Warrant to Purchase Common Stock - GameZnFlix Inc. and Golden Gate Investors Inc.
WARRANT TO PURCHASE COMMON STOCK
(CONVERSION WARRANTS)
THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE BEEN ACQUIRED FOR
INVESTMENT AND NOT FOR DISTRIBUTION, AND HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED NEITHER THE WARRANT NOR
THE SHARES MAY BE SOLD, PLEDGED, OR OTHERWISE TRANSFERRED WITHOUT AN
EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO RULE 144
OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY AND
ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED. THIS WARRANT MUST
BE SURRENDERED TO THE COMPANY OR ITS TRANSFER AGENT AS A CONDITION
PRECEDENT TO THE SALE, PLEDGE OR OTHER TRANSFER OF ANY INTEREST IN
THIS WARRANT OR THE SHARES ISSUABLE HEREUNDER.
Issuer: GameZnFlix, Inc.
Class of Stock: Common Stock
Issue Date: November 11, 2004
Expiration Date: November 11, 2007
THIS WARRANT TO PURCHASE COMMON STOCK is being issued pursuant
to that certain Securities Purchase Agreement dated as of the date
hereof (the "Purchase Agreement") between GameZnFlix, Inc., a Nevada
corporation (the "Company") and Golden Gate Investors, Inc. ("Holder").
1.1 Warrants. The Company hereby grants to Holder the right to
purchase 15,000,000 shares of the Company's Common Stock (the
"Shares" or "Warrant Shares"). This Warrant is exercisable
concurrently with, and not subsequent to, the issuance of a
Conversion Notice under the Debenture. The date that the Holder
issues a Conversion Notice under the Debenture is hereafter referred
to as the "Conversion Date." Defined terms not defined herein shall
have the meanings ascribed to them in the Debenture or the Purchase
Agreement.
This Warrant shall expire and Holder shall no longer be able to
purchase the Warrant Shares on the Expiration Date.
ARTICLE 2
EXERCISE
2.1 Method of Exercise. Holder may exercise this Warrant by
delivering a duly executed Warrant Notice of Exercise in
substantially the form attached as Appendix 1 to the principal office
of the Company.
2.2 Delivery of Certificate and New Warrant. As promptly as
practicable after the receipt of the Warrant Notice of Exercise, but
in any event not more than three (3) Business Days after the
Company's receipt of the Warrant Notice of Exercise, the Company
shall issue the Shares and cause to be mailed for delivery by
overnight courier, or if a Registration Statement covering the Shares
has been declared effective by the SEC cause to be electronically
transferred, to Holder a certificate representing the Shares acquired
and, if this Warrant has not been fully exercised and has not
expired, a new Warrant substantially in the form of this Warrant
representing the right to acquire the portion of the Shares not so
acquired.
2.3 Replacement of Warrants. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or
mutilation of this Warrant and, in the case of loss, theft or
destruction, on delivery of an indemnity agreement reasonably
satisfactory in form and amount to the Company or, in the case of
mutilation, or surrender and cancellation of this Warrant, the
Company at its expense shall execute and deliver, in lieu of this
Warrant, a new warrant of like tenor.
2.4 Exercise Price. The Exercise Price of this Warrant shall
be $1.00.
2.5 Cashless Exercise. Notwithstanding anything to the
contrary contained in this Warrant, if the resale of the Warrant
Shares by Holder is not then registered pursuant to an effective
Registration Statement, upon the expiration of one year from the
Issue Date, this Warrant may be exercised by presentation and
surrender of this Warrant to the Company at its principal executive
offices with a written notice of Holder's intention to effect a
cashless exercise, including a calculation of the number of shares of
Common Stock to be issued upon such exercise in accordance with the
terms hereof ( a "Cashless Exercise"). In the event of a Cashless
Exercise, in lieu of paying the Exercise Price in cash, Holder shall
surrender this Warrant for that number of shares of Common Stock
determined by multiplying the number of Warrant Shares to which it
otherwise would be entitled by a fraction, the numerator of which
shall be the difference between the then current Market Price per
share of the Common Stock and the Exercise Price, and the denominator
or which shall be the then current Market Price per share of Common Stock.
ARTICLE 3
ADJUSTMENT TO THE SHARES
The number of Shares purchasable upon the exercise of this
Warrant and the Exercise Price shall be subject to adjustment from
time to time upon the occurrence of certain events, as follows:
3.1 Reclassification. In case of any reclassification or
change of outstanding securities of the class issuable upon exercise
of this Warrant then, and in any such case, the Holder, upon the
exercise hereof at any time after the consummation of such
reclassification or change, shall be entitled to receive in lieu of
each Share theretofore issuable upon exercise of this Warrant, the
kind and amount of shares of stock, other securities, money and/or
property received upon such reclassification or change by a holder of
one Share. The provisions of this Section 2.1 shall similarly apply
to successive reclassifications or changes.
3.2 Subdivision or Combination of Shares. If the Company at
any time while this Warrant remains outstanding and unexpired shall
subdivide or combine its Shares, the Exercise Price shall be
proportionately decreased in the case of a subdivision or increased
in the case of a combination.
3.3 Stock Dividends. If the Company, at any time while this
Warrant is outstanding shall pay a dividend with respect to its
Shares payable in Shares, or make any other distribution of Shares
with respect to Shares (except any distribution specifically provided
for in Section 2.1 and Section 2.2 above), then the Exercise Price
shall be adjusted, effective from and after the date of determination
of shareholders entitled to received such dividend or distribution,
to that price determined by multiplying the Exercise Price in effect
immediately prior to such date of determination by a fraction, (a)
the numerator of which shall be the total number of Shares
outstanding immediately prior to such dividend or distribution, and
(b) the denominator of which shall be the total number of Shares
outstanding immediately after such dividend or distribution.
3.4 Non-Cash Dividends. If the Company at any time while this
Warrant is outstanding shall pay a dividend with respect to Shares
payable in securities other than Shares or other non-cash property,
or make any other distribution of such securities or property with
respect to Shares (except any distribution specifically provided for
in Section 2.1 and Section 2.2 above), then this Warrant shall
represent the right to acquire upon exercise of this Warrant such
securities or property which a holder of Shares would have been
entitled to receive upon such dividend or distribution, without the
payment by the Holder of any additional consideration for such
securities or property.
3.5 Effect of Reorganization and Asset Sales. If any (i)
reorganization or reclassification of the Common Stock (ii)
consolidation or merger of the Company with or into another
corporation, or (iii) sale or all or substantially all of the
Company's operating assets to another corporation followed by a
liquidation of the Company (any such transaction shall be referred to
herein as an "Event"), is effected in such a way that holders of
common Stock are entitled to receive securities and/or assets as a
result of their Common Stock ownership, the Holder, upon exercise of
this Warrant, shall be entitled to receive such shares of stock
securities or assets which the Holder would have received had it
fully exercised this Warrant on or prior the record date for such
Event. The Company shall not merge into or consolidate with another
corporation or sell all of its assets to another corporation for a
consideration consisting primarily of securities of such corporation,
unless the successor or acquiring corporation, as the case may be,
shall expressly assume the due and punctual observance and
performance of each and every covenant and condition of this Warrant
to be performed or observed by the Company and all of the obligations
and liabilities hereunder, subject to such modification as shall be
necessary to provide for adjustments which shall be as nearly
equivalent as practicable to the adjustments provided for in this
Section 2. The foregoing provisions shall similarly apply to
successive mergers, consolidations or sales of assets.
3.6 Adjustment of Number of Shares. Upon each adjustment in
the Exercise Price, the number of Shares shall be adjusted, to the
nearest whole share, to the product obtained by multiplying the
number of Shares, purchasable immediately prior to such adjustment by
a fraction, the numerator of which shall be the Exercise Price
immediately prior to such adjustment and the denominator of which
shall be the Exercise Price immediately thereafter.
3.7 No Impairment. The Company shall not, by amendment of its
articles of incorporation or through a 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 to be observed or
performed under this Warrant by the Company, but shall at all times
in good faith assist in carrying out all of the provisions of this
Warrant and in taking all such action as may be reasonably necessary
or appropriate to protect Holder's rights hereunder against
impairment. If the Company takes any action affecting its Common
Stock other than as described above that adversely affects Holder's
rights under this Warrant, the Exercise Price shall be adjusted
downward and the number of Shares issuable upon exercise of this
Warrant shall be adjusted upward in such a manner that the aggregate
Exercise Price of this Warrant is unchanged.
3.8 Fractional Shares. No fractional Shares shall be issuable
upon the exercise of this Warrant, and the number of Shares to be
issued shall be rounded down to the nearest whole Share.
3.9 Certificate as to Adjustments. Upon any adjustment of the
Exercise Price, the Company, at its expense, shall compute such
adjustment and furnish Holder with a certificate of its Chief
Financial Officer setting forth such adjustment and the facts upon
which such adjustment is based. The Company shall, upon written
request, furnish Holder a certificate setting forth the Exercise
Price in effect upon the date thereof and the series of adjustments
leading to such Exercise Price.
3.10 No Rights of Shareholders. This Warrant does not entitle
Holder to any voting rights or any other rights as a shareholder of
the Company prior to the exercise of Holder's right to purchase
Shares as provided herein.
ARTICLE 4
REPRESENTATIONS AND COVENANTS OF THE COMPANY
4.1 Representations and Warranties. The Company hereby
represents and warrants to Holder that all Shares which may be issued
upon the exercise of the purchase right represented by this Warrant,
shall, upon issuance, be duly authorized, validly issued, fully paid
and nonasessable, and free of any liens and encumbrances.
4.2 Notice of Certain Events. If the Company proposes at any
time (a) to declare any dividend or distribution upon its Common
Stock, whether in cash, property, stock, or other securities and
whether or not a regular cash dividend; (b) to offer for subscription
pro rata to the holders of any class or series of its stock any
additional shares of stock of any class or series or other rights;
(c) to effect any reclassification or recapitalization of Common
Stock; (d) to merge or consolidate with or into any other
corporation, or sell, lease, license, or convey all or substantially
all of its assets, or to liquidate, dissolve or wind up; or (e) offer
holders of registration rights the opportunity to participate in an
underwritten public offering of the Company's securities for cash,
then, in connection with each such event, the Company shall give
Holder (1) at least 20 days prior written notice of the date on which
a record will be taken for such dividend, distribution, or
subscription rights (and specifying the date on which the holders of
Common Stock will be entitled thereto) or for determining rights to
vote, if any, in respect of the matters referred to in (c) and (d)
above; (2) in the case of the matters referred to in (c) and (d)
above at least 20 days prior written notice of the date when the same
will take place (and specifying the date on which the holders of
Common Stock will be entitled to exchange their Common Stock for
securities or other property deliverable upon the occurrence of such
event); and (3) in the case of the matter referred to in (e) above,
the same notice as is given to the holders of such registration rights.
4.3 Information Rights. So long as Holder holds this Warrant
and/or any of the Shares, the Company shall deliver to Holder (a)
promptly after mailing, copies of all notices or other written
communications to the shareholders of the Company, (b) within ninety
(90) days of their availability, the annual audited financial
statements of the Company certified by independent public accountants
of recognized standing, and (c) within forty-five (45) days after the
end of each fiscal quarter or each fiscal year, the Company's
quarterly, unaudited financial statements.
4.4 Reservation of Warrant Shares. The Company has reserved
and will keep available, out of the authorized and unissued shares of
Common Stock, the full number of shares sufficient to provide for the
exercise of the rights of purchase represented by this Warrant.
4.5 Registration Rights. If Holder exercises this Warrant and
purchases some or all of the Shares, Holder shall have the
Registration Rights set forth in that certain Registration Rights
Agreement executed concurrently therewith.
ARTICLE 5
REPRESENTATIONS AND COVENANTS OF THE HOLDER
5.1 Private Issue. Holder understands (i) that the Shares
issuable upon exercise of Holder's rights contained in the Warrant
are not registered under the Act or qualified under applicable state
securities laws on the ground that the issuance contemplated by the
Warrant will be exempt from the registration and qualifications
requirements thereof, and (ii) that the Company's reliance on such
exemption is predicated on Holder's representations set forth in this
Article 5.
5.2 Financial Risk. Holder has such knowledge and experience
in financial and business matters as to be capable of evaluating the
merits and risks of its investment and has the ability to bear the
economic risks of its investment.
5.3 Risk of No Registration. Holder understands that if the
Company does not register with the Securities and Exchange Commission
pursuant to Section 12 of the Act, or file reports pursuant to
Section 15(d), of the Securities Exchange Act of 1934 (the "1934
Act"), or if a registration statement covering the securities under
the Act is not in effect when it desires to sell (i) the right to
purchase Shares pursuant to the Warrant, or (ii) the Shares issuable
upon exercise of the right to purchase, it may be required to hold
such securities for an indefinite period.
5.4 Accredited Investor. Holder is an "accredited investor,"
as such term is defined in Regulation D promulgated pursuant to the Act.
ARTICLE 6
MISCELLANEOUS
6.1 Term. This Warrant is exercisable, in whole or in part, at
any time and from time to time on or after the Conversion Date and on
or before the Expiration Date set forth above.
6.2 Compliance with Securities Laws on Transfer. This Warrant
may not be transferred or assigned in whole or in part without
compliance with applicable federal and state securities laws by the
transferor and the transferee (including, without limitation, the
delivery of investment representation letters and legal opinions
reasonably satisfactory to the Company, as reasonably requested by
the Company). The Company shall not require Holder to provide an
opinion of counsel if the transfer is to an affiliate of Holder.
6.3 Transfer Procedure. Holder shall have the right without
the consent of the Company to transfer or assign in whole or in part
this Warrant and the Shares issuable upon exercise of this Warrant.
Holder agrees that unless there is in effect a registration statement
under the Act covering the proposed transfer of all or part of this
Warrant, prior to any such proposed transfer the Holder shall give
written notice thereof to the Company (a "Transfer Notice"). Each
Transfer Notice shall describe the manner and circumstances of the
proposed transfer in reasonable detail and, if the company so
requests, shall be accompanied by an opinion of legal counsel, in a
form reasonably satisfactory to the Company, to the effect that the
proposed transfer may be effected without registration under the Act;
provided that the Company will not require opinions of counsel for
transactions involving transfers to affiliates or pursuant to
Rule 144 promulgated by the Securities and Exchange Commission under
the act, except in unusual circumstances.
6.4 Notices, Etc. All notices and other communications
required or permitted hereunder shall be in writing and shall be
delivered personally, or sent by telecopier machine or by a
nationally recognized overnight courier service, and shall be deemed
given when so delivered personally, or by telecopier machine or
overnight courier service as follows:
if to the Company, to:
GameZnFlix, Inc.
1535 Blackjack Road
Franklin, Kentucky 42134
Telephone: 270-598-0385
Facsimile: 270-778-0025
if to the Holder, to:
Golden Gate Investors, Inc.
7817 Herschel Avenue, Suite 200
La Jolla, CA 92037
Telephone: 858-551-8789
Facsimile: 858-551-8779
or at such other address as the Company shall have furnished to the
Holder. Each such notice or other communication shall for all
purposes of this agreement be treated as effective or having been
given when delivered if delivered personally, or, if sent by mail, at
the earlier of its receipt or five days after the same has been
deposited in a regularly maintained receptacle for the deposit of the
United States mail, addressed and mailed as aforesaid.
6.5 Counterparts. This agreement may be executed in any number
of counterparts, each of which shall be enforceable against the
parties actually executing such counterparts, and all of which
together shall constitute one instrument. Facsimile execution shall
be deemed originals.
6.6 Waiver. This Warrant and any term hereof may be changed,
waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of such change, waiver,
discharge or termination is sought.
6.7 Attorneys Fees. In the event of any dispute between the
parties concerning the terms and provisions of this Warrant, the
party prevailing in such dispute shall be entitled to collect from
the other party all costs incurred in such dispute, including
reasonable attorneys fees.
6.8 Governing Law; Jurisdiction. This Warrant shall be
governed by and construed in accordance with the laws of the State of
California, without giving effect to its principles regarding
conflicts of law. Each of the parties hereto consents to the
jurisdiction of the federal courts whose districts encompass any part
of the City of San Diego or the state courts of the State of
California sitting in the City of San Diego in connection with any
dispute arising under this Warrant and hereby waives, to the maximum
extent permitted by law, any objection including any objection based
on forum non conveniens, to the bringing of any such proceeding in
such jurisdictions.
6.9 Remedies. The Company acknowledges that a breach by it of
its obligations hereunder will cause irreparable harm to the Holder,
by vitiating the intent and purpose of the transactions hereby.
Accordingly, the Company acknowledges that the remedy at law for a
breach of its obligations under this Warrant will be inadequate and
agrees, in the event of a breach or threatened breach by the Company
of the provisions of this Warrant, that the Holder shall be entitled,
in addition to all other available remedies at law or in equity, and
in addition to the penalties assessable herein, to an injunction or
injunctions restraining, preventing or curing any breach of this
Warrant and to enforce specifically the terms and provisions hereof,
without the necessity of showing economic loss and without any bond
or other security being required.
IN WITNESS WHEREOF, the parties hereto have duly caused this
Warrant to Purchase Common Stock to be executed and delivered on the
date first above written.
GameZnFlix, Inc. Golden Gate Investors, Inc.
By: /s/ John Fleming By: /s/ Travis W. Hoff
John Fleming Travis W. Hoff
Title: Chief Executive Officer Title: Portfolio Manager
APPENDIX 1
WARRANT NOTICE OF EXERCISE
1. The undersigned hereby elects to purchase _____ shares of
the Common Stock of GameZnFlix, Inc. pursuant to the terms of the
Warrant to Purchase Common Stock issued by GameZnFlix, Inc. on
November ___, 2004.
2. Please issue a certificate or certificates representing
said shares in the name of the undersigned or in such other name as
is specified below:
_____________________
_____________________
_____________________
(Name and Address)
3. The undersigned makes the representations and covenants set
forth in Article 5 of the Warrant to Purchase Common Stock.
________________________________
(Signature)
___________________________
(Date)