EXHIBIT 4.2
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES
UNDER SUCH ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO AN EXEMPTION TO SUCH
ACT.
QUALMARK CORPORATION
WARRANT TO PURCHASE SHARES OF COMMON STOCK
VOID AFTER MARCH 26, 2007
THIS CERTIFIES THAT, for value received, The Xxxxx Partnership III,
SBIC, LP, a Colorado limited partnership (the "Holder") is entitled to purchase,
on the terms and subject to the conditions hereof, up to such number of shares
of Common Stock, no par value (the "Common Stock"), of QualMark Corporation, a
Colorado corporation (the "Company"), equal to 25% of the number of shares of
Common Stock into which the shares of Series C Convertible Preferred Stock of
the Company ("Series C Preferred") held by Xxxxxx is convertible on the date of
such conversion, at a per share purchase price of $1.265 (the "Exercise Price"),
subject to adjustment as provided herein.
The following terms shall apply to this Warrant:
1. EXERCISE OF WARRANT.
The terms and conditions upon which this Warrant may be exercised, and
the Common Stock covered hereby (the "Warrant Shares"), may be purchased, are as
follows:
1.1. Number of Shares. This Warrant is being delivered to
Holder as additional consideration for Xxxxxx's contemporaneous acquisition of
shares of Series C Preferred of the Company. The number of Warrant Shares for
which this Warrant is initially exercisable is such number of shares of Common
Stock equal to 25% of the number of shares of Common Stock into which the shares
of Series C Preferred held by Holder is convertible on the date of such
conversion pursuant to the terms of the Certificate of Designations of the
Series C Preferred filed by the Company with the Secretary of State of the State
of Colorado, which number of Warrant Shares is subject to adjustment pursuant
to Section 2 of this Warrant.
1.2. Exercise. This Warrant may be exercised in whole or in
part at any time or from time to time up until 5:00 p.m. Mountain Standard Time,
March 26, 2007, and shall be void thereafter. The exercise of the purchase
rights hereunder, in whole or in part shall be effected by (a) the surrender of
this Warrant, together with a duly executed copy of the form of the subscription
attached as Exhibit A hereto, to the Company at its principal offices, and (b)
the delivery of the
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Exercise Price by (i) cashier's or certified check or bank draft payable to the
Company's order, or (ii) by wire transfer to the Company's account for the
number of Warrant Shares for which the purchase rights hereunder are being
exercised, or (iii) following the procedures set forth in Section 1.4(b).
1.3. Automatic Exercise. Notwithstanding the provisions of
Section 1.1 above, this Warrant shall automatically be deemed to be exercised in
full in the manner set forth in Section 1.4 hereof, without any further action
on behalf of the Holder (other than the payment of the exercise price) on the
earliest of a date: (a) immediately prior to the time this Warrant would
otherwise expire, or (b) ten (10) days prior to a "Sale of the Company" (as
defined). A "Sale of the Company" shall mean either of the following (i) the
acquisition of all or substantially all of the capital stock of the Company by
another entity by means of any transaction or series of related transactions
(including, without limitation, any reorganization, merger or consolidation but,
excluding any merger effected exclusively for the purpose of changing the
domicile of the Company) with the result that the Company's shareholders of
record as constituted immediately prior to such acquisition or sale, immediately
after such acquisition or sale (by virtue of securities issued as consideration
for the Company's acquisition or sale or otherwise) hold less than 50% of the
voting power of the surviving or acquiring entity; or (ii) a sale of all or
substantially all of the assets of the Company. . In connection with the
exercise of this Warrant pursuant to clause (b) of this Section 1.3, such
exercise shall be conditioned upon the closing of such Sale of the Company and
the Warrant shall not be deemed to have been exercised until the closing of such
Sale of the Company.
1.4. Net Issue Election.
(a) Upon automatic exercise of this Warrant as
provided in Section 1.3 above or at any time or from time to time as the Holder
may elect, the Holder shall be entitled to receive, without the payment by the
Holder of any additional consideration, shares of Common Stock equal to the
value of this Warrant or any portion hereof by the surrender of this Warrant or
such portion to the Company, with the net issue election notice attached hereto
as Exhibit B duly executed, at the principal office of the Company. Thereupon,
the Company shall issue to the Holder such number of fully paid and
nonassessable shares of Common Stock as is computed using the following formula:
X=Y (A-B)
-------
A
where: X= the number of shares of Common Stock to be issued
to the Holder.
Y= the number of shares of Common Stock covered by
this Warrant in respect of which the net issue election is made.
A= the fair market value of one share of Common
Stock, as determined pursuant to subsection (b) below, as at the time the net
issue election is made.
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B= the Exercise Price in effect under this Warrant at
the time the net issue election is made.
(b) Determination of Fair Market Value. For purposes
of this Section, fair market value of one share of Common Stock as of a
particular date (the "Determination Date") shall mean:
(1) In the case of a Sale of the Company,
the effective per share consideration to be received in a Sale of the
Company by holders of the Common Stock, or if no such price is set
forth in the agreement concerning the Sale of the Company, then as
determined pursuant to subsections (b)(2) and (b)(3) below;
(2) If the Company's Common Stock is listed
or quoted on the Nasdaq National Market, the Nasdaq SmallCap Market,
OTC Bulletin Board or other security exchange, the closing price of the
Company's Common Stock on such exchange or the Nasdaq National Market,
the Nasdaq SmallCap Market, OTC Bulletin Board on the day notice of
exercise is provided to the Company under Section 1.4(b) hereof; or
(3) If Sections 1.4(b)(1) or (2) do not
apply, then as determined by the Board of Directors in good faith;
provided, however, that if the Holder does not agree with such
determination, then the Holder shall be entitled to request within ten
days of the date of such determination that the determination of fair
market value be submitted to an independent appraiser. In such event,
the Holder and the Company shall each select an independent appraiser,
which appraisers shall select a third independent appraiser within 30
days of the expiration of the ten-day period reference above to conduct
the appraisal. The appraisal of the third appraiser shall control and
be the fair market value of the Common Stock for purposes of this
Warrant. The cost of the appraiser shall be borne equally by the
Company and the Holder; provided, however, that if the fair market
value determination of the appraiser exceeds the fair market value
determination of the Board of Directors by 15% or more, the cost of the
appraiser shall be borne by the Company.
1.5. Issuance of Shares. Upon the exercise of the purchase
rights, in whole or in part, evidenced by this Warrant, a certificate or
certificates for the purchased Warrant Shares shall be issued by the Company to
the Holder as soon as practicable. Upon the partial exercise of this Warrant,
the Company shall, as soon as practicable, deliver to the Holder a warrant in
like tenor as this Warrant to purchase the number of shares in respect of which
this Warrant shall not have been exercised.
2. CERTAIN ADJUSTMENTS.
2.1. Common Stock Dividends. If the Company at any time prior
to the expiration of this Warrant shall pay a dividend with respect to the
Company's Common Stock payable in shares of Common Stock, or make any
distribution with respect to the Company's Common Stock, then the purchase price
per share shall be appropriately decreased, and the number of Warrant Shares
shall be appropriately increased in proportion to such dividend.
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2.2. Splits and Subdivisions. In the event the Company should
at any time or from time to time fix a record date for a split or subdivision of
the outstanding shares of Common Stock of the Company, or the determination of
the holders of Common Stock of the Company entitled to receive a dividend or
other distribution payable in additional shares of Common Stock of the Company
or other securities or rights convertible into, or entitling the holder thereof
to receive directly or indirectly, additional shares of the Company's Common
Stock (hereinafter referred to as the "Common Stock Equivalents") without
payment of any consideration by such holder for the additional shares of Common
Stock or Common Stock Equivalents (including the additional shares of Common
Stock issuable upon conversion or exercise thereof), then, and as of such record
date (or the date of such distribution, split or subdivision if no record date
is fixed), the per share purchase price shall be appropriately decreased, and
the number of Warrant Shares shall be appropriately increased in proportion to
such increase of outstanding shares.
2.3. Combination of Shares. If the number of shares of Common
Stock outstanding at any time after the date hereof is decreased by a
combination of the outstanding shares of Common Stock of the Company, the per
share purchase price shall be appropriately increased and the number of Warrant
Shares shall be appropriately decreased in proportion to such decrease in
outstanding shares.
2.4. Adjustments for Other Distributions. In the event the
Company shall declare a distribution with respect to the Common Stock payable in
securities of other persons, evidences of indebtedness issued by the Company or
other persons, assets, or options, or rights not referred to above, then, in
each such case for the purpose of this Section 2, upon exercise of this Warrant
the holder hereof shall be entitled to a proportionate share of any such
distribution as though such holder was the holder of the number of shares of
Common Stock of the Company into which this Warrant may be exercised as of the
record date fixed for the determination of the holders of Common Stock of the
Company entitled to receive such distribution.
2.5. Certificate as to Adjustments. In the case of each
adjustment or readjustment of the purchase price pursuant to this Section 2, the
Company will promptly compute such adjustment or readjustment in accordance with
the terms hereof and cause a certificate setting forth such adjustment or
readjustment, and showing in detail the fact upon which such adjustment or
readjustment is based to be delivered to the holder of this Warrant.
The Company will, upon the written request at any time of the
holder of this Warrant, furnish or cause to be furnished to such holder a
certificate setting forth:
(a) such adjustments and readjustments;
(b) the purchase price at the time in effect; and
(c) the number of Warrant Shares receivable upon the
exercise of the Warrant.
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2.6. Notice of Record Date, etc. In the event of any taking by
the Company of a record of the holders of any class of securities of the Company
for the purpose of determining the holders thereof who are entitled to receive
any dividend (other than a cash dividend), or other distribution, or any right
to subscribe for, purchase or otherwise acquire any shares of stock of any class
or any other securities or property, or to receive any other right, or any
capital reorganization of the Company, any reclassification or recapitalization
of the capital stock of the Company, the Company will mail to the holder of this
Warrant at least twenty (20) days prior to the earliest date specified therein,
a notice specifying:
(a) The date on which such record is to be taken for
the purpose of such dividend distribution or right and the amount and character
of such dividend, distribution or right; or
(b) The date on which any such reorganization, or
reclassification is expected to become effective, and the record date for
determining shareholders entitled to vote thereon.
3. REPRESENTATIONS OF HOLDER.
3.1. Investment Intent. Holder hereby warrants and represents
that Holder is acquiring this Warrant, and any Warrant Shares issued upon
exercise of this Warrant, for Xxxxxx's own account and not with a view for their
resale or distribution.
3.2. Exempt from Registration. Holder acknowledges that this
Warrant has not been registered under the Securities Act of 1933, as amended
(the "1933 Act"), on the ground that the issuance of this Warrant is exempt from
registration pursuant to Section 4(2) of the 1933 Act, and that the Company's
reliance on such exemption is predicated on the representations of Holder set
forth herein.
3.3. Investment Experience. In connection with the investment
representations made herein, Holder represents that it is able to fend for
itself in the transactions contemplated by this Warrant, has such knowledge and
experience in financial and business matters as to be capable of evaluating the
merits and risks of his investment, has the ability to bear the economic risks
of its investment and has been furnished with and has had access to such
information as it has requested and deemed appropriate to its investment
decision.
3.4. Restricted Securities. Holder hereby confirms that Xxxxxx
has been informed that this Warrant, and the Warrant Shares issued upon exercise
of this Warrant, are restricted securities under the 1933 Act and may not be
resold or transferred unless this Warrant, and the Warrant Shares issued upon
exercise of this Warrant, are first registered under the federal securities laws
or unless an exemption from such registration is available.
Disposition of Shares. Holder hereby agrees that
Holder shall make no disposition of this Warrant, and the Warrant Shares issued
upon exercise of this Warrant, unless and until (i) the Warrant Shares shall
have been registered by the Company under the 1933 Act; or (ii) Holder shall
have provided the Company with assurances that (x) the proposed disposition does
not require registration of the Warrant Shares under the 1933 Act, or (y) all
appropriate action
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necessary for compliance with the registration requirements of the 1933 Act or
of any exemption from registration available under the 1933 Act (including Rule
144) has been taken.
4. REPRESENTATIONS. WARRANTIES AND COVENANTS.
This Warrant is issued and delivered by the Company and accepted by
Xxxxxx on the basis of the following representations, warranties and covenants
made by the Company:
4.1. The Company covenants that it will at all times from and
after the date hereof reserve and keep available such number of its authorized
shares of Common Stock of the Company as will be sufficient to permit the
exercise of this Warrant in full. The Company covenants further that such shares
as may be issued pursuant to such exercise will, upon issuance, be duly and
validly issued, fully paid and nonassessable and free from all taxes, liens and
charges with respect to the issuance thereof.
4.2. The Company has all necessary authority to issue, execute
and deliver this Warrant and to perform its obligations hereunder. This Warrant
has been duly authorized issued, executed and delivered by the Company and is
the valid and binding obligation of the Company, enforceable in accordance with
its terms.
4.3. The shares of Common Stock issuable upon the exercise of
this Warrant have been duly authorized and reserved for issuance by the Company
and, when issued in accordance with the terms hereof, will be validly issued,
fully paid and nonassessable.
4.4. The issuance, execution and delivery of this Warrant do
not, and the issuance of the shares of Common Stock upon the exercise of this
Warrant in accordance with the terms hereof will not, (i) violate or contravene
the Company's articles of incorporation or bylaws, or any law, statute,
regulation, rule, judgment or order applicable to the Company, (ii) violate,
contravene or result in a breach or default under any contract, agreement or
instrument to which the Company is a party or by which the Company or any of its
assets are bound or (iii) require the consent or approval of or the filing of
any notice or registration with any person or entity.
5. FRACTIONAL SHARES.
No fractional shares shall be issued in connection with any exercise of
this Warrant. In lieu of the issuance of such fractional shares, the Company
shall make a cash payment equal to the then fair market value of such fractional
share as determined pursuant to Section 1.4(b) above.
6. NO PRIVILEGE OF STOCK OWNERSHIP.
Prior to the exercise of this Warrant, the Holder shall not be
entitled, by virtue of holding this Warrant, to any rights of a stockholder of
the Company, including (without limitation) the right to vote, receive dividends
or other distributions, or exercise preemptive rights, and such holder shall not
be entitled to any notice or other communication concerning the business or
affairs of the Company. Nothing in this Section 6, however, shall limit the
right of the Holder to be provided the
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notices required herein, or to participate in distributions described in Section
2 hereof if the Holder ultimately exercises this Warrant.
7. TRANSFERS OR EXCHANGES.
7.1. Subject to compliance with applicable federal and state
securities laws, this Warrant and all rights hereunder are transferable in whole
or in part by the Holder to any person or entity reasonably acceptable to the
Company. The Holder will provide written notice of such transfer to the Company,
and if no written objection from the Company is received by the Holder within
five business days after the date of notice, then such transfer shall be deemed
accepted. The transfer shall be recorded on the books of the Company upon the
surrender of this Warrant, properly endorsed, to the Company at its principal
offices, and the payment to the Company of all transfer taxes and other
governmental charges imposed on such transfer. In the event of a partial
transfer, the Company shall issue to the holders one or more appropriate new
warrants.
7.2. All new warrants issued in connection with transfers,
exchanges or partial exercises shall be identical in form and provision to this
Warrant, except as to the number of shares.
8. SUCCESSORS AND ASSIGNS.
The terms and provisions of this Warrant shall be binding upon the
Company, the Holder, and their respective successors and assigns, subject at all
times to the restrictions set forth in the Agreement and in this Warrant.
9. LOSS, THEFT, DESTRUCTION OR MUTILATION OF WARRANT.
Upon receipt of notice by the Company of the loss, theft, destruction,
or mutilation of this Warrant, and upon reimbursement to the Company of all
reasonable expenses incidental thereto, and, if mutilated upon surrender and
cancellation of this Warrant, the Company will make and deliver a new warrant,
in identical form, and dated as of such cancellation, in lieu of this Warrant.
10. SATURDAYS, SUNDAYS, HOLIDAYS, ETC.
If the last or appointed day for the taking of any action, or the
expiration of any right required or granted herein shall be a Saturday, or
Sunday, or shall be a legal holiday, then such action may be taken or such right
may be exercised, except as to the purchase price, on the next succeeding day
not a legal holiday.
11. AMENDMENTS AND WAIVERS.
Any term of this Warrant may be amended, and the observance of any term
of this Warrant may be waived (either generally or in a particular instance, and
either retroactively or prospectively), with the written consent of the Company
and the Holder, such consent not to be unreasonably withheld. Any such amendment
or waiver shall be binding on the Holder.
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12. GOVERNING LAW.
This Warrant shall be governed by and construed in accordance with the
laws of the State of Colorado.
13. NOTICES.
Any notice, demand or delivery pursuant to the provisions hereof shall
be sufficiently delivered or made if sent by first class mail, postage prepaid,
addressed to any holder of a Warrant at its last known address appearing on the
books of the Company, or, except as herein otherwise expressly provided, to the
Company at its principal executive office at 0000 Xxxx 000xx Xxxxxx, Xxxxxx,
Xxxxxxxx 00000, or such other address as shall have been furnished to the party
giving or making such notice, demand or delivery.
DATED: March 27, 2002
QUALMARK CORPORATION
By:
--------------------------------------
Xxxxxxx Xxxxxxxx
President and Chief Executive Officer
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EXHIBIT A
SUBSCRIPTION
, 20
--------- --
Mr. Xxxxxxx Xxxxxxxx
President and Chief Executive Officer
QualMark Corporation
0000 Xxxx 000xx Xxxxxx
Xxxxxx, Xxxxxxxx 00000
Dear Xx. Xxxxxxxx:
The undersigned hereby elects to purchase, pursuant to the provisions
of the Warrant dated March __, 2002, ___________ (partial exercise permitted)
shares of the Common Stock of QualMark Corporation, a Colorado corporation.
Dated:
------------------------------
THE XXXXX PARTNERSHIP III, SBIC, LP
By: Xxxxx Ventures, LLC
Its: General Partner
By:
-----------------------------------
Xxxxxxxxxxx X. Xxxxx,
Member
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EXHIBIT B
NET ISSUE ELECTION
QualMark Corporation
0000 Xxxx 000xx Xxxxxx
Xxxxxx, Xxxxxxxx 00000
Ladies and Gentlemen:
The undersigned hereby elects under Section 1.4 of the Warrant dated March __,
2002 (the "Warrant"), to exercise its right to receive ____________ shares of
Common Stock of QualMark Corporation, a Colorado corporation, pursuant to the
Warrant. The certificate(s) for such shares issuable upon such net issue
election shall be issued is the name of the undersigned or as otherwise
indicated below:
Name for Registration:
----------------------------------------
Mailing Address:
----------------------------------------
----------------------------------------
----------------------------------------
Dated:
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THE XXXXX PARTNERSHIP III, SBIC, LP
By: Xxxxx Ventures, LLC
Its: General Partner
By:
--------------------------------------
Xxxxxxxxxxx X. Xxxxx,
Member
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