FORM OF WARRANT] CHINA BAK BATTERY INC. Warrant To Purchase Common Stock
[FORM
OF WARRANT]
CHINA
BAK BATTERY INC.
Warrant
No.: [ ]
Number
of
Shares of Common Stock:[__________]
Date
of
Issuance: August [__], 2008 ("Issuance
Date")
China
BAK
Battery Inc.,
a
Nevada corporation (the "Company"),
hereby certifies that, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, [___________], the registered
holder hereof or its permitted assigns (the "Holder"),
is
entitled, subject to the terms set forth below, to purchase from the Company,
at
the Exercise Price (as defined below) then in effect, upon surrender of this
Warrant to Purchase Common Stock (including any Warrants to Purchase Common
Stock issued in exchange, transfer or replacement hereof, the "Warrant"),
at
any time or times on or after the date hereof (the "Initial
Exercise Eligibility Date"),
but
not after 11:59 p.m., New York time, on the Expiration Date (as defined below),
______________
(
)1
fully
paid, nonassessable shares of Common Stock (as defined below) (the
"Warrant
Shares").
Except as otherwise defined herein, capitalized terms in this Warrant shall
have
the meanings set forth in Section 15. This Warrant is one of the Warrants to
purchase Common Stock (the "SPA
Warrant")
issued
pursuant that certain Securities Purchase Agreement, dated as of August __,
2008
(the "Subscription
Date"),
by
and among the Company and the investors (the "Buyers")
referred to therein (the "Securities
Purchase Agreement").
1. EXERCISE
OF WARRANT.
(a) Mechanics
of Exercise.
Subject
to the terms and conditions hereof (including, without limitation, the
limitations set forth in Section 1(f)), this Warrant may be exercised by the
Holder on any day on or after the Initial Exercise Eligibility Date, in whole
or
in part, by (i) delivery of a written notice, in the form attached hereto
as Exhibit
A
(the
"Exercise
Notice"),
of
the Holder's election to exercise this Warrant and (ii) (A) payment to the
Company of an amount equal to the applicable Exercise Price multiplied by the
number of Warrant Shares as to which this Warrant is being exercised (the
"Aggregate
Exercise Price")
in
cash or by wire transfer of immediately available funds or (B) by notifying
the
Company that this Warrant is being exercised pursuant to a Cashless Exercise
(as
defined in Section 1(d)). The Holder shall not be required to deliver the
original Warrant in order to effect an exercise hereunder. Execution and
delivery of the Exercise Notice with respect to less than all of the Warrant
Shares shall have the same effect as cancellation of the original Warrant and
issuance of a new Warrant evidencing the right to purchase the remaining number
of Warrant Shares. On or before the first (1st)
Business Day following the date on which the Company has received each of the
Exercise Notice and the Aggregate Exercise Price (or notice of a Cashless
Exercise) (the "Exercise
Delivery Documents"),
the
Company shall transmit by facsimile an acknowledgment of confirmation of receipt
of the Exercise Delivery Documents to the Holder and the Company's transfer
agent (the "Transfer
Agent").
On or
before the third (3rd)
Trading
Day following the date on which the Company has received all of the Exercise
Delivery Documents (the "Share
Delivery Date"),
the
Company shall (X) provided that the Transfer Agent is participating in The
Depository Trust Company ("DTC")
Fast
Automated Securities Transfer Program, upon the request of the Holder, credit
such aggregate number of Warrant Shares to which the Holder is entitled pursuant
to such exercise to the Holder's or its designee's balance account with DTC
through its Deposit Withdrawal Agent Commission system, or (Y) if the Transfer
Agent is not participating in the DTC Fast Automated Securities Transfer
Program, issue and dispatch by overnight courier to the address as specified
in
the Exercise Notice, a certificate, registered in the Company's share register
in the name of the Holder or its designee, for the number of shares of Common
Stock to which the Holder is entitled pursuant to such exercise. Upon delivery
of the Exercise Delivery Documents, the Holder shall be deemed for all corporate
purposes to have become the holder of record of the Warrant Shares with respect
to which this Warrant has been exercised, irrespective of the date such Warrant
Shares are credited to the Holder's DTC account or the date of delivery of
the
certificates evidencing such Warrant Shares, as the case may be. If this Warrant
is submitted in connection with any exercise pursuant to this Section 1(a)
and
the number of Warrant Shares represented by this Warrant submitted for exercise
is greater than the number of Warrant Shares being acquired upon an exercise,
then the Company shall as soon as practicable and in no event later than three
Business Days after any exercise and at its own expense, issue a new Warrant
(in
accordance with Section 7(d)) representing the right to purchase the number
of
Warrant Shares purchasable immediately prior to such exercise under this
Warrant, less the number of Warrant Shares with respect to which this Warrant
is
exercised. No fractional shares of Common Stock are to be issued upon the
exercise of this Warrant, but rather the number of shares of Common Stock to
be
issued shall be rounded up to the nearest whole number. The Company shall pay
any and all taxes which may be payable with respect to the issuance and delivery
of Warrant Shares upon exercise of this Warrant.
1
Insert
number of Warrant Shares equal to the number of Common Shares issued pursuant
to
the Securities Purchase Agreement.
(b) Exercise
Price.
For
purposes of this Warrant, "Exercise
Price"
means
$3.90, subject to adjustment as provided herein.
(c) Company's
Failure to Timely Deliver Securities.
If
within three (3) Trading Days after the Company's receipt of the facsimile
copy
of a Exercise Notice the Company shall fail to issue and deliver a certificate
to the Holder and register such shares of Common Stock on the Company's share
register or credit the Holder's balance account with DTC for the number of
shares of Common Stock to which the Holder is entitled upon the Holder's
exercise hereunder, and if on or after such Trading Day the Holder purchases
(in
an open market transaction or otherwise) shares of Common Stock to deliver
in
satisfaction of a sale by the Holder of shares of Common Stock issuable upon
such exercise that the Holder anticipated receiving from the Company (a
"Buy-In"),
then
the Company shall, within three (3) Business Days after the Holder's request
and
in the Holder's discretion, either (i) pay cash to the Holder in an amount
equal
to the Holder's total purchase price (including brokerage commissions, if any)
for the shares of Common Stock so purchased (the "Buy-In
Price"),
at
which point the Company's obligation to deliver such certificate (and to issue
such Warrant Shares) shall terminate, or (ii) promptly honor its obligation
to
deliver to the Holder a certificate or certificates representing such Warrant
Shares and pay cash to the Holder in an amount equal to the excess (if any)
of
the Buy-In Price over the product of (A) such number of shares of Common Stock,
times (B) the Closing Bid Price on the date of exercise.
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(d) Cashless
Exercise.
Notwithstanding
anything contained herein to the contrary, if a Registration Statement (as
defined in the Securities Purchase Agreement) covering the Warrant Shares that
are the subject of the Exercise Notice (the "Unavailable
Warrant Shares")
is not
available for the resale of such Unavailable Warrant Shares, the Holder may,
in
its sole discretion, exercise this Warrant in whole or in part and, in lieu
of
making the cash payment otherwise contemplated to be made to the Company upon
such exercise in payment of the Aggregate Exercise Price, elect instead to
receive upon such exercise the "Net Number" of shares of Common Stock determined
according to the following formula (a "Cashless
Exercise"):
Net
Number = (A
x
B) - (A x C)
B
For
purposes of the foregoing formula:
| A= |
the
total number of shares with respect to which this Warrant is then
being
exercised.
|
| B= |
the
Weighted Average Price of the shares of Common Stock (as reported
by
Bloomberg) for the five (5) consecutive Trading Days ending on the
date
immediately preceding the date of the Exercise
Notice.
|
| C= |
the
Exercise Price then in effect for the applicable Warrant Shares at
the
time of such exercise.
|
(e) Disputes.
In the
case of a dispute as to the determination of the Exercise Price or the
arithmetic calculation of the Warrant Shares, the Company shall promptly issue
to the Holder the number of Warrant Shares that are not disputed and resolve
such dispute in accordance with Section 12.
(f) Beneficial
Ownership Limitation.
The
Company shall not effect the exercise of this Warrant, and the Holder shall
not
have the right to exercise this Warrant, to the extent that after giving effect
to such exercise, such Person (together with such Person's affiliates) would
beneficially own in excess of 4.99% (the "Maximum
Percentage")
of the
shares of Common Stock outstanding immediately after giving effect to such
exercise. For purposes of the foregoing sentence, the aggregate number of shares
of Common Stock beneficially owned by such Person 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 shares of Common Stock which would be issuable upon (x)
exercise of the remaining, unexercised portion of this Warrant beneficially
owned by such Person and its affiliates and (y) exercise or conversion of the
unexercised or unconverted portion of any other securities of the Company
beneficially owned by such Person and its affiliates (including, without
limitation, any convertible notes or convertible preferred stock or warrants)
subject to a limitation on conversion or exercise analogous to the limitation
contained herein. Except as set forth in the preceding sentence, for purposes
of
this paragraph, beneficial ownership shall be calculated in accordance with
Section 13(d) of the Securities Exchange Act of 1934, as amended. For purposes
of this Warrant, 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 (1) the Company's most recent Form 10-K, Form 10-Q, Current
Report on Form 8-K or other public filing with the Securities and Exchange
Commission, as the case may be, (2) a more recent public announcement by the
Company or (3) any other notice by the Company or the Transfer Agent setting
forth the number of shares of Common Stock outstanding. For any reason at any
time, upon the written or oral request of the Holder, the Company shall within
one Business Day 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 the SPA Warrants, by the
Holder and its affiliates since the date as of which such number of outstanding
shares of Common Stock was reported. By written notice to the Company, the
Holder may from time to time increase or decrease the Maximum Percentage to
any
other percentage not in excess of 9.99% specified in such notice; provided
that
(x) any such increase will not be effective until the sixty-first
(61st)
day
after such notice is delivered to the Company, and (y) any such increase or
decrease will apply only to the Holder and not to any other holder of SPA
Warrants.
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(g) Insufficient
Authorized Shares.
If at
any time while any of the Warrants remain outstanding the Company does not
have
a sufficient number of authorized and unreserved shares of Common Stock to
satisfy its obligation to reserve for issuance upon exercise of the Warrants
at
least a number of shares of Common Stock equal to (the "Required
Reserve Amount")
the
number of shares of Common Stock as shall from time to time be necessary to
effect the exercise of all of the Warrants then outstanding (an "Authorized
Share Failure"),
then
the Company shall immediately take all action necessary to increase the
Company's authorized shares of Common Stock to an amount sufficient to allow
the
Company to reserve the Required Reserve Amount for the Warrants then
outstanding. Without limiting the generality of the foregoing sentence, as
soon
as practicable after the date of the occurrence of an Authorized Share Failure,
but in no event later than seventy five (75) days after the occurrence of such
Authorized Share Failure, the Company shall hold a meeting of its stockholders
for the approval of an increase in the number of authorized shares of Common
Stock. In connection with such meeting, the Company shall provide each
stockholder with a proxy statement and shall use its best efforts to solicit
its
stockholders' approval of such increase in authorized shares of Common Stock
and
to cause its board of directors to recommend to the stockholders that they
approve such proposal.
2. ADJUSTMENT
OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES.
The
Exercise Price and the number of Warrant Shares shall be adjusted from time
to
time as follows:
(a) Adjustment
upon Subdivision or Combination of Common Stock.
If the
Company at any time on or after the Subscription Date subdivides (by any stock
split, stock dividend, recapitalization or otherwise) one or more classes of
its
outstanding shares of Common Stock into a greater number of shares, the Exercise
Price in effect immediately prior to such subdivision will be proportionately
reduced and the number of Warrant Shares will be proportionately increased.
If
the Company at any time on or after the Subscription Date combines (by
combination, reverse stock split or otherwise) one or more classes of its
outstanding shares of Common Stock into a smaller number of shares, the Exercise
Price in effect immediately prior to such combination will be proportionately
increased and the number of Warrant Shares will be proportionately decreased.
Any adjustment under this Section 2(b) shall become effective at the close
of
business on the date the subdivision or combination becomes
effective.
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(b) Voluntary
Adjustment By 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.
(c) Other
Events.
If any
event occurs of the type contemplated by the provisions of this Section 2 but
not expressly provided for by such provisions (including, without limitation,
the granting of stock appreciation rights, phantom stock rights or other rights
with equity features to the holders of the Company’s Common Stock), then the
Company's Board of Directors will make an appropriate adjustment in the Exercise
Price and the number of Warrant Shares so as to protect the rights of the
Holder; provided that no such adjustment pursuant to this Section 2(c) will
increase the Exercise Price or decrease the number of Warrant Shares as
otherwise determined pursuant to this Section 2.
3. RIGHTS
UPON DISTRIBUTION OF ASSETS.
If the
Company shall declare or make any dividend or other distribution of its assets
(or rights to acquire its assets) to holders of shares of Common Stock, by
way
of return of capital or otherwise (including, without limitation, any
distribution of cash, stock or other securities, property or options by way
of a
dividend, spin off, reclassification, corporate rearrangement, scheme of
arrangement or other similar transaction) (a "Distribution"),
at
any time after the issuance of this Warrant, then, in each such
case:
(a) any
Exercise Price in effect immediately prior to the close of business on the
record date fixed for the determination of holders of shares of Common Stock
entitled to receive the Distribution shall be reduced, effective as of the
close
of business on such record date, to a price determined by multiplying such
Exercise Price by a fraction of which (i) the numerator shall be the Closing
Bid
Price of the shares of Common Stock on the Trading Day immediately preceding
such record date minus the value of the Distribution (as determined in good
faith by the Company's Board of Directors) applicable to one share of Common
Stock, and (ii) the denominator shall be the Closing Bid Price of the shares
of
Common Stock on the Trading Day immediately preceding such record date;
and
(b) the
number of Warrant Shares shall be increased to a number of shares equal to
the
number of shares of Common Stock obtainable immediately prior to the close
of
business on the record date fixed for the determination of holders of shares
of
Common Stock entitled to receive the Distribution multiplied by the reciprocal
of the fraction set forth in the immediately preceding paragraph (a); provided
that in the event that the Distribution is of shares of Common Stock (or common
stock) ("Other
Shares of Common Stock")
of a
company whose common shares are traded on a national securities exchange or
a
national automated quotation system, then the Holder may elect to receive a
warrant to purchase Other Shares of Common Stock in lieu of an increase in
the
number of Warrant Shares, the terms of which shall be identical to those of
this
Warrant, except that such warrant shall be exercisable into the number of shares
of Other Shares of Common Stock that would have been payable to the Holder
pursuant to the Distribution had the Holder exercised this Warrant immediately
prior to such record date and with an aggregate exercise price equal to the
product of the amount by which the exercise price of this Warrant was decreased
with respect to the Distribution pursuant to the terms of the immediately
preceding paragraph (a) and the number of Warrant Shares calculated in
accordance with the first part of this paragraph (b).
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4. PURCHASE
RIGHTS; FUNDAMENTAL TRANSACTIONS.
(a) Purchase
Rights.
In
addition to any adjustments pursuant to Section 2 above, 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 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.
(b) Fundamental
Transactions.
The
Company shall not enter into or be party to a Fundamental Transaction unless
the
Successor Entity assumes in writing all of the obligations of the Company under
this Warrant and the other Transaction Documents in accordance with the
provisions of this Section (4)(b) pursuant to written agreements in form and
substance satisfactory to the Required Holders and approved by the Required
Holders prior to such Fundamental Transaction, including agreements to deliver
to each holder of Warrants in exchange for such Warrants a security of the
Successor Entity evidenced by a written instrument substantially similar in
form
and substance to this Warrant, including, without limitation, an adjusted
exercise price equal to the value for the shares of Common Stock reflected
by
the terms of such Fundamental Transaction, and exercisable for a corresponding
number of shares of capital stock equivalent to the shares of Common Stock
acquirable and receivable upon exercise of this Warrant (without regard to
any
limitations on the exercise of this Warrant) prior to such Fundamental
Transaction, and satisfactory to the Required Holders. Upon the occurrence
of
any Fundamental Transaction, the Successor Entity shall succeed to, and be
substituted for (so that from and after the date of such Fundamental
Transaction, the provisions of this Warrant referring to the "Company" shall
refer instead to the Successor Entity), and may exercise every right and power
of the Company and shall assume all of the obligations of the Company under
this
Warrant with the same effect as if such Successor Entity had been named as
the
Company herein. Upon consummation of the Fundamental Transaction, the Successor
Entity shall deliver to the Holder confirmation that there shall be issued
upon
exercise of this Warrant at
any
time after the consummation of the Fundamental Transaction, in lieu of the
shares of the Common Stock (or
other
securities, cash, assets or other property) issuable
upon the exercise of the Warrant
prior
to
such Fundamental Transaction,
such
shares of the publicly traded Common Stock (or its equivalent) of the Successor
Entity (including its Parent Entity) which the Holder would have been entitled
to receive upon the happening of such Fundamental Transaction had this Warrant
been converted immediately prior to such Fundamental Transaction, as adjusted
in
accordance with the provisions of this Warrant.
In
addition to and not in substitution for any other rights hereunder, prior to
the
consummation of any Fundamental Transaction pursuant to which holders of shares
of Common Stock are entitled to receive securities or other assets with respect
to or in exchange for shares of Common Stock (a "Corporate
Event"),
the
Company shall make appropriate provision to insure that the Holder will
thereafter have the right to receive upon an exercise of this Warrant
at
any
time after the consummation of the Fundamental Transaction but
prior
to the Expiration Date,
in lieu
of the shares of the Common Stock (or
other
securities, cash, assets or other property) issuable
upon the exercise of this Warrant prior to such Fundamental
Transaction,
such
shares of stock, securities, cash, assets or any other property whatsoever
(including warrants or other purchase or subscription rights) which the Holder
would have been entitled to receive upon the happening of such Fundamental
Transaction had this Warrant been exercised immediately prior to such
Fundamental Transaction. Provision
made pursuant to the preceding sentence shall be in a form and substance
reasonably satisfactory to the Required Holders. The provisions of this Section
shall apply similarly and equally to successive Fundamental Transactions and
Corporate Events and shall be applied without regard to any limitations on
the
exercise of this Warrant.
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(c) Notwithstanding
the foregoing, in the event of a Fundamental Transaction, at the request of
the
Holder delivered before the 90th day after such Fundamental Transaction, the
Company (or the Successor Entity) shall purchase this Warrant from the Holder
by
paying to the Holder, within five Business Days after such request (or, if
later, on the effective date of the Fundamental Transaction), cash in an amount
equal to the Black Scholes Value of the remaining unexercised portion of this
Warrant on the date of such Fundamental Transaction.
5. NONCIRCUMVENTION.
The
Company hereby covenants and agrees that the Company will not, by amendment
of
its Certificate of Incorporation, Bylaws or through any reorganization, transfer
of assets, consolidation, merger, scheme of arrangement, 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, and will at
all
times in good faith carry out all the provisions of this Warrant and take all
action as may be required to protect the rights of the Holder. Without limiting
the generality of the foregoing, the Company (i) shall not increase the par
value of any shares of Common Stock receivable upon the exercise of this Warrant
above the Exercise Price then in effect, (ii) shall take all such actions
as may be necessary or appropriate in order that the Company may validly and
legally issue fully paid and nonassessable shares of Common Stock upon the
exercise of this Warrant, and (iii) shall, so long as any of the SPA Warrants
are outstanding, take all action necessary to reserve and keep available out
of
its authorized and unissued shares of Common Stock, solely for the purpose
of
effecting the exercise of the SPA Warrants, 120% of the number of shares of
Common Stock as shall from time to time be necessary to effect the exercise
of
the SPA Warrants then outstanding (without regard to any limitations on
exercise).
6. WARRANT
HOLDER NOT DEEMED A STOCKHOLDER.
Except
as otherwise specifically provided herein, the Holder, solely in such Person's
capacity as a holder of this Warrant, shall not be entitled to vote or receive
dividends or be deemed the holder of share capital of the Company for any
purpose, nor shall anything contained in this Warrant be construed to confer
upon the Holder, solely in such Person's capacity as the Holder of this Warrant,
any of the rights of a stockholder of the Company or any right to vote, give
or
withhold consent to any corporate action (whether any reorganization, issue
of
stock, reclassification of stock, consolidation, merger, conveyance or
otherwise), receive notice of meetings, receive dividends or subscription
rights, or otherwise, prior to the issuance to the Holder of the Warrant Shares
which such Person is then entitled to receive upon the due exercise of this
Warrant. In addition, nothing contained in this Warrant shall be construed
as
imposing any liabilities on the Holder to purchase any securities (upon exercise
of this Warrant or otherwise) or as a stockholder of the Company, whether such
liabilities are asserted by the Company or by creditors of the Company.
Notwithstanding this Section 6, the Company shall provide the Holder with copies
of the same notices and other information given to the stockholders of the
Company generally, contemporaneously with the giving thereof to the
stockholders.
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7. REISSUANCE
OF WARRANTS.
(a) Transfer
of Warrant.
If this
Warrant is to be transferred, the Holder shall surrender this Warrant to the
Company, whereupon the Company will forthwith issue and deliver upon the order
of the Holder a new Warrant (in accordance with Section 7(d)), registered as
the
Holder may request, representing the right to purchase the number of Warrant
Shares being transferred by the Holder and, if less than the total number of
Warrant Shares then underlying this Warrant is being transferred, a new Warrant
(in accordance with Section 7(d)) to the Holder representing the right to
purchase the number of Warrant Shares not being transferred.
(b) Lost,
Stolen or Mutilated Warrant.
Upon
receipt by the Company of evidence reasonably satisfactory to the Company of
the
loss, theft, destruction or mutilation of this Warrant, and, in the case of
loss, theft or destruction, of any indemnification undertaking by the Holder
to
the Company in customary form and, in the case of mutilation, upon surrender
and
cancellation of this Warrant, the Company shall execute and deliver to the
Holder a new Warrant (in accordance with Section 7(d)) representing the right
to
purchase the Warrant Shares then underlying this Warrant.
(c) Exchangeable
for Multiple Warrants.
This
Warrant is exchangeable, upon the surrender hereof by the Holder at the
principal office of the Company, for a new Warrant or Warrants (in accordance
with Section 7(d)) representing in the aggregate the right to purchase the
number of Warrant Shares then underlying this Warrant, and each such new Warrant
will represent the right to purchase such portion of such Warrant Shares as
is
designated by the Holder at the time of such surrender; provided, however,
that
no Warrants for fractional shares of Common Stock shall be given.
(d) Issuance
of New Warrants.
Whenever the Company is required to issue a new Warrant pursuant to the terms
of
this Warrant, such new Warrant (i) shall be of like tenor with this Warrant,
(ii) shall represent, as indicated on the face of such new Warrant, the right
to
purchase the Warrant Shares then underlying this Warrant (or in the case of
a
new Warrant being issued pursuant to Section 7(a) or Section 7(c), the Warrant
Shares designated by the Holder which, when added to the number of shares of
Common Stock underlying the other new Warrants issued in connection with such
issuance, does not exceed the number of Warrant Shares then underlying this
Warrant), (iii) shall have an issuance date, as indicated on the face of such
new Warrant which is the same as the Issuance Date, and (iv) shall have the
same
rights and conditions as this Warrant.
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8. NOTICES.
Whenever notice is required to be given under this Warrant, unless otherwise
provided herein, such notice shall be given in accordance with Section 5.4
of
the Securities Purchase Agreement. The Company shall provide the Holder with
prompt written notice of all actions taken pursuant to this Warrant, including
in reasonable detail a description of such action and the reason therefore.
Without limiting the generality of the foregoing, the Company will give written
notice to the Holder (i) immediately upon any adjustment of the Exercise Price,
setting forth in reasonable detail, and certifying, the calculation of such
adjustment and (ii) at least fifteen (15) days prior to the date on which the
Company closes its books or takes a record (A) with respect to any dividend
or
distribution upon the shares of Common Stock, (B) with respect to any grants,
issuances or sales of any Options, Convertible Securities or rights to purchase
stock, warrants, securities or other property to holders of shares of Common
Stock or (C) for determining rights to vote with respect to any Fundamental
Transaction, dissolution or liquidation, provided in each case that such
information shall be made known to the public prior to or in conjunction with
such notice being provided to the Holder.
9. AMENDMENT
AND WAIVER.
Except
as otherwise provided herein, the provisions of this Warrant may be amended
and
the Company may take any action herein prohibited, or omit to perform any act
herein required to be performed by it, only if the Company has obtained the
written consent of the Required Holders; provided that no such action may
increase the exercise price of any SPA Warrant or decrease the number of shares
or class of stock obtainable upon exercise of any SPA Warrant without the
written consent of the Holder. No such amendment shall be effective to the
extent that it applies to less than all of the holders of the SPA Warrants
then
outstanding.
10. GOVERNING
LAW.
This
Warrant shall be governed by and construed and enforced in accordance with,
and
all questions concerning the construction, validity, interpretation and
performance of this Warrant shall be governed by, the internal laws of the
State
of New York, without giving effect to any choice of law or conflict of law
provision or rule (whether of the State of New York or any other jurisdictions)
that would cause the application of the laws of any jurisdictions other than
the
State of New York.
11. CONSTRUCTION;
HEADINGS.
This
Warrant shall be deemed to be jointly drafted by the Company and all the Buyers
and shall not be construed against any person as the drafter hereof. The
headings of this Warrant are for convenience of reference and shall not form
part of, or affect the interpretation of, this Warrant.
12. DISPUTE
RESOLUTION.
In the
case of a dispute as to the determination of the Exercise Price or the
arithmetic calculation of the Warrant Shares, the Company shall submit the
disputed determinations or arithmetic calculations via facsimile within two
(2)
Business Days of receipt of the Exercise Notice 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 of the Exercise Price or the
Warrant Shares within three (3) 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 (a) the disputed determination
of the Exercise Price to an independent, reputable investment bank selected
by
the Company and approved by the Holder or (b) the disputed arithmetic
calculation of the Warrant Shares to the Company's independent, outside
accountant. The Company shall cause at its expense the investment bank or the
accountant, as the case may be, to perform the determinations or calculations
and notify the Company and the Holder of the results no later than ten 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.
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13. REMEDIES,
OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF.
The
remedies provided in this Warrant shall be cumulative and in addition to all
other remedies available under this Warrant and the other Transaction Documents,
at law or in equity (including a decree of specific performance and/or other
injunctive relief), and nothing herein shall limit the right of the Holder
to
pursue actual damages for any failure by the Company to comply with the terms
of
this Warrant. The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to the Holder and that the remedy at
law
for any such breach may be inadequate. The Company therefore agrees that, in
the
event of any such breach or threatened breach, the holder of this Warrant shall
be entitled, in addition to all other available remedies, to an injunction
restraining any breach, without the necessity of showing economic loss and
without any bond or other security being required.
14. TRANSFER. This
Warrant may be offered for sale, sold, transferred or assigned without the
consent of the Company.
15. CERTAIN
DEFINITIONS.
For
purposes of this Warrant, the following terms shall have the following
meanings:
(a) "Black
Scholes Value"
means
the value of this Warrant based on the Black and Scholes Option Pricing Model
obtained from the "OV" function on Bloomberg determined as of the day
immediately following the public announcement of the applicable Fundamental
Transaction and reflecting (i) 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 (ii) an expected volatility equal to the greater
of
60% and the 100 day volatility obtained from the HVT function on
Bloomberg.
(b) "Bloomberg"
means
Bloomberg Financial Markets.
(c) "Business
Day"
means
any day other than Saturday, Sunday or other day on which commercial banks
in
The City of New York are authorized or required by law to remain
closed.
(d) "Closing
Bid Price"
and
"Closing
Sale Price"
means,
for any security as of any date, the last closing bid price and last closing
trade price, respectively, for such security on the Principal Market, as
reported by Bloomberg, or, if the Principal Market begins to operate on an
extended hours basis and does not designate the closing bid price or the closing
trade price, as the case may be, then the last bid price or the last trade
price, respectively, of such security prior to 4:00:00 p.m., New York time,
as
reported by Bloomberg, or, if the Principal Market is not the principal
securities exchange or trading market for such security, the last closing bid
price or last trade price, respectively, of such security on the principal
securities exchange or trading market where such security is listed or traded
as
reported by Bloomberg, or if the foregoing do not apply, the last closing bid
price or last trade price, respectively, of such security in the
over-the-counter market on the electronic bulletin board for such security
as
reported by Bloomberg, or, if no closing bid price or last trade price,
respectively, is reported for such security by Bloomberg, the average of the
bid
prices, or the ask prices, respectively, of any market makers for such security
as reported in the "pink sheets" by Pink Sheets LLC (formerly the National
Quotation Bureau, Inc.). If the Closing Bid Price or the Closing Sale Price
cannot be calculated for a security on a particular date on any of the foregoing
bases, the Closing Bid Price or the Closing Sale Price, as the case may be,
of
such security on such date shall be the fair market value as mutually determined
by the Company and the Holder. If the Company and the Holder are unable to
agree
upon the fair market value of such security, then such dispute shall be resolved
pursuant to Section 12. All such determinations to be appropriately adjusted
for
any stock dividend, stock split, stock combination or other similar transaction
during the applicable calculation period.
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(e) "Common
Stock"
means
(i) the Company's shares of Common Stock, par value $0.001 per share, and
(ii) any share capital into which such Common Stock shall have been changed
or any share capital resulting from a reclassification of such Common
Stock.
(f) "Convertible
Securities"
means
any stock or securities (other than Options) directly or indirectly convertible
into or exercisable or exchangeable for shares of Common Stock.
(g) "Eligible
Market"
means
the Principal Market, The New York Stock Exchange, Inc., The NASDAQ Capital
Market, or The NASDAQ Global Select Market.
(h) "Expiration
Date"
means
60 calendar days after the Initial Exercise Eligibility Date; provided, however,
that the Expiration Date shall be extended by one day for each day that there
is
an Authorized Share Failure.
(i) "Fundamental
Transaction"
means
that the Company shall, directly or indirectly, in one or more related
transactions, (i) consolidate or merge with or into (whether or not the Company
is the surviving corporation) another Person, or (ii) sell, assign, transfer,
convey or otherwise dispose of all or substantially all of the properties or
assets of the Company to another Person, or (iii) allow another Person to make
a
purchase, tender or exchange offer that is accepted by the holders of more
than
the 50% of the outstanding shares of Common Stock (not including any shares
of
Common Stock held by the Person or Persons making or party to, or associated
or
affiliated with the Persons making or party to, such purchase, tender or
exchange offer), or (iv) consummate a stock purchase agreement or other business
combination (including, without limitation, a reorganization, recapitalization,
spin-off or scheme of arrangement) with another Person whereby such other Person
acquires more than the 50% of the outstanding shares of Common Stock (not
including any shares of Common Stock held by the other Person or other Persons
making or party to, or associated or affiliated with the other Persons making
or
party to, such stock purchase agreement or other business combination), (v)
reorganize, recapitalize or reclassify its Common Stock, or (vi) any "person"
or
"group" (as these terms are used for purposes of Sections 13(d) and 14(d) of
the
Exchange Act) is or shall become the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of 50% of the aggregate
ordinary voting power represented by issued and outstanding Common
Stock.
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(j) "Options"
means
any rights, warrants or options to subscribe for or purchase shares of Common
Stock or Convertible Securities.
(k) "Parent
Entity"
of a
Person means an entity that, directly or indirectly, controls the applicable
Person and whose common stock or equivalent equity security is quoted or listed
on an Eligible Market, or, if there is more than one such Person or Parent
Entity, the Person or Parent Entity with the largest public market
capitalization as of the date of consummation of the Fundamental
Transaction.
(l) "Person"
means
an individual, a limited liability company, a partnership, a joint venture,
a
corporation, a trust, an unincorporated organization, any other entity and
a
government or any department or agency thereof.
(m) "Principal
Market"
means
The NASDAQ Global Market.
(n) "Required
Holders"
means
the holders of the SPA Warrants representing at least a majority of shares
of
Common Stock underlying the SPA Warrants then outstanding.
(o) "Successor
Entity"
means
the Person (or, if so elected by the Required Holders, the Parent Entity) formed
by, resulting from or surviving any Fundamental Transaction or the Person (or,
if so elected by the Required Holders, the Parent Entity) with which such
Fundamental Transaction shall have been entered into.
(p) "Trading
Day"
means
any day on which the Common Stock are traded on the Principal Market, or, if
the
Principal Market is not the principal trading market for the Common Stock,
then
on the principal securities exchange or securities market on which the Common
Stock are then traded; provided that "Trading Day" shall not include any day
on
which the Common Stock are scheduled to trade on such exchange or market for
less than 4.5 hours or any day that the Common Stock are suspended from trading
during the final hour of trading on such exchange or market (or if such exchange
or market does not designate in advance the closing time of trading on such
exchange or market, then during the hour ending at 4:00:00 p.m., New York
time).
(q) "Weighted
Average Price"
means,
for any security as of any date, the dollar volume-weighted average price for
such security on the Principal Market during the period beginning at 9:30:01
a.m., New York City time, and ending at 4:00:00 p.m., New York City time, as
reported by Bloomberg through its "Volume at Price" function or, if the
foregoing does not apply, the dollar volume-weighted average price of such
security in the over-the-counter market on the electronic bulletin board for
such security during the period beginning at 9:30:01 a.m., New York City time,
and ending at 4:00:00 p.m., New York City time, as reported by Bloomberg, or,
if
no dollar volume-weighted average price is reported for such security by
Bloomberg for such hours, the average of the highest closing bid price and
the
lowest closing ask price of any of the market makers for such security as
reported in the "pink sheets" by Pink Sheets LLC (formerly the National
Quotation Bureau, Inc.). If the Weighted Average Price cannot be calculated
for
such security on such date on any of the foregoing bases, the Weighted Average
Price of such security on such date shall be the fair market value as mutually
determined by the Company and the Required Holders. If the Company and the
Required Holders are unable to agree upon the fair market value of such
security, then such dispute shall be resolved pursuant to Section 12 with the
term "Weighted Average Price" being substituted for the term "Exercise Price."
All such determinations shall be appropriately adjusted for any share dividend,
share split or other similar transaction during such period.
[Signature
Page Follows]
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IN
WITNESS WHEREOF,
the
Company has caused this Warrant to Purchase Common Stock to be duly executed
as
of the Issuance Date set out above.
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CHINA
BAK BATTERY INC.
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By:
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Name:
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Title:
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EXHIBIT
A
EXERCISE
NOTICE
TO
BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS
CHINA
BAK BATTERY INC.
The
undersigned holder hereby exercises the right to purchase _________________
of
the shares of Common Stock ("Warrant
Shares")
of
China
BAK
Battery Inc.,
a
Nevada corporation (the "Company"),
evidenced by the attached Warrant to Purchase Common Stock (the "Warrant").
Capitalized terms used herein and not otherwise defined shall have the
respective meanings set forth in the Warrant.
1.
Form
of Exercise Price. The Holder intends that payment of the Exercise Price shall
be made as:
____________ a
"Cash
Exercise"
with
respect to _________________ Warrant Shares; and/or
____________ a
"Cashless
Exercise"
with
respect to _______________ Warrant Shares.
2.
Payment of Exercise Price. In the event that the holder has elected a Cash
Exercise with respect to some or all of the Warrant Shares to be issued pursuant
hereto, the holder shall pay the Aggregate Exercise Price in the sum of
$___________________ to the Company in accordance with the terms of the
Warrant.
3.
Delivery of Warrant Shares. The Company shall deliver to the holder __________
Warrant Shares in accordance with the terms of the Warrant.
Date:
_______________ __, ______
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Name of Registered Holder
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By:
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Name:
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Title:
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ACKNOWLEDGMENT
The
Company hereby acknowledges this Exercise Notice and hereby directs Securities
Transfer Corporation to issue the above indicated number of shares of Common
Stock in accordance with the Transfer Agent Instructions dated [__], 2008 from
the Company and acknowledged and agreed to by Securities Transfer
Corporation.
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CHINA
BAK BATTERY INC.
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By:
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Name:
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Title:
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