NEITHER THE ISSUANCE
AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE
SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED
FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A)
AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL TO
THE HOLDER (IF REQUESTED BY THE COMPANY), IN A FORM REASONABLY
ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER
SAID ACT OR (II) UNLESS SOLD OR ELIGIBLE TO BE SOLD PURSUANT TO
RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE
FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA
FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED
BY THE SECURITIES.
VALLEY FORGE
COMPOSITE TECHNOLOGIES, INC.
WARRANT TO PURCHASE
COMMON STOCK
Warrant No.:
Number of Shares of
Common Stock:
Date of Issuance: May
___, 2009 (“ Issuance Date ”)
Valley Forge Composite
Technologies, Inc., a Florida corporation (the “
Company ”), hereby certifies that, for good and
valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, [MKM OPPORTUNITY MASTER FUND, LTD.], 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 exercise 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 Issuance Date, but not after 11:59 p.m., New York time, on the
Expiration Date (as defined below), [Six Hundred Thousand
(600,000)] fully paid and non-assessable 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 16. This Warrant is
one of the Warrants to purchase Common Stock (the “ SPA
Warrants ”) issued pursuant to Section 1 of that certain
Securities Purchase Agreement, dated as of May __, 2009, 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 Issuance 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 then-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 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 of this
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 of this Warrant and
issuance of a new Warrant evidencing the right to purchase the
remaining number of Warrant Shares. Execution and delivery of the
Exercise Notice for all of the Warrant Shares shall have the same
effect as cancellation of the original of this Warrant after
delivery of the Warrant Shares in accordance with the terms hereof.
On or before the first (1 st ) Trading 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 shares of Common Stock 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 deliver to the Holder or, at Holder’s
instruction pursuant to the Exercise Notice, Holder’s agent
or designee, in each case, sent by reputable 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 (as indicated in the Exercise Notice), 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 (3) Business Days after any exercise and at
its own expense, issue and deliver to the Holder (or its designee)
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.
(b)
Exercise
Price
. For purposes of this
Warrant, “ Exercise Price ” means $0.20, subject
to adjustment as provided herein.
(c)
Company’s
Failure to Timely Deliver Securities
. If the Company
shall fail, for any reason or for no reason, to issue to the Holder
within three (3) Trading Days of receipt of the Exercise Delivery
Documents, a certificate for the number of shares of Common Stock
to which the Holder is entitled and register such shares of Common
Stock on the Company’s share register or to credit the
Holder’s balance account with DTC for such number of shares
of Common Stock to which the Holder is entitled upon the
Holder’s exercise of this Warrant (as the case may be), then,
in addition to all other remedies available to the Holder, the
Company shall pay in cash to the Holder on each day after such
third (3 rd ) Trading Day that the issuance of such
shares of Common Stock is not timely effected an amount equal to 2%
of the product of (A) the sum of the number of shares
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of Common Stock not
issued to the Holder on a timely basis and to which the Holder is
entitled and (B) the Closing Sale Price of the Common Stock on the
Trading Day immediately preceding the last possible date which the
Company could have issued such shares of Common Stock to the Holder
without violating Section 1(a). In addition to the foregoing, if
within three (3) Trading Days after the Company’s receipt of
the facsimile copy of an 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 such
Holder’s exercise hereunder (as the case may be), and if on
or after such third (3 rd ) 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 shares of Common Stock) shall terminate, or (ii)
promptly honor its obligation to deliver to the Holder a
certificate or certificates representing such shares of Common
Stock or credit the Holder’s balance account with DTC for the
number of shares of Common Stock to which the Holder is entitled
upon such Holder’s exercise hereunder (as the case may be)
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 Sale Price of the
Common Stock on the Trading Day immediately preceding the date of
the Exercise Notice.
(d)
Cashless
Exercise
. Notwithstanding
anything contained herein to the contrary (other than Section 1(f)
below), 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 ”) but only so long as the
Warrant Shares are not covered by an existing and effective
registration statement at any time after the six (6) month
anniversary date of the Issuance Date:
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 average VWAP for
the Common Stock for the five (5) consecutive Trading Days
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 number of Warrant Shares to be issued
pursuant to the terms hereof, the Company shall
3
promptly issue to the
Holder the number of Warrant Shares that are not disputed and
resolve such dispute in accordance with Section 13.
(f)
Limitations on
Exercises.
(i)
Beneficial Ownership.
Notwithstanding anything to the contrary contained in this Warrant,
this Warrant shall not be exercisable by the Holder hereof to the
extent (but only to the extent) that, if exercisable by the Holder,
the Holder or any of its affiliates would beneficially own in
excess of 9.99% (the “ Maximum Percentage ”) of
the outstanding shares of Common Stock. To the extent the
above limitation applies, the determination of whether this Warrant
shall be exercisable (vis-à-vis other convertible,
exercisable or exchangeable securities owned by the Holder) and of
which warrants shall be exercisable (as among all warrants owned by
the Holder) shall, subject to such Maximum Percentage limitation,
be determined on the basis of the first submission to the Company
for conversion, exercise or exchange (as the case may be). No prior
inability to exercise this Warrant pursuant to this paragraph shall
have any effect on the applicability of the provisions of this
paragraph with respect to any subsequent determination of
exercisability. For the purposes of this paragraph, beneficial
ownership and all determinations and calculations (including,
without limitation, with respect to calculations of percentage
ownership) shall be determined by the Holder in accordance with
Section 13(d) of the 1934 Act (as defined in the Securities
Purchase Agreement) and the rules and regulations promulgated
thereunder. The provisions of this paragraph shall be implemented
in a manner otherwise than in strict conformity with the terms of
this paragraph to correct this paragraph (or any portion hereof)
which may be defective or inconsistent with the intended Maximum
Percentage beneficial ownership limitation herein contained or to
make changes or supplements necessary or desirable to properly give
effect to such Maximum Percentage limitation. The limitations
contained in this paragraph shall apply to a successor Holder of
this Warrant. For any reason at any time, upon the written or oral
request of the Holder, the Company shall within one (1) Business
Day confirm orally and in writing to the Holder the number of
shares of Common Stock then outstanding, including by virtue of any
prior conversion or exercise of convertible or exercisable
securities into Common Stock, including, without limitation,
pursuant to this Warrant or securities issued pursuant to the
Securities Purchase Agreement.
Each delivery of
an Exercise Notice by the Holder will constitute a representation
by the Holder that it has evaluated the limitation set forth in
this paragraph and determined that issuance of the full number of
Warrant Shares requested by the Holder in such Exercise Notice is
permitted under this paragraph.
(g)
Insufficient Authorized
Shares
. The Company shall at
all times keep reserved for issuance under this Warrant a number of
shares of Common Stock as shall be necessary to satisfy the
Company’s obligation to issue shares of Common Stock
hereunder (without regard to any limitation otherwise contained
herein with respect to the number of shares of Common Stock that
may be acquirable upon exercise of this Warrant). If,
notwithstanding the foregoing, and not in limitation thereof, at
any time while any of the SPA 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 SPA Warrants at least a
number of shares of Common Stock equal to the number of shares of
Common Stock as shall from time to time be necessary to effect the
exercise of all of the SPA Warrants then outstanding (the “
Required Reserve Amount ”) (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 all the SPA 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 sixty
(60) days after the
4
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 number of Warrant Shares issuable upon
exercise of this Warrant are subject to adjustment from time to
time as set forth in this Section 2.
(a)
Stock Dividends and
Splits
. If the Company,
at any time on or after the date of the Securities Purchase
Agreement, (i) pays a stock dividend on one or more classes of its
then outstanding shares of Common Stock or otherwise makes a
distribution on any class of capital stock that is payable in
shares of Common Stock, (ii) subdivides (by any stock split, stock
dividend, recapitalization or otherwise) one or more classes of its
then outstanding shares of Common Stock into a larger number of
shares or (iii) combines (by combination, reverse stock split or
otherwise) one or more classes of its then outstanding shares of
Common Stock into a smaller number of shares, then in each such
case the Exercise Price shall be multiplied by a fraction of which
the numerator shall be the number of shares of Common Stock
outstanding immediately before such event and of which the
denominator shall be the number of shares of Common Stock
outstanding immediately after such event. Any adjustment made
pursuant to clause (i) of this paragraph shall become effective
immediately after the record date for the determination of
stockholders entitled to receive such dividend or distribution, and
any adjustment pursuant to clause (ii) or (iii) of this paragraph
shall become effective immediately after the effective date of such
subdivision or combination. If any event requiring an adjustment
under this paragraph occurs during the period that an Exercise
Price is calculated hereunder, then the calculation of such
Exercise Price shall be adjusted appropriately to reflect such
event.
(b)
Adjustment Upon
Issuance of Shares of Common Stock
. If and whenever from
and after the date of the Securities Purchase Agreement and to and
through the date that is two (2) years after the date of the
Securities Purchase Agreement, the Company issues or sells, or in
accordance with this Section 2 is deemed to have issued or sold,
any shares of Common Stock (including the issuance or sale of
shares of Common Stock owned or held by or for the account of the
Company, but excluding any Excluded Securities (as defined in the
Securities Purchase Agreement) issued or sold or deemed to have
been issued or sold) for a consideration per share (the “
New Issuance Price ”) less than a price equal to the
Exercise Price in effect immediately prior to such issue or sale or
deemed issuance or sale (such lesser price being referred to as the
“ Applicable Price ”) (the foregoing a “
Dilutive Issuance ”), then immediately after such
Dilutive Issuance, the Exercise Price then in effect shall be
reduced to an amount equal to the New Issuance Price. For purposes
of determining the adjusted Exercise Price under this Section 2(b),
the following shall be applicable:
(i)
Issuance of Options. If the Company in any manner grants or
sells any Options and the lowest price per share for which one
share of Common Stock is issuable upon the exercise of any such
Option or upon conversion, exercise or exchange of any Convertible
Securities issuable upon exercise of any such Option is less than
the Applicable Price, then such share of Common Stock shall be
deemed to be outstanding and to have been issued and sold by the
Company at the time of the granting or sale of such Option for such
price per share. For purposes of this Section 2(b)(i), the
“lowest price per share for which one share of Common Stock
is issuable upon the exercise of any such Options or upon
conversion, exercise or exchange
5
of any Convertible
Securities issuable upon exercise of any such Option” shall
be equal to the sum of the lowest amounts of consideration (if any)
received or receivable by the Company with respect to any one share
of Common Stock upon the granting or sale of the Option, upon
exercise of the Option and upon conversion, exercise or exchange of
any Convertible Security issuable upon exercise of such Option.
Except as contemplated below, no further adjustment of the Exercise
Price shall be made upon the actual issuance of such shares of
Common Stock or of such Convertible Securities upon the exercise of
such Options or upon the actual issuance of such shares of Common
Stock upon conversion, exercise or exchange of such Convertible
Securities.
(ii)
Issuance of Convertible
Securities. If the Company in any manner issues or sells any
Convertible Securities and the lowest price per share for which one
share of Common Stock is issuable upon the conversion, exercise or
exchange thereof is less than the Applicable Price, then such share
of Common Stock shall be deemed to be outstanding and to have been
issued and sold by the Company at the time of the issuance or sale
of such Convertible Securities for such price per share. For
the purposes of this Section 2(b)(ii), the “lowest price per
share for which one share of Common Stock is issuable upon the
conversion, exercise or exchange thereof” shall be equal to
the sum of the lowest amounts of consideration (if any) received or
receivable by the Company with respect to one share of Common Stock
upon the issuance or sale of the Convertible Security and upon
conversion, exercise or exchange of such Convertible Security.
Except as contemplated below, no further adjustment of the Exercise
Price shall be made upon the actual issuance of such shares of
Common Stock upon conversion, exercise or exchange of such
Convertible Securities, and if any such issue or sale of such
Convertible Securities is made upon exercise of any Options for
which adjustment of this Warrant has been or is to be made pursuant
to other provisions of this Section 2(b), except as contemplated
below, no further adjustment of the Exercise Price shall be made by
reason of such issue or sale.
(iii)
Change in Option Price
or Rate of Conversion. If the purchase or exercise price provided
for in any Options, the additional consideration, if any, payable
upon the issue, conversion, exercise or exchange of any Convertible
Securities, or the rate at which any Convertible Securities are
convertible into or exercisable or exchangeable for shares of
Common Stock increases or decreases at any time, the Exercise Price
in effect at the time of such increase or decrease shall be
adjusted to the Exercise Price which would have been in effect at
such time had such Options or Convertible Securities provided for
such increased or decreased purchase price, additional
consideration or increased or decreased conversion rate, as the
case may be, at the time initially granted, issued or sold. For
purposes of this Section 2(b)(iii), if the terms of any Option or
Convertible Security that was outstanding as of the date of
issuance of this Warrant are increased or decreased in the manner
described in the immediately preceding sentence, then such Option
or Convertible Security and the shares of Common Stock deemed
issuable upon exercise, conversion or exchange thereof shall be
deemed to have been issued as of the date of such increase or
decrease. No adjustment pursuant to this Section 2(b) shall be made
if such adjustment would result in an increase of the Exercise
Price then in effect.
(iv)
Calculation of
Consideration Received. In case any Option is issued in connection
with the issue or sale of other securities of the Company, together
comprising one integrated transaction in which no specific
consideration is allocated to such Options by the parties thereto,
the Options will be deemed to have been issued for the difference
of (i) the aggregate fair market value of such Options and other
securities issued or sold in such integrated transaction, less (ii)
the fair market value of the securities other than such Option,
issued or sold in such transaction and the other securities issued
or sold in such integrated transaction will be deemed to have been
issued or sold for the balance of the consideration received by the
Company. If any shares of Common Stock, Options or
Convertible Securities are issued or sold or deemed to have
been
6
issued or sold for
cash, the consideration received therefor will be deemed to be the
net amount received by the Company therefor. If any shares of
Common Stock, Options or Convertible Securities are issued or sold
for a consideration other than cash, the amount of such
consideration received by the Company will be the fair value of
such consideration, except where such consideration consists of
publicly traded securities, in which case the amount of
consideration received by the Company for such securities will be
the average VWAP of such security for the five (5) Trading Day
period immediately preceding the date of receipt. If any shares of
Common Stock, Options or Convertible Securities are issued to the
owners of the
