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HILCO STOCK PURCHASE WARRANT

Warrant Agreement

HILCO STOCK PURCHASE WARRANT | Document Parties: BROOKSIDE TECHNOLOGY HOLDINGS, CORP. You are currently viewing:
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BROOKSIDE TECHNOLOGY HOLDINGS, CORP.

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Title: HILCO STOCK PURCHASE WARRANT
Governing Law: Illinois     Date: 11/19/2007

HILCO STOCK PURCHASE WARRANT, Parties: brookside technology holdings  corp.
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EXHIBIT 10.7
THE SECURITIES REPRESENTED BY THIS WARRANT HAVE NOT 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 APPLICABLE STATE SECURITIES LAWS OR (B) AN OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR (II) UNLESS SOLD PURSUANT TO RULE 144 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. ANY TRANSFEREE OF THIS WARRANT SHOULD CAREFULLY REVIEW THE TERMS OF THIS WARRANT, INCLUDING SECTION 2(f) HEREOF. THE SECURITIES REPRESENTED BY THIS WARRANT MAY BE LESS THAN THE NUMBER SET FORTH ON THE FACE HEREOF PURSUANT TO SECTION 2(f) HEREOF.
BROOKSIDE TECHNOLOGY HOLDINGS CORP.
Warrant To Purchase Common Stock
         
Warrant No.: E-1
  Number of Shares: 61,273,835
Date of Issuance: September 26, 2007
       
Brookside Technology Holdings Corp., a Florida corporation (the “ Company ”), hereby certifies that, for Ten United States Dollars ($10.00) and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Hilco Financial, LLC, a Delaware limited liability company, the registered holder hereof or its permitted assigns (the “ Holder ”), is entitled, subject to the terms set forth below, to purchase from the Company upon surrender of this Warrant (if required by Section 2(f) ), at any time or times on or after the date hereof, but not after 11:59 P.M. New York City time on the Expiration Date (as defined in Section 1(b) below) sixty-one million two hundred seventy-three thousand eight hundred thirty-five (61,273,835) fully paid nonassessable shares of Common Stock (as defined in Section 1(b) below) of the Company (the “ Warrant Shares ”) at the Warrant Exercise Price (as defined in Section 1(b) below); provided , however , that in no event shall the Holder be entitled or required to exercise this Warrant for a number of Warrant Shares in excess of that number of Warrant Shares that, upon giving effect to such exercise, would cause the aggregate number of shares of Common Stock beneficially owned by the Holder and its affiliates to exceed 9.99% of the outstanding shares of the Common Stock following such exercise. For purposes of the foregoing proviso, the aggregate number of shares of Common Stock beneficially owned by the Holder 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 proviso is being made, but shall exclude shares of Common Stock that would be issuable upon (i) exercise of the remaining, unexercised portion of this Warrant and (ii) exercise, conversion or exchange of the unexercised, unconverted or unexchanged portion of any other securities of the Company beneficially owned by the Holder

 


 
and its affiliates, subject to a limitation on conversion, exercise or exchange 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-QSB or Form 10-Q or Form 10-KSB or Form 10-K, as the case may be, (2) a more recent public announcement by the Company or (3) any other written (including e-mail) notice by the Company or its transfer agent setting forth the number of shares of Common Stock outstanding. Upon the written request of the Holder, the Company shall promptly, but in no event later than two (2) Business Days following the receipt of such request, confirm 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, exercise or exchange of securities of the Company, including this Warrant, if any, by the Holder and its affiliates, since the date as of which such number of outstanding shares of Common Stock was reported.
     Section 1.
          (a) Credit Agreement . This Warrant was issued in connection with that certain Credit Agreement, dated as of even date herewith, among the Company and Hilco Financial, LLC (as such agreement may be amended from time to time as provided in such agreement, the “ Credit Agreement ”) or issued in exchange or substitution therefor or replacement thereof. Each capitalized term used, and not otherwise defined herein, shall have the meaning ascribed thereto in the Credit Agreement.
          (b) Definitions . The following words and terms as used in this Warrant shall have the following meanings:
               (i) “ Common Stock ” means (i) the Company’s common stock, $0.001 par value per share, and (ii) any capital stock into which such Common Stock shall have been changed or any capital stock resulting from a reclassification of such Common Stock.
               (ii) “ Convertible Securities ” means any stock or securities (other than Options) directly or indirectly convertible into or exchangeable or exercisable for Common Stock.
               (iii) “ Delivery Date ” means the date of receipt by the Company of a Put Notice.
               (iv) “ Expiration Date ” means the date that is five (5) years after the Warrant Date (as defined in Section 13 ) or, if such date does not fall on a Business Day, then the next Business Day.
               (v) “ Fair Market Value ” means the fair market value of the Company’s entire equity, on a fully-diluted basis, determined on a going concern basis as between a willing buyer and a willing seller and taking into account all relevant factors

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determinative of value without giving effect to any discount for any lack of liquidity attributable to a lack of a public market for such security, any block discount or discount attributable to the size of any Person’s holdings of such security, any minority interest or any voting rights thereof or lack thereof, plus (to the extent not otherwise taken into consideration in the determination of fair market value of the Company’s entire common equity) the aggregate amount of cash or property payable or to be surrendered to the Company upon exercise or conversion of Options and Convertible Securities, and the principal amount of any debt constituting Convertible Securities, which are then exercisable and “in-the-money.” The Company and the Holder will use reasonable efforts to determine Fair Market Value, but if such parties are unable to agree on Fair Market Value within ten (10) days after meeting for the purpose of determining the Fair Market Value, the Company and the Holder shall, within ten (10) days after such initial 10-day period, mutually select an appraiser to make a determination of the Fair Market Value (who shall make such determination within thirty (30) days after selection); provided that if the parties are unable to agree upon the selection of an appraiser within such 10-day period, the Fair Market Value shall be determined as follows: the Company and the Holder, shall, within five (5) days after their failure to agree upon the selection of an appraiser, each select their own appraiser to determine the “Fair Market Value.” Each such appraiser shall make a determination of the “Fair Market Value” within thirty (30) days after the date of selection. If the “Fair Market Value” as determined by one appraiser is within ten percent (10%) of the “Fair Market Value” determined by the other appraiser, then the Fair Market Value shall be the average of the “Fair Market Values” determined by the two appraisers. If the “Fair Market Value” determined by one appraiser is not within ten percent (10%) of the “Fair Market Value” of the other appraiser, then such two appraisers shall promptly select a third appraiser, which appraiser shall make a determination of the “Fair Market Value” as promptly as possible but, in any event, within seventy-five (75) days after the Delivery Date, and the Fair Market Value shall be the median of the “Fair Market Values” determined by the three appraisers. The determination of the Fair Market Value pursuant to the preceding sentences shall be final and binding upon the Company and the Holder of Underlying Warrant Stock. All fees and expenses of the appraisers determining the Fair Market Value of the Company shall be borne by the Company.
               (vi) “ Person ” means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization or a government or any department or agency thereof or any other legal entity.
               (vii) “ Principal Market ” means, with respect to the Common Stock or any other security, the principal securities exchange or trading market for the Common Stock or such other security.
               (viii) “ Put Price ” shall equal, with respect to each share of Underlying Warrant Stock, the quotient obtained by dividing (i) the Fair Market Value of the Company as of the Delivery Date by (ii) the sum of the total number of shares of Common Stock outstanding as of the Delivery Date plus the number of shares of Common Stock issuable upon exercise or conversion of any Options or Convertible Securities as of the Delivery Date, in each case only to the extent such Options and Convertible Securities are exercisable and “in-the-money” on the Delivery Date. The expenses of determining the Put Price shall be borne by the Company.

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               (ix) “ Registration Rights Agreement ” means that certain Registration Rights Agreement, dated as of even date herewith, between the Company and Hilco Financial, LLC, as such agreement may be amended, restated or modified and in effect from time to time.
               (x) “ Securities Act ” means the Securities Act of 1933, as amended.
               (xi) “ Trading Day ” means any day on which the Common Stock is traded on the Principal Market; provided that “Trading Day” shall not include any day on which the Common Stock is scheduled to trade, or actually trades, on such exchange or market for less than 4.5 hours.
               (xii) “ Underlying Warrant Stock ” means (i) the shares of Common Stock issued or issuable upon exercise of this Warrant assuming this Warrant were exercised in full immediately prior to the date of the consummation of the Change in Control, without giving effect to any limitations on exercise hereof and (ii) any shares of Common Stock issued or issuable with respect to the securities referred to in clause (i) above by way of stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization.
               (xiii) “ Warrant ” means this Warrant and all Warrants issued in exchange, transfer or replacement thereof pursuant to the terms of this Warrant.
               (xiv) “ Warrant Exercise Price ” shall be equal to, with respect to any Warrant Share, $0.1370, subject to adjustment as hereinafter provided.
               (xv) “ Weighted Average Price ” means, for any security as of any date, the dollar volume-weighted average price for such security on its Principal Market during the period beginning at 9:30 a.m. New York City time (or such other time as its Principal Market publicly announces is the official open of trading) and ending at 4:00 p.m. New York City time (or such other time as its Principal Market publicly announces is the official close of trading) as reported by Bloomberg Financial Markets (or any successor thereto) (“ Bloomberg ”) through its “Volume at Price” functions, or if the foregoing does not apply, the dollar volume-weighted average price of such security in the over-the-counter market on the electronic bulletin board for such security during the period beginning at 9:30 a.m. New York City time (or such other time as such over-the-counter market publicly announces is the official open of trading), and ending at 4:00 p.m. New York City time (or such other time as such over-the-counter market publicly announces is the official close of trading) as reported by Bloomberg, or, if no dollar volume-weighted average price is reported for such security by Bloomberg for such hours, the average of the highest closing bid price and the lowest closing ask price of any of the market makers for such security as reported in the “pink sheets” by the National Quotation Bureau, Inc. If the Weighted Average Price cannot be calculated for such security on such date on any of the foregoing bases, the Weighted Average Price of such security on such date shall be the fair market value as mutually determined by the Company and the Holder. If the Company and the Holder are unable to agree upon the fair market value of the Common Stock, then such dispute shall be resolved pursuant to Section 2(a) . All such determinations shall be appropriately adjusted for any stock dividend, stock split, stock combination or other similar transaction during any period during which the Weighted Average Price is being determined.

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     Section 2. Exercise of Warrant .
          (a) Subject to the terms and conditions hereof, this Warrant may be exercised by the Holder hereof then registered on the books of the Company, in whole or in part, at any time on any Business Day on or after the opening of business on the date hereof and prior to 11:59 P.M. New York City time on the Expiration Date by (i) delivery of a written notice, in the form of the exercise notice attached as Exhibit A hereto (the “ Exercise Notice ”), of the Holder’s election to exercise this Warrant, which notice shall specify the number of Warrant Shares to be purchased, (ii) (A) payment to the Company of an amount equal to the Warrant Exercise Price multiplied by the number of Warrant Shares as to which this Warrant is being exercised (the “ Aggregate Exercise Price ”) by wire transfer of immediately available funds (or by check if the Company has not provided the Holder with wire transfer instructions for such payment) or (B) by notifying the Company that this Warrant is being exercised pursuant to a Cashless Exercise (as defined in Section 2(e) ), and (iii) if required by Section 2(f) or unless the Holder has previously delivered this Warrant to the Company and it or a new replacement Warrant has not yet been delivered to the Holder, the surrender to a common carrier for overnight delivery to the Company as soon as practicable following such date, of this Warrant (or an indemnification undertaking, in customary form, with respect to this Warrant in the case of its loss, theft or destruction pursuant to Section 10 ); provided , that if such Warrant Shares are to be issued in any name other than that of the registered Holder of this Warrant, such issuance shall be deemed a transfer and the provisions of Section 7 shall be applicable. In the event of any exercise of the rights represented by this Warrant in compliance with this Section 2(a) , on the second (2 nd ) Business Day (the “ Warrant Share Delivery Date ”) following the date of its receipt of the Exercise Notice, the Aggregate Exercise Price (or notice of Cashless Exercise) and if required by Section 2(f) (or unless the Holder has previously delivered this Warrant to the Company and it or a new replacement Warrant has not yet been delivered to the Holder), this Warrant (or an indemnification undertaking, in customary form, with respect to this Warrant in the case of its loss, theft or destruction pursuant to Section 10 ) (the “ Exercise Delivery Documents ”), (A) provided that the transfer agent is participating in The Depository Trust Company (“ DTC ”) Fast Automated Securities Transfer Program and provided that the Holder is eligible to receive shares through DTC, the Company shall credit such aggregate number of shares of Common Stock to which the Holder shall be entitled to the Holder’s or its designee’s balance account with DTC through its Deposit Withdrawal Agent Commission system or (B) the Company shall issue and deliver to the address specified in the Exercise Notice, a certificate, registered in the name of the Holder or its designee, for the number of shares of Common Stock to which the Holder shall be entitled. Upon the later of the date of delivery of (x) the Exercise Notice and (y) the Aggregate Exercise Price referred to in clause (ii)(A) above or notification to the Company of a Cashless Exercise referred to in Section 2(e) , the Holder shall be deemed for all purposes to have become the Holder of record of the Warrant Shares with respect to which this Warrant has been exercised (the date thereof being referred to as the “ Deemed Issuance Date ”), irrespective of the date of delivery of this Warrant as required by clause (iii) above or the certificates evidencing such Warrant Shares. In the case of a dispute as to the determination of the Warrant Exercise Price, the Weighted Average Price of a security or the arithmetic calculation of the number of Warrant Shares, the Company shall promptly issue to the Holder the number of shares of Common Stock that is not disputed and shall submit the disputed determinations or arithmetic calculations to the Holder via facsimile within two (2) Business Days after receipt of the Holder’s Exercise Notice. If the Holder and the Company are unable to agree upon the determination of the Warrant

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Exercise Price, the Weighted Average Price or arithmetic calculation of the number of Warrant Shares within three (3) Business Days of such disputed determination or arithmetic calculation being submitted to the Holder, then the Company shall immediately submit via facsimile (i) the disputed determination of the Warrant Exercise Price or the Weighted Average Price to an independent, reputable investment banking firm agreed to by the Company and the Holder or (ii) the disputed arithmetic calculation of the number of Warrant Shares to its independent, outside public accountant. The Company shall cause the investment banking firm 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 three (3) Business Days after the time it receives the disputed determinations or calculations. Such investment banking firm’s or accountant’s determination or calculation, as the case may be, shall be deemed conclusive absent error.
          (b) If this Warrant is submitted for exercise, as may be required by Section 2(f) , and unless the rights represented by this Warrant shall have expired or shall have been fully exercised, the Company shall, as soon as practicable and in no event later than three (3) Business Days after receipt of this Warrant (the “ Warrant Delivery Date ”) and at its own expense, issue a new Warrant identical in all respects to this Warrant exercised except it shall represent rights 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 such Warrant is exercised (together with, in the case of a Cashless Exercise, the number of Warrant Shares surrendered in lieu of payment of the Exercise Price).
          (c) 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 issued upon exercise of this Warrant shall be rounded up or down to the nearest whole number (with 0.5 rounded up).
          (d) If the Company shall fail for any reason or for no reason (x) to issue and deliver to the Holder within three (3) Business Days of receipt of the Exercise Delivery Documents a certificate for the number of shares of Common Stock to which the Holder is entitled 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 or (y) to issue and deliver to the Holder on the Warrant Delivery Date a new Warrant for the number of shares of Common Stock to which the Holder is entitled pursuant to Section 2(b) hereof, if any, then the Company shall, in addition to any other remedies under this Warrant or the Credit Agreement or otherwise available to the Holder, pay as additional damages in cash to the Holder on each day after such third (3rd) Business Day that such shares of Common Stock are not issued and delivered to the Holder, in the case of clause (x) above, or such third (3rd) Business Day that such Warrant is not delivered, in the case of clause (y) above, an amount equal to the sum of (i) 0.5% of the product of (A) the number of shares of Common Stock not issued to the Holder on or prior to the Warrant Share Delivery Date and (B) the Weighted Average Price of the Common Stock on the Warrant Share Delivery Date, in the case of the failure to deliver Common Stock, and (ii) if the Company has failed to deliver a Warrant to the Holder on or prior to the Warrant Delivery Date, 0.5% of the product of (x) the number of shares of Common Stock issuable upon exercise of the Warrant as of the Warrant Delivery Date, and (y) the Weighted Average Price of the Common Stock on the Warrant Delivery Date; provided that in no event shall cash damages accrue pursuant to this Section 2(d) during the period, if any, in which any Warrant Shares are the subject of a bona fide dispute that is subject to and being resolved

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pursuant to, and in compliance with the time periods and other provisions of, the dispute resolution provisions of Section 2(a) . Alternatively, subject to the dispute resolution provisions of Section 2(a) , at the election of the Holder made in the Holder’s sole discretion, the Company shall pay to the Holder, in lieu of the additional damages referred to in the preceding sentence (but in addition to all other available remedies that the Holder may pursue hereunder and under the Credit Agreement), 110% of the amount that (A) the Holder’s total purchase price (including brokerage commissions, if any) for shares of Common Stock purchased to make delivery in satisfaction of a sale by the Holder of the shares of Common Stock to which the Holder is entitled but has not received upon an exercise, exceeds (B) the net proceeds received by the Holder from the sale of the shares of Common Stock to which the Holder is entitled but has not received upon such exercise.
     (e) Notwithstanding anything contained herein to the contrary, the Holder may at any time prior to the Expiration Date, at its election exercised in its sole discretion, exercise this Warrant in whole or in part and, in lieu of making the cash payment otherwise contemplated to be made to the Company upon such exercise in payment of the Aggregate Exercise Price, elect instead to receive upon such exercise the “Net Number” of shares of Common Stock determined according to the following formula (a “ Cashless Exercise ”):
     Net Number = (A x B) — (A x C)
                                            B
          For purposes of the foregoing formula:
A= the total number of shares with respect to which this Warrant is then being exercised;
B= the arithmetic average of the Weighted Average Price of the Common Stock on each of the ten (10) consecutive Trading Days immediately preceding the date of the delivery of the Exercise Notice; and
C= the Warrant Exercise Price then in effect for the applicable Warrant Shares at the time of such exercise.
          (f) Book-Entry . Notwithstanding anything to the contrary set forth herein, upon exercise of this Warrant in accordance with the terms hereof, the Holder shall not be required to physically surrender this Warrant to the Company unless it is being exercised for all of the Warrant Shares represented by the Warrant. The Holder and the Company shall maintain records showing the number of Warrant Shares exercised and issued and the dates of such exercises or shall use such other method, reasonably satisfactory to the Holder and the Company, so as not to require physical surrender of this Warrant upon each such exercise. In the event of any dispute or discrepancy, such records of the Company establishing the number of Warrant Shares to which the Holder is entitled shall be controlling and determinative in the absence of demonstrable error. Notwithstanding the foregoing, if this Warrant is exercised as aforesaid, the Holder may not transfer this Warrant unless the Holder first physically surrenders this Warrant to the Company, whereupon the Company will forthwith issue and deliver upon the order of the

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Holder a new Warrant of like tenor, registered as the Holder may request, representing in the aggregate the remaining number of Warrant Shares represented by this Warrant. The Holder and any assignee, by acceptance of this Warrant, acknowledge and agree that, by reason of the provisions of this paragraph, following exercise of any portion of this Warrant, the number of Warrant Shares represented by this Warrant may be less than the number stated on the face hereof. Each Warrant shall bear the following legend:
ANY TRANSFEREE OF THIS WARRANT SHOULD CAREFULLY REVIEW THE TERMS OF THIS WARRANT, INCLUDING SECTION 2(f) HEREOF. THE SECURITIES REPRESENTED BY THIS WARRANT MAY BE LESS THAN THE NUMBER SET FORTH ON THE FACE HEREOF PURSUANT TO SECTION 2(f) HEREOF.
     Section 3. Covenants as to Common Stock . The Company hereby covenants and agrees as follows:
          (a) This Warrant is, and any Warrants issued in substitution for or replacement of this Warrant will upon issuance be, duly authorized and validly issued.
          (b) All Warrant Shares that may be issued upon the exercise of the rights represented by this Warrant will, upon issuance and receipt of payment therefor from the Holder (including pursuant to a Cashless Exercise, as applicable), be validly issued, fully paid and nonassessable and free from all taxes, liens and charges with respect to the issue thereof.
          (c) During the period within which the rights represented by this Warrant may be exercised, the Company will at all times have authorized and reserved at least 150% of the number of shares of Common Stock needed to provide for the exercise of the rights then represented by this Warrant.
          (d) If, and so long as, any shares of Common Stock shall be listed on any securities exchange or quoted on the OTC Bulletin Board or other quotation system or trading market, the shares of Common Stock issuable upon exercise of this Warrant shall be so listed or quoted; and the Company shall so list (or cause to be quoted) on such exchange, quotation system or market, and shall maintain such listing or quotation of, any other shares of capital stock of the Company issuable upon the exercise of this

 
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