Document:

norurl-eurtermfacilityag

    Exhibit 10.2      29 SEPTEMBER 2022          Between      NORÐURÁL GRUNDARTANGI EHF.    (as Borrower)          and    ARION BANK HF.    (as Lender)              TERM FACILITY AGREEMENT                                                

 

2      CONTENT  1 Definitions ................................................................................................................... 3  2 The Facility .................................................................................................................. 10  3 Purpose ....................................................................................................................... 10  4 Conditions precedent.................................................................................................. 10  5 Drawdown ................................................................................................................... 11  6 Interest ........................................................................................................................ 11  7 Default Interest ........................................................................................................... 11  8 Repayment .................................................................................................................. 12  9 Prepayment and cancellation ..................................................................................... 12  10 Payments .................................................................................................................... 13  11 Fees, Charges and Expenses ....................................................................................... 14  12 Additional payment obligations .................................................................................. 15  13 Representations, warranties and undertakings .......................................................... 15  14 Information Undertakings ........................................................................................... 17  15 General Undertakings ................................................................................................. 19  16 Security ....................................................................................................................... 22  17 Events of default ......................................................................................................... 22  18 Set-off ......................................................................................................................... 25  19 Calculations, accounts and certificates ....................................................................... 25  20 Remedies, waivers, amendments and consents ......................................................... 25  21 Severance .................................................................................................................... 26  22 Assignment and transfer ............................................................................................. 26  23 Notices ........................................................................................................................ 26  24 Governing law, jurisdiction and service of process ..................................................... 27  Schedule 1   Conditions precedent .................................................................................................. 28  Schedule 2   Drawdown Request ..................................................................................................... 30  

 

3      THIS AGREEMENT is dated September 2022 and made between:    (1) NORÐURÁL GRUNDARTANGI EHF., a private limited liability company incorporated and  registered in Iceland with the registration number 570297-2609 (the "Borrower"); and    (2) ARION BANK HF., a limited liability company and licenced as a financial institution,  incorporated and registered in Iceland with registration number 581008-0150 whose  registered office is at Borgartún 19, 105 Reykjavik, Iceland (the "Lender").    The parties may hereinafter be jointly referred to as the "parties" and individually as "party".    BACKGROUND:    The Lender has agreed to provide the Borrower with a secured term loan facility of up to EUR 13,600,000  – Euros thirteen million six hundred thousand 00/100 subject to the terms and conditions of this  Agreement.      AGREED TERMS:    1 DEFINITIONS    1.1 The following definitions apply in this Agreement.    Affiliate: in relation to any person, a subsidiary of that person or a  holding company of that person or any other subsidiary of  that holding company.  Arion Facility: means the USD 130,000,000 Term Facility Agreement, dated  2 November 2021, as amended from time to time, between  the Borrower and the Lender.  Arion General Bond: a  first  ranking  general  bond  (i.  Tryggingarbréf),  in     the  amount of USD 430,000,000 creating security over the  Property, registered by the Magistrate of the West Iceland  Area as amended.  Authorisation: means   an   authorisation,   consent,   approval, resolution,  ruling, licence, exemption, filing, notarisation or  registration.  Availability Period: means the period from the date of this Agreement and until  12 October 2022.  Bank Account: means the Borrower’s bank account at the Lender with the  number 0358-38-000299.  Base Interest Rate: is the rate equal to EUR EURIBOR 1 month as published   at  any given time by the European Money Markets Institute  and if the rate is less than zero, the Base Interest Rate shall  be deemed to be zero.  

 

4      Borrowed Money: any indebtedness of the Borrower for or in respect of:    borrowing or raising money (with or without security),  including any premium and any capitalised interest on that  money;       any bond, note, loan stock, debenture, commercial  paper or similar instrument;      any credit facility (or dematerialised equivalent);       monies raised by selling, assigning, or discounting  receivables or other financial assets on terms that  recourse may be had to the Borrower if those  receivables or financial assets are not paid when due;      any deferred payment for assets or services acquired,  other than trade credit that is given in the ordinary  course of trading and which does not involve any  deferred payment of any amount for more than 90  days;      any rental or hire charges under finance leases  (whether for land, machinery, equipment or  otherwise);       any counter-indemnity obligation in respect of any  guarantee, bond, indemnity, standby letter of credit or  other instrument issued by a third party in connection  with the Borrower's performance of contracts; and       any other transaction that has the commercial effect  of borrowing; and      any guarantee, counter-indemnity or other assurances  against financial loss that the Borrower has given for  any of the items referred to in paragraphs (a) to (h) of  this definition incurred by any person.    When calculating Borrowed Money, no liability shall be  taken into account more than once.    Business Day: a day other than a Saturday, Sunday, or public holiday in  Iceland when banks in Reykjavík are open for business.  Change of Control: any  person  or  group  of  persons  acting  in  concert  gains  Control of the Borrower.  Commitment: the principal amount of the Facility set out in clause 2, to the  extent not cancelled or reduced under this Agreement.  

 

5      Control: (a) the power (whether by way of ownership  of shares,  proxy, contract, agency or otherwise) to:          cast, or control the casting of, more than one-  half of the maximum number of votes that  might be cast at a general meeting of that  company; or         appoint or remove all of the directors or other  equivalent officers of that company, or the  number of directors, or other equivalent  officers, required to adopt any decision at that  company’s board meetings; or        give directions with respect to the operating  and financial policies of that company which  the directors or other equivalent officers of  that company are obliged to comply with.  (b) The holding of more than one-half of the issued share  capital of that company (excluding any part of that  issued share capital that carries no right to  participate beyond a specified amount in a  distribution of either profits or capital).  Disruption Event: either or both of:    (a) an event (not caused by, and outside the control of,  either party) that materially disrupts the systems for  payment or communication, or the financial markets  needed, in each case, to enable either payment to be  made or transactions to be carried out under the  Finance Documents; or  (b) any other event (not caused by, and outside the  control of, the party whose operations are disrupted)  occurs, that results in disruption (of a technical or  systems-related nature) to the treasury or payments  operations of a party and which prevents either or  both parties from:  (i) performing its payment obligations under the  Finance Documents; or  (ii) communicating with the other party as  required by the terms of the Finance  Documents.  Drawdown Date: the date on which a Loan is made or is to be made.  Drawdown Request: a drawdown request,  substantially  in the  form  set out in  Schedule 2 (Drawdown Request).  Event of Default: any event or circumstance specified as such in clause 17.  

 

6      Facility: the term loan facility made available under this Agreement.  Finance Document: this  Agreement,  the  Security  Document,  any  Drawdown  Request, the Intercreditor Agreement, and any other  document designated as such by both the Lender and the  Borrower.  GAAP: in relation to the Borrower, generally  accepted accounting  principles in Iceland including IFRS.    Grundartangi Holding  Company:  means Norðurál ehf., registration number 470404-2130,  owner of the entire share capital (100%) of the Borrower.    Hedging Arrangements: means any derivative transaction entered into in connection  with protection against or benefit from any identified risk  exposure in the operations of the Borrower.  Hedging Security: means any Security provided under a Hedging Arrangement.    IFRS: international accounting  standards  within  the meaning of  Regulation (EC) No 1606/2002 of the European Parliament  and of the Council of 19 July 2002 on the application of  international accounting standards to the extent applicable  to the relevant financial statements  Increased Costs: any:    (a) reduction in the rate of return from the Facility or on  the overall capital of the Lender or its Affiliates;  (b) additional or increased cost; or  (c) reduction of any amount due and payable under any  Finance Document,  which is incurred or suffered by the Lender or any of its  Affiliates to the extent that it is attributable to the Lender  having entered into the Commitment or the Lender funding  or performing its obligations under any Finance Document.  Intercreditor Agreement: means  the  intercreditor  and  security  sharing agreement,  dated 2 December 2021.  Interest Payment Date: means the 12th day of each month.  Interest Period; has the meaning given to the term in clause 6.3  Landsbankinn Facility: means  the  USD  50,000,000,  original  amount, Committed  Revolving Credit Facility Agreement, dated 27 November  2013, as amended from time to time, between the Borrower  and Landsbankinn hf.  Landsbankinn General  Bond:  means the USD 385,000,000 general bond originally  executed on 9 February 2005 between the Borrower and  Kaupthing   Bank   hf.,   as  agent   and   trustee,  which was  

 

7      amended and restated on 27 November 2013 under which  the Borrower undertakes to Landsbankinn hf., as pledgee,  to pay or discharge in full its inventory etc. (veð í  vörubirgðum) and general receivables (vörureikningsveð)  against all present and future obligations and liabilities  pursuant to the Landsbankinn Facility.  Loan: the principal amount of the loan made or to be made by the  Lender to the Borrower under this Agreement or (as the  context requires) the principal amount outstanding for the  time being of that loan.  Margin: means 3.2% per annum.    Material Adverse Effect: any event or circumstance which, in the reasonable and  justified opinion of the Lender:                                  Original Financial  Statements:  Permitted Financial  Indebtedness:  (a) is likely to materially and adversely affect the  Borrower’s ability to perform or otherwise comply  with all or any of its obligations under the Finance  Documents; or  (b) is likely to materially and adversely affect the  business, operations, property, condition (financial or  otherwise) or prospects of the Borrower; or  (c) is likely to result in any Finance Document not being  legal, valid and binding on, and enforceable in  accordance with its terms against, the Borrower and,  in the case of the Security Documents, not providing  to the Lender security over the assets expressed to be  subject to a security interest under the Security  Documents.  the audited financial statements of the Borrower for its  financial year ended 2021.    means Borrowed Money:  (a) incurred under or permitted by the Finance  Documents;  (b) arising under the Arion Facility;  (c) arising under the Landsbankinn Facility;  (d) arising under a Permitted Guarantee;  (e) arising under a Hedging Arrangements;  (f) any loan or obligations incurred by the Borrower from  its Affiliates which is subordinated towards the  Borrower ́s obligations towards the Lender under any  Finance Document; or  (g) only loan or obligation incurred by the Borrower, so  long as the aggregate amount of (i) total Borrowed  Money and (ii) Permitted Guarantee (taken together)  

 

8      does not in the aggregate exceed the Total Borrowed  Money Limit;  provided that for purposes of calculating the Total  Borrowed Money Limit, (i) any and all Hedging  Arrangements not secured with a Hedging Security in the  Property and (ii) any and all loans or obligations incurred by  Borrower from its Affiliates on an arms’ length basis as set  forth herein and which are subordinated towards the  Borrower ́s obligations towards the Lender under any  Finance Document, in each case pursuant to the terms of  this Agreement, shall be excluded.    Permitted Guarantee: means a guarantee given by the Borrower in respect of any  obligation of any person, with the aggregate amount of (i)  any such guarantee and (ii) any Permitted Financial  Indebtedness (taken together) not exceeding the Total  Borrowed Money Limit; provided that for purposes of  calculating the Total Borrowed Money Limit, (i) any and all  Hedging Arrangements not secured with a Hedging Security  in the Property and (ii) any and all loans or obligations  incurred by Borrower from its Affiliates on an arms’ length  basis as set forth herein and which are subordinated  towards the Borrower ́s obligations towards the Lender  under any Finance Document, in each case pursuant to the  terms of this Agreement, shall be excluded.  Permitted Security: means:  (a) the Arion General Bond;  (b) the Landsbankinn General Bond; and  (c) any Hedging Security.  Potential Event of  Default:  any event or circumstance specified in clause 17.1 to clause  17.17 that would, on the giving of notice, expiry of any grace  period or making of any determination under the Finance  Documents, or satisfaction of any other condition (or any  combination thereof), become an Event of Default.  Property: means   collectively   the   properties   of   the Borrower  at  Katanesvegur 5, Hvalfjarðarsveit, property number  F2235409 measuring in the aggregate 197,8101 square  meters, and includes buildings permanently attached  thereto, whether completed or under construction at any  time, including for the avoidance of doubt the assets  specified in the Arion General Bond which includes, inter  alia, the assets which have been permanently equipped in  the Borrower ́s operations as further set out in Article 24 of  Act no. 75/1997 on Contractual Liens.  

 

9      Security: any mortgage, charge, pledge, lien or other security interest  securing any obligation of any person or any other  agreement or arrangement having a similar effect.  Security Agent: is the security agent under the Intercreditor Agreement.  Security Documents: each of the documents listed as being a Security Document  in clause 16, and any other document entered into by the  Borrower creating or expressed to create any Security over  all or any part of its assets in respect of its obligations under  any of the Finance Documents.  Settlement Agreement: has the meaning given to the term in clause 5.1 of Schedule  1.  Tax: any tax, levy, impost, duty or other charge,   fee, deduction  or withholding of a similar nature (including any penalty or  interest payable in connection with the failure to pay, or  delay in paying, any of these) incurred or derived from any  Finance Document.  Termination Date: means 12 January 2024.    Total Borrowed Money  Limit:  means USD 480,000,000 (or its equivalent as converted at  the midrate of the USD (“miðgengi”) applicable at any time)  at any time, which shall, for the avoidance of doubt, include  the maximum amount of the Facility, the Arion Facility, the  Landsbankinn Facility, and any Hedging Arrangements  secured with a Hedging Security in the Property.  Furthermore, for the avoidance of doubt, Total Borrowed  Money Limit shall specifically exclude (i) any and all Hedging  Arrangements not secured with a Hedging Security in the  Property and (ii) any and all loans or obligations incurred by  Borrower from its Affiliates on an arms’ length basis as set  forth herein and which are subordinated towards the  Borrower ́s obligations towards the Lender under any  Finance Document, in each case pursuant to the terms of  this Agreement.  Total Facility Amount: the maximum principal amount of the Facility referred to in  clause 2.  Unpaid Sum: means  any  sum  due  and  payable  but  unpaid  by       the  Borrower under the Finance Documents.  1.2 In this Agreement:           A reference to a clause or Schedule is to a clause of, or Schedule to, this Agreement  unless the context requires otherwise.           A reference to continuing in relation to an Event of Default means an Event of Default  which has not been waived.  

 

10             A reference to this Agreement (or any provision of it), the Finance Documents or any  other document shall be construed as a reference to this Agreement, that provision or  that document as it is in force for the time being and as amended, varied or  supplemented in accordance with its terms or with the agreement of the relevant  parties.           A reference to a time of day is to Reykjavík time.           A reference to the Borrower and the Lender shall include their respective successors,  permitted transferees and permitted assigns.    1.3 Clause, Schedule, and paragraph headings shall not affect the interpretation of this  Agreement.    2 THE FACILITY  The Lender grants to the Borrower a secured term loan facility of a total principal amount  of  EUR 13,600,000 on the terms, and subject to the conditions, of this Agreement.    3 PURPOSE    3.1 The Borrower shall apply all money borrowed under this Agreement towards general  corporate purposes of the Borrower.  3.2 The Lender is not obliged to monitor or verify how any amount advanced under this  Agreement is used.    4 CONDITIONS PRECEDENT    4.1 The Borrower shall deliver a Drawdown Request, and the obligations of the Lender under this  Agreement shall only arise once the Lender has received all the documents and evidence  specified in Schedule 1 (Conditions precedent) in form and substance satisfactory to the  Lender. The Lender shall notify the Borrower promptly upon being so satisfied.  4.2 The Lender’s obligation to make the Loan is subject to the further conditions’ precedent that,  on both the date of the Drawdown Request and the proposed Drawdown Date:           the representations and warranties in clause 13 are true and correct and will be true  and correct immediately after the Lender has made the proposed Loan; and           no Event of Default or Potential Event of Default is continuing or might result from the  proposed Loan.    4.3 The conditions specified in this clause 4 are inserted solely for the Lender’s benefit. The Lender  may waive them, in whole or in part and with or without conditions, without prejudicing the  Lender’s right to require subsequent fulfilment of such conditions.  

 

11      5 DRAWDOWN  5.1 The Borrower may utilise the Facility in a single drawdown anytime during the Availability  Period by delivering to the Lender a notice in the form set forth in Schedule 2 (Drawdown  Request) hereto.  5.2 The Borrower shall deliver a completed Drawdown Request to the Lender by not later than  10.00 am two Business Days prior to the proposed Drawdown Date (or such shorter time as  agreed by the parties).  5.3 A Drawdown Request:           shall only be complete if the requested Drawdown Date is at least a Business Day before  the end of the Availability Period; and           once it has been delivered, is irrevocable.    6 INTEREST  6.1 The interest rate on the Loan is floating and non-indexed (óverðtryggt) and is the percentage  rate per annum, to be the total of:           the Margin; and           the Base Interest Rate.    6.2 If the Base Interest Rate ceases to be available (for whatever reason and whether temporarily  or permanently) the Base Interest Rate shall be replaced with an alternative base interest rate  by the Lender at his sole discretion considering similar facility agreements and aiming to  achieve the same commercial result.  6.3 Interest shall accrue daily from the Drawdown Date of the Loan and paid in arrears on each  Interest Payment Date, the first Interest Payment Date being 12 October 2022. Each interest  period shall be 1 month, with the first interest period commencing on the Drawdown Date  (the “Interest Period”), save for the first Interest Period which shall end on the first Interest  Payment Date.    7 DEFAULT INTEREST    7.1 If the Borrower fails to make any payment due under this Agreement on the due date for  payment, default interest on the unpaid amount shall accrue daily, from the date of non-  payment to the date of actual payment (both before and after judgment), at the rate of   500  

 

12      basis points which shall be added to the aggregated interest rate as determined pursuant to  clause 6.1.  7.2 Interest accrued under clause 7.1 shall be immediately payable by the Borrower on demand  by the Lender.  7.3 Interest accrued under clause 7.1 shall be compounded with the Unpaid Sum as frequently as  permitted by law.    8 REPAYMENT    8.1 Repayments of principal amounts shall be made in equal monthly instalments on each Interest  Payment Date, for the first time on 12 February 2023 and the final repayment of any Unpaid  Sum on the Termination Date.    9 PREPAYMENT AND CANCELLATION  9.1 The Borrower may, at his sole discretion, prepay the Loan, in part or in full, without penalty,  subject to the terms of this Agreement, by giving the Lender at least 30 days’ notice.  9.2 Illegality           The Lender may require the Borrower to prepay the Loan, if:    (i) any law or regulation is introduced or changed, or there is any change in the way  any court or regulatory authority interprets or applies any law or regulation; or  (ii) complying with any direction, request or requirement (whether or not having the  force of law) from any monetary agency, central bank, or governmental or  regulatory authority; or  (iii) any judgment, order or direction of any court, tribunal or authority binding on  the Lender,  makes it unlawful for the Lender to make the Loan or allow the Loan to remain  outstanding or fund or maintain the Commitment or allow the Commitment to remain  outstanding.           To require prepayment under paragraph (a), the Lender shall give written notice to the  Borrower demanding prepayment and giving the date for that prepayment. The date  for prepayment shall be:    (i) 30 Business Days from the date of the notice; or  (ii) if earlier, the date the Lender certifies to be the last date for payment under any  law, regulation, regulatory requirement, request, judgment, order or direction  specified in paragraph 9.2.  9.3 Change of Control           The Borrower shall promptly notify the Lender if:    (i) there is a Change of Control, or  

 

13      (ii) the Borrower becomes aware of circumstances that is reasonably likely to lead to  a Change of Control.         If the Borrower provides notice under paragraph (a) the Lender may cancel the  Commitment and declare the Loan, accrued interest and all other amounts due under  this Agreement due and payable on the date on which the Change of Control occurs. To  do this, the Lender must give the Borrower 20 Business Days’ notice. On prepayment in  accordance with this paragraph (b), the Commitment shall be automatically reduced to  zero and the Facility cancelled.           In the event a Change of Control transaction results in the Borrower ceasing to be part  of the Century Aluminium Company group without the prior written consent of the  Lender, the Lender shall be authorised to cancel the Commitment and declare the Loan,  accrued interest and all other amounts due under this Agreement immediately due and  payable.    9.4 Repayment, prepayment, and cancellation general provision           Any prepayment or cancellation notice that the Borrower gives under this Agreement  shall be irrevocable. A prepayment notice shall oblige the Borrower to prepay the Loan  as set out in that notice.           The Borrower may not re-borrow any part of the Facility which has either been repaid  or prepaid under this Agreement and no amount of the Commitment cancelled under  this Agreement may be reinstated.           Any prepayment under this Agreement shall be made together with accrued interest on  the amount prepaid, without premium or penalty.           If the Borrower does not make a prepayment on the date for prepayment specified in  this Agreement or gives a prepayment notice but fails to make the prepayment on the  date specified in the prepayment notice, the default interest provisions of clause 7 shall  apply to the unpaid prepayment amount.    10 PAYMENTS    10.1 The currency of account shall be EUR and all payments that the Borrower makes under this  Agreement shall be made:           in full, without any deduction (except as allowed by clause 12.1), set-off or  counterclaim; and           in immediately available cleared funds on the due date to an account which the Lender  may specify to the Borrower for the purpose.    10.2 Any payment under any Finance Document which is due to be made on a day which is not a  Business Day shall be made on the next Business Day in the same calendar month (if there  is  

 

14      one), or the immediately preceding Business Day (if there is not). Any interest or other amount  accruing on a daily basis shall be calculated accordingly.  10.3 If either the Lender determines, or the Borrower notifies the Lender, that a Disruption Event  has occurred:           the Lender shall consult and agree with the Borrower the changes (if any) needed to the  operation or administration of the Facility as the Lender, in its absolute discretion,  deems necessary in the circumstances;           the Lender shall not be obliged to consult the Borrower about any such changes if in its  opinion it is not practical to do so in the circumstances; and           any change made or agreed under this clause 10.3 shall (whether or not an event is  finally determined to be a Disruption Event) be binding on the parties as an amendment  or variation of the Finance Documents notwithstanding the provisions of clause 20.    10.4 If the Lender receives a payment that is insufficient to discharge all the amounts then due and  payable by the Borrower under the Finance Documents, the Lender shall apply that payment  in settlement of the obligations of the Borrower in the order determined by the Lender in its  absolute discretion. The provisions of this clause 10.4 shall override any appropriation made  by the Borrower.  10.5 The Borrower shall pay costs, expenses, Taxes and the like (and any interest payable on those  amounts) in the currency in which they are incurred, as/if applicable.    11 FEES, CHARGES AND EXPENSES  11.1 The Borrower shall pay to the Lender an arrangement fee of 0.5 per cent of the Total Facility  Amount irrespective of whether the Facility is drawn or not, which shall be paid by the  Borrower by the Lender deducting the amount of the arrangement fee from the Loan on  disbursement.  11.2 The Borrower shall, promptly on demand, pay to the Lender:           any out-of-pocket expenses reasonably incurred by the Lender in connection with the  negotiation, preparation, execution and perfection of the Finance Documents and other  documents referred to them; and           any fees, reasonably incurred in relation to any amendment, extension, waiver, consent,  or suspension of rights (or any proposal for any of these) relating to a Finance Document  or a document referred to in any of them.    11.3 The Borrower shall, on demand, pay to the Lender the amount of all costs and expenses  (including legal and out-of-pocket expenses) reasonably incurred by the Lender in connection  with enforcing, preserving any rights under any Finance Document.  11.4 The Borrower shall pay any stamp, documentary and other similar duties, as applicable, and  Taxes to which the Finance Documents may be subject to or give rise and shall indemnify the  

 

15      Lender against any losses or liabilities which it may incur as a result of any delay or omission  by the Borrower in paying any such duties or taxes.  11.5 The Lender shall be authorised to withdraw any and all payments, fees, charges and expenses,  payable by the Borrower to the Lender pursuant to any Finance Document, from the  Borrower’s account held with the Lender when such fees, charges and expenses become due,  without any prior consent to the Borrower or notification to the Borrower.    12 ADDITIONAL PAYMENT OBLIGATIONS  12.1 Taxes    The Borrower shall pay and, within three Business Days of demand, indemnify the Lender  against any cost, loss or liability that the Lender incurs in relation to all stamp duty, registration  and other similar Taxes payable in respect of any Finance Document, as applicable.  12.2 Increased costs           Subject to clause 12.2 (c), within three Business Days of a demand by the Lender, the  Borrower shall pay the Lender the amount of any Increased Costs incurred by the Lender  or any of its Affiliates as a result of:  (i) the introduction of, or any change in (or in the interpretation, administration or  application of), any law or regulation by any governmental or regulatory  authority; or  (ii) compliance with any applicable law or regulation made after the date of this  Agreement.         If the Lender intends to make a claim under clause 12.2 (a), it shall notify the Borrower  of the event that will cause that claim in writing. As soon as practicable after a demand  by the Borrower, the Lender shall provide a certificate confirming the amount of its  Increased Costs.           Clause 12.2 (a) does not apply to any Increased Cost that is due to the breach of any law  or regulation by the Lender or its Affiliates which results in Increased Costs which is   solely applicable to the Borrower as opposed to any Increased Costs which may be  applicable to other customers of the Lender which shall not come under this clause  12.2(c).    13 REPRESENTATIONS, WARRANTIES AND UNDERTAKINGS  The Borrower represents and warrants, on the date of this Agreement:    13.1 Status:           It is a duly incorporated private limited liability company validly existing under the laws  of Iceland.           It has the power to own its assets and carry on its business as it is currently being  conducted.  

 

16             It has the power to enter into, deliver and perform, and has taken all necessary action  to authorise its entry into, delivery and performance of the Finance Documents and the  transactions contemplated by them.           No limit on its powers will be exceeded as a result of the borrowing or grant of security  or guarantee contemplated by the Finance Documents.    13.2 The entry into and performance by it of, and the transactions contemplated by, the Finance  Documents, do not and will not contravene or conflict with:           its articles of association;           any agreement or instrument binding on it or its assets or constitute a default or  termination event (however described) under any such agreement or instrument; or           any law or regulation or judicial or official order, applicable to it.    13.3 It has obtained all required authorisations to enable it to enter into, exercise its rights and  comply with its obligations in the Finance Documents and to make them admissible in  evidence in its jurisdiction of incorporation. Any such authorisations are in full force and effect.  13.4 Its obligations under the Finance Documents are legal, valid, binding, and enforceable in  accordance with their terms.  13.5 The Security Documents create (or, once entered into, will create) valid, legally binding, and  enforceable Security for the obligations expressed to be secured by it in favour of the Lender,  having the first priority and ranking and ranking ahead of all (if any) Security and rights of third  parties except those preferred by law.  13.6 It is not necessary to file, record or enrol any Finance Document with any court or other  authority or pay any stamp, registration or similar taxes relating to any Finance Document or  the transactions contemplated by any Finance Document.  13.7 No deduction for, or on account of, Tax is required from any payment that the Borrower may  make under any Finance Document.  13.8 No Event of Default or Potential Event of Default has occurred or is continuing or is reasonably  likely to result from making the Loan or the entry into, the performance of, or any transaction  contemplated by the Finance Documents.  13.9 No other event or circumstance is outstanding which constitutes (or, with the expiry of a grace  period, the giving of notice, the making of any determination or any combination thereof,  would constitute) a default or termination event (howsoever described) under any other  agreement or instrument which is binding on it or to which any of its assets is subject which  has or is likely to have a Material Adverse Effect.  13.10 No litigation, arbitration or administrative proceedings are taking place, pending or, to the  Borrower’s knowledge, threatened against it, by any of its directors or any of its assets, which  might reasonably be expected to have a Material Adverse Effect.  13.11 The Original Financial Statements were prepared in accordance with GAAP consistently  applied unless expressly disclosed to the Lender in writing to the contrary before the date  of  

 

17      this Agreement and gives a true and fair view of the Borrower’s financial condition and  operations during the relevant accounting period and was approved by the Borrower’s  directors.  13.12 There has been no material adverse change in the business, assets, financial condition, trading  position or prospects of the Borrower since the date of the Original Financial Statements.  13.13 The information, in written or electronic format, supplied by, or on its behalf, to the Lender in  connection with the Facility and the Finance Documents was, at the time it was supplied or at  the date it was stated to be given (as the case may be):           if it was factual information, complete, true, and accurate in all material respects;           if it was a financial projection or forecast, prepared on the basis of recent historical  information and on the basis of reasonable assumptions and was fair and made on  reasonable grounds; and           if it was an opinion or intention, made after careful consideration and was fair and made  on reasonable grounds; and           not misleading in any material respect, nor rendered misleading by a failure to disclose  other information,    except to the extent that it was amended, superseded, or updated by more recent information  supplied by, or on behalf of, the Borrower to the Lender.  13.14 The Borrower has not breached any law or regulation which breach has or is likely to have a  Material Adverse Effect.  13.15 The Borrower’s payment obligations under the Finance Documents rank at least pari passu  with all existing and future unsecured and unsubordinated obligations (including contingent  obligations), except for those mandatorily preferred by law applying to companies generally.  13.16 The Borrower is the legal and beneficial owner of, and has good, valid, and marketable title to,  all its assets and no Security exists over its assets, except for the Permitted Security.  13.17 Each of the representations and warranties in this clause 13 is deemed to be repeated by the  Borrower on:           the date of any Drawdown Request;           any Drawdown Date; and           at the first date of each Interest Period;    by reference to the facts and circumstances existing on each such date.    14 INFORMATION UNDERTAKINGS    The undertakings in this Clause 14 (Information Undertakings) remain in force from the date  of this Agreement for so long as any amount is outstanding under the Finance Documents or  any Commitment is in force.  

 

18      14.1 Financial statements    The Borrower shall supply electronically to the Lender:           as soon as they are available, but in any event within 4 Months after the end of each of  its Financial Years its audited consolidated financial statements for that Financial Year;           as soon as they are available, but in any event within 2 Months after the end of each  Financial Quarter of each of its Financial Year its quarterly management statements; and           as soon as they become available, but in any event within 2 Months after the end of  each financial half year, its unaudited financial statements for that financial half  reviewed by an auditor.    14.2 Requirements as to financial statements    The Borrower shall ensure that the financial statements delivered to the Lender shall:           are certified by a director of the Borrower as giving a true and fair view of its financial  condition as at the date at which those financial statements were drawn up;         be prepared in accordance with consistently applied GAAP and using accounting  practices and financial reference periods consistent with those applied in the  preparation of the Original Financial Statements; and         have been approved by the Borrower’s directors.  14.3 Information: miscellaneous    The Borrower shall supply to the Lender,           promptly, after becoming aware of them, details of any litigation, arbitration or  administrative proceedings or claim of the kind described in clause 13.10;           promptly, all notices or other documents submitted by the Borrower to its creditors or  any such notices which are received by the Borrower ́s from its creditor(s) which derive  from the underlying finance documents or any circumstances which may be of  significance to the underlying finance documents or the contractual relationship  between the Borrower and the relevant creditor from the same; all notifications in  relation to all changes in the composition of the board of directors of the Borrower, and  if such changes occur, that the new members of the board of directors shall sign and  deliver all such documents as considered necessary at the Lender’s sole discretion, to  maintain the validity and enforceability of all Finance Documents. The above-mentioned  changes to the board of directors shall be notified promptly and, in any case never later  than five (5) Business Days after the changes were approved; and           promptly, such financial or other information as the Lender may, from time to time,  reasonably request.    14.4 Notification of default    Borrower will notify the Lender of any Potential Event of Default or Event of Default (and the  steps, if any, being taken to remedy it) promptly on becoming aware of its occurrence.  

 

19      14.5 “Know your customer“ checks    If the Lender is obliged for any reason to comply with “know your customer” or similar  identification procedures in circumstances where the necessary information is not already  available to it, the Borrower will, promptly on the request of the Lender, supply (or procure  the supply of) such documentation and other evidence as is reasonably requested in order for  the Lender to be able to carry out, and be satisfied that it has complied with, all necessary  “know your customer” or other similar checks under all applicable laws and regulations  pursuant to the transactions contemplated in the Finance Documents.    15 GENERAL UNDERTAKINGS    The Borrower covenants with the Lender that, as from the date of this Agreement until all its  liabilities under the Finance Documents have been discharged:  Authorisations  15.1 It will promptly obtain all Authorisations required under any applicable law or regulation (and  do all that is needed to maintain them in full force and effect) to enable it to perform its  obligations under the Finance Documents and to ensure the legality, validity, enforceability,  and admissibility in evidence of the Finance Documents according to Icelandic law.  15.2 It will comply, in all respect, with all applicable laws, if failure to do so has or is likely to have a  Material Adverse Effect.  Change of business, activities and articles of association  15.3 It will carry on and conduct its business in a proper and efficient manner as currently  conducted and will not make any material change to the general nature or scope of its business  as carried on at the date of this Agreement without the prior written approval of the Lender.  15.4 The Borrower shall not materially change its articles of association, business or activities  without the prior approval of the Lender.  Merger  15.5 The Borrower shall not enter into any amalgamation, demerger, merger, or corporate  reconstruction without the prior written approval of the Lender.  Pari passu ranking  15.6 The Borrower shall ensure that any of its unsecured and unsubordinated obligations and  liabilities under the Finance Documents rank, and will continue to rank, at least pari passu with  all existing and future unsecured and unsubordinated obligations (including contingent  obligations), except for those mandatorily preferred by law of general application to  companies.  Subordination  15.7 The Borrower shall ensure that all current and future obligations incurred by it from its  Affiliates is subordinated towards the Borrower ́s obligations towards the Lender under any  Finance Document. The subordination shall include provisions that (i) the ranking of any  security provided under such obligations incurred by the Borrower from its Affiliates shall be  subordinated to the ranking of security provided for the benefit of the Lender, (ii) any  obligation to pay such subordinated debt shall only arise after payment obligations pursuant  

 

20      to this agreement have been satisfied and (iii) any enforcement action (however defined)  under such subordinated debt prior to a enforcement under this Agreement are prohibited,  unless with the prior written consent of the Lender excluding the current intercompany loans  for the amount of USD 23,000,000 which the Borrower has informed the Lender of (bonds  issued on 19 May 2014 with ISIN IS0000024842 and 19 December 2012 IS0000022622).  Preservation of assets  15.8 The Borrower shall maintain in good working order and condition (ordinary wear and tear  excepted) the Property and all other material assets necessary in the conduct of its business.  Insurance  15.9 The Borrower shall at all times maintain insurances on and in relation to its business and  assets, including but not limited to, the Property, against those risks and to the extent as is  usual for companies carrying on the same or substantially similar business, and the insurance  coverage shall in any event not be lower than the current insurance coverage as informed by  the Borrower to the Lender. In the event of the Borrower incurring any additional Permitted  Financial Indebtedness after the date of this Agreement, the Borrower shall increase its  insurance coverage to adequately reflect the additional Permitted Financial Indebtedness, and  the increase of the insurance coverage shall therefore be pro rata to the additional Permitted  Financial Indebtedness.  15.10 All insurances must be with reputable independent insurance companies or underwriters.    Disposals  15.11 It will not sell, assign, lease, transfer or otherwise dispose of in any manner (or purport to do  so) all or any part of, or any interest in, its assets without the prior written approval of the  Lender, other than:           trading stock, i.e. inventory, in the ordinary course of its business;           assets exchanged for other assets comparable or superior as to type, value, and quality;  and           assets whose market value is worth less than USD 2,000,000 (or its equivalent in another  currency or currencies) in any Financial Year.    Financial indebtedness  15.12 Except as permitted under paragraph 15.13 below, the Borrower will not incur or allow to  remain outstanding any Borrowed Money, except for refinancing of its existing debt and  customary indebtedness in the ordinary course of business, with such refinancing and  indebtedness always being subject to the prior written approval of the Lender.  15.13 Paragraph 15.12 does not apply to Permitted Financial Indebtedness.    Loans or credit  15.14 The Borrower will not be a creditor, towards any person other than Grundartangi Holding  Company and/or its Affiliates which shall always be conducted on arm’s length basis as further  set out in clause 15.18, outside of the ordinary course of business as this is conducted at the  signing of this Agreement, in respect of any obligations which would come under Borrowed  Money.  

 

21      No guarantees or indemnities  15.15 The Borrower shall not incur or allow to remain outstanding any guarantee or indemnity in  respect of any obligation of any person, including but not limited to any such arrangements in  relation to any company which the Borrower Control without the prior written approval of the  Lender, save for any Permitted Guarantee.  Negative Pledge  15.16 The Borrower shall not:           create, other than the Permitted Security, any Security for its obligations or the  obligations of others without offering the Lender pro rata and pari passu share in such  Security and always provided that (i) the obligations do not result in the Borrower  exceeding the Total Borrowed Money Limit, (ii) the lender under such obligation  acceding to the Intercreditor Agreement, and (iii) no changes being made to the  Intercreditor Agreement in relation to such additional security;           sell, transfer, or otherwise dispose of any of its receivables on recourse terms;           enter into and provide any Affiliate any loan, mortgage, lien, guarantee or any  analogous burden unless on arm ́s length term cf. clause 15.18 and subordinated 15.7;  or           enter into any other preferential arrangement having a similar effect,    in circumstances where the arrangement or transaction is entered into primarily as a  method of raising Borrowed Money or of financing the acquisition of an asset.    15.17 Paragraph 15.16 shall not apply to any Security which is a Permitted Security or Permitted  Guarantee.  Arm’s length basis  15.18 It will not without the prior written consent of the Lender, enter into any transaction with any  person or enter into or continue business relations with its shareholders or companies which  it Controls, employees, directors and/or related parties, except on proper commercial terms  negotiated at arm’s length.  Further assurance  15.19 The Borrower shall promptly do all such acts or execute all such documents (including  assignments, transfers, mortgages, charges, notices, and instructions) as the Lender may  reasonably specify at any time (and in such form as the Lender may reasonably require):           to perfect the Security created or intended to be created under or evidenced by the  Security Documents (which may include the execution of a mortgage, charge,  assignment or other Security over all or any of the assets which are, or are intended to  be, the subject of the Security Documents) or for the exercise of any rights, powers and  remedies of the Lender provided by or pursuant to the Finance Documents or by  applicable law;           to facilitate the realisation of the assets which are, or are intended to be, the subject of  the Security Documents.  

 

22      15.20 The Borrower shall take all such action as is reasonably available to it (including making all  filings and registrations) as may be necessary for the purpose of the creation, perfection,  protection, or maintenance of any Security conferred or intended to be conferred on the  Lenders by or pursuant to the Finance Documents.    16 SECURITY    16.1 The Borrower, as a condition precedent for the disbursement of the Loan, shall provide the  Lender with the following Security Documents securing the full and prompt payment of the  Facility (the "Security"):  (a) first ranking security pledge over all general claims (i. almenn fjárkrafa) deriving from  the Settlement Agreement.  (b) first ranking possessory pledge (i. handveð) over the Bank Account and all deposits on  that account;    (c) any security pursuant to the Intercreditor Agreement;    16.2 The Security shall be supported by the necessary resolutions, notices, certificates, and  evidence as stipulated in Schedule 1 (Conditions Precedent) and as reasonably requested by  the Lender from time to time.  16.3 The Lender as Security Agent    (a) In the event the Lender will share the security created under the Arion General Bond  with other lenders of the Borrower, the Lender will act as a security agent and take all  necessary administrative and enforcement actions with respect to the collateral on  behalf of the lenders ensuring that all lenders will benefit from pari passu ranking of the  Arion General Bond.    (b) The terms of such intercreditor and security sharing arrangements and the role of the  Lender as security agent are set forth in the Intercreditor Agreement.    17 EVENTS OF DEFAULT  Each of the events or circumstances set out in this clause 17 is an Event of Default.    Non-payment  17.1 The Borrower fails to pay any sum payable by it under any Finance Document when due, unless  its failure to pay is caused solely by:  (a) an administrative error or technical problem and payment is made within three Business  Days of its due date; or    (b) a Disruption Event and payment is made within three Business Days of its due date.    Other obligations  17.2 The Borrower does not comply with the provisions of clause 14 (Information Undertakings) or  clause 15 (General Undertakings).  

 

23      17.3 No Event of Default under clause 17.2 above in relation to clauses 14 (Information  Undertakings) or 15 (General Undertakings) shall occur, if the failure to comply is capable of  remedy and is remedied within 15 Business Days of the earlier (A) the Lender giving notice to  the Borrower and (B) the Borrower becoming aware of the failure to comply.  Misrepresentation  17.4 Any representation or warranty made, repeated, or deemed made by the Borrower in, or  pursuant to, the Finance Documents is (or proves to have been) incomplete, untrue, incorrect,  or misleading in any material respect when made, repeated, or deemed made.  Cross default  17.5 Failure by the Borrower to make payments when due of any obligation for Borrowed Money  (other than in respect of this Agreement) and the aggregate amount of such failure combined  exceeds USD 10,000,000 (or its equivalence in any other currency or currencies); or default by  the Borrower, in the performance of any agreement under which any such obligation is  created if the effect of such default is to cause such obligation to become due, or to permit  the holder or holders of such obligation to declare such obligation due prior to its normal  maturity.  Insolvency and Insolvency Proceedings  17.6 The value of the Borrower's assets is less than its liabilities (taking into account contingent and  prospective liabilities).  17.7 A moratorium is declared in respect of any indebtedness of the Borrower.    17.8 Any action, proceedings, procedure, or step is taken for:    (a) the suspension of payments, a moratorium of any indebtedness, winding up,  dissolution, administration, or reorganisation (using a voluntary arrangement, scheme  of arrangement or otherwise) of the Borrower; or    (b) the composition, compromise, assignment, or arrangement with any creditor; or    (c) the appointment of a liquidator, receiver, administrative receiver, administrator,  manager, or other similar officer in respect of the Borrower or any of its assets; or  (d) the enforcement of any Security over any assets of the Borrower, unless such action,  proceeding, procedure or step is frivolous or vexatious and is discharged or dismissed  within 14 days of commencement.  17.9 The Borrower commences negotiations, or enters into any composition, compromise,  assignment, or arrangement, with one or more of its creditors (excluding the Lender) with a  view to rescheduling any of its indebtedness (because of actual or anticipated financial  difficulties).  17.10 Any event occurs in relation to the Borrower similar to those in clause 17.6 to clause 17.9  (inclusive) under the laws of any applicable jurisdiction.  17.11 A winding-up petition that is frivolous or vexatious and is discharged, stayed, or dismissed  within 14 days of commencement or, if earlier, the date on which it is advertised shall be  

 

24      excluded from clause 17.5 to clause 17.10. The ending of any moratorium referred to in clause  17.7 shall not remedy any Event of Default caused by that moratorium.    17.12 A distress, attachment, execution, expropriation, sequestration, or another analogous legal  process is levied, enforced, or sued out on, or against, the Borrower's assets having an  aggregate value of USD 10.000.000,- (or its equivalent in other currencies) and is not  discharged or stayed within 14 days.  17.13 Any Security on or over the assets of the Borrower becomes enforceable.    Unlawfulness  17.14 Any provision of any Finance Document is or becomes, for any reason, invalid, unlawful,  unenforceable, terminated, disputed, or ceases to be effective or to have full force and effect.  Repudiation  17.15 The Borrower repudiates or rescinds or shows an intention to repudiate or rescind any Finance  Document.  Cessation of business  17.16 The Borrower suspends or ceases to carry on (or threatens to suspend or cease to carry on) all  or a substantial part of its business, such instances to include circumstances such as  suspension or curtailment of operation of one of the Borrower’s potline, unless such  curtailment occurs as a result of any incidence or circumstances which are beyond the control  of the Borrower or its Affiliates and can therefore not be avoided by the Borrower or its  Affiliates provided that the curtailment lapses within 30 days from occurrence.  Material adverse change  17.17 Any event occurs (or circumstances exist) which, in the reasonable opinion of the Lender, has  or is likely to have a Material Adverse Effect.  Acceleration  17.18 On and at any time after the occurrence of an Event of Default, the Lender may:    (a) by written notice to the Borrower:    (i) cancel all outstanding obligations of the Lender under this Agreement whereupon  they shall immediately be cancelled;  (ii) declare that the Loan (and all accrued interest and all other amounts accrued or  outstanding under the Finance Documents]) is immediately due and payable,  whereupon they shall become immediately due and payable;  (iii) exercise any or all of its rights, remedies, powers, or discretions under the  Security Document.  17.19 Instead of acceleration in accordance with clause 17.18 above due to an Event of Default, the  Lender is entitled to raise the Margin by notification to the Borrower which shall in such event  have two weeks to repay the Loan in accordance with the previous Margin without a  repayment fee.  

 

25      18 SET-OFF  18.1 The Lender may at any time set off any liability of the Borrower to the Lender against any  liability of the Lender to the Borrower, whether either liability is present or future, liquidated  or unliquidated, and whether or not either liability arises under this Agreement. If the liabilities  to be set off are expressed in different currencies, the Lender may convert either liability at a  market rate of exchange for the purpose of set-off. Any exercise by the Lender of its rights  under this clause 18.1 shall not limit or affect any other rights or remedies available to it under  the Finance Documents or otherwise.    18.2 The Lender is not obliged to exercise any of its rights under clause 18.1, but if the rights are  exercised, the Lender shall promptly notify the Borrower of the set-off that has been made.    19 CALCULATIONS, ACCOUNTS AND CERTIFICATES    19.1 Any interest, commission or fee under any Finance Document shall accrue on a day-to-day  basis, calculated according to the number of actual days elapsed and a year of 360 days.  19.2 The Lender shall maintain accounts evidencing the amounts owed to it by the Borrower, in  accordance with its usual practice. Entries in those accounts shall be prima facie evidence of  the existence and amount of the Borrower's obligations as recorded in them.  19.3 If the Lender issues any certificate, determination or notification of a rate or any amount  payable under a Finance Document, it shall be (in the absence of manifest error) conclusive  evidence of the matter to which it relates.    20 REMEDIES, WAIVERS, AMENDMENTS AND CONSENTS    20.1 No amendment of any Finance Document shall be effective unless it is in writing and signed  by, or on behalf of, each party to it (or its authorised representative).  20.2 A waiver of any right or remedy under any Finance Document or by law, or any consent given  under any Finance Document, is only effective if given in writing by the waiving or consenting  party and shall not be deemed a waiver of any other breach or default. It only applies in the  circumstances for which it is given and shall not prevent the party giving it from subsequently  relying on the relevant provision.  20.3 A failure or delay by a party to exercise any right or remedy provided under any Finance  Document or by law shall not constitute a waiver of that or any other right or remedy, prevent  or restrict any further exercise of that or any other right or remedy or constitute an election  to affirm any Finance Document. No single or partial exercise of any right or remedy provided  under any Finance Document or by law shall prevent or restrict the further exercise of that or  any other right or remedy. No election to affirm any Finance Document by the Lender shall be  effective unless it is in writing.  20.4 The rights and remedies provided under the Finance Documents are cumulative and are in  addition to, and not exclusive of, any rights and remedies provided by law.  

 

26      21 SEVERANCE  If any provision (or part of a provision) of a Finance Document is or becomes invalid, illegal or  unenforceable, it shall be deemed modified to the minimum extent necessary to make it valid,  legal and enforceable. If such modification is not possible, the relevant provision (or part of a  provision) shall be deemed deleted. Any modification to or deletion of a provision (or part of  a provision) under this clause shall not affect the legality, validity and enforceability of the rest  of the relevant Finance Document.    22 ASSIGNMENT AND TRANSFER    22.1 The Lender may assign any of its rights under the Finance Documents or transfer all its rights  or obligations.  22.2 The Borrower may not assign any of its rights or transfer any of its rights or obligations under  any Finance Document, without the prior approval of the Lender.    23 NOTICES    23.1 Any notice or other communication given to a party under or in connection with the Finance  Documents shall be:  (a) in writing;    (b) delivered by hand or by pre-paid first-class post or email; and    (c) sent to:    (i) the Borrower at:  Skógarhlíð 12, 105 Reykjavík  Email: kristinn@nordural.is  Attention: Kristinn Bjarnason, CFO  (ii) the Lender at:  Borgartún 19, 105 Reykjavík  Email: petur.petursson @arionbanki.is and fts@arionbanki.is  Attention: Pétur Heide Pétursson, Corporate Banking.  or to any other address as is notified in writing by one party to the other from time to  time.    23.2 Any notice or other communication given by either party shall be deemed to have been  received:           if delivered by hand, at the time it is left at the relevant address;           if posted by pre-paid first-class post on the second Business Day after posting; and           if sent by email, when received in legible form.  

 

27      A notice or other communication given as described in clause (a) or clause (c) on a day that is  not a Business Day, or after normal business hours, in the place it is received, shall be deemed  to have been received on the next Business Day.  23.3 Any notice or other communication given to the Lender shall be deemed to have been received  only on actual receipt.    24 GOVERNING LAW, JURISDICTION AND SERVICE OF PROCESS    24.1 This Agreement and any dispute or claim (including non-contractual disputes or claims) arising  out of or in connection with it or its subject matter or formation shall be governed by and  construed in accordance with the law of the Republic of Iceland.  24.2 Each party irrevocably agrees that, subject as provided below, the District Court of Reykjavik  shall have exclusive jurisdiction over any dispute or claim (including non-contractual disputes  or claims) arising out of or in connection with this Agreement or its subject matter or  formation. Nothing in this clause shall limit the right of the Lender to take proceedings against  the Borrower in any other court of competent jurisdiction, nor shall the taking of proceedings  in any one or more jurisdictions preclude the taking of proceedings in any other jurisdictions,  whether concurrently or not, to the extent permitted by the law of such other jurisdiction.      (Last page before schedules signature page)  

 

28      SCHEDULE 1  CONDITIONS PRECEDENT      1. Constitutional Documents    1.1 Certificate of Incorporation (i. Fyrirtækjavottorð) for the Borrower, issued no earlier than three  (3) days prior to date of this Agreement .    1.2 A copy of the articles of association of the Borrower.    1.3 A copy of the resolutions duly passed by the Borrower’s board of directors:           approving the entry into, and terms of, and transactions contemplated by, the Finance  Documents and resolving that it execute, deliver and perform the Finance Documents;           if applicable, authorising a specified person or persons to execute the Finance  Documents on its behalf, to sign and/or dispatch all documents and notices (including,  if relevant, any Drawdown Request) to be signed and/or despatched by it under or in  connection with the Finance Documents;           confirming no limit on the powers of the Borrower or its directors to borrow money,  give guarantees or create security would be exceeded by its entry into or performance  of its obligations under the Finance Documents; and           confirming that entry into the Finance Documents is in the commercial interests of the  Borrower (stating the reasons for such conclusion).    1.4 A certificate signed by a director of the Borrower confirming that borrowing the Loan or granting  security or guarantee in respect of the Total Facility Amount would not mean any borrowing or  security (or similar limit binding on the Borrower) would be exceeded.    1.5 All information required by the Lender to enable it to comply with all "know your customer" or  similar identification procedures under all applicable laws and regulations    2. Finance Documents    2.1 This Agreement duly executed by the Borrower.    2.2 A Drawdown Request.    2.3 A copy of a Creditor Accession Undertaking in relation to the Intercreditor Agreement,  whereunder the Lender is accepted as an Additional Lender (as the term is defined in the  Intercreditor Agreement) and the Facility Agreement is added as an Additional Loan Document  (as the term is defined in the Intercreditor Agreement), executed by the Lender.  2.4 The following Security Documents executed by the Borrower, in favour of the Lender:    (a) a bank accounts pledge agreement granting a 1st ranking possessory pledge over the  Bank Account.  

 

29      (b) a general claim (i. almenn fjárkrafa) pledge agreement granting first ranking security  pledge over all general claims (i. almenn fjárkrafa) deriving from the Settlement  Agreement.  2.5 Copy of all notices required to be sent under the Security Documents executed by the relevant  party duly acknowledged by the addressee.    3. Financial Information    3.1 A copy of the Borrower’s latest available audited financial statements.    3.2 A copy, certified by an authorised signatory of the Borrower to be a true copy, of the Original  Financial Statements of the Borrower.    4. Fees    4.1 Evidence that the costs and expenses then due from the Borrower pursuant to clause 11 have  been paid or will be paid by the Drawdown Date.    5. Other documents and evidence    5.1 A copy of a Confirmation of Termination of Swap Transactions in relation to an ISDA Master  Agreement between Axpo Nordics AS and the Borrower, dated 13 December 2016. (the  “Settlement Agreement”).    5.2 A certified copy of any power of attorney under which the Borrower may execute this  Agreement.    5.3 A copy of any other authorisation, document, opinion, or assurance which the Lender considers  necessary for the entry into, and performance of, the transactions contemplated by the Finance  Documents, or for the Finance Documents to be valid and enforceable.  

 

30      SCHEDULE 2  DRAWDOWN REQUEST            To: Arion Bank hf. as Lender    Attention: Pétur Heide Pétursson, Corporate  Banking  Date: [DATE]      Norðurál Grundartangi ehf.    EUR 13,600,000 Facility Agreement dated 29 September 2022 between Norðurál Grundartangi  ehf. as borrower, and Arion Bank hf. as Lender (the "Facility Agreement")  We refer to the Facility Agreement. This is a Drawdown Request. Words and expressions defined  in the Facility Agreement have the same meaning in this Drawdown Request.  We give you notice that we wish to draw down the following Loan on [DATE]:  Amount: EUR [AMOUNT]  Drawdown Date: [DATE]      The Loan is to be made available by credit to [ACCOUNT DETAILS].  We confirm that, on today's date and the proposed Drawdown Date:  1. The Warranties are true and correct and will be true and correct immediately after the  proposed Loan.    2. No Event of Default or Potential Event of Default is continuing or would result from the  proposed Loan.    3. The Proceeds of the Loan shall be used solely for the purpose set forth in the Agreement.      This Drawdown Request is irrevocable.      .................................    For and on behalf of  Norðurál Grundartangi ehf.  

 

31      THIS AGREEMENT has been entered into on the date stated at the beginning of it.    In confirmation of the above, this document is signed either by hand or with a valid electronic signature  by the person or persons authorized to bind the Borrower and the Lender. In the case of an electronic  signature, the signature is in accordance with Icelandic Act No. 55/2019 on Electronic Identification and  Trust Services for Electronic Transactions. In the case of an electronic signature, this document is signed  electronically and is then stored and accessible to customers under Digital documents in Online Banking  and/or sent to the customer by e-mail.          BORROWER  NORÐURÁL GRUNDARTANGI EHF.      By:  /s/ Kristinn Bjarnason     Name: Kristinn Bjarnason  Capacity:  Power of Attorney    LENDER  ARION BANK HF.      By: /s/ Sigurbjörg Ólafsdóttir  By:  /s/ Pétur Heide Pétursson     Name: Sigurbjörg Ólafsdóttir  Title: Manager  Name: Pétur Heide Pétursson  Title: Account Manager                                    (Signature page to a Facility Agreement)KWESST Micro Systems Inc.: Exhibit 4.2 - Filed by newsfilecorp.com

    

    WARRANT AGENT AGREEMENT

    WARRANT AGENT AGREEMENT (this "Warrant Agreement") dated as of _________, 2022 (the "Issuance Date") between KWESST Micro Systems Inc., a corporation formed under the laws of British Columbia, Canada (the "Company"), and Continental Stock Transfer & Trust (the "Warrant Agent").

    RECITALS

    WHEREAS, pursuant to the terms of that certain Underwriting Agreement ("Underwriting Agreement"), dated __, 2022, by and among the Company and ThinkEquity LLC, as representative of the underwriters set forth therein, the Company is engaged in a United States public offering (the "Offering") of up to _________ (the "Shares") common shares, no par value per share (the "Common Shares"), of the Company, up to ________ pre-funded warrants (the "Pre-funded Warrants") to purchase up to __________ Common Shares (the "Pre-funded Warrant Shares"), and warrants (the "Warrants") to purchase up to _________ Common Shares (the "Warrant Shares"), including Shares, Pre-funded Warrants and Warrants issuable pursuant to the underwriters' over-allotment option;

    WHEREAS, the Company has filed with the United States Securities and Exchange Commission (the "Commission") a Registration Statement on Form F-1 (Registration No. 333-266897) (as the same may be amended from time to time, the "Registration Statement") for the registration under the United States Securities Act of 1933, as amended (the "Securities Act"), of the Shares, Pre-funded Warrants, Pre-funded Warrant Shares, Warrants and Warrant Shares, and such Registration Statement was declared effective on __, 2022;

    WHEREAS, the Company desires the Warrant Agent to act on behalf of the Company, and the Warrant Agent is willing to so act, in accordance with the terms set forth in this Warrant Agreement, in connection with the issuance, registration, transfer, exchange and exercise of the Warrants;

    WHEREAS, the Company desires to provide for the provisions of the Warrants, the terms upon which they shall be issued and exercised, and the respective rights, limitation of rights, and immunities of the Company, the Warrant Agent, and the holders of the Warrants; and

    WHEREAS, all acts and things have been done and performed which are necessary to make the Warrants the valid, binding and legal obligations of the Company, and to authorize the execution and delivery of this Warrant Agreement.

    AGREEMENT

    NOW, THEREFORE, in consideration of the mutual agreements herein contained, the parties hereto agree as follows:

    1. Appointment of Warrant Agent. The Company hereby appoints the Warrant Agent to act as agent for the Company with respect to the Warrants, and the Warrant Agent hereby accepts such appointment and agrees to perform the same in accordance with the express terms and conditions set forth in this Warrant Agreement (and no implied terms or conditions).

    2. Warrants.

    2.1. Form of Warrants. The Warrants shall be registered securities and shall be initially evidenced by a global Warrant certificate ("Global Certificate") in the form of Annex A to this Warrant Agreement, which shall be deposited on behalf of the Company with a custodian for The Depository Trust Company ("DTC") and registered in the name of Cede & Co., a nominee of DTC. If DTC subsequently ceases to make its settlement system available for the Warrants, the Company may instruct the Warrant Agent regarding making arrangements for book-entry settlement. In the event that the Warrants are not eligible for, or it is no longer necessary to have the Warrants available in, registration in the name of Cede & Co., a nominee of DTC, the Company may instruct the Warrant Agent to provide written instructions to DTC to deliver to the Warrant Agent for cancellation the Global Certificate, and the Company shall instruct the Warrant Agent to deliver to each Holder (as defined below) separate certificates evidencing Warrants ("Definitive Certificates" and, together with the Global Certificate, "Warrant Certificates"), in the form of Annex C to this Warrant Agreement. The Warrants represented by the Global Certificate are referred to as "Global Warrants".

    

    2.2. Issuance and Registration of Warrants.

    2.2.1. Warrant Register. The Warrant Agent shall maintain books ("Warrant Register") for the registration of original issuance and the registration of transfer of the Warrants. Any Person (as defined below) in whose name ownership of a beneficial interest in the Warrants evidenced by a Global Certificate is recorded in the records maintained by DTC or its nominee shall be deemed the "beneficial owner" thereof, provided that all such beneficial interests shall be held through a Participant (as defined below), which shall be the registered holder of such Warrants.

    2.2.2. Issuance of Warrants. Upon the initial issuance of the Warrants, the Warrant Agent shall issue the Global Certificate and deliver the Warrants in the DTC settlement system in accordance with written instructions delivered to the Warrant Agent by the Company. Ownership of beneficial interests in the Warrants shall be shown on, and the transfer of such ownership shall be effected through, records maintained (i) by DTC and (ii) by institutions that have accounts with DTC (each, a "Participant"), subject to a Holder's right to elect to receive a Warrant in certificated form in the form of Annex C to this Warrant Agreement. Any Holder desiring to elect to receive a Warrant in certificated form shall make such request in writing delivered to the Warrant Agent pursuant to Section 2.2.8, and shall surrender to the Warrant Agent the interest of the Holder on the books of the Participant evidencing the Warrants which are to be represented by a Definitive Certificate through the DTC settlement system. Thereupon, the Warrant Agent shall countersign and deliver to the Person entitled thereto a Warrant Certificate or Warrant Certificates, as the case may be, as so requested.

    2.2.3. Beneficial Owner; Holder. Prior to due presentment for registration of transfer of any Warrant, the Company and the Warrant Agent may deem and treat the Person in whose name that Warrant shall be registered on the Warrant Register (the "Holder," which term shall include a Holder's transferees, successors and assigns and a "Holder" shall include, if the Warrants are held in "street name," a Participant or a designee appointed by such Participant) as the absolute owner of such Warrant for purposes of any exercise thereof, and for all other purposes, and neither the Company nor the Warrant Agent shall be affected by any notice to the contrary. Notwithstanding the foregoing, nothing herein shall prevent the Company, the Warrant Agent or any agent of the Company or the Warrant Agent from giving effect to any written certification, proxy or other authorization furnished by DTC governing the exercise of the rights of a holder of a beneficial interest in any Warrant. The rights of beneficial owners in a Warrant evidenced by the Global Certificate shall be exercised by the Holder or a Participant through the DTC system, except to the extent set forth herein or in the Global Certificate.

    2.2.4. Execution. The Warrant Certificates shall be executed on behalf of the Company by any authorized officer of the Company (an "Authorized Officer"), which need not be the same authorized signatory for all of the Warrant Certificates, either manually or by facsimile signature. The Warrant Certificates shall be countersigned by an authorized signatory of the Warrant Agent, which need not be the same signatory for all of the Warrant Certificates, and no Warrant Certificate shall be valid for any purpose unless so countersigned. In case any Authorized Officer of the Company that signed any of the Warrant Certificates ceases to be an Authorized Officer of the Company before countersignature by the Warrant Agent and issuance and delivery by the Company, such Warrant Certificates, nevertheless, may be countersigned by the Warrant Agent, issued and delivered with the same force and effect as though the person who signed such Warrant Certificates had not ceased to be an Authorized Officer; and any Warrant Certificate may be signed on behalf of the Company by any person who, at the actual date of the execution of such Warrant Certificate, shall be an Authorized Officer of the Company authorized to sign such Warrant Certificate, although at the date of the execution of this Warrant Agreement any such person was not such an Authorized Officer.

    2.2.5. Registration of Transfer. At any time at or prior to the Expiration Date (as defined below), a transfer of any Warrants may be registered and any Warrant Certificate or Warrant Certificates may be split up, combined or exchanged for another Warrant Certificate or Warrant Certificates evidencing the same number of Warrants as the Warrant Certificate or Warrant Certificates surrendered. Any Holder desiring to register the transfer of Warrants or to split up, combine or exchange any Warrant Certificate shall make such request in writing delivered to the Warrant Agent, and shall surrender to the Warrant Agent the Warrant Certificate or Warrant Certificates evidencing the Warrants the transfer of which is to be registered or that is or are to be split up, combined or exchanged. Thereupon, the Warrant Agent shall countersign and deliver to the Person entitled thereto a Warrant Certificate or Warrant Certificates, as the case may be, as so requested. The Warrant Agent may require reasonable and customary payment with respect to a registration of transfer of Warrants or a split-up, combination or exchange of a Warrant Certificate (but, for purposes of clarity, not upon the exercise of the Warrants and issuance of Warrant Shares to the Holder), of a sum sufficient to cover any tax or governmental charge that may be imposed in connection with such registration of transfer, split-up, combination or exchange, together with reimbursement to the Warrant Agent of all reasonable expenses incidental thereto. All such fees and expenses shall be paid by the Company, and not by the Holder.

    
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    2.2.6. Loss, Theft and Mutilation of Warrant Certificates. Upon receipt by the Company and the Warrant Agent of evidence reasonably satisfactory to them of the loss, theft, destruction or mutilation of a Warrant Certificate, and, in case of loss, theft or destruction, of indemnity or security in customary form and amount, and reimbursement to the Company and the Warrant Agent of all reasonable expenses incidental thereto, and upon surrender to the Warrant Agent and cancellation of the Warrant Certificate if mutilated, the Warrant Agent shall, on behalf of the Company, countersign and deliver a new Warrant Certificate of like tenor to the Holder in lieu of the Warrant Certificate so lost, stolen, destroyed or mutilated. The Warrant Agent may charge the Holder an administrative fee for processing the replacement of lost Warrant Certificates, which shall be charged only once in instances where a single surety bond obtained covers multiple certificates. The Warrant Agent may receive compensation from the surety companies or surety bond agents for administrative services provided to them.

    2.2.7. Proxies. The Holder of a Warrant may grant proxies or otherwise authorize any Person, including the Participants and beneficial holders that may own interests through the Participants, to take any action that a Holder is entitled to take under this Warrant Agreement or the Warrants; provided, however, that at all times that Warrants are evidenced by a Global Certificate, exercise of those Warrants shall be effected on their behalf by Participants through DTC in accordance the procedures administered by DTC.

    2.2.8. Warrant Certificate Request. A Holder has the right to elect at any time or from time to time a Warrant Exchange (as defined below) pursuant to a Warrant Certificate Request Notice (as defined below). Upon written notice by a Holder to the Warrant Agent for the exchange of some or all of such Holder's Global Warrants for a Definitive Certificate evidencing the same number of Warrants, which request shall be in the form attached hereto as Annex E (a "Warrant Certificate Request Notice" and the date of delivery of such Warrant Certificate Request Notice by the Holder, the "Warrant Certificate Request Notice Date" and the deemed surrender upon delivery by the Holder of a number of Global Warrants for the same number of Warrants evidenced by a Definitive Certificate, a "Warrant Exchange"), the Warrant Agent shall promptly effect the Warrant Exchange and shall promptly issue and deliver to the Holder a Definitive Certificate for such number of Warrants in the name set forth in the Warrant Certificate Request Notice. Such Definitive Certificate shall be dated the original issue date of the Warrants, shall be manually executed by an authorized signatory of the Company, shall be in the form attached hereto as Annex C, and shall be reasonably acceptable in all respects to such Holder. In connection with a Warrant Exchange, the Company agrees to mail by first class mail, postage prepaid, or to direct the Warrant Agent to mail by first class mail, postage prepaid,, the Definitive Certificate to the Holder within the earlier of (i) two (2) Trading Days (as defined below) and (ii) the number of Trading Days comprising the Standard Settlement Period (as defined below) of the Warrant Certificate Request Notice pursuant to the delivery instructions in the Warrant Certificate Request Notice ("Warrant Certificate Mailing Date"). If the Company fails for any reason to so mail to the Holder the Definitive Certificate subject to the Warrant Certificate Request Notice by the Warrant Certificate Mailing Date (as evidenced by proof of mailing), the Company shall pay to the Holder, in cash, as liquidated damages and not as a penalty, for each $1,000 of Warrant Shares evidenced by such Definitive Certificate (based on the VWAP (as defined below) of the Common Shares on the Warrant Certificate Request Notice Date), $10 per Business Day for each Business Day after such Warrant Certificate Mailing Date until such Definitive Certificate is mailed (as evidenced by proof of mailing) or, prior to the mailing of such Warrant Certificate, the Holder rescinds such Warrant Exchange. The Company covenants and agrees that, upon the date of delivery of the Warrant Certificate Request Notice, the Holder shall be deemed to be the holder of the Definitive Certificate and, notwithstanding anything to the contrary set forth herein, the Definitive Certificate shall be deemed for all purposes to contain all of the terms and conditions of the Warrants evidenced by such Warrant Certificate and the terms of this Warrant Agreement, other than Sections 3.3 and 8 herein, which shall not apply to the Warrants evidenced by the Definitive Certificate. For purposes of clarity, if there is a conflict between the express terms of this Warrant Agreement and the Warrant Certificate in the form of Annex C hereto with respect to terms of the Warrants, the terms of the Warrant Certificate shall govern and control.

    3. Terms and Exercise of Warrants.

    3.1. Exercise Price. Each Warrant shall entitle the Holder, subject to the provisions of the applicable Warrant Certificate and of this Warrant Agreement, to purchase from the Company the number of Common Shares stated therein, at the price of $____ per whole share, subject to the subsequent adjustments provided in Section 4 hereof. The term "Exercise Price" as used in this Warrant Agreement refers to the price per share at which Common Shares may be purchased at the time a Warrant is exercised.

    
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    3.2. Duration of Warrants. Warrants may be exercised only during the period ("Exercise Period") commencing on the Issuance Date and terminating at 5:00 P.M., New York City time (the "close of business") on ______, 2027 ("Expiration Date")1. Each Warrant not exercised on or before the Expiration Date shall become void, and all rights thereunder and all rights in respect thereof under this Warrant Agreement shall cease at the close of business on the Expiration Date.

    3.3. Exercise of Warrants.

    3.3.1. Exercise and Payment.

    (a) Exerciseof the purchase rights represented by a Warrant may be made, in whole or in part, at any time or times during the Exercise Period by delivery to the Company and the Warrant Agent of a duly executed copy, submitted, delivered or mailed (including by facsimile or PDF copy submitted by email) to the Company at 155 Terence Matthews Crescent, Unit #1, Ottawa, Ontario, K2M 2A8 Attention: Steven Archambault and Wendy Liang, email: archambault@kwesst.com and liang@kwesst.com (or such alternative email or physical address provided in writing by the Company to the Holder after the date hereof), and to the Warrant Agent at 1 State Street, 30th Floor, New York, NY 10004-1561 Attention: Steven Vacante, email: svacante@continentalstock.com (or such alternative email or physical address provided in writing by the Warrant Agent to the Holder after the date hereof), in substantially the form annexed as Annex B hereto (the “Notice of Exercise”). Within the earlier of (i) two (2) Trading Days and (ii) the number of Trading Days comprising the Standard Settlement Period following the date the Holder delivers the Notice of Exercise as aforesaid, the Holder shall deliver the aggregate Exercise Price for the shares specified in the applicable Notice of Exercise by wire transfer, bank drafts or cashier’s or certified check drawn on a United States or Canadian bank unless the cashless exercise procedure specified in Section 3.3.6 below is specified in the applicable Notice of Exercise. No ink-original Notice of Exercise shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of Exercise form be required. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender a Warrant Certificate to the Company until the Holder has purchased all of the Warrant Shares available thereunder and the Warrant has been exercised in full, in which case, the Holder shall surrender such Warrant to the Company for cancellation within three (3) Trading Days of the date the final Notice of Exercise is delivered to the Company. Partial exercises of a Warrant resulting in purchases of a portion of the total number of Warrant Shares available thereunder shall have the effect of lowering the outstanding number of Warrant Shares purchasable hereunder in an amount equal to the applicable number of Warrant Shares purchased. The Holder and the Company shall maintain records showing the number of Warrant Shares purchased and the date of such purchases. The Company shall deliver any objection to any Notice of Exercise within one (1) Business Day of receipt of such notice. The Holder and any assignee, by acceptance of a Warrant, acknowledge and agree that, by reason of the provisions of this paragraph, following the purchase of a portion of the Warrant Shares hereunder, the number of Warrant Shares available for purchase hereunder at any given time may be less than the amount stated on the face thereof.

    (b) Notwithstanding the foregoing in this Section 3.3.1, a Holder whose interest in a Warrant is a beneficial interest in certificate(s) representing such Warrant held in registered form through DTC (or another established clearing corporation performing similar functions), shall effect exercises made pursuant to this Section 3.3.1 by delivering to DTC (or such other clearing corporation, as applicable) the appropriate instruction form for exercise, complying with the procedures to effect exercise that are required by DTC (or such other clearing corporation, as applicable), subject to a Holder's right to elect to receive a Warrant in certificated form pursuant to the terms of this Warrant Agreement, in which case this sentence shall not apply. Upon giving irrevocable instructions to its Participant to exercise Warrants, solely for purposes of Regulation SHO, the holder whose interest in the Warrant is a beneficial interest shall be deemed to have exercised such Warrant, regardless of when the applicable Warrant Shares are delivered to such holder.

    ______________________________________________
1 Insert the date that is the five-year anniversary of the Initial Exercise Date; provided, however, if such date is not a Trading Day, insert the immediately following Trading Day.

    
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    3.3.2. Issuance of Warrant Shares.

    (a) The Warrant Agent shall, on the Trading Day following the date of exercise of any Warrant, advise the Company, and the transfer agent and registrar for the Company's Common Shares (the "Transfer Agent"), in respect of (i) the number of Warrant Shares indicated on the Notice of Exercise as issuable upon such exercise with respect to such exercised Warrants, (ii) the instructions of the Holder or Participant, as the case may be, provided to the Warrant Agent with respect to the delivery of the Warrant Shares and the number of Warrants that remain outstanding after such exercise and (iii) such other information as the Company or the Transfer Agent shall reasonably request.

    (b) The Company shall cause the Warrant Shares purchased hereunder to be transmitted by the Transfer Agent to the Holder by crediting the account of the Holder's or its designee's balance account with DTC through its Deposit or Withdrawal at Custodian system ("DWAC") if the Company is then a participant in such system and either (A) there is an effective registration statement permitting the issuance of the Warrant Shares to or resale of the Warrant Shares by Holder or (B) the Warrant is being exercised via cashless exercise, and otherwise by physical delivery of a certificate, registered in the Company's share register in the name of the Holder or its designee, for the number of Warrant Shares to which the Holder is entitled pursuant to such exercise to the address specified by the Holder in the Notice of Exercise by the date that is the earlier of (i) two (2) Trading Days, and (ii) the number of Trading Days comprising the Standard Settlement Period after, the delivery to the Company and the Warrant Agent of the Notice of Exercise (such date, the "Warrant Share Delivery Date"); provided, however, that if payment of the aggregate Exercise Price (other than in the case of a cashless exercise) is received after 12:00 P.M., New York City time on the Warrant Share Delivery Date, then the Warrant Share Delivery Date shall be extended by one (1) additional Trading Day. Upon delivery of the Notice of Exercise, the Holder shall be deemed for all corporate purposes to have become the holder of record of the Warrant Shares with respect to which the Warrant has been exercised, irrespective of the date of delivery of the Warrant Shares, provided that payment of the aggregate Exercise Price (other than in the case of a cashless exercise) is received within the earlier of (i) two (2) Trading Days of and (ii) the number of Trading Days comprising the Standard Settlement Period following delivery of the Notice of Exercise. If the Company fails for any reason to deliver to the Holder the Warrant Shares subject to a Notice of Exercise by the Warrant Share Delivery Date, the Company shall pay to the Holder, in cash, as liquidated damages and not as a penalty, for each $1,000 of Warrant Shares subject to such exercise (based on the VWAP of the Common Shares on the date of the applicable Notice of Exercise), $10 per Trading Day (increasing to $20 per Trading Day on the fifth Trading Day after such liquidated damages begin to accrue) for each Trading Day after such Warrant Share Delivery Date until such Warrant Shares are delivered or Holder rescinds such exercise. The Company agrees to maintain a transfer agent that is a participant in the FAST program so long as the Warrants remains outstanding and exercisable. As used herein, "Standard Settlement Period" means the standard settlement period, expressed in a number of Trading Days, on the Primary Trading Market with respect to the Common Shares as in effect on the date of delivery of the Notice of Exercise.

    3.3.3. Valid Issuance. All Warrant Shares issued by the Company upon the proper exercise of a Warrant in conformity with this Warrant Agreement shall be validly issued, fully paid and non-assessable.

    3.3.4. No Fractional Exercise. No fractional Warrant Shares will be issued upon the exercise of the Warrant. If, by reason of any adjustment made pursuant to Section 4, a Holder would be entitled, upon the exercise of such Warrant, to receive a fractional interest in a share, the Company shall, at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Exercise Price or round up to the next whole share.

    3.3.5. No Transfer Taxes. Issuance of Warrant Shares shall be made without charge to the Holder for any issue or transfer tax or other incidental expense in respect of the issuance of such Warrant Shares, all of which taxes and expenses shall be paid by the Company, and such Warrant Shares shall be issued in the name of the Holder or in such name or names as may be directed by the Holder; provided, however, that in the event Warrant Shares are to be issued in a name other than the name of the Holder, the Warrant when surrendered for exercise shall be accompanied by the Assignment Form attached hereto duly executed by the Holder and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto. The Company shall pay all Transfer Agent fees required for same-day processing of any Notice of Exercise and all fees to the DTC (or another established clearing corporation performing similar functions) required for same-day electronic delivery of the Warrant Shares.

    
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    3.3.6. Restrictive Legend Events; Cashless Exercise Under Certain Circumstances.

    (a) The Company shall use its reasonable best efforts to maintain the effectiveness of the Registration Statement and the current status of the prospectus included therein or to file and maintain the effectiveness of another registration statement and another current prospectus covering the Warrants and the Warrant Shares at any time that the Warrants are exercisable. The Company shall provide to the Warrant Agent and each Holder prompt written notice of any time that the Company is unable to deliver the Warrant Shares via DTC transfer or otherwise without restrictive legend because (A) the Commission has issued a stop order with respect to the Registration Statement, (B) the Commission otherwise has suspended or withdrawn the effectiveness of the Registration Statement, either temporarily or permanently, (C) the Company has suspended or withdrawn the effectiveness of the Registration Statement, either temporarily or permanently, (D) the prospectus contained in the Registration Statement is not available for the issuance of the Warrant Shares to the Holder or (E) otherwise (each a "Restrictive Legend Event"). To the extent that the Warrants cannot be exercised as a result of a Restrictive Legend Event, the Company shall, at the election of the Holder, which shall be given within five (5) days of receipt of such notice of the Restrictive Legend Event, either (A) rescind the previously submitted Notice of Exercise and the Company shall return all consideration paid by registered holder for such shares upon such rescission or (B) treat the attempted exercise as a cashless exercise as described in paragraph (ii) below and refund the cash portion of the exercise price to the Holder.

    (b) If a Restrictive Legend Event has occurred, the Warrant may also be exercisable on a cashless basis. Notwithstanding anything herein to the contrary, but without limiting the rights of a Holder to receive Warrant Shares on a "cashless exercise" pursuant to this Section 3.3.6(b) or to receive cash payments pursuant to Section 3.3.2(b) and Section 3.3.8 herein, the Company shall not be required to make any cash payments or net cash settlement to the Holder in lieu of delivery of the Warrant Shares. Upon a "cashless exercise", the Holder shall be entitled to receive the number of Warrant Shares equal to the quotient (if such quotient would be a positive number) obtained by dividing [(A-B) (X)] by (A), where:

    (A) =  as applicable: (i) the VWAP for the five Trading Days immediately preceding the date of the applicable Notice of Exercise if such Notice of Exercise is (1) both executed and delivered pursuant to Section 3.3.1(a) hereof on a day that is not a Trading Day or (2) both executed and delivered pursuant to Section 3.3.1(a) hereof on a Trading Day prior to the opening of "regular trading hours" (as defined in Rule 600(b) of Regulation NMS promulgated under the federal securities laws) on such Trading Day, (ii) the VWAP for the five Trading Days immediately preceding the date of the applicable Notice of Exercise or (iii) the VWAP for the five Trading Days immediately preceding the date of the applicable Notice of Exercise if the date of such Notice of Exercise is a Trading Day and such Notice of Exercise is both executed and delivered pursuant to Section 3.3.1(a) hereof after the close of "regular trading hours" on such Trading Day;

    (B) =  the Exercise Price of the Warrant, as adjusted as set forth herein; and

    (X) =  the number of Warrant Shares that would be issuable upon exercise of the Warrant in accordance with the terms of the Warrant if such exercise were by means of a cash exercise rather than a cashless exercise.

    (c) If the Warrant Shares are issued in such a cashless exercise, the Company acknowledges and agrees that, in accordance with Section 3(a)(9) of the Securities Act, the Warrant Shares shall take on the registered characteristics of the Warrants being exercised and the Company agrees not to take any position contrary thereto. Upon receipt of a Notice of Exercise for a cashless exercise, the Warrant Agent will promptly deliver a copy of the Notice of Exercise to the Company to confirm the number of Warrant Shares issuable in connection with the cashless exercise. The Company shall calculate and transmit to the Warrant Agent in a written notice, and the Warrant Agent shall have no duty, responsibility or obligation under this Section 3.3.6 to calculate, the number of Warrant Shares issuable in connection with any cashless exercise. The Warrant Agent shall be entitled to rely conclusively on any such written notice provided by the Company, and the Warrant Agent shall not be liable for any action taken, suffered or omitted to be taken by it in accordance with such written instructions or pursuant to this Warrant Agreement. Notwithstanding anything herein to the contrary, on the Termination Date, the Warrant shall be automatically exercised via cashless exercise pursuant to this Section 3.3.6.

    
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    3.3.7. 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 issuable in connection with any exercise, the Company shall promptly deliver to the Holder the number of Warrant Shares that are not disputed.

    3.3.8. Compensation for Buy-In on Failure to Timely Deliver Warrant Shares Upon Exercise. In addition to any other rights available to the Holder, if the Company fails to cause the Transfer Agent to transmit to the Holder the Warrant Shares in accordance with the provisions of Section 3.3.2(b) above pursuant to an exercise on or before the Warrant Share Delivery Date, and if after such date the Holder is required by its broker to purchase (in an open market transaction or otherwise) or the Holder's brokerage firm otherwise purchases, Common Shares to deliver in satisfaction of a sale by the Holder of the Warrant Shares which the Holder anticipated receiving upon such exercise (a "Buy-In"), then the Company shall (A) pay in cash to the Holder the amount, if any, by which (x) the Holder's total purchase price (including brokerage commissions, if any) for the Common Shares so purchased exceeds (y) the amount obtained by multiplying (1) the number of Warrant Shares that the Company was required to deliver to the Holder in connection with the exercise at issue times (2) the price at which the sell order giving rise to such purchase obligation was executed, and (B) at the option of the Holder, either reinstate the portion of the Warrant and equivalent number of Warrant Shares for which such exercise was not honored (in which case such exercise shall be deemed rescinded) or deliver to the Holder the number of Common Shares that would have been issued had the Company timely complied with its exercise and delivery obligations hereunder. For example, if the Holder purchases Common Shares having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted exercise of Common Shares with an aggregate sale price giving rise to such purchase obligation of $10,000, under clause (A) of the immediately preceding sentence the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount of such loss. Nothing herein shall limit a Holder's right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company's failure to timely deliver Common Shares upon exercise of the Warrant as required pursuant to the terms hereof.

    3.3.9. Beneficial Ownership Limitation. The Company shall not effect any exercise of a Warrant, and a Holder shall not have the right to exercise any portion of a Warrant, pursuant to Section 3 or otherwise, to the extent that after giving effect to such issuance after exercise as set forth on the applicable Notice of Exercise, the Holder (together with the Holder's Affiliates (as defined below), and any other Persons acting as a group together with the Holder or any of the Holder's Affiliates (such Persons, "Attribution Parties")), would beneficially own in excess of the Beneficial Ownership Limitation (as defined below). For purposes of the foregoing sentence, the number of Common Shares beneficially owned by the Holder and its Affiliates and Attribution Parties shall include the number of Common Shares issuable upon exercise of such Warrant with respect to which such determination is being made, but shall exclude the number of Common Shares which would be issuable upon (i) exercise of the remaining, non-exercised portion of such Warrant beneficially owned by the Holder or any of its Affiliates or Attribution Parties and (ii) exercise or conversion of the unexercised or non-converted portion of any other securities of the Company (including, without limitation, any other securities of the Company which would entitle the holder thereof to acquire at any time Common Shares , including, without limitation, any debt, preferred stock, right, option, warrant or other instrument that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Common Shares ("Common Share Equivalents")) subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Holder or any of its Affiliates or Attribution Parties. Except as set forth in the preceding sentence, for purposes of this Section 3.3.9, beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder, it being acknowledged by the Holder that the Company is not representing to the Holder that such calculation is in compliance with Section 13(d) of the Exchange Act and the Holder is solely responsible for any schedules required to be filed in accordance therewith. To the extent that the limitation contained in this Section 3.3.9 applies, the determination of whether a Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates and Attribution Parties) and of which portion of a Warrant is exercisable shall be in the sole discretion of the Holder, and the submission of a Notice of Exercise shall be deemed to be the Holder's determination of whether a Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates and Attribution Parties) and of which portion of a Warrant is exercisable, in each case subject to the Beneficial Ownership Limitation, and the Company shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 3.3.9, in determining the number of outstanding Common Shares , a Holder may rely on the number of outstanding Common Shares as reflected in (A) the Company's most recent periodic or annual report filed with the Commission, as the case may be, (B) a more recent public announcement by the Company or (C) a more recent written notice by the Company or the Transfer Agent setting forth the number of Common Shares outstanding. Upon the written or oral request of a Holder, the Company shall within two (2) Trading Days confirm orally and in writing to the Holder the number of Common Shares then outstanding. In any case, the number of outstanding Common Shares shall be determined after giving effect to the conversion or exercise of securities of the Company, including such Warrant, by the Holder or its Affiliates or Attribution Parties since the date as of which such number of outstanding Common Shares was reported. The "Beneficial Ownership Limitation" shall be 4.99% (or, upon election by a Holder prior to the issuance of any Warrants, 9.99%) of the number of Common Shares outstanding immediately after giving effect to the issuance of Common Shares issuable upon exercise of a Warrant. The Holder, upon notice to the Company, may increase or decrease the Beneficial Ownership Limitation provisions of this Section 3.3.9, provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of Common Shares outstanding immediately after giving effect to the issuance of Common Shares upon exercise of the Warrant held by the Holder and the provisions of this Section 3.3.9 shall continue to apply. Any increase in the Beneficial Ownership Limitation will not be effective until the 61st day after such notice is delivered to the Company. The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 3.3.9 to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall apply to a successor holder of a Warrant.

    
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    4. Adjustments.

    4.1. Adjustment upon Subdivisions or Combinations. If the Company, at any time while the Warrants are outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions on its Common Shares or any other equity or equity equivalent securities payable in Common Shares (which, for avoidance of doubt, shall not include any Common Shares issued by the Company upon exercise of the Warrants), (ii) subdivides outstanding Common Shares into a larger number of shares, (iii) combines (including by way of reverse stock split) outstanding Common Shares into a smaller number of shares, or (iv) issues by reclassification of the Common Shares any shares of capital stock of the Company, then in each case the Exercise Price shall be multiplied by a fraction of which the numerator shall be the number of Common Shares and such other capital stock of the Company (excluding treasury shares, if any) outstanding immediately before such event and of which the denominator shall be the number of Common Shares and such other capital stock of the Company (excluding treasury shares, if any) outstanding immediately after such event, and the number of shares issuable upon exercise of each Warrant shall be proportionately adjusted such that the aggregate Exercise Price of such Warrant shall remain unchanged. Any adjustment made pursuant to this Section 4.1 shall become effective immediately after the record date for the determination of shareholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.

    4.2. Adjustment for Other Distributions.

    4.2.1. Subsequent Rights Offerings. In addition to any adjustments pursuant to Section 4.1 above and subject to the prior approval of the TSX Venture Exchange (so long as the Common Shares are listed for trading on the TSX Venture Exchange), if at any time the Company grants, issues or sells any Common Share Equivalents or rights to purchase shares, warrants, securities or other property pro rata to the record holders of any class of Common Shares (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 Common Shares acquirable upon complete exercise of a Warrant (without regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) 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 Common Shares are to be determined for the grant, issue or sale of such Purchase Rights (provided, however, to the extent that the Holder’s right to participate in any such Purchase Right would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Purchase Right to such extent (or beneficial ownership of such Common Shares as a result of such Purchase Right to such extent), and such Purchase Right to such extent shall be held in abeyance for the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation). To the extent that this Warrant has not been partially or completely exercised at the time of such Distribution, such portion of the Distribution shall be held in abeyance for the benefit of the Holder until the Holder has exercised this Warrant.

    
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    4.2.2. Pro Rata Distributions. During such time as this Warrant is outstanding and subject to the prior approval of the TSX Venture Exchange, if the Company shall declare or make any special or extraordinary dividend (other than regular dividends payable in cash) or other distribution of its assets (or rights to acquire its assets) to holders of Common Shares, by way of return of capital or otherwise (including, without limitation, any distribution of shares 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 the Warrants, then, in each such case, the Holder shall be entitled to participate in such Distribution to the same extent that the Holder would have participated therein if the Holder had held the number of Common Shares acquirable upon complete exercise of such Warrant (without regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date of which a record is taken for such Distribution, or, if no such record is taken, the date as of which the record holders of Common Shares are to be determined for the participation in such Distribution (provided, however, to the extent that the Holder's right to participate in any such Distribution would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Distribution to such extent (or in the beneficial ownership of any Common Shares as a result of such Distribution to such extent) and the portion of such Distribution shall be held in abeyance for the benefit of the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation). Notwithstanding the foregoing, this Section 4.2.2 shall not apply with respect to any Distribution to the extent that such Distribution results in an adjustment to the Exercise Price under the other provisions of this Warrant Agreement.

    4.3. Fundamental Transaction. If, at any time while the Warrants are outstanding, (i) the Company, directly or indirectly, in one or more related transactions effects any merger or consolidation of the Company with or into another Person, (ii) the Company, directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which all holders of Common Shares are permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of 50% or more of the outstanding Common Shares or 50% or more of the total voting power of the outstanding Common Shares, (iv) the Company, directly or indirectly, in one or more related transactions effects any reclassification, reorganization or recapitalization of the Common Shares or any compulsory share exchange pursuant to which all outstanding Common Shares are effectively converted into or exchanged for other securities, cash or property, or (v) the Company, directly or indirectly, in one or more related transactions consummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with another Person or group of Persons whereby such other Person or group acquires more than 50% of the outstanding Common Shares or 50% or more of the total voting power of the outstanding Common Shares (each a "Fundamental Transaction"), then, upon any subsequent exercise of a Warrant, and subject to the prior approval of the TSX Venture Exchange, the Holder shall have the right to receive, for each Warrant Share that would have been issuable upon such exercise immediately prior to the occurrence of such Fundamental Transaction, at the option of the Holder (without regard to any limitation in Section 3.3.9 on the exercise of a Warrant), the number of Common Shares of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional consideration (the "Alternate Consideration") receivable as a result of such Fundamental Transaction by a holder of the number of Common Shares for which the Warrant is exercisable immediately prior to such Fundamental Transaction (without regard to any limitation in Section 3.3.9 on the exercise of this Warrant). 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 Common Share 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 Shares 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 Company shall cause any successor entity in a Fundamental Transaction in which the Company is not the survivor (the "Successor Entity") to assume in writing all of the obligations of the Company under the Warrants in accordance with the provisions of this Section 4.3 pursuant to written agreements in form and substance reasonably satisfactory to the Holder and approved by the Holder (such approval not be unreasonably withheld or delayed) prior to such Fundamental Transaction and shall, at the option of the Holder, deliver to the Holder in exchange for the Warrant a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to the Warrant which is exercisable for a corresponding number of shares of capital stock of such Successor Entity (or its parent entity) equivalent to the shares of Common Shares acquirable and receivable upon exercise of the Warrant (without regard to any limitations on the exercise of the Warrant) prior to such Fundamental Transaction, and with an exercise price which applies the exercise price hereunder to such shares of capital stock (but taking into account the relative value of the Common Shares pursuant to such Fundamental Transaction and the value of such shares of capital stock, such number of shares of capital stock and such exercise price being for the purpose of protecting the economic value of the Warrant immediately prior to the consummation of such Fundamental Transaction), and which is reasonably satisfactory in form and substance to the Holder. Upon the occurrence of any such 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 the Warrants 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 the Warrants with the same effect as if such Successor Entity had been named as the Company therein. The Company shall instruct the Warrant Agent in writing to mail by first class mail, postage prepaid, to each Holder, written notice of the execution of any such amendment, supplement or agreement with the Successor Entity. Any supplemented or amended agreement entered into by the successor corporation or transferee shall provide for adjustments, which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 4.3. The Warrant Agent shall have no duty, responsibility or obligation to determine the correctness of any provisions contained in such agreement or such notice, including but not limited to any provisions relating either to the kind or amount of securities or other property receivable upon exercise of warrants or with respect to the method employed and provided therein for any adjustments, and shall be entitled to rely conclusively for all purposes upon the provisions contained in any such agreement. The provisions of this Section 4.3 shall similarly apply to successive reclassifications, changes, consolidations, mergers, sales and conveyances of the kind described above.

    
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    4.4. Notices to Holder.

    4.4.1. Adjustment to Exercise Price. Whenever the Exercise Price is adjusted pursuant to any provision of this Section 4, the Company shall promptly deliver to the Holder by facsimile or email a notice setting forth the Exercise Price after such adjustment and any resulting adjustment to the number of Warrant Shares and setting forth a brief statement of the facts requiring such adjustment.

    4.4.2. Notice to Allow Exercise by Holder. If (A) the Company shall declare a dividend (or any other distribution in whatever form) on the Common Shares, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Shares, (C) the Company shall authorize the granting to all holders of the Common Shares rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any shareholders of the Company shall be required in connection with any Fundamental Transaction , or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company, then, in each case, the Company shall cause to be delivered by facsimile or email to the Holder at its last facsimile number or email address as it shall appear upon the Warrant Register of the Company, at least 20 calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Shares of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Shares of record shall be entitled to exchange their Common Shares for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange; provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the corporate action required to be specified in such notice. To the extent that any notice provided in this Warrant Agreement constitutes, or contains, material, non-public information regarding the Company or any of its subsidiaries, the Company shall simultaneously file such notice on SEDAR and with the Commission pursuant to a Report on Form 6-K. Provided such notice occurs within the Exercise Period, the Holder shall remain entitled to exercise its Warrant during the period commencing on the date of such notice to the effective date of the event triggering such notice, except as may otherwise be expressly set forth herein (including the applicable exercise period set forth herein).

    
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    4.5. Other Events. If any event occurs of the type contemplated by the provisions of Sections 4.1 or 4.2 but not expressly provided for by such provisions (including, without limitation, the granting of stock appreciation rights, Adjustment Rights, phantom stock rights or other rights with equity features to all holders of Common Shares for no consideration), then the Company's Board of Directors will, at its discretion and in good faith, make an adjustment in the Exercise Price and the number of Warrant Shares or designate such additional consideration to be deemed issuable upon exercise of a Warrant, so as to protect the rights of the registered Holder. No adjustment to the Exercise Price will be made pursuant to more than one sub-section of this Section 4 in connection with a single issuance. Any adjustment of the type not contemplated by the provisions of Sections 4.1 or 4.2 shall be subject to prior approval of the TSX Venture Exchange.

    4.6. Notices of Changes in Warrant. Upon every adjustment of the Exercise Price or the number of Warrant Shares issuable upon exercise of a Warrant, the Company shall give written notice thereof to the Warrant Agent, which notice shall state the Exercise Price resulting from such adjustment and the increase or decrease, if any, in the number of Warrant Shares purchasable at such price upon the exercise of a Warrant, setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based. Upon the occurrence of any event specified in Sections 4.1 or 4.2, then, in any such event, the Company shall give written notice to each Holder, at the last address set forth for such holder in the Warrant Register, as of the record date or the effective date of the event. Failure to give such notice, or any defect therein, shall not affect the legality or validity of such event. The Warrant Agent shall be entitled to rely conclusively on, and shall be fully protected in relying on, any certificate, notice or instructions provided by the Company with respect to any adjustment of the Exercise Price or the number of shares issuable upon exercise of a Warrant, or any related matter, and the Warrant Agent shall not be liable for any action taken, suffered or omitted to be taken by it in accordance with any such certificate, notice or instructions or pursuant to this Warrant Agreement. The Warrant Agent shall not be deemed to have knowledge of any such adjustment unless and until it shall have received written notice thereof from the Company.

    5. Restrictive Legends; Fractional Warrants. In the event that a Warrant Certificate surrendered for transfer bears a restrictive legend, the Warrant Agent shall not register that transfer until the Warrant Agent has received an opinion of counsel for the Company stating that such transfer may be made and indicating whether the Warrants must also bear a restrictive legend upon that transfer. The Warrant Agent shall not be required to effect any registration of transfer or exchange which will result in the transfer of or delivery of a Warrant Certificate for a fraction of a Warrant.

    6. Other Provisions Relating to Rights of Holders of Warrants.

    6.1. No Rights as Shareholder. Except as otherwise specifically provided herein, a Holder, solely in its capacity as a holder of Warrants, 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 Agreement be construed to confer upon a Holder, solely in its capacity as the registered holder of Warrants, any of the rights of a shareholder of the Company or any right to vote, give or withhold consent to any corporate action (whether any reorganization, issue of shares, reclassification of share capital, consolidation, merger, conveyance or otherwise), receive notice of meetings, receive dividends or subscription rights or rights to participate in new issues of shares, or otherwise, prior to the issuance to the Holder of the Warrant Shares which it is then entitled to receive upon the due exercise of Warrants.

    6.2. Reservation of Common Shares. The Company shall at all times reserve and keep available a number of its authorized but unissued Common Shares that will be sufficient to permit the exercise in full of all outstanding Warrants issued pursuant to this Warrant Agreement.

    7. Concerning the Warrant Agent.

    7.1. Any instructions given to the Warrant Agent orally, as permitted by any provision of this Warrant Agreement, shall be confirmed in writing by the Company as soon as practicable. The Warrant Agent shall not be liable or responsible and shall be fully authorized and protected for acting, or failing to act, in accordance with any oral instructions which do not conform with the written confirmation received in accordance with this Section 7.1.

    
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    7.2. Whether or not any Warrants are exercised, for the Warrant Agent's services as agent for the Company hereunder, the Company shall pay to the Warrant Agent such fees as may be separately agreed between the Company and Warrant Agent and the Warrant Agent's out of pocket expenses in connection with this Warrant Agreement, including, without limitation, the fees and expenses of the Warrant Agent's counsel. While the Warrant Agent endeavors to maintain out-of-pocket charges (both internal and external) at competitive rates, these charges may not reflect actual out-of-pocket costs, and may include handling charges to cover internal processing and use of the Warrant Agent's billing systems. All amounts owed by the Company to the Warrant Agent under this Warrant Agreement are due within 30 days of the Company's receipt of an invoice. Delinquent payments are subject to a late payment charge of one and one-half percent (1.5%) per month commencing 45 days from the invoice date. The Company agrees to reimburse the Warrant Agent for any attorney's fees and any other costs associated with collecting delinquent payments. No provision of this Warrant Agreement shall require Warrant Agent to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties under this Warrant Agreement or in the exercise of its rights.

    7.3. As agent for the Company hereunder, the Warrant Agent:

    (a) shall have no duties or obligations other than those specifically set forth herein or as may subsequently be agreed to in writing by the Warrant Agent and the Company;

    (b) shall be regarded as making no representations and having no responsibilities as to the validity, sufficiency, value, or genuineness of the Warrants or any Warrant Shares;

    (c) shall not be obligated to take any legal action hereunder; if, however, the Warrant Agent determines to take any legal action hereunder, and where the taking of such action might, in its judgment, subject or expose it to any expense or liability it shall not be required to act unless it has been furnished with an indemnity reasonably satisfactory to it;

    (d) may rely on and shall be fully authorized and protected in acting or failing to act upon any certificate, instrument, opinion, notice, letter, telegram, telex, facsimile transmission or other document or security delivered to the Warrant Agent and believed by it to be genuine and to have been signed by the proper party or parties;

    (e) shall not be liable or responsible for any recital or statement contained in the Registration Statement or any other documents relating thereto;

    (f) shall not be liable or responsible for any failure on the part of the Company to comply with any of its covenants and obligations relating to the Warrants, including without limitation obligations under applicable securities laws;

    (g) may rely on and shall be fully authorized and protected in acting or failing to act upon the written, telephonic or oral instructions with respect to any matter relating to its duties as Warrant Agent covered by this Warrant Agreement (or supplementing or qualifying any such actions) of officers of the Company, and is hereby authorized and directed to accept instructions with respect to the performance of its duties hereunder from the Company or counsel to the Company, and may apply to the Company, for advice or instructions in connection with the Warrant Agent's duties hereunder, and the Warrant Agent shall not be liable for any delay in acting while waiting for those instructions; any applications by the Warrant Agent for written instructions from the Company may, at the option of the Warrant Agent, set forth in writing any action proposed to be taken or omitted by the Warrant Agent under this Warrant Agreement and the date on or after which such action shall be taken or such omission shall be effective; the Warrant Agent shall not be liable for any action taken by, or omission of, the Warrant Agent in accordance with a proposal included in such application on or after the date specified in such application (which date shall not be less than five (5) Business Days after the date such application is sent to the Company, unless the Company shall have consented in writing to any earlier date) unless prior to taking any such action, the Warrant Agent shall have received written instructions in response to such application specifying the action to be taken or omitted;

    (h) may consult with counsel satisfactory to the Warrant Agent, including its in-house counsel, and the advice of such counsel shall be full and complete authorization and protection in respect of any action taken, suffered, or omitted by it hereunder in good faith and in accordance with the advice of such counsel;

    
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    (i) may perform any of its duties hereunder either directly or by or through nominees, correspondents, designees, or subagents, and it shall not be liable or responsible for any misconduct or negligence on the part of any nominee, correspondent, designee, or subagent appointed with reasonable care by it in connection with this Warrant Agreement;

    (j) is not authorized, and shall have no obligation, to pay any brokers, dealers, or soliciting fees to any Person; and

    (k) shall not be required hereunder to comply with the laws or regulations of any country other than the United States of America or any political subdivision thereof.

    7.4. In the absence of gross negligence or willful or illegal misconduct on its part, the Warrant Agent shall not be liable for any action taken, suffered, or omitted by it or for any error of judgment made by it in the performance of its duties under this Warrant Agreement. Anything in this Warrant Agreement to the contrary notwithstanding, in no event shall Warrant Agent be liable for special, indirect, incidental, consequential or punitive losses or damages of any kind whatsoever (including but not limited to lost profits), even if the Warrant Agent has been advised of the possibility of such losses or damages and regardless of the form of action. Any liability of the Warrant Agent will be limited in the aggregate to the amount of fees paid by the Company hereunder. The Warrant Agent shall not be liable for any failures, delays or losses, arising directly or indirectly out of conditions beyond its reasonable control including, but not limited to, acts of government, exchange or market ruling, suspension of trading, work stoppages or labor disputes, fires, civil disobedience, riots, rebellions, storms, electrical or mechanical failure, computer hardware or software failure, communications facilities failures including telephone failure, war, terrorism, insurrection, earthquakes, floods, acts of God or similar occurrences.

    7.5. In the event any question or dispute arises with respect to the proper interpretation of the Warrants or the Warrant Agent's duties under this Warrant Agreement or the rights of the Company or of any Holder, the Warrant Agent shall not be required to act and shall not be held liable or responsible for its refusal to act until the question or dispute has been judicially settled (and, if appropriate, it may file a suit in interpleader or for a declaratory judgment for such purpose) by final judgment rendered by a court of competent jurisdiction, binding on all Persons interested in the matter which is no longer subject to review or appeal, or settled by a written document in form and substance satisfactory to Warrant Agent and executed by the Company and each such Holder. In addition, the Warrant Agent may require for such purpose, but shall not be obligated to require, the execution of such written settlement by all the Holders and all other Persons that may have an interest in the settlement.

    7.6. The Company covenants to indemnify the Warrant Agent and hold it harmless from and against any loss, liability, claim or expense ("Loss") arising out of or in connection with the Warrant Agent's duties under this Warrant Agreement, including the costs and expenses of defending itself against any Loss, unless such Loss shall have been determined by a court of competent jurisdiction to be a result of the Warrant Agent's gross negligence or willful misconduct.

    7.7. The Company represents and warrants that (a) it is duly incorporated and validly existing under the laws of its jurisdiction of incorporation, (b) the offer and sale of the Warrants and the execution, delivery and performance of all transactions contemplated thereby (including this Warrant Agreement) have been duly authorized by all necessary corporate action and will not result in a breach of or constitute a default under the notice of articles, articles of association, bylaws or any similar document of the Company or any indenture, agreement or instrument to which it is a party or is bound, (c) this Warrant Agreement has been duly executed and delivered by the Company and constitutes the legal, valid, binding and enforceable obligation of the Company, (d) the Warrants will comply in all material respects with all applicable requirements of law and (e) to the best of its knowledge, there is no litigation pending or threatened as of the date hereof in connection with the offering of the Warrants.

    7.8. Set forth in Annex D hereto is a list of the names and specimen signatures of the persons authorized to act for the Company under this Warrant Agreement. The Company shall, from time to time, certify to you the names and signatures of any other persons authorized to act for the Company under this Warrant Agreement.

    7.9.  The Warrant Agent, or any successor to it hereafter appointed, may resign its duties and be discharged from all further duties and liabilities hereunder after giving thirty (30) days' notice in writing to the Company, or such shorter period of time agreed to by the Company. The Company may terminate the services of the Warrant Agent, or any successor Warrant Agent, after giving thirty (30) days' notice in writing to the Warrant Agent or successor Warrant Agent, or such shorter period of time as agreed. If the office of the Warrant Agent becomes vacant by resignation, termination or incapacity to act or otherwise, the Company shall appoint in writing a successor Warrant Agent in place of the Warrant Agent. If the Company shall fail to make such appointment within a period of thirty (30) days after it has been notified in writing of such resignation or incapacity by the Warrant Agent, then the Warrant Agent or any Holder may apply to any court of competent jurisdiction for the appointment of a successor Warrant Agent at the Company's cost. Pending appointment of a successor to such Warrant Agent, either by the Company or by such a court, the duties of the Warrant Agent shall be carried out by the Company. Any successor Warrant Agent (but not including the initial Warrant Agent), whether appointed by the Company or by such court, shall be a Person organized and existing under the laws of any state of the United States of America, in good standing, and authorized under such laws to exercise corporate trust powers and subject to supervision or examination by federal or state authority. After appointment, any successor Warrant Agent shall be vested with all the authority, powers, rights, immunities, duties, and obligations of its predecessor Warrant Agent with like effect as if originally named as Warrant Agent hereunder, without any further act or deed, and except for executing and delivering documents as provided in the sentence that follows, the predecessor Warrant Agent shall have no further duties, obligations, responsibilities or liabilities hereunder, but shall be entitled to all rights that survive the termination of this Warrant Agreement and the resignation or removal of the Warrant Agent, including but not limited to its right to indemnity hereunder. If for any reason it becomes necessary or appropriate or at the request of the Company, the predecessor Warrant Agent shall execute and deliver, at the expense of the Company, an instrument transferring to such successor Warrant Agent all the authority, powers, and rights of such predecessor Warrant Agent hereunder; and upon request of any successor Warrant Agent the Company shall make, execute, acknowledge, and deliver any and all instruments in writing for more fully and effectually vesting in and confirming to such successor Warrant Agent all such authority, powers, rights, immunities, duties, and obligations.

    
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    7.10. In the event a successor Warrant Agent shall be appointed, the Company shall give notice thereof to the predecessor Warrant Agent and the Transfer Agent not later than the effective date of any such appointment.

    7.11. Any Person into which the Warrant Agent may be merged or converted or with which it may be consolidated or any Person resulting from any merger, conversion or consolidation to which the Warrant Agent shall be a party or any Person succeeding to the shareowner services business of the Warrant Agent or any successor Warrant Agent shall be the successor Warrant Agent under this Warrant Agreement, without any further act or deed.

    8. Miscellaneous Provisions.

    8.1. Unless terminated earlier by the parties hereto, this Warrant Agreement shall terminate 90 days after the earlier of the Expiration Date and the date on which no Warrants remain outstanding (the "Termination Date"). On the Business Day following the Termination Date, the Warrant Agent shall deliver to the Company any entitlements, if any, held by the Warrant Agent under this Warrant Agreement. The Warrant Agent's right to be reimbursed for fees, charges and out-of-pocket expenses as provided in Section 7 shall survive the termination of this Warrant Agreement.

    8.2. If any provision of this Warrant Agreement shall be held illegal, invalid, or unenforceable by any court, this Warrant Agreement shall be construed and enforced as if such provision had not been contained herein and shall be deemed an Agreement among the parties to it to the full extent permitted by applicable law.

    8.3. In the event of inconsistency between this Warrant Agreement and the descriptions in the Registration Statement, as they may from time to time be amended, the terms of this Warrant Agreement shall control.

    8.4. Any notice, statement or demand authorized by this Warrant Agreement to be given or made by the Company, the Warrant Agent or by the holder of any Warrant to or on the Company or the Warrant Agent including, without limitation, any Notice of Exercise, shall be in writing and delivered by e-mail, hand or sent by a nationally recognized overnight courier service, addressed (until another address is filed in writing by the Company or the Warrant Agent) as set forth below and if to any holder any notice, statement or demand shall be given to the last address set forth for such holder (if any) in the Warrant Register:

    KWESST Micro Systems Inc.

    155 Terence Matthews Crescent,

    Unit #1, Ottawa, Ontario, K2M 2A8

    Attention: Jeffrey MacLeod and Steve Archambault

    Email: macleod@kwesst.com; archambault@kwesst.com

    
        14

    

    

    with a copy (which shall not constitute notice) to:

    Dorsey & Whitney LLP

    161 Bay Street, Unit #4310

    Toronto, ON M5J 2S1, Canada

    Attention: Richard Raymer, Esq.

    Email: raymer.richard@dorsey.com

    If to the Warrant Agent, to:

    Continental Stock Transfer & Trust
1 State Street, 30th Floor,
New York, NY 10004-1561
Attention: Steven Vacante,
Email: svacante@continentalstock.com

    8.5. Any notice or other communication or deliveries hereunder shall be deemed given and effective on the earliest of (i) the time of transmission, if such notice or communication is delivered via e-mail at the e-mail address set forth above prior to 5:30 p.m. (New York City time) on any date, (ii) the next Trading Day after the date of transmission, if such notice or communication is delivered via e-mail at the e-mail address set forth above on a day that is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day, (iii) the second Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service, or (iv) upon actual receipt by the party to whom such notice is required to be given. Notwithstanding any other provision of this Warrant Agreement, where this Warrant Agreement provides for notice of any event to the Holder, if this Warrant Agreement is held in global form by DTC (or any successor depositary), such notice shall be sufficiently given if given to DTC (or any successor depositary) pursuant to the procedures of DTC (or such successor depositary), subject to a Holder's right to elect to receive a Warrant in certificated form pursuant to the terms of this Warrant Agreement, in which case this sentence shall not apply.

    8.6. This Warrant Agreement shall be governed by and construed in accordance with the laws of the State of New York. All actions and proceedings relating to or arising from, directly or indirectly, this Warrant Agreement may be litigated in courts located within the Borough of Manhattan in the City and State of New York. The Company hereby submits to the personal jurisdiction of such courts and consents that any service of process may be made by certified or registered mail, return receipt requested, directed to the Company at its address last specified for notices hereunder.

    8.7. This Warrant Agreement shall inure to the benefit of and be binding upon the successors and assigns of the parties hereto. This Warrant Agreement may not be assigned, or otherwise transferred, in whole or in part, by either party without the prior written consent of the other party, which the other party will not unreasonably withhold, condition or delay; except that (i) consent is not required for an assignment or delegation of duties by the Warrant Agent to any affiliate of the Warrant Agent and (ii) any reorganization, merger, consolidation, sale of assets or other form of business combination by the Warrant Agent or the Company shall not be deemed to constitute an assignment of this Warrant Agreement.

    8.8. No provision of this Warrant Agreement may be amended, modified or waived, except in a written document signed by both parties. The Company and the Warrant Agent may amend or supplement this Warrant Agreement without the consent of any Holder for the purpose of curing any ambiguity, or curing, correcting or supplementing any defective provision contained herein or adding or changing any other provisions with respect to matters or questions arising under this Warrant Agreement as the parties may deem necessary or desirable so long as such amendment or supplement shall not adversely affect the interest of the Holders. All other amendments and supplements shall require the vote or written consent of Holders of at least 50.1% of the then outstanding Warrants; provided that if any such amendment or supplement disproportionately and adversely affects the rights of a Holder compared to other Holders, the prior written consent of such Holder shall also be required.

    
        15

    

    

    8.9. The Company will from time to time promptly pay all taxes and charges that may be imposed upon the Company or the Warrant Agent in respect of the issuance or delivery of Warrant Shares upon the exercise of Warrants, but the Company may require the Holders to pay any transfer taxes in respect of the Warrants or such shares. The Warrant Agent may refrain from registering any transfer of Warrants or any delivery of any Warrant Shares unless or until the Persons requesting the registration or issuance shall have paid to the Warrant Agent for the account of the Company the amount of such tax or charge, if any, or shall have established to the reasonable satisfaction of the Company and the Warrant Agent that such tax or charge, if any, has been paid.

    8.10. Nothing in this Warrant Agreement expressed and nothing that may be implied from any of the provisions hereof is intended, or shall be construed, to confer upon, or give to, any Person other than the parties hereto and the Holders any right, remedy, or claim under or by reason of this Warrant Agreement or of any covenant, condition, stipulation, promise, or agreement hereof.

    8.11. A copy of this Warrant Agreement shall be available at all reasonable times at the office of the Warrant Agent designated for such purpose for inspection by any Holder. Prior to such inspection, the Warrant Agent may require any such holder to provide reasonable evidence of its interest in the Warrants.

    8.12. This Warrant Agreement may be executed in any number of original, facsimile or electronic counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument.

    8.13. The Section headings herein are for convenience only and are not part of this Warrant Agreement and shall not affect the interpretation thereof.

    8.14. If a Warrant is held in global form through DTC (or any successor depositary), such Warrant is issued subject to this Warrant Agent Agreement. To the extent any provision of a Warrant conflicts with the express provisions of this Warrant Agent Agreement, the provisions of such Warrant shall govern and be controlling.

    9. Certain Definitions. As used herein, the following terms shall have the following meanings:

    "Adjustment Right" means any right granted with respect to any securities issued in connection with, or with respect to, any issuance, sale or delivery (or deemed issuance, sale or delivery in accordance with Section 4) of Common Shares (other than rights of the type described in Section 4.2 and 4.3 hereof) that could result in a decrease in the net consideration received by the Company in connection with, or with respect to, such securities (including, without limitation, any cash settlement rights, cash adjustment or other similar rights) but excluding anti-dilution and other similar rights.

    "Affiliate" means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person, as such terms are used in and construed under Rule 405 under the Securities Act.

    "Business Day" means any day except any Saturday, any Sunday, any day which is a federal legal holiday in the United States or in Canada, or any day on which banking institutions in the State of New York and in the Provinces of British Columbia and Ontario are authorized or required by law or other governmental action to close.

    "Person" means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.

    "Primary Trading Market" means, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market (or any successors to any of the foregoing).

    "Trading Day" means any day on which the Common Shares are traded on a Trading Market, or, if that Trading Market is not the Primary Trading Market for the Common Shares, then on the principal securities exchange or securities market in the United States on which the Common Shares are then traded, provided that "Trading Day" shall not include any day on which the Common Shares are scheduled to trade on such exchange or market for less than 4.5 hours or any day that the Common Shares 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 P.M., New York City time).

    
        16

    

    

    "Trading Market" means the NYSE American, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange or the TSX Venture Exchange (or any successors to any of the foregoing).

    "VWAP" means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Shares are then listed or quoted on the Primary Trading Market, the daily volume weighted average price of the Common Shares for such date (or the nearest preceding date) on the Primary Trading Market on which the Common Shares are then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City  time) to 4:02 p.m. (New York City time)), (b) if OTCQB or OTCQX is not a Trading Market, the volume weighted average price of the Common Shares for such date (or the nearest preceding date) on OTCQB or OTCQX as applicable, (c) if the Common Shares are not then listed or quoted for trading on OTCQB or OTCQX and if prices for the Common Shares are then reported on the "Pink Open Market" (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per Common Share so reported, or (d) in all other cases, the fair market value of a Common Share as determined by an independent appraiser selected in good faith by the holders of a majority in interest of the Warrants then outstanding and reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company.

    [SIGNATURE PAGE FOLLOWS]

    
        17

    

    

    IN WITNESS WHEREOF, this Warrant Agent Agreement has been duly executed by the parties hereto as of the day and year first above written.

    KWESST MICRO SYSTEMS INC.

    By: _______________________________________

    Name:

    Title:

    CONTINENTAL STOCK TRANSFER & TRUST

    By: _______________________________________

    Name:

    Title:

     

     

    Annex A Form of Global Certificate

    Annex B Notice of Exercise

    Annex C Form of Certificated Warrant

    Annex D Authorized Representatives

    Annex E Form of Warrant Certificate Request Notice

    

    ANNEX A

    [FORM OF GLOBAL CERTIFICATE]

    UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.

    KWESST MICRO SYSTEMS INC. 
WARRANT CERTIFICATE
NOT EXERCISABLE AFTER ______, 2027

    This certifies that the person whose name and address appears below, or registered assigns, is the registered owner of the number of Warrants set forth below. Each Warrant entitles its registered holder to purchase from KWESST Micro Systems Inc., a corporation formed under the laws of the province of British Columbia (the "Company"), at any time prior to 5:00 p.m. (New York City time) on ________, 2027, one common share, no par value, of the Company (each, a "Warrant Share" and collectively, the "Warrant Shares"), at an exercise price of $___ per share, subject to possible adjustments as provided in the Warrant Agreement (as defined below).

    This Warrant Certificate, with or without other Warrant Certificates, upon surrender at the designated office of the Warrant Agent, may be exchanged for another Warrant Certificate or Warrant Certificates evidencing the same number of Warrants as the Warrant Certificate or Warrant Certificates surrendered. A transfer of the Warrants evidenced hereby may be registered upon surrender of this Warrant Certificate at the designated office of the Warrant Agent by the registered holder in person or by a duly authorized attorney, properly endorsed or accompanied by proper instruments of transfer, a signature guarantee, and such other and further documentation as the Warrant Agent may reasonably request and duly stamped as may be required by the laws of the State of New York and of the United States of America.

    The terms and conditions of the Warrants and the rights and obligations of the holder of this Warrant Certificate are set forth in the Warrant Agent Agreement dated as of _______, 2022 (the "Warrant Agreement") between the Company and Continental Stock Transfer & Trust (the "Warrant Agent"). A copy of the Warrant Agreement is available for inspection during business hours at the office of the Warrant Agent.

    This Warrant Certificate shall not be valid or obligatory for any purpose until it shall have been countersigned by an authorized signatory of the Warrant Agent.

    WITNESS the facsimile signature of a proper officer of the Company.

    KWESST MICRO SYSTEMS INC.

    By: _______________________________________

    Name:

    Title:

    Dated: _________________

    Countersigned:

    CONTINENTAL STOCK TRANSFER & TRUST,

    As Warrant Agent

    By: _______________________________________

    Name:

    Title:

    

    PLEASE DETACH HERE

    

     

    Certificate No.:_________ Number of Warrants:__________

    WARRANT CUSIP NO.: ___________

    	 	[ISSUER]
	 	 
	[Name & Address of Holder]	_______________________, Warrant Agent
	 	 
	 	By Mail:
	 	 
	 	___________________________________________
	 	 
	 	By hand or overnight courier:
	 	 
	 	___________________________________________

     

    

    ANNEX B

    NOTICE OF EXERCISE

    TO: KWESST MICRO SYSTEMS INC.

    (1)       The undersigned hereby elects to purchase ________ Warrant Shares of the Company pursuant to the terms of the attached Warrant Certificate (only if exercised in full), and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any.

    (2)        Payment shall take the form of (check applicable box):

    ☐ in lawful money of the United States; or

    ☐ if permitted the cancellation of such number of Warrant Shares as is necessary, in accordance with the formula set forth in Section 3.3.6(b) of the Warrant Agreement (as defined in the Warrant Certificate), to exercise this Warrant with respect to the maximum number of Warrant Shares purchasable pursuant to the cashless exercise procedure set forth in Section 3.3.6(b) of the Warrant Agreement.

    (3)        Please issue said Warrant Shares in the name of the undersigned or in such other name as is specified below:

    	
                 

            	
                 

            	
                 

            

    The Warrant Shares shall be delivered to the following DWAC Account Number:

    	
                 

            	
                 

            	
                 

            
	
                 

            	
                 

            	
                 

            
	
                 

            	
                 

            	
                 

            
	
                 

            	
                 

            	
                 

            
	
                 

            	
                 

            	
                 

            

    Name of Holder: ________________________________________________________________

    Signature of Authorized Signatory of Holder: __________________________________________

    Name of Authorized Signatory: ____________________________________________________________

    Title of Authorized Signatory: _____________________________________________________________

    Date: _______________

    

    ANNEX C

    [FORM OF CERTIFICATED WARRANT]

    COMMON SHARE PURCHASE WARRANT

    KWESST MICRO SYSTEMS INC.

    	
                Warrant Shares: _______

            	
                Initial Exercise Date: __________, 2022

            
	
                 

            	
                Issue Date: __________, 2022

            
	
                 

            	
                CUSIP: ______________

            
	
                 

            	
                ISIN: _______________

            

    THIS COMMON SHARE PURCHASE WARRANT (the "Warrant") certifies that, for value received, _____________ or its assigns (the "Holder") is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time on or after ___________, 2022 (the "Initial Exercise Date") and on or prior to the 5:00 p.m., New York City time on ______, 20272  (the "Termination Date") but not thereafter, to subscribe for and purchase from KWESST Micro Systems Inc., a corporation formed under the laws of the province of British Columbia (the "Company"), up to ______ Common Shares (as subject to adjustment hereunder, the "Warrant Shares"). The purchase price of one Common Share under this Warrant shall be equal to the Exercise Price, as defined in Section 2(b). This Warrant shall initially be issued and maintained in the form of a security held in book-entry form and The Depository Trust Company or its nominee ("DTC") shall initially be the sole registered holder of this Warrant, subject to a Holder's right to elect to receive a Warrant in certificated form pursuant to the terms of the Warrant Agent Agreement, in which case this sentence shall not apply.

    Section 1. Definitions. In addition to the terms defined elsewhere in this Warrant, the following terms have the meanings indicated in this Section 1:

    "Affiliate" means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person, as such terms are used in and construed under Rule 405 under the Securities Act.

    "Business Day" means any day except any Saturday, any Sunday, any day which is a federal legal holiday in the United States or in Canada, or any day on which banking institutions in the State of New York and in the Provinces of British Columbia and Ontario are authorized or required by law or other governmental action to close.

    "Commission" means the United States Securities and Exchange Commission.

    "Common Shares" means the common shares of the Company, no par value per share, and any other class of securities into which such securities may hereafter be reclassified or changed.

    "Common Share Equivalents" means any securities of the Company or its subsidiaries which would entitle the holder thereof to acquire at any time Common Shares, including, without limitation, any debt, preferred stock, right, option, warrant or other instrument that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Common Shares.

    "Exchange Act" means the United States Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

    "Person" means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.

    ______________________________________________
2 Insert the date that is the five-year anniversary of the Initial Exercise Date; provided, however, if such date is not a Trading Day, insert the immediately following Trading Day. 

    
        C-1

    

    

    "Proceeding" means an action, claim, suit, investigation or proceeding (including, without limitation, an informal investigation or partial proceeding, such as a deposition), whether commenced or threatened.

    "Registration Statement" means the Company's registration statement on Form F-1 (File No. 333-266897).

    "Securities Act" means the United States Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

    "Trading Day" means a day on which the Common Shares are traded on a Trading Market.

    "Trading Market" means any of the following markets or exchanges on which the Common Shares are listed or quoted for trading on the date in question: the NYSE American, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange or the TSX Venture Exchange (or any successors to any of the foregoing).

    "Transfer Agent" means TSX Trust Company, with a mailing address of 301 - 100 Adelaide St. W., Toronto, ON, Canada M5H 4H1, and any successor transfer agent of the Company.

    "Warrant Agent Agreement" means that certain Warrant Agent Agreement, dated as of the Initial Exercise Date, between the Company and the Warrant Agent.

    "Warrant Agent" means Continental Stock Transfer & Trust with a mailing address of 1 State Street, 30th Floor, New York, NY 10004-1561 Attention: Steven Vacante and any successor warrant agent of the Company.

    "Warrants" means this Warrant and other Common Share Purchase Warrants issued by the Company pursuant to the Registration Statement.

    "VWAP" means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Shares are then listed or quoted on a Primary Trading Market, the daily volume weighted average price of the Common Shares for such date (or the nearest preceding date) on the Primary Trading Market on which the Common Shares are then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (Eastern time) to 4:02 p.m. (Eastern time)), (b) if OTCQB or OTCQX is not a Trading Market, the volume weighted average price of the Common Shares for such date (or the nearest preceding date) on OTCQB or OTCQX as applicable, (c) if the Common Shares are not then listed or quoted for trading on OTCQB or OTCQX and if prices for the Common Shares are then reported in the "Pink Open Market" published by OTC Markets Group, Inc. (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per Common Share so reported, or (d) in all other cases, the fair market value of a Common Share as determined by an independent appraiser selected in good faith by the holders of a majority in interest of the Warrants then outstanding and reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company.

    Section 2. Exercise of Warrant.

    (a) Exercise and Payment. Exercise of the purchase rights represented by this Warrant may be made, in whole or in part, at any time or times during the period commencing on the Initial Exercise Date and terminating at 5:00 p.m., Eastern time on the Termination Date (“Exercise Period”) by delivery to the Company and the Warrant Agent of a duly executed copy, submitted, delivered or mailed (including by facsimile or PDF copy submitted by email), to the Company at 155 Terence Matthews Crescent, Unit #1, Ottawa, Ontario, K2M 2A8 Attention: Steven Archambault and Wendy Liang, email: archambault@kwesst.com and liang@kwesst.com (or such alternative email or physical address provided in writing by the Company to the Holder after the date hereof), and to the Warrant Agent at 1 State Street, 30th Floor, New York, NY 10004-1561 Attention: Steven Vacante, email: svacante@continentalstock.com (or such alternative email or physical address provided in writing by the Warrant Agent to the Holder after the date hereof), in substantially the form annexed as Annex B hereto (the “Notice of Exercise”). Within the earlier of (i) two (2) Trading Days and (ii) the number of Trading Days comprising the Standard Settlement Period following the date the Holder delivers the Notice of Exercise as aforesaid, the Holder shall deliver the aggregate Exercise Price for the shares specified in the applicable Notice of Exercise by wire transfer, bank drafts or cashier’s or certified check drawn on a United States or Canadian bank unless the cashless exercise procedure specified in Section 2(c) below is specified in the applicable Notice of Exercise. No ink-original Notice of Exercise shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of Exercise form be required. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company until the Holder has purchased all of the Warrant Shares available hereunder and the Warrant has been exercised in full, in which case, the Holder shall surrender this Warrant to the Company for cancellation within three (3) Trading Days of the date the final Notice of Exercise is delivered to the Company. Partial exercises of this Warrant resulting in purchases of a portion of the total number of Warrant Shares available hereunder shall have the effect of lowering the outstanding number of Warrant Shares purchasable hereunder in an amount equal to the applicable number of Warrant Shares purchased. The Holder and the Company shall maintain records showing the number of Warrant Shares purchased and the date of such purchases. The Company shall deliver any objection to any Notice of Exercise within one (1) Trading Day of receipt of such notice. The Holder and any assignee, by acceptance of this Warrant, acknowledge and agree that, by reason of the provisions of this paragraph, following the purchase of a portion of the Warrant Shares hereunder, the number of Warrant Shares available for purchase hereunder at any given time may be less than the amount stated on the face hereof. Notwithstanding the foregoing in this Section 2(a), a holder whose interest in this Warrant is a beneficial interest in certificate(s) representing this Warrant held in book-entry form through DTC (or another established clearing corporation performing similar functions), shall effect exercises made pursuant to this Section 2(a) by delivering to DTC (or such other clearing corporation, as applicable) the appropriate instruction form for exercise, complying with the procedures to effect exercise that are required by DTC (or such other clearing corporation, as applicable), subject to a Holder’s right to elect to receive a Warrant in certificated form pursuant to the terms of the Warrant Agent Agreement, in which case this sentence shall not apply.

    
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    (b) Exercise Price. The exercise price per Warrant Share under this Warrant shall be $_____, subject to adjustment hereunder (the "Exercise Price").

    (c) Cashless Exercise. If at the time of exercise hereof there is no effective registration statement registering, or the prospectus contained therein is not available for the issuance of the Warrant Shares to the Holder, then this Warrant may also be exercised, in whole or in part, at such time by means of a "cashless exercise" in which the Holder shall be entitled to receive a number of Warrant Shares equal to the quotient obtained (if such quotient would be a positive number) by dividing [(A-B) (X)] by (A), where:

    (A) =  as applicable: (i) the VWAP for the five Trading Days immediately preceding the date of the applicable Notice of Exercise if such Notice of Exercise is (1) both executed and delivered pursuant to Section 3.3.1(a) hereof on a day that is not a Trading Day or (2) both executed and delivered pursuant to Section 3.3.1(a) hereof on a Trading Day prior to the opening of "regular trading hours" (as defined in Rule 600(b) of Regulation NMS promulgated under the federal securities laws) on such Trading Day, (ii) the VWAP for the five Trading Days immediately preceding the date of the applicable Notice of Exercise or (iii) the VWAP for the five Trading Days immediately preceding the date of the applicable Notice of Exercise if the date of such Notice of Exercise is a Trading Day and such Notice of Exercise is both executed and delivered pursuant to Section 3.3.1(a) hereof after the close of "regular trading hours" on such Trading Day;

    (B) =  the Exercise Price of this Warrant, as adjusted hereunder; and

    (X) =  the number of Warrant Shares that would be issuable upon exercise of this Warrant in accordance with the terms of this Warrant if such exercise were by means of a cash exercise rather than a cashless exercise.

    Notwithstanding anything herein to the contrary, but without limiting the rights of a Holder to receive Warrant Shares on a "cashless exercise" pursuant to this Section 2(c) or to receive cash payments pursuant to Section 3(d)(i) and Section 3(d)(iv) herein, the Company shall not be required to make any cash payments or net cash settlement to the Holder in lieu of delivery of the Warrant Shares. If Warrant Shares are issued in such a cashless exercise, the parties acknowledge and agree that in accordance with Section 3(a)(9) of the Securities Act, the Warrant Shares shall take on the registered characteristics of the Warrants being exercised. The Company agrees not to take any position contrary to this Section 2(c).

    Notwithstanding anything herein to the contrary, on the Termination Date, this Warrant shall be automatically exercised via cashless exercise pursuant to this Section 2(c).

    
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    (d) Mechanics of Exercise.

    (i) Delivery of Warrant Shares Upon Exercise. The Company shall cause the Warrant Shares purchased hereunder to be transmitted by the Transfer Agent to the Holder by crediting the account of the Holder's or its designee's balance account with DTC through its Deposit or Withdrawal at Custodian system ("DWAC") if the Company is then a participant in such system and either (A) there is an effective registration statement permitting the issuance of the Warrant Shares to or resale of the Warrant Shares by Holder or (B) this Warrant is being exercised via cashless exercise, and otherwise by physical delivery of a certificate, registered in the Company's share register in the name of the Holder or its designee, for the number of Warrant Shares to which the Holder is entitled pursuant to such exercise to the address specified by the Holder in the Notice of Exercise by the date that is earlier of (i) two (2) Trading Days after the delivery to the Company of the Notice of Exercise and (ii) the number of Trading Days comprising the Standard Settlement Period after the delivery to the Company and the Warrant Agent of the Notice of Exercise (such date, the "Warrant Share Delivery Date"); provided, however, that if payment of the aggregate Exercise Price (other than in the case of a cashless exercise) is received after 12:00 P.M., New York City time on the Warrant Share Delivery Date, then the Warrant Share Delivery Date shall be extended by one (1) additional Trading Day. Upon delivery of the Notice of Exercise, 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 of delivery of the Warrant Shares, provided that payment of the aggregate Exercise Price (other than in the case of a cashless exercise) is received the earlier of (i) two (2) Trading Days of and (ii) the number of Trading Days comprising the Standard Settlement Period following the delivery of the Notice of Exercise. If the Company fails for any reason to deliver to the Holder the Warrant Shares subject to a Notice of Exercise by the Warrant Share Delivery Date, the Company shall pay to the Holder, in cash, as liquidated damages and not as a penalty, for each $1,000 of Warrant Shares subject to such exercise (based on the VWAP of the Common Shares on the date of the applicable Notice of Exercise), $10 per Trading Day (increasing to $20 per Trading Day on the fifth Trading Day after such liquidated damages begin to accrue) for each Trading Day after such Warrant Share Delivery Date until such Warrant Shares are delivered or Holder rescinds such exercise. The Company agrees to maintain a transfer agent that is a participant in the FAST program so long as this Warrant remains outstanding and exercisable. As used herein, "Standard Settlement Period" means the standard settlement period, expressed in a number of Trading Days, on the Primary Trading Market with respect to the Common Shares as in effect on the date of delivery of the Notice of Exercise.

    (ii) Delivery of New Warrants Upon Exercise. If this Warrant shall have been exercised in part, the Company shall, at the request of a Holder and upon surrender of this Warrant certificate, at the time of delivery of the Warrant Shares, deliver to the Holder a new Warrant evidencing the rights of the Holder to purchase the unpurchased Warrant Shares called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant.

    (iii) Rescission Rights. If the Company fails to cause the Transfer Agent to transmit to the Holder the Warrant Shares pursuant to Section 2(d)(i) by the Warrant Share Delivery Date, then the Holder will have the right to rescind such exercise.

    (iv) Compensation for Buy-In on Failure to Timely Deliver Warrant Shares Upon Exercise. In addition to any other rights available to the Holder, if the Company fails to cause the Transfer Agent to transmit to the Holder the Warrant Shares in accordance with the provisions of Section 2(d)(i) above pursuant to an exercise on or before the Share Delivery Date (for avoidance of doubt, other than any such failure that is due solely to any action or inaction by the Holder), and if after such date the Holder is required by its broker to purchase (in an open market transaction or otherwise) or the Holder's brokerage firm otherwise purchases, Common Shares to deliver in satisfaction of a sale by the Holder of the Warrant Shares which the Holder anticipated receiving upon such exercise (a "Buy-In"), then the Company shall (A) pay in cash to the Holder the amount, if any, by which (x) the Holder's total purchase price (including brokerage commissions, if any) for the Common Shares so purchased exceeds (y) the amount obtained by multiplying (1) the number of Warrant Shares that the Company was required to deliver to the Holder in connection with the exercise at issue times (2) the price at which the sell order giving rise to such purchase obligation was executed, and (B) at the option of the Holder, either reinstate the portion of the Warrant and equivalent number of Warrant Shares for which such exercise was not honored (in which case such exercise shall be deemed rescinded) or deliver to the Holder the number of Common Shares that would have been issued had the Company timely complied with its exercise and delivery obligations hereunder. For example, if the Holder purchases Common Shares having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted exercise of Common Shares with an aggregate sale price giving rise to such purchase obligation of $10,000, under clause (A) of the immediately preceding sentence the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount of such loss. Nothing herein shall limit a Holder's right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company's failure to timely deliver Common Shares upon exercise of the Warrant as required pursuant to the terms hereof.

    
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    (v) No Fractional Shares. No fractional Warrant Shares will be issued upon the exercise of this Warrant. If a Holder would be entitled, upon the exercise of this Warrant, to receive a fractional interest in a share, the Company shall, at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Exercise Price or round up to the next whole Warrant Share.

    (vi) Charges, Taxes and Expenses. Issuance of Warrant Shares shall be made without charge to the Holder for any issue or transfer tax or other incidental expense in respect of the issuance of such Warrant Shares, all of which taxes and expenses shall be paid by the Company, and such Warrant Shares shall be issued in the name of the Holder or in such name or names as may be directed by the Holder; provided, however, that in the event Warrant Shares are to be issued in a name other than the name of the Holder, this Warrant when surrendered for exercise shall be accompanied by the Assignment Form attached hereto duly executed by the Holder and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax or other government charge incidental thereto. The Company shall pay all Transfer Agent fees required for same-day processing of any Notice of Exercise and all fees to the DTC (or another established clearing corporation performing similar functions) required for same-day electronic delivery of the Warrant Shares.

    (vii) Closing of Books. Subject to applicable laws, including applicable securities laws, the Company will not close its shareholder books or records in any manner which prevents the timely exercise of this Warrant, pursuant to the terms hereof.

    (e) Holder's Exercise Limitations. The Company shall not effect any exercise of this Warrant, and a Holder shall not have the right to exercise any portion of this Warrant, pursuant to Section 2 or otherwise, to the extent that after giving effect to such issuance after exercise as set forth on the applicable Notice of Exercise, the Holder (together with the Holder's Affiliates, and any other Persons acting as a group together with the Holder or any of the Holder's Affiliates (such Persons, "Attribution Parties")), would beneficially own in excess of the Beneficial Ownership Limitation (as defined below). For purposes of the foregoing sentence, the number of Common Shares beneficially owned by the Holder and its Affiliates and Attribution Parties shall include the number of Common Shares issuable upon exercise of this Warrant with respect to which such determination is being made, but shall exclude the number of Common Shares which would be issuable upon (i) exercise of the remaining, non-exercised portion of this Warrant beneficially owned by the Holder or any of its Affiliates or Attribution Parties and (ii) exercise or conversion of the unexercised or non-converted portion of any other securities of the Company (including, without limitation, any other Common Share Equivalents) subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Holder or any of its Affiliates or Attribution Parties. Except as set forth in the preceding sentence, for purposes of this Section 2(e), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder, it being acknowledged by the Holder that the Company is not representing to the Holder that such calculation is in compliance with Section 13(d) of the Exchange Act and the Holder is solely responsible for any schedules required to be filed in accordance therewith. To the extent that the limitation contained in this Section 2(e) applies, the determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates and Attribution Parties) and of which portion of this Warrant is exercisable shall be in the sole discretion of the Holder, and the submission of a Notice of Exercise shall be deemed to be the Holder's determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates and Attribution Parties) and of which portion of this Warrant is exercisable, in each case subject to the Beneficial Ownership Limitation, and the Company shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 2(e), in determining the number of outstanding Common Shares, a Holder may rely on the number of outstanding Common Shares as reflected in (A) the Company's most recent periodic or annual report filed with the Commission, as the case may be, (B) a more recent public announcement by the Company or (C) a more recent written notice by the Company or the Transfer Agent setting forth the number of Common Shares outstanding. Upon the written or oral request of a Holder, the Company shall within two (2) Trading Days confirm orally and in writing to the Holder the number of Common Shares then outstanding. In any case, the number of outstanding Common Shares shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Warrant, by the Holder or its Affiliates or Attribution Parties since the date as of which such number of outstanding Common Shares was reported. The "Beneficial Ownership Limitation" shall be 4.99% (or, upon election by a Holder prior to the issuance of any Warrants, 9.99%) of the number of Common Shares outstanding immediately after giving effect to the issuance of Common Shares issuable upon exercise of this Warrant. The Holder, upon notice to the Company, may increase or decrease the Beneficial Ownership Limitation provisions of this Section 2(e), provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of Common Shares outstanding immediately after giving effect to the issuance of Common Shares upon exercise of this Warrant held by the Holder and the provisions of this Section 2(e) shall continue to apply. Any increase in the Beneficial Ownership Limitation will not be effective until the 61st day after such notice is delivered to the Company. The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 2(e) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall apply to a successor holder of this Warrant.

    
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    Section 3. Certain Adjustments.

    (a) Share Dividends and Splits. If the Company, at any time while this Warrant is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions on its Common Shares or any other equity or equity equivalent securities payable in Common Shares (which, for avoidance of doubt, shall not include any Common Shares issued by the Company upon exercise of this Warrant), (ii) subdivides outstanding Common Shares into a larger number of shares, (iii) combines (including by way of reverse stock split) outstanding Common Shares into a smaller number of shares, or (iv) issues by reclassification of the Common Shares any shares of capital stock of the Company, then in each case the Exercise Price shall be multiplied by a fraction of which the numerator shall be the number of Common Shares and such other capital stock of the Company (excluding treasury shares, if any) outstanding immediately before such event and of which the denominator shall be the number of Common Shares such other capital stock of the Company (excluding treasury shares, if any) outstanding immediately after such event, and the number of shares issuable upon exercise of this Warrant shall be proportionately adjusted such that the aggregate Exercise Price of this Warrant shall remain unchanged. Any adjustment made pursuant to this Section 3(a) shall become effective immediately after the record date for the determination of shareholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.

    (b) Subsequent Rights Offerings. In addition to any adjustments pursuant to Section 3(a) above and subject to the prior approval of the TSX Venture Exchange (so long as the Common Shares are listed for trading on the TSX Venture Exchange), if at any time the Company grants, issues or sells any Common Share Equivalents or rights to purchase shares, warrants, securities or other property pro rata to the record holders of any class of Common Shares (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 Common Shares acquirable upon complete exercise of this Warrant (without regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) 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 Common Shares are to be determined for the grant, issue or sale of such Purchase Rights (provided, however, to the extent that the Holder’s right to participate in any such Purchase Right would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Purchase Right to such extent (or beneficial ownership of such Common Shares as a result of such Purchase Right to such extent), and such Purchase Right to such extent shall be held in abeyance for the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation). To the extent that this Warrant has not been partially or completely exercised at the time of such Distribution, such portion of the Distribution shall be held in abeyance for the benefit of the Holder until the Holder has exercised this Warrant.

    
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    (c) Pro Rata Distribution. During such time as this Warrant is outstanding and subject to the prior approval of the TSX Venture Exchange, if the Company shall declare or make any special or extraordinary dividend (other than regular dividends payable in cash) or other distribution of its assets (or rights to acquire its assets) to holders of Common Shares, by way of return of capital or otherwise (including, without limitation, any distribution of shares 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, the Holder shall be entitled to participate in such Distribution to the same extent that the Holder would have participated therein if the Holder had held the number of Common Shares acquirable upon complete exercise of this Warrant (without regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date of which a record is taken for such Distribution, or, if no such record is taken, the date as of which the record holders of Common Shares are to be determined for the participation in such Distribution (provided, however, to the extent that the Holder's right to participate in any such Distribution would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Distribution to such extent (or in the beneficial ownership of any Common Shares as a result of such Distribution to such extent) and the portion of such Distribution shall be held in abeyance for the benefit of the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation). Notwithstanding the foregoing, this Section 3(c) shall not apply with respect to any Distribution to the extent that such Distribution results in an adjustment to the Exercise Price under the other provisions of this Warrant.

    (d) Fundamental Transaction. If, at any time while this Warrant is outstanding, (i) the Company, directly or indirectly, in one or more related transactions effects any merger or consolidation of the Company with or into another Person, (ii) the Company, directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which all holders of Common Shares are permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of 50% or more of the outstanding Common Shares or 50% or more of the total voting power of the outstanding Common Shares, (iv) the Company, directly or indirectly, in one or more related transactions effects any reclassification, reorganization or recapitalization of the Common Shares or any compulsory share exchange pursuant to which all outstanding Common Shares are effectively converted into or exchanged for other securities, cash or property, or (v) the Company, directly or indirectly, in one or more related transactions consummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with another Person or group of Persons whereby such other Person or group acquires more than 50% of the outstanding Common Shares or 50% or more of the voting power of the Common Shares (each a "Fundamental Transaction"), then, upon any subsequent exercise of this Warrant, and subject to the prior approval of the TSX Venture Exchange, the Holder shall have the right to receive, for each Warrant Share that would have been issuable upon such exercise immediately prior to the occurrence of such Fundamental Transaction, at the option of the Holder (without regard to any limitation in Section 2(e) on the exercise of this Warrant), the number of Common Shares of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional consideration (the "Alternate Consideration") receivable as a result of such Fundamental Transaction by a holder of the number of Common Shares for which the Warrant is exercisable immediately prior to such Fundamental Transaction (without regard to any limitation in Section 3.3.9 on the exercise of this Warrant). 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 Common Share 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 Shares 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 Company shall cause any successor entity in a Fundamental Transaction in which the Company is not the survivor (the "Successor Entity") to assume in writing all of the obligations of the Company under this Warrant in accordance with the provisions of this Section 3(d) pursuant to written agreements delay) prior to such Fundamental Transaction and shall, at the option of the Holder, deliver to the Holder in exchange for the Warrant a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to the Warrant which is exercisable for a corresponding number of shares of capital stock of such Successor Entity (or its parent entity) equivalent to the shares of Common Shares acquirable and receivable upon exercise of the Warrant (without regard to any limitations on the exercise of the Warrant) prior to such Fundamental Transaction, and with an exercise price which applies the exercise price hereunder to such shares of capital stock (but taking into account the relative value of the Common Shares pursuant to such Fundamental Transaction and the value of such shares of capital stock, such number of shares of capital stock and such exercise price being for the purpose of protecting the economic value of the Warrant immediately prior to the consummation of such Fundamental Transaction), and which is reasonably satisfactory in form and substance to the Holder. Upon the occurrence of any such 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 the Warrants 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 the Warrants with the same effect as if such Successor Entity had been named as the Company herein.

    
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    (e) Calculations. All calculations under this Section 3 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 3, the number of Common Shares deemed to be issued and outstanding as of a given date shall be the sum of the number of Common Shares (excluding treasury shares, if any) issued and outstanding.

    (f) Notice to Holder.

    (i) Adjustment to Exercise Price. Whenever the Exercise Price is adjusted pursuant to any provision of this Section 3, the Company shall promptly deliver to the Holder by facsimile or email a notice setting forth the Exercise Price after such adjustment and any resulting adjustment to the number of Warrant Shares and setting forth a brief statement of the facts requiring such adjustment.

    (ii) Notice to Allow Exercise by Holder. If (A) the Company shall declare a dividend (or any other distribution in whatever form) on the Common Shares, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Shares, (C) the Company shall authorize the granting to all holders of the Common Shares rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any shareholders of the Company shall be required in connection with any Fundamental Transaction, or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company, then, in each case, the Company shall cause to be delivered by facsimile or email to the Holder at its last facsimile number or email address as it shall appear upon the Warrant Register (as defined below), at least 20 calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Shares of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Shares of record shall be entitled to exchange their Common Shares for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange; provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the corporate action required to be specified in such notice. To the extent that any notice provided in this Warrant constitutes, or contains, material, non-public information regarding the Company or any of its subsidiaries, the Company shall simultaneously file such notice on SEDAR and with the Commission pursuant to a Report on Form 6-K. Provided such notice occurs within the Exercise Period, the Holder shall remain entitled to exercise this Warrant during the period commencing on the date of such notice to the effective date of the event triggering such notice, except as may otherwise be expressly set forth herein (including the applicable exercise period set forth herein).

    Section 4. Transfer of Warrant.

    (a) Transferability. Subject to compliance with any applicable securities laws, this Warrant and all rights hereunder are transferable, in whole or in part, upon surrender of this Warrant at the principal office of the Company or its designated agent, together with a written assignment of this Warrant substantially in the form attached hereto duly executed by the Holder or its agent or attorney and funds sufficient to pay any transfer taxes payable upon the making of such transfer. Upon such surrender and, if required, such payment, the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees, as applicable, and in the denomination or denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company unless the Holder has assigned this Warrant in full, in which case, the Holder shall surrender this Warrant to the Company within three (3) Trading Days of the date the Holder delivers an assignment form to the Company assigning this Warrant full. The Warrant, if properly assigned in accordance herewith, may be exercised by a new holder for the purchase of Warrant Shares without having a new Warrant issued.

    
        C-8

    

    

    (b) New Warrants. If this Warrant is not held in global form through DTC (or any successor depository), this Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by the Holder or its agent or attorney. Subject to compliance with Section 4(a), as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice. All Warrants issued on transfers or exchanges shall be dated the original Issuance Date of this Warrant and shall be identical with this Warrant except as to the number of Warrant Shares issuable pursuant thereto.

    (c) Warrant Register. The Warrant Agent (or, in the event a Holder elects to receive a Definitive Certificate (as defined in the Warrant Agent Agreement), the Company) shall register this Warrant, upon records to be maintained by the Warrant Agent (or, in the event a Holder elects to receive a Definitive Certificate, the Company) for that purpose (the "Warrant Register"), in the name of the record Holder hereof from time to time. The Company and the Warrant Agent may deem and treat the registered Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, absent actual notice to the contrary.

    Section 5. Miscellaneous.

    (a) No Rights as Shareholder Until Exercise. This Warrant does not entitle the Holder to any voting rights, dividends or other rights as a shareholder of the Company prior to the exercise hereof as set forth in Section 2(d)(i), except as expressly set forth in Section 3.

    (b) Loss, Theft, Destruction or Mutilation of Warrant. The Company covenants that upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant or any share certificate relating to the Warrant Shares, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it (which, in the case of the Warrant, shall not include the posting of any bond), and upon surrender and cancellation of such Warrant or share certificate, if mutilated, the Company will make and deliver a new Warrant or share certificate of like tenor and dated as of such cancellation, in lieu of such Warrant or share certificate.

    (c) Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a Trading Day, then, such action may be taken or such right may be exercised on the next succeeding Trading Day.

    (d) Authorized Shares.

    (i) The Company covenants that, during the period the Warrant is outstanding, it will reserve from its authorized and unissued Common Shares a sufficient number of shares to provide for the issuance of the Warrant Shares upon the exercise of any purchase rights under this Warrant. The Company further covenants that its issuance of this Warrant shall constitute full authority to its officers who are charged with the duty of issuing the necessary Warrant Shares upon the exercise of the purchase rights under this Warrant. The Company will take all such reasonable action as may be necessary to assure that such Warrant Shares may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of the Trading Market upon which the Common Shares may be listed. The Company covenants that all Warrant Shares which may be issued upon the exercise of the purchase rights represented by this Warrant will, upon exercise of the purchase rights represented by this Warrant and payment for such Warrant Shares in accordance herewith, be duly authorized, validly issued, fully paid and non-assessable and free from all taxes, liens and charges created by the Company in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such issue).

    
        C-9

    

    

    (ii) Except and to the extent as waived or consented to by the Holder, the Company shall not by any action, including, without limitation, amending its certificate of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of Holder as set forth in this Warrant against impairment. Without limiting the generality of the foregoing, the Company will (A) not increase the par value of any Warrant Shares above the amount payable therefor upon such exercise immediately prior to such increase in par value, (B) take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and non-assessable Warrant Shares upon the exercise of this Warrant and (C) use commercially reasonable efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof, as may be, necessary to enable the Company to perform its obligations under this Warrant.

    (iii) Before taking any action which would result in an adjustment in the number of Warrant Shares for which this Warrant is exercisable or in the Exercise Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary from any public regulatory body or bodies having jurisdiction thereof.

    (e) Governing Law. All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflict of laws thereof. Each party agrees that all legal Proceedings concerning the interpretation, enforcement and defense of this Warrant shall be commenced in the state and federal courts sitting in the City of New York, Borough of Manhattan (the "New York Courts"). Each party hereto hereby irrevocably submits to the exclusive jurisdiction of the New York Courts for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any provision hereunder), and hereby irrevocably waives, and agrees not to assert in any suit, action or Proceeding, any claim that it is not personally subject to the jurisdiction of such New York Courts, or such New York Courts are improper or inconvenient venue for such Proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Warrant and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law. If any party shall commence an action or Proceeding to enforce any provisions of this Warrant, then the prevailing party in such action or Proceeding shall be reimbursed by the other party for its attorneys' fees and other costs and expenses incurred in the investigation, preparation and prosecution of such action or Proceeding.

    (f) Restrictions. The Holder acknowledges that the Warrant Shares acquired upon the exercise of this Warrant, if not registered, and the Holder does not utilize cashless exercise, will have restrictions upon resale imposed by state, provincial and federal securities laws in the United States and Canada.

    (g) Nonwaiver and Expenses. No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder shall operate as a waiver of such right or otherwise prejudice the Holder's rights, powers or remedies. Without limiting any other provision of this Warrant, if the Company willfully and knowingly fails to comply with any provision of this Warrant, which results in any material damages to the Holder, the Company shall pay to the Holder such amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys' fees, including those of appellate Proceedings, incurred by the Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder.

    (h) Notices. Any and all notices or other communications or deliveries to be provided by the Holders hereunder including, without limitation, any Notice of Exercise, shall be in writing and delivered personally, by e-mail, or sent by a nationally recognized overnight courier service, addressed to the Company, at 155 Terence Matthews Crescent, Unit #1, Ottawa, Ontario, K2M 2A8 Attention: Steven Archambault and Wendy Liang, email: archambault@kwesst.com and liang@kwesst.com, or such other email address or address as the Company may specify for such purposes by notice to the Holders. Any and all notices or other communications or deliveries to be provided by the Company hereunder shall be in writing and delivered personally, by e-mail, or sent by a nationally recognized overnight courier service addressed to each Holder at the e-mail address or address of such Holder appearing on the books of the Warrant Agent. Any notice or other communication or deliveries hereunder shall be deemed given and effective on the earliest of (i) the time of transmission, if such notice or communication is delivered via e-mail at the e-mail address set forth in this Section prior to 5:30 p.m. (Eastern time) on any date, (ii) the next Trading Day after the date of transmission, if such notice or communication is delivered via e-mail at the e-mail address set forth in this Section on a day that is not a Trading Day or later than 5:30 p.m. (Eastern time) on any Trading Day, (iii) the second Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service, or (iv) upon actual receipt by the party to whom such notice is required to be given. Notwithstanding any other provision of this Warrant, where this Warrant provides for notice of any event to the Holder, if this Warrant is held in global form by DTC (or any successor depositary), such notice shall be sufficiently given if given to DTC (or any successor depositary) pursuant to the procedures of DTC (or such successor depositary), subject to a Holder's right to elect to receive a Warrant in certificated form pursuant to the terms of the Warrant Agent Agreement, in which case this sentence shall not apply.

    
        C-10

    

    

    (i) Warrant Agent Agreement. If this Warrant is held in global form through DTC (or any successor depositary), this Warrant is issued subject to the Warrant Agent Agreement. To the extent any provision of this Warrant conflicts with the express provisions of the Warrant Agent Agreement, the provisions of this Warrant shall govern and be controlling.

    (j) Limitation of Liability. No provision hereof, in the absence of any affirmative action by the Holder to exercise this Warrant to purchase Warrant Shares, and no enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of the Holder for the purchase price of any Common Shares or as a shareholder of the Company, whether such liability is asserted by the Company or by creditors of the Company.

    (k) Remedies. The Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Warrant. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees to waive and not to assert the defense in any action for specific performance that a remedy at law would be adequate.

    (l) Successors and Assigns. Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall inure to the benefit of and be binding upon the successors and permitted assigns of the Company and the successors and permitted assigns of Holder. The provisions of this Warrant are intended to be for the benefit of any Holder from time to time of this Warrant and shall be enforceable by the Holder or holder of Warrant Shares.

    9.1. Amendment. This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company, on the one hand, and either: (i) the Holder or the beneficial owner of this Warrant, on the other hand, or (ii) the vote or written consent of the Holders of at least 50.1% of the then outstanding Warrants issued pursuant to the Warrant Agent Agreement, on the other hand; provided that if any such modification, amendment or waiver disproportionately and adversely affects the rights of a Holder compared to other Holders, the prior written consent of such Holder shall also be required.

    (m) Severability. Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Warrant.

    (n) Headings. The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant.

    (Signature Page Follows)

    
        C-11

    

    

    IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer thereunto duly authorized as of the date first above indicated.

    	
                 

            	
                KWESST MICRO SYSTEMS INC.

            
	
                 

            	
                 

            	
                 

            
	
                 

            	
                By:

            	
                 

            
	
                 

            	
                 

            	
                Name:

            
	
                 

            	
                 

            	
                Title:

            

    

    
        C-12

    

    

    NOTICE OF EXERCISE

    TO: KWESST MICRO SYSTEMS INC.

    (1)        The undersigned hereby elects to purchase ________ Warrant Shares of the Company pursuant to the terms of the attached Warrant (only if exercised in full), and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any.

    (2)        Payment shall take the form of (check applicable box):

    ☐ in lawful money of the United States; or

    ☐ if permitted the cancellation of such number of Warrant Shares as is necessary, in accordance with the formula set forth in subsection 2(c), to exercise this Warrant with respect to the maximum number of Warrant Shares purchasable pursuant to the cashless exercise procedure set forth in subsection 2(c).

    (3)        Please issue said Warrant Shares in the name of the undersigned or in such other name as is specified below:

    	
                 

            	
                 

            	
                 

            

    The Warrant Shares shall be delivered to the following DWAC Account Number:

    	
                 

            	
                 

            	
                 

            
	
                 

            	
                 

            	
                 

            
	
                 

            	
                 

            	
                 

            
	
                 

            	
                 

            	
                 

            
	
                 

            	
                 

            	
                 

            

    Name of Holder: ________________________________________________________________

    Signature of Authorized Signatory of Holder: __________________________________________

    Name of Authorized Signatory: ____________________________________________________________

    Title of Authorized Signatory: _____________________________________________________________

    Date: _______________

    
        C-13

    

    

    ASSIGNMENT FORM

    (To assign the foregoing Warrant, execute this form and supply required information. Do not use this form to purchase shares.)

    FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby assigned to

    	
                Name:

            	
                 

            	
                 

            	
                 

            
	
                 

            	
                 

            	
                (Please Print)

            	
                 

            
	
                 

            	
                 

            	
                 

            	
                 

            
	
                Address:

            	
                 

            	
                 

            	
                 

            
	
                 

            	
                 

            	
                (Please Print)

            	
                 

            
	
                 

            	
                 

            	
                 

            	
                 

            
	
                Phone Number:

            	
                 

            	
                 

            	
                 

            
	
                 

            	
                 

            	
                 

            	
                 

            
	
                Email Address:

            	
                 

            	
                 

            	
                 

            
	
                 

            	
                 

            	
                 

            	
                 

            
	
                Dated: __________________ ___ __, ______

            	
                 

            	
                 

            	
                 

            
	
                 

            	
                 

            	
                 

            	
                 

            
	
                Holder's Signature:

            	
                 

            	
                 

            	
                 

            	
                 

            
	
                 

            	
                 

            	
                 

            	
                 

            	
                 

            
	
                Holder's Address:

            	
                 

            	
                 

            	
                 

            	
                 

            

    

    
        C-14

    

    

    ANNEX D

    AUTHORIZED REPRESENTATIVES

    	
                Name

            	
                 

            	
                Title

            	
                 

            	
                Signature

            
	
                David Luxton

            	
                 

            	
                Executive Chairman and Director

            	
                 

            	
                 

            
	
                Jeffrey MacLeod

            	
                 

            	
                Chief Executive Officer

            	
                 

            	
                 

            
	
                Steven Archambault

            	
                 

            	
                Chief Financial Officer

            	
                 

            	
                 

            

    

    

    ANNEX E

    [FORM OF WARRANT CERTIFICATE REQUEST NOTICE]

    WARRANT CERTIFICATE REQUEST NOTICE

    To: CONTINENTAL STOCK TRANSFER & TRUST,

     as Warrant Agent for KWESST MICRO SYSTEMS INC. (the "Company")

    The undersigned Holder of Common Share Purchase Warrants ("Warrants") in the form of Global Warrants issued by the Company hereby elects to receive a Definitive Certificate evidencing the Warrants held by the Holder as specified below:

    (1) Name of Holder of Warrants in form of Global Warrants:                                                                                        

    (2) Name of Holder in Definitive Certificate (if different from name of Holder of Warrants in form of Global Warrants):                                                                                                                                                                        

    (3) Number of Warrants in name of Holder in form of Global Warrants:                                                                      

    (4) Number of Warrants for which Definitive Certificate shall be issued:                                                                      

    (5) Number of Warrants in name of Holder in form of Global Warrants after issuance:                                                

    The Definitive Certificate shall be delivered to the following address:

    	
                 

            
	
                 

            
	
                 

            
	
                 

            

    The undersigned hereby acknowledges and agrees that, in connection with this Warrant Exchange and the issuance of the Definitive Certificate, the Holder is deemed to have surrendered the number of Warrants in form of Global Warrants in the name of the Holder equal to the number of Warrants evidenced by the Definitive Certificate.

    Name of Holder: ________________________________________________________________

    Signature of Authorized Signatory of Holder: __________________________________________

    Name of Authorized Signatory: ____________________________________________________________

    Title of Authorized Signatory: _____________________________________________________________

    Date: _______________

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