NEITHER THE OFFER NOR THE SALE OF THIS WARRANT OR THE SHARES ISSUABLE UPON THE
EXERCISE OF THIS WARRANT HAS BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"). EXCEPT AS OTHERWISE SET FORTH HEREIN OR IN A NOTE
PURCHASE AGREEMENT DATED AS OF JUNE 14, 2006, NEITHER THIS WARRANT NOR ANY OF
SUCH SHARES MAY BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER THE ACT OR AN OPINION OF
COUNSEL, IN FORM, SUBSTANCE AND SCOPE, CUSTOMARY FOR OPINIONS OF COUNSEL IN
COMPARABLE TRANSACTIONS, THAT REGISTRATION IS NOT REQUIRED UNDER THE ACT OR
UNLESS SOLD PURSUANT TO RULE 144 OR REGULATION S UNDER THE ACT.
STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, ABS SOS-PLUS PARTNERS, LTD., or
its registered assigns, (the "HOLDER") is entitled to purchase from ZBB ENERGY
CORPORATION, a Wisconsin corporation, (the "COMPANY"), at any time or from time
to time during the period specified in Section 2 hereof, 7,422,220 fully paid
and nonassessable shares of the Company's Common Stock, par value $0.01 per
share (the "COMMON STOCK"), at an exercise price per share equal to US$0.15 (the
"EXERCISE PRICE"). The term "WARRANT SHARES," as used herein, refers to the
shares of Common Stock purchasable hereunder. The Warrant Shares and the
Exercise Price are subject to adjustment as provided in Section 4 hereof. The
term "WARRANTS" means this Warrant and the other warrants issued pursuant to
that certain Note Purchase Agreement, dated June 14, 2006, by and among the
Company and the Buyers listed on the execution page thereof (the "NOTE PURCHASE
AGREEMENT").
This Warrant is subject to the following terms, provisions, and
conditions:
1. MANNER OF EXERCISE.
a. PROCEDURE. Subject to the provisions hereof, this Warrant may
be exercised by the Holder, in whole or in part, by the surrender of this
Warrant, together with a completed exercise agreement in the form attached
hereto (the "EXERCISE AGREEMENT"), to the Company during normal business hours
on any day that banks are generally open for business in New York City (a
"BUSINESS DAY") at the Company's principal executive offices (or such other
office or agency of the Company as it may designate by notice to the Holder),
and upon (i) payment to the Company in cash, by certified or official bank check
or by wire transfer for the account of the Company of the Exercise Price for the
Warrant Shares specified in the Exercise Agreement or (ii) if the resale of the
Warrant Shares by the Holder is not then registered pursuant to an effective
registration statement under the Securities Act of 1933, as amended, (the
"SECURITIES ACT") or under applicable state securities laws, delivery to the
Company of a written notice of an election to effect a Cashless Exercise (as
defined in Section 1(c) below) for the Warrant Shares specified in the Exercise
Agreement. The Warrant Shares so purchased shall be deemed to be issued to the
Holder or such Holder's designee, as the record owner of such shares, as of the
close of business on the date on which the completed Exercise Agreement shall
have been delivered, and payment shall have been made for such shares as set
forth above. Certificates for the Warrant Shares so purchased, representing the
aggregate number of shares specified in the Exercise Agreement, shall be
delivered to the Holder (without restrictive legend
1
thereon when such exercise occurs while a registration statement registering
under the Securities Act the resale of the Warrant Shares so purchased is
effective or such Warrant Shares so purchased may be resold by the Holder
pursuant to Rule 144(k) or any similar successor rule) within a reasonable time,
not exceeding three (3) Business Days, after this Warrant shall have been so
exercised. The certificates so delivered shall be in such denominations as may
be requested by the Holder and shall be registered in the name of the Holder or
such other name as shall be designated by the Holder. If this Warrant shall have
been exercised only in part, then, at the option of the Holder (i) the Holder
may surrender this Warrant to the Company and, unless this Warrant has expired,
the Company shall, at its expense, within a reasonable time, not exceeding three
(3) Business Days, after this Warrant shall have been so exercised, deliver to
the Holder a new Warrant representing the number of shares with respect to which
this Warrant shall not then have been exercised, or (ii) the Holder may retain
this Warrant and the Warrant Shares purchasable under this Warrant shall be
reduced by such number of Warrant Shares so exercised by the Holder and properly
delivered by the Company hereunder.
b. EXERCISE LIMIT. In no event, at any time that the Company has
any class of its securities registered under Section 12(b) or Section 12(g) of
the Securities Exchange Act of 1934, as amended, (the "EXCHANGE ACT"), shall the
Holder of this Warrant be entitled to exercise any portion of this Warrant in
excess of that portion of this Warrant upon exercise of which the sum of (i) the
number of shares of Common Stock beneficially owned by the Holder and its
affiliates (other than shares of Common Stock which may be deemed beneficially
owned through the ownership of the unexercised portion of this Warrant and the
unexercised or unconverted portion of any other securities of the Company
subject to a limitation on conversion or exercise analogous to the limitation
contained herein) and (ii) the number of shares of Common Stock issuable upon
exercise of the portion of this Warrant with respect to which the determination
described herein is being made, would result in beneficial ownership by the
Holder and its affiliates of more than 4.99% of the outstanding shares of Common
Stock. For purposes of this Section 1(b), beneficial ownership shall be
determined in accordance with Section 13(d) of Exchange Act and Regulation 13D-G
thereunder, except as otherwise provided in clause (i) of the preceding
sentence. The Holder may waive the provisions of this Section 1(b) as to itself
(and solely as to itself) upon not less than 61 days' prior notice to the
Company, and the provisions of this Section 1(b) shall continue to apply until
such 61st day (or such later date as may be specified in such notice of waiver).
No exercise in violation of this Section 1(b), but otherwise in accordance with
this Warrant, shall affect the status of the Common Stock issued upon such
exercise as validly issued, fully-paid and nonassessable.
c. CASHLESS EXERCISE. If the resale of the Warrant Shares by the
Holder is not registered pursuant to an effective registration statement under
the Securities Act, then the Holder may exercise this Warrant in whole or in
part by presentation and surrender of this Warrant to the Company at its
principal executive offices with a written notice of the 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, the Holder shall surrender this Warrant for that
number of shares of Common Stock determined by multiplying the number of Warrant
Shares to which it would otherwise be entitled by a fraction, the numerator of
which shall be the difference between (i) the average Market Price (as defined
in Section 4) per share of the Common Stock for the five (5) Trading Days (as
2
defined in Section 4) immediately prior to the date the completed Exercise
Agreement shall have been delivered to the Company (the "CASHLESS EXERCISE
MARKET PRICE") and (ii) the Exercise Price, and the denominator of which shall
be the Cashless Exercise Market Price.
2. PERIOD OF EXERCISE.
a. GENERAL. This Warrant is exercisable at any time or from time
to time on or after a Trigger Date (as defined herein) and before 6:00 p.m., New
York, New York time on June 14, 2010 (the "EXERCISE PERIOD").
b. Trigger Date. The Trigger Date shall be the first to occur of
the following:
i. June 14, 2007;
ii. A Qualified Public Offering (as defined herein) has
occurred;
iii. A Default or an Event of Default (as such terms are
defined in the Note Purchase Agreement) has occurred;
iv. Thirty (30) days before a Fundamental Change occurs. The
term "FUNDAMENTAL CHANGE" shall mean (i) any "PERSON" (as such term is used in
Sections 13(d) and 14(d) of the Exchange Act), other than a trustee or other
fiduciary holding securities of the Company under an employee benefit plan of
the Company, becomes the "BENEFICIAL OWNER" (as defined in Rule 13d-3
promulgated under the Exchange Act), directly or indirectly, of securities of
the Company representing 50% or more of (A) the outstanding shares of Common
Stock of the Company or (B) the combined voting power of the Company's
then-outstanding securities, (ii) the Company is party to a merger or
consolidation, or series of related transactions, which results in the voting
securities of the Company outstanding immediately prior thereto failing to
continue to represent (either by remaining outstanding or by being converted
into voting securities of the surviving or another entity) at least fifty (50%)
percent of the combined voting power of the voting securities of the Company or
such surviving or other entity outstanding immediately after such merger or
consolidation, (iii) the sale or disposition of all or substantially all of the
Company's assets (or consummation of any transaction, or series of related
transactions, having similar effect), (iv) there occurs a change in the
composition of the Board within a two-year period, as a result of which fewer
than a majority of the directors are Incumbent Directors (as defined herein),
(v) the dissolution or liquidation of the Company, or (vi) any transaction or
series of related transactions that has the substantial effect of any one or
more of the foregoing. "INCUMBENT DIRECTORS" will mean directors who either (A)
are directors of the Company as of the date hereof, or (B) are elected, or
nominated for election, to the Board with the affirmative votes of at least a
majority of the Incumbent Directors at the time of such election or nomination
(but will not include an individual whose election or nomination is in
connection with an actual or threatened proxy contest relating to the election
of directors to the Company).
3. CERTAIN AGREEMENTS OF THE COMPANY. The Company hereby covenants and
agrees as follows:
3
a. SHARES TO BE FULLY PAID. All Warrant Shares will, upon
issuance in accordance with the terms of this Warrant, be validly issued, fully
paid, and nonassessable and free from all taxes, liens, and charges with respect
to the issue thereof.
b. RESERVATION OF SHARES. During the Exercise Period, the Company
shall at all times have authorized, and reserved for the purpose of issuance
upon exercise of this Warrant, a sufficient number of shares of Common Stock to
provide for the exercise of this Warrant.
c. LISTING. If the Company's Common Stock is listed as of the
date of this Warrant, or if so listed in the future, the Company shall maintain
its listing of its Common Stock on each national securities exchange or
automated quotation system, as the case may be, and shall maintain such listing
of any other shares of capital stock of the Company issuable upon the exercise
of this Warrant if and so long as any shares of the same class shall be listed
on such national securities exchange or automated quotation system.
d. CERTAIN ACTIONS PROHIBITED. The Company will not, by amendment
of its charter or through any 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 by it hereunder, but will at all times in good faith
assist in the carrying out of all the provisions of this Warrant and in the
taking of all such action as may reasonably be requested by the Holder of this
Warrant in order to protect the exercise privilege of the Holder of this Warrant
against dilution or other impairment, consistent with the tenor and purpose of
this Warrant. Without limiting the generality of the foregoing, the Company (i)
will not increase the par value of any shares of Common Stock receivable upon
the exercise of this Warrant above the Exercise Price then in effect, and (ii)
will take all such actions as may be necessary or appropriate in order that the
Company may validly and legally issue fully paid and nonassessable shares of
Common Stock upon the exercise of this Warrant.
e. SUCCESSORS AND ASSIGNS. This Warrant will be binding upon any
entity succeeding to the Company by merger, consolidation, or acquisition of all
or substantially all the Company's assets.
f. DELIVERY OF COMMON STOCK BY ELECTRONIC TRANSFER. In lieu of
delivering physical certificates representing the Common Stock issuable upon
exercise, provided the Company's transfer agent is participating in the
Depository Trust Company ("DTC") Fast Automated Securities Transfer program and
the Company has activated such programs, upon request of the Holder and its
compliance with the provisions contained in Section 1, the Company shall use its
best efforts to cause its transfer agent to electronically transmit the Common
Stock issuable upon exercise to the Holder by crediting the account of Holder's
Prime Broker with DTC through its Deposit Withdrawal Agent Commission system.
4. ANTIDILUTION PROVISIONS. During the Exercise Period, the Exercise
Price and the number of Warrant Shares shall be subject to adjustment from time
to time as provided in this Section 4. In the event that any adjustment of the
Exercise Price as required herein results in a fraction of a cent, such Exercise
Price shall be rounded up to the nearest cent.
4
a. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES UPON
ISSUANCE OF COMMON STOCK. Except as otherwise provided in Sections 4(c), 4(e)
and 4(l) hereof, if and whenever on or after the date of issuance of this
Warrant, the Company issues or sells, or in accordance with Section 4(b) hereof
is deemed to have issued or sold, any shares of Common Stock for no
consideration or for a consideration per share (before deduction of reasonable
expenses or commissions or underwriting discounts or allowances in connection
therewith) less than the Exercise Price on the date of issuance (a "DILUTIVE
ISSUANCE"), then immediately upon the Dilutive Issuance, the Exercise Price will
be reduced to the lower of (i) the amount of the consideration per share
received by the Company in such Dilutive Issuance, and (ii) a price determined
by multiplying the Exercise Price in effect immediately prior to the Dilutive
Issuance by a fraction, (A) the numerator of which is an amount equal to the sum
of (x) the number of shares of Common Stock actually outstanding immediately
prior to the Dilutive Issuance, plus (y) the quotient of the aggregate
consideration, calculated as set forth in Section 4(b) hereof, received by the
Company upon such Dilutive Issuance divided by the Exercise Price in effect
immediately prior to the Dilutive Issuance, and (B) the denominator of which is
the total number of shares of Common Stock Deemed Outstanding (as defined below)
immediately after the Dilutive Issuance; provided, however, that only one
adjustment will be made for each Dilutive Issuance. No adjustment to the
Exercise Price shall have the effect of increasing the Exercise Price above the
Exercise Price in effect immediately prior to such adjustment.
b. EFFECT ON EXERCISE PRICE OF CERTAIN EVENTS. For purposes of
determining the adjusted Exercise Price under Section 4(a) hereof, the following
will be applicable:
i. ISSUANCE OF RIGHTS OR OPTIONS. If the Company in any
manner issues or grants any warrants, rights or options, whether or not
immediately exercisable, to subscribe for or to purchase Common Stock or other
securities convertible into or exchangeable for Common Stock ("CONVERTIBLE
SECURITIES") (such warrants, rights and options to purchase Common Stock or
Convertible Securities are hereinafter referred to as "OPTIONS") and the price
per share for which Common Stock is issuable upon the exercise of such Options
is less than the Exercise Price on the date of issuance or grant of such
Options, then the maximum total number of shares of Common Stock issuable upon
the exercise of all such Options will, as of the date of the issuance or grant
of such Options, be deemed to be outstanding and to have been issued and sold by
the Company for such price per share. For purposes of the preceding sentence,
the "price per share for which Common Stock is issuable upon the exercise of
such Options" is determined by dividing (i) the total amount, if any, received
or receivable by the Company as consideration for the issuance or granting of
all such Options, plus the minimum aggregate amount of additional consideration,
if any, payable to the Company upon the exercise of all such Options, plus, in
the case of Convertible Securities issuable upon the exercise of such Options,
the minimum aggregate amount of additional consideration payable upon the
conversion or exchange thereof at the time such Convertible Securities first
become convertible or exchangeable, by (ii) the maximum total number of shares
of Common Stock issuable upon the exercise of all such Options (assuming full
conversion of Convertible Securities, if applicable). No further adjustment to
the Exercise Price will be made upon the actual issuance of such Common Stock
upon the exercise of such Options or upon the conversion or exchange of
Convertible Securities issuable upon exercise of such Options.
5
ii. ISSUANCE OF CONVERTIBLE SECURITIES. If the Company in
any manner issues or sells any Convertible Securities, whether or not
immediately convertible (other than where the same are issuable upon the
exercise of Options) and the price per share for which Common Stock is issuable
upon such conversion or exchange is less than the Exercise Price on the date of
issuance, then the maximum total number of shares of Common Stock issuable upon
the conversion or exchange of all such Convertible Securities will, as of the
date of the issuance of such Convertible Securities, be deemed to be outstanding
and to have been issued and sold by the Company for such price per share. For
the purposes of the preceding sentence, the "price per share for which Common
Stock is issuable upon such conversion or exchange" is determined by dividing
(i) the total amount, if any, received or receivable by the Company as
consideration for the issuance or sale of all such Convertible Securities, plus
the minimum aggregate amount of additional consideration, if any, payable to the
Company upon the conversion or exchange thereof at the time such Convertible
Securities first become convertible or exchangeable, by (ii) the maximum total
number of shares of Common Stock issuable upon the conversion or exchange of all
such Convertible Securities. No further adjustment to the Exercise Price will be
made upon the actual issuance of such Common Stock upon conversion or exchange
of such Convertible Securities.
iii. CHANGE IN OPTION PRICE OR CONVERSION RATE. If there is
a change at any time in (i) the amount of additional consideration payable to
the Company upon the exercise of any Options; (ii) the amount of additional
consideration, if any, payable to the Company upon the conversion or exchange of
any Convertible Securities; or (iii) the rate at which any Convertible
Securities are convertible into or exchangeable for Common Stock (other than
under or by reason of provisions designed to protect against dilution), the
Exercise Price in effect at the time of such change will be readjusted to the
Exercise Price which would have been in effect at such time had such Options or
Convertible Securities still outstanding provided for such changed additional
consideration or changed conversion rate, as the case may be, at the time
initially granted, issued or sold.
iv. TREATMENT OF EXPIRED OPTIONS AND UNEXERCISED CONVERTIBLE
SECURITIES. If, in any case, the total number of shares of Common Stock issuable
upon exercise of any Option or upon conversion or exchange of any Convertible
Securities is not, in fact, issued and the rights to exercise such Option or to
convert or exchange such Convertible Securities shall have expired or
terminated, the Exercise Price then in effect will be readjusted to the Exercise
Price which would have been in effect at the time of such expiration or
termination had such Option or Convertible Securities, to the extent outstanding
immediately prior to such expiration or termination (other than in respect of
the actual number of shares of Common Stock issued upon exercise or conversion
thereof), never been issued.
v. CALCULATION OF CONSIDERATION RECEIVED. If any Common
Stock, Options or Convertible Securities are issued, granted or sold for cash,
the consideration received therefor for purposes of this Warrant will be the
amount received by the Company therefor, before deduction of reasonable
commissions, underwriting discounts or allowances or other reasonable expenses
paid or incurred by the Company in connection with such issuance, grant or sale.
In case any Common Stock, Options or Convertible Securities are issued or sold
for a consideration part or all of which shall be other than cash, the amount of
the consideration other than cash received by the Company will be the fair value
of such consideration, except
6
where such consideration consists of securities, in which case the amount of
consideration received by the Company will be the average Market Price per share
of the Common Stock for the five (5) Trading Days immediately prior to the date
of receipt. In case any Common Stock, Options or Convertible Securities are
issued in connection with any acquisition, merger or consolidation in which the
Company is the surviving corporation, the amount of consideration therefor will
be deemed to be the fair value of such portion of the net assets and business of
the non-surviving corporation as is attributable to such Common Stock, Options
or Convertible Securities, as the case may be. The fair value of any
consideration other than cash or securities will be determined in good faith by
the Board of Directors of the Company.
vi. EXCEPTIONS TO ADJUSTMENT OF EXERCISE PRICE. No
adjustment to the Exercise Price will be made upon (A) the exercise of any
warrants or options or conversion of convertible securities granted, issued and
outstanding on the date of issuance of this Warrant or (B) upon the exercise of
any Warrants issued pursuant to the Note Purchase Agreement.
c. SUBDIVISION OR COMBINATION OF COMMON STOCK. If the Company at
any time subdivides (by any stock split, stock dividend, recapitalization,
reorganization, reclassification or otherwise) the shares of Common Stock
acquirable hereunder into a greater number of shares, then, after the date of
record for effecting such subdivision, the Exercise Price in effect immediately
prior to such subdivision will be proportionately reduced. If the Company at any
time combines (by any reverse stock split, recapitalization, reorganization,
reclassification or otherwise) the shares of Common Stock acquirable hereunder
into a smaller number of shares, then, after the date of record for effecting
such combination, the Exercise Price in effect immediately prior to such
combination will be proportionately increased.
d. ADJUSTMENT IN NUMBER OF SHARES. Upon each adjustment of the
Exercise Price pursuant to the provisions of this Section 4, the number of
shares of Common Stock issuable upon exercise of this Warrant shall be adjusted
by multiplying a number equal to the Exercise Price in effect immediately prior
to such adjustment by the number of shares of Common Stock issuable upon
exercise of this Warrant immediately prior to such adjustment and dividing the
product so obtained by the adjusted Exercise Price.
e. CONSOLIDATION, MERGER OR SALE. In case of any consolidation of
the Company with, or merger of the Company into any other corporation, or in
case of any sale or conveyance of all or substantially all of the assets of the
Company other than in connection with a plan of complete liquidation of the
Company, then as a condition of such consolidation, merger or sale or
conveyance, adequate provision will be made whereby the Holder of this Warrant
will have the right to acquire and receive upon exercise of this Warrant in lieu
of the shares of Common Stock immediately theretofore acquirable upon the
exercise of this Warrant, such shares of stock, securities or assets as may be
issued or payable with respect to or in exchange for the number of shares of
Common Stock immediately theretofore acquirable and receivable upon exercise of
this Warrant had such consolidation, merger or sale or conveyance not taken
place. In any such case, the Company will make appropriate provision to insure
that the provisions of this Section 4 hereof will thereafter be applicable as
nearly as may be in relation to any shares of stock or securities thereafter
deliverable upon the exercise of this Warrant. The Company will not effect any
consolidation, merger or sale or conveyance unless
7
prior to the consummation thereof, the successor corporation (if other than the
Company) assumes by written instrument the obligations under this Section 4 and
the obligations to deliver to the Holder of this Warrant such shares of stock,
securities or assets as, in accordance with the foregoing provisions, the Holder
may be entitled to acquire.
f. DISTRIBUTION OF ASSETS. In case the Company shall declare or
make any distribution of its assets (including cash) to holders of Common Stock
as a partial liquidating dividend, by way of return of capital or otherwise,
then, after the date of record for determining shareholders entitled to such
distribution, but prior to the date of distribution, the Holder of this Warrant
shall be entitled upon exercise of this Warrant for the purchase of any or all
of the shares of Common Stock subject hereto, to receive the amount of such
assets which would have been payable to the Holder had the Holder been the
holder of such shares of Common Stock on the record date for the determination
of shareholders entitled to such distribution.
g. NOTICE OF ADJUSTMENT. Upon the occurrence of any event which
requires any adjustment of the Exercise Price, then, and in each such case, the
Company shall give notice thereof to the Holder of this Warrant, which notice
shall state the Exercise Price resulting from such adjustment and the increase
or decrease in the number of Warrant Shares purchasable at such price upon
exercise, setting forth in reasonable detail the method of calculation and the
facts upon which such calculation is based. Such calculation shall be certified
by the Chief Financial Officer of the Company.
h. MINIMUM ADJUSTMENT OF EXERCISE PRICE. No adjustment of the
Exercise Price shall be made in an amount of less than 1% of the Exercise Price
in effect at the time such adjustment is otherwise required to be made, but any
such lesser adjustment shall be carried forward and shall be made at the time
and together with the next subsequent adjustment which, together with any
adjustments so carried forward, shall amount to not less than 1% of such
Exercise Price.
i. NO FRACTIONAL SHARES. No fractional shares of Common Stock are
to be issued upon the exercise of this Warrant, but the Company shall pay a cash
adjustment in respect of any fractional share which would otherwise be issuable
in an amount equal to the same fraction of the average Market Price per share of
the Common Stock for the five (5) Trading Days immediately prior to the date of
such exercise.
j. OTHER NOTICES. In case at any time:
i. the Company shall declare any dividend upon the Common
Stock payable in shares of stock of any class or make any other distribution
(including dividends or distributions payable in cash out of retained earnings)
to the holders of the Common Stock;
ii. the Company shall offer for subscription pro rata to the
holders of the Common Stock any additional shares of stock of any class or other
rights;
iii. there shall be any capital reorganization of the
Company, or reclassification of the Common Stock, or consolidation or merger of
the Company with or into, or sale of all or substantially all its assets to,
another corporation or entity;
8
iv. there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company; or
v. any other Fundamental Change is about to occur,
then, in each such case, the Company shall give to the Holder of this Warrant
(a) notice of the date on which the books of the Company shall close or a record
shall be taken for determining the holders of Common Stock entitled to receive
any such dividend, distribution, or subscription rights or for determining the
holders of Common Stock entitled to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up and (b) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding-up, or other
Fundamental Change, notice of the date (or, if not then known, a reasonable
approximation thereof by the Company) when the same shall take place. Such
notice shall also specify the date on which the holders of Common Stock shall be
entitled to receive such dividend, distribution, or subscription rights or to
exchange their Common Stock for stock or other securities or property
deliverable upon such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation, or winding-up, as the case may be. Such notice
shall be given at least thirty (30) days prior to the record date or the date on
which the Company's books are closed in respect thereto. Failure to give any
such notice or any defect therein shall not affect the validity of the
proceedings referred to in clauses (i), (ii), (iii) and (iv) above.
k. CERTAIN DEFINITIONS.
i. "BLOOMBERG" shall mean Bloomberg, L.P. (or any successor
to its function of reporting stock prices).
ii. "COMMON STOCK DEEMED OUTSTANDING" shall mean the number
of shares of Common Stock actually outstanding (not including shares of Common
Stock held in the treasury of the Company), plus (x) pursuant to Section 4(b)(i)
hereof, the maximum total number of shares of Common Stock issuable upon the
exercise of Options, as of the date of such issuance or grant of such Options,
if any, and (y) pursuant to Section 4(b)(ii) hereof, the maximum total number of
shares of Common Stock issuable upon conversion or exchange of Convertible
Securities, as of the date of issuance of such Convertible Securities, if any.
iii. "MARKET PRICE" means, as of any Trading Day, (i) ) the
average of the last reported sale prices for the shares of Common Stock on a
national securities exchange which is the principal trading market for the
Common Stock for the five (5) Trading Days immediately preceding such date as
reported by Bloomberg or (ii) if no national securities exchange is the
principal trading market for the shares of Common Stock, the average of the last
reported sale prices on the principal trading market for the Common Stock during
the same period as reported by Bloomberg, or (iii) if market value cannot be
calculated as of such date on any of the foregoing bases, the Market Price shall
be the fair market value as reasonably determined in good faith by (A) the Board
of Directors of the Company, or (B) at the option of a majority-in-interest of
the holders of the outstanding Warrants by an independent investment bank of
nationally recognized standing in the valuation of businesses similar to the
business of
9
the Company. The manner of determining the Market Price of the Common Stock set
forth in the foregoing definition shall apply with respect to any other security
in respect of which a determination as to market value must be made hereunder.
iv. "COMMON STOCK," for purposes of this Section 4, includes
the Common Stock, $0.01 par value per share, and any additional class of stock
of the Company having no preference as to dividends or distributions on
liquidation, provided that the shares purchasable pursuant to this Warrant shall
include only shares of Common Stock, $0.01 par value per share, in respect of
which this Warrant is exercisable, or shares resulting from any subdivision or
combination of such Common Stock, or in the case of any reorganization,
reclassification, consolidation, merger, or sale of the character referred to in
Section 4(e) hereof, the stock or other securities or property provided for in
such Section.
v. "TRADING DAY" shall mean any day on which the Common
Stock is traded for any period on the principal securities exchange or other
securities market on which the Common Stock is then being traded.
l. EXEMPT ISSUANCES. The provisions of Section 4(a) shall not
apply to (i) the issuance of shares of Common Stock or options or warrants to
purchase Common Stock to employees of the Company pursuant to any stock or
option plan duly adopted by the Board of Directors of the Company on or before
June 14, 2006, or (ii) the issuance of shares of Common Stock upon conversion of
any of the Notes.
m. ADJUSTMENTS AFTER QUALIFIED PUBLIC OFFERING.
i. DEFINITIONS. The term "QUALIFIED PUBLIC OFFERING" shall
mean the consummation of a sale in connection with an underwritten public
offering by the Company under the Securities Act of Common Stock in which the
aggregate gross proceeds to the Company equal or exceed $8,000,000 and the price
per share is at least $2.00.
ii. GENERAL. Simultaneous with a Qualified Public Offering,
(A) the Exercise Price shall be adjusted to an amount equal to the offering
price of the Common Stock in the Qualified Public Offering (the "IPO PRICE") and
(B) the number of Warrant Shares issuable upon exercise of this Warrant shall be
equal to the difference between, but not below zero, of (x) (1) the number of
Warrant Shares originally issuable under this Warrant multiplied by (2) the
original Exercise Price as set forth in the introductory paragraph to this
Warrant and divided by (3) the IPO Price, less (y) the number of Warrant Shares
exercised and delivered to the Holder in accordance herewith prior to the
Qualified Public Offering.
5. ISSUE TAX. The issuance of certificates for Warrant Shares upon the
exercise of this Warrant shall be made without charge to the Holder of this
Warrant or such shares for any issuance tax or other costs in respect thereof,
provided that the Company shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issuance and delivery of any
certificate in a name other than the Holder of this Warrant.
6. NO RIGHTS OR LIABILITIES AS A STOCKHOLDER. This Warrant shall not
entitle the Holder to any voting rights or other rights as a stockholder of the
Company. No provision of this Warrant, in the absence of affirmative action by
the Holder to purchase Warrant Shares, and
10
no mere enumeration herein of the rights or privileges of the Holder, shall give
rise to any liability of the Holder for the Exercise Price or as a stockholder
of the Company, whether such liability is asserted by the Company or by
creditors of the Company.
7. TRANSFER, EXCHANGE, AND REPLACEMENT OF WARRANT.
a. RESTRICTION ON TRANSFER. This Warrant and the rights granted
to the Holder are transferable, in whole or in part, upon surrender of this
Warrant, together with a properly executed assignment in the form attached
hereto, at the office or agency of the Company referred to in Section 7(e)
below, provided, however, that any transfer or assignment shall be subject to
the conditions set forth in Section 7(f) hereof and to the applicable provisions
of the Note Purchase Agreement. Until due presentment for registration of
transfer on the books of the Company, the Company may treat the registered
holder hereof as the owner and holder hereof for all purposes, and the Company
shall not be affected by any notice to the contrary. Notwithstanding anything to
the contrary contained herein, the registration rights described in Section 8
are assignable only in accordance with the provisions of the Registration Rights
Agreement.
b. WARRANT EXCHANGEABLE FOR DIFFERENT DENOMINATIONS. This Warrant
is exchangeable, upon the surrender hereof by the Holder at the office or agency
of the Company referred to in Section 7(e) below, for new Warrants of like tenor
representing in the aggregate the right to purchase the number of shares of
Common Stock, in not less than 1,000 increments, which may be purchased
hereunder, each of such new Warrants to represent the right to purchase such
number of shares as shall be designated by the Holder at the time of such
surrender.
c. REPLACEMENT OF WARRANT. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction, or mutilation of
this Warrant and, in the case of any such loss, theft, or destruction, upon
delivery of an indemnity agreement reasonably satisfactory in form and amount to
the Company, or, in the case of any such mutilation, upon surrender and
cancellation of this Warrant, the Company, at its expense, will execute and
deliver, in lieu thereof, a new Warrant of like tenor.
d. CANCELLATION; PAYMENT OF EXPENSES. Upon the surrender of this
Warrant in connection with any transfer, exchange, or replacement as provided in
this Section 7, this Warrant shall be promptly canceled by the Company. The
Company shall pay all taxes (other than securities transfer taxes) and all other
expenses (other than legal expenses, if any, incurred by the Holder) and charges
payable in connection with the preparation, execution, and delivery of Warrants
pursuant to this Section 7.
e. REGISTER. The Company shall maintain, at its principal
executive offices (or such other office or agency of the Company as it may
designate by notice to the Holder), a register for this Warrant, in which the
Company shall record the name and address of the person in whose name this
Warrant has been issued, as well as the name and address of each transferee and
each prior owner of this Warrant.
f. EXERCISE OR TRANSFER WITHOUT REGISTRATION. If, at the time of
the surrender of this Warrant in connection with any exercise, transfer, or
exchange of this Warrant,
11
this Warrant (or, in the case of any exercise, the Warrant Shares issuable
hereunder), shall not be registered under the Securities Act and under
applicable state securities or blue sky laws, the Company may require, as a
condition of allowing such exercise, transfer, or exchange, (i) that the Holder
furnish to the Company a written opinion of counsel, which opinion and counsel
are acceptable to the Company, to the effect that such exercise, transfer, or
exchange may be made without registration under the Securities Act and under
applicable state securities or blue sky laws, (ii) that the Holder execute and
deliver to the Company an investment letter in form and substance acceptable to
the Company and (iii) that the transferee be an "accredited investor" as defined
in Rule 501(a) promulgated under the Securities Act; provided, however, that no
such opinion, letter or status as an "accredited investor" shall be required in
connection with a transfer pursuant to Rule 144 under the Securities Act. The
first Holder of this Warrant, by taking and holding the same, represents to the
Company that such Holder is acquiring this Warrant for investment and not with a
view to the distribution thereof.
8. REGISTRATION RIGHTS. The initial Holder of this Warrant (and
certain assignees thereof) is entitled to the benefit of such registration
rights in respect of the Warrant Shares as are set forth in the Registration
Rights Agreement dated June 14, 2006 by and among the Company the Initial
Investors listed on the execution page thereof (the "REGISTRATION RIGHTS
AGREEMENT").
9. NOTICES. All notices, requests, and other communications required
or permitted to be given or delivered hereunder to the Holder of this Warrant
shall be in writing, and shall be personally delivered, or shall be sent by
certified or registered mail or by recognized overnight mail courier, postage
prepaid and addressed, to the Holder at the address shown for the Holder as
provided in the Note Purchase Agreement, or at such other address as shall have
been furnished to the Company by notice from the Holder. All notices, requests,
and other communications required or permitted to be given or delivered
hereunder to the Company shall be in writing, and shall be personally delivered,
or shall be sent by certified or registered mail or by recognized overnight mail
courier, postage prepaid and addressed, to the office of the Company at N93
X00000 Xxxxxxxxx Xxx, Xxxxxxxxx Xxxxx, Xxxxxxxxx 00000, Attention Xxxxxx Xxxxx,
Chief Executive Officer, or at such other address as shall have been furnished
to the Holder of this Warrant by notice from the Company. Any such notice,
request, or other communication may be sent by facsimile, but shall in such case
be subsequently confirmed by a writing personally delivered or sent by certified
or registered mail or by recognized overnight mail courier as provided above.
All notices, requests, and other communications shall be deemed to have been
given either at the time of the receipt thereof by the person entitled to
receive such notice at the address of such person for purposes of this Section
9, or, if mailed by registered or certified mail or with a recognized overnight
mail courier upon deposit with the United States Post Office or such overnight
mail courier, if postage is prepaid and the mailing is properly addressed, as
the case may be.
10. GOVERNING LAW. THIS WARRANT SHALL BE ENFORCED, GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE, WITHOUT REGARD
TO THE PRINCIPLES OF CONFLICT OF LAWS. THE COMPANY HEREBY SUBMITS TO THE
EXCLUSIVE JURISDICTION OF THE UNITED STATES FEDERAL COURTS AND NEW YORK STATE
COURTS LOCATED IN NEW YORK, NEW YORK WITH RESPECT TO ANY DISPUTE ARISING UNDER
THIS WARRANT, THE AGREEMENTS ENTERED INTO IN
12
CONNECTION HEREWITH OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. THE
COMPANY IRREVOCABLY WAIVES THE DEFENSE OF AN INCONVENIENT FORUM TO THE
MAINTENANCE OF SUCH SUIT OR PROCEEDING. THE COMPANY FURTHER AGREES THAT SERVICE
OF PROCESS UPON IT MAILED BY FIRST CLASS MAIL SHALL BE DEEMED IN EVERY RESPECT
EFFECTIVE SERVICE OF PROCESS UPON THE COMPANY IN ANY SUCH SUIT OR PROCEEDING.
NOTHING HEREIN SHALL AFFECT THE HOLDER'S RIGHT TO SERVE PROCESS IN ANY OTHER
MANNER PERMITTED BY LAW. A FINAL NON-APPEALABLE JUDGMENT IN ANY SUCH SUIT OR
PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY
SUIT ON SUCH JUDGMENT OR IN ANY OTHER LAWFUL MANNER. THE PARTY WHICH DOES NOT
PREVAIL IN ANY DISPUTE ARISING UNDER THIS WARRANT SHALL BE RESPONSIBLE FOR ALL
FEES AND EXPENSES, INCLUDING ATTORNEYS' FEES, INCURRED BY THE PREVAILING PARTY
IN CONNECTION WITH SUCH DISPUTE.
11. COMPENSATION FOR BUY-IN ON FAILURE TO TIMELY DELIVER CERTIFICATES
UPON EXERCISE. In addition to any other rights available to the Holder, if the
Company fails for any reason to deliver to the Holder such certificate or
certificates pursuant to Section 1 by the third (3rd) Business Day after
exercise, and if after such third (3rd) Business Day after exercise the Holder
is required by its brokerage firm to purchase (in an open market transaction or
otherwise) Common Stock to deliver in satisfaction of a sale by such Holder of
Common Stock which the Holder anticipated receiving upon such exercise (a
"BUY-IN"), then the Company shall (a) pay in cash to the Holder (in addition to
any remedies available to or elected by the Holder) the amount by which (i) the
Holder's total purchase price (including brokerage commissions, if any) for the
Common Stock so purchased exceeds (ii) the product of (A) the aggregate number
of shares of Common Stock that such Holder anticipated receiving from the
exercise at issue multiplied by (B) the actual sale price of the Common Stock at
the time of the sale (including brokerage commissions, if any) giving rise to
such purchase obligation and (b) at the option of the Holder, either reissue an
identical Warrant to purchase such number of shares of Common Stock equal to
attempted exercise or deliver to the Holder the number of shares of Common Stock
that would have been issued had the Company timely complied with its delivery
requirements under Section 1. The Holder shall provide the Company written
notice indicating the amounts payable to the Holder in respect of the Buy-In.
12. MISCELLANEOUS.
a. AMENDMENTS. This Warrant and any provision hereof may be
amended by an instrument in writing signed by the Company and holders of a
majority of the then-unexercised Warrant Shares underlying the Warrants issued
pursuant to the Note Purchase Agreement. All such amendments shall be binding to
all Holders of Warrants issued pursuant to the Note Purchase Agreement.
b. DESCRIPTIVE HEADINGS. The descriptive headings of the several
sections of this Warrant are inserted for purposes of reference only, and shall
not affect the meaning or construction of any of the provisions hereof.
c. 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 transaction contemplated 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
13
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
thereof, without the necessity of showing economic loss and without any bond or
other security being required.
[remainder of page intentionally left blank]
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IN WITNESS WHEREOF, the Company has caused this Warrant to be signed
by its duly authorized officer.
ZBB ENERGY CORPORATION
By:
------------------------------------
Xxxxxx Xxxxx
Chief Executive Officer
Dated as of June 14, 2006
15
FORM OF EXERCISE AGREEMENT
Dated: _________ __, 200_
To: ZBB Energy Corporation
X00 X00000 Xxxxxxxxx Xxx
Xxxxxxxxx Xxxxx, XX 00000
Attn: Xxxxxx Xxxxx, Chief Executive Officer
The undersigned, pursuant to the provisions set forth in the within
Warrant, hereby agrees to purchase ________ shares of Common Stock covered by
such Warrant, and makes payment herewith in full therefor at the price per share
provided by such Warrant in cash or by certified or official bank check or by
wired funds in the amount of, or, if the resale of such Common Stock by the
undersigned is not currently registered pursuant to an effective registration
statement under the Securities Act of 1933, as amended, by surrender of
securities issued by the Company (including a portion of the Warrant) having a
market value (in the case of a portion of this Warrant, determined in accordance
with Section 1(c) of the Warrant) equal to $_________. Please issue a
certificate or certificates for such shares of Common Stock in the name of and
pay any cash for any fractional share to:
Name:
--------------------------------------
Signature:
---------------------------------
Address:
-----------------------------------
-----------------------------------
Note: The above signature should correspond
exactly with the name on the face of
the within Warrant, if applicable.
and, if said number of shares of Common Stock shall not be all the shares
purchasable under the within Warrant, a new Warrant is to be issued in the name
of said undersigned covering the balance of the shares purchasable thereunder
less any fraction of a share paid in cash.
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and
transfers all the rights of the undersigned under the within Warrant, with
respect to the number of shares of Common Stock covered thereby set forth herein
below, to:
Name of Assignee Address No of Shares
---------------- ------- ------------
, and hereby irrevocably constitutes and appoints ______________________________
________ as agent and attorney-in-fact to transfer said Warrant on the books of
the within-named corporation, with full power of substitution in the premises.
Dated: ________ __, 200_
In the presence of:
--------------------------------------
Name:
--------------------------------------
Signature:
---------------------------------
Title of Signing Officer or Agent (if any):
-----------------------------------
Address:
-----------------------------------
-----------------------------------
Note: The above signature should correspond
exactly with the name on the face of
the within Warrant, if applicable.
