COMMON STOCK PURCHASE WARRANT

Exhibit 10.4

COMMON STOCK PURCHASE WARRANT

 

 

Warrant No. 2

Dated as of February 11, 2009

COMMON STOCK PURCHASE WARRANT

TO PURCHASE SHARES OF COMMON STOCK OF

PARTICLE DRILLING TECHNOLOGIES, INC.

 

1.   Definitions .  For the purposes of this Warrant, the following terms shall have the meanings indicated:

 

 “ Business Day ” shall mean any day other than a Saturday, Sunday or other day on which commercial banks in the City of New York are authorized or required by law or executive order to close.

 

“ Charter Documents ” shall have the meaning ascribed to such term in Section 8 .

 

“ Closing Price ” shall mean, with respect to each share of Common Stock for any day, (a) the last reported sale price or, in case no such sale takes place on such day, the average of the closing bid and asked prices, in either case as reported on the principal national securities exchange on which the Common Stock is listed or admitted for trading or (b) if the Common

 

 

 

Stock is not listed or admitted for trading on any national securities exchange, the last reported sale price or, in case no such sale takes place on such day, the average of the highest reported bid and the lowest reported asked quotation for the Common Stock, in either case as reported on the NASDAQ or a similar service if NASDAQ is no longer reporting such information.

 

“ Commission ” shall mean the Securities and Exchange Commission or any other federal agency at the time administering the Securities Act.

 

“ Common Stock ” shall have the meaning ascribed to such term in the first paragraph of this Warrant.

 

“ Company ” shall have the meaning ascribed to such term in the first paragraph of this Warrant.

 

 “ Equity Securities ” shall mean (i) all shares of Common Stock and of any other class of capital stock of the Company, (ii) all warrants and options of the Company, including, without limitation, this Warrant and the Warrant Shares, and any securities issued or issuable upon the exercise of such options or warrants, (iii) all other securities of the Company directly or indirectly convertible into or exchangeable for shares of Common Stock and (iv) any securities issued or issuable by the Company in respect of the forgoing upon any stock split, stock dividend, recapitalization, merger, consolidation or similar event.

 

“ Election to Purchase Shares ” shall have the meaning ascribed to such term in Section 2(a) .

 

“ Exchange Act ” shall have the meaning ascribed to it in Section 10(c) .

 

“ Exempt Securities ” shall mean (i) shares of Common Stock issued upon the exercise of the Warrants, (ii) shares of capital stock issued by the Company on or prior to the date hereof (and shares of capital stock issued upon the direct or indirect conversion or exercise of any securities issued by the Company on or prior to the date hereof, in accordance with their respective terms), (iii) shares of Common Stock issued pursuant to a public offering, (iv) shares of Common Stock (including shares issuable upon the exercise or exchange of warrants or options to acquire shares of Common Stock) issued solely to the employees, directors or consultants of the Company or any of its subsidiaries pursuant to a stock option or ownership plan or program or any stock issuance arrangement in existence as of the Issue Date or adopted by the Board of Directors of the Company and approved by a majority of the Company’s Common Stock holders after the Issue Date, representing not more than 7% of the total common equity of the Company determined on a fully-diluted basis as of the Issue Date, and (v) shares of Company capital stock issued upon the direct or indirect conversion or exercise of any of the forgoing securities, in accordance with their terms.

 

 “ Exercise Date ” shall have the meaning ascribed to such term in Section 2(e) .

 

“ Expiration Date ” shall have the meaning ascribed to such term in the first paragraph of this Warrant.

 

 

 

“ Fair Market Value ” shall be determined in accordance with Section 3(e) .

 

“ Holder ” shall mean the registered holder of this Warrant.

 

 “ NASDAQ ” shall mean the Automatic Quotation System of the National Association of Securities Dealers, Inc.

 

“ Notes ” shall mean the $1,200,000 Senior Secured PIK Notes Due 2010 issued and sold by the Company pursuant to the Purchase Agreement to the Purchasers named therein.

 

 “ Person ” shall mean any individual, firm, corporation, limited liability company, partnership, trust, incorporated or unincorporated association, joint venture, joint stock company, government (or an agency or political subdivision thereof) or other entity of any kind, and shall include any successor (by merger or otherwise) of such entity.

 

 “ Purchase Price ” shall have the meaning ascribed to such term in the first paragraph of this Warrant.

 

“ Purchaser ” shall have the meaning ascribed to such term in the first paragraph of this Warrant.

 

 “ Registrable Securities ” shall mean (a) any shares of Common Stock or other securities issued or issuable upon exercise of this Warrant and any other warrants issued pursuant to the terms of the Purchase Agreement and (b) any securities issued or issuable with respect to any securities referred to in the foregoing subdivision by way of stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization or otherwise.  As to any particular Registrable Securities, once issued such securities shall cease to be Registrable Securities when (a) a registration statement with respect to the sale of such securities shall have become effective under the Securities Act and such securities shall have been disposed of in accordance with such registration statement, (b) they shall be eligible for sale to the public pursuant to Rule 144 (or any successor provision) under the Securities Act without any restrictions on volume or manner of sale, (c) they shall have been otherwise transferred, new certificates for them not bearing a legend restricting further transfer shall have been delivered by the Company and subsequent disposition of them shall not require registration or qualification of them under the Securities Act or any similar state law then in force, or (d) they shall have ceased to be outstanding.

 

“ Registration Expenses ” shall mean all expenses incidental to the Company’s performance of or compliance with Section 11 , including, without limitation, all registration, filing and NASD fees, all fees and expenses of complying with securities or blue sky laws, all word processing, duplicating and printing expenses, messenger and delivery expenses, the fees and disbursements of counsel for the Company and of its independent public accountants, including the expenses of any special audits or “cold comfort” letters required by or incident to such performance and compliance, the fees and disbursements of any counsel and accountants retained by the holder or holders of the Registrable Securities being registered, premiums and other costs of policies of insurance against liabilities arising out of the public offering of the Registrable Securities being registered and any fees and disbursements of underwriters customarily paid by issuers or sellers of securities, but excluding underwriting discounts and

 

 

 

commissions and transfer taxes, if any; provided , that, in any case where Registration Expenses are not to be borne by the Company, such expenses shall not include salaries of Company personnel or general overhead expenses of the Company, auditing fees, premiums or other expenses relating to liability insurance required by underwriters of the Company or other expenses for the preparation of financial statements or other data normally prepared by the Company in the ordinary course of its business or which the Company would have incurred in any event.

 

 “ Required Holders ” shall mean, as of any date of determination, Holders holding in the aggregate more than 50% of all of the warrants issued pursuant to the Purchase Agreement  and outstanding.

 

 “ Sale of the Company ” shall have the meaning ascribed to such term in Section 3(i) .

 

 “ Securities Act ” shall mean the Securities Act of 1933, or any similar federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time.

 

 “ Purchase Agreement ” shall have the meaning ascribed to such term in the second paragraph of this Warrant.

 

“ Transfer ” shall mean any sale, transfer, assignment, conveyance or other disposition, including without limitation by merger, operation of law, bequest or pursuant to any domestic relations order, whether voluntarily or involuntarily, other than a sale, transfer, assignment, conveyance or other disposition by or to the Company; provided , that a pledge or the creation of a lien on the Common Stock shall not constitute a Transfer if the instrument creating such pledge or lien specifically references this Warrant and the pledgee or holder of the lien specifically agrees to be bound by the provisions hereof; provided further , that any foreclosure (including the retention of the collateral in satisfaction of any obligations) shall constitute a Transfer.

 

“ Warrant ” shall mean this Warrant and any subsequent Warrant issued pursuant to the terms of this Warrant.

 

“ Warrant Shares ” shall mean the shares of Common Stock deliverable upon proper exercise of this Warrant and/or other Warrants, as the case may be.

 

 “ Warrant Register ” shall have the meaning ascribed to such term in Section 10(a) .

 

2.   Exercise of Warrant .

 

(a)   Exercise .  This Warrant may be exercised, in whole or in part, at any time or from time to time during the period beginning on the Issue Date and ending on the Expiration Date, by surrendering to the Company at its principal office this Warrant, with the form of Election to Purchase Shares (the “ Election to Purchase Shares ”) attached hereto as Exhibit A duly executed by the Holder and accompanied by payment of the aggregate Purchase Price

 

 

 

(b)   (rounded to the nearest whole cent) for the number of shares of Common Stock specified in the Election to Purchase Shares.

 

(c)   Delivery of Shares; Payment of Purchase Price .  As soon as practicable after each exercise of this Warrant, in whole or in part, and in any event within five Business Days thereafter, the Company at its expense (including the payment by it of any applicable issue taxes) will cause to be issued and delivered to the Holder a certificate or certificates for the number of shares of Common Stock set forth in the Election to Purchase Shares, in such name or names as may be designated by such Holder (subject to Section 10 hereof), and, as set forth in Section 6 , a check for the amount of cash to be paid in lieu of issuance of fractional shares, if any.  Payment of the Purchase Price may be made:  (i) in United States currency by cash or delivery of a certified check, bank draft or postal or express money order payable to the order of the Company or by wire transfer to such account as specified by the Company in writing to the Holder, (ii) by surrender of a number of shares of Common Stock held by the Holder equal to the quotient obtained by dividing (A) the aggregate Purchase Price payable with respect to the portion of this Warrant then being exercised by (B) the Fair Market Value per share of Common Stock on the Exercise Date, or (iii) by any combination of clauses (i) and (ii).

 

(d)   Partial Exercise .  If this Warrant is exercised for less than all of the shares of Common Stock purchasable upon exercise of this Warrant, the Company shall cancel this Warrant upon surrender hereof and shall execute and deliver to the Holder a new Warrant of like tenor for the balance of the shares of Common Stock purchasable hereunder.

 

(e)   Alternative Cashless Exercise .  Notwithstanding any provision herein to the contrary, in lieu of exercising this Warrant as set forth above, the Holder may exercise this Warrant by electing to receive that number of shares of Common Stock as determined below by surrendering to the Company at its principal office this Warrant, with the applicable Election to Purchase Shares duly executed by the Holder, in which event the Company shall issue to the Holder the number of shares of Common Stock computed using the following formula:

 

 

 

where:

 

CS equals the number of shares of Common Stock to be issued to the Holder

 

WCS equals the number of Warrant Shares represented by this Warrant to be exercised

 

MP equals the Common Stock Fair Market Value per share (on the date of such calculation)

 

PP equals the Purchase Price

 

Following the surrender of this Warrant pursuant to this Section 2(d) , the Company shall promptly issue and deliver to the Holder a certificate or certificates for that number of shares of

 

 

 

Common Stock, as calculated above in such name or names as may be designated by such Holder (subject to Section 10 hereof).

 

(f)   When Exercise Effective .  The exercise of this Warrant shall be deemed to have been effective immediately prior to the close of business on the Business Day on which this Warrant is surrendered to and the Purchase Price is received by the Company as provided in this Section 2 (the “ Exercise Date ”) and the Person in whose name any certificate for shares of Common Stock shall be issuable upon such exercise, as provided in Section 2(b) , shall be deemed to be the record holder of such shares of Common Stock for all purposes on the Exercise Date.

 

(g)   Warrant Shares Fully Paid, Nonassessable .  The Company shall take all actions necessary to ensure that following exercise of this Warrant in accordance with the provisions of this Section 2 , the Warrant Shares issued hereunder shall, without further action by the Holder, be fully paid and nonassessable, free from all taxes (excluding any taxes on income realized or recognized by the Holder), liens, charges and security interests with respect to the issue thereof.  The Warrant Shares shall be issued with restrictive legends.

 

(h)   Continued Validity .  A Holder of shares of Common Stock issued upon the exercise of this Warrant, in whole or in part, shall continue to be entitled to all of the rights and subject to all of the obligations set forth in Section 10 hereof.

 

(i)   Company to Reaffirm Obligations .  The Company will, at the time of each exercise of this Warrant, upon the request of the Holder hereof, acknowledge in writing its continuing obligation to afford to such Holder all rights (including, without limitation, any rights to registration) to which such Holder shall continue to be entitled after such exercise in accordance with the terms of this Warrant, provided that if the Holder of this Warrant shall fail to make any such request, such failure shall not affect the continuing obligation of the Company to afford such rights to such holder.

 

3.   Adjustment of Purchase Price and Number of Shares .  The Purchase Price and the number of shares of Common Stock issuable upon exercise of this Warrant shall be adjusted from time to time upon the occurrence of the events described in this Section 3 .

 

(a)   Dividend, Subdivision or Combination of Common Stock .  If the Company shall, at any time or from time to time, (i) declare a dividend on the Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock into a larger number of shares of Common Stock or (iii) combine the outstanding Common Stock into a smaller number of shares of its Common Stock, then in each such case, the number of shares of Common Stock issuable on such date and the Purchase Price shall be proportionately adjusted so that the Holder of any Warrant exercised after such date shall be entitled to receive, upon payment of the same aggregate amount as would have been payable before such date, the aggregate number of shares of Common Stock which, if such Warrant had been exercised immediately prior to such date, such Holder would have owned upon such exercise and been entitled to receive by virtue of such dividend, subdivision or combination.  Any such adjustment shall become effective immediately after the record date of such dividend or the effective date of such subdivision or combination.  Such adjustment shall be made successively whenever any

 

 

 

(b)   event listed above shall occur.  If a dividend is declared and such dividend is not paid, the number of shares of Common Stock issuable pursuant to this Warrant on such date and the Purchase Price shall again be adjusted to be such number and Purchase Price, as applicable, in effect immediately prior to such record date (giving effect to all adjustments that otherwise would be required to be made pursuant to this Section 3 from and after such record date).

 

(c)   Issuance of Rights to Purchase Common Stock Below Fair Market Value .

 

(i)           Except to the extent any of the following constitute Exempt Securities, if the Company shall, at any time or from time to time, fix a record date for the issuance of rights, options or warrants to holders of Common Stock entitling them to subscribe for or purchase Common Stock, or securities convertible into Common Stock (including any adjustments thereof pursuant to such securities’ anti-dilution provisions), or issue any of the foregoing, at a price per share of Common Stock or having a conversion price per share of Common Stock if a security is convertible into Common Stock (determined in either such case by dividing (x) the total consideration received or receivable by the Company in consideration of the sale or issuance of such rights, options, warrants or convertible or exchangeable securities, plus the total consideration payable to the Company upon exercise or conversion or exchange thereof, by (y) the total number of shares of Common Stock covered by such rights, options, warrants or other securities convertible into Common Stock) which is lower than the Fair Market Value per share of Common Stock on such record date, then, the Purchase Price shall be reduced to the price determined by multiplying the Purchase Price in effect immediately prior to such record date by a fraction, the numerator of which shall be the sum of the number of shares of Common Stock outstanding on such record date plus the number of additional shares of Common Stock which the aggregate offering price of the total number of shares of Common Stock so to be offered (or the aggregate initial conversion price of the convertible securities so to be offered) would purchase at the Fair Market Value per share of Common Stock and the denominator of which shall be the number of shares of Common Stock outstanding on such record date plus the number of additional shares of Common Stock to be offered for subscription or purchase (or into which the convertible securities so to be offered are initially convertible).  In case such price for subscription or purchase may be paid in a consideration part or all of which shall be in a form other than cash, the value of such consideration shall be determined in good faith by the Board of Directors of the Company.  Any such adjustment shall become effective immediately after the record date for such rights or warrants.  Such adjustment shall be made successively whenever such a record date is fixed.  If such rights, options or warrants are not so issued, the Purchase Price shall be adjusted to the Purchase Price that otherwise would be in effect but for the fact such record date was fixed (giving effect to all adjustments that otherwise would be required to be made pursuant to this Section 3 from and after such record date).

 

(ii)           Notwithstanding any provision in Section 3 to the contrary and without limitation to any other provision contained in Section 3 , in the event that (A) the purchase price payable for any rights, options, warrants or convertible securities referred to in Section 3(b)(i) , (B) the additional consideration, if any, payable upon the exercise of such rights, options or warrants or the conversion of such convertible securities referred to in Section 3(b)(i) or (C) the rate at which any such convertible securities referred to in Section 3(b)(i) are convertible into additional shares of Common Stock shall change, the Purchase Price in effect at

 

 

 

the time of such event shall forthwith be readjusted to the Purchase Price that would have been in effect at such time had such rights, options, warrants or convertible securities provided for such changed purchase price, additional consideration or conversion rate, as the case may be, at the time initially granted, issued or sold.  On the expiration of any such rights, options or warrants not exercised or of any such right to convert under any such convertible securities not exercised, the Purchase Price then in effect hereunder shall forthwith be increased to the Purchase Price that would have been in effect at the time of such expiration or termination had such rights, options, warrants or convertible securities never been issued.  No readjustment pursuant to this Section 3(b)(ii) shall have the effect of increasing the Purchase Price by an amount in excess of the adjustment originally made to the Purchase P