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THE SECURITIES REPRESENTED HEREBY (AND THE SECURITIES ISSUABLE UPON THE CONVERSION HEREOF) HAVE BEEN ISSUED PURSUANT TO AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”).  THE HOLDER HEREOF, BY PURCHASING SUCH SECURITIES, AGREES FOR THE BENEFIT OF THE COMPANY THAT SUCH SECURITIES MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED UNLESS THE SECURITIES ARE REGISTERED UNDER THE SECURITIES ACT OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT IS AVAILABLE.  IN ADDITION, HEDGING TRANSACTIONS INVOLVING SUCH SECURITIES MAY NOT BE CONDUCTED UNLESS IN COMPLIANCE WITH THE SECURITIES ACT.

 

THIS NOTE HAS BEEN ISSUED WITH ORIGINAL ISSUE DISCOUNT FOR U.S. FEDERAL INCOME TAX PURPOSES.  FOR FURTHER INFORMATION, PLEASE CONTACT THE CHIEF FINANCIAL OFFICER OF WAFERGEN BIO-SYSTEMS, INC. AT [_________________]

 

WAFERGEN BIO-SYSTEMS, INC.

CONVERTIBLE PROMISSORY NOTE

DUE NOVEMBER 27, 2014

$[____________]

May 27, 2011  

FOR VALUE RECEIVED, the undersigned, WAFERGEN BIO-SYSTEMS, INC., a Nevada corporation (the “Borrower”), hereby promises to pay to [_________________ (“__________”), a ______________], or its registered assigns (the “Holder”), the principal sum of [__________________________ DOLLARS ($____________)] on November 27, 2014 (the “Maturity Date”), with interest thereon from time to time as provided herein.

  

 

  

1.           Purchase Agreement.  This Convertible Promissory Note (this “Note”) is issued by the Borrower, on the date hereof, pursuant to the Purchase Agreement (the “Purchase Agreement”), dated as of May 25, 2011 by and among the Borrower and the investors who have executed the signature page(s) thereto, and is subject to the terms thereof.  This Note is one of a series of convertible promissory notes issued in accordance with the terms of the Purchase Agreement.  This Note, together with all other promissory notes issued under the Purchase Agreement, and all promissory notes issued pursuant to paragraph 12 hereof or thereof are hereinafter referred to as the “Notes.”  The Holder is entitled to the benefits of this Note and the Purchase Agreement, as it relates to this Note, and may enforce the agreements of the Borrower contained herein and therein and exercise the remedies provided for hereby and thereby or otherwise available in respect hereto and thereto. Capitalized terms used herein without definition are used herein with the meanings ascribed to such terms in the Purchase Agreement.

 

2.           Interest.

 

(a)           Basic Interest.

 

(i)           The Borrower promises to pay interest on the principal amount of this Note at the rate of 5% per annum, subject to clause (ii) below of this Section 2(a). The Borrower shall pay accrued interest quarterly on each March 31, June 30, September 30 and December 31 of each year or, if any such date shall not be a Business Day (as defined below), on the next succeeding Business Day to occur after such date (each date upon which interest shall be so payable, an “Interest Payment Date”), beginning on June 30, 2011.  For purposes of this Note, “Business Day” means any day other than Saturday, Sunday or any other day on which commercial banks in New York City, New York, are authorized or required by law or executive order to close. Interest on this Note shall be paid by wire transfer of immediately available funds to an account at a bank designated in writing by the Holder. In the absence of any such written designation, any such Interest payment shall be deemed made on the date a check in the applicable amount payable to the order of Holder is mailed via first class mail, postage prepaid, addressed to the Holder at its last address as reflected in Borrower’s note register; if no such address appears, then to such Holder in care of the last address in such note register of any predecessor holder of this Note (or its predecessor).  Interest on this Note shall accrue from and including the date of issuance through and until repayment of the principal and payment of all accrued interest in full. Interest shall accrue and be computed on the basis of a 360-day year of twelve 30-day months.

 

(ii)           The foregoing to the contrary notwithstanding, interest payable on any Interest Payment Date may, at Borrower’s election, be accrued and not paid by the Borrower on such Interest Payment Date and the aggregate of such amount so accrued shall be added to the principal sum hereof on such Interest Payment Date as additional principal (the “Additional Principal”) to be paid in accordance with the provisions of Section 3 hereinbelow.  Interest shall accrue and be payable on the outstanding balance of the Additional Principal as set forth in the first sentence of Section 2(a)(i).

 

  

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(b)           Default Rate of Interest.  Except with respect to interest accruing pursuant to Section 2(a)(ii), but subject to applicable law, any overdue principal of and overdue interest on this Note shall bear interest, payable on demand in immediately available funds, for each day from the date payment thereof was due to the date of actual payment, at a rate equal to the rate of interest otherwise in effect pursuant to the first sentence of Section 2(a)(i) plus 10% per annum, and, upon and during the occurrence of an Event of Default (as hereinafter defined), this Note shall bear interest, from the date of the occurrence of such Event of Default until such Event of Default is cured or waived, payable on demand in immediately available funds, at a rate equal to the rate of interest otherwise in effect pursuant to the first sentence of Section 2(a)(i) plus 10% per annum. Subject to applicable law, any interest that shall accrue on overdue interest on this Note as provided in the preceding sentence and shall not have been paid in full on or before the next Interest Payment Date to occur after the Interest Payment Date on which the overdue interest became due and payable shall itself be deemed to be overdue interest on this Note to which the preceding sentence shall apply.

 

(c)           No Usurious Interest.  In the event that any interest rate provided for herein shall be determined to be unlawful, such interest rate shall be computed at the highest rate permitted by applicable law. Any payment by the Borrower of any interest amount in excess of that permitted by law shall be considered a mistake, with the excess being applied to the principal of this Note without prepayment premium or penalty; if no such principal amount is outstanding, such excess shall be returned to Borrower.

 

3.           Principal Payment.  The principal amount of this Note, including any Additional Principal (such total amount, the “Total Principal Amount”) shall be due and payable on the Maturity Date.

 

4.           Optional Prepayment.  This Note may not be prepaid in whole or in part.

 

5.           Amendment.  Any amendment, supplement or modification of or to any provision of this Note, any waiver of any provision of this Note, and any consent to any departure by any party from the terms of any provision of this Note, may be made (either generally or in a particular instance and either retroactively or prospectively) by a writing signed by the Borrower and either (i) the Holder or (ii) the Required Holders (as defined below), except that no such amendment or waiver by the Required Holders shall be effective unless consented to by the Holder, if such amendment or waiver by the Required Holders would (i) modify this Section 5 or change the definition of “Required Holders” or (ii) reduce any amounts payable to the Holder hereunder, extend the Maturity Date, extend the due date for, or reduce the amount of, any payment or prepayment of principal of or interest on this Note or reduce the Base Conversion Shares or the Additional Conversion Shares or increase the Conversion Price under this Note.  Any amendment or waiver effected by the Required Holders in accordance with this Section 5 shall be binding upon the Borrower, the Holder and the holders of all other Notes issued pursuant to the Purchase Agreement.  Any such amendment, supplement, modification, waiver or consent shall be effective only in the specific instance and for the specific purpose for which given.  For purposes of this Note, “Required Holders” means the holders of Notes representing at least sixty-seven percent (67%) of the aggregate principal amount of all Notes then outstanding.

 

  

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6.           Defaults and Remedies.

 

(a)           Events of Default.  An “Event of Default” shall occur if:

 

(i)           the Borrower shall default in the payment of the principal of this Note, when and as the same shall become due and payable, whether at maturity or at a date fixed for prepayment or by acceleration or otherwise; or

 

(ii)          the Borrower shall default in the payment of any installment of interest on this Note according to its terms, subject to Section 2(a)(ii) above, when and as the same shall become due and payable and such default shall continue for a period of 5 Business Days; or

 

(iii)         the Borrower shall default in the due observance or performance of any covenant to be observed or performed pursuant to Section 4.3 (Removal of Legend and Transfer Restrictions) of the Purchase Agreement; or

 

(iv)         the Borrower or any of its subsidiaries shall default in the due observance or performance of any other covenant, condition or agreement on the part of the Borrower or any of its subsidiaries to be observed or performed pursuant to the terms hereof or pursuant to the terms of the Purchase Agreement or any of the Transaction Agreements (other than those referred to in clauses (i), (ii) or (iii) of this Section 6(a)), and such default shall continue for 30 days after the earliest of (A) the date the Borrower is required pursuant to the Transaction Agreements or otherwise to give notice thereof to the Holder (whether or not such notice is actually given) or (B) the date of written notice thereof, specifying such default and, if such default is capable of being remedied, requesting that the same be remedied, shall have been given to the Borrower by the Holder; or

 

(v)         any representation, warranty or certification made by or on behalf of the Borrower or any of its subsidiaries in the Purchase Agreement, this Note, the other Transaction Agreements or in any certificate or other document delivered pursuant hereto or thereto shall have been incorrect in any material respect when made; or

 

(vi)        any event or condition shall occur that results in (A) the acceleration of the maturity of any indebtedness or other obligation of the Borrower or any of its subsidiaries, or (B) a default on any indebtedness or other obligation of the Borrower or any of its subsidiaries, which continues beyond any applicable period of cure, in either case of clause (A) or (B), in a principal amount aggregating $250,000 or more, other than in respect of trade payables which are the subject of a bona fide dispute and in respect of which the Borrower has set aside adequate reserves; or

 

(vii)       any uninsured damage to or loss, theft or destruction of any assets of the Borrower or any of its subsidiaries shall occur that is in excess of $250,000; or

 

  

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(viii)      an involuntary proceeding shall be commenced or an involuntary petition shall be filed in a court of competent jurisdiction seeking (a) relief in respect of the Borrower or any of its subsidiaries, or of a substantial part of its property or assets, under Title 11 of the United States Code, as now constituted or hereafter amended, or any other federal or state bankruptcy, insolvency, receivership or similar law, (b) the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Borrower or any of its subsidiaries, or for a substantial part of its property or assets, or (c) the winding up or liquidation of the Borrower or any of its subsidiaries; and such proceeding or petition shall continue undismissed for 60 days, or an order or decree approving or ordering any of the foregoing shall be entered; or

 

(ix)         the Borrower or any of its subsidiaries shall (a) voluntarily commence any proceeding or file any petition seeking relief under Title 11 of the United States Code, as now constituted or hereafter amended, or any other federal or state bankruptcy, insolvency, receivership or similar law, (b) consent to the institution of, or fail to contest in a timely and appropriate manner, any proceeding or the filing of any petition described in paragraph (viii) of this Section 6(a), (c) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Borrower or any of its subsidiaries, or for a substantial part of their property or assets, (d) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (e) make a general assignment for the benefit of creditors, (f) become unable, admit in writing its inability or fail generally to pay its debts as they become due or (g) take any action for the purpose of effecting any of the foregoing; or

 

(x)          one or more judgments for the payment of money in an aggregate amount in excess of $250,000 (to the extent not covered by insurance) shall be rendered against the Borrower or any of its subsidiaries and the same shall remain undischarged for a period of 30 consecutive days during which execution shall not be effectively stayed, or any action shall be legally taken by a judgment creditor to levy upon assets or properties of the Borrower or any of its subsidiaries to enforce any such judgment.

 

(b)          Acceleration.  If an Event of Default occurs under Section 6(a)(viii) or (ix), then the outstanding principal of and all accrued interest on this Note shall automatically become immediately due and payable, without presentment, demand, protest or notice of any kind, all of which are hereby expressly waived. If any other Event of Default occurs and is continuing the Holder, by written notice to the Borrower, may declare the principal of and accrued interest on this Note to be immediately due and payable. Upon such declaration, such principal and interest shall become immediately due and payable. The Holder may rescind an acceleration and its consequences if all existing Events of Default, except nonpayment of principal or interest that has become due solely because of the acceleration, have been cured or waived and if the rescission would not conflict with any judgment or decree. Any notice or rescission shall be given in the manner specified in Section 16.

 

  

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7.           Conversion.

 

(a)           Holder’s Right To Convert.

 

(i)           The principal amount of this Note shall be convertible, at the option of the Holder, at any time, or from time to time, in whole or in part, into that number of shares of the Series A-2 Convertible Preferred Stock, $.001 par value per share (the “Preferred Stock”), equal to a fraction, the numerator of which is the amount of the principal to be converted and the denominator of which is $5.70 as adjusted as provided below (as so adjusted, the “Conversion Price”).

 

(ii)          The option to convert into shares of Preferred Stock shall be exercised by the Holder (A) giving written notice to the Borrower, at its principal corporate office (including via facsimile or e-mail), of the election to convert the same and shall state therein the name or names in which the certificate or certificates for shares of Preferred Stock issuable upon conversion are to be issued, the principal amount of the Note being converted and the number of shares of Preferred Stock issuable upon such conversion (“Conversion Shares”) and (B) surrendering this Note for such purpose to the Borrower, or at any place where the Borrower shall maintain a transfer agent for its Preferred Stock.  At the time of the delivery of the notice referred to in clause (A) above, the individual, limited liability company, partnership, joint venture, corporation, trust, unincorporated organization or other entity (each, a “Person”) in whose name any certificate for shares of Preferred Stock shall be issuable upon such conversion shall be deemed to be the holder of record of such shares of Preferred Stock on such date, notwithstanding that the share register of the Borrower shall then be closed or that the certificates representing such Preferred Stock shall not then be actually delivered to such Person, provided that the original Note is received by the Borrower (or its transfer agent) within two (2) business days thereafter.  In all other cases, the Person in whose name any certificate shall be issuable upon such conversion shall be deemed to be the holder of record of such shares of Preferred Stock on the date of the surrender referred to in clause (B) above.  The date on which a conversion shall be deemed effective in accordance with the provisions hereof shall be defined as the “Conversion Date”.

 

(iii)         The Borrower shall deliver, or cause to be delivered, to the converting holder a physical certificate or certificates representing the number of Conversion Shares being acquired upon the conversion of this Note as well as a duly executed and authorized Note in respect of the remaining principal amount of the Note not subject to this notice of conversion not later than two business days after the applicable Conversion Date.  If in the case of any notice of conversion such certificate or certificates or replacement Note are not delivered to or as directed by, the applicable holder shall be entitled to elect to rescind such conversion notice, in whole or in part, by written notice (“Notice of Rescission”) to the Borrower at any time on or before its receipt of such certificate or certificates for Conversion Shares stated in the notice of conversion, in which event the Borrower shall promptly return to such holder the full principal amount of the Note delivered to the Borrower and such holder shall promptly return to the Borrower any Conversion Shares rescinded by the holder pursuant to the Notice of Rescission.

 

  

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(b)           Certain Events.

 

(i)           In case at any time prior to the conversion or payment of all of the principal of this Note:

 

(A)          the Borrower shall authorize the granting to all the holders of Preferred Stock of the Borrower of rights to subscribe for or purchase any shares of stock of any class or of any other rights; or

 

(B)           there shall be any reclassification of the Preferred Stock of the Borrower (other than a subdivision or combination of its outstanding Preferred Stock); or

 

(C)           there shall be any capital reorganization by the Borrower; or

 

(D)           there shall be an Organic Change (as hereinafter defined); or

 

(E)           there shall be voluntary or involuntary dissolution, liquidation and winding up by the Borrower or extraordinary dividend or distribution (other than regularly scheduled dividends paid in cash or in kind on the Preferred Stock as provided in the Borrower’s Certificate of Designation for such Preferred Stock) to holders of Preferred Stock;

 

then in any one or more of said cases, the Borrower shall cause to be delivered to the Holder, at the earliest practicable time (and, in any event, not less than the earlier of (x) fifteen (15) days before any record date for a vote of shareholders in respect of such event and (y) five (5) days following the execution of a definitive agreement in respect of such event), written notice of the date on which the books of the Borrower shall close or a record shall be taken for such dividend, distribution or subscription or purchase rights or such reclassification, reorganization, Organic Change, dissolution, liquidation or winding up shall take place, as the case may be.  Such notice shall also set forth such facts as shall indicate the effect of such action (to the extent such effect may be known at the date of such notice) on the Conversion Price relating to the conversion of the Notes into Preferred Stock and the kind and amount of the shares of stock and other securities and property deliverable upon conversion of the Notes.  Such notice shall also specify the date, if known, as of which the holders of record of the Preferred Stock shall participate in said dividend, distribution or subscription or purchase rights or shall be entitled to exchange their shares of the Preferred Stock for securities or other property (including cash) deliverable upon such reorganization, Organic Change, dissolution, liquidation or winding up, as the case may be.  Anything herein to the contrary notwithstanding, the Holder may give a notice of conversion of all or a portion of the Note as contemplated in Section 7(a)(ii) as well as a conversion of any shares of Preferred Stock, which may be conditioned upon the actual occurrence of the event which is the subject of the notice, it being the intention of Borrower and Holder that Holder shall be entitled to obtain the benefits of such conversion if such event actually occurs, but shall be entitled to retain this Note in full at its option if such event does not occur for any reason, and the Borrower agrees to take all such action, including issuing a new Note in order to assure to the Holder the benefits contemplated by this Section 7(b).

 

  

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(ii)           For purposes hereof, the term “Organic Change” means:

 

(A)      a consolidation, merger, exchange of shares, recapitalization, reorganization, business combination or other similar event, (1) following which the holders of Common Stock immediately preceding such consolidation, merger, exchange, recapitalization, reorganization, combination or event either (a) no longer hold a majority of the shares of Common Stock or (b) no longer have the ability to elect a majority of the board of directors of the Borrower or (2) as a result of which shares of Common Stock shall be changed into (or the shares of Common Stock become entitled to receive) the same or a different number of shares of the same or another class or classes of stock or securities of the Borrower or another entity (collectively, a “Change of Control Transaction”);

 

(B)       the sale or transfer in one transaction or a series of related transactions of (i) significant assets of the Borrower that have a value or a purchase price of more than $10 million, (ii) more than 50% of the Borrower’s assets or (iii) assets or proprietary rights of Borrower that are material to the operations and business of the Borrower and have a value or a purchase price of more than $2 million;

 

(C)       a purchase, tender or exchange offer made to the holders of outstanding shares of Common Stock, such that following such purchase, tender or exchange offer a Change of Control Transaction shall have occurred;

 

(D)       the liquidation, bankruptcy, insolvency, dissolution or winding-up (or the occurrence of any analogous proceeding) affecting the Borrower; or

 

(E)        the Common Stock ceases to be registered under Section 12 of the Securities Exchange Act, as amended.

 

(c)           Adjustment of Conversion Price. The Conversion Price shall be adjusted from time to time in the following manner upon the occurrence of the following events:

 

  

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(i)           Dividend, Subdivision, Combination or Reclassification of Preferred Stock.  If the Borrower shall, at any time or from time to time, (A) declare a dividend (other than regularly scheduled dividends paid in kind) on the Preferred Stock payable in shares of its capital stock (including Preferred Stock), (B) subdivide the outstanding Preferred Stock into a larger number of shares of Preferred Stock, (C) combine the outstanding Preferred Stock into a smaller number of shares of its Preferred Stock, or (D) issue any shares of its capital stock in a reclassification of the Preferred Stock (including any such reclassification in connection with a consolidation or merger in which the Borrower is the continuing corporation), then in each such case, the Conversion Price in effect at the time of the record date for such dividend or of the effective date of such subdivision, combination or reclassification shall be adjusted so that the Holder of this Note upon conversion after such date shall be entitled to receive the aggregate number and kind of shares of capital stock which, if this Note had been converted immediately prior to such date, such holder would have owned upon such conversion and been entitled to receive by virtue of such dividend, subdivision, combination or reclassification. Any such adjustment shall become effective immediately after the record date of such dividend or the effective date of such subdivision, combination or reclassification. Such adjustment shall be made successively whenever any event listed above shall occur. If a dividend (other than regularly scheduled dividends paid in kind) on the Preferred Stock payable in shares of its capital stock (including Preferred Stock) is declared and such dividend is not paid, the Conversion Price shall again be adjusted to be the Conversion Price, in effect immediately prior to such record date (giving effect to all adjustments that otherwise would be required to be made pursuant to this Section 7(c) from and after such record date).

 

(ii)          Certain Distributions. If the Borrower shall, at any time or from time to time, fix a record date for the distribution to all holders of Preferred Stock (including any such distribution made in connection with a consolidation or merger in which the Borrower is the continuing corporation) of evidences of indebtedness, assets or other property (other than regularly scheduled cash dividends or cash distributions payable out of consolidated earnings or earned surplus or dividends payable in capital stock for which adjustment is made under Subsection 7(c)(i)) or subscription rights, options or warrants, then the Conversion Price shall be reduced to the price determined by multiplying the Conversion Price in effect immediately prior to such record date by a fraction (which shall in no event be less than zero), the numerator of which shall be the Current Market Price (as determined below) per share of Preferred Stock on such record date (or, if an ex dividend date has been established for such record date, on the next day preceding such ex dividend date), less the fair market value (as determined in good faith by the Board of Directors of the Borrower) of the portion of the assets, evidences of indebtedness, other property, subscription rights or warrants so to be distributed applicable to one share of Preferred Stock and the denominator of which shall be such Current Market Price per share of Preferred Stock. Any such adjustment shall become effective immediately after the record date for such distribution. Such adjustments shall be made successively whenever such a record date is fixed. In the event that such distribution is not so made, the Conversion Price shall be adjusted to the Conversion Price in effect immediately prior to such record date (giving effect to all adjustments that otherwise would be required to be made pursuant to this Section 3 from and after such record date).

 

  

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(iii)         Determination of Current Market Price. For the purpose of any computation under Subsections 7(c)(ii) or any other provision of this Note, (A) the Current Market Price per share of Preferred Stock on any date shall be determined as follows: The Borrower, on the one hand, and the Required Holders, on the other hand, shall each promptly appoint as an appraiser an individual who shall be a member of a nationally recognized investment banking firm.  Each appraiser shall be instructed to, within 30 days of appointment, determine the Current Market Price per share of Preferred Stock which shall be deemed to be equal to the fair market value per share of Preferred Stock as of such date.  If the two appraisers are unable to agree on the Current Market Price per share of Preferred Stock within such 30 day period, then the two appraisers, within 10 days after the end of such 30 day period shall jointly select a third appraiser.  The third appraiser shall, within 30 days of its appointment, determine, in good faith, the Current Market Price per share of Preferred Stock and such determination shall be controlling.  If any party fails to appoint an appraiser or if one of the two initial appraisers fails after appointment to submit its appraisal within the required period, the appraisal submitted by the remaining appraiser shall be controlling.  The cost of the foregoing appraisals shall be borne by the Borrower.

 

(iv)         De Minimis Adjustments.  No adjustment shall be made under this Section 7(c) if the amount of such adjustment would result in a change in the Conversion Price of less than one percent (1%), but in such case any adjustment that would otherwise be required to be made shall be carried forward and shall be made at the time of and together with the next subsequent adjustment, which together with any adjustment so carried forward, would result in a change of at least one percent (1%).  Notwithstanding the provisions of the first sentence of this Subsection7(c)(iv), any adjustment postponed pursuant to this Subsection 7(c)(iv) shall be made no later than the earlier of the Maturity Date or the date on which the Note is converted.

 

(v)          Reorganization, Reclassification, Merger and Sale of Assets. If there occurs any capital reorganization or any reclassification of the Preferred Stock of the Borrower, the consolidation or merger of the Borrower with or into another Person (other than a merger or consolidation of the Borrower in which the Borrower is the continuing corporation and which does not result in any reclassification or change of outstanding shares of its Preferred Stock or Common Stock) or the sale or conveyance of all or substantially all of the assets of the Borrower to another Person, then the Holder will thereafter be entitled to receive, upon the conversion of this Note in accordance with the terms hereof, the same kind and amounts of securities (including shares of stock) or other assets, or both, which were issuable or distributable to the holders of outstanding Preferred Stock of the Borrower upon such reorganization, reclassification, consolidation, merger, sale or conveyance, in respect of that number of shares of Preferred Stock then deliverable upon the conversion of this Note if this Note had been exercised immediately prior to such reorganization, reclassification, consolidation, merger, sale or conveyance; and, in any such case, appropriate adjustments (as determined in good faith by the Board of Directors of the Borrower) shall be made to assure that the provisions hereof (including, without limitation, provisions with respect to changes in, and other adjustments of, the Conversion Price) shall thereafter be applicable, as nearly as reasonably may be practicable, in relation to any securities or other assets thereafter deliverable upon conversion of this Note.

 

  

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(vi)         Organic Change.  Anything contained in this Section 7 to the contrary notwithstanding, upon and at any time following the first Organic Change, if any, to occur, the aggregate total number of shares of Preferred Stock into which all or any portion of the principal amount of this Note may be converted shall be calculated to be the sum of (a) the number of shares of the Preferred Stock into which the amount of the principal amount of this Note then being converted would otherwise be converted as calculated under Section 7(a)(i) hereof (such number of shares, the “Base Conversion Shares”), plus (b) the number of shares of Preferred Stock equal to the product of (x) the Additional Share Coefficient (as such term is defined and determined for each $1,000 of principal amount of this Note on Schedule I attached hereto and made a part hereof) for such Organic Change and (y) a fraction the numerator of which is the amount of the principal amount of this Note then being converted and the denominator of which is $1,000 (such number of shares of Preferred Stock calculated in accordance with this clause (b), the “Additional Conversion Shares”).  Upon an Organic Change that is a Change of Control Transaction, the Holder shall be entitled to convert any or all of the principal amount of this Note into Base Conversion Shares and Additional Conversion Shares, and as part of the Organic Change, the Holder shall receive in exchange for such Base Conversion Shares and Additional Conversion Shares without converting such Base Conversion Shares and Additional Conversion Shares into share of Common Stock, such amount of cash, securities or other property as the Holder would have received had the Holder converted such Base Conversion Shares and Additional Conversion Shares into shares of Common Stock immediately prior to the record date established in connection with such Organic Change without regard to any limitations that may exist or may have existed on the right to convert such Base Conversion Shares and Additional Conversion Shares.  For the avoidance of doubt, to the extent following an Organic Change (whether in connection with a Change of Control Transaction or otherwise) any principal amount of this Note remains outstanding, such outstanding principal amount (or any portion thereof) shall be convertible at the option of the Holder into Base Conversion Shares and Additional Conversion Shares pursuant to this Section 7(c)(vii).

 

(vii)        Conversion Price on a Cure Amount Conversion.  Anything contained in this Agreement to the contrary notwithstanding, to the extent the Borrower converts any principal amount of this Note in connection with a Cure Amount (as such term is defined in that certain letter agreement, dated the date hereof, among the Holder, the other Investors named therein, the Management Members named therein and the Borrower (the "Cure Amount Letter Agreement") pursuant to the Cure Amount Letter Agreement, then the number of shares of Preferred Stock into which such principal amount of this Note shall convert shall be the greater of (x) the number of shares of Preferred Stock into which such principal amount of this Note would convert without regard to this Section 7(c)(vii) and (y) the number of shares of Preferred Stock into which such principal amount of this Note would convert if the Conversion Price were deemed to be the trailing five-day weighted average price of the Company's Common Stock on the OTC Bulletin Board as of the last completed trading day immediately preceding the date of conversion.

 

  

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(viii)       Certificate as to Adjustments. Whenever the Conversion Price shall be adjusted pursuant to the provisions hereof, the Borrower shall promptly give written notice thereof to the Holder, in accordance with Section 16, in the form of a certificate signed by the Chairman of the Board, President or a Vice President of the Borrower, and by the Chief Financial Officer, Treasurer or an Assistant Treasurer of the Borrower, stating the adjusted Conversion Price, and setting forth in reasonable detail the method of calculation and the facts requiring such adjustment and upon which such calculation is based. Each adjustment shall remain in effect until a subsequent adjustment is required.

 

(ix)         Fractional Shares. Notwithstanding an adjustment pursuant to Section 7(c) in the Conversion Price, the Borrower shall not be required to issue fractions of shares upon conversion of this Note or to distribute certificates which evidence fractional shares. In lieu of fractional shares, the Borrower may make payment to the Holder, at the time of conversion of this Note as herein provided, of an amount in cash equal to the product of (i) such fraction, multiplied by (ii) the number of shares of Common Stock into which one share of Preferred Stock is then convertible, multiplied by (iii) the closing price on the date of conversion of the Common Stock on NASDAQ, or, if that is not the principal trading market for the Common Stock, such principal market on which the Common Stock is traded or listed.

 

(d)           Notice of Proposed Actions. In case the Borrower shall propose at any time or from time to time (i) to declare or pay any dividend payable in stock of any class to the holders of Preferred Stock or Common Stock or to make any other distribution to the holders of Preferred Stock or Common Stock (other than regularly scheduled dividends paid in cash or in kind on the Preferred Stock), (ii) to offer to the holders of Preferred Stock or Common Stock rights or notes to subscribe for or to purchase any additional shares of Preferred Stock or shares of stock of any class or any other securities, rights, notes or options, (iii) to effect any reclassification of its Preferred Stock or Common Stock, (iv) to effect any consolidation, merger or sale, transfer or other disposition of all or substantially all of the property, assets or business of the Borrower which would, if consummated, adjust the Conversion Price or the securities issuable upon conversion of this note, (v) to effect the liquidation, dissolution or winding up of the Borrower, or (vi) to take any other action that would require a vote of the Borrower’s stockholders, then, in each such case, the Borrower shall give to the Holder, in accordance with Section 15, a written notice of such proposed action, which shall specify (A) the record date for the purposes of such stock dividend, distribution of rights or notes or vote of the stockholders of the Borrower, or if a record is not to be taken, the date as of which the holders of shares of Preferred Stock or Common Stock of record to be entitled to such dividend, distribution of rights or Notes, or vote is to be determined, or (B) the date on which such reclassification, consolidation, merger, sale, transfer, disposition, liquidation, dissolution or winding up is expected to become effective, and such notice shall be so given as promptly as possible but in any event at least ten (10) Business Days prior to the applicable record, determination or effective date specified in such notice.

 

  

12

  

8.           Certain Covenants of Borrower .

 

(a)           Use of Proceeds.  The Borrower shall use the principal amount of this Note in accordance with the permitted uses described in the Purchase Agreement.

 

(b)           Dividends/Distributions.  Without the prior written consent of the Required Investors, the Borrower shall not declare or pay dividends on, or make distributions with respect to, any capital stock of the Borrower.

 

9.           Reservation of Shares.  The Borrower shall reserve and keep available for issuance, free from preemptive rights, (i) out of its authorized but unissued shares of Preferred Stock, such number of shares of Preferred Stock into which this Note may from time to time be convertible and (ii) out of its authorized but unissued shares of Common Stock, such number of shares of Common Stock into which such Preferred Stock may from time to time be convertible.  The Borrower will take all such reasonable action as may be necessary to assure that such shares of Preferred Stock and Common Stock may be issued as provided herein without violation of any applicable law or regulation. Without limiting the generality of the foregoing, the Borrower covenants that it will use its best efforts to take all such action as may be necessary or appropriate in order that the Borrower may validly and legally issue fully paid and non-assessable shares of Preferred Stock upon the conversion of this Note and fully paid and non-assessable shares of Common Stock upon the conversion of such shares of Preferred Stock and that it will use its best efforts to obtain all such authorizations, exemptions or consents, including but not limited to consents from the Borrower’s shareholders or Board of Directors or any public regulatory body, as may be necessary to enable the Borrower to perform its obligations under this Note.

 

10.         Suits for Enforcement.  Upon the occurrence of any one or more Events of Default, the Holder of this Note may proceed to protect and enforce its rights hereunder by suit in equity, action at law or by other appropriate proceeding, whether for the specific performance of any covenant or agreement contained in the Purchase Agreement or this Note or in aid of the exercise of any power granted in the Purchase Agreement or this Note, or may proceed to enforce the payment of this Note, or to enforce any other legal or equitable right of the Holders of this Note, and the Borrower shall pay all costs of litigation and collection in connection therewith, including, without limitation, reasonable attorneys’ fees and court costs.

 

11.         Remedies Cumulative.  No remedy herein conferred upon the Holder is intended to be exclusive of any other remedy and each and every such remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing at law or in equity or by statute or otherwise.

 

12.         Remedies Not Waived.  No course of dealing between the Borrower and the Holder or any delay on the part of the Holder in exercising any rights hereunder shall operate as a waiver of any right.

 

  

13

  

13.         Transfer.

 

(a)           The term “Holder” as used herein shall also include any transferee of this Note whose name has been recorded by the Borrower in the Note Register. Each transferee of this Note acknowledges that this Note has not been registered under the Securities Act, and may be transferred only pursuant to an effective registration under the Securities Act or pursuant to an applicable exemption from the registration requirements of the Securities Act.

 

(b)           The Borrower shall maintain a register (the “Note Register”) in its principal offices for the purpose of registering the Note and any transfer or partial transfer thereof, which register shall reflect and identify, at all times, the ownership of record of any interest in the Note. Upon the issuance of this Note, the Borrower shall record the name and address of the initial purchaser of this Note in the Note Register as the first Holder. Upon surrender for registration of transfer or exchange of this Note at the principal offices of the Borrower, the Borrower shall, at its expense, execute and deliver one or more new Notes of like tenor registered in the name of the Holder or a transferee or transferees. Every Note surrendered for registration of transfer or exchange shall be duly endorsed, or be accompanied by written instrument of transfer duly executed by the Holder of such Note or such holder’s attorney duly authorized in writing.

 

(c)           Subject to the requirements of Section 13(a) above, this Note may be transferred or assigned, in whole or in part, by the Holder at any time.

 

14.         Replacement of Note.  On receipt by the Borrower of an affidavit of an authorized representative of the Holder stating the circumstances of the loss, theft, destruction or mutilation of this Note (and in the case of any such mutilation, on surrender and cancellation of such Note), the Borrower, at its expense, will promptly execute and deliver, in lieu thereof, a new Note of like tenor. If required by the Borrower, such Holder must provide indemnity sufficient in the reasonable judgment of the Borrower to protect the Borrower from any loss which they may suffer if a lost, stolen or destroyed Note is replaced.

 

15.         Covenants Bind Successors and Assigns.  All the covenants, stipulations, promises and agreements in this Note contained by or on behalf of the Borrower shall bind its successors and assigns, whether so expressed or not.

 

16.         Notices.  All notices, consents, waivers and other communications under this Note must be in writing and will be deemed given to a party:  (a) when delivered to the appropriate address of the Holder or the Borrower, as applicable, by hand or by nationally recognized overnight courier service (costs prepaid); (b) when sent by facsimile or e-mail to the Holder or the Borrower, as applicable, with confirmation of transmission by the transmitting equipment; (c) when received or rejected by the addressee, if sent by certified mail, return receipt requested, to the Holder or the Borrower, as applicable; or (d) seven days after the placement of the notice into the mails (first class postage prepaid), to the Holder or the Borrower, as applicable.  Such notices shall be sent to the address, facsimile number or e-mail address furnished by the registered Holder to the Borrower in accordance with the Purchase Agreement, or if to the Borrower, to it at 7400 Paseo Padre Parkway, Fremont, CA 94555, Facsimile:  510-651-4599, Attention: Don Huffman, Chief Financial Officer (or to such other address, facsimile number or e-mail address as the Holder or the Borrower as a party may designate by notice the other party) with a copy to Morrison & Foerster LLP, 425 Market Street, San Francisco, CA 94105, Attention: John M. Rafferty, Esq.

 

  

14

  

17.         GOVERNING LAW.  THIS NOTE SHALL BE GOVERNED BY, CONSTRUED IN ACCORDANCE WITH, AND ENFORCED UNDER, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS OR INSTRUMENTS ENTERED INTO AND PERFORMED ENTIRELY WITHIN SUCH STATE, EXCEPT TO THE EXTENT THE GENERAL CORPORATIONS LAW OF THE STATE OF NEVADA SHALL APPLY.

 

18.         Severability.  If any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions hereof shall not be in any way impaired, unless the provisions held invalid, illegal or unenforceable shall substantially impair the benefits of the remaining provisions hereof.

 

  

15

  

19.         Headings.  The headings in this Note are for convenience of reference only and shall not limit or otherwise affect the meaning hereof

 

	  	
WAFERGEN BIO-SYSTEMS, INC.

	  
	  	  	  	  
	  	
By: 

	  	  
	  	  	
Name:

	  
	  	  	
Title:

	  

  

16

  

Schedule I

ADDITIONAL SHARES OF PREFERRED STOCK

ISSUABLE PER $1,000 OF NOTE PRINCIPAL UPON CONVERSION

UPON AND FOLLOWING AN ORGANIC CHANGE

The “Additional Share Coefficient” shall mean the number of additional shares of Preferred Stock issuable per $1,000 of principal amount of the Note upon an Organic Change and shall be the additional share number set forth on the chart with respect to the “Share Price Result from the Organic Change” on the “x” axis and the corresponding “Date of Organic Change Prior to:” on the “y” axis; provided, however, that to the extent the actual Share Price Result (as defined below) falls between two data points on the “x” axis and/or the actual date of the Organic Change falls between two data points on the “y” axis, the “Additional Share Coefficient” shall be determined by calculating the arithmetic mean between (i) the result obtained for the Share Price Result based on the linear interpolation between the additional share numbers corresponding to the two Share Price Result data points and (ii) the result obtained for the Date of Organic Change based on the linear interpolation between the two additional share numbers corresponding to the two Date of Organic Change data points; and provided further, however, that in the event of any adjustment to the Conversion Price pursuant to Section 7 of this Agreement, the numbers of additional shares of Preferred Stock issuable per $1,000 of principal amount of this Note as set forth in the chart below shall be deemed adjusted pro rata with any adjustment resulting from the adjustment to the Conversion Price that would be made to the number of shares of Preferred Stock then convertible with respect to $1,000 of principal amount of this Note as calculated under Section 7(a)(i) of this Agreement.   For purposes of the chart below, the “Share Price Result” shall be the greater of:  (i) the closing price of the Common Stock on NASDAQ, or, if that is not the principal trading market for the Common Stock, such principal market on which the Common Stock is traded or listed (the “Closing Market Price”) on the trading day immediately preceding the date on which the Organic Change is consummated, (ii) the first Closing Market Price following the first public announcement of the Organic Change, or (iii) the Closing Market Price as of the date immediately preceding the first public announcement of the Organic Change.

	
Date of

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
Organic Change

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
Prior to

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
12/31/2011

	 	 	45	 	 	 	68	 	 	 	83	 	 	 	93	 	 	 	102	 	 	 	99	 	 	 	81	 	 	 	67	 	 	 	57	 	 	 	49	 
	
6/30/2012

	 	 	35	 	 	 	58	 	 	 	73	 	 	 	85	 	 	 	94	 	 	 	92	 	 	 	74	 	 	 	61	 	 	 	51	 	 	 	44	 
	
12/30/2012

	 	 	24	 	 	 	46	 	 	 	62	 	 	 	74	 	 	 	84	 	 	 	83	 	 	 	66	 	 	 	53	 	 	 	44	 	 	 	37	 
	
6/30/2013

	 	 	14	 	 	 	32	 	 	 	48	 	 	 	61	 	 	 	72	 	 	 	72	 	 	 	56	 	 	 	44	 	 	 	36	 	 	 	30	 
	
12/30/2013

	 	 	5	 	 	 	18	 	 	 	32	 	 	 	45	 	 	 	57	 	 	 	58	 	 	 	43	 	 	 	33	 	 	 	25	 	 	 	20	 
	
6/30/2014

	 	 	1	 	 	 	3	 	 	 	12	 	 	 	23	 	 	 	35	 	 	 	38	 	 	 	25	 	 	 	17	 	 	 	12	 	 	 	8	 
	
Maturity

	 	 	1	 	 	 	3	 	 	 	12	 	 	 	23	 	 	 	35	 	 	 	38	 	 	 	25	 	 	 	17	 	 	 	12	 	 	 	8	 
	  	 	$	0.10	 	 	$	0.20	 	 	$	0.30	 	 	$	0.40	 	 	$	0.50	 	 	$	0.60	 	 	$	0.70	 	 	$	0.80	 	 	$	0.90	 	 	 	>$1.00	 
	  	 	
Share Price Result from the Organic Change

	 

  

17Warrant Certificate No. _______

THE SECURITIES REPRESENTED HEREBY (AND THE SECURITIES ISSUABLE UPON THE EXERCISE HEREOF) HAVE BEEN ISSUED PURSUANT TO AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”).  THE HOLDER HEREOF, BY PURCHASING SUCH SECURITIES, AGREES FOR THE BENEFIT OF THE COMPANY THAT SUCH SECURITIES MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED UNLESS THE SECURITIES ARE REGISTERED UNDER THE SECURITIES ACT OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT IS AVAILABLE.  IN ADDITION, HEDGING TRANSACTIONS INVOLVING SUCH SECURITIES MAY NOT BE CONDUCTED UNLESS IN COMPLIANCE WITH THE SECURITIES ACT.

	
Effective Date: May 27, 2011

	
Void After: May 27, 2016

WAFERGEN BIO-SYSTEMS, INC.

WARRANT TO PURCHASE COMMON STOCK

WaferGen Bio-systems, Inc., a Nevada corporation (the “Company”), for value received on May 27, 2011 (the “Effective Date”), hereby issues to [                                        ] (the “Holder”) this Warrant (the “Warrant”) to purchase, [            ] shares of the Company’s Common Stock (as defined below) at the Exercise Price (as defined below), as adjusted from time to time as provided herein, on or before May 27, 2016 (the “Expiration Date”), all subject to the following terms and conditions.   The Warrant Shares (as defined below) issued upon exercise of this Warrant shall be subject to the provisions of the Company’s Amended and Restated Articles of Incorporation, a copy of which will be furnished to the holder hereof upon written request and without charge. Unless otherwise defined in this Warrant, terms appearing in initial capitalized form shall have the meaning ascribed to them in that certain Purchase Agreement, dated as of May 25, 2011 by and among the Company and the investors who have executed the signature page(s) thereto, entered into in connection with a private placement of the Company’s securities and pursuant to which this Warrant was issued (the “Purchase Agreement”).  This Warrant is one of a series of Warrants issued in accordance with the terms of the Purchase Agreement (collectively, the “Warrants”) to the Holder and additional investors (collectively, the “Holders”).

As used in this Warrant:

(i) “Affiliate” means any Person that, directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, a Person, as such terms are used and construed in Rule 144 promulgated under the Securities Act of 1933, as amended (the “Securities Act”);

  

  

  

(ii) “Black Scholes Value” means the value of this Warrant (or such applicable portion hereof being exercised) based on the Black Scholes Option Pricing Model using the criteria set forth on Schedule I hereto.  For purposes of determining the Black Scholes Value, this Warrant shall be deemed to be exercisable from and after the date of issuance of the Warrant regardless of any restrictions on exercisability, including, without limitation, pursuant to Section 1(c) hereof;

(iii) “Business Day” means any day other than Saturday, Sunday or any other day on which commercial banks in the City of New York, New York, are authorized or required by law or executive order to close;

(iv) “Cash-Out Organic Change” means an Organic Change in which the consideration payable to holders of the Common Stock in connection with the Organic Change consists solely of cash;

(v) “Common Stock” means (i) the Company’s shares of Common Stock, par value $0.001 per share, and (ii) any share capital into which such Common Stock shall have been changed or any share capital resulting from a reclassification of such Common Stock;

(vi) “Exercise Price” means $0.62 per whole share of Common Stock, subject to adjustment as provided herein;

(vii) “Mixed Organic Change” means an Organic Change where the consideration payable to stockholders of the Company consists partially of cash and partially of securities of a successor entity.  If the successor entity is a Publicly Traded Successor Entity, the percentage of consideration represented by securities of such successor entity shall be equal to the quotient of (x) the product of the aggregate anticipated number of shares of the Publicly Traded Successor Entity to be issued (based on the Trading Day preceding the first public announcement of the Mixed Organic Change) to holders of the Common Stock of the Company multiplied by the closing market price for such shares of the Publicly Traded Successor Entity on its principal securities exchange on the Trading Day preceding the first public announcement of the Mixed Organic Change, divided by (y) the sum of the amount determined in subclause (x) plus the aggregate value of other consideration, including cash consideration, in such Organic Change.  If the successor entity is not a Publicly Traded Successor Entity, the percentage of consideration represented by securities of such successor entity shall be as mutually determined in good faith by the Holder and the Company's Board of Directors.

(viii) “Organic Change” means:

 

(A)  a consolidation, merger, exchange of shares, recapitalization, reorganization, business combination or other similar event, (1) following which the holders of Common Stock immediately preceding such consolidation, merger, exchange, recapitalization, reorganization, combination or event either (a) no longer hold a majority of the shares of Common Stock or (b) no longer have the ability to elect a majority of the board of directors of the Company or (2) as a result of which shares of Common Stock shall be changed into (or the shares of Common Stock become entitled to receive) the same or a different number of shares of the same or another class or classes of stock or securities of the Company or another entity (collectively, a “Change of Control Transaction”);

  

2

  

(B)  the sale or transfer in one transaction or a series of related transactions of (i) significant assets of the Borrower that have a value or a purchase price of more than $10 million, (ii) more than 50% of the Borrower’s assets or (iii) assets or proprietary rights of the Borrower that are material to the operations and business of the Borrower and have a value or a purchase price of more than $2 million;

(C)  a purchase, tender or exchange offer made to the holders of outstanding shares of Common Stock, such that following such purchase, tender or exchange offer a Change of Control Transaction shall have occurred;

(D)  the liquidation, bankruptcy, insolvency, dissolution or winding-up (or the occurrence of any analogous proceeding) affecting the Company; or

(E)  the Common Stock ceases to be registered under Section 12 of the Securities Exchange Act, as amended (the “Exchange Act”).

(ix) “Person” means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization, any other entity and a government or any department or agency thereof;

(x) “Publicly Traded Successor Entity” means a successor entity that is a publicly traded corporation whose common stock is quoted on or listed for trading on the over the counter Bulletin Board, the New York Stock Exchange, Inc., the NYSE Arca, the NASDAQ Capital Market, the NASDAQ Global Market, the NASDAQ Global Select Market or the American Stock Exchange;

(xi) “Trading Day” means any day on which the Common Stock is traded on the primary national or regional stock exchange on which the Common Stock is listed, or if not so listed, the OTC Bulletin Board, if quoted thereon, is open for the transaction of business, provided that “Trading Day” shall not include any day on which the Common Stock are scheduled to trade on such exchange or market for less than 4.5 hours or any day that the Common Stock are suspended from trading during the final hour of trading on such exchange or market (or if such exchange or market does not designate in advance the closing time of trading on such exchange or market, then during the hour ending at 4:00:00 p.m., New York City time);

(xii) Warrant Shares” means the shares of Common Stock issuable upon exercise of the Warrant, including any securities issued or issuable with respect thereto or into which or for which such shares may be exchanged, or converted, pursuant to any stock dividend, stock split, stock combination, recapitalization, reclassification, reorganization or other similar event; and

  

3

  

(xiii) “Weighted Average Price” means, for any security as of any date, the dollar volume-weighted average price for such security on its principal securities exchange or quotation system during the period beginning at 9:30:01 a.m., New York City time, and ending at 4:00:00 p.m., New York City time, as reported by Bloomberg through its “Volume at Price” function or, if the foregoing does not apply, the dollar volume-weighted average price of such security in the over-the-counter market on the electronic bulletin board for such security during the period beginning at 9:30:01 a.m., New York City time, and ending at 4:00:00 p.m., New York City time, as reported by Bloomberg, or, if no dollar volume-weighted average price is reported for such security by Bloomberg for such hours, the average of the highest closing bid price and the lowest closing ask price of any of the market makers for such security as reported in the “pink sheets” by Pink Sheets LLC (formerly the National Quotation Bureau, Inc.).  If the Weighted Average Price cannot be calculated for such security on such date on any of the foregoing bases, the Weighted Average Price of such security on such date shall be the fair market value as mutually and reasonably determined in good faith by the Company and the Holder.  If the Company and the Holder are unable to agree upon the fair market value of such security, then such dispute shall be resolved pursuant to Section 15 with the term “Weighted Average Price” being substituted for the term “Exercise Price.”  All such determinations shall be appropriately adjusted for any share dividend, share split or other similar transaction during such period

	
1.

	
DURATION AND EXERCISE OF WARRANT

(a)          Exercise Period.  Subject to the terms of this Warrant, the Holder may exercise this Warrant at any time and from time to time, in whole or in part, on any Business Day on or before 5:00 P.M., Eastern Time, on the Expiration Date, at which time this Warrant shall become void and of no value, and all rights hereunder shall thereupon cease.

	
  

	
(b)

	
Exercise Procedures.

(i)           While this Warrant remains outstanding and exercisable in accordance with Section 1(a), the Holder may exercise this Warrant, in whole or in part, as follows:

(A)           By presentation and surrender of this Warrant to the Company at its principal offices or at such other office or agency as the Company may specify in writing to the Holder, with a duly executed copy of the Notice of Exercise attached as Exhibit A; and

(B)           Payment of the then-applicable Exercise Price per share multiplied by the number of Warrant Shares being purchased upon exercise of the Warrant (such amount, the “Aggregate Exercise Price”) made in the form of cash, or by certified check, bank draft or money order payable in lawful money of the United States of America or in the form of a Cashless Exercise (as defined below) to the extent permitted in Section 1(b)(ii) below.

(ii)          In addition, while this Warrant remains outstanding and exercisable in accordance with Section 1(a), the Holder may also, in its sole discretion, exercise all or any part of the Warrant in a “cashless” or “net-issue” exercise (a “Cashless Exercise”) by delivering to the Company (1) the Notice of Exercise and (2) the original Warrant, pursuant to which the Holder shall surrender the right to receive upon exercise of this Warrant, a number of Warrant Shares having a fair market value (as determined below) equal to the Aggregate Exercise Price, in which case, the number of Warrant Shares to be issued to the Holder upon such exercise shall be calculated using the following formula:

  

4

  

X              =              Y * (A - B)

                                                  A

	
  

	
with:

	
X =

	
the number of Warrant Shares to be issued to the Holder

	
  

	
Y =

	
the number of Warrant Shares with respect to which the Warrant is being exercised

	
  

	
A =

	
the fair market value per share of Common Stock on the date of exercise of the Warrant

	
  

	
B =

	
the then-current Exercise Price of the Warrant

Solely for the purposes of this Section 1(b)(ii), “fair market value” per share of Common Stock shall mean (A) if the Common Stock is publicly traded, the average of the closing sales prices, as quoted on the primary national or regional stock exchange on which the Common Stock is listed, or, if not listed, the OTC Bulletin Board if quoted thereon, on the twenty (20) Trading Days immediately preceding the date on which the Notice of Exercise is deemed to have been sent to the Company, or (B) if the Common Stock is not publicly traded as set forth in clause (A) of this sentence, as reasonably and in good faith determined by the Board of Directors of the Company as of the date which the Notice of Exercise is deemed to have been sent to the Company.

For purposes of Rule 144(d) promulgated under the Securities Act, as in effect on the date hereof, it is intended that the Warrant Shares issued in a Cashless Exercise shall be deemed to have been acquired by the Holder, and the holding period for the Warrant Shares shall be deemed to have commenced, on the date this Warrant was originally issued pursuant to the Purchase Agreement.

  

5

  

(iii)         Upon the exercise of this Warrant in compliance with the provisions of this Section 1(b), the Company shall promptly issue and cause to be delivered to the Holder a certificate for the total number of Warrant Shares for which this Warrant is being exercised.  Each exercise of this Warrant shall be effective immediately prior to the close of business on the date (the “Date of Exercise”) on which the conditions set forth in Section 1(b) have been satisfied. On or before the second Business Day following the date on which the Company has received each of the Notice of Exercise and the Aggregate Exercise Price (or notice of a Cashless Exercise in accordance with Section 1(b)(ii)) (the “Exercise Delivery Documents”), the Company shall transmit an acknowledgment of receipt of the Exercise Delivery Documents to the Company’s transfer agent (the “Transfer Agent”). On or before the fifth Business Day following the date on which the Company has received all of the Exercise Delivery Documents (the “Share Delivery Date”), the Company shall (X) provided that the Transfer Agent is participating in The Depository Trust Company (“DTC”) Fast Automated Securities Transfer Program and either (A) there is an effective Registration Statement permitting the resale of the Warrant Shares by the Holder or (B) the shares are eligible for resale without volume or manner-of-sale limitations pursuant to Rule 144, upon the request of the Holder credit such aggregate number of shares of Common Stock to which the Holder is entitled pursuant to such exercise to the Holder’s or its designee’s balance account with DTC through its Deposit Withdrawal Agent Commission system, or (Y) if the Transfer Agent is not participating in the DTC Fast Automated Securities Transfer Program, issue and dispatch by overnight courier to the address as specified in the Notice of Exercise, a certificate, registered in the Company’s share register in the name of the Holder or its designee, for the number of shares of Common Stock to which the Holder is entitled pursuant to such exercise.  Upon delivery of the Exercise Delivery Documents, the Holder shall be deemed for all corporate purposes to have become the holder of record of the Warrant Shares with respect to which this Warrant has been exercised, irrespective of the date of delivery of the certificates evidencing such Warrant Shares. If the number of Warrant Shares represented by this Warrant is greater than the actual number of Warrant Shares being acquired upon such an exercise, then the Company shall as soon as practicable and in no event later than five (5) Business Days after any exercise, and at its own expense, issue a new Warrant of like tenor representing the right to purchase the number of Warrant Shares purchasable immediately prior to such exercise under this Warrant, less the number of Warrant Shares with respect to which this Warrant is exercised.

(iv)         If the Company shall fail for any reason or for no reason to issue to the Holder, within five (5) Business Days of receipt of the Exercise Delivery Documents, a certificate for the number of shares of Common Stock to which the Holder is entitled and register such shares of Common Stock on the Company’s share register or to credit the Holder’s balance account with DTC for such number of shares of Common Stock to which the Holder is entitled upon the Holder’s exercise of this Warrant, and if on or after such Business Day the Holder purchases (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by the Holder of shares of Common Stock issuable upon such exercise that the Holder anticipated receiving from the Company (a “Buy-In”), then the Company shall, within five (5) Business Days after the Holder’s request and in the Holder’s discretion, either (i) pay cash to the Holder in an amount equal to the Holder’s total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased (the “Buy-In Price”), at which point the Company’s obligation to deliver such certificate (and to issue such shares of Common Stock) shall terminate, or (ii) promptly honor its obligation to deliver to the Holder a certificate or certificates representing such shares of Common Stock and pay cash to the Holder in an amount equal to the excess (if any) of the Buy-In Price over the product of (A) such number of shares of Common Stock, times (B) the closing bid price on the date of exercise.

  

6

  

(c)          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, 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 Person acting as a group together with the Holder or any of the Holder’s Affiliates), would beneficially own in excess of the Beneficial Ownership Limitation (as defined below); provided, however, that from immediately prior to an Organic Change, such restriction on the exercise of this Warrant shall not apply if the Holder (together with the Holder’s Affiliates, and any other Person acting as a group together with the Holder or any of the Holder’s Affiliates) would not, immediately following such Organic Change, beneficially own more than 9.98% of any class of equity securities of a Publicly Traded Successor Entity (or of a surviving entity’s parent, which parent is a publicly traded company) in such Organic Change, which such beneficial ownership shall be calculated in accordance with the provisions of this Section 1(c).  For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its Affiliates shall include the number of shares of Common Stock issuable upon exercise of this Warrant with respect to which such determination is being made and the number of shares of Common Stock issuable upon the exercise or conversion of the unexercised or nonconverted portion of any other securities of the Company exercisable or convertible into Common Stock of the Company, but shall exclude the number of shares of Common Stock which would be issuable upon (A) exercise of the remaining, nonexercised portion of this Warrant beneficially owned by the Holder or any of its Affiliates and (B) exercise or conversion of the unexercised or nonconverted portion of any other securities of the Company that are exercisable or convertible into Common Stock of the Company, but where such securities are subject to a limitation on conversion or exercise analogous to the limitation contained herein, beneficially owned by the Holder or any of its Affiliates.  Except as set forth in the preceding sentence, for purposes of this Section 1(c), 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 1(c) applies, the determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates) 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 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 1(c), in determining the number of outstanding shares of Common Stock, a Holder may rely on the number of outstanding shares of Common Stock as reflected in (A) the Company’s most recent periodic or annual report, as the case may be, (B) a more recent public announcement by the Company or (C) any other notice by the Company or the Transfer Agent setting forth the number of shares of Common Stock outstanding.  Upon the written or oral request of a Holder, the Company shall within two Trading Days confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding.  In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Warrant, by the Holder or its Affiliates since the date as of which such number of outstanding shares of Common Stock was reported.  The “Beneficial Ownership Limitation” shall be 9.98% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon exercise of this Warrant. The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 1(c) 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.

  

7

  

(d)          Partial Exercise.  This Warrant shall be exercisable, either in its entirety or, from time to time, for part only of the number of Warrant Shares referenced by this Warrant. If this Warrant is exercised in part, the Company shall issue, at its expense, a new Warrant, in substantially the form of this Warrant, referencing such reduced number of Warrant Shares that remain subject to this Warrant.

 

(e)          Disputes.  In the case of a dispute as to the determination of the Exercise Price or the arithmetic calculation of the Warrant Shares, the Company shall promptly issue to the Holder the number of Warrant Shares that are not disputed and resolve such dispute in accordance with Section 15.

	
2.

	
ISSUANCE OF WARRANT SHARES

(a)          The Company covenants that all Warrant Shares will, upon issuance in accordance with the terms of this Warrant, be (i) duly authorized, fully paid and non-assessable, and (ii) free from all liens, charges and security interests, with the exception of claims arising through the acts or omissions of the Holder and except as arising from applicable federal and state securities laws.

(b)          The Company shall register this Warrant upon records to be maintained by the Company for that purpose in the name of the record holder of such Warrant from time to time. The Company may deem and treat the registered Holder of this Warrant as the absolute owner thereof for the purpose of any exercise thereof, any distribution to the Holder thereof and for all other purposes.

(c)          The Company will not, by amendment of its articles of incorporation or by-laws 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 to be observed or performed hereunder by the Company, but will at all times in good faith assist in the carrying out of all the provisions of this Warrant and in the taking of all action necessary or appropriate in order to protect the rights of the Holder to exercise this Warrant, or against impairment of such rights.

	
3.

	
ADJUSTMENTS OF EXERCISE PRICE, NUMBER AND TYPE OF WARRANT SHARES

(a)          The Exercise Price and the number of shares purchasable upon the exercise of this Warrant shall be subject to adjustment from time to time upon the occurrence of certain events described in this Section 3(a); provided, that notwithstanding the provisions of this Section 3(a), the Company shall not be required to make any adjustment if and to the extent that such adjustment would require the Company to issue a number of shares of Common Stock in excess of its authorized but unissued shares of Common Stock, less all shares of Common Stock that have been reserved for issuance upon the conversion of all outstanding securities convertible into shares of Common Stock and the exercise of all outstanding options, warrants and other rights exercisable for shares of Common Stock.  If the Company does not have the requisite number of authorized but unissued shares of Common Stock to make any adjustment, the Company shall use its best efforts to obtain the necessary shareholder consent to increase the authorized number of shares of Common Stock to make such an adjustment pursuant to this Section 3(a).

  

8

  

(i)           Subdivision or Combination of Stock.  If the Company at any time after the date of issuance of this Warrant subdivides (by any stock split, stock dividend, recapitalization or otherwise) its outstanding shares of Common Stock into a greater number of shares, the Exercise Price in effect immediately prior to such subdivision shall be proportionately reduced and the number of Warrant Shares shall be proportionately increased.  If the Company at any time after the date of issuance of this Warrant combines (by combination, reverse stock split or otherwise) its outstanding shares of Common Stock into a smaller number of shares, the Exercise Price in effect immediately prior to such combination will be proportionately increased and the number of Warrant Shares shall be proportionately decreased.  Any adjustment under this Section 3(a)(i) shall become effective at the close of business on the date the subdivision or combination becomes effective.  The Exercise Price and the Warrant Shares, as so adjusted, shall be readjusted in the same manner upon the happening of any successive event or events described in this Section 3(a)(i).

(ii)          Distribution of Assets.  If the Company shall declare or make any dividend or other distribution of its assets (or rights to acquire its assets) to holders of Common Stock, by way of return of capital or otherwise (including, without limitation, any distribution of cash, stock or other securities, property or options by way of a dividend, spinoff, reclassification, corporate rearrangement or other similar transaction) (a “Distribution”), at any time after the issuance of this Warrant, then, in each such case, the Holder hereof shall be entitled to receive simultaneously with such Distribution, without payment of any additional consideration therefor, the amount of dividends or other distributions that the Holder would have received if the Holder had, immediately prior to the record date with respect to such Distribution, exercised in full any portion of this Warrant not theretofore exercised.

(iii)         Reorganization, Reclassification, Consolidation, Merger or Sale. If any Organic Change shall be effected, then, as a condition of such Organic Change, lawful and adequate provisions shall be made by the Company whereby upon any subsequent exercise of this Warrant, the Holder hereof shall thereafter have the right to purchase and receive (in lieu of the shares of Common Stock of the Company immediately theretofore purchasable and receivable upon the exercise of the rights represented by this Warrant) such shares of stock, securities or other assets or property that the Holder would have received upon or as a result of such Organic Change if the Holder had exercised this Warrant immediately prior to such event.  In the event of any Organic Change, appropriate provision shall be made by the Company with respect to the rights and interests of the Holder of this Warrant to the end that the provisions hereof (including, without limitation, provisions for adjustments of the Exercise Price and of the number of shares purchasable and receivable upon the exercise of this Warrant) shall thereafter be applicable, in relation to any shares of stock, securities or other assets or property thereafter deliverable upon the exercise hereof.  If holders of shares of Common Stock of the Company are given any choice as to the shares of stock, securities or other assets or property to be received in an Organic Change, then the Holder shall be given the same choice as to shares of stock, securities or other assets or property it receives upon any exercise of this Warrant following such Organic Change.  The Company will not effect any such consolidation, merger or sale unless, prior to the consummation thereof, the successor corporation (if other than the Company) resulting from such consolidation or merger or the corporation purchasing such assets shall assume by written instrument reasonably satisfactory in form and substance to the Holder executed and mailed or delivered to the registered Holder hereof at the last address of such Holder appearing on the books of the Company, the obligation to deliver to such Holder such shares of stock, securities or other assets or property as, in accordance with the foregoing provisions, such Holder may be entitled to purchase. If there is an Organic Change, then the Company shall cause to be mailed to the Holder at its last address as it shall appear on the books and records of the Company, at least 10 calendar days before the effective date of the Organic Change, a notice stating the date on which such Organic Change is expected to become effective or close, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their shares for such shares of stock, securities or other assets or property delivered upon such Organic Change; provided that the failure to mail such notice or any defect therein or in the mailing thereof shall not affect the validity of the corporate action required to be specified in such notice.

  

9

  

Notwithstanding the foregoing, at any time during the period beginning after the Holder’s receipt of the notice from the Company of an Organic Change and ending on the effective date of such Organic Change, the holder may require the Company to redeem (a “Redemption Upon Organic Change”) all or any portion of this Warrant not to be so assumed pursuant to the provisions of this Section 3(a)(iii) by delivering written notice thereof (“Organic Change Redemption Notice”) to the Company, which Organic Change Redemption Notice shall indicate the portion of the remaining unexercised portion of this Warrant that the Holder is electing to have redeemed.  The portion of this Warrant to be redeemed pursuant to this Section 3(a)(iii) shall be redeemed by the Company at a price payable (x) in the case of a Cash-Out Organic Change or in the case of a Mixed Organic Change to the extent of the percentage of the cash consideration in such Mixed Organic Change (determined in accordance with the definition of a Mixed Organic Change below), in cash equal to the Black Scholes Value, and (y) in the case of a Organic Change not described in the foregoing subclause (x) or to the extent of the percentage of the consideration represented by securities of the successor entity in a Mixed Organic Change (as determined in accordance with the definition of Mixed Organic Change below), in a number of shares of the Common Stock equal to the Black Scholes Value of the portion of this Warrant subject to redemption under this clause (y) divided by ninety-five percent (95%) of the Weighted Average Price of the Common Stock on the principal securities exchange or other securities market on which the Common Stock is then being traded on the Trading Day immediately preceding the date on which the Organic Change is consummated.

Following the receipt of an Organic Change Redemption Notice from the Holder with respect to such Organic Change, the Company shall not effect such Organic Change  unless it shall first place into an escrow account with an independent escrow agent, at least three (3) Business Days prior to the closing date of the Organic Change, cash or an amount in shares of Common Stock (or irrevocable instructions to the transfer agent to issue such shares), as applicable, equal to the Black Sholes Value; provided, however, that the Company will not be required to deposit cash in escrow to the extent it does not have sufficient liquid assets to reasonably fund the escrow. Concurrently upon closing of such Organic Change, the Company shall pay or shall instruct the escrow agent to pay the applicable cash and/or to deliver the applicable shares to the Holder. For purposes of determining the amount required to be placed in escrow pursuant to the provisions of this paragraph and without affecting the actual amount of cash and/or shares comprising the redemption price, the calculation of the price referred to in clause (1) of the first column of Schedule 1 hereto with respect to Stock Price shall be determined based on the Closing Market Price (as defined on Schedule I) of the Common Stock on the Trading Day immediately preceding the date that the funds and/or applicable shares, as applicable, are deposited with the escrow agent.

  

10

  

The terms of any agreement pursuant to which an Organic Change is effected shall include terms requiring any successor corporation (if other than the Company) resulting from an Organic Change or any entity purchasing assets in an Organic Change to comply with the provisions of this Section 3(a)(iii) and ensuring that the provisions of this Warrant (or any such replacement security) shall similarly apply to subsequent transactions analogous to an Organic Change.  In any event, the successor entity (if other than the Company) resulting from an Organic Change or any entity purchasing the majority of assets in an Organic Change shall be deemed to assume such obligations even in the absence of a written instrument to the extent such assumption occurs by operation of law.

(b)         Certificate as to Adjustments. Upon the occurrence of each adjustment or readjustment pursuant to this Section 3, the Company at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and furnish to the Holder of this Warrant a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Company shall promptly furnish or cause to be furnished to the Holder a like certificate setting forth: (i) such adjustments and readjustments; and (ii) the number of shares and the amount, if any, of other property which at the time would be received upon the exercise of the Warrant.

(c)         Certain Events. If any event occurs as to which the other provisions of this Section 3 are not strictly applicable but the lack of any adjustment would not fairly protect the purchase rights of the Holder under this Warrant in accordance with the basic intent and principles of such provisions, or if strictly applicable would not fairly protect the purchase rights of the Holder under this Warrant in accordance with the basic intent and principles of such provisions, then the Company’s Board of Directors will, in good faith and subject to applicable law, make an appropriate adjustment to protect the rights of the Holder; provided, that no such adjustment pursuant to this Section 3(c) will increase the Exercise Price or decrease the number of Warrant Shares except as otherwise determined pursuant to this Section 3.

  

11

  

	
4.

	
TRANSFERS AND EXCHANGES OF WARRANT AND WARRANT SHARES

(a)         Registration of Transfers and Exchanges. Subject to Section 4(c), upon the Holder’s surrender of this Warrant, with a duly executed copy of the Form of Assignment attached as Exhibit B, to the Secretary of the Company at its principal offices or at such other office or agency as the Company may specify in writing to the Holder, the Company shall register the transfer of all or any portion of this Warrant. Upon such registration of transfer, the Company shall issue a new Warrant, in substantially the form of this Warrant, evidencing the acquisition rights transferred to the transferee and a new Warrant, in similar form, evidencing the remaining acquisition rights not transferred, to the Holder requesting the transfer.

(b)         Warrant Exchangeable for Different Denominations. The Holder may exchange this Warrant for a new Warrant or Warrants, in substantially the form of this Warrant, evidencing in the aggregate the right to purchase the number of Warrant Shares that may then be purchased hereunder, each of such new Warrants to be dated the date of such exchange and to represent the right to purchase such number of Warrant Shares as shall be designated by the Holder. The Holder shall surrender this Warrant with duly executed instructions regarding such re-certification of this Warrant to the Secretary of the Company at its principal offices or at such other office or agency as the Company may specify in writing to the Holder.

(c)         Restrictions on Transfers. This Warrant may not be transferred at any time without (i) registration under the Securities Act or (ii) an exemption from such registration and a written opinion of legal counsel addressed to the Company that the proposed transfer of the Warrant may be effected without registration under the Securities Act, which opinion will be in form and from counsel reasonably satisfactory to the Company.

(d)         Permitted Transfers and Assignments.  Notwithstanding any provision to the contrary in this Section 4, the Holder may transfer, with or without consideration, this Warrant or any of the Warrant Shares (or a portion thereof) to the Holder’s Affiliates (as such term is defined under Rule 144 of the Securities Act) without obtaining the opinion from counsel that may be required by Section 4(c)(ii); provided that the Holder delivers to the Company and its counsel certification, documentation, and other assurances reasonably required by the Company’s counsel to enable the Company’s counsel to render an opinion to the Company’s Transfer Agent that such transfer does not violate applicable securities laws.

	
5.

	
MUTILATED OR MISSING WARRANT CERTIFICATE

If this Warrant is mutilated, lost, stolen or destroyed, upon request by the Holder, the Company will, at its expense, issue, in exchange for and upon cancellation of the mutilated Warrant, or in substitution for the lost, stolen or destroyed Warrant, a new Warrant, in substantially the form of this Warrant, representing the right to acquire the equivalent number of Warrant Shares; provided that, as a prerequisite to the issuance of a substitute Warrant, the Company may require satisfactory evidence of loss, theft or destruction as well as an indemnity from the Holder of a lost, stolen or destroyed Warrant.

  

12

  

	
6.

	
PAYMENT OF TAXES

The Company will pay all transfer and stock issuance taxes attributable to the preparation, issuance and delivery of this Warrant and the Warrant Shares (and replacement Warrants) including, without limitation, all documentary and stamp taxes; provided, however, that the Company shall not be required to pay any tax in respect of the transfer of this Warrant, or the issuance or delivery of certificates for Warrant Shares or other securities in respect of the Warrant Shares to any Person other than to the Holder.

	
7.

	
FRACTIONAL WARRANT SHARES

No fractional Warrant Shares shall be issued upon exercise of this Warrant. The Company, in lieu of issuing any fractional Warrant Share, shall round up the number of Warrant Shares issuable to nearest whole share. The Company shall not be required to make any cash or other adjustment in respect of such fraction of a share to which the Holder would otherwise be entitled.

	
8.

	
NO EQUITY INTEREST RIGHTS AND LEGEND

No holder of this Warrant, as such, shall be entitled to vote or be deemed the holder of any other securities of the Company that may at any time be issuable on the exercise hereof, nor shall anything contained herein be construed to confer upon the holder of this Warrant, as such, the rights of a shareholder of the Company or the right to vote for the election of directors or upon any matter submitted to shareholders at any meeting thereof, or give or withhold consent to any corporate action or to receive notice of meetings or other actions affecting shareholders (except as provided herein), or to receive dividends or subscription rights or otherwise (except as provide herein).

Each certificate for Warrant Shares initially issued upon the exercise of this Warrant, and each certificate for Warrant Shares issued to any subsequent transferee of any such certificate, shall be stamped or otherwise imprinted with a legend in substantially the following form:

THE SECURITIES REPRESENTED HEREBY HAVE BEEN ISSUED PURSUANT TO AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”).  THE HOLDER HEREOF, BY PURCHASING SUCH SECURITIES, AGREES FOR THE BENEFIT OF THE COMPANY THAT SUCH SECURITIES MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED UNLESS THE SECURITIES ARE REGISTERED UNDER THE SECURITIES ACT OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT IS AVAILABLE.  IN ADDITION, HEDGING TRANSACTIONS INVOLVING SUCH SECURITIES MAY NOT BE CONDUCTED UNLESS IN COMPLIANCE WITH THE SECURITIES ACT.

  

13

  

	
9.

	
REGISTRATION UNDER THE SECURITIES ACT OF 1933

The Company has agreed to provide certain registration rights for the resale of the Warrant Shares under the Securities Act on the terms and subject to the conditions set forth in the Registration Rights Agreement between the Company and each of the investors party to such Registration Rights Agreement and the Purchase Agreement pursuant to which this Warrant was issued.

	
10.

	
NOTICES

           All notices, consents, waivers and other communications under this Warrant must be in writing and will be deemed given to a party:  (a) when delivered to the appropriate address of the Holder or the Company, as applicable, by hand or by nationally recognized overnight courier service (costs prepaid); (b) when sent by facsimile or e-mail to the Holder or the Company, as applicable, with confirmation of transmission by the transmitting equipment; (c) when received or rejected by the addressee, if sent by certified mail, return receipt requested, to the Holder or the Company, as applicable; or (d) seven days after the placement of the notice into the mails (first class postage prepaid), to the Holder or the Company, as applicable.  Such notices shall be sent to the address, facsimile number or e-mail address furnished by the registered Holder to the Company in accordance with the Purchase Agreement, or if to the Company, to it at 7400 Paseo Padre Parkway, Fremont, CA 94555, Facsimile:  510-651-4599, Attention: Don Huffman, Chief Financial Officer (or to such other address, facsimile number or e-mail address as the Holder or the Company as a party may designate by notice the other party) with a copy to Morrison & Foerster LLP, 425 Market Street, San Francisco, CA 94105, Attention: John M. Rafferty, Esq.

	
11.

	
SEVERABILITY

If a court of competent jurisdiction holds any provision of this Warrant invalid or unenforceable, the other provisions of this Warrant will remain in full force and effect. Any provision of this Warrant held invalid or unenforceable only in part or degree will remain in full force and effect to the extent not held invalid or unenforceable.

	
12.

	
BINDING EFFECT

This Warrant shall be binding upon and inure to the sole and exclusive benefit of the Company, its successors and assigns, the registered Holder or Holders from time to time of this Warrant and the Warrant Shares.

	
13.

	
SURVIVAL OF RIGHTS AND DUTIES

This Warrant shall terminate and be of no further force and effect on the earlier of 5:00 P.M., Eastern Time, on the Expiration Date or the date on which this Warrant has been exercised in full.

  

14

  

	
14.

	
GOVERNING LAW

This Warrant will be governed by and construed under the laws of the State of New York without regard to conflicts of laws principles that would require the application of any other law.

	
15.

	
DISPUTE RESOLUTION

In the case of a dispute as to the determination of the Exercise Price or the arithmetic calculation of the Warrant Shares, the Company shall submit the disputed determinations or arithmetic calculations via facsimile within two (2) Business Days of receipt of the Notice of Exercise giving rise to such dispute, as the case may be, to the Holder. If the Holder and the Company are unable to agree upon such determination or calculation of the Exercise Price or the Warrant Shares within three Business Days of such disputed determination or arithmetic calculation being submitted to the Holder, then the Company shall, within two (2) Business Days, submit via facsimile (a) the disputed determination of the Exercise Price to an independent, reputable investment bank selected by the Company and approved by the Holder or (b) the disputed arithmetic calculation of the Warrant Shares to the Company’s independent, outside accountant. The Company shall cause at its expense the investment bank or the accountant, as the case may be, to perform the determinations or calculations and notify the Company and the Holder of the results no later than ten (10) Business Days from the time it receives the disputed determinations or calculations. Such investment bank’s or accountant’s determination or calculation, as the case may be, shall be binding upon all parties absent demonstrable error.

	
16.

	
NOTICES OF RECORD DATE

Upon (a) any establishment by the Company of a record date of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend or other distribution, or right or option to acquire securities of the Company, or any other right, or (b) any capital reorganization, reclassification, recapitalization, merger or consolidation of the Company with or into any other corporation, any transfer of all or substantially all the assets of the Company, or any voluntary or involuntary dissolution, liquidation or winding up of the Company, or the sale, in a single transaction, of a majority of the Company’s voting equity securities (whether newly issued, or from treasury, or previously issued and then outstanding, or any combination thereof), the Company shall mail to the Holder at least ten (10) Business Days, or such longer period as may be required by law, prior to the record date specified therein, a notice specifying (i) the date established as the record date for the purpose of such dividend, distribution, option or right and a description of such dividend, option or right, (ii) the date on which any such reorganization, reclassification, transfer, consolidation, merger, dissolution, liquidation or winding up, or sale is expected to become effective and (iii) the date, if any, fixed as to when the holders of record of Common Stock shall be entitled to exchange their shares of Common Stock for securities or other property deliverable upon such reorganization, reclassification, transfer, consolidation, merger, dissolution, liquidation or winding up.

  

15

  

  

	
17.

	
RESERVATION OF SHARES

The Company shall reserve and keep available out of its authorized but unissued shares of Common Stock for issuance upon the exercise of this Warrant, free from pre-emptive rights, such number of shares of Common Stock for which this Warrant shall from time to time be exercisable.  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. Without limiting the generality of the foregoing, the Company covenants that it will use its best efforts to 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 use its best efforts to obtain all such authorizations, exemptions or consents, including but not limited to consents from the Company’s shareholders or Board of Directors or any public regulatory body, as may be necessary to enable the Company to perform its obligations under this Warrant.

	
18.

	
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.

	
19.

	
AMENDMENT AND WAIVERS

Any term of this Warrant may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), with the written consent of the Company and the Holders of a majority of the Warrant Shares issuable upon exercise of the Warrants.

	
20.

	
NO THIRD PARTY RIGHTS

This Warrant is not intended, and will not be construed, to create any rights in any parties other than the Company and the Holder, and no Person may assert any rights as third-party beneficiary hereunder.

SIGNATURE PAGE FOLLOWS

  

16

  

IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed as of the date first set forth above.

	  	
WAFERGEN BIO-SYSTEMS, INC.

	  	  	  	  
	  	  	
By: 

	
  

	  	  	  	
Name:

	  	  	  	
Title:

  

  

  

EXHIBIT A

NOTICE OF EXERCISE

(To be executed by the Holder of Warrant if such Holder desires to exercise Warrant)

To WaferGen Bio-systems, Inc.:

The undersigned hereby irrevocably elects to exercise this Warrant and to purchase thereunder, ___________________ full shares of WaferGen Bio-systems, Inc. common stock issuable upon exercise of the Warrant and delivery of:

(1)                 $__________ (in cash as provided for in the foregoing Warrant) and any applicable taxes payable by the undersigned pursuant to such Warrant; and

(2)                 __________ shares of Common Stock (pursuant to a Cashless Exercise in accordance with Section 1(b)(ii) of the Warrant) (check here if the undersigned desires to deliver an unspecified number of shares equal the number sufficient to effect a Cashless Exercise [___]).

    The undersigned requests that certificates for such shares be issued in the name of:

_________________________________________

(Please print name, address and social security or federal employer

identification number (if applicable))

_________________________________________

_________________________________________

               If the shares issuable upon this exercise of the Warrant are not all of the Warrant Shares which the Holder is entitled to acquire upon the exercise of the Warrant, the undersigned requests that a new Warrant evidencing the rights not so exercised be issued in the name of and delivered to:

_________________________________________

(Please print name, address and social security or federal employer

identification number (if applicable))

_________________________________________

_________________________________________

 

	  	
Name of Holder (print): _______________________________

	  	  
	  	
  (Signature):   ____________________________________

	  	
  (By:)  _________________________________________

	  	  
	  	
Title:  ____________________________________________

	  	
Dated:  ____________________________________________

  

  

  

EXHIBIT B

FORM OF ASSIGNMENT

FOR VALUE RECEIVED, ___________________________________ hereby sells, assigns and transfers to each assignee set forth below all of the rights of the undersigned under the Warrant (as defined in and evidenced by the attached Warrant) to acquire the number of Warrant Shares set opposite the name of such assignee below and in and to the foregoing Warrant with respect to said acquisition rights and the shares issuable upon exercise of the Warrant:

 

	
Name of Assignee

	  	
Address

	  	
Number of Warrant Shares

	  	  	  	  	  
	  	  	  	  	  
	  	  	  	  	  
	  	  	  	  	  

If the total of the Warrant Shares are not all of the Warrant Shares evidenced by the foregoing Warrant, the undersigned requests that a new Warrant evidencing the right to acquire the Warrant Shares not so assigned be issued in the name of and delivered to the undersigned.

	  	
Name of Holder (print): _______________________________

	  	  
	  	
  (Signature):   ____________________________________

	  	
  (By:)  _________________________________________

	  	  
	  	
Title:  ____________________________________________

	  	
Dated:  ____________________________________________

  

  

  

 

Schedule 1

Black-Scholes Value

 

	
Remaining Term

	
Number of calendar days from date of public announcement of the Organic Change until the last date on which the Warrant may be exercised.

	  	  
	
Interest Rate

	
A risk-free interest rate corresponding to the yield to maturity, prevailing in the market place, on US$ LIBOR swaps with a remaining term approximating, but in no event less than, the Remaining Term.

	  	  
	
Volatility

	
If the first public announcement of the Organic Change is made at or prior to 4:00 p.m., New York City time, the arithmetic mean of the historical volatility for the 10, 15 and 20 Trading Day periods ending on the date of such first public announcement, obtained from the HVT or similar function on Bloomberg. If the first public announcement of the Organic Change is made after 4:00 p.m., New York City time, the arithmetic mean of the historical volatility for the 10, 15 and 20 Trading Day periods ending on the next succeeding Trading Day following the date of such first public announcement, obtained from the HVT or similar function on Bloomberg.

	  	  
	
Stock Price

	
The greater of (1) the closing price of the Common Stock on NASDAQ, or, if that is not the principal trading market for the Common Stock, such principal market on which the Common Stock is traded or listed (the “Closing Market Price”) on the trading day immediately preceding the date on which a Organic Change is consummated, (2) the first Closing Market Price following the first public announcement of a Organic Change, or (3) the Closing Market Price as of the date immediately preceding the first public announcement of the Organic Change; provided, however, that if the successor entity is not a Publicly Traded Successor Entity, then as mutually determined in good faith by the Holder and the Company's Board of Directors

	  	  
	
Dividends

	
Zero.

	  	  
	
Strike Price

	
Exercise Price as defined in section 3(a).

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