THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 (THE "ACT") OR UNDER THE SECURITIES OR BLUE SKY LAWS OF ANY STATE
(THE "LAWS"). THESE SECURITIES MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION AND
QUALIFICATION OF THESE SECURITIES UNDER THE ACT AND THE LAWS OR AN
OPINION OF COUNSEL SATISFACTORY TO THE ISSUER THAT SUCH REGISTRATION
AND QUALIFICATION ARE NOT REQUIRED UNDER THE ACT AND THE LAWS.
WARRANT AGREEMENT
THIS WARRANT AGREEMENT (this "AGREEMENT") is entered into and effective as of
July 15, 2008 (the "EFFECTIVE DATE"), by and between MicroIslet, Inc., a Nevada
corporation (the "COMPANY"), and the SMR 1996 Trust III (the "Warrantholder").
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained in this Agreement, the Company and the Warrantholder certify and agree
as follows:
1. GRANT OF THE RIGHT TO PURCHASE COMMON STOCK. For value received, the
adequacy of which is hereby acknowledged, the Company hereby grants to
Warrantholder, and Warrantholder is entitled to, upon the terms and subject to
the conditions set forth in this Agreement, a warrant (the "WARRANT") to
subscribe for and purchase from the Company a number of shares of the Company's
Common Stock (the "SHARES") equal to Five Hundred Thousand (500,000) Shares of
the Company's Common Stock at a purchase price of thirty cents ($0.30) per Share
(the "EXERCISE PRICE"). This Warrant is being issued pursuant to the Unsecured
Subordinated Convertible Promissory Note issued by the Company to the
Warrantholder dated as of the date hereof (the "NOTE"). The Company has agreed
to grant certain registration rights with respect to the Shares pursuant to a
Registration Rights Agreement, as amended of even date herewith (the
"REGISTRATION RIGHTS AGREEMENT"). The Warrantholder's right to exercise this
Warrant shall be subject to the purchase and sale of Shares upon exercise being
in compliance with the Securities Act of 1933, as amended (the "SECURITIES
Act"), and the securities or "blue sky" laws of any State (collectively, the
"LAWS"), but shall not be affected by the effectiveness or availability of a
registration statement under the Securities Act for the resale of the Shares.
Any Shares issuable upon exercise of this Warrant while such a registration
statement is not effective or is unavailable for the resale of the Shares shall
bear the legend described in SECTION 9.8. Notwithstanding anything to the
contrary in this Agreement, the rights under this Warrant are subject to the
limitations stated in the Note.
2. EXPIRATION. The Warrant shall expire and cease to be exercisable at
5:00 p.m. Pacific time on the fifth anniversary of the Effective Date.
3. METHOD OF EXERCISE; PAYMENT; ISSUANCE OF SHARES. Subject to SECTION
2 hereof, the purchase right represented by the Warrant may be exercised by the
Warrantholder, in whole or in part, on or after the earlier of (i) the one year
anniversary of the Effective Date or (ii) the occurrence of an event described
in SECTION 6.1 hereof, by tendering to the Company a duly executed Notice of
Exercise in the form attached as EXHIBIT A hereto at the principal office of the
Company and by payment to the Company, by check, of an amount equal to the then
applicable Exercise Price multiplied by the number of shares then being
purchased. In the event of any exercise of the rights represented by this
Agreement, certificates for the shares of stock so purchased shall be in the
name of, and delivered to, Warrantholder, or as Warrantholder may direct
(subject to the terms of transfer contained herein). Such delivery shall be made
within thirty (30) days after exercise and at the Company's expense. The shares
so issued upon exercise of the rights represented by this Agreement shall be
duly authorized, validly issued, fully paid and non-assessable.
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4. RESERVATION OF SHARES. The Company shall at all times have
authorized and reserved a sufficient number of shares of its Common Stock to
provide for the exercise of the rights to purchase the Shares as provided in
this Agreement.
5. NO RIGHTS AS STOCKHOLDER. This Agreement does not entitle
Warrantholder to any voting rights or other rights as a stockholder of the
Company prior to the purchase of the Shares as provided in this Agreement.
6. ADJUSTMENT RIGHTS. The Exercise Price and the number of Shares
purchasable hereunder are subject to adjustment from time to time as follows:
6.1 MERGER AND SALE OF ASSETS. If at any time there shall be
(i) a reorganization of the shares of the Company's Common Stock (other
than a combination, reclassification, exchange or subdivision of shares
otherwise provided for herein), or a merger or consolidation of the
Company with or into another corporation where the Company is not the
surviving corporation, or a reverse triangular merger in which the
Company is the surviving entity but the shares of the Company's capital
stock outstanding immediately prior to the merger are converted by
virtue of the merger into other property, whether in the form of
securities, cash, or otherwise, or (ii) the sale of all or
substantially all of the Company's properties and assets to any other
person; then, as a part of such reorganization, merger, consolidation
or sale, whether for stock, cash, or other consideration, lawful
provision shall be made so that Warrantholder shall thereafter be
entitled to receive upon exercise of the Warrant the number of shares
of common stock or other securities of the successor corporation
resulting from such merger or consolidation and any cash or other
consideration to which Warrantholder would have been entitled if the
Warrant had been exercised immediately prior to such capital
reorganization, merger, consolidation or sale. In any such case,
appropriate adjustment (as determined in good faith by the Company's
Board of Directors) shall be made in the application of the provisions
of this Agreement with respect to the rights and interest of
Warrantholder after such reorganization, merger, consolidation or sale
so that the provisions of this Agreement (including adjustments of the
Exercise Price and the number of Shares issuable pursuant to the terms
and conditions of this Agreement) shall be applicable after such event,
as near as reasonably may be, in relation to any shares deliverable
after that event upon the exercise of the Warrant.
6.2 RECLASSIFICATION OF SHARES. If the Company at any time
shall, by combination, reclassification, exchange or subdivision of
securities or otherwise (other than a subdivision or other change
otherwise provided for herein), change all of the outstanding shares of
Common Stock into the same or a different number of securities of any
other class or classes, this Agreement shall thereafter represent the
right to acquire such number and kind of securities as would have been
issuable hereunder had the Warrantholder exercised its rights with
respect to all of the Shares then subject to the Warrant immediately
prior to such combination, reclassification, exchange, subdivision or
other change.
6.3 SUBDIVISION OF SHARES. If the Company at any time shall
combine or subdivide its Common Stock, the Exercise Price shall be
proportionately decreased in the case of a subdivision, or
proportionately increased in the case of a combination.
6.4 STOCK DIVIDENDS. If the Company at any time shall pay a
dividend payable in the Company's Common Stock, then the Exercise Price
shall be adjusted, from and after the date of determination of
shareholders entitled to receive such dividend, to a price determined
by multiplying the Exercise Price in effect immediately prior to such
date of determination by a fraction (i) the numerator of which shall be
the total number of all shares of the Company's Common Stock
outstanding immediately prior to such dividend (assuming all
convertible securities are then converted into Common Stock), and (ii)
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the denominator of which shall be the total number of all shares of the
Company's Common Stock outstanding immediately after such dividend
(assuming all convertible securities are then converted into Common
Stock). Warrantholder shall thereafter be entitled to purchase, at the
Exercise Price resulting from such adjustment, the number of shares of
Common Stock (calculated to the nearest whole share) obtained by
multiplying the Exercise Price in effect immediately prior to such
adjustment by the number of shares of Common Stock issuable upon the
exercise hereof immediately prior to such adjustment and dividing the
product thereof by the Exercise Price resulting from such adjustment.
7. LIMITATION ON EXERCISE. Notwithstanding anything to the contrary
contained herein, the number of shares of Common Stock that may be acquired by
the Warrantholder upon any exercise of this Warrant (or otherwise in respect
hereof) shall be limited to the extent necessary to insure that, following such
exercise (or other issuance), the total number of shares of Common Stock then
beneficially owned by such Warrantholder and its affiliates and any other
persons whose beneficial ownership of Common Stock would be aggregated with the
Warrantholder's for purposes of Section 13(d) of the Securities Exchange Act of
1934, as amended (the "EXCHANGE ACT"), does not exceed 4.999% of the total
number of issued and outstanding shares of Common Stock (including for such
purpose the shares of Common Stock issuable upon such exercise). For such
purposes, beneficial ownership shall be determined in accordance with Section
13(d) of the Exchange Act and the rules and regulations promulgated thereunder.
Each delivery of a Notice of Exercise hereunder will constitute a representation
by the Warrantholder that it has evaluated the limitation set forth in this
Section 7 and determined that issuance of the full number of Warrant Shares
requested in such Notice of Exercise is permitted under this Section 7. This
provision shall not restrict the number of shares of Common Stock which
Warrantholder may receive or beneficially own in order to determine the amount
of securities or other consideration that Warrantholder may receive in the event
of a merger or other business combination or reclassification involving the
Company as contemplated in Section 6. The Warrantholder may waive the
limitations set forth in this Section 7 upon sixty-one (61) days prior written
notice to the Company.
8. WARRANT NONTRANSFERABLE. The Warrant may not be sold, pledged,
assigned or transferred in any manner without the written consent of the
Company.
9. SECURITIES ISSUES. Warrantholder, intending that the Company rely
upon the following representations and covenants of Warrantholder, which by
execution of this Agreement, Warrantholder hereby confirms:
9.1 ACCREDITED INVESTOR. Warrantholder is familiar with the
definition of "accredited investor" set forth in Rule 501 of Regulation
D promulgated under the Securities Act of 1933, as amended.
Warrantholder is an accredited investor as so defined.
9.2 ACQUISITION FOR OWN ACCOUNT. Warrantholder is purchasing
the Note and entering into this Agreement for Warrantholder's own
account and not with a view to or for sale in connection with any
distribution of securities.
9.3 NO TRANSFERS CONTEMPLATED. Warrantholder does not
presently have any contracts, undertaking, agreement or arrangement
with any person to sell, transfer or grant participation to such person
or to any third person, with respect to any securities of the Company.
9.4 TRUE INVESTMENT PURPOSE. Warrantholder has not been
organized for the purpose of purchasing the Note or entering into this
Agreement.
9.5 RESTRICTIONS ON ACQUIRED SECURITIES. Warrantholder
acknowledges that any securities acquired pursuant to this Agreement
may not be sold, pledged, assigned or transferred in any manner, except
pursuant to registration and qualification under the Securities Act and
applicable Laws, or if an exemption from such registration or
qualification is applicable.
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9.6 INVESTMENT EXPERIENCE. Warrantholder is able to fend for
itself, bear the economic risk of its investment and evaluate the
merits and risks of the transactions provided in this Agreement.
9.7 ACCESS TO INFORMATION. Warrantholder has had access to,
and has reviewed as it sees fit, all of the Company's public reports
filed with the Securities and Exchange Commission. Warrantholder
acknowledges that it has not received any material information in
connection with this investment which is not contained in, or which is
contrary to, the information in such public reports, and Warrantholder
has relied only on such public reports in connection with its
investment decision.
9.8 RESTRICTED SHARES/LEGEND. Warrantholder understands that
the Shares issuable upon the exercise of the Warrant shall be
"restricted securities", as that term is defined in Rule 144
promulgated under the Securities Act, and shall bear a legend in the
form substantially as follows:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 (THE "ACT") OR UNDER THE SECURITIES OR BLUE SKY
LAWS OF ANY STATE (THE "LAWS"). THESE SECURITIES MAY NOT BE
SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE
OF A REGISTRATION AND QUALIFICATION OF THESE SECURITIES UNDER
THE ACT AND THE LAWS OR AN OPINION OF COUNSEL SATISFACTORY TO
THE ISSUER THAT SUCH REGISTRATION AND QUALIFICATION ARE NOT
REQUIRED UNDER THE ACT AND THE LAWS.
9.9 NO GENERAL SOLICITATION. Warrantholder has not seen or
received any advertisement or general solicitation in connection with
the Note, this Agreement or the Warrant.
10. MISCELLANEOUS.
10.1 GOVERNING LAW. This Agreement is entered into in San
Diego, California, shall be performed in California, and shall be
interpreted, enforced and adjudicated in San Diego, California under
the internal laws of the State of California without regard to
California's conflict-of-law provisions.
10.2 ENTIRE AGREEMENT. This Agreement and the Note constitutes
the final, complete and exclusive agreement between the parties
pertaining to the subject of this Agreement, and supersedes all prior
and contemporaneous agreements. This Agreement represents the warrant
required to be delivered pursuant to the Note. None of the provisions
of this Agreement shall be deemed, or shall constitute, a waiver of any
other provision, whether or not similar, nor shall any waiver
constitute a continuing waiver. No waiver shall be binding unless
executed in writing by the party making the waiver. Any changes or
supplements to this Agreement must be in writing and signed by both of
the parties.
10.3 ASSIGNMENT. Not in derogation of SECTION 8 hereof, this
Agreement shall be binding on, and shall inure to the benefit of, the
parties and their respective heirs, legal representatives, successors
and assigns.
10.4 NOTICES, ETC. All notices, requests, demands or other
communications that are required or permitted under this Agreement
shall be given in the manner set forth in the Note.
10.5 SEVERABILITY. In the event that any one or more of the
provisions contained in this Agreement or in any other document
referenced in this Agreement, shall, for any reason, be held to be
invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any other provision of
this Agreement or any other such document.
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10.6 TIME IS OF THE ESSENCE. Time is absolutely of the essence
in construing each provision of this Agreement.
10.7 INTERPRETATION. The headings set forth in this Agreement
are for convenience only and shall not be used in interpreting this
Agreement.
10.8 COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, but all
of which taken together shall constitute one and the same instrument. A
faxed signature shall be as valid as an originally executed signature.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the Effective Date.
MICROISLET, INC.
By: /s/ Xxxxxxx X. Xxxxxxx
------------------------
Xxxxxxx X. Xxxxxxx
Chief Executive Officer
ACKNOWLEDGED AND AGREED:
SMR 1996 TRUST III
By: /s/ Xxxxxx Xxxx
--------------------
Xxxxxx Xxxx
Co-Trustee
By: /s/ Xxxxxx Xxxxxxx
-------------------
Xxxxxx Xxxxxxx
Co-Trustee
EXHIBIT A
NOTICE OF EXERCISE
To: Chief Financial Officer
MicroIslet, Inc.
1. The undersigned Warrantholder ("WARRANTHOLDER") elects to acquire
shares of the Common Stock of MicroIslet, Inc., a Nevada corporation
(the "COMPANY"), pursuant to the terms of the Warrant Agreement dated
as of July 15, 2008 (the "WARRANT").
2. The Warrantholder elects to purchase _____________ shares of Common
Stock as provided in SECTION 3 of the Warrant and tenders herewith a
check in the amount of $___________ as payment of the purchase price.
3. In exercising its rights to purchase the Common Stock of the Company,
the undersigned hereby confirms and acknowledges the representations
made in SECTION 9 of the Warrant.
4. Please issue a certificate representing the shares of the Common Stock
in the name of the undersigned or in such other name as is specified
below:
Name: _____________________________
Address: _____________________________
Taxpayer I.D. No.: _____________________________
WARRANTHOLDER
By: ___________________________________
Name:
Title:
Date: __________________________________
