UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934


Date of Report (Date of earliest event reported):   December 15, 2008


ENERGY COMPOSITES CORPORATION
(Exact name of registrant as specified in its charter)

Nevada
 
000-52397
 
88-0409170
(State or other jurisdiction of incorporation)
 
(Commission File Number)
 
(IRS Employer Identification No.)


4400 Commerce Drive, Wisconsin Rapids, WI  54494
(Address of principal executive offices) (Zip Code)

(715) 421-2060
Registrant’s telephone number, including area code

Not applicable
(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))


 
 

 

Item 2.03
Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.


On December 15, 2008, Energy Composites Corporation (the “ Company ”) closed its private offering of units (the “ Units ”) raising a total of $6,370,000.  Each Unit sold consisted of a 3-year, 6% convertible debenture (the “ Debentures ”) with a conversion price of $2.50 (the “ Conversion Price ”) per share, and (ii) a number of warrants (the “ Warrants ”) exercisable into shares of the Company’s common stock equal to the number of shares issuable upon conversion of the principal amount of the Debenture.  The Company issued Debentures with a face amount of $6,370,000 and Warrants exercisable into 2,548,000 shares of common stock.

The Company sold Units to 75 accredited investors.  The Company did not pay any commissions on the sale of the Units and no underwriters were used.  The Company relied upon the exemption from registration contained in Section 4(2) and/or Rule 506 as to the sale of the Units, as the investors were deemed to be sophisticated with respect to the investment in the Units due to their financial condition and involvement in the Company’s business or were accredited investors.  Restrictive legends were placed on the Debentures and Warrants.

Terms of the Debentures :  Each Debenture matures 3 years from issuance (the “ Maturity Date ”) and accrues interest at 6% per annum.  Interest on the Debentures is payable in cash or in shares of the Company’s common stock at $2.50 per share, in twelve quarterly installments on April 1, July 1, October 1, and January 1 until the principal amount and all accrued and unpaid interest shall have been paid in full on the Maturity Date.

The Company has the option to prepay the Debentures, in whole or in part, after the expiration of one year from the date of issuance of each Debenture but prior to the Maturity Date.  The Company can prepay without penalty or premium so long as all of the following conditions have been met: (i) the Company’s common stock has traded above the Conversion Price for at least twenty consecutive trading days immediately preceding the Company’s notice of its election to prepay; (ii) the average trading volume shall be at least one hundred thousand shares per day during such twenty consecutive day trading period; and (iii) the shares of common stock issuable upon conversion of the Debentures shall be eligible for resale pursuant to Rule 144 under the Securities Act of 1933.

The principal balance of the Debentures is convertible into shares of the Company’s common stock at the option of the Holder at the Conversion Price.  The Company has the option to convert the Debentures provided that all of the conditions required for prepayment of the Debentures have been met.  The Debentures provide anti-dilution protection (adjustment of the Conversion Price) for the following events: reorganization, reclassification, consolidation, merger or sale; stock split, stock dividend, reverse stock split, or other issuance of the Company’s common stock.

Terms of the Warrants :  Each Warrant is exercisable into shares of common stock for a term of 3 years at $5.00 per share (the “Exercise Price”).  The Company has the option to compel the exercise of the Warrants, in whole or in part.  The Company can force the exercise of the Warrants so long as all of the following conditions have been met: (i) the Company’s common stock has traded above the Exercise Price for at least twenty consecutive trading days immediately preceding the Company’s notice of mandatory exercise; (ii) the average trading volume shall be at least one hundred thousand shares per day during such twenty consecutive day trading period; and (iii) the shares of common stock issuable upon exercise of the Warrants shall be eligible for resale pursuant to Rule 144 under the Securities Act of 1933.
 
The Warrants also provide anti-dilution protection (adjustment of the Exercise Price) for the following events: reorganization, reclassification, consolidation, merger or sale; stock split, stock
 
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dividend, reverse stock split, other issuance of the Company’s common stock; or the issuance of new warrants.

Item 3.02           Unregistered Sales of Equity Securities.


The disclosure set forth in Item 2.03 of this report is incorporated herein by reference

Item 9.01           Financial Statements and Exhibits


Regulation
S-K Number
Document
10.1
Form of Debenture
10.2
Form of Warrant

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 
ENERGY COMPOSITES CORPORATION
 
December 19, 2008
 
By:     /s/ Samuel W. Fairchild                       
 
Samuel W. Fairchild
 
Chief Executive Officer


Exhibit Index

Regulation
S-K Number
Document
10.1
Form of Debenture
10.2
Form of Warrant

 
 
 
 
 
 
 
3
 
 



 


 
 
 
 
 
 
 
 
 
 
 
EXHIBIT 10.1
 
FORM OF DEBENTURE

 
 
 

 

THE SECURITIES REPRESENTED BY THIS DEBENTURE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE “ACT”) OR APPLICABLE STATE SECURITIES LAWS (THE “STATE ACTS”), AND SHALL NOT BE SOLD, PLEDGED, HYPOTHECATED, DONATED, OR OTHERWISE TRANSFERRED (WHETHER OR NOT FOR CONSIDERATION) BY THE HOLDER EXCEPT UPON THE ISSUANCE TO THE COMPANY OF A FAVORABLE OPINION OF ITS COUNSEL OR SUBMISSION TO THE COMPANY OF SUCH OTHER EVIDENCE AS MAY BE SATISFACTORY TO COUNSEL FOR THE COMPANY, TO THE EFFECT THAT ANY SUCH TRANSFER SHALL NOT BE IN VIOLATION OF THE ACT AND THE STATE ACTS.

ENERGY COMPOSITES CORPORATION
A Nevada Corporation

CONVERTIBLE DEBENTURE

 _____________ __, 2008
NO. _____

ENERGY COMPOSITES CORPORATION., a Nevada corporation (the “ Company ”), is indebted and, for value received, promises to pay to the order of ______________ on ___________________ __, 2011 (the “ Maturity Date ”), (unless this Debenture shall have been sooner called for prepayment as herein provided), upon presentation of this Debenture, ___________________________________ Dollars ($______________ ) (the “ Principal Amount ”) and to pay interest on the Principal Amount at a rate equal to Six Percent (6%) per annum.

The Company covenants, promises and agrees as follows:

1.            Interest. Interest which shall accrue on the Principal Amount shall be payable in cash or in shares of the Company’s common stock, $0.001 par value (the “ Common Stock ”), valued at Two Dollars and Fifty Cents ($2.50) (the “ Conversion Price ”) per share, in twelve (12) quarterly installments on April 1, July 1, October 1, and January 1 in each and every calendar year until the Principal Amount and all accrued and unpaid interest shall have been paid in full. If this Debenture shall be issued on a date other than the first day of a quarter, the interest payable shall be prorated upon the number of days of such quarterly period during which this Debenture shall have been issued and outstanding. All accrued and unpaid interest shall be payable on the Maturity Date. The first payment of interest shall be made on January 1, 2008.

2.            Prepayment.

2.1.         Conditions to be Satisfied.   This Debenture is subject to prepayment at the option of the Company in whole or in part after the one year anniversary of the date of this Debenture but prior to the Maturity Date at any time and from time to time without penalty or premium, so long as all of the following conditions (the “ Prepayment Conditions ”) have been met:
 

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(a)   The Company’s Common Stock has traded above the Conversion Price per share for at least twenty (20) consecutive trading days immediately preceding the Prepayment Notice (defined below);

(b)   The average trading volume shall be at least one hundred thousand (100,000) shares per day during such twenty (20)-consecutive day trading period; and
 
(c)   The shares of Common Stock issuable upon conversion of this Debenture shall be eligible for resale pursuant to Rule 144 under the Securities Act of 1933.
 
2.2.         Notice of Prepayment.   The Company may exercise its right to prepay this Debenture by giving notice (the “ Prepayment Notice ”) thereof to the holder of this Debenture as it appears on the books of the Company, which notice shall specify the terms of prepayment, the principal amount of the Debenture to be prepaid (the “ Prepayment Amount ”) and shall fix a date for prepayment (the “ Prepayment Date ”), which date shall not be less than thirty (30) days nor more than forty-five (45) days after the date of the Prepayment Notice.
 
2.3.         Amounts to be Paid.   On the Prepayment Date, the Company shall pay all accrued and unpaid interest on the Debenture up to and including the Prepayment Date and shall pay to the holder hereof a dollar amount equal to the Prepayment Amount.

3.            Conversion.
 
3.1.         Holder’s Right to Convert.   The holder of this Debenture shall have the right, at such holder’s option, at any time, to convert all or any portion of this Debenture into such number of fully paid and nonassessable shares of Common Stock of the Company as shall be provided herein.
 
3.2.         Notice of Conversion.   The holder of this Debenture may exercise the conversion right provided in this Section 3 by giving written notice (the “ Conversion Notice ”) to the Company of the exercise of such right and stating the name or names in which the stock certificate or stock certificates for the shares of Common Stock are to be issued and the address to which such certificates shall be delivered. The Conversion Notice shall be accompanied by the Debenture. The number of shares of Common Stock that shall be issuable upon conversion of the Debenture shall equal the Principal Amount to be converted divided by the Conversion Price, rounded to the nearest whole share.
 
3.3.         Conversion Procedure .  Conversion shall be deemed to have been effected on the date the Conversion Notice is given (the “ Conversion Date ”). Within ten (10) business days after receipt of the Conversion Notice, the Company shall issue and deliver by hand against a signed receipt therefor or by United States registered mail, return receipt requested, to the address designated by the holder of this Debenture in the Conversion Notice, a stock certificate or stock certificates of the Company representing the number of shares of Common Stock to which such holder is entitled and a check or cash in payment of all interest accrued and unpaid on the Debenture up to and including the Conversion Date.
 
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3.4.         Company’s Right to Convert.   This Debenture may be converted at the option of the Company in whole or in part at any time and from time to time without penalty or premium, so long as all of the Prepayment Conditions have been met.  The Company may exercise its right to convert this Debenture by giving notice thereof to the holder of this Debenture as it appears on the books of the Company, which notice shall specify the principal amount of the Debenture to be converted and shall fix a date for conversion, which date shall not be less than thirty (30) days nor more than forty-five (45) days after the date of the Conversion Notice.
 
3.5.         Taxes. The Company shall pay all documentary, stamp or other transactional taxes and charges attributable to the issuance or delivery of shares of stock of the Company upon conversion; provided, however, that the Company shall not be required to pay any taxes which may be payable in respect of any transfer involved in the issuance or delivery of any certificate for such shares in a name other than that of the record holder of this Debenture.
 
3.6.         Reservation of Shares. The Company shall at all times reserve and keep available, free from preemptive rights, unissued or treasury shares of Common Stock sufficient to effect the conversion of this Debenture.
 
4.            Adjustment of Conversion Price. The number of shares of Common Stock issuable upon the conversion of this Debenture and the Conversion Price shall be subject to adjustment as follows:

4.1.         Triggering Events for Adjustment.   In the case the Company shall
 
(a)           pay a dividend on the Common Stock in Common Stock or securities convertible into, exchangeable for or otherwise entitling a holder thereof to receive Common Stock,
 
(b)           declare a dividend payable in cash on its Common Stock and at substantially the same time offer its shareholders a right to purchase new common stock (or securities convertible into, exchangeable for or otherwise entitling a holder thereof to receive Common Stock) from proceeds of such dividend (all Common Stock so issued shall be deemed to have been issued as a stock dividend),
 
(c)           subdivide its outstanding shares of Common Stock into a greater number of shares of Common Stock,
 
(d)           combine its outstanding shares of Common Stock into a smaller number of shares of Common Stock, or
 
(e)           issue by reclassification of its Common Stock of the Company,

the number of shares of Common Stock issuable upon conversion of this Debenture immediately prior thereto shall be adjusted so that the holder of this Debenture shall be entitled to receive after the happening of any of the events described above that number and kind of shares as the holders would have received had such Debenture been converted immediately prior to the happening of such event or any record date with respect thereto.  Any adjustment made pursuant
 
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to this subdivision shall become effective immediately after the close of business on the record date in the case of a stock dividend and shall become effective immediately after the close of business on the record date in the case of a stock split, subdivision, combination or reclassification.

4.3.         Threshold for Adjustment.   Any adjustment in the numbers of shares of Common Stock issuable hereunder otherwise required to be made by this Section will not have to be made if such adjustment would not require an increase or decrease in one (1%) percent or more in the number of shares of Common Stock issuable upon conversion of this Debenture.

4.4.         Manner of Adjustment.   Whenever the number of shares of Common Stock issuable upon the conversion of this Debenture is adjusted, as herein provided, the Conversion Price shall be adjusted (to the nearest cent) by multiplying such Conversion Price immediately prior to such adjustment by a fraction of which the numerator shall be the number of shares of Common Stock issuable upon the conversion of this Debenture immediately prior to such adjustment, and of which the denominator shall be the number of shares of Common Stock issuable immediately thereafter.
 
4.5.    Reorganization, Reclassification, Consolida­tion, Merger or Sale .  In case of any reclassification, capital reorganization, consolidation, merger, sale of all or substan­tially all of the Company’s assets to another Person or any other change in the Common Stock of the Company, other than as a result of a subdivision, combination, or stock dividend provided for in Section 4.1 above (any of which, a “ Change Event ”), then, as a condition of such Change Event, lawful provision shall be made, and duly executed documents evidencing the same from the Company or its successor shall be delivered to the holder of this Debenture, so that the holder shall have the right at any time prior to the Maturity Date to convert this Debenture into the kind and amount of shares of stock and other securities and property receivable in connection with such Change Event by a holder of the same number of shares of Common Stock as were obtainable by the holder immediately prior to such Change Event.  In any such case appropriate provisions shall be made with respect to the rights and interest of the holder so that the provisions hereof shall thereafter be applicable with respect to any shares of stock or other securities and property deliverable upon conversion hereof, and appropriate adjustments shall be made to the conversion price per share payable hereunder, provided the aggregate conversion price shall remain the same.
 
5.            Default.
 
5.1.         Events of Default.   The entire unpaid and unredeemed balance of the Principal Amount and all Interest accrued and unpaid on this Debenture shall, at the election of the holder, be and become immediately due and payable upon the occurrence of any of the following events (a “ Default Event ”):
 
(a)           The non-payment by the Company when due of principal and interest or of any other payment as provided in this Debenture or with respect to any other Debenture issued by the Company.
 
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(b)           If the Company (i) applies for or consents to the appointment of, or if there shall be a taking of possession by, a receiver, custodian, trustee or liquidator for the Company or any of its property; (ii) becomes generally unable to pay its debts as they become due; (iii) makes a general assignment for the benefit of creditors or becomes insolvent; (iv) files or is served with any petition for relief under the Bankruptcy Code or any similar federal or state statute; (v) has any judgment entered against it in excess of Fifty Thousand Dollars ($50,000) in any one instance or in the aggregate during any consecutive 12 month period or has any attachment or levy made to or against any of its property or assets; (vi) defaults with respect to any evidence of indebtedness or liability for borrowed money, or any such indebtedness shall not be paid as and when due and payable; or (vii) has assessed or imposed against it, or if there shall exist, any general or specific lien for any federal, state or local taxes or charges against any of its property or assets.

(c)           Any failure by the Company to issue and deliver shares of Common Stock as provided herein upon conversion of this Debenture.
 
5.2.                       Remedies.   Each right, power or remedy of the holder hereof upon the occurrence of any Default Event as provided for in this Debenture or now or hereafter existing at law or in equity or by statute shall be cumulative and concurrent and shall be in addition to every other right, power or remedy provided for in this Debenture or now or hereafter existing at law or in equity or by statute, and the exercise or beginning of the exercise by the holder or transferee hereof of any one or more of such rights, powers or remedies shall not preclude the simultaneous or later exercise by the holder hereof of any or all such other rights, powers or remedies.
 
6.            Failure to Act and Waiver. No failure or delay by the holder hereof to insist upon the strict performance of any term of this Debenture or to exercise any right, power or remedy consequent upon a default hereunder shall constitute a waiver of any such term or of any such breach, or preclude the holder hereof from exercising any such right, power or remedy at any later time or times. By accepting payment after the due date of any amount payable under this Debenture, the holder hereof shall not be deemed to waive the right either to require payment when due of all other amounts payable under this Debenture, or to declare a default for failure to effect such payment of any such other amount.
 
The failure of the holder of this Debenture to give notice of any failure or breach of the Company under this Debenture shall not constitute a waiver of any right or remedy in respect of such continuing failure or breach or any subsequent failure or breach.
 
7.            Consent to Jurisdiction. The Company hereby agrees and consents that any action, suit or proceeding arising out of this Debenture may be brought in any appropriate court in the State of Nevada, including the United States District Court for the District of Nevada, or in any other court having jurisdiction over the subject matter, all at the sole election of the holder hereof, and by the issuance and execution of this Debenture the Company irrevocably consents to the jurisdiction of each such court.
 
8.            Transfer. This Debenture shall be transferred on the books of the Company only by the registered holder hereof or by his/her attorney duly authorized in writing or by delivery to the Company of a duly executed Assignment substantially in the form attached hereto as Exhibit A.
 
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The Company shall be entitled to treat any holder of record of the Debenture as the holder in fact thereof and shall not be bound to recognize any equitable or other claim to or interest in this Debenture in the name of any other person, whether or not it shall have express or other notice thereof, save as expressly provided by the laws of Nevada.
 
9.            Notices. All notices and communications under this Debenture shall be in writing and shall be either delivered in person or accompanied by a signed receipt therefor or mailed first-class United States certified mail, return receipt requested, postage prepaid, and addressed as follows: if to the Company, to 4400 Commerce Drive, Wisconsin Rapids, Wisconsin 54494, and, if to the holder of this Debenture, to the address of such holder as it appears in the books of the Company. Any notice of communication shall be deemed given and received as of the date of such delivery or mailing.

10.            Governing Law.   This Debenture shall be governed by and construed and enforced in accordance with the laws of the State of Nevada, or, where applicable, the laws of the United States.

IN WITNESS WHEREOF, the Company has caused this Debenture to be duly executed under its corporate seal.
 
  ENERGY COMPOSITES CORPORATION  
       
 
By:
   
    Samuel W. Fairchild  
    Chief Executive Officer  
       


 
 
 
 
 
 
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Exhibit A
ASSIGNMENT
 
FOR VALUE RECEIVED, the undersigned hereby assigns to ___________________, the three-year Unsecured Convertible Debenture of ENERGY COMPOSITES CORPORATION, No. ________ and hereby irrevocably appoints __________________________________, Attorney, to transfer said debenture on the books of the within named corporation, with full power of substitution in the premises.

WITNESS my hand and seal this ____ day of _______________, 20___.
 
 
_________________________________
 
_________________________________

 
 
 
 
 
 
 
 
 
 
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EXHIBIT 10.2
 
FORM OF WARRANT
 

 
 
 

 

The securities represented by this Warrant and issuable upon exercise hereof have not been registered under the Securities Act of 1933, as amended (the “Act”), or under the provisions of any applicable state securities laws, but have been acquired by the registered holder hereof for purposes of investment and in reliance on statutory exemptions under the Act, and under any applicable state securities laws.  These securities and the securities issued upon exercise hereof may not be sold, pledged, transferred or assigned, nor may this Warrant be exercised, except in a transaction which is exempt under the provisions of the Act and any applicable state securities laws or pursuant to an effective registration statement.

ENERGY COMPOSITES CORPORATION
A Nevada Corporation
 
COMMON STOCK PURCHASE WARRANT
 
Date of Issuance: ____________ 2008
Certificate No. W-__
 
For value received, Energy Composites Corporation, a Nevada corporation (the “ Company ”), hereby grants to ____________________ or its transferees and assigns (“ Registered Holder ”), the right to purchase from the Company a total of ______________ shares (“ Warrant Shares ”) of the Company’s common stock, par value $0.001 per share (“ Common Stock ”), at a price per share equal to $5.00 (the “ Initial Exercise Price ”).  The exercise price and number of Warrant Shares (and the amount and kind of other securities) for which this Warrant is exercisable shall be subject to adjustment as provided in Section 2 hereof.  This Warrant is being issued in connection with the Subscription Agreement between Registered Holder and the Company dated ___________, 2008 (the “ Subscription Agreement ”).  This Warrant is subject to the following provisions:
 
SECTION 1.      Exercise of Warrant .
 
(a)   Terms of Warrants; Exercise Period .  Subject to the terms of this Agreement, the Registered Holder shall have the right, commencing on the date hereof and expiring on the 3-year anniversary hereof (the “ Expiration Date ”), to exercise this Warrant, in whole or in part, and receive from the Company the number of Warrant Shares which the Registered Holder may at the time be entitled to receive on exercise of this Warrant and payment of the Exercise Price then in effect for the Warrant Shares.  To the extent not exercised prior to the Expiration Date, this Warrant shall become void and all rights thereunder and all rights in respect thereof under this Agreement shall cease as of such time.
 
(b)   Exercise Procedure .
 
(i)   This Warrant shall be deemed to have been exer­cised on the date specified in a written notice from the Registered Holder to the Company (the “ Exercise Time ”) and within three business days following the Exercise Time, the Registered Holder shall deliver the following to the Company:
 
(A)   a completed Exercise Agreement, as described in Section 1(c) below;
 
(B)   this Warrant;
 
 
 

 
 
(C)    if this Warrant is not registered in the name of the Registered Holder, an Assignment or Assignments in the form set forth in Exhibit II hereto evidencing the assignment of this Warrant to the Registered Holder, in which case the Registered Holder shall have complied with the pro­visions set forth in Section 4 hereof; and
 
(D)    wire transfer or a check payable to the Company in an amount equal to the product of the Exercise Price (as such term is de­fined in Section 2) multiplied by the number of Warrant Shares being purchased upon such exercise (the “ Aggregate Exercise Price ”).
 
(ii)   Certificates for Warrant Shares purchased upon exercise of this Warrant shall be delivered by the Company to the Registered Holder within 5 business days after the date of the Exercise Time.  Unless this Warrant has expired or all of the purchase rights represented hereby have been exercised, the Company shall prepare a new Warrant, substantially identical hereto, representing the rights formerly represented by this Warrant that have not expired or been exercised and shall, within such 5-day period, deliver such new Warrant to the Person designated for delivery in the Exercise Agreement.
 
(iii)   The Warrant Shares issuable upon the exercise of this Warrant shall be deemed to have been issued to the Registered Holder at the Exercise Time, and the Registered Holder shall be deemed for all purposes to have become the record holder of such Warrant Shares at the Exercise Time.
 
(iv)  The Company shall not close its books against the transfer of this Warrant or of any Warrant Shares issued or issuable upon the exercise of this Warrant in any manner which interferes with the timely exercise of this Warrant.
 
(v)   The Company shall assist and cooperate with the Registered Holder or any Registered Holder required to make any governmental filings or obtain any governmental approvals prior to or in connection with any exercise of this Warrant.
 
(vi)  The Company shall at all times reserve and keep available out of its authorized but unissued capital stock, solely for the purpose of issuance upon the exercise of this Warrant, the maximum number of Warrant Shares issuable upon the exercise of this Warrant.  All Warrant Shares which are so issuable shall, when issued and upon the payment of the Exercise Price therefor, be duly and validly issued, fully paid and nonassessable and free from all taxes, liens and charges.  The Company shall take all such ac­tions as may be necessary to assure that all such Warrant Shares may be so issued without violation by the Company of any applica­ble law or governmen­tal regulation or any requirements of any domestic securities exchange upon which securities of the Company may be listed (except for official notice of issuance which shall be immediately deliv­ered by the Company upon each such issuance).
 
(c)   Exercise Agreement .  Upon any exercise of this Warrant, the Registered Holder shall deliver an Exercise Agreement in the form set forth in Exhibit I hereto, except that if the Warrant Shares are not to be issued in the name of the Person in whose name this Warrant is registered, the Exercise Agreement shall also state the name of the Person to whom the certificates for the Warrant Shares are to be issued, and if the number of Warrant Shares to be issued does not
 
 
 
2

 
 
include all the Warrant Shares purchasable here­under, it shall also state the name of the Person to whom a new Warrant for the unexer­cised portion of the rights hereunder is to be issued.  Such Exercise Agreement shall be dated the actual date of execution thereof.
 
(d)   Mandatory Exercise .  The Company may force the exercise of this Warrant if all of the following conditions have been met:
 
(i)   The Company’s common stock, $0.001 par value (the “ Common Stock ”) has traded above the Exercise Price for at least 20 consecutive trading days immediately preceding the Mandatory Exercise Notice (defined below);
 
(ii)   The average trading volume shall be at least 100,000 shares per day during such 20-consecutive day trading period; and
 
(iii)  The shares of Common Stock issuable upon exercise of this Warrant shall be eligible for resale pursuant to Rule 144 under the Securities Act of 1933 or there shall be an effective registration statement covering the resale of the Warrant Shares.
 
The Company may exercise its right to force the exercise this Warrant by giving notice thereof (the “ Mandatory Exercise Notice ”) to the holder of this Warrant as it appears on the books of the Company, which notice shall specify the number of Warrant Shares to be issued and shall fix a date for mandatory exercise, which date shall not be less than 30 days nor more than 45 days after the date of the Mandatory Exercise Notice.
 
SECTION 2.      Adjustment of Exercise Price and Number of Shares .  In order to prevent dilution of the rights granted under this Warrant, the Initial Exercise Price shall be subject to adjustment from time to time as provided in this Section 2 (such price or such price as last adjusted pursuant to the terms hereof, as the case may be, is herein called the “ Exercise Price ”), and the number of Warrant Shares obtainable upon exercise of this Warrant shall be subject to adjustment from time to time as provided in this Section 2.
 
(a)   Reorganization, Reclassification, Consolida­tion, Merger or Sale .  In case of any reclassification, capital reorganization, consolidation, merger, sale of all or substan­tially all of the Company’s assets to another Person or any other change in the Common Stock of the Company, other than as a result of a subdivision, combination, or stock dividend provided for in Section 2(b) below (any of which, a “ Change Event ”), then, as a condition of such Change Event, lawful provision shall be made, and duly executed documents evidencing the same from the Company or its successor shall be delivered to the Registered Holder, so that the Registered Holder shall have the right at any time prior to the expiration of this Warrant to purchase, at a total price equal to that payable upon the exercise of this Warrant (subject to adjustment of the Exercise Price as provided in Section 2), the kind and amount of shares of stock and other securities and property receivable in connection with such Change Event by a holder of the same number of shares of Common Stock as were purchasable by the Registered Holder immediately prior to such Change Event.  In any such case appropriate provisions shall be made with respect to the rights and interest of the Registered Holder so that the provisions hereof shall thereafter be applicable with respect to any shares of stock or other securities and property deliverable upon exercise hereof, and appropriate adjustments shall
 
 
 
3

 
 
be made to the purchase price per share payable hereunder, provided the aggregate purchase price shall remain the same.
 
(b)   Subdivisions, Combinations and Other Issuances .  If the Company shall at any time prior to the expiration of this Warrant (i) subdivide its Common Stock, by split-up or otherwise, or combine its Common Stock, or (ii) issue additional shares of its Common Stock or other equity securities as a dividend with respect to any shares of its Common Stock, the number of shares of Common Stock issuable on the exercise of this Warrant shall forthwith be proportionately increased in the case of a subdivision or stock, or proportionately decreased in the case of a combination. Appropriate adjustments shall also be made to the purchase price payable per share, but the aggregate purchase price payable for the total number of Warrant Shares purchasable under this Warrant (as adjusted) shall remain the same.  Any adjustment under this Section 2(b) shall become effective at the close of business on the date the subdivision or combination becomes effective, or as of the record date of such dividend, or in the event that no record date is fixed, upon the making of such dividend.
 
(c)   Issuance of New Warrant .  Upon the occurrence of any of the events listed in this Section 2 that results in an adjustment of the type, number or exercise price of the securities underlying this Warrant, the Registered Holder shall have the right to receive a new warrant reflecting such adjustment upon the Registered Holder tendering this Warrant in exchange.  The new warrant shall otherwise have terms identical to this Warrant.
 
(d)   Notices .
 
(i)   The Company shall give written notice to the Regis­tered Holder of this Warrant at least 10 days prior to the date on which the Company closes its books or takes a record for determining rights to vote with respect to any event described in this Section 2 or any dissolu­tion or liquidation.
 
(ii)  The Company shall also give written notice to the Registered Holder of this Warrant at least 10 days prior to the date on which any event described in this Section 2 or any dissolution or liquidation shall take place.
 
SECTION 3.      No Voting Rights; Limitations of Liability .  This Warrant shall not entitle the holder hereof to any voting rights or other rights as a stockholder of the Company.  No provision hereof, in the absence of affirmative action by the Registered Holder to purchase Warrant Shares, and no enumeration herein of the rights or privileges of the Registered Holder shall give rise to any liability of such holder for the Exercise Price of Warrant Shares acquirable by exercise hereof or as a stockholder of the Company.
 
SECTION 4.      Warrant Transferable .  Subject to compliance with applicable securities laws and the terms of this Section 6, this Warrant and all rights hereunder are transferable, in whole or in part, without charge to the Registered Holder upon surrender of this Warrant with a properly executed Assignment (in the form of Exhibit II hereto) at the principal office of the Company.
 
 
 
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SECTION 5.      Warrant Exchangeable for Different Denominations .  This Warrant is exchangeable, upon the surrender hereof by the Registered Holder at the principal office of the Company, for new Warrants of like tenor representing in the aggregate the purchase rights hereunder, and each of such new Warrants shall represent such portion of such rights as is designated by the Registered Holder at the time of such surrender.  The date the Company initially issues this Warrant shall be deemed to be the “Date of Issuance” hereof regardless of the number of times new certificates representing the unexpired and unexercised rights formerly represented by this Warrant shall be issued.  All Warrants representing portions of the rights hereunder are referred to herein as the “Warrants.”
 
SECTION 6.      Replacement .  Upon receipt of evidence reasonably satisfactory to the Company of the ownership and the loss, theft, destruction or mutilation of any certificate evidencing this Warrant, and in the case of any such loss, theft or destruction, upon receipt of indemnity reasonably satisfactory to the Company, or, in the case of any such mutilation upon surrender of such certificate, the Company shall (at the expense of the Registered Holder) execute and deliver in lieu of such certificate a new certificate of like kind representing the same rights represented by such lost, stolen, destroyed or mutilated certificate and dated the date of such lost, stolen, destroyed or mutilated certificate.
 
SECTION 7.      Notices .  Any notice, demand, offer, request or other communication required or permitted to be given pursuant to the terms of this Warrant shall be in writing and shall be deemed effectively given the earlier of (i) when received, (ii) when delivered personally, (iii) one business day after being delivered by facsimile (with receipt of appropriate confirmation), or (iv) one business day after being deposited with an overnight courier service, and addressed to the recipient at the addresses set forth below unless another address is provided to the other party in writing:
 
If to Company, to :

Energy Composites Corporation
4400 Commerce Drive
Wisconsin Rapids, WI 54494
Attn:    Samuel W. Fairchild
                              Fax:     (715) 421 2048
 
If to Registered Holder, to :

________________________
________________________
________________________
Fax:          _______________

 
 
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or, in any case, at such other address or addresses as shall have been furnished in writing to the Company (in the case of a Registered Holder of Warrants) or to the Registered Holders of Warrants (in the case of the Company) in accordance with the provisions of this paragraph.
 
SECTION 8.      Amendment and Waiver .  Except as otherwise provided herein, the provisions of the Warrants may be amended and the Company may take any action herein prohibited, or omit to perform any act herein required to be performed by it, only if the Company has obtained the written consent of the Registered Holders of Warrants representing a majority of the Warrant Shares obtainable upon exercise of the then-outstanding Warrants; provided, however, that no such action may change the Exercise Price of the Warrants or the number of shares or class of capital stock obtainable upon exercise of each Warrant without the written consent of all Registered Holders.
 
SECTION 9.      Descriptive Headings; Governing Law .
 
(a)   The descriptive headings of the several Sections of this Warrant are inserted for convenience only and do not constitute a part of this Warrant.
 
(b)   All issues and questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by, and construed in accordance with, the laws of the State of Nevada, without giving effect to any choice of law or conflict of law rules or provisions (whether of the State of Nevada or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Nevada.
 
SECTION 10.     Warrant Register .  The Company shall maintain at its principal executive office books for the registration and the registration of transfer of this Warrant.  The Company may deem and treat the Registered Holder as the absolute owner hereof (notwithstanding any notation of ownership or other writing thereon made by anyone) for all purposes and shall not be affected by any notice to the contrary.
 
SECTION 11.      Fractions of Shares .  The Company may, but shall not be required, to issue a fraction of a Warrant Share upon the exercise of this Warrant in whole or in part.  As to any fraction of a share which the Company elects not to issue, the Company shall make a cash payment in respect of such fraction in an amount equal to the same fraction of the market price of a Warrant Share on the date of such exercise (as determined by the board of directors in its reasonable discretion).
 
* * * * *
 

 
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IN WITNESS WHEREOF, the Company has caused this Warrant to be signed and attested by its duly authorized officers and to be dated as of the Date of Issuance hereof.
 
 
ENERGY COMPOSITES CORPORATION
 

 
By: _______________________________
Samuel W. Fairchild
Chief Executive Officer

 

 

 
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EXHIBIT I
 
EXERCISE AGREEMENT
 

 
To:                                                                                     Dated:
 

 
The undersigned, pursuant to the provisions set forth in the attached Warrant (Certificate No. W-____), hereby agrees to subscribe for the purchase of ______ Warrant Shares covered by such Warrant and makes payment herewith in full therefor at the price per share provided by such Warrant.  Please issue the Warrant Shares in the following names and amounts:
 

 
Name                                                                Number of Warrant Shares
 

 

 

 

 
Signature ____________________
 

 
Address ______________________
 

 

 
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EXHIBIT II
 
ASSIGNMENT
 

 
FOR VALUE RECEIVED, _____________________________ hereby sells, assigns and transfers all of the rights of the undersigned under the attached Warrant (Certificate No. W-_____) with respect to the number of the Warrant Shares covered thereby set forth below, unto:
 
Names of Assignee                                                            Address                                                        No. of Shares
 

 

 

 

 

 
Dated:                                                                              Signature                             _______________________
 

 
Witness                                _______________________
 

 

 
The Assignee agrees to be bound by the terms of the Warrant.
 

 
Signature                                _______________________
 

 
Witness                                _______________________
 
 
 
 
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