PARAGON SEMITECH USA, INC. COMMON STOCK WARRANT
WARRANT
NEITHER
THIS WARRANT NOR ANY SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE OF THIS
WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
AND
THE RULES AND REGULATIONS PROMULGATED THEREUNDER (THE “SECURITIES
ACT”).
THIS
WARRANT AND THE COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT
BE
OFFERED, SOLD, OR OTHERWISE TRANSFERRED IN THE ABSENCE OF REGISTRATION UNDER
THE
SECURITIES ACT OR UNLESS SUCH OFFER, SALE OR TRANSFER IS EXEMPT FROM SUCH
REGISTRATION.
COMMON
STOCK WARRANT
|
No.
___
|
September
2, 2008
|
PARAGON
SEMITECH USA, INC.,
a
Delaware corporation (the “Company”),
hereby certifies that ________________, and its
permissible transferees, designees, successors and assigns (collectively, the
“Holder”),
for
value received, is entitled to purchase from the Company at any time commencing
on the date hereof (the “Effective
Date”),
and
terminating on September 1, 2011 (the “Termination
Date”)
_______________ (_______________) shares
(each, a “Share”
and
collectively the “Shares”)
of the
Company’s common stock, $.001 par value per Share (the “Common
Stock”),
at an
exercise price of $0.125 per Share (the “Exercise
Price”).
The
number of Shares purchasable hereunder and the Exercise Price are subject to
adjustment as provided in Section 4 hereof. Unless otherwise defined herein
capitalized terms shall have the respective meanings ascribed to them in the
Securities Purchase Agreement dated as of September 2, 2008 by and between
the
Company and The China Hand Fund I, LLC (the “Securities
Purchase Agreement”).
1.
Exercise
of Warrant. The
purchase right represented by this Common Stock Warrant (this "Warrant")
is
exercisable, in whole or in part, at any time and from time to time from and
after the Effective Date through and including the Termination Date. Upon
presentation and surrender of this Warrant, accompanied by a completed Election
to Purchase in the form attached hereto as Exhibit
A
(the
“Election
to Purchase”)
duly
executed, at the principal office of the Company currently located at ▇▇▇ ▇▇▇▇▇
▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ (or such other office
or agency of the Company as the Company may designate to the Holder) together
with a check payable to, or wire transfer to, the Company in the amount of
the
Exercise Price multiplied by the number of Shares being purchased, the Company
or the Company’s transfer agent, as the case may be, shall within three (3)
business days deliver to the Holder hereof a certificate or certificates
representing fully paid and non-assessable Common Stock which in the aggregate
represent the number of Shares being purchased. The certificates so delivered
shall be in such denominations as may be requested by the Holder and shall
be
registered in the name of the Holder or such other name as shall be designated
by the Holder. All or less than all of the purchase rights represented by this
Warrant may be exercised and, in case of the exercise of less than all, the
Company, upon surrender hereof, will at the Company’s expense deliver to the
Holder a new warrant entitling said Holder to purchase the number of Shares
represented by this Warrant which have not been exercised. This Warrant may
only
be exercised to the extent the Company has a sufficient number of Shares of
Common Stock available for issuance at the time of any exercise.
2.
Warrant.
(a) Exchange
of Warrant.
At any
time prior to the exercise hereof, this Warrant may be exchanged upon
presentation and surrender to the Company, alone or with other warrants of
like
tenor of different denominations registered in the name of the same Holder,
for
another warrant or warrants of like tenor in the name of such Holder exercisable
for the aggregate number of Shares as the warrant or warrants
surrendered.
(b) Replacement
of Warrant.
Upon
receipt of evidence reasonably satisfactory to the Company of the loss, theft,
destruction, or mutilation of this Warrant and, in the case of any such loss,
theft, or destruction, upon delivery of an indemnity agreement reasonably
satisfactory in form and amount to the Company, or, in the case of any such
mutilation, upon surrender and cancellation of this Warrant, the Company, at
its
expense, will execute and deliver in lieu thereof, a new Warrant of like tenor.
(c) Cancellation;
Payment of Expenses.
Upon the
surrender of this Warrant in connection with any transfer, exchange or
replacement as provided in this Section 2, this Warrant shall be promptly
canceled by the Company. The Holder shall pay all taxes and all other expenses
(including legal expenses, if any, incurred by the Holder or transferees) and
charges payable in connection with the preparation, execution and delivery
of
Warrants pursuant to this Section 2.
(d) Warrant
Register.
The
Company shall maintain, at its principal executive offices (or at the offices
of
the transfer agent for the Warrant or such other office or agency of the Company
as it may designate by notice to the holder hereof), a register for this Warrant
(the “Warrant
Register”),
in
which the Company shall record the name and address of the person in whose
name
this Warrant has been issued, as well as the name and address of each transferee
and each prior owner of this Warrant.
3.
Rights
and Obligations of Holder of this Warrant.
The
Holder of this Warrant shall not, by virtue hereof, be entitled to any rights
of
a stockholder in the Company, either at law or in equity; provided,
however,
that in
the event any certificate representing shares of Common Stock or other
securities is issued to the holder hereof upon exercise of this Warrant, such
holder shall, for all purposes, be deemed to have become the holder of record
of
such Common Stock on the date on which this Warrant, together with a duly
executed Election to Purchase, was surrendered and payment of the aggregate
Exercise Price was made, irrespective of the date of delivery of such Common
Stock certificate.
2
4.
Adjustments.
(a) Stock
Dividends, Reclassifications, Recapitalizations, Etc.
If after
the Effective Date at any time this Warrant is outstanding and the term of
this
Warrant has not expired, the Company: (i) pays a stock dividend or otherwise
make a distribution or distributions on shares of its Common Stock payable
in
shares of Common Stock, (ii) subdivides (including by way of stock split) its
outstanding shares of Common Stock into a larger number of shares, (iii)
combines (including by way of reverse stock split) outstanding shares of Common
Stock into a smaller number of shares, or (iv) issues by reclassification of
shares of Common Stock any shares of capital stock of the Company, then
(1) the Exercise Price on the record date of such division or distribution
or the effective date of such action shall be adjusted by multiplying such
Exercise Price by a fraction, the numerator of which is the number of shares
of
Common Stock outstanding immediately before such event and the denominator
of
which is the number of shares of Common Stock outstanding immediately after
such
event, and (2) the number of shares of Common Stock for which this Warrant
may be exercised immediately before such event shall be adjusted by multiplying
such number by a fraction, the numerator of which is the Exercise Price
immediately before such event and the denominator of which is the Exercise
Price
immediately after such event.
(b) Cash
Dividends and Other Distributions.
In the
event that at any time or from time to time the Company shall distribute to
all
holders of Common Stock (i) any dividend or other distribution of cash,
evidences of its indebtedness, shares of its capital stock or any other
properties or securities or (ii) any options, warrants or other rights to
subscribe for or purchase any of the foregoing (other than in each case,
(w) the issuance of any rights under a shareholder rights plan,
(x) any dividend or distribution described in Section 4(a), (y) any
rights, options, warrants or securities described in Section 4(b) and (z) any
cash dividends or other cash distributions from current or retained earnings),
then the number of shares of Common Stock issuable upon the exercise of this
Warrant shall be increased to a number determined by multiplying the number
of
shares of Common Stock issuable upon the exercise of this Warrant immediately
prior to the record date for any such dividend or distribution by a fraction,
the numerator of which shall be such Current Market Value (as defined in Section
4(h)) per share of Common Stock on the record date for such dividend or
distribution, and the denominator of which shall be such Current Market Value
per share of Common Stock on the record date for such dividend or distribution
less the sum of (x) the amount of cash, if any, distributed per share of Common
Stock and (y) the fair value (as determined in good faith by the Board of
Directors of the Company, whose determination shall be evidenced by a board
resolution, a copy of which will be sent to the Holder upon request) of the
portion, if any, of the distribution applicable to one share of Common Stock
consisting of evidences of indebtedness, shares of stock, securities, other
property, warrants, options or subscription or purchase rights; and the Exercise
Price shall be adjusted to a number determined by dividing the Exercise Price
immediately prior to such record date by the above fraction. Such adjustments
shall be made whenever any distribution is made and shall become effective
as of
the date of distribution, retroactive to the record date for any such
distribution. No adjustment shall be made pursuant to this Section 4(b) which
shall have the effect of decreasing the number of shares of Common Stock
issuable upon exercise of this Warrant or increasing the Exercise Price.
3
(c) Dilutive
Issuances.
From
and after the Effective Date until 5:00 PM New York City time on the second
anniversary of the Effective Date (after which no adjustment in the Exercise
Price or number of shares of Common Stock pursuant this Section 4(c) shall
be
made), except for (i) Exempt Issuances (as defined below), (ii)
issuances covered by Sections 4(a) hereof or (iii) an issuance of Common Stock
upon exercise or conversion of warrants, options or other convertible securities
for which an adjustment has already been made pursuant to this Section 4, as
to
all of which this Section 4(c) does not apply,
if
the
Company closes on the sale or issuance of Common Stock at a price, or issues
warrants, options, convertible debt or equity securities with an exercise price
per share or conversion price which is less than the Conversion Price then
in
effect the Exercise Price in effect from and after the date of such transaction
shall be adjusted
immediately thereafter so that it shall equal the price determined by
multiplying the Exercise Price in effect immediately prior thereto by a
fraction, the numerator of which shall be the sum of the number of shares of
Common Stock outstanding immediately prior to the issuance of such additional
shares plus the number of shares of Common Stock which the aggregate
consideration received or receivable for the issuance of such additional shares
would purchase at the Exercise Price then in effect, and the denominator of
which shall be the number of shares of Common Stock outstanding immediately
after the issuance of such additional shares.
(d) “Exempt
Issuances”
shall
mean the issuance of (a) shares of Common Stock or options to employees,
officers, directors of and consultants (other than consultants whose services
relate to the raising of funds) of the Company or its subsidiaries pursuant
to
any stock or option plan that was or may be adopted by the Board of Directors,
(b) securities on the exercise or conversion of the Series A Preferred Stock
(as
defined in the Securities Purchase Agreement) or the Warrants, (c) securities
on
the exercise or conversion of any other options, warrants or convertible
securities which are outstanding before the date of issuance of the Series
A
Preferred Stock, (d) securities issued pursuant to acquisitions, licensing
agreements, or other strategic transactions which are approved by the Board
of
Directors and (e) securities issued pursuant to a bona fide firm underwritten
public offering of the Company’s securities, provided such underwritten public
offering has been approved in advance by the holders of more than fifty percent
(50%) of the then outstanding shares of Series A Preferred Stock.
4
(e) Calculations.
All
calculations under this Section 4 shall be made to the nearest cent or the
nearest 1/100th of a share, as the case may be. For purposes of this Section
4,
the number of shares of Common Stock deemed to be issued and outstanding as
of a
given date shall be the sum of the number of shares of Common Stock (excluding
treasury shares and shares owned by subsidiaries, if any) actually issued and
outstanding.
(f) Notice
of Adjustment
to Exercise Price.
Whenever the Exercise Price is adjusted pursuant to this Section 4, the Company
shall promptly mail to each holder a notice setting forth the Exercise Price
after such adjustment and setting forth a brief statement of the facts requiring
such adjustment.
(g) Notices
of Other Events.
If (i)
the Company shall authorize the granting to all holders of the Common Stock
of
rights or warrants to subscribe for or purchase any shares of capital stock
of
any class or of any rights; (ii) the approval of any stockholders of the Company
shall be required in connection with any action, including without limitation,
reclassification of the Common or any Fundamental Transaction (as such term
is
hereinafter defined), (iii) the
Company shall authorize the dissolution, liquidation or winding up of the
affairs of the Company; then in each case, the Company shall cause to be
mailed
to
the holders at their last addresses as they shall appear upon the stock
records of
the
Company, at least 30 days prior to the applicable record or effective date,
a
notice stating (x)
the
date on which a record is to be taken for the purpose of such redemption, rights
or warrants, or if a record is not to be taken, the date as of which the holders
of the Common Stock of record to be entitled to such rights or warrants are
to
be determined or (y) the date on which such reclassification is expected to
become effective or close, and the date as of which it is expected that holders
of the Common Stock of record shall be entitled to exchange their shares of
the
Common Stock for securities, cash or other property deliverable upon such
reclassification or Fundamental Transaction; provided,
that
the failure to mail such notice or any defect therein or in the mailing thereof
shall not affect the validity of the corporate action required to be specified
in such notice, provide such corporate action is otherwise valid.
(h) Current
Market Value.“Current
Market Value”
per
share of Common Stock or any other security at any date means (i) if the
security is not registered under the Securities Exchange Act of 1934 and/or
traded on a national securities exchange, quotation system or bulletin board,
as
amended (the “Exchange
Act”),
(a)
the value of the security, determined in good faith by the Board of Directors
and certified in a board resolution, based on the most recently completed
arm’s-length transaction between the Company and a Person other than an
affiliate of the Company or between any two such Persons and the closing of
which occurs on such date or shall have occurred within the six-month period
preceding such date, or (b) if no such transaction shall have occurred within
the six-month period, the value of the security as determined by an independent
financial expert or an agreed upon financial valuation model or (ii) if the
security is registered under the Exchange Act and/or traded on a national
securities exchange, inter-dealer quotation system or on the over the counter
Bulletin Board or Pink Sheets, the average of the daily closing bid prices
(or
the equivalent in an over-the-counter market) for each day on which the Common
Stock is traded during the period commencing twenty (20) days before such date
and ending on the date one day prior to such date.
5
(i) Fundamental
Transaction.
If, at
any time while the Series A Preferred Stock is outstanding, (i) the Company
effects any merger or consolidation of the Company with or into another person,
(ii) the Company effects any sale of all or substantially all of its assets
in
one or a series of related transactions, (iii) any tender offer or exchange
offer (whether by the Company or another person) is completed pursuant to which
holders of Common Stock are permitted to tender or exchange their shares for
other securities, cash or property, or (iv) the Company effects any
reclassification of the Common Stock or any compulsory share exchange pursuant
to which the Common Stock is effectively converted into or exchanged for other
securities, cash or property (in any such case, a “Fundamental
Transaction”),
then
upon any subsequent exercise of this Warrant, the holder shall have the right
to
receive, for each share that would have been issuable upon such exercise absent
such Fundamental Transaction, the same kind and amount of securities, cash
or
property as it would have been entitled to receive upon the occurrence of such
Fundamental Transaction if it had been the holder of one share of Common Stock,
immediately prior to such Fundamental Transaction (the “Alternate
Consideration”).
For
purposes of any such exercise, the determination of the Exercise Price shall
be
appropriately adjusted to apply to such Alternate Consideration based on the
amount of Alternate Consideration issuable in respect of one share of Common
Stock in such Fundamental Transaction, and the Company shall apportion the
Exercise Price among the Alternate Consideration in a reasonable manner
reflecting the relative value of any different components of the Alternate
Consideration. If holders of Common Stock are given any choice as to the
securities, cash or property to be received in a Fundamental Transaction, then
the holder shall be given the same choice as to the Alternate Consideration
it
receives upon any exercise of this Warrant following such Fundamental
Transaction. The terms of any agreement pursuant to which a Fundamental
Transaction is effected shall include terms requiring any such successor or
surviving entity to comply with the provisions of this paragraph.
Notwithstanding the foregoing, in the event that the agreement relating to
a
Fundamental Transaction is approved by the holders of a majority of the
then-outstanding shares of Series A Preferred Stock, then the holders of this
Warrant shall have only the rights set forth in such agreement.
(j) Liquidation. In
the
event of the dissolution, liquidation or winding-up of the Company, the Holders
shall be entitled to receive, upon surrender of their Warrant, distributions
on
an equal basis with the holders of Common Stock or other securities issuable
upon exercise of the Warrant, as if the Warrant had been exercised immediately
prior to such event, less the Exercise Price.
6
5. Fractional
Shares.
In lieu
of issuance of a fractional share upon any exercise hereunder, the Company
will
pay the cash value of that fractional share, calculated on the basis of the
Exercise Price.
6. Legends.
Prior to
issuance of the shares of Common Stock underlying this Warrant, all such
certificates representing such shares shall bear a restrictive legend to the
effect that the Shares represented by such certificate have not been registered
under the Securities Act, and that the Shares may not be sold or transferred
in
the absence of such registration or an exemption therefrom, such legend to
be
substantially in the form of the bold-face language appearing at the top of
Page
1 of this Warrant.
7. Call
Rights.
The
Company shall have the right to call the
exercise of all, or the remaining portion of this Warrant outstanding and
unexercised
at the
Exercise Price (or the adjusted Exercise Price pursuant to Section 4 of this
Warrant) in the event (i) the Volume Weighted Average Price (“VWAP”)
of the
Common Stock equals or exceeds Four Dollars and Seventy Six Cents ($0.25) per
share during any twenty (20) consecutive trading days and (ii) all Shares for
which this Warrant is exercisable are registered for resale by the Holder (the
“Call
Conditions”).
For
the purposes of this Warrant, the VWAP shall be the volume weighted average
price reported by Bloomberg for the Common Stock. In the event the Call
Conditions are satisfied and the Company desires to exercise its call rights
under this section the Company shall deliver a notice to each registered Holder
of the Warrants setting for the number of Warrants held and the dollar amount
due to exercise the Warrants (the “Call
Notice”).
Each
Holder shall have thirty (30) calendar days from the receipt of the Call Notice
to exercise the unexercised portion of the Warrants (the “Call
Period”).
Upon
the expiration of the Call Period, any unexercised Warrant shall automatically
expire.
8.
Disposition
of Warrants or Shares.
The
Holder of this Warrant, each transferee hereof and any holder and transferee
of
any Shares, by his or its acceptance thereof, agrees that no public distribution
of Warrants or Shares will be made in violation of the provisions of the
Securities Act of 1933, as amended (the “Securities
Act”).
Furthermore, it shall be a condition to the transfer of this Warrant that any
transferee thereof deliver to the Company his or its written agreement to accept
and be bound by all of the terms and conditions contained in this Warrant.
9. Merger
or Consolidation.
The
Company will not merge or consolidate with or into any other corporation, or
sell or otherwise transfer its property, assets and business substantially
as an
entirety to another corporation, unless the corporation resulting from such
merger or consolidation (if not the Company), or such transferee corporation,
as
the case may be, shall expressly assume, by supplemental agreement reasonably
satisfactory in form and substance to the Holder, the due and punctual
performance and observance of each and every covenant and condition of this
Warrant to be performed and observed by the Company.
7
10. Notices.
All
notices and other communications provided for herein shall be in writing and
shall be delivered by hand or overnight courier service, mailed by certified
or
registered mail or sent by facsimile, to the addresses set forth
below:
If
to the
Company:
▇▇▇
▇▇▇▇
▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Facsimile:
▇▇▇-▇▇▇-▇▇▇▇
If
to the
Holder, to the address of the Holder as set forth in the records of the
Company.
Except
as
otherwise provided in this Agreement, all such communications shall be deemed
to
have been duly given when transmitted by telecopier or personally delivered
or,
in the case of a mailed notice, upon receipt, in each case given or addressed
as
aforesaid. The Company or the Holder may change its address or facsimile number
for notices and other communications hereunder by notice to the other.
11. Governing
Law.
This
Warrant shall be governed by and construed in accordance with the laws of the
State of New York applicable to contracts made and to be performed in the State
of New York.
12. Successors
and Assigns.
This
Warrant shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and assigns.
13. Headings.
The
headings of various sections of this Warrant have been inserted for reference
only and shall not affect the meaning or construction of any of the provisions
hereof.
14. Severability.
If any
provision of this Warrant is held to be unenforceable under applicable law,
such
provision shall be excluded from this Warrant, and the balance hereof shall
be
interpreted as if such provision were so excluded.
15. Modification
and Waiver.
This
Warrant and any provision hereof may be amended, waived, discharged or
terminated only by an instrument in writing signed by the Company and the
Holder.
16. Specific
Enforcement.
The
Company and the Holder acknowledge and agree that irreparable damage would
occur
in the event that any of the provisions of this Warrant were not performed
in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent or cure breaches of the provisions of this Warrant and
to
enforce specifically the terms and provisions hereof, this being in addition
to
any other remedy to which either of them may be entitled by law or
equity.
8
17. Assignment.
This
Warrant may be transferred or assigned, in whole or in part, at any time and
from time to time by the then Holder by submitting this Warrant to the Company
together with a duly executed assignment in the form attached hereto as
Exhibit
B
(the
“Form
of Transfer”),
as
annexed hereto as Exhibit B and, upon the Company’s receipt thereof, and in any
event, within three (3) business days thereafter, the Company shall issue a
warrant to the Holder to evidence that portion of this Warrant, if any as shall
not have been so transferred or assigned.
(signature
page immediately follows)
9
IN
WITNESS WHEREOF, the Company has caused this Warrant to be duly executed,
manually or by facsimile, by one of its officers thereunto duly
authorized.
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Date:
September 2, 2008
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By:
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Name:
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Title:
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10
Exhibit
A
FORM
OF ELECTION TO PURCHASE
(To
be
executed by the Holder to exercise the right to purchase shares of Common Stock
under the foregoing Warrant)
In
accordance with the Warrant enclosed with this Form of Election to Purchase,
the
undersigned hereby irrevocably elects to purchase ______________ shares of
Common Stock (“Common Stock”), $.01 par value, of Paragon Semitech USA, Inc.and
encloses the warrant and $____ for each Warrant Share being purchased or an
aggregate of $________________ in cash or certified or official bank check
or
checks, which sum represents the aggregate Exercise Price (as defined in the
Warrant) together with any applicable taxes payable by the undersigned pursuant
to the Warrant.
The
undersigned requests that certificates for the shares of Common Stock issuable
upon this exercise be issued in the name of:
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(Please
print name and address)
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(Please
insert Social Security or Tax Identification
Number)
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If
the
number of shares of Common Stock issuable upon this exercise shall not be all
of
the shares of Common Stock which the undersigned is entitled to purchase in
accordance with the enclosed Warrant, the undersigned requests that a new
Warrant evidencing the right to purchase the shares of Common Stock not issuable
pursuant to the exercise evidenced hereby be issued in the name of and delivered
to:
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(Please
print name and address)
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Dated:
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Name
of Warrant Holder:
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(Print)
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(By:)
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(Name:)
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(Title:)
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Signature
must conform in all respects to name of Warrant Holder as specified
on the
face of the Warrant
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11
Exhibit
B
FORM
OF TRANSFER
FOR
VALUE
RECEIVED, _________________ hereby sells, assigns and transfers unto
__________________ the right to purchase _________ shares of Warrant evidenced
by the within Warrant together with all rights therein, and does irrevocably
constitute and appoint ___________________ attorney to transfer that part (or
whole) of the said Warrant on the books of the within named
corporation.
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Dated:
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Name
of Warrant Holder:
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(Print)
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(By:)
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(Name:)
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(Title:)
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Signature
must conform in all respects to name of Warrant Holder as specified
on the
face of the Warrant
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FOR
USE BY THE ISSUER ONLY:
This
Warrant No. -___ canceled (or transferred or exchanged) this _____ day of
___________, _____, _______shares of Common Stock issued therefor in the name
of
_______________, Warrant No. _____ issued for ____ shares of Common Stock in
the
name of _______________.
12