NEITHER THE
ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED
FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF
(A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN
OPINION OF COUNSEL, IN A FORM REASONABLY ACCEPTABLE TO THE COMPANY,
THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS
SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT.
NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN
CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR
FINANCING ARRANGEMENT SECURED BY THE SECURITIES.
Warrant
To Purchase Common Stock
Warrant No.: A-
___
Number of Shares of Common Stock: 1,410,000
Date of Issuance: August 21, 2008 (“ Issuance
Date ”)
GreenHunter
Energy, Inc., a Delaware corporation (the “ Company
”), hereby certifies that, for good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, West Coast Opportunity Fund, LLC, the registered
holder hereof or its permitted assigns (the “ Holder
”), is entitled, subject to the terms set forth below, to
purchase from the Company, at the Exercise Price (as defined below)
then in effect, upon surrender of this Warrant to Purchase Common
Stock (including any Warrants to Purchase Common Stock issued in
exchange, transfer or replacement hereof, the “
Warrant ”), at any time or times on or after the date
hereof, but not after 11:59 p.m., New York Time, on the
Expiration Date (as defined below), 1,410,000 fully paid
nonassessable shares of Common Stock (as defined below) (the
“ Warrant Shares ”). Except as otherwise defined
herein, capitalized terms in this Warrant shall have the meanings
set forth in Section 15. This Warrant is issued pursuant to
Section 1 of that certain Securities Purchase Agreement, dated
as of August 21, 2008 (the “ Subscription Date
”), by and between the Company and the Holder (the “
Securities Purchase Agreement ”).
(a) Mechanics
of Exercise . Subject to the terms and conditions hereof
(including, without limitation, the limitations set forth in
Section 1(f)), this Warrant may be exercised by the Holder on
any day on or after the date hereof, in whole or in part, by
(i) delivery of a written notice, in the form attached hereto
as Exhibit A (the “ Exercise Notice
”), of the Holder’s election to exercise this Warrant
and (ii) payment to the Company of an amount equal to the
applicable Exercise Price multiplied by the number
Page 1
of Warrant
Shares as to which this Warrant is being exercised (the “
Aggregate Exercise Price ”) in cash or wire transfer
of immediately available funds. The Holder shall not be required to
deliver the original Warrant in order to effect an exercise
hereunder. Execution and delivery of the Exercise Notice with
respect to less than all of the Warrant Shares shall have the same
effect as cancellation of the original Warrant and issuance of a
new Warrant evidencing the right to purchase the remaining number
of Warrant Shares. On or before the first Business Day following
the date on which the Company has received each of the Exercise
Notice and the Aggregate Exercise Price (the “ Exercise
Delivery Documents ”), the Company shall transmit by
facsimile an acknowledgment of confirmation of receipt of the
Exercise Delivery Documents to the Holder and the Company’s
transfer agent (the “ Transfer Agent ”). On or
before the third Business Day following the date on which the
Company has received all of the Exercise Delivery Documents (the
“ Share Delivery Date ”), the Company shall
issue and dispatch by overnight courier to the address as specified
in the Exercise Notice, a certificate, registered in the
Company’s share register in the name of the Holder or its
designee, for the number of shares of Common Stock to which the
Holder is entitled pursuant to such exercise. Upon delivery of the
Exercise Notice and Aggregate Exercise Price referred to in clause
(ii) above, the Holder shall be deemed for all corporate
purposes to have become the holder of record of the Warrant Shares
with respect to which this Warrant has been exercised, irrespective
of the date of delivery of the certificates evidencing such Warrant
Shares. If this Warrant is submitted in connection with any
exercise pursuant to this Section 1(a) and the number of Warrant
Shares represented by this Warrant submitted for exercise is
greater than the number of Warrant Shares being acquired upon an
exercise, then the Company shall as soon as practicable and in no
event later than five Business Days after any exercise and at its
own expense, issue a new Warrant (in accordance with
Section 7(d)) representing the right to purchase the number of
Warrant Shares purchasable immediately prior to such exercise under
this Warrant, less the number of Warrant Shares with respect to
which this Warrant is exercised. No fractional shares of Common
Stock are to be issued upon the exercise of this Warrant, but
rather the number of shares of Common Stock to be issued shall be
rounded to the nearest whole number. The Company shall pay any and
all taxes which may be payable with respect to the issuance and
delivery of Warrant Shares upon exercise of this
Warrant.
(b) Exercise
Price . For purposes of this Warrant, “ Exercise
Price ” means $25.00, subject to adjustment as provided
herein.
(c)
Company’s Failure to Timely Deliver Securities . If
within three (3) trading days after the Company’s receipt of
the facsimile copy of a Exercise Notice the Company shall fail to
issue and deliver a certificate to the Holder and register such
shares of Common Stock on the Company’s share register or
credit the Holder’s balance account with The Depository Trust
Company for the number of shares of Common Stock to which the
Holder is entitled upon such holder’s exercise hereunder, and
if on or after such trading day the Holder purchases (in an open
market transaction or in another bona fide transaction) shares of
Common Stock to deliver in satisfaction of a sale by the Holder of
shares of Common Stock issuable upon such exercise that the Holder
anticipated receiving from the Company (a “ Buy-In
”), then the Company shall, within three Business Days after
the Holder’s request and in the Holder’s discretion,
either (i)
Page 2
pay cash to the
Holder in an amount equal to the Holder’s total purchase
price (including brokerage commissions, if any) for the shares of
Common Stock so purchased (the “ Buy-In Price
”), at which point the Company’s obligation to deliver
such certificate (and to issue such shares of Common Stock) shall
terminate, or (ii) promptly honor its obligation to deliver to
the Holder a certificate or certificates representing such shares
of Common Stock and pay cash to the Holder in an amount equal to
the excess (if any) of the Buy-In Price over the product of
(A) such number of shares of Common Stock, times (B) the
Closing Bid Price on the date of exercise.
(d)
Disputes . In the case of a dispute as to the determination
of the Exercise Price or the arithmetic calculation of the Warrant
Shares, the Company shall promptly issue to the Holder the number
of Warrant Shares that are not disputed and resolve such dispute in
accordance with Section 12.
(e) Limitations
on Exercises .
(i) Beneficial
Ownership. The Company shall not effect the exercise of this
Warrant, and the Holder shall not have the right to exercise this
Warrant, to the extent that after giving effect to such exercise,
such Person (together with such Person’s affiliates) would
beneficially own in excess of 9.99% (“ Maximum
Percentage ”) of the shares of Common Stock outstanding
immediately after giving effect to such exercise. For purposes of
the foregoing sentence, the aggregate number of shares of Common
Stock beneficially owned by such Person and its affiliates shall
include the number of shares of Common Stock issuable upon exercise
of this Warrant with respect to which the determination of such
Person’s beneficial ownership is being made, but shall
exclude shares of Common Stock which would be issuable upon
(i) exercise of the remaining, unexercised portion of this
Warrant beneficially owned by such Person and its affiliates and
(ii) exercise or conversion of the unexercised or unconverted
portion of any other securities of the Company beneficially owned
by such Person and its affiliates (including, without limitation,
any convertible notes or convertible preferred stock or warrants)
subject to a limitation on conversion or exercise analogous to the
limitation contained herein. Except as set forth in the preceding
sentence, for purposes of this paragraph, beneficial ownership
shall be calculated in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended. For purposes of this
Warrant, in determining the number of outstanding shares of Common
Stock, the Holder may rely on the number of outstanding shares of
Common Stock as reflected in (1) the Company’s most
recent Form 10 K, Form 10-Q, Current Report on Form 8-K or
other public filing with the Securities and Exchange Commission, as
the case may be, (2) a more recent public announcement by the
Company or (3) any other notice by the Company or the Transfer
Agent setting forth the number of shares of Common Stock
outstanding. For any reason at any time, upon the written or oral
request of the Holder, the Company shall within two
(2) Business Day confirm orally and in writing to the Holder
the number of shares of Common Stock then outstanding. In any case,
the number of outstanding shares of Common Stock shall be
determined after giving effect to the conversion or exercise of
securities of the Company, including the
Page 3
SPA Securities
and the Warrant, by the Holder and its affiliates since the date as
of which such number of outstanding shares of Common Stock was
reported. By written notice to the Company, the Holder may increase
or decrease the Maximum Percentage to any other percentage
specified in such notice; provided that any such increase will not
be effective until the sixty-first (61st) day after such notice is
delivered to the Company.
(ii) Principal
Market Regulation . Notwithstanding anything to the contrary
contained herein, the Company shall not be obligated to issue any
shares of Common Stock upon exercise of the Warrant if the issuance
of such shares of Common Stock would exceed that number of shares
of Common Stock which the Company may issue upon conversion of the
shares of the Company’s Series B Convertible Preferred
Stock (the “ Series B Preferred ”) or
exercise of the Warrant without breaching the Company’s
obligations under the rules or regulations of the Principal Market,
or the market or exchange where the Common Stock is then traded
(the “ Exchange Cap ”), which number of shares
of Common Stock was equal to 3,979,519 in the aggregate as of the
Subscription Date, except that such limitation shall not apply in
the event that the Company (a) obtains the approval of its
stockholders as required by the applicable rules of the Principal
Market (or any successor rule or regulation) for issuances of
Common Stock in excess of such amount, or (b) obtains a
written opinion from outside counsel to the Company that such
approval is not required, which opinion shall be reasonably
satisfactory to the Holders. Unless and until such approval or
written opinion is obtained, the Holder shall not be issued, upon
exercise of Warrants or conversion of shares of Series B
Preferred, shares of Common Stock in an amount greater than the
Exchange Cap.
(f) Forced
Exercise by the Company. The Company may force the Holder to
exercise its Warrants, in whole or in part, at any time all of the
Exercise Conditions are satisfied. Provided the Exercise Conditions
have all been satisfied, the Company may provide notice (the
“ Company Conversion Notice ”) to the Holder at
any time within (7) Business Days after the occurrence of such
events indicating the Company’s desire to have the Warrants
exercised. The Holder shall have fifteen (15) Business Days
after receipt of such Company Conversion Notice to exercise the
Warrants with either the payment of the Aggregate Exercise Price or
through a Cashless Exercise as provided in Section 1(a) above. The
Company shall promptly deliver the Warrant Shares issued on
exercise of a Warrant to the Holder (without further action by the
Holder being required).
2.
ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES .
The Exercise Price and the number of Warrant Shares shall be
adjusted from time to time as follows:
(a) Adjustment
upon Issuance of New Warrants . If and whenever on or after the
Subscription Date the Company issues or sells, or in accordance
with this Section 2 is deemed to have issued or sold, any
warrants for an exercise price per share (the “ New
Securities Issuance Price ”) less than a price (the
“ Applicable Price ”) equal to the Exercise
Price in effect immediately prior to such issue or sale or deemed
issuance or sale
Page 4
(the foregoing
a “ Dilutive Issuance ”), then immediately after
such Dilutive Issuance, the Exercise Price then in effect shall be
reduced to an amount equal to the New Securities Issuance
Price.
(b) Adjustment
upon Issuance of shares of Common Stock . Other than as
provided in Section 2(a), if and whenever on or after the
Subscription Date the Company issues or sells, or in accordance
with this Section 2 is deemed to have issued or sold, any
shares of Common Stock (including the issuance or sale of shares of
Common Stock owned or held by or for the account of the Company,
but excluding Excluded Securities (as defined in the Certificate of
Designations) for a consideration per share less than a price (the
“ Applicable Price ”) equal to $25.00 (the
foregoing a “ Dilutive Issuance ”), then
immediately after such Dilutive Issuance, the Exercise Price then
in effect shall be reduced to an amount equal to the product of
(A) the Exercise Price in effect immediately prior to such
Dilutive Issuance and (B) the quotient determined by dividing
(1) the sum of (I) the product derived by multiplying the
Exercise Price in effect immediately prior to such Dilutive
Issuance and the number of shares of Common Stock Deemed
Outstanding immediately prior to such Dilutive Issuance plus
(II) the consideration, if any, received by the Company upon
such Dilutive Issuance, by (2) the product derived by
multiplying (I) the Exercise Price in effect immediately prior
to such Dilutive Issuance by (II) the number of shares of
Common Stock Deemed Outstanding immediately after such Dilutive
Issuance.
(c) Upon each such
adjustment of the Exercise Price hereunder, in the case of Section
2(a) or 2(b), as applicable, the number of Warrant Shares shall be
adjusted to the number of shares of Common Stock determined by
multiplying the Exercise Price in effect immediately prior to such
adjustment by the number of Warrant Shares acquirable upon exercise
of this Warrant immediately prior to such adjustment and dividing
the product thereof by the Exercise Price resulting from such
adjustment. For purposes of determining the adjusted Exercise Price
under this Section 2, the following shall be
applicable:
(i) Issuance of
Options . If the Company in any manner grants any Options and
the lowest price per share for which one share of Common Stock is
issuable upon the exercise of any such Option or upon conversion,
exercise or exchange of any Convertible Securities issuable upon
exercise of any such Option is less than the Applicable Price, then
such share of Common Stock shall be deemed to be outstanding and to
have been issued and sold by the Company at the time of the
granting or sale of such Option for such price per share. For
purposes of this Section 2(c)(i), the “lowest price per
share for which one share of Common Stock is issuable upon exercise
of such Options or upon conversion, exercise or exchange of such
Convertible Securities” shall be equal to the sum of the
lowest amounts of consideration (if any) received or receivable by
the Company with respect to any one share of shares of Common Stock
upon the granting or sale of the Option, upon exercise of the
Option and upon conversion, exercise or exchange of any Convertible
Security issuable upon exercise of such Option. No further
adjustment of the Exercise Price or number of Warrant Shares shall
be made upon the actual issuance of such shares of Common Stock or
of such
Page 5
Convertible
Securities upon the exercise of such Options or upon the actual
issuance of such shares of Common Stock upon conversion, exercise
or exchange of such Convertible Securities.
(ii) Issuance
of Convertible Securities . If the Company in any manner issues
or sells any Convertible Securities and the lowest price per share
for which one share of Common Stock is issuable upon the
conversion, exercise or exchange thereof is less than the
Applicable Price, then such share of Common Stock shall be deemed
to be outstanding and to have been issued and sold by the Company
at the time of the issuance or sale of such Convertible Securities
for such price per share. For the purposes of this
Section 2(c)(ii), the “lowest price per share for which
one share of Common Stock is issuable upon the conversion, exercise
or exchange” shall be equal to the sum of the lowest amounts
of consideration (if any) received or receivable by the Company
with respect to one share of Common Stock upon the issuance or sale
of the Convertible Security and upon conversion, exercise or
exchange of such Convertible Security. No further adjustment of the
Exercise Price or number of Warrant Shares shall be made upon the
actual issuance of such shares of Common Stock upon conversion,
exercise or exchange of such Convertible Securities, and if any
such issue or sale of such Convertible Securities is made upon
exercise of any Options for which adjustment of this Warrant has
been or is to be made pursuant to other provisions of this
Section 2(a), no further adjustment of the Exercise Price or
number of Warrant Shares shall be made by reason of such issue or
sale.
(iii) Change in
Option Price or Rate of Conversion . If the purchase price
provided for in any Options, the additional consideration, if any,
payable upon the issue, conversion, exercise or exchange of any
Convertible Securities, or the rate at which any Convertible
Securities are convertible into or exercisable or exchangeable for
shares of Common Stock increases or decreases at any time, the
Exercise Price and the number of Warrant Shares in effect at the
time of such increase or decrease shall be adjusted to the Exercise
Price and the number of Warrant Shares which would have been in
effect at such time had such Options or Convertible Securities
provided for such increased or decreased purchase price, additional
consideration or increased or decreased conversion rate, as the
case may be, at the time initially granted, issued or sold. For
purposes of this Section 2(c)(iii), if the terms of any Option or
Convertible Security that was outstanding as of the date of
issuance of this Warrant are increased or decreased in the manner
described in the immediately preceding sentence, then such Option
or Convertible Security and the shares of Common Stock deemed
issuable upon exercise, conversion or exchange thereof shall be
deemed to have been issued as of the date of such increase or
decrease. No adjustment pursuant to this Section 2(a) shall be made
if such adjustment would result in an increase of the Exercise
Price then in effect or a decrease in the number of Warrant
Shares.
(iv)
Calculation of Consideration Received . In case any Option
is issued in connection with the issue or sale of other securities
of the Company, together comprising one integrated transaction in
which no specific consideration
Page 6
is allocated to
such Options by the parties thereto, the Options will be deemed to
have been issued for a consideration of $0.01. If any shares of
Common Stock, Options or Convertible Securities are issued or sold
or deemed to have been issued or sold for cash, the consideration
received therefor will be deemed to be the net amount received by
the Company therefor. If any shares of Common Stock, Options or
Convertible Securities are issued or sold for a consideration other
than cash, the amount of such consideration received by the Company
will be the fair value of such consideration, except where such
consideration consists of publicly traded securities, in which case
the amount of consideration received by the Company will be the
Closing Sale Price of such security on the date of receipt. If any
shares of Common Stock, Options or Convertible Securities are
issued to the owners of the non-surviving entity in connection with
any merger in which the Company is the surviving entity, the amount
of consideration therefor will be deemed to be the fair value of
such portion of the net assets and business of the non-surviving
entity as is attributable to such shares of Com
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