EXHIBIT 4.4
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED
STATES OR ANY OTHER JURISDICTION. THE SECURITIES REPRESENTED HEREBY MAY
NOT BE OFFERED, SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER APPLICABLE SECURITIES LAWS
UNLESS OFFERED, SOLD OR TRANSFERRED PURSUANT TO AN AVAILABLE EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THOSE LAWS.
Right to Purchase 521,739 Shares of
Common Stock and Class C Warrants for
208,696 shares of Common Stock
Date: December 16, 2004
SERIES B WARRANT
TO PURCHASE COMMON STOCK AND WARRANTS
OF
QSOUND LABS, INC.
THIS CERTIFIES THAT, for value received, Capital Ventures International,
or its registered assigns, is entitled to purchase from QSound Labs, Inc., a
corporation organized under the laws of Alberta, Canada (the "COMPANY"), at any
time or from time to time during the period specified in Section 2 hereof,
521,739 units ("UNITS"), at an exercise price per Unit (the "EXERCISE PRICE")
equal to $5.75, each Unit consisting of (i) one share of the Company's Common
Stock, no par value (the "COMMON STOCK"), and (ii) a warrant to acquire
initially 0.4 shares of Common Stock (the "ADDITIONAL WARRANTS"), such
Additional Warrants being in the form attached hereto as Exhibit A and having
(y) an exercise price equal to the exercise price of the Series A Warrants (as
that term is defined in the Securities Purchase Agreement) then in effect at the
time of issuance of the Additional Warrants, and (x) shall be exercisable from
the Start Date (as that term is defined in the Additional Warrants) until 54
months following the Start Date. The number of Units and the Exercise Price are
subject to adjustment as provided in Section 4 hereof. The term "WARRANT" and
all references thereto, as used throughout this instrument, shall mean this
instrument as originally executed, or if later amended or supplemented, then as
so amended or supplemented, including all Warrants issued upon transfer or
exchange of this Warrant as provided herein, and the term "WARRANTS" means this
Warrant and the other warrants of the Company issued pursuant to that certain
Securities Purchase Agreement, dated as of December 16, 2004, by and among the
Company and the other signatories thereto (the "SECURITIES PURCHASE AGREEMENT").
This Warrant is subject to the following terms, provisions and conditions:
1. Exercise of Warrant.
(a) Subject to the provisions hereof, including, without limitation, the
limitations contained in Section 9 hereof, this Warrant may be exercised by the
holder hereof, 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 business day at
the Company's principal executive offices (or such other office or agency of the
Company as it may designate by written notice to the holder hereof), and upon
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 Units
specified in the Exercise Agreement.
(b) The Units purchased upon exercise of this Warrant in accordance with
this Section 1 shall be deemed to be issued to the holder hereof or the holder's
designee, as the record owner of such securities, as of the close of business on
the date on which this Warrant shall have been surrendered, the completed
Exercise Agreement shall have been delivered, and payment shall have been made
for such shares as set forth above or, if such date is not a business day, on
the next succeeding business day. The Warrant Shares and the Additional Warrants
so purchased, representing the number of Units specified in the Exercise
Agreement, shall be delivered to the holder hereof or the holder's designee
within a reasonable time, not exceeding three business days, after this Warrant
shall have been so exercised (the "DELIVERY PERIOD"). If the Company's transfer
agent is participating in the Depository Trust Company ("DTC") Fast Automated
Securities Transfer program, and so long as the certificates therefor do not
bear a legend (pursuant to the terms of the Securities Purchase Agreement) and
the holder is not obligated to return such certificate for the placement of a
legend thereon (pursuant to the Securities Purchase Agreement), the Company
shall cause its transfer agent to electronically transmit the Warrant Shares so
purchased to the holder or the holder's designee by crediting the account of the
holder or the holder's designee or its respective nominee with DTC through its
Deposit Withdrawal Agent Commission system ("DTC TRANSFER"). If the
aforementioned conditions to a DTC Transfer are not satisfied, the Company shall
deliver to the holder or the holder's designee physical certificates
representing the Warrant Shares so purchased. Notwithstanding the foregoing, the
holder or the holder's designee may instruct the Company to deliver to the
holder or such designee physical certificates representing the Warrant Shares so
purchased in lieu of delivering such shares by way of DTC Transfer. Any
certificates so delivered shall be in such denominations as may be reasonably
requested by the holder hereof or the holder's designee, shall be registered in
the name of the holder or such other name as shall be designated by the holder
and, following the date on which the Warrant Shares have been registered under
the Securities Act pursuant to that certain Registration Rights Agreement, dated
as of December 16, 2004, by and among the Company and the other signatories
thereto (the "REGISTRATION RIGHTS AGREEMENT") or otherwise may be sold by the
holder pursuant to Rule 144 promulgated under the Securities Act (or a successor
rule), shall not bear any restrictive legend. If this Warrant shall have been
exercised only in part, then the Company shall, at its expense, at the time of
delivery of the certificates representing the Warrant Shares and the Additional
Warrants, deliver to the holder a new Warrant representing the number of Units
with respect to which this Warrant shall not then have been exercised.
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(c) If, at any time, a holder of this Warrant submits this Warrant, an
Exercise Agreement and payment to the Company of the Exercise Price for each of
the Units specified in the Exercise Agreement, and the Company fails for any
reason (other than the reasons contemplated by Section 9 hereof) to deliver, on
or prior to the fifth business day following the expiration of the Delivery
Period for such exercise, the number of Warrant Shares and the Additional
Warrants to which the holder is entitled upon such exercise (an "EXERCISE
DEFAULT"), then the Company shall pay to the holder payments ("EXERCISE DEFAULT
PAYMENTS") for an Exercise Default in the amount of (i) (N/365), multiplied by
(ii) the amount by which the Market Price (as defined in 11 hereof) of the
Common Stock on the date the Exercise Agreement giving rise to the Exercise
Default is transmitted in accordance with this Section 1 (the "EXERCISE DEFAULT
DATE") exceeds the Exercise Price in respect of such Units, multiplied by (iii)
the number of Warrant Shares or Additional Warrants the Company failed to so
deliver in such Exercise Default, multiplied by (iv) .24, where N equals the
number of days from the Exercise Default Date to the date that the Company
effects the full exercise of this Warrant which gave rise to the Exercise
Default. The accrued Exercise Default Payment for each calendar month shall be
paid in cash and shall be made to the holder by the fifth day of the month
following the month in which it has accrued. Nothing herein shall limit the
holder's right to pursue actual damages for the Company's failure to maintain a
sufficient number of authorized shares of Common Stock as required pursuant to
the terms of Section 3(b) hereof or to otherwise issue Warrant Shares or
Additional Warrants upon exercise of this Warrant in accordance with the terms
hereof, and the holder shall have the right to pursue all remedies available at
law or in equity (including a decree of specific performance and/or injunctive
relief).
2. Period of Exercise. This Warrant shall be exercisable at any time or from
time to time during the period (the "EXERCISE PERIOD") commencing on the date of
initial issuance of this Warrant (the "ISSUE DATE"), and ending at 5:00 p.m.,
New York City time, on the date that is the later of (y) 210 days following the
Issue Date or (z) 180 days following the date on which the First Registration
Statement (as that term is defined in the Registration Rights Agreement) has
been declared effective by the United States Securities and Exchange Commission
(the "TERMINATION DATE"). The Exercise Period shall automatically be extended by
one day for each day on which (a) the Company does not have a number of shares
of Common Stock reserved for issuance upon exercise hereof or exercise of the
Additional Warrants at least equal to the number of shares of Common Stock
issuable upon exercise hereof and thereof, or otherwise fails to deliver the
Units in the names set forth in Section 1 hereof upon exercise hereof, or (b)
the Warrant Shares or Additional Warrant Shares are not then otherwise
registered for resale as required pursuant to the terms of the Registration
Rights Agreement.
3. Certain Agreements of the Company. The Company hereby covenants and agrees
as follows:
(a) Shares to be Fully Paid. All Warrant Shares, Additional Warrants and
Additional Warrant Shares shall, upon issuance in accordance with the terms of
this Warrant or Additional Warrants, as the case may be, be validly issued,
fully paid and non-assessable and free from all taxes, liens, claims and
encumbrances.
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(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 and the Additional Warrants, a sufficient number of
shares of Common Stock to provide for the exercise in full of this Warrant and
the Additional Warrants (without giving effect to the limitations contained in
Section 9 hereof or thereof).
(c) Listing. The Company shall promptly secure the listing or quotation
of the shares of Common Stock issuable upon exercise of this Warrant (and, once
issued pursuant to the terms hereof, the Additional Warrants) upon each national
securities exchange or automated or electronic quotation system, if any, upon
which shares of Common Stock are then listed or quoted or become listed or
quoted (subject to official notice of issuance upon exercise of this Warrant)
and shall maintain, so long as any other shares of Common Stock shall be so
listed or quoted, such listing or quotation of all shares of Common Stock from
time to time issuable upon the exercise of this Warrant (and, once issued
pursuant to the terms hereof, the Additional Warrants); and the Company shall so
list or apply for quotation on each national securities exchange or automated or
electronic quotation system, as the case may be, and shall maintain such listing
or quotation of, any other shares of capital stock of the Company issuable upon
the exercise of this Warrant (and, once issued pursuant to the terms hereof, the
Additional Warrants) if and so long as any shares of the same class shall be
listed or quoted on such national securities exchange or automated or electronic
quotation system.
(d) Certain Actions Prohibited. The Company shall 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 economic benefit inuring to the holder hereof
and 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) shall 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) shall 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 shall be binding upon any
entity succeeding to the Company by merger, consolidation, or acquisition of all
or substantially all of the Company's assets.
(f) Blue Sky Laws. The Company shall, on or before the date of issuance
of any Units, take such actions as the Company shall reasonably determine are
necessary to qualify the Units for, or obtain exemption for the Units for, sale
to the holder of this Warrant upon the exercise hereof under applicable
securities or "blue sky" laws of the provinces of Canada and the states of the
United States, and shall provide evidence of any such action so taken to the
holder of this Warrant prior to such date; provided, however, that the Company
shall not be required in connection therewith or as a condition thereto to (i)
qualify to do business in any jurisdiction where it would not otherwise be
required to qualify but for this Section 3(f), (ii) subject itself to
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general taxation in any such jurisdiction or (iii) file a general consent to
service of process in any such jurisdiction.
4. Antidilution Provisions. During the Exercise Period, the Exercise Price
and the number of Units issuable hereunder shall be subject to adjustment from
time to time as provided in this Section 4.
(a) Stock Splits, Stock Dividends, Etc. If, at any time during the
Exercise Period, the number of outstanding shares of Common Stock is increased
by a stock split, stock dividend, combination, reclassification or other similar
event, the Exercise Price in effect immediately prior to such increase shall be
proportionately reduced, or if the number of outstanding shares of Common Stock
is decreased by a reverse stock split, combination, reclassification or other
similar event, the Exercise Price in effect immediately prior to such decrease
shall be proportionately increased.
(b) Adjustment in Number of Units. Upon each adjustment of the Exercise
Price pursuant to the provisions of this Section 4, the number of Units issuable
upon exercise of this Warrant at each such Exercise Price shall be adjusted by
multiplying a number equal to the Exercise Price in effect immediately prior to
such adjustment by the number of Units issuable upon exercise of this Warrant at
such Exercise Price immediately prior to such adjustment and dividing the
product so obtained by the adjusted Exercise Price.
(c) Notice of Adjustment. Upon the occurrence of any event which
requires any adjustment or readjustment of the Exercise Price or change in
number or type of stock, securities and/or other property issuable upon exercise
of this Warrant, then, and in each such case, the Company shall give notice
thereof to the holder hereof, which notice shall state the Exercise Price
resulting from such adjustment or readjustment and any change in the number of
type of stock, securities and/or other property issuable upon exercise of this
Warrant, 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.
(d) 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 Market Price of a share of Common
Stock on the date of such exercise.
(e) 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 (other
than dividends or distributions payable in cash out of retained earnings
consistent with the Company's past practices with respect to declaring dividends
and making distributions) 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;
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(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 of its assets to, another
corporation or entity; or
(iv) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then, in each such case, the Company shall give to the holder of this Warrant
(A) notice of the date or estimated 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, notice of the date (or, if not then known, a reasonable estimate
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. Notwithstanding the foregoing,
the Company shall publicly disclose the substance of any notice delivered
hereunder prior to delivery of such notice to the holder hereof.
5. Issue Tax. The issuance of certificates for Units upon the exercise of
this Warrant shall be made without charge to the holder of this Warrant or such
securities 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 Shareholder. This Warrant shall not entitle
the holder hereof 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 hereof to purchase Warrant Shares or Additional Warrant Shares, and
no mere enumeration herein of the rights or privileges of the holder hereof,
shall give rise to any liability of such 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, Redemption and Replacement of Warrant.
(a) Restriction on Transfer. This Warrant and the rights granted to the
holder hereof 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 Sections 7(f) and 9 hereof and to the provisions of
Section 5 of the Securities Purchase Agreement. Until due presentment for
registration of transfer on the books
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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 hereof 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 hereof at the office or
agency of the Company referred to in Section 7(e) below, for new Warrants of
like tenor of different denominations representing in the aggregate the right to
purchase the number of Units which may be purchased hereunder, each of such new
Warrants to represent the right to purchase such number of Units (at the
Exercise Price therefor) as shall be designated by the holder hereof 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 of this
Warrant or transferees) and charges payable in connection with the preparation,
execution, and delivery of Warrants pursuant to this Section 7. The Company
shall indemnify and reimburse the holder of this Warrant for all losses and
damages arising as a result of or related to any breach of the terms of this
Warrant, including costs and expenses (including legal fees) incurred by such
holder in connection with the enforcement of its rights hereunder.
(e) Warrant 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 hereof), 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) Transfer or Exchange Without Registration. If, at the time of the
surrender of this Warrant in connection with any transfer or exchange of this
Warrant, this Warrant (or, in the case of any exercise, the Units 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 transfer or exchange, (i) that the holder or transferee of this
Warrant, as the case may be, furnish to the Company a written opinion of counsel
(which opinion shall be in form, substance and scope customary for opinions of
counsel in comparable transactions) to the effect that such transfer or exchange
may be made without registration under the Securities Act and under applicable
state securities or blue sky laws (the cost of which shall be borne by the
Company if the Company's counsel renders such an opinion, and up to $1,000 of
such cost shall
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be borne by the Company if the holder's counsel is required to render such
opinion), (ii) that the holder or transferee 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 letter or
status as an "accredited investor" shall be required in connection with a
transfer pursuant to Rule 144 under the Securities Act.
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 and Additional Warrant Shares as are set forth in
the Registration Rights Agreement, including the right to assign such rights to
certain assignees, as set forth therein.
9. Additional Restrictions on Exercise and Transfer. The exercise and
transfer of this Warrant shall be subject to the following limitations (each of
which limitations shall be applied independently):
(a) Cap Amount. If the Company is prohibited by Rule 4350(i) of the
National Association of Securities Dealers, Inc. ("NASD"), or any successor or
similar rule, or the rules or regulations of any other securities exchange on
which the Common Stock is then listed or traded, from issuing a number of shares
of Common Stock upon exercise of this Warrant (together with any shares of
Common Stock issued pursuant to other securities issued pursuant to the
Securities Purchase Agreement, the Additional Warrants or other agreements
entered in connection therewith) in excess of a prescribed amount (the "CAP
AMOUNT") (without stockholder approval or otherwise), then the Company shall not
issue shares upon any such exercise in excess of the Cap Amount. Assuming solely
for purposes of this Section 9(a) that such Rule 4350(i) or similar rule is
applicable, the Cap Amount shall be 19.99% of the Common Stock outstanding
immediately prior to the date hereof. The Cap Amount shall be allocated pro rata
to the holders of Warrants (and the holders of such other securities issued
pursuant to the Securities Purchase Agreement, the Additional Warrants or other
agreements entered in connection therewith) as provided in Section 12(h). In the
event that the Company is prohibited from issuing shares of Common Stock upon
any exercise of this Warrant as a result of the operation of this Section 9(a),
the Company shall immediately notify the holder hereof of such occurrence and
the holder shall thereafter have the option, exercisable in whole or in part at
any time and from time to time, by delivery of written notice to such effect (a
"REDEMPTION NOTICE") to the Company, to require the Company to redeem for cash,
at an amount per share equal to the Redemption Amount (as defined below), a
portion of this Warrant such that, after giving effect to such redemption, the
then unissued portion of the holder's Cap Amount is at least equal to one
hundred percent (100%) of the total number of shares of Common Stock issuable
upon exercise of this Warrant in full. If the Company fails to redeem such
portion of this Warrant within five business days after its receipt of such
Redemption Notice, then the holder hereof shall be entitled to interest on the
Redemption Amount at a per annum rate equal to the lower of twenty-four percent
(24%) and the highest interest rate permitted by applicable law from the date on
which such Redemption Amount is required to be paid hereunder until the actual
date of payment of the Redemption Amount hereunder. For purposes of this Section
9(a), the "REDEMPTION AMOUNT" equals (i) the value of that portion of the
Warrant being so redeemed derived using the Black-Scholes formula (using
Bloomberg) as of the date on which the holder gives the Redemption Notice,
assuming the
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volatility of the Company's Common Stock equals 60% and the risk-free interest
rate equals 3% per annum, multiplied by (ii) 105%.
(b) Additional Restrictions on Exercise and Transfer. In no event shall
the holder hereof have the right to exercise any portion of this Warrant for
shares of Common Stock or to dispose of any portion of this Warrant to the
extent that such right to effect such exercise or disposition would result in
the holder and its affiliates together beneficially owning more than 9.99% of
the outstanding shares of Common Stock. For purposes of this Section 9(b),
beneficial ownership shall be determined in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended, and Regulation 13D-G thereunder.
The restriction contained in this Section 9(b) may not be altered, amended,
deleted or changed in any manner whatsoever unless the holders of a majority of
the outstanding shares of Common Stock and the holder hereof shall approve, in
writing, such alteration, amendment, deletion or change.
10. Mandatory Exercise.
(a) If all of the Required Conditions are satisfied, then at any time
during the period starting on the date that is 30 days prior to the Termination
Date and ending on the Termination Date, the Company shall have the right to
deliver to the holder hereof a written notice (the "COMPANY EXERCISE NOTICE")
instructing such holder to exercise its rights to purchase up to all of the
Units not yet purchased hereunder. Upon the receipt of the Company Exercise
Notice, the holder shall, no later than 30 days following the receipt of such
notice, exercise its rights under Section 1 for the number of Units specified in
such Company Exercise Notice, provided, at the time of such exercise, all
Required Conditions continue to be meet.
(b) The "REQUIRED CONDITIONS" shall consist of the following:
(i) the Market Price of the Common Stock on the date the Company
Exercise Notice is delivered is greater than $10.14;
(ii) the First Registration Statement required to be filed by the
Company pursuant to the Registration Rights Agreement shall have been declared
effective by the United States Securities and Exchange Commission and shall
continue to be effective (it being understood that the Company shall comply with
all of its obligations under the Registration Rights Agreement relating to the
effectiveness of such registration statement);
(iii) all Warrant Shares, Additional Warrants and Additional Warrant
Shares are then authorized and reserved for issuance, (b) all Warrant Shares are
registered under the Securities Act for resale by the holders, and (c) all
Warrant Shares are listed or traded on the Nasdaq SmallCap Market; and
(iv) the Company is not in breach of any of its obligations
hereunder or under the Securities Purchase Agreement, the Registration Rights
Agreement, the Series A Warrants (as that term is defined under the Securities
Purchase Agreement), or the Additional Warrants.
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11. Certain Definitions. For purposes of this Warrant, the following
capitalized terms shall have the respective meanings assigned to them:
(a) "ADDITIONAL WARRANT SHARES" means the shares of Common Stock
issuable upon exercise of or otherwise pursuant to the Additional Warrants.
(b) "BUSINESS DAY" means any day, other than a Saturday or Sunday or a
day on which banking institutions in the State of New York are authorized or
obligated by law, regulation or executive order to close.
(c) "MARKET PRICE" means, for any security as of any date, the lesser of
(i) the volume weighted average price of such security for the five trading days
immediately preceding such date, or (ii) the volume weighted average price of
such security on such date, in either case on the principal trading market where
such security is listed or traded as reported by Bloomberg Financial Markets (or
a comparable reporting service of national reputation selected by the Company
and reasonably acceptable to the holder hereof if Bloomberg Financial Markets is
not then reporting closing sales prices of such security) (in any case,
"BLOOMBERG"), or if the foregoing does not apply, the last reported sales price
of such security on a national exchange or in the over-the-counter market on the
electronic bulletin board for such security as reported by Bloomberg, or, if no
such price is reported for such security by Bloomberg, the average of the bid
prices of all market makers for such security as reported in the "pink sheets"
by the National Quotation Bureau, Inc., in each case for such date or, if such
date was not a trading day for such security, on the next preceding date which
was a trading day. If the Market Price cannot be calculated for such security as
of either of such dates on any of the foregoing bases, the Market Price of such
security on such date shall be the fair market value as reasonably determined by
an investment banking firm selected by the Company and reasonably acceptable to
the holder hereof, with the costs of such appraisal to be borne by the Company.
(d) "TRADING DAY" means any day on which principal United States
securities exchange or trading market where the Common Stock is then listed or
traded, is open for trading.
(e) "WARRANT SHARES" means the shares of Common Stock issuable upon
exercise of or otherwise pursuant to this Warrant.
12. Miscellaneous.
(a) Governing Law; Jurisdiction. This Warrant shall be governed by and
construed in accordance with the laws of the State of Delaware applicable to
contracts made and to be performed in the State of Delaware. The Company
irrevocably consents to the jurisdiction of the United States federal courts and
the state courts located in the County of New Castle, State of Delaware, in any
suit or proceeding based on or arising under this Warrant and irrevocably agrees
that all claims in respect of such suit or proceeding may be determined in such
courts. The Company irrevocably waives the defense of an inconvenient forum to
the maintenance of such suit or proceeding in such forum. The Company further
agrees that service of process upon the Company 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 right of the holder to
serve process in any other manner permitted by law. The Company agrees that a
final
- 10 -
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.
(b) Construction. Whenever the context requires, the gender of any word
used in this Warrant includes the masculine, feminine or neuter, and the number
of any word includes the singular or plural. Unless the context otherwise
requires, all references to articles and sections refer to articles and sections
of this Warrant, and all references to schedules are to schedules attached
hereto, each of which is made a part hereof for all purposes. The descriptive
headings of the several articles and 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) Severability. If any provision of this Warrant shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Warrant or the
validity or enforceability of this Warrant in any other jurisdiction.
(d) Entire Agreement; Amendments. This Warrant contains the entire
understanding of the Company and the holder hereof with respect to the matters
covered herein. Subject to any additional express provisions of this Warrant, no
provision of this Warrant may be waived other than by an instrument in writing
signed by the party to be charged with enforcement, and no provision of this
Warrant may be amended other than by an instrument in writing signed by the
Company and the holder.
(e) Notices. Any notices required or permitted to be given under the
terms of this Warrant shall be sent by certified or registered mail (return
receipt requested) or delivered personally, by nationally recognized overnight
carrier or by confirmed facsimile transmission, and shall be effective five days
after being placed in the mail, if mailed, or upon receipt or refusal of
receipt, if delivered personally or by nationally recognized overnight carrier
or confirmed facsimile transmission, in each case addressed to a party. The
initial addresses for such communications shall be as follows, and each party
shall provide notice to the other parties of any change in such party's address:
(i) If to the Company:
QSound Labs, Inc.
000 - 0000 00xx Xxxxxx XX
Xxxxxxx, XX X0X 0X0
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: Xxxxx Xxxxxxxxx
with a copy to Xxxxxx Varvos, Esq.
as above
(ii) If to the holder, at such address as shall be set forth in the
Warrant Register from time to time.
- 11 -
(f) Successors and Assigns. This Warrant shall be binding upon and inure
to the benefit of the parties and their successors and assigns. Except as
provided herein, the Company shall not assign this Warrant or its obligations
hereunder. The holder hereof may assign or transfer this Warrant and such
holders rights hereunder in accordance with Section 7 hereof.
(g) Equitable Relief. 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 this Warrant. Accordingly, the Company acknowledges
that the remedy at law for a breach of its obligations hereunder will be
inadequate and agrees, in the event of a breach or threatened breach by the
Company of the provisions of this Warrant, that the holder shall be entitled, in
addition to all other available remedies, to an injunction restraining any
breach, without the necessity of showing economic loss and without any bond or
other security being required.
(h) Allocation of Cap Amount. The initial Cap Amount shall be allocated
pro rata among the holders of the Warrants (and the holders of such other
securities issued pursuant to the Securities Purchase Agreement, the Additional
Warrants or other agreements entered in connection therewith) based on the
number of Warrant Shares issuable upon exercise of the Warrants (and such other
securities) issued to each such holder. Each increase to the Cap Amount shall be
allocated pro rata among the holders of the Warrants (and the holders of such
other securities issued pursuant to the Securities Purchase Agreement or other
agreements entered in connection therewith) based on the number of Units
issuable upon exercise of the Warrants (and such other securities) held by each
holder at the time of the increase in the Cap Amount. In the event the holder
shall sell or otherwise transfer any of the holder's Warrants (or any such other
securities), each transferee shall be allocated a pro rata portion of such
transferor's Cap Amount. Any portion of the Cap Amount which remains allocated
to any person or entity which does not hold any Warrants (or any such other
securities) shall be allocated to the remaining holders of the Warrants (and the
holders of such other securities issued pursuant to the Securities Purchase
Agreement or other agreements entered in connection therewith), pro rata based
on the number of Units issuable upon exercise of the Warrants (and such other
securities) then held by such holders.
[REMAINDER OF THIS PAGE LEFT BLANK INTENTIONALLY]
- 12 -
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer.
QSOUND LABS, INC.
By:___________________________________
Name:
Title:
[SIGNATURE PAGE TO SERIES B WARRANT]
FORM OF EXERCISE AGREEMENT
(TO BE EXECUTED BY THE HOLDER IN ORDER TO EXERCISE THE WARRANT)
To: QSound Labs, Inc.
000 - 0000 00xx Xxxxxx XX
Xxxxxxx, XX X0X 0X0
Facsimile: (000) 000-0000
Attention: Chief Executive Officer
The undersigned hereby irrevocably exercises the right to purchase
_____________ Units (as that term is defined in the Warrant attached hereto) of
QSound Labs, Inc., a corporation organized under the laws of the State of
Alberta, Canada (the "COMPANY"), evidenced by the attached Warrant, and herewith
makes payment of the Exercise Price with respect to such shares in full, all in
accordance with the conditions and provisions of said Warrant.
The undersigned agrees not to offer, sell, transfer or otherwise dispose
of any Common Stock obtained on exercise of the Warrant, except under
circumstances that will not result in a violation of the Securities Act of 1933,
as amended, or any state securities laws.
The undersigned represents, warrants and certifies as follows (one (only)
of the following must be checked):
[ ] The undersigned is an "accredited investor" (as that term is
defined under Rule 501(a) as promulgated under Regulation D of the
United States Securities Act of 1933, as amended, is exercising this
warrant on its own behalf and not for the account or benefit of any
other person and the representations and warranties made to the
Company in connection with the acquisition of this warrant remain
true and correct.
[ ] The undersigned has delivered to the Company an opinion of
counsel or such other evidence (which will not be sufficient unless
it is satisfactory to the Company) to the effect that an exemption
from the registration requirements of the 1933 Act and applicable
state securities laws is available.
Check one of the following:
[ ] The undersigned requests that the Company cause its transfer
agent to electronically transmit the Common Stock issuable pursuant
to this Exercise Agreement to the account of the undersigned or its
nominee (which is _________________) with DTC through its Deposit
Withdrawal Agent Commission System ("DTC TRANSFER"), provided that
such transfer agent participates in the DTC Fast Automated
Securities Transfer program.
[ ] In lieu of receiving the shares of Common Stock issuable
pursuant to this Exercise Agreement by way of DTC Transfer, the
undersigned hereby requests that the Company cause its transfer
agent to issue and deliver to the undersigned physical certificates
representing such shares of Common Stock.
The undersigned requests that a Warrant representing any unexercised portion
hereof be issued, pursuant to the Warrant, in the name of the Holder and
delivered to the undersigned at the address set forth below:
Dated:_________________ ____________________________________
Signature of Holder
____________________________________
Name of Holder (Print)
Address:
____________________________________
____________________________________
____________________________________
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 Units (as that term is defined in the Warrant) covered thereby set
forth hereinbelow, to:
Name of Assignee Address No. of Units
---------------- ------- ------------
, 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: _____________________, ____
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.
