Contract
THIS
WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
OR ANY STATE SECURITIES LAW, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED,
PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF OR EXERCISED UNLESS (i) A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES
LAWS SHALL HAVE BECOME EFFECTIVE WITH REGARD THERETO, OR (ii) AN EXEMPTION
FROM
REGISTRATION UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS
IS
AVAILABLE IN CONNECTION WITH SUCH OFFER, SALE OR TRANSFER.
AN
INVESTMENT IN THESE SECURITIES INVOLVES A HIGH DEGREE OF RISK. HOLDERS MUST
RELY
ON THEIR OWN ANALYSIS OF THE INVESTMENT AND ASSESSMENT OF THE RISKS INVOLVED.
| Warrant to Purchase | |
| ___,000,0001 shares |
Warrant
Number
____
|
Warrant
to Purchase Common Stock
of
QPC
Lasers, Inc.
THIS
CERTIFIES that [________]., a ____________company/ corporation] or any
subsequent holder hereof ("Holder") has the right to purchase from QPC
LASERS, INC.,
a Nevada
corporation, (the
"Company"), up to _____
Million (___,000,000) fully
paid and nonassessable shares, of the Company's common stock, $0.001 par value
per share ("Common Stock"), subject to adjustment as provided herein, at a
price
equal to the Exercise Price as defined in Section 3 below, at any time during
the Term (as defined below).
Holder
agrees with the Company that this Warrant to Purchase Common Stock of the
Company (this “Warrant” or this “Agreement”) is issued and all rights hereunder
shall be held subject to all of the conditions, limitations and provisions
set
forth herein.
1.
Date
of Issuance and Term.
This
Warrant shall be deemed to be issued on May 22, 2007 (“Date of Issuance”). The
term of this Warrant begins on the Date of Issuance and ends at 5:00 p.m.,
New
York City time, on the date that is five (5) years after the Date of Issuance
(the “Term”). This Warrant was issued in conjunction with the issuance of
secured convertible debentures (the “Debentures”) of the Company to the Holder
pursuant to the terms of the Securities Purchase Agreement (“Securities Purchase
Agreement”) and the Registration Rights Agreement (“Registration Rights
Agreement”) by and between the Company and Holder dated on or about May 22,
2007.
________________________________
1
Insert a number of shares equal to 150% times the Original Principal Amount
of
the Debenture divided by its Initial Conversion Price.
Notwithstanding
anything to the contrary herein, the applicable portion of this Warrant shall
not be exercisable during any time that, and only to the extent that, the number
of shares of Common Stock to be issued to Holder upon such Exercise (as defined
in Section 2(a)), when added to the number of shares of Common Stock, if any,
that the Holder otherwise beneficially owns (outside of this Warrant, and not
including any other warrants or securities of Holder’s having a provision
substantially similar to this paragraph) at the time of such Exercise, would
exceed 4.99% of the number of shares of Common Stock then outstanding, as
determined in accordance with Section 13(d) of the Exchange Act (the “4.99%
Beneficial Ownership Limitation”). The 4.99% Beneficial Ownership Limitation
shall be conclusively satisfied if the applicable Exercise Notice includes
a
signed representation by the Holder that the issuance of the shares in such
Exercise Notice will not violate the 4.99% Limitation, and the Company shall
not
be entitled to require additional documentation of such
satisfaction.
Notwithstanding
the above, in the event that the Company receives any purchase, tender or
exchange offer or any offer to enter into a merger with another entity whereby
the Company shall not be the surviving entity (an “Offer”), then “4.99%” shall
be automatically revised immediately after such offer to read “9.99%” each place
it occurs in this Section 1. In addition, the 4.99% Beneficial Ownership
Limitation provisions of this Section 1 may be waived by such Holder, at the
election of such Holder, upon not less than 61 days’ prior notice to the
Company, to change the 4.99% Beneficial Ownership Limitation to 9.99% of the
number of shares of the Common Stock outstanding immediately after giving effect
to the issuance of shares of Common Stock upon Exercise of the Warrants held
by
the Holder and the provisions of this Section 1 shall continue to apply. The
limitations on Exercise set forth in this subsection are referred to as the
“Beneficial Ownership Limitations.” Upon such a change by a Holder of the
Beneficial Ownership Limitations from such 4.99% limitation to such 9.99%
limitation, the Beneficial Ownership Limitations may not be further waived
by
such Holder. The provisions of this paragraph shall be construed and implemented
in a manner otherwise than in strict conformity with the terms of this Section
1
to correct this paragraph (or any portion hereof) which may be defective or
inconsistent with the intended Beneficial Ownership Limitation herein contained
or to make changes or supplements necessary or desirable to properly give effect
to such limitation.
Notwithstanding
the above, Holder shall retain the option to either Exercise or not Exercise
its
option(s) to acquire Common Stock pursuant to the terms hereof after an Offer,
and, in the event of a cash Exercise following a tender offer, the Exercise
Price per share that would otherwise be due shall instead be offset against
the
tender price per share to be received by the Holder, provided, however, that
in
the event a tender offer is not completed, Holder, at its option may either
(i)
complete any Exercise that was initiated after the Offer by promptly paying
to
the Company the Exercise Price that would have been due at the time the Warrant
was Exercised, or (ii) cancel such Exercise by providing written notice to
the
Company, in which case such Exercise shall be deemed void ab initio.
2
Maximum
Exercise of Rights.
In the
event the Holder notifies the Company that the Exercise of the rights described
herein would result in the issuance of an amount of Common Stock of the Company
that would exceed the maximum amount that may be issued to a Holder calculated
in the manner described above, then the issuance of such additional shares
of
Common Stock of the Company to such Holder will be deferred in whole or in
part
until such time as such Holder is able to beneficially own such Common Stock
without exceeding the maximum amount calculated in the manner described herein.
The determination of when such Common Stock may be issued shall be made by
each
Holder as to only such Holder.
2. Exercise.
(a)
Manner of Exercise. During
the Term, this
Warrant may be Exercised as to all or any lesser number of full shares of Common
Stock covered hereby (the “Warrant Shares” or the “Shares”) upon surrender of
this Warrant, with the Exercise Form attached hereto as Exhibit
A
(the
“Exercise Form”) duly completed and executed, together with the full Exercise
Price (as defined below, which may be satisfied by either a Cash Exercise or
a
Cashless Exercise, as each is defined below) for each share of Common Stock
as
to which this Warrant is Exercised, at the office of the Company, QPC
Lasers, Inc.; 00000
Xxxxxxx Xxxxxx, Xxxxxx, XX 00000; Telephone: 000-000-0000, Fax:
000-000-0000, or
at
such other office or agency as the Company may designate in writing, by
overnight mail, with an advance copy of the Exercise Form sent to the Company
and its transfer agent (“Transfer Agent”) by facsimile (such surrender and
payment of the Exercise Price hereinafter called the "Exercise” of this
Warrant).
(b)
Date of Exercise. The
"Date
of Exercise" of the Warrant shall be defined as the date that the Exercise
Form
attached hereto as Exhibit A, completed and executed, is sent by facsimile
to
the Company, provided that the original Warrant and Exercise Form are received
by the Company and the Exercise Price is satisfied, each as soon as practicable
thereafter. Alternatively, the Date of Exercise shall be defined as the date
the
original Exercise Form is received by the Company, if Holder has not sent
advance notice by facsimile.
(c)
Delivery of Common Stock Upon Exercise.
Within
three (3) business days after any Date of Exercise (the "DELIVERY PERIOD"),
the
Company shall issue and deliver (or cause its Transfer Agent so to issue and
deliver) in accordance with the terms hereof to or upon the order of the Holder
that number of shares of Common Stock (“Exercise Shares”) for the portion of
this Warrant converted as shall be determined in accordance herewith. Upon
the
Exercise of this Warrant or any part thereof, the Company shall, at its own
cost
and expense, take all necessary action, including obtaining and delivering,
an
opinion of counsel to assure that the Company's transfer agent shall issue
stock
certificates in the name of Holder (or its nominee) or such other persons as
designated by Holder and in such denominations to be specified at Exercise
representing the number of shares of Common Stock issuable upon such Exercise.
The Company warrants that no instructions other than these instructions have
been or will be given to the transfer agent of the Company's Common Stock and
that, unless waived by the Holder, the Exercise Shares will be free-trading,
and
freely transferable, and will not contain a legend restricting the resale or
transferability of the Exercise Shares if the Unrestricted Conditions (as
defined below) are met.
3
(d) Delivery
Failure. In
addition to any other remedies which may be available to the Holder, in the
event that the Company fails for any reason to effect delivery of the Exercise
Shares by the end of the Delivery Period (a “Delivery Failure”), the Holder will
be entitled to revoke all or part of the relevant Notice of Exercise by delivery
of a notice to such effect to the Company whereupon the Company and the Holder
shall each be restored to their respective positions immediately prior to the
delivery of such notice, except that the liquidated damages described above
shall be payable through the date notice of revocation or rescission is given
to
the Company.
(e)
Legends.
(i)
Restrictive
Legend.
The
Holder understands that the Warrant and, until such time as Exercise Shares
have
been registered under the 1933 Act as contemplated by the Registration Rights
Agreement or otherwise may be sold pursuant to Rule 144 or Rule 144(k) under
the
1933 Act without any restriction as to the number of securities as of a
particular date that can then be immediately sold, the Exercise Shares may
bear
a restrictive legend in substantially the following form (and a stop-transfer
order may be placed against transfer of the certificates for such
securities):
"The
securities represented by this certificate have not been registered under the
Securities Act of 1933, as amended, or applicable state securities laws. The
securities may not be sold, transferred or assigned in the absence of an
effective registration statement for the securities under said Act, or an
opinion of counsel, in form, substance and scope reasonably satisfactory to
counsel to the Company, that registration is not required under said Act or
unless sold pursuant to Rule 144 under said Act."
(ii)
Removal
of Restrictive Legends.
Certificates evidencing the Exercise Shares shall not contain any legend
restricting the transfer thereof (including the legend set forth above in
subsection 2(e)(i)): (i) while a registration statement (including the
Registration Statement) covering the resale of such security is effective under
the Securities Act, or (ii) following any sale of such Exercise Shares pursuant
to Rule 144, or (iii) if such Exercise Shares are eligible for sale under Rule
144(k), or (iv) if such legend is not required under applicable requirements
of
the Securities Act (including judicial interpretations and pronouncements issued
by the staff of the Commission) (collectively, the “Unrestricted Conditions”).
The Company shall cause its counsel to issue a legal opinion to the Company’s
transfer agent promptly after the Effective Date if required by the Company’s
transfer agent to effect the issuance of Exercise Shares without a restrictive
legend or removal of the legend hereunder. If the Unrestricted Conditions are
met at the time of issuance of Exercise Shares, then such Exercise Shares shall
be issued free of all legends. The Company agrees that following the Effective
Date or at such time as the Unrestricted Conditions are met or such legend
is
otherwise no longer required under this Section 2(e), it will, no later than
three (3) Trading Days following the delivery (the “Unlegended Shares Delivery
Deadline”) by the Holder to the Company or the Company’s transfer agent of a
certificate representing Exercise Shares, as applicable, issued with a
restrictive legend (such third Trading Day, the “Legend
Removal Date”),
deliver or cause to be delivered to such Holder a certificate (or electronic
transfer) representing such shares that is free from all restrictive and other
legends.
4
(iii) Sale
of Unlegended Shares.
Holder
agrees that the removal of the restrictive legend from certificates representing
Securities as set forth in this Section 2(e)(i) above is predicated upon the
Company’s reliance that the Holder will sell any Exercise Shares pursuant to
either the registration requirements of the Securities Act, including any
applicable prospectus delivery requirements, or an exemption therefrom, and
that
if Securities are sold pursuant to a Registration Statement, they will be sold
in compliance with the plan of distribution set forth therein.
(f)
Cancellation of Warrant. This
Warrant shall be canceled upon the full Exercise of this Warrant, and, as soon
as practical after the Date of Exercise, Holder shall be entitled to receive
Common Stock for the number of shares purchased upon such Exercise of this
Warrant, and if this Warrant is not Exercised in full, Holder shall be entitled
to receive a new Warrant (containing terms identical to this Warrant)
representing any unexercised portion of this Warrant in addition to such Common
Stock.
(g)
Holder of Record. Each
person in whose name any Warrant for shares of Common Stock is issued shall,
for
all purposes, be deemed to be the Holder of record of such shares on the Date
of
Exercise of this Warrant, irrespective of the date of delivery of the Common
Stock purchased upon the Exercise of this Warrant. Nothing in this Warrant
shall
be construed as conferring upon Holder any rights as a stockholder of the
Company.
(h) Delivery
of Electronic Shares.
In lieu
of delivering physical certificates representing the Common Stock issuable
upon
Exercise or legend removal, provided the Company’s Transfer Agent is
participating in the Depository Trust Company ("DTC") Fast Automated Securities
Transfer ("FAST") program, upon written request of the Holder, 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
the Holder's prime broker with DTC through its Deposit Withdrawal Agent
Commission ("DWAC") system. The time periods for delivery and penalties
described herein shall apply to the electronic transmittals described
herein.
(i)
Buy-In.
In
addition to any other rights available to the Holder, if the Company fails
to
cause its transfer agent to transmit to the Holder a certificate or certificates
representing the Exercise Shares pursuant to an Exercise on or before the
Warrant Share Delivery Date, and if after such date the Holder is required
by
its broker to purchase (in an open market transaction or otherwise) or the
Holder’s brokerage firm otherwise purchases shares of Common Stock to deliver in
satisfaction of a sale by the Holder of the Exercise Shares which the Holder
anticipated receiving upon such Exercise (a “Buy-In”),
then
the Company shall (1) pay in cash to the Holder the amount by which (x) the
Holder’s total purchase price (including brokerage commissions, if any) for the
shares of Common Stock so purchased exceeds (y) the amount obtained by
multiplying (A) the number of Exercise Shares that the Company was required
to
deliver to the Holder in connection with the Exercise at issue times (B) the
price at which the sell order giving rise to such purchase obligation was
executed, and (2) at the option of the Holder, either reinstate the portion
of
the Warrant and equivalent number of Exercise Shares for which such Exercise
was
not honored or deliver to the Holder the number of shares of Common Stock that
would have been issued had the Company timely complied with its Exercise and
delivery obligations hereunder. For example, if the Holder purchases Common
Stock having a total purchase price of $11,000 to cover a Buy-In with respect
to
an attempted Exercise of shares of Common Stock with an aggregate sale price
giving rise to such purchase obligation of $10,000, under clause (1) of the
immediately preceding sentence the Company shall be required to pay the Holder
$1,000. The Holder shall provide the Company written notice indicating the
amounts payable to the Holder in respect of the Buy-In, together with applicable
confirmations and other evidence reasonably requested by the Company. Nothing
herein shall limit a Holder’s right to pursue any other remedies available to it
hereunder, at law or in equity including, without limitation, a decree of
specific performance and/or injunctive relief with respect to the Company’s
failure to timely deliver certificates representing shares of Common Stock
upon
Exercise of the Warrant as required pursuant to the terms hereof.
5
3. Payment
of Warrant Exercise Price.
(a)
Exercise Price.
The
Exercise Price (“Exercise Price”) shall initially equal $1.05
per
share (the “Initial Exercise Price”), subject to adjustment pursuant to the
terms hereof, including but not limited to Section 5 below.
Payment
of the Exercise Price may be made by either of the following, or a combination
thereof, at the election of Holder:
(i) Cash
Exercise: cash,
bank or cashiers check or wire transfer (a “Cash Exercise”); or
(ii) Cashless
Exercise: The
Holder, at its option, may exercise this Warrant in a cashless exercise
transaction under this subsection if and only if, on the Date of Exercise,
there
is not then in effect a current registration statement that covers the resale
of
the shares of Common Stock to be issued upon exercise of this Warrant. In order
to effect a Cashless Exercise, the Holder shall surrender
of this Warrant at the principal office of the Company together with notice
of
cashless election, in which event the Company shall issue Holder a number of
shares of Common Stock computed using the following formula (a “Cashless
Exercise”):
X
= Y
(A-B)/A
where:
X
= the
number of shares of Common Stock to be issued to Holder.
Y
= the
number of shares of Common Stock for which this Warrant is being Exercised.
A
= the
Market Price of one (1) share of Common Stock (for purposes of this Section
3(ii), where "MARKET PRICE," as of any date, means the Volume Weighted Average
Price (as defined herein) of the Company’s Common Stock during the trading day
immediately preceding the date in question.
6
B
= the
Exercise Price.
As
used
herein, the "VOLUME WEIGHTED AVERAGE PRICE" for any security as of any date
means the volume weighted average sale price on the Over the Counter Electronic
Bulletin Board (the “OTC-BB”) as reported by, or based upon data reported by,
Bloomberg Financial Markets or an equivalent, reliable reporting service
mutually acceptable to and hereafter designated by holders of a majority in
interest of the Warrants and the Company ("BLOOMBERG") or, if the OTC-BB is
not
the principal trading market for such security, the volume weighted average
sale
price of such security on the principal securities exchange or trading market
where such security is listed or traded as reported by Bloomberg, or, if no
volume weighted average sale price is reported for such security, then the
last
closing trade price of such security as reported by Bloomberg, or, if no last
closing trade price is reported for such security by Bloomberg, the average
of
the bid prices of any market makers for such security that are listed in the
"pink sheets" by the National Quotation Bureau, Inc. If the Volume Weighted
Average Price cannot be calculated for such security on such date in the manner
provided above, the volume weighted average price shall be the fair market
value
as mutually determined by the Company and the holders of a majority in interest
of the Warrants being Exercised for which the calculation of the volume weighted
average price is required in order to determine the Exercise Price of such
Warrants. "TRADING DAY" shall mean any day on which the Common Sock is traded
for any period on the OTC-BB, or on the principal securities exchange or other
securities market on which the Common Stock is then being traded.
For
purposes of Rule 144 and sub-section (d)(3)(ii) thereof, it is intended,
understood and acknowledged that the Common Stock issuable upon Exercise of
this
Warrant in a cashless Exercise transaction shall be deemed to have been acquired
at the time this Warrant was issued. Moreover, it is intended, understood and
acknowledged that the holding period for the Common Stock issuable upon Exercise
of this Warrant in a cashless Exercise transaction shall be deemed to have
commenced on the date this Warrant was issued.
(b)
Dispute
Resolution.
In the
case of a dispute as to the determination of the closing price or the Volume
Weighted Average Price of the Company’s Common Stock or the arithmetic
calculation of the Exercise Price, Market Price or any Redemption Price, or
the
determination of whether or not a Dilutive Issuance or a Milestone Failure
has
occurred, the Company shall submit the disputed determinations or arithmetic
calculations via facsimile within two (2) Business Days of receipt, or deemed
receipt, of the Exercise Notice or Redemption Notice or other event giving
rise
to such dispute, as the case may be, to the Holder. If the Holder and the
Company are unable to agree upon such determination or calculation within two
(2) Business Days of such disputed determination or arithmetic calculation
being
submitted to the Holder, then the Company shall, within two (2) Business
Days
submit via facsimile (i) the disputed determination of the closing price or
the
Volume Weighted Average Price of the Company’s Common Stock to an independent,
reputable investment bank selected by the Company and approved by the Holder,
which approval shall not be unreasonably withheld, (ii) the disputed arithmetic
calculation of the Exercise Price, Market Price or any Redemption Price to
the
Company’s independent, outside accountant or
(iii)
the disputed facts regarding the occurrence of a Dilutive Issuance or Milestone
Failure to an independent expert acceptable to the Lead Investor (as defined
in
the Securities Purchase Agreement).
The
Company, at the Company’s expense, shall cause the investment bank, the
accountant, or other expert as the case may be, to perform the determinations
or
calculations and notify the Company and the Holder of the results no later
than
five (5) Business Days from the time it receives the disputed determinations
or
calculations. Such investment bank’s or accountant’s determination or
calculation, as the case may be, shall be binding upon all parties absent
demonstrable error (collectively, the “DISPUTE RESOLUTION
PROCEDURES”).
7
4. Transfer
and Registration.
(a)
Transfer
Rights. Subject
to the provisions of Section 8 of this Warrant, this Warrant may be transferred
on the books of the Company, in whole or in part, in person or by attorney,
upon
surrender of this Warrant properly completed and endorsed. This Warrant shall
be
canceled upon such surrender and, as soon as practicable thereafter, the person
to whom such transfer is made shall be entitled to receive a new Warrant or
Warrants as to the portion of this Warrant transferred, and Holder shall be
entitled to receive a new Warrant as to the portion hereof retained.
(b)
Registrable
Securities. The
Common Stock issuable upon the Exercise of this Warrant has registration rights
pursuant to that certain Registration Rights Agreements between the Company
and
the Holder dated even herewith.
5. Anti-Dilution
Adjustments; Additional Adjustments; Purchase Rights.
(a) Participation.
The
Holder, as the holder of this Warrant, shall be entitled to receive such
dividends paid and distributions of any kind made to the holders of Common
Stock
of the Company to the same extent as if the Holder had Exercised this Warrant
into Common Stock (without regard to any limitations on Exercise herein or
elsewhere and without regard to whether or not a sufficient number of shares
are
authorized and reserved to effect any such Exercise and issuance) and had held
such shares of Common Stock on the record date for such dividends and
distributions. Payments under the preceding sentence shall be made concurrently
with the dividend or distribution to the holders of Common Stock.
(b)
Recapitalization
or Reclassification. If
the
Company shall at any time effect a recapitalization, reclassification or other
similar transaction of such character that the shares of Common Stock shall
be
changed into or become exchangeable for a larger or smaller number of shares,
then upon the effective date thereof, the number of shares of Common Stock
which
Holder shall be entitled to purchase upon Exercise of this Warrant shall be
increased or decreased, as the case may be, in direct proportion to the increase
or decrease in the number of shares of Common Stock by reason of such
recapitalization, reclassification or similar transaction, and the Exercise
Price shall be, in the case of an increase in the number of shares,
proportionally decreased and, in the case of decrease in the number of shares,
proportionally increased. The Company shall give Holder the same notice it
provides to holders of Common Stock of any transaction described in this Section
5(b).
8
(c) Notice
of Consolidation
or Merger. In
the
event of a Major Transaction (as defined below) is approved in writing by the
Holder (a “Permissible Major Transaction”) and occurs, then this Warrant shall
be Exerciseable into such class and type of securities or other assets as Holder
would have received had Holder Exercised this Warrant immediately prior to
such
Permissible Major Transaction; provided, however, that Company shall provided
the Holder with at least thirty (30) business days advance notice to Holder
before effecting any Permissible Major Transaction.
(d) Exercise
Price Adjusted. As
used
in this Warrant, the term "Exercise Price" shall mean the purchase price per
share specified in Section 3 of this Warrant, until the occurrence of an event
stated this Section 5 or otherwise set forth in this Warrant, and thereafter
shall mean said price as adjusted from time to time in accordance with the
provisions of said subsection. No such adjustment under this Section 5 shall
be
made unless such adjustment would change the Exercise Price at the time by
$.01
or more; provided, however, that all adjustments not so made shall be deferred
and made when the aggregate thereof would change the Exercise Price at the
time
by $.01 or more. No adjustment made pursuant to any provision of this Section
5
shall have the net effect of increasing the Exercise Price in relation to the
split adjusted and distribution adjusted price of the Common Stock.
(e) Adjustments:
Additional Shares, Securities or Assets. In
the
event that at any time, as a result of an adjustment made pursuant to this
Section 5 or otherwise, Holder shall, upon Exercise of this Warrant, become
entitled to receive shares and/or other securities or assets (other than Common
Stock) then, wherever appropriate, all references herein to shares of Common
Stock shall be deemed to refer to and include such shares and/or other
securities or assets; and thereafter the number of such shares and/or other
securities or assets shall be subject to adjustment from time to time in a
manner and upon terms as nearly equivalent as practicable to the provisions
of
this Section 5.
(f)
Adjustment of Exercise Price Due to Share Issuances (MFN).
So long
as any of the Warrants are outstanding, if the Company shall issue, sell, or
grant or agree to issue, sell or grant (A) any shares of Common Stock, (B)
any
option, warrant, debt or security that is convertible or exchangeable into
Common Stock, at a price per share that is less than the Exercise Price in
effect at the time of such issue (each, a “Dilutive Issuance”), then, and
thereafter successively upon each such issue, the Exercise Price shall be
reduced (an “MFN Adjustment”) to such other lower issue price (the “MFN
Adjustment Price”). For purposes of this adjustment, the issuance of any
security carrying the right to convert such security into shares of Common
Stock
or of any warrant, right or option to purchase Common Stock shall result in
an
adjustment to the Exercise Price upon the issuance of the above-described
security and again upon any adjustment to the Exercise Price of such securities
(which shall result in an adjustment of the Exercise Price to an effective
price
per share equal to the lesser of the existing Exercise Price and the then
current Exercise price of such securities) and upon the issuance of shares
of
Common Stock upon Exercise of such Exercise or purchase rights if such issuance
is at a price lower than the then applicable Exercise Price (which shall result
in an adjustment of the Exercise Price to a price equal to the lesser of the
existing Exercise Price and the issuance price of such shares of Common Stock).
Notwithstanding the above, there shall be no MFN Adjustment to the Exercise
Price based upon any Dilutive Issuances to individual investors (i.e., investors
which are not institutions or legal entities of any kind), unless the aggregate
amount of such Dilutive Issuances to individual investors since the Issue Date
of this Warrant exceeds $1,000,000.
9
(g)
Milestone Adjustments
to Exercise Price.
The
Company has provided to the Holder pro forma financial projections and a list
of
milestone events that are evidenced on SCHEDULE 5(G) attached hereto (the
“Projections”). If the Company shall have failed (each a “Milestone Failure”) to
meet or exceed such Projections for any one or more of the following periods
(each a “Milestone Period”): (i) the nine (9) month period ending September 30,
2007, on (ii) the twelve (12) month period ending December 31, 2007 and (iii)
the six (6) month period ending June 30, 2008, respectively (each a “Milestone
Date”), in each case as reported in the Company’s Form 10-Q for such fiscal
quarter, then the Exercise Price shall be reduced (but not increased) (a
“Milestone Adjustment) to equal the lesser of (a) the Exercise Price then in
effect or (b) the Market Price as determined on the date that is five (5)
Trading Days after the date that Company files its next Form 10-Q with the
Commission following the end of the applicable Milestone Period (the “Milestone
Adjustment Price”).
Each
such
adjustment shall be effective as of the first day following each Milestone
Date
(by way of example, if the Projections are not met for the Milestone Period
ending September 30, 2007, the reduction is effective immediately on October
1,
2007). As to any Exercises by the Holder that occurred following the end of
a
Milestone Period but prior to the date the Company’s periodic report was filed
(“Interim
Period”),
the
Company shall retroactively send the Holder additional Warrant Shares within
3
Trading Days of the date of the applicable filing if an adjustment is required
hereunder. The number of additional Warrant Shares issued shall be equal to
the
number of Warrant Shares receivable from such Exercises based on the adjusted
Exercise Price less any Warrant Shares previously received on account of such
Exercises. Any subsequent restatements of the Company’s financials shall require
similar retroactive issuances if the aforementioned events are subsequently
deemed to have occurred. The Company shall provide written notice to the Holder
no later than one (1) Business Day following the Company’s filing of the
applicable periodic report with the Commission, indicating therein the new
Exercise Price and the Company’s revenue (“Revenue”) for the applicable
Milestone Period. In the event that there is an adjustment to the Exercise
Price
pursuant to any other provision under this Warrant during the Interim Period,
the Exercise Price shall be the lower of (i) the Exercise Price as adjusted
pursuant to the other provisions of this Warrant and (ii) the new Exercise
Price
as determined hereunder. Notwithstanding anything herein to the contrary, (i)
the provision shall only have the effect of reducing the Exercise Price and
(ii)
each adjustment shall be permanent notwithstanding future Revenue or the
achievement of any other milestones and cumulative with any other adjustments
hereunder.
(h)
Notice
of Adjustments. Whenever
the Exercise Price is adjusted pursuant to the terms of this Warrant, the
Company shall promptly mail to the Holder a notice (a “Exercise Price Adjustment
Notice”) setting forth the Exercise Price after such adjustment and setting
forth a statement of the facts requiring such adjustment. The Company shall,
upon the written request at any time of the Holder, furnish to such Holder
a
like Warrant setting forth (i) such adjustment or readjustment, (ii) the
Exercise Price at the time in effect and (iii) the number of shares of Common
Stock and the amount, if any, of other securities or property which at the
time
would be received upon Exercise of the Warrant. For purposes of clarification,
whether or not the Corporation provides an Exercise Price Adjustment Notice
pursuant to this Section 5(h), upon the occurrence of any event that leads
to an
adjustment of the Exercise Price, the Holders are entitled to receive a number
of Exercise Shares based upon the new Exercise Price, as adjusted, for Exercises
occurring on or after the date of such adjustment, regardless of whether a
Holder accurately refers to the adjusted Exercise Price in the Notice of
Exercise. Notwithstanding the foregoing, no adjustments shall be made, paid
or
issued under Section 5(f) or 5(g) in respect of an Exempt Issuance (as defined
in the Securities Purchase Agreement).
10
(i)
Purchase
Rights.
In addition to any other adjustments described herein, if at any time the
Company grants, issues or sells any Options, Convertible Securities or rights
to
purchase stock, warrants, securities or other property pro rata to the record
holders of any class of shares of Common Stock (the "Purchase Rights"), then
the
Holder will be entitled to acquire, upon the terms applicable to such Purchase
Rights, the aggregate Purchase Rights which the Holder could have acquired
if
the Holder had held the proportionate number of shares of Common Stock
acquirable upon complete Exercise of this Warrant (without regard to any
limitations on the Exercise of this Warrant) immediately before the date on
which a record is taken for the grant, issuance or sale of such Purchase Rights,
or, if no such record is taken, the date as of which the record holders of
shares of Common Stock are to be determined for the grant, issue or sale of
such
Purchase Rights.
6. Fractional
Interests.
No
fractional shares or scrip representing fractional shares shall be issuable
upon
the Exercise of this Warrant, but on Exercise of this Warrant, Holder may
purchase only a whole number of shares of Common Stock. If, on Exercise of
this
Warrant, Holder would be entitled to a fractional share of Common Stock or
a
right to acquire a fractional share of Common Stock, such fractional share
shall
be disregarded and the number of shares of Common Stock issuable upon Exercise
shall be the next higher number of shares.
7. Reservation
of Shares.
From
and
after the date hereof, the Company shall at all times reserve for issuance
such
number of authorized and unissued shares of Common Stock (or other securities
substituted therefor as herein above provided) as shall be sufficient for the
Exercise of this Warrant and payment of the Exercise Price. If at any time
the
number of shares of Common Stock authorized and reserved for issuance is below
the number of shares sufficient for the Exercise of this Warrant (a “Share
Authorization Failure”)(based on the Exercise Price in effect from time to
time), the Company will promptly take all corporate action necessary to
authorize and reserve a sufficient number of shares, including, without
limitation, calling a special meeting of stockholders to authorize additional
shares to meet the Company's obligations under this Section 7, in the case
of an insufficient number of authorized shares, and using its best efforts
to
obtain stockholder approval of an increase in such authorized number of shares.
The Company covenants and agrees that upon the Exercise of this Warrant, all
shares of Common Stock issuable upon such Exercise shall be duly and validly
issued, fully paid, nonassessable and not subject to preemptive rights, rights
of first refusal or similar rights of any person or entity.
11
8. Restrictions
on Transfer.
(a) Registration
or Exemption Required. This
Warrant has been issued in a transaction exempt from the registration
requirements of the Act by virtue of Regulation D and exempt from state
registration under applicable state laws. The Warrant and the Common Stock
issuable upon the Exercise of this Warrant may not be pledged, transferred,
sold
or assigned except pursuant to an effective registration statement or an
exemption to the registration requirements of the Act and applicable state
laws.
(b)
Assignment.
If
Holder
can provide the Company with reasonably satisfactory evidence that the
conditions of (a) above regarding registration or exemption have been satisfied,
Holder may sell, transfer, assign, pledge or otherwise dispose of this Warrant,
in whole or in part. Holder shall deliver a written notice to Company,
substantially in the form of the Assignment attached hereto as Exhibit
B,
indicating the person or persons to whom the Warrant shall be assigned and
the
respective number of warrants to be assigned to each assignee. The Company
shall
effect the assignment within ten (10) days, and shall deliver to the assignee(s)
designated by Holder a Warrant or Warrants of like tenor and terms for the
appropriate number of shares.
9. [Intentionally
Left Blank].
10. Events
of Failure.
(a)
Definition.
The
occurrence of each of the following shall be considered to be an “EVENT OF
FAILURE.”
(i)
A
Registration Failure pursuant to Section 7(c) of the Debentures;
(ii)
A
Share Authorization Failure pursuant to Section 7(k) of the
Debenture;
(iii)
A
Delivery Failure occurs, where a “Delivery Failure” shall be deemed to have
occurred if the Company fails to deliver Exercise Shares to the Holder within
any applicable Delivery Period.
(iv)
A
Legend Removal Failure occurs, where a “Legend Removal Failure” shall be deemed
to have occurred if the Company fails to issue Exercise Shares without a
restrictive legend, or fails to remove a restrictive legend, when and as
required under Section 2(e) hereof.
(b)
Failure Payments. The
Company understands that any Event of Failure (as defined above) could result
in
economic loss to the Holder. In the event that any Event of Failure occurs,
as
compensation to the Holder for such loss, the Company agrees to pay (as
liquidated damages and not as a penalty) to the Holder payments (“Failure
Payments”) at a rate of 18% per annum (or the maximum rate permitted by
applicable law, whichever is less) of the Black-Scholes value (as defined below)
of the remaining unexercised portion of this Warrant on the date of such request
(as recalculated on the first business day of each month thereafter for as
long
as Failure Payments shall continue to accrue), which shall accrue daily from
the
date of such Event of Failure through and including the date of payment in
full.
The Company shall pay any payments incurred under this Section in cash or cash
equivalent upon demand or, if not demanded sooner, within five business (5)
days
of the end of each calendar month. Failure Payments are in addition to any
Shares that the Holder is entitled to receive upon Exercise of this Warrant.
Notwithstanding anything to the contrary herein, to the extent that any Failure
Payments accrue solely as a result of a Registration Failure for failure to
obtain timely initial effectiveness of the Registration Statement (“INITIAL
EFFECTIVENESS FAILURE PAYMENTS”), such Initial Effectiveness Failure Payments
shall cease to accrue at any time when the Holder is eligible, in the Company’s
reasonable opinion, to resell the shares that would be issuable upon a Cashless
Exercise of its Warrant, pursuant to Rule 144, subject to the volume limitations
of such Rule.
12
For
purposes hereof, the “Black-Scholes” value of a Warrant shall
be determined by use of the Black Scholes Option Pricing Model reflecting (A)
a
risk-free interest rate corresponding to the U.S. Treasury rate for a period
equal to the remaining term of this Warrant as of such date of request and
(B)
an expected volatility equal to the greater of 60% and the 100 day volatility
obtained from the HVT function on Bloomberg.
(c)
Payment of Accrued Failure Payments. The
accrued Failure Payments for each Event of Failure shall be paid in immediately
available funds on or before the fifth (5th) day of each month following a
month
in which Failure Payments accrued. Nothing herein shall limit the Holder's
right
to pursue actual damages (to the extent in excess of the Failure Payments)
for
the Company's Event of Failure, 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). Notwithstanding the above, if a
particular Event of Failure results in an Event of Default pursuant to Section
11 hereof, then the Failure Payment, for that Event of Failure only, shall
be
considered to have been satisfied upon payment to the Holder of an amount equal
to the greater of (i) the Failure Payment, or (ii) the Default Amount, payable
in accordance with Section 11.
(d)
Maximum Interest Rate.
Nothing
contained herein or in any document referred to herein or delivered in
connection herewith shall be deemed to establish or require the payment of
a
rate of interest or other charges in excess of the maximum permitted by
applicable law. In the event that the rate of interest or dividends required
to
be paid or other charges hereunder exceed the maximum permitted by such law,
any
payments in excess of such maximum shall be credited against amounts owed by
the
Company to the Holder and thus refunded to the Company.
11. Default
and Redemption.
(a)
Events
Of Default.
Each of
the following events shall be considered to be an "EVENT OF DEFAULT," unless
waived by the Holder:
13
(i)
Failure To Effect Registration.
A
Registration Default (as defined in Section 7(c) of the Debenture)
occurs;
(ii)
Failure To Authorize And Reserve Common Stock. A
Share
Authorization Failure (as defined in Section 7(k) of the Debenture) occurs
and
remains uncured for a period of more than sixty (60) days;
(iii) Failure
To Deliver Common Stock.
A
Delivery Failure (as defined above) occurs and remains uncured for a period
of
more than twenty (20) days; or at any time, the Company announces or states
in
writing that it will not honor its obligations to issue shares of Common Stock
to the Holder upon Exercise by the Holder of the Exercise rights of the Holder
in accordance with the terms of this Warrant.
(iv)
Legend Removal Failure. A
Legend
Removal Failure (as defined above) occurs and remains uncured for a period
of
twenty (20) days.
(v)
Cross Default. An
event
of default (as defined in the applicable security) in any other Debenture,
Warrant or other security issued to the Holder or another holder pursuant to
the
Securities Purchase Agreement (a “Cross Default”) shall constitute an Event of
Default hereunder.
(vi)
Major Transaction. A
Major
Transaction occurs, where, for purposes hereof a "Major Transaction" shall
be
deemed to have occurred at such time as any of the following events
occur:
(A) a
consolidation, merger, exchange of shares, recapitalization, reorganization,
business combination or other similar event, (1) following which the holders
of
Common Stock of the Company immediately preceding such consolidation, merger,
combination or event either (a) no longer hold a majority of the shares of
Common Stock of the Company or (b) no longer have the ability to elect the
board
of directors of the Company or (2) as a result of which shares of Common Stock
of the Company shall be changed into (or the shares of Common Stock become
entitled to receive) the same or a different number of shares of the same or
another class or classes of stock or securities of the Company or another entity
(each of the events described in items (1) and (2) immediately above is referred
to as a “Change of Control”);
(B) the
sale
or transfer of all or substantially all of the Company's assets (an “Asset
Sale”); or
(C) a
purchase, tender or exchange offer made to the holders of outstanding shares
of
Common Stock, such that following such purchase, tender or exchange offer a
Change of Control shall have occurred.
(vii)
the
Company has failed to comply with the Dispute Resolution Procedures (as defined
herein) or has failed to adjust the Exercise Price as required hereunder
following a Dilutive Issuance, a Milestone Event, or otherwise (after any
applicable Dispute Resolution Procedure required herein).
14
(b)
Mandatory
Redemption.
(i)
Mandatory Redemption Amount.
If any
Events of Default shall occur then, unless waived by the Holder, upon the
occurrence and during the continuation of any Event of Default, at the option
of
the Holder, such option exercisable through the delivery of written notice
to
the Company by such Holder (the "DEFAULT NOTICE"), the outstanding amount of
this Warrant shall be immediately redeemed by the Company and the Company shall
pay to the Holder (a “MANDATORY REDEMPTION”), in full satisfaction of its
obligations hereunder, an amount (the “MANDATORY REDEMPTION AMOUNT” or the
“DEFAULT AMOUNT”) equal to the greater of (i) the Black-Scholes value of the
remaining unexercised portion of this Warrant on the date of such Default Notice
and (2) the Black-Scholes value of the remaining unexercised portion of this
Warrant on the Trading Day immediately preceding the date that the Mandatory
Redemption Amount is
paid
to the Holder.
The
Mandatory Redemption Amount shall be payable, in cash or cash equivalent, within
five (5) business days of the Date of the applicable Default Notice.
(ii)
Liquidated Damages.
The
parties hereto acknowledge and agree that the sums payable as Failure Payments
or pursuant to a Mandatory Redemption shall give rise to liquidated damages
and
not penalties. The parties further acknowledge that (i) the amount of loss
or
damages likely to be incurred by the Holder is incapable or is difficult to
precisely estimate, (ii) the amounts specified bear a reasonable proportion
and
are not plainly or grossly disproportionate to the probable loss likely to
be
incurred by the Investor, and (iii) the parties are sophisticated business
parties and have been represented by sophisticated and able legal and financial
counsel and negotiated this Agreement at arm’s length.
The
Default Amount, together with all other amounts payable hereunder, shall
immediately become due and payable, all without demand, presentment or notice,
all of which hereby are expressly waived, together with all costs, including,
without limitation, legal fees and expenses, of collection, and the Holder
shall
be entitled to Exercise all other rights and remedies available at law or in
equity.
(c)
Posting
Of Bond. In
the
event that any Event of Default occurs hereunder or any Event of Default occurs
under any of the Transaction Documents (as defined in the Securities Purchase
Agreement), where such Event of Default relates to the Company’s failure to make
timely delivery of shares of Common Stock to the Holder, relates to the failure
to remove a restrictive legend from the Holder’s Common Stock when so required
under the Transaction Documents, or is a Registration Default, then the Company
may not raise as a legal defense (in any Lawsuit, as defined below, or
otherwise) or justification to such Event of Default any claim that such Holder
or any one associated or affiliated with such Holder has been engaged in any
violation of law, unless the Company has posted a surety bond (a “Surety Bond”)
for the benefit of such Holder in the amount of 130% of the aggregate Surety
Bond Value (as defined below) of all of the Holder’s Debenture and Warrants (the
“Bond Amount”), which Surety Bond shall remain in effect until the completion of
litigation of the dispute and the proceeds of which shall be payable to such
Holder to the extent Holder obtains judgment.
15
For
purposes hereof, a “Lawsuit” shall mean any lawsuit, arbitration or other
dispute resolution filed by either party herein pertaining to any of the
Transaction Documents (as defined in the Securities Purchase Agreement).
“Surety
Bond Value,” for the Warrants shall mean 130% of the of the Black-Scholes value
of the remaining unexercised portion of this Warrant on the Trading Day
immediately preceding the date that such bond goes into effect) and “Surety Bond
Value” for the Debenture shall have the meaning ascribed to it in the
Debenture.
(d)
Injunction And Posting Of Bond.
In the
event that the Event of Default referred to in subsection (c) above pertains
to
the Company’s failure to deliver unlegended shares of Common Stock to the Holder
pursuant to a Warrant Exercise, legend removal request, or otherwise, the
Company may not refuse such unlegended share delivery based on any claim that
such Holder or any one associated or affiliated with such Holder has been
engaged in any violation of law, unless an injunction from a court, on prior
notice to Holder, restraining and or enjoining Exercise of all or part of said
Warrant shall have been sought and obtained by the Company and the Company
has
posted a Surety Bond for the benefit of such Holder in the amount of the Bond
Amount (as described above), which Surety Bond shall remain in effect until
the
completion of litigation of the dispute and the proceeds of which shall be
payable to such Holder to the extent Holder obtains judgment.
12. Benefits
of this Warrant.
Nothing
in this Warrant shall be construed to confer upon any person other than the
Company and Holder any legal or equitable right, remedy or claim under this
Warrant and this Warrant shall be for the sole and exclusive benefit of the
Company and Holder.
13. Governing
Law.
All
questions concerning the construction, validity, enforcement and interpretation
of this Agreement shall be governed by and construed and enforced in accordance
with the internal laws of the State of New York, without regard to the
principles of conflicts of law thereof. Each party agrees that all legal
proceedings concerning the interpretations, enforcement and defense of the
transactions contemplated by this Agreement (whether brought against a party
hereto or its respective affiliates, directors, officers, shareholders,
employees or agents) shall be commenced exclusively in the state and federal
courts sitting in the City of New York. Each party hereby irrevocably submits
to
the exclusive jurisdiction of the state and federal courts sitting in the City
of New York, borough of Manhattan for the adjudication of any dispute hereunder
or in connection herewith or with any transaction contemplated hereby or
discussed herein (including with respect to the enforcement of any of the
Transaction Documents), and hereby irrevocably waives, and agrees not to assert
in any suit, action or proceeding, any claim that it is not personally subject
to the jurisdiction of any such court, that such suit, action or proceeding
is
improper or is an inconvenient venue for such proceeding. Each party hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by mailing a copy thereof via
registered or certified mail or overnight delivery (with evidence of delivery)
to such party at the address in effect for notices to it under this Agreement
and agrees that such service shall constitute good and sufficient service of
process and notice thereof. Nothing contained herein shall be deemed to limit
in
any way any right to serve process in any other manner permitted by law. The
parties hereby waive all rights to a trial by jury. If either party shall
commence an action or proceeding to enforce any provisions of the this
Agreement, then the prevailing party in such action or proceeding shall be
reimbursed by the other party for its reasonable attorneys’ fees and other costs
and expenses incurred with the investigation, preparation and prosecution of
such action or proceeding.
16
14. Loss
of Warrant.
Upon
receipt by the Company of evidence of the loss, theft, destruction or mutilation
of this Warrant, and (in the case of loss, theft or destruction) of indemnity
or
security reasonably satisfactory to the Company, and upon surrender and
cancellation of this Warrant, if mutilated, the Company shall execute and
deliver a new Warrant of like tenor and date.
15. Notice
or Demands.
Notices
or demands pursuant to this Warrant to be given or made by Holder to or on
the
Company shall be sufficiently given or made if sent by certified or registered
mail, return receipt requested, postage prepaid, and addressed, until another
address is designated in writing by the Company, to the address set forth in
Section 2(a) above. Notices or demands pursuant to this Warrant to be given
or
made by the Company to or on Holder shall be sufficiently given or made if
sent
by certified or registered mail, return receipt requested, postage prepaid,
and
addressed, to the address of Holder set forth in the Company’s records, until
another address is designated in writing by Holder.
16.
Amendments.
Except
as
otherwise expressly provided herein, the Warrants and any provision hereof
may
be amended only by a written instrument signed by the Company and the Holders
of
67% in interest of the then outstanding Warrants.
[Signature
Page Follows]
17
IN
WITNESS WHEREOF, the undersigned has executed this Warrant as of the
22nd
day
of May, 2007.
|
QPC
Lasers, Inc.
By:________________________
Print
Name:__________________
Title:_______________________
|
[Signature
page to Warrant]
EXHIBIT
A
EXERCISE
FORM FOR WARRANT
TO:
QPC
Lasers, Inc.
The
undersigned hereby irrevocably Exercises the right to purchase ____________
of
the shares of Common Stock (the “Common Stock”) of QPC
Lasers, Inc.,
a
Nevada corporation
(the
“Company”), evidenced by the attached warrant (the “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.
1.
The
undersigned agrees not to offer, sell, transfer or otherwise dispose of any
of
the Common Stock obtained on Exercise of the Warrant, except in accordance
with
the provisions of Section 8(a) of the Warrant.
2.
The
undersigned requests that stock certificates for such shares be issued free
of
any restrictive legend, if appropriate, and a warrant representing any
unexercised portion hereof be issued, pursuant to the Warrant in the name of
the
undersigned and delivered to the undersigned at the address set forth
below:
Dated:________
Signature
Print
Name
Address
NOTICE
The
signature to the foregoing Exercise Form must correspond to the name as written
upon the face of the attached Warrant in every particular, without alteration
or
enlargement or any change whatsoever.
EXHIBIT
B
ASSIGNMENT
(To
be
executed by the registered holder
desiring
to transfer the Warrant)
FOR
VALUE
RECEIVED, the undersigned holder of the attached warrant (the “Warrant”) hereby
sells, assigns and transfers unto the person or persons below named the right
to
purchase _______ shares of the Common Stock of QPC
Lasers, Inc.,
a
Nevada corporation, evidenced
by the attached Warrant and does hereby irrevocably constitute and appoint
_______________________ attorney to transfer the said Warrant on the books
of
the Company, with full power of substitution in the premises.
| Dated:___________ | ____________________________________ |
| Signature |
Fill
in
for new registration of Warrant:
________________________________
Name
________________________________
Address
________________________________
Please
print name and address of assignee
(including
zip code number)
NOTICE
The
signature to the foregoing Assignment must correspond to the name as written
upon the face of the attached Warrant in every particular, without alteration
or
enlargement or any change whatsoever.
SCHEDULE
5(G)
MILESTONES
|
Milestone
Date
|
Revenue
Projections
|
|
September
30, 2007
|
$5,000,000
in Revenues for the 9 month period ending on September 30,
2007
|
|
December
31, 2007
|
$7,750,000
in Revenues for the 12 month period ending on December 31,
2007
|
|
June
30, 2008
|
$6,000,000
in Revenues for the 6 month period ending June 30,
2008
|
