[FORM OF
WARRANT]
CHINA BAK BATTERY INC.
Warrant To Purchase Common Stock
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
").
(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 (1 st )
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 (3
rd ) 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.
(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)
For purposes of the foregoing
formula:
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A=
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the total
number of shares with respect to which this Warrant is then being
exercised.
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B=
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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.
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C=
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the Exercise
Price then in effect for the applicable Warrant Shares at the time
of such exercise.
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(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 (61 st ) 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.
(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.
(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).
4. PURCHASE RIGHTS; FUNDAMENTAL
TRANSACTIONS .
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