value of any non-cash consideration, if any, (such value being determined by the Board of Directors of the Company in good faith) being offered in such Fundamental Transaction and (D) a remaining option time equal to the time between the date of the public announcement of the applicable Fundamental Transaction and the Termination Date.  The Company shall cause any successor entity in a Fundamental Transaction in which the Company is not the survivor (the “Successor Entity”) to assume in writing all of the obligations of the Company under this Warrant and the other Transaction Documents in accordance with the provisions of this Section 3(e) pursuant to written agreements in form and substance reasonably satisfactory to the Holder and approved by the Holder (without unreasonable delay) prior to such Fundamental Transaction and shall, at the option of the Holder, deliver to the Holder in exchange for this Warrant a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Warrant which is exercisable for a corresponding number of shares of capital stock of such Successor Entity (or its parent entity) equivalent to the shares of Common Stock acquirable and receivable upon exercise of this Warrant prior to such Fundamental Transaction, and with an exercise price which applies the exercise price hereunder to such shares of capital stock (but taking into account the relative value of the shares of Common Stock pursuant to such Fundamental Transaction and the value of such shares of capital stock, such number of shares of capital stock and such exercise price being for the purpose of protecting the economic value of this Warrant immediately prior to the consummation of such Fundamental Transaction), and which is reasonably satisfactory in form and substance to the Holder. Upon the occurrence of any such 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 and the other Transaction Documents 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 and the other Transaction Documents with the same effect as if such Successor Entity had been named as the Company herein.

 

  

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f)           Calculations.  All calculations under this Section 3 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be.  For purposes of this Section 3, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding treasury shares, if any) issued and outstanding.

 

g)           Notice to Holder.

 

(i)           Adjustment to Exercise Price.  Whenever the Exercise Price is adjusted pursuant to any provision of this Section 3, the Company shall promptly mail to the Holder a notice setting forth the Exercise Price after such adjustment and any resulting adjustment to the number of Warrant Shares and setting forth a brief statement of the facts requiring such adjustment.

 

(ii)           Notice of Events.  If (A) the Company shall declare a dividend (or any other distribution in whatever form) on the Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the Company shall authorize the granting to all holders of the Common Stock rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, or any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property, or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company, then, in each case, the Company shall cause to be mailed to the Holder at its last address as it shall appear upon the Warrant Register of the Company, at least twenty (20) calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange; provided that the failure to mail such notice or any defect therein or in the mailing thereof shall not affect the validity of the corporate action required to be specified in such notice.

 

  

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Section 4.                      Transfer of Warrant.

 

a)           Transferability.  Subject to compliance with any applicable securities laws and the conditions set forth in Section 4(d) hereof and to the provisions of Section 4.1 of the Purchase Agreement, this Warrant and all rights hereunder (including, without limitation, any registration rights) are transferable, in whole or in part, upon surrender of this Warrant at the principal office of the Company or its designated agent, together with a written assignment of this Warrant substantially in the form attached hereto duly executed by the Holder or its agent or attorney and funds sufficient to pay any transfer taxes payable upon the making of such transfer.  Upon such surrender and, if required, such payment, the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees, as applicable, and in the denomination or denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled.  The Warrant, if properly assigned in accordance herewith, may be exercised by a new holder for the purchase of Warrant Shares without having a new Warrant issued.

 

b)           New Warrants.  This Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by the Holder or its agent or attorney.  Subject to compliance with Section 4(a), as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice. All Warrants issued on transfers or exchanges shall be dated the Initial Exercise Date and shall be identical with this Warrant except as to the number of Warrant Shares issuable pursuant thereto.

 

c)           Warrant Register.  The Company shall register this Warrant, upon records to be maintained by the Company for that purpose (the “Warrant Register”), in the name of the record Holder hereof from time to time.  The Company may deem and treat the registered Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, absent actual notice to the contrary.

 

d)           Transfer Restrictions.  If , at the time of the surrender of this Warrant in connection with any transfer of this Warrant, the transfer of this Warrant shall not be either (i) registered pursuant to an effective registration statement under the Securities Act and under applicable state securities or blue sky laws or (ii) eligible for resale without volume or manner-of-sale restrictions pursuant to Rule 144, the Company may require, as a condition of allowing such transfer, that the Holder or transferee of this Warrant, as the case may be, comply with the provisions of Section 5.6 of the Purchase Agreement.

 

  

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e)           Representation by the Holder.  The Holder, by the acceptance hereof, represents and warrants that it is acquiring this Warrant and, upon any exercise hereof, will acquire the Warrant Shares issuable upon such exercise, for its own account and not with a view to or for distributing or reselling such Warrant Shares or any part thereof in violation of the Securities Act or any applicable state securities law, except pursuant to sales registered or exempted under the Securities Act.

 

Section 5.                      Miscellaneous.

 

a)           No Rights as Stockholder Until Exercise.  This Warrant does not entitle the Holder to any voting rights, dividends or other rights as a stockholder of the Company prior to the exercise hereof as set forth in Section 2(d)(i), except as expressly set forth in Section 3.

 

b)           Loss, Theft, Destruction or Mutilation of Warrant.  The Company covenants that upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant or any stock certificate relating to the Warrant Shares, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it (which, in the case of the Warrant, shall not include the posting of any bond), and upon surrender and cancellation of such Warrant or stock certificate, if mutilated, the Company will make and deliver a new Warrant or stock certificate of like tenor and dated as of such cancellation, in lieu of such Warrant or stock certificate.

 

c)           Saturdays, Sundays, Holidays, etc.  If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a Business Day, then, such action may be taken or such right may be exercised on the next succeeding Business Day.

 

d)           Authorized Shares.  The Company covenants that, during the period the Warrant is outstanding, it will reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of the Warrant Shares upon the exercise of any purchase rights under this Warrant.  The Company further covenants that its issuance of this Warrant shall constitute full authority to its officers who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for the Warrant Shares upon the exercise of the purchase rights under this Warrant.  The Company will take all such reasonable action as may be necessary to assure that such Warrant Shares may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of the Trading Market upon which the Common Stock may be listed.  The Company covenants that all Warrant Shares which may be issued upon the exercise of the purchase rights represented by this Warrant will, upon exercise of the purchase rights represented by this Warrant and payment for such Warrant Shares in accordance herewith, be duly authorized, validly issued, fully paid and nonassessable and free from all taxes, liens and charges created by the Company in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such issue).

 

  

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e)           Noncircumvention.  Except and to the extent as waived or consented to by the Holder, the Company shall not by any action, including, without limitation, amending its certificate of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of Holder as set forth in this Warrant against impairment.  Without limiting the generality of the foregoing, the Company will (i) not increase the par value of any Warrant Shares above the amount payable therefor upon such exercise immediately prior to such increase in par value, (ii) take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable Warrant Shares upon the exercise of this Warrant and (iii) use commercially reasonable efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof, as may be, necessary to enable the Company to perform its obligations under this Warrant.  Before taking any action which would result in an adjustment in the number of Warrant Shares for which this Warrant is exercisable or in the Exercise Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary from any public regulatory body or bodies having jurisdiction thereof.

 

f)           Jurisdiction.  All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be determined in accordance with the provisions of the Purchase Agreement.

 

g)           Restrictions.  The Holder acknowledges that the Warrant Shares acquired upon the exercise of this Warrant, if not registered and the Holder does not utilize cashless exercise, will have restrictions upon resale imposed by state and federal securities laws.

 

h)           Nonwaiver and Expenses.  No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder shall operate as a waiver of such right or otherwise prejudice the Holder’s rights, powers or remedies, notwithstanding the fact that all rights hereunder terminate on the Termination Date.  If the Company willfully and knowingly fails to comply with any provision of this Warrant, which results in any material damages to the Holder, the Company shall pay to the Holder such amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys’ fees, including those of appellate proceedings, incurred by the Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder.

 

i)           Notices.  Any notice, request or other document required or permitted to be given or delivered to the Holder by the Company shall be delivered in accordance with the notice provisions of the Purchase Agreement.

 

  

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j)           Limitation of Liability.  No provision hereof, in the absence of any affirmative action by the Holder to exercise this Warrant to purchase Warrant Shares, and no enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of the Holder for the purchase price of any Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company.

 

k)           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 Notice of Exercise 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 or (b) the disputed arithmetic calculation of the Warrant Shares to the Company’s independent, outside accountant. The Company shall cause at its expense the investment bank or the accountant, as the case may be, to perform the determinations or calculations and notify the Company and the Holder of the results no later than ten (10) Business Days from the time it receives the disputed determinations or calculations. Such investment bank’s or accountant’s determination or calculation, as the case may be, shall be binding upon all parties absent demonstrable error.

 

l)           Remedies.  The Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Warrant.  The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees to waive and not to assert the defense in any action for specific performance that a remedy at law would be adequate.

 

m)           Successors and Assigns.  Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall inure to the benefit of and be binding upon the successors and permitted assigns of the Company and the successors and permitted assigns of Holder.  The provisions of this Warrant are intended to be for the benefit of any Holder from time to time of this Warrant and shall be enforceable by the Holder or holder of Warrant Shares.

 

n)           Amendment.  This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company and the Holder.

 

o)           Severability.  Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Warrant.

 

  

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p)          Headings.  The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant.

 

********************

(Signature Page Follows)

 

 

  

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IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer thereunto duly authorized as of the date first above indicated.

HEALTH REVENUE ASSURANCE HOLDINGS, INC.

By: ____________________________________

Name:

Title:

 

  

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NOTICE OF EXERCISE

TO:  HEALTH REVENUE ASSURANCE HOLDINGS, INC.

 

(1)  The undersigned hereby elects to purchase ________ Warrant Shares of the Company pursuant to the terms of the undersigned's Warrant (such Warrant is attached if the Warrant is being exercised in full), and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any.

 

(2)  Payment shall take the form of (check applicable box):

 

[   ] lawful money of the United States; or

 

[  ] if permitted the cancellation of such number of Warrant Shares as is necessary, in accordance with the formula set forth in subsection 2(c), to exercise this Warrant with respect to the maximum number of Warrant Shares purchasable pursuant to the cashless exercise procedure set forth in subsection 2(c).

 

(3)  Please issue a certificate or certificates representing said Warrant Shares in the name of the undersigned or in such other name as is specified below:

 

_____________________________

 

The Warrant Shares shall be delivered to the following DWAC Account Number or by physical delivery of a certificate to:

 

_____________________________

 

_____________________________

 

_____________________________

 

(4)  Accredited Investor.  The undersigned is an “accredited investor” as defined in Regulation D promulgated under the Securities Act of 1933, as amended.

 

[SIGNATURE OF HOLDER]

 

Name of Investing Entity:________________________________________________________

 

Signature of Authorized Signatory of Investing Entity:__________________________________

 

Name of Authorized Signatory:____________________________________________________

 

Title of Authorized Signatory:_____________________________________________________

 

Date:________________________________________________________________________

 

  

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ASSIGNMENT FORM

(To assign the foregoing warrant, execute this form and supply required information. Do not use this form to exercise the warrant.)

 

FOR VALUE RECEIVED, [all / _______ shares] of the foregoing Warrant and all rights evidenced thereby are hereby assigned to ____________________________________________ whose address is _______________________________________________________________

 

Dated:  ______________, _______

 

Holder’s Signature: ____________________________

 

Holder’s Address:   ____________________________

 

    ____________________________

 

Signature Guaranteed:  __________________________

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 whatsoever, and must be guaranteed by a bank or trust company.  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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