EXHIBIT C
NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS EXERCISABLE
HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO
SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS
SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
LOAN SECURED BY SUCH SECURITIES
COMMON STOCK PURCHASE WARRANT
To Purchase __________ Shares of Common Stock of
QT 5, INC.
THIS COMMON STOCK PURCHASE WARRANT CERTIFIES that, for value
received, _____________ (the "Holder"), is entitled, upon the terms and subject
to the limitations on exercise and the conditions hereinafter set forth, at any
time on or after February ____, 2004 (the "Initial Exercise Date") and on or
prior to the close of business on the fifth anniversary of the Initial Exercise
Date (the "Termination Date") but not thereafter, to subscribe for and purchase
from QT 5, Inc., a corporation incorporated in Delaware (the "Company"), up to
____________ shares (the "Warrant Shares") of Common Stock, par value $0.001 per
share, of the Company (the "Common Stock"). The purchase price of one share of
Common Stock (the "Exercise Price") under this Warrant shall be $0.01, subject
to adjustment hereunder. The Exercise Price and the number of Warrant Shares for
which the Warrant is exercisable shall be subject to adjustment as provided
herein. CAPITALIZED TERMS USED AND NOT OTHERWISE DEFINED HEREIN SHALL HAVE THE
MEANINGS SET FORTH IN THAT CERTAIN SECURITIES PURCHASE AGREEMENT (THE "PURCHASE
AGREEMENT"), DATED FEBRUARY ___, 2004, BETWEEN THE COMPANY AND THE PURCHASERS
SIGNATORY THERETO.
1
1. Title to Warrant. Prior to the Termination Date and subject to
compliance with applicable laws and Section 7 of this Warrant, this Warrant and
all rights hereunder are transferable, in whole or in part, at the office or
agency of the Company by the Holder in person or by duly authorized attorney,
upon surrender of this Warrant together with the Assignment Form annexed hereto
properly endorsed. The transferee shall sign an investment letter in form and
substance reasonably satisfactory to the Company.
2. Authorization of Shares. The Company covenants that all Warrant Shares
which may be issued upon the exercise of the purchase rights represented by this
Warrant will, upon exercise of the purchase rights represented by this Warrant,
be duly authorized, validly issued, fully paid and nonassessable and free from
all taxes, liens and charges in respect of the issue thereof (other than taxes
in respect of any transfer occurring contemporaneously with such issue).
3. Exercise of Warrant.
(a) Exercise of the purchase rights represented by this Warrant may
be made at any time or times on or after the Initial Exercise Date and on
or before the Termination Date by delivery to the Company of a duly
executed facsimile copy of the Notice of Exercise Form annexed hereto (or
such other office or agency of the Company as it may designate by notice
in writing to the registered Holder at the address of such Holder
appearing on the books of the Company); provided, however, within 5
Trading Days of the date said Notice of Exercise is delivered to the
Company, the Holder shall have surrendered this Warrant to the Company and
the Company shall have received payment of the aggregate Exercise Price of
the shares thereby purchased by wire transfer or cashier's check drawn on
a United States bank. Certificates for shares purchased hereunder shall be
delivered to the Holder within the earlier of (i) 5 Trading Days after the
date on which the Notice of Exercise shall have been delivered by
facsimile copy or (ii) 3 Trading Days from the delivery to the Company of
the Notice of Exercise Form by facsimile copy, surrender of this Warrant
and payment of the aggregate Exercise Price as set forth above ("Warrant
Share Delivery Date"); provided, however, in the event the Warrant is not
surrendered or the aggregate Exercise Price is not received by the Company
within 5 Trading Days after the date on which the Notice of Exercise shall
be delivered by facsimile copy, the Warrant Share Delivery Date shall be
extended to the extent such 5 Trading Day period is exceeded. This Warrant
shall be deemed to have been exercised on the date the Notice of Exercise
is delivered to the Company by facsimile copy. The Warrant Shares shall be
deemed to have been issued, and Holder or any other person so designated
to be named therein shall be deemed to have become a holder of record of
such shares for all purposes, as of the date the Warrant has been
exercised by payment to the Company of the Exercise Price and all taxes
required to be paid by the Holder, if any, pursuant to Section 5 prior to
the issuance of such shares, have been paid. If the Company fails to
deliver to the Holder a certificate or certificates representing the
Warrant Shares pursuant to this Section 3(a) by the Warrant Share Delivery
Date, then the Holder will have the right to rescind such exercise. In
addition to any other rights available to the Holder, if the Company fails
to deliver to the Holder a certificate or certificates representing the
Warrant Shares pursuant to an exercise by the second Trading Day after the
Warrant Share Delivery Date, and if after such third Trading Day the
Holder is required by its broker to purchase (in an open market
transaction or otherwise) shares of Common Stock to deliver in
satisfaction of a sale by the Holder of the Warrant 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 Warrant 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
Warrant 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.
2
(b) If this Warrant shall have been exercised in part, the Company
shall, at the time of delivery of the certificate or certificates
representing Warrant Shares, deliver to Holder a new Warrant evidencing
the rights of Holder to purchase the unpurchased Warrant Shares called for
by this Warrant, which new Warrant shall in all other respects be
identical with this Warrant.
(c) The Company shall not effect any exercise of this Warrant, and
the Holder shall not have the right to exercise any portion of this
Warrant, pursuant to Section 3(a) or otherwise, to the extent that after
giving effect to such issuance after exercise, the Holder (together with
the Holder's affiliates), as set forth on the applicable Notice of
Exercise, would beneficially own in excess of 4.99% of the number of
shares of the Common Stock outstanding immediately after giving effect to
such issuance. For purposes of the foregoing sentence, the number of
shares of Common Stock beneficially owned by the Holder and its affiliates
shall include the number of shares of Common Stock issuable upon exercise
of this Warrant with respect to which the determination of such sentence
is being made, but shall exclude the number of shares of Common Stock
which would be issuable upon (A) exercise of the remaining, nonexercised
portion of this Warrant beneficially owned by the Holder or any of its
affiliates and (B) exercise or conversion of the unexercised or
nonconverted portion of any other securities of the Company (including,
without limitation, any other Debentures or Warrants) subject to a
limitation on conversion or exercise analogous to the limitation contained
herein beneficially owned by the Holder or any of its affiliates. Except
as set forth in the preceding sentence, for purposes of this Section 3(c),
beneficial ownership shall be calculated in accordance with Section 13(d)
of the Exchange Act. To the extent that the limitation contained in this
Section 3(c) applies, the determination of whether this Warrant is
exercisable (in relation to other securities owned by the Holder) and of
which a portion of this Warrant is exercisable shall be in the sole
discretion of such ▇▇▇▇▇▇, and the submission of a Notice of Exercise
shall be deemed to be such Holder's determination of whether this Warrant
is exercisable (in relation to other securities owned by such Holder) and
of which portion of this Warrant is exercisable, in each case subject to
such aggregate percentage limitation, and the Company shall have no
obligation to verify or confirm the accuracy of such determination. For
purposes of this Section 3(c), in determining the number of outstanding
shares of Common Stock, the Holder may rely on the number of outstanding
shares of Common Stock as reflected in (x) the Company's most recent Form
10-Q or Form 10-K, as the case may be, (y) a more recent public
announcement by the Company or (z) any other notice by the Company or the
Company's Transfer Agent setting forth the number of shares of Common
Stock outstanding. Upon the written or oral request of the Holder, the
Company shall within two Trading Days confirm orally and in writing to the
Holder the number of shares of Common Stock then outstanding. In any case,
the number of outstanding shares of Common Stock shall be determined after
giving effect to the conversion or exercise of securities of the Company,
including this Warrant, by the Holder or its affiliates since the date as
of which such number of outstanding shares of Common Stock was reported.
The provisions of this Section 3(c) may be waived by the Holder upon, at
the election of the Holder, not less than 61 days' prior notice to the
Company, and the provisions of this Section 3(c) shall continue to apply
until such 61st day (or such later date, as determined by the Holder, as
may be specified in such notice of waiver).
3
(d) If at any time after one year from the date of issuance of this
Warrant there is no effective Registration Statement registering the
resale of the Warrant Shares by the Holder, this Warrant may also be
exercised at such time by means of a "cashless exercise" in which the
Holder shall be entitled to receive a certificate for the number of
Warrant Shares equal to the quotient obtained by dividing [(A-B) (X)] by
(A), where:
(A) = the Closing Price on the Trading Day immediately preceding the
date of such election;
(B) = the Exercise Price of this Warrant, as adjusted; and
(X) = the number of Warrant Shares issuable upon exercise of this
Warrant in accordance with the terms of this Warrant by means of a cash
exercise rather than a cashless exercise.
4. No Fractional Shares or Scrip. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant. As to any fraction of a share which Holder would otherwise be entitled
to purchase upon such exercise, the Company shall pay a cash adjustment in
respect of such final fraction in an amount equal to such fraction multiplied by
the Exercise Price.
4
5. Charges, Taxes and Expenses. Issuance of certificates for Warrant
Shares shall be made without charge to the Holder for any issue or transfer tax
or other incidental expense in respect of the issuance of such certificate, all
of which taxes and expenses shall be paid by the Company, and such certificates
shall be issued in the name of the Holder or in such name or names as may be
directed by the Holder; provided, however, that in the event certificates for
Warrant Shares are to be issued in a name other than the name of the Holder,
this Warrant when surrendered for exercise shall be accompanied by the
Assignment Form attached hereto duly executed by the Holder; and the Company may
require, as a condition thereto, the payment of a sum sufficient to reimburse it
for any transfer tax incidental thereto.
6. Closing of Books. The Company will not close its stockholder books or
records in any manner which prevents the timely exercise of this Warrant,
pursuant to the terms hereof.
7. Transfer, Division and Combination.
(a) Subject to compliance with any applicable securities laws and
the conditions set forth in Sections 1 and 7(e) hereof and to the
provisions of Section 4.1 of the Purchase Agreement, this Warrant and all
rights hereunder are transferable, in whole or in part, upon surrender of
this Warrant at the principal office of the Company, together with a
written assignment of this Warrant substantially in the form attached
hereto duly executed by the Holder or its agent or attorney and funds
sufficient to pay any transfer taxes payable upon the making of such
transfer. Upon such surrender and, if required, such payment, the Company
shall execute and deliver a new Warrant or Warrants in the name of the
assignee or assignees and in the denomination or denominations specified
in such instrument of assignment, and shall issue to the assignor a new
Warrant evidencing the portion of this Warrant not so assigned, and this
Warrant shall promptly be cancelled. A Warrant, if properly assigned, may
be exercised by a new holder for the purchase of Warrant Shares without
having a new Warrant issued.
(b) This Warrant may be divided or combined with other Warrants upon
presentation hereof at the aforesaid office of the Company, together with
a written notice specifying the names and denominations in which new
Warrants are to be issued, signed by the Holder or its agent or attorney.
Subject to compliance with Section 7(a), as to any transfer which may be
involved in such division or combination, the Company shall execute and
deliver a new Warrant or Warrants in exchange for the Warrant or Warrants
to be divided or combined in accordance with such notice.
(c) The Company shall prepare, issue and deliver at its own expense
(other than transfer taxes) the new Warrant or Warrants under this Section
7.
(d) The Company agrees to maintain, at its aforesaid office, books
for the registration and the registration of transfer of the Warrants.
5
(e) If, at the time of the surrender of this Warrant in connection
with any transfer of this Warrant, the transfer of this Warrant shall not
be registered pursuant to an effective registration statement under the
Securities Act and under applicable state securities or blue sky laws, the
Company may require, as a condition of allowing such transfer (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 may be made without
registration under the Securities Act and under applicable state
securities or blue sky laws, (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)(1), (a)(2), (a)(3), (a)(7), or (a)(8)
promulgated under the Securities Act or a qualified institutional buyer as
defined in Rule 144A(a) under the Securities Act.
8. No Rights as Shareholder until Exercise. This Warrant does not entitle
the Holder to any voting rights or other rights as a shareholder of the Company
prior to the exercise hereof. Upon the surrender of this Warrant and the payment
of the aggregate Exercise Price (or by means of a cashless exercise), the
Warrant Shares so purchased shall be and be deemed to be issued to such Holder
as the record owner of such shares as of the close of business on the later of
the date of such surrender or payment.
9. Loss, Theft, Destruction or Mutilation of Warrant. The Company
covenants that upon receipt by the Company of evidence reasonably satisfactory
to it of the loss, theft, destruction or mutilation of this Warrant or any stock
certificate relating to the Warrant Shares, and in case of loss, theft or
destruction, of indemnity or security reasonably satisfactory to it (which, in
the case of the Warrant, shall not include the posting of any bond), and upon
surrender and cancellation of such Warrant or stock certificate, if mutilated,
the Company will make and deliver a new Warrant or stock certificate of like
tenor and dated as of such cancellation, in lieu of such Warrant or stock
certificate.
10. Saturdays, Sundays, Holidays, etc. If the last or appointed day for
the taking of any action or the expiration of any right required or granted
herein shall be a Saturday, Sunday or a legal holiday, then such action may be
taken or such right may be exercised on the next succeeding day not a Saturday,
Sunday or legal holiday.
11. Adjustments of Exercise Price and Number of Warrant Shares.
(a) Stock Splits, etc. The number and kind of securities purchasable
upon the exercise of this Warrant and the Exercise Price shall be subject
to adjustment from time to time upon the happening of any of the
following. In case the Company shall (i) pay a dividend in shares of
Common Stock or make a distribution in shares of Common Stock to holders
of its outstanding Common Stock, (ii) subdivide its outstanding shares of
Common Stock into a greater number of shares, (iii) combine its
outstanding shares of Common Stock into a smaller number of shares of
Common Stock, or (iv) issue any shares of its capital stock in a
reclassification of the Common Stock, then the number of Warrant Shares
purchasable upon exercise of this Warrant immediately prior thereto shall
be adjusted so that the Holder shall be entitled to receive the kind and
number of Warrant Shares or other securities of the Company which it would
have owned or have been entitled to receive had such Warrant been
exercised in advance thereof. Upon each such adjustment of the kind and
number of Warrant Shares or other securities of the Company which are
purchasable hereunder, the Holder shall thereafter be entitled to purchase
the number of Warrant Shares or other securities resulting from such
adjustment at an Exercise Price per Warrant Share or other security
obtained by multiplying the Exercise Price in effect immediately prior to
such adjustment by the number of Warrant Shares purchasable pursuant
hereto immediately prior to such adjustment and dividing by the number of
Warrant Shares or other securities of the Company that are purchasable
pursuant hereto immediately thereafter resulting from such adjustment. An
adjustment made pursuant to this paragraph shall become effective
immediately after the effective date of such event retroactive to the
record date, if any, for such event.
6
(b) Anti-Dilution Provisions. During the Exercise Period, the
Exercise Price shall be subject to adjustment from time to time as
provided in this Section 11(b). In the event that any adjustment of the
Exercise Price as required herein results in a fraction of a cent, such
Exercise Price shall be rounded up or down to the nearest cent.
(i) Adjustment of Exercise Price. If and whenever the Company
issues or sells, or in accordance with Section 11(b)(ii) hereof is
deemed to have issued or sold, any shares of Common Stock for a
consideration per share of less than the then Exercise Price or for
no consideration (such lower price, the "Base Share Price" and such
issuances collectively, a "Dilutive Issuance"), then, the Exercise
Price shall be reduced to equal the Base Share Price, provided, that
for purposes hereof, all securities exercisable, convertible into or
exchangeable for Common Stock ("Convertible Securities") shall be
deemed outstanding immediately after the issuance of such Common
Stock. Such adjustment shall be made whenever such shares of Common
Stock or Convertible Securities are issued.
(ii) Effect on Exercise Price of Certain Events. For purposes
of determining the adjusted Exercise Price under Section 11(b)
hereof, the following will be applicable:
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(A) Issuance of Rights or Options. If the Company in any
manner issues or grants any warrants, rights or options,
whether or not immediately exercisable, to subscribe for or to
purchase Common Stock or Convertible Securities (such
warrants, rights and options to purchase Common Stock or
Convertible Securities are hereinafter referred to as
"Options") and the effective price per share for which Common
Stock is issuable upon the exercise of such Options is less
than the Exercise Price ("Below Base Price Options"), then the
maximum total number of shares of Common Stock issuable upon
the exercise of all such Below Base Price Options (assuming
full exercise, conversion or exchange of Convertible
Securities, if applicable) will, as of the date of the
issuance or grant of such Below Base Price Options, be deemed
to be outstanding and to have been issued and sold by the
Company for such price per share and the maximum consideration
payable to the Company upon such exercise (assuming full
exercise, conversion or exchange of Convertible Securities, if
applicable) will be deemed to have been received by the
Company. For purposes of the preceding sentence, the
"effective price per share for which Common Stock is issuable
upon the exercise of such Below Base Price Options" is
determined by dividing (i) the total amount, if any, received
or receivable by the Company as consideration for the issuance
or granting of all such Below Base Price Options, plus the
minimum aggregate amount of additional consideration, if any,
payable to the Company upon the exercise of all such Below
Base Price Options, plus, in the case of Convertible
Securities issuable upon the exercise of such Below Base Price
Options, the minimum aggregate amount of additional
consideration payable upon the exercise, conversion or
exchange thereof at the time such Convertible Securities first
become exercisable, convertible or exchangeable, by (ii) the
maximum total number of shares of Common Stock issuable upon
the exercise of all such Below Base Price Options (assuming
full conversion of Convertible Securities, if applicable). No
further adjustment to the Exercise Price will be made upon the
actual issuance of such Common Stock upon the exercise of such
Below Base Price Options or upon the exercise, conversion or
exchange of Convertible Securities issuable upon exercise of
such Below Base Price Options.
(B) Issuance of Convertible Securities. If the Company
in any manner issues or sells any Convertible Securities,
whether or not immediately convertible (other than where the
same are issuable upon the exercise of Options) and the
effective price per share for which Common Stock is issuable
upon such exercise, conversion or exchange is less than the
Exercise Price, then the maximum total number of shares of
Common Stock issuable upon the exercise, conversion or
exchange of all such Convertible Securities will, as of the
date of the issuance of such Convertible Securities, be deemed
to be outstanding and to have been issued and sold by the
Company for such price per share and the maximum consideration
payable to the Company upon such exercise (assuming full
exercise, conversion or exchange of Convertible Securities, if
applicable) will be deemed to have been received by the
Company. For the purposes of the preceding sentence, the
"effective price per share for which Common Stock is issuable
upon such exercise, conversion or exchange" is determined by
dividing (i) the total amount, if any, received or receivable
by the Company as consideration for the issuance or sale of
all such Convertible Securities, plus the minimum aggregate
amount of additional consideration, if any, payable to the
Company upon the exercise, conversion or exchange thereof at
the time such Convertible Securities first become exercisable,
convertible or exchangeable, by (ii) the maximum total number
of shares of Common Stock issuable upon the exercise,
conversion or exchange of all such Convertible Securities. No
further adjustment to the Exercise Price will be made upon the
actual issuance of such Common Stock upon exercise, conversion
or exchange of such Convertible Securities.
8
(C) Change in Option Price or Conversion Rate. If there
is a change at any time in (i) the amount of additional
consideration payable to the Company upon the exercise of any
Options; (ii) the amount of additional consideration, if any,
payable to the Company upon the exercise, conversion or
exchange of any Convertible Securities; or (iii) the rate at
which any Convertible Securities are convertible into or
exchangeable for Common Stock (in each such case, other than
under or by reason of provisions designed to protect against
dilution), the Exercise Price in effect at the time of such
change will be readjusted to the Exercise Price which would
have been in effect at such time had such Options or
Convertible Securities still outstanding provided for such
changed additional consideration or changed conversion rate,
as the case may be, at the time initially granted, issued or
sold.
(D) Calculation of Consideration Received. If any Common
Stock, Options or Convertible Securities are issued, granted
or sold for cash, the consideration received therefor for
purposes of this Warrant will be the amount received by the
Company therefor, before deduction of reasonable commissions,
underwriting discounts or allowances or other reasonable
expenses paid or incurred by the Company in connection with
such issuance, grant or sale. In case any Common Stock,
Options or Convertible Securities are issued or sold for a
consideration part or all of which shall be other than cash,
the amount of the consideration other than cash received by
the Company will be the fair market value of such
consideration, except where such consideration consists of
securities, in which case the amount of consideration received
by the Company will be the fair market value (closing bid
price, if traded on any market) thereof as of the date of
receipt. In case any Common Stock, Options or Convertible
Securities are issued in connection with any merger or
consolidation in which the Company is the surviving
corporation, the amount of consideration therefor will be
deemed to be the fair market value of such portion of the net
assets and business of the non-surviving corporation as is
attributable to such Common Stock, Options or Convertible
Securities, as the case may be. The fair market value of any
consideration other than cash or securities will be determined
in good faith by an investment banker or other appropriate
expert of national reputation selected by the Company and
reasonably acceptable to the holder hereof, with the costs of
such appraisal to be borne by the Company.
9
(E) Exceptions to Adjustment of Exercise Price.
Notwithstanding the foregoing, no adjustment will be made
under this Section 11(b) in respect of (1) the granting of
options to employees, officers and directors of the Company
pursuant to any stock option plan duly adopted by a majority
of the non-employee members of the Board of Directors of the
Company or a majority of the members of a committee of
non-employee directors established for such purpose, (2) upon
the exercise of the Debentures or any Debentures of this
series or of any other series or security issued by the
Company in connection with the offer and sale of this
Company's securities pursuant to the Purchase Agreement, or
(3) upon the exercise of or conversion of any Convertible
Securities or Options issued and outstanding on the Initial
Exercise Date, provided that the securities have not been
amended since the date of the Purchase Agreement except as a
result of the Purchase Agreement, or (4) acquisitions or
strategic investments, the primary purpose of which is not to
raise capital.
(iii) Minimum Adjustment of Exercise Price. No adjustment of
the Exercise Price shall be made in an amount of less than 1% of the
Exercise Price in effect at the time such adjustment is otherwise
required to be made, but any such lesser adjustment shall be carried
forward and shall be made at the time and together with the next
subsequent adjustment which, together with any adjustments so
carried forward, shall amount to not less than 1% of such Exercise
Price.
12. Reorganization, Reclassification, Merger, Consolidation or Disposition
of Assets. In case the Company shall reorganize its capital, reclassify its
capital stock, consolidate or merge with or into another corporation (where the
Company is not the surviving corporation or where there is a change in or
distribution with respect to the Common Stock of the Company), or sell, transfer
or otherwise dispose of all or substantially all its property, assets or
business to another corporation and, pursuant to the terms of such
reorganization, reclassification, merger, consolidation or disposition of
assets, shares of common stock of the successor or acquiring corporation, or any
cash, shares of stock or other securities or property of any nature whatsoever
(including warrants or other subscription or purchase rights) in addition to or
in lieu of common stock of the successor or acquiring corporation ("Other
Property"), are to be received by or distributed to the holders of Common Stock
of the Company, then the Holder shall have the right thereafter to receive, at
the option of the Holder, (a) upon exercise of this Warrant, the number of
shares of Common Stock of the successor or acquiring corporation or of the
Company, if it is the surviving corporation, and Other Property receivable upon
or as a result of such reorganization, reclassification, merger, consolidation
or disposition of assets by a Holder of the number of shares of Common Stock for
which this Warrant is exercisable immediately prior to such event or (b) cash
equal to the value of this Warrant as determined in accordance with the
Black-Scholes option pricing formula. In case of any such reorganization,
reclassification, merger, consolidation or disposition of assets, the successor
or acquiring corporation (if other than the Company) shall expressly assume the
due and punctual observance and performance of each and every covenant and
condition of this Warrant to be performed and observed by the Company and all
the obligations and liabilities hereunder, subject to such modifications as may
be deemed appropriate (as determined in good faith by resolution of the Board of
Directors of the Company) in order to provide for adjustments of Warrant Shares
for which this Warrant is exercisable which shall be as nearly equivalent as
practicable to the adjustments provided for in this Section 12. For purposes of
this Section 12, "common stock of the successor or acquiring corporation" shall
include stock of such corporation of any class which is not preferred as to
dividends or assets over any other class of stock of such corporation and which
is not subject to redemption and shall also include any evidences of
indebtedness, shares of stock or other securities which are convertible into or
exchangeable for any such stock, either immediately or upon the arrival of a
specified date or the happening of a specified event and any warrants or other
rights to subscribe for or purchase any such stock. The foregoing provisions of
this Section 12 shall similarly apply to successive reorganizations,
reclassifications, mergers, consolidations or disposition of assets.
10
13. Voluntary Adjustment by the Company. The Company may at any time
during the term of this Warrant reduce the then current Exercise Price to any
amount and for any period of time deemed appropriate by the Board of Directors
of the Company.
14. Notice of Adjustment. Whenever the number of Warrant Shares or number
or kind of securities or other property purchasable upon the exercise of this
Warrant or the Exercise Price is adjusted, as herein provided, the Company shall
give notice thereof to the Holder, which notice shall state the number of
Warrant Shares (and other securities or property) purchasable upon the exercise
of this Warrant and the Exercise Price of such Warrant Shares (and other
securities or property) after such adjustment, setting forth a brief statement
of the facts requiring such adjustment and setting forth the computation by
which such adjustment was made.
15. Notice of Corporate Action. If at any time:
(a) the Company shall take a record of the holders of its
Common Stock for the purpose of entitling them to receive a dividend
or other distribution, or any right to subscribe for or purchase any
evidences of its indebtedness, any shares of stock of any class or
any other securities or property, or to receive any other right, or
(b) there shall be any capital reorganization of the Company,
any reclassification or recapitalization of the capital stock of the
Company or any consolidation or merger of the Company with, or any
sale, transfer or other disposition of all or substantially all the
property, assets or business of the Company to, another corporation
or,
(c) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then, in any one or more of such cases, the Company shall give to Holder (i) at
least 20 days' prior written notice of the date on which a record date shall be
selected for such dividend, distribution or right or for determining rights to
vote in respect of any such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, liquidation or winding up, and (ii)
in the case of any such reorganization, reclassification, merger, consolidation,
sale, transfer, disposition, dissolution, liquidation or winding up, at least 20
days' prior written notice of the date when the same shall take place. Such
notice in accordance with the foregoing clause also shall specify (i) the date
on which any such record is to be taken for the purpose of such dividend,
distribution or right, the date on which the holders of Common Stock shall be
entitled to any such dividend, distribution or right, and the amount and
character thereof, and (ii) the date on which any such reorganization,
reclassification, merger, consolidation, sale, transfer, disposition,
dissolution, liquidation or winding up is to take place and the time, if any
such time is to be fixed, as of which the holders of Common Stock shall be
entitled to exchange their Warrant Shares for securities or other property
deliverable upon such disposition, dissolution, liquidation or winding up. Each
such written notice shall be sufficiently given if addressed to Holder at the
last address of ▇▇▇▇▇▇ appearing on the books of the Company and delivered in
accordance with Section 17(d).
11
16. Authorized Shares. The Company covenants that during the period the
Warrant is outstanding, it will reserve from its authorized and unissued Common
Stock a sufficient number of shares to provide for the issuance of the Warrant
Shares upon the exercise of any purchase rights under this Warrant. The Company
further covenants that its issuance of this Warrant shall constitute full
authority to its officers who are charged with the duty of executing stock
certificates to execute and issue the necessary certificates for the Warrant
Shares upon the exercise of the purchase rights under this Warrant. The Company
will take all such reasonable action as may be necessary to assure that such
Warrant Shares may be issued as provided herein without violation of any
applicable law or regulation, or of any requirements of the Principal Market
upon which the Common Stock may be listed.
Except and to the extent as waived or consented to by the Holder, the
Company shall not by any action, including, without limitation, amending its
certificate of incorporation 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 of this Warrant, but will at all times in good faith assist in the
carrying out of all such terms and in the taking of all such actions as may be
necessary or appropriate to protect the rights of Holder as set forth in this
Warrant against impairment. Without limiting the generality of the foregoing,
the Company will (a) not increase the par value of any Warrant Shares above the
amount payable therefor upon such exercise immediately prior to such increase in
par value, (b) take all such action as may be necessary or appropriate in order
that the Company may validly and legally issue fully paid and nonassessable
Warrant Shares upon the exercise of this Warrant, and (c) use commercially
reasonable efforts to obtain all such authorizations, exemptions or consents
from any public regulatory body having jurisdiction thereof as may be necessary
to enable the Company to perform its obligations under this Warrant.
Before taking any action which would result in an adjustment in the number
of Warrant Shares for which this Warrant is exercisable or in the Exercise
Price, the Company shall obtain all such authorizations or exemptions thereof,
or consents thereto, as may be necessary from any public regulatory body or
bodies having jurisdiction thereof.
17. Miscellaneous.
(a) Jurisdiction. All questions concerning the construction,
validity, enforcement and interpretation of this Warrant shall be
determined in accordance with the provisions of the Purchase
Agreement.
12
(b) Restrictions. The Holder acknowledges that the Warrant
Shares acquired upon the exercise of this Warrant, if not
registered, will have restrictions upon resale imposed by state and
federal securities laws.
(c) Nonwaiver and Expenses. No course of dealing or any delay
or failure to exercise any right hereunder on the part of Holder
shall operate as a waiver of such right or otherwise prejudice
▇▇▇▇▇▇'s rights, powers or remedies, notwithstanding all rights
hereunder terminate on the Termination Date. If the Company
willfully and knowingly fails to comply with any provision of this
Warrant, which results in any material damages to the Holder, the
Company shall pay to Holder such amounts as shall be sufficient to
cover any costs and expenses including, but not limited to,
reasonable attorneys' fees, including those of appellate
proceedings, incurred by Holder in collecting any amounts due
pursuant hereto or in otherwise enforcing any of its rights, powers
or remedies hereunder.
(d) Notices. Any notice, request or other document required or
permitted to be given or delivered to the Holder by the Company
shall be delivered in accordance with the notice provisions of the
Purchase Agreement.
(e) Limitation of Liability. No provision hereof, in the
absence of any affirmative action by Holder to exercise this Warrant
or purchase Warrant Shares, and no enumeration herein of the rights
or privileges of Holder, shall give rise to any liability of Holder
for the purchase price of any Common Stock or as a stockholder of
the Company, whether such liability is asserted by the Company or by
creditors of the Company.
(f) Remedies. Holder, in addition to being entitled to
exercise all rights granted by law, including recovery of damages,
will be entitled to specific performance of its rights under this
Warrant. The Company agrees that monetary damages would not be
adequate compensation for any loss incurred by reason of a breach by
it of the provisions of this Warrant and hereby agrees to waive the
defense in any action for specific performance that a remedy at law
would be adequate.
(g) Successors and Assigns. Subject to applicable securities
laws, this Warrant and the rights and obligations evidenced hereby
shall inure to the benefit of and be binding upon the successors of
the Company and the successors and permitted assigns of Holder. The
provisions of this Warrant are intended to be for the benefit of all
Holders from time to time of this Warrant and shall be enforceable
by any such Holder or holder of Warrant Shares.
(h) Amendment. This Warrant may be modified or amended or the
provisions hereof waived with the written consent of the Company and
the Holder.
(i) Severability. Wherever possible, each provision of this
Warrant shall be interpreted in such manner as to be effective and
valid under applicable law, but if any provision of this Warrant
shall be prohibited by or invalid under applicable law, such
provision shall be ineffective to the extent of such prohibition or
invalidity, without invalidating the remainder of such provisions or
the remaining provisions of this Warrant.
13
(j) Headings. The headings used in this Warrant are for the
convenience of reference only and shall not, for any purpose, be
deemed a part of this Warrant.
********************
14
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by
its officer thereunto duly authorized.
Dated: February ____, 2004
QT 5, INC.
By:___________________________________________
Name:
Title:
15
NOTICE OF EXERCISE
To: QT 5, Inc.
(1)______The undersigned hereby elects to purchase ________ Warrant Shares
of QT 5, Inc. pursuant to the terms of the attached Warrant (only if exercised
in full), and tenders herewith payment of the exercise price in full, together
with all applicable transfer taxes, if any.
(2)______Payment shall take the form of (check applicable box):
[ ] in lawful money of the United States; or
[ ] the cancellation of such number of Warrant Shares as is
necessary, in accordance with the formula set forth in subsection
3(d), to exercise this Warrant with respect to the maximum number of
Warrant Shares purchasable pursuant to the cashless exercise
procedure set forth in subsection 3(d).
(3)______Please issue a certificate or certificates representing said
Warrant Shares in the name of the undersigned or in such other name as is
specified below:
________________________________________
The Warrant Shares shall be delivered to the following:
________________________________________
________________________________________
________________________________________
(4) Accredited Investor. The undersigned is an "accredited investor" as
defined in Regulation D promulgated under the Securities Act of 1933, as
amended.
[PURCHASER]
By: ______________________________
Name:
Title:
Dated:________________________
ASSIGNMENT FORM
(To assign the foregoing warrant, execute
this form and supply required information.
Do not use this form to exercise the warrant.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced
thereby are hereby assigned to
_______________________________________________ whose address is
_______________________________________________________________.
_______________________________________________________________
Dated: ______________, _______
Holder's Signature: _____________________________
Holder's Address: _____________________________
_____________________________
Signature Guaranteed: ___________________________________________
NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Warrant, without alteration or enlargement or any
change whatsoever, and must be guaranteed by a bank or trust company. Officers
of corporations and those acting in a fiduciary or other representative capacity
should file proper evidence of authority to assign the foregoing Warrant.