THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. THIS WARRANT AND THE
COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT AS TO THIS WARRANT UNDER SAID ACT AND
ANY APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO SCIENCE DYNAMICS CORPORATION THAT SUCH
REGISTRATION IS NOT REQUIRED.
Right to Purchase up to 3,000,000 Shares of Common Stock of
Science Dynamics Corporation
-----------------------------
(subject to adjustment as provided herein)
COMMON STOCK PURCHASE WARRANT
No. _________________ Issue Date: November 18, 2005
SCIENCE DYNAMICS CORPORATION, a corporation organized under the laws of
the State of Delaware ("Science Dynamics Corporation"), hereby certifies that,
for value received, LAURUS MASTER FUND, LTD., or assigns (the "Holder"), is
entitled, subject to the terms set forth below, to purchase from the Company (as
defined herein) from and after the Issue Date of this Warrant and at any time or
from time to time before 5:00 p.m., New York time, through the close of business
November 18, 2012 (the "Expiration Date"), up to 3,000,000 fully paid and
nonassessable shares of Common Stock (as hereinafter defined), $0.01 par value
per share, at the applicable Exercise Price per share (as defined below). The
number and character of such shares of Common Stock and the applicable Exercise
Price per share are subject to adjustment as provided herein.
As used herein the following terms, unless the context otherwise
requires, have the following respective meanings:
(a) The term "Company" shall include Science Dynamics
Corporation and any corporation which shall succeed, or assume the
obligations of, Science Dynamics Corporation hereunder.
(b) The term "Common Stock" includes (i) the Company's Common
Stock, par value $0.01 per share; and (ii) any other securities into
which or for which any of the securities described in the preceding
clause (i) may be converted or exchanged pursuant to a plan of
recapitalization, reorganization, merger, sale of assets or otherwise.
(c) The term "Other Securities" refers to any stock (other
than Common Stock) and other securities of the Company or any other
person (corporate or otherwise) which the holder of the Warrant at any
time shall be entitled to receive, or shall have received, on the
exercise of the Warrant, in lieu of or in addition to Common Stock, or
which at any time shall be issuable or shall have been issued in
exchange for or in replacement of Common Stock or Other Securities
pursuant to Section 4 or otherwise.
(d) The "Exercise Price" applicable under this Warrant shall
be $0.075.
1. Exercise of Warrant.
1.1 Number of Shares Issuable upon Exercise. From and after
the date hereof through and including the Expiration Date, the Holder shall be
entitled to receive, upon exercise of this Warrant in whole or in part, by
delivery of an original or fax copy of an exercise notice in the form attached
hereto as Exhibit A (the "Exercise Notice"), shares of Common Stock of the
Company, subject to adjustment pursuant to Section 4.
1.2 Fair Market Value. For purposes hereof, the "Fair Market
Value" of a share of Common Stock as of a particular date (the "Determination
Date") shall mean:
(a) If the Company's Common Stock is traded on the American
Stock Exchange or another national exchange or is quoted on the
National or SmallCap Market of The Nasdaq Stock Market, Inc.("Nasdaq"),
then the closing or last sale price, respectively, reported for the
last business day immediately preceding the Determination Date.
(b) If the Company's Common Stock is not traded on the
American Stock Exchange or another national exchange or on the Nasdaq
but is traded on the NASD OTC Bulletin Board, then the mean of the
average of the closing bid and asked prices reported for the last
business day immediately preceding the Determination Date.
(c) Except as provided in clause (d) below, if the Company's
Common Stock is not publicly traded, then as the Holder and the Company
agree or in the absence of agreement by arbitration in accordance with
the rules then in effect of the American Arbitration Association,
before a single arbitrator to be chosen from a panel of persons
qualified by education and training to pass on the matter to be
decided.
(d) If the Determination Date is the date of a liquidation,
dissolution or winding up, or any event deemed to be a liquidation,
dissolution or winding up pursuant to the Company's charter, then all
amounts to be payable per share to holders of the Common Stock pursuant
to the charter in the event of such liquidation, dissolution or winding
up, plus all other amounts to be payable per share in respect of the
Common Stock in liquidation under the charter, assuming for the
purposes of this clause (d) that all of the shares of Common Stock then
issuable upon exercise of the Warrant are outstanding at the
Determination Date.
1.3 Company Acknowledgment. The Company will, at the time of
the exercise of the Warrant, upon the request of the holder hereof acknowledge
in writing its continuing obligation to afford to such holder any rights to
which such holder shall continue to be entitled after such exercise in
accordance with the provisions of this Warrant. If the holder shall fail to make
any such request, such failure shall not affect the continuing obligation of the
Company to afford to such holder any such rights.
2
1.4 Trustee for Warrant Holders. In the event that a bank or
trust company shall have been appointed as trustee for the holders of the
Warrant pursuant to Subsection 3.2, such bank or trust company shall have all
the powers and duties of a warrant agent (as hereinafter described) and shall
accept, in its own name for the account of the Company or such successor person
as may be entitled thereto, all amounts otherwise payable to the Company or such
successor, as the case may be, on exercise of this Warrant pursuant to this
Section 1.
2. Procedure for Exercise.
2.1 Delivery of Stock Certificates, Etc., on Exercise. The
Company agrees that the shares of Common Stock purchased upon exercise of this
Warrant shall be deemed to be issued to the Holder as the record owner of such
shares as of the close of business on the date on which this Warrant shall have
been surrendered and payment made for such shares in accordance herewith. As
soon as practicable after the exercise of this Warrant in full or in part, and
in any event within three (3) business days thereafter, the Company at its
expense (including the payment by it of any applicable issue taxes) will cause
to be issued in the name of and delivered to the Holder, or as such Holder (upon
payment by such Holder of any applicable transfer taxes) may direct in
compliance with applicable securities laws, a certificate or certificates for
the number of duly and validly issued, fully paid and nonassessable shares of
Common Stock (or Other Securities) to which such Holder shall be entitled on
such exercise, plus, in lieu of any fractional share to which such holder would
otherwise be entitled, cash equal to such fraction multiplied by the then Fair
Market Value of one full share, together with any other stock or other
securities and property (including cash, where applicable) to which such Holder
is entitled upon such exercise pursuant to Section 1 or otherwise.
2.2 Exercise. Payment may be made either (i) in cash or by
certified or official bank check payable to the order of the Company equal to
the applicable aggregate Exercise Price, (ii) by delivery of the Warrant, or
shares of Common Stock and/or Common Stock receivable upon exercise of the
Warrant in accordance with the formula set forth below in this Section 2.2, or
(iii) by a combination of any of the foregoing methods, for the number of Common
Shares specified in such Exercise Notice (as such exercise number shall be
adjusted to reflect any adjustment in the total number of shares of Common Stock
issuable to the Holder per the terms of this Warrant) and the Holder shall
thereupon be entitled to receive the number of duly authorized, validly issued,
fully-paid and non-assessable shares of Common Stock (or Other Securities)
determined as provided herein. Notwithstanding any provisions herein to the
contrary, if the Fair Market Value of one share of Common Stock is greater than
the Exercise Price (at the date of calculation as set forth below), in lieu of
exercising this Warrant for cash, the Holder may elect to receive shares equal
to the value (as determined below) of this Warrant (or the portion thereof being
exercised) by surrender of this Warrant at the principal office of the Company
together with the properly endorsed Exercise Notice in which event the Company
shall issue to the Holder a number of shares of Common Stock computed using the
following formula:
X=Y (A-B)
---------
A
Where X = the number of shares of Common Stock to be issued to
the Holder
3
Y = the number of shares of Common Stock purchasable
under the Warrant or, if only a portion of the
Warrant is being exercised, the portion of the
Warrant being exercised (at the date of such
calculation)
A = the Fair Market Value of one share of the Company's
Common Stock (at the date of such calculation)
B = Exercise Price (as adjusted to the date of such
calculation)
3. Effect of Reorganization, Etc.; Adjustment of Exercise Price.
3.1 Reorganization, Consolidation, Merger, Etc. In case at any
time or from time to time, the Company shall (a) effect a reorganization, (b)
consolidate with or merge into any other person, or (c) transfer all or
substantially all of its properties or assets to any other person under any plan
or arrangement contemplating the dissolution of the Company, then, in each such
case, as a condition to the consummation of such a transaction, proper and
adequate provision shall be made by the Company whereby the Holder of this
Warrant, on the exercise hereof as provided in Section 1 at any time after the
consummation of such reorganization, consolidation or merger or the effective
date of such dissolution, as the case may be, shall receive, in lieu of the
Common Stock (or Other Securities) issuable on such exercise prior to such
consummation or such effective date, the stock and other securities and property
(including cash) to which such Holder would have been entitled upon such
consummation or in connection with such dissolution, as the case may be, if such
Holder had so exercised this Warrant, immediately prior thereto, all subject to
further adjustment thereafter as provided in Section 4.
3.2 Dissolution. In the event of any dissolution of the
Company following the transfer of all or substantially all of its properties or
assets, the Company, concurrently with any distributions made to holders of its
Common Stock, shall at its expense deliver or cause to be delivered to the
Holder the stock and other securities and property (including cash, where
applicable) receivable by the Holder of the Warrant pursuant to Section 3.1, or,
if the Holder shall so instruct the Company, to a bank or trust company
specified by the Holder and having its principal office in New York, NY as
trustee for the Holder of the Warrant (the "Trustee").
3.3 Continuation of Terms. Upon any reorganization,
consolidation, merger or transfer (and any dissolution following any transfer)
referred to in this Section 3, this Warrant shall continue in full force and
effect and the terms hereof shall be applicable to the shares of stock and other
securities and property receivable on the exercise of this Warrant after the
consummation of such reorganization, consolidation or merger or the effective
date of dissolution following any such transfer, as the case may be, and shall
be binding upon the issuer of any such stock or other securities, including, in
the case of any such transfer, the person acquiring all or substantially all of
the properties or assets of the Company, whether or not such person shall have
expressly assumed the terms of this Warrant as provided in Section 4. In the
event this Warrant does not continue in full force and effect after the
consummation of the transactions described in this Section 3, then the Company's
securities and property (including cash, where applicable) receivable by the
Holders of the Warrant will be delivered to Holder or the Trustee as
contemplated by Section 3.2.
4
4. Extraordinary Events Regarding Common Stock. In the event that the
Company shall (a) issue additional shares of the Common Stock as a
dividend or other distribution on outstanding Common Stock, (b)
subdivide its outstanding shares of Common Stock, or (c) combine its
outstanding shares of the Common Stock into a smaller number of shares
of the Common Stock, then, in each such event, the Exercise Price
shall, simultaneously with the happening of such event, be adjusted by
multiplying the then Exercise Price by a fraction, the numerator of
which shall be the number of shares of Common Stock outstanding
immediately prior to such event and the denominator of which shall be
the number of shares of Common Stock outstanding immediately after such
event, and the product so obtained shall thereafter be the Exercise
Price then in effect. The Exercise Price, as so adjusted, shall be
readjusted in the same manner upon the happening of any successive
event or events described herein in this Section 4. The number of
shares of Common Stock that the holder of this Warrant shall
thereafter, on the exercise hereof as provided in Section 1, be
entitled to receive shall be adjusted to a number determined by
multiplying the number of shares of Common Stock that would otherwise
(but for the provisions of this Section 4) be issuable on such exercise
by a fraction of which (a) the numerator is the Exercise Price that
would otherwise (but for the provisions of this Section 4) be in
effect, and (b) the denominator is the Exercise Price in effect on the
date of such exercise.
5. Certificate as to Adjustments. In each case of any adjustment or
readjustment in the shares of Common Stock (or Other Securities)
issuable on the exercise of the Warrant, the Company at its expense
will promptly cause its Chief Financial Officer or other appropriate
designee to compute such adjustment or readjustment in accordance with
the terms of the Warrant and prepare a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which
such adjustment or readjustment is based, including a statement of (a)
the consideration received or receivable by the Company for any
additional shares of Common Stock (or Other Securities) issued or sold
or deemed to have been issued or sold, (b) the number of shares of
Common Stock (or Other Securities) outstanding or deemed to be
outstanding, and (c) the Exercise Price and the number of shares of
Common Stock to be received upon exercise of this Warrant, in effect
immediately prior to such adjustment or readjustment and as adjusted or
readjusted as provided in this Warrant. The Company will forthwith mail
a copy of each such certificate to the holder of the Warrant and any
Warrant agent of the Company (appointed pursuant to Section 11 hereof).
6. Reservation of Stock, Etc., Issuable on Exercise of Warrant. The
Company will at all times reserve and keep available, solely for
issuance and delivery on the exercise of the Warrant, shares of Common
Stock (or Other Securities) from time to time issuable on the exercise
of the Warrant.
7. Assignment; Exchange of Warrant. Subject to compliance with applicable
securities laws, this Warrant, and the rights evidenced hereby, may be
transferred by any registered holder hereof (a "Transferor") in whole
or in part. On the surrender for exchange of this Warrant, with the
Transferor's endorsement in the form of Exhibit B attached hereto (the
"Transferor Endorsement Form") and together with evidence reasonably
satisfactory to the Company demonstrating compliance with applicable
securities laws, which shall include, without limitation, the provision
of a legal opinion from the Transferor's counsel (at the Company's
expense) that such transfer is exempt from the registration
requirements of applicable securities laws, and with payment by the
Transferor of any applicable transfer taxes) will issue and deliver to
or on the order of the Transferor thereof a new Warrant of like tenor,
in the name of the Transferor and/or the transferee(s) specified in
such Transferor Endorsement Form (each a "Transferee"), calling in the
aggregate on the face or faces thereof for the number of shares of
Common Stock called for on the face or faces of the Warrant so
surrendered by the Transferor.
5
8. Replacement of Warrant. On receipt of evidence reasonably satisfactory
to the Company of the loss, theft, destruction or mutilation of this
Warrant and, in the case of any such loss, theft or destruction of this
Warrant, on delivery of an indemnity agreement or security reasonably
satisfactory in form and amount to the Company or, in the case of any
such mutilation, on surrender and cancellation of this Warrant, the
Company at its expense will execute and deliver, in lieu thereof, a new
Warrant of like tenor.
9. Registration Rights. The Holder of this Warrant has been granted
certain registration rights by the Company. These registration rights
are set forth in a Registration Rights Agreement entered into by the
Company and Holder dated as of even date of this Warrant.
10. Maximum Exercise. The Holder shall not be entitled to exercise this
Warrant on an exercise date, in connection with that number of shares
of Common Stock which would be in excess of the sum of (i) the number
of shares of Common Stock beneficially owned by the Holder and its
affiliates on an exercise date, and (ii) the number of shares of Common
Stock issuable upon the exercise of this Warrant with respect to which
the determination of this proviso is being made on an exercise date,
which would result in beneficial ownership by the Holder and its
affiliates of more than 4.99% of the outstanding shares of Common Stock
of the Company on such date. For the purposes of the proviso to the
immediately preceding sentence, beneficial ownership shall be
determined in accordance with Section 13(d) of the Securities Exchange
Act of 1934, as amended, and Regulation 13d-3 thereunder.
Notwithstanding the foregoing, the restriction described in this
paragraph may be revoked upon 75 days prior notice from the Holder to
the Company and is automatically null and void upon an Event of Default
under the Note made by the Company to the Holder dated the date hereof
(as amended, modified or supplemented from time to time, the "Note").
11. Warrant Agent. The Company may, by written notice to the each Holder of
the Warrant, appoint an agent for the purpose of issuing Common Stock
(or Other Securities) on the exercise of this Warrant pursuant to
Section 1, exchanging this Warrant pursuant to Section 7, and replacing
this Warrant pursuant to Section 8, or any of the foregoing, and
thereafter any such issuance, exchange or replacement, as the case may
be, shall be made at such office by such agent.
12. Transfer on the Company's Books. Until this Warrant is transferred on
the books of the Company, the Company may treat the registered holder
hereof as the absolute owner hereof for all purposes, notwithstanding
any notice to the contrary.
6
13. Notices, Etc. All notices and other communications from the Company to
the Holder of this Warrant shall be mailed by first class registered or
certified mail, postage prepaid, at such address as may have been
furnished to the Company in writing by such Holder or, until any such
Holder furnishes to the Company an address, then to, and at the address
of, the last Holder of this Warrant who has so furnished an address to
the Company.
14. Miscellaneous. This Warrant and any term hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the
party against which enforcement of such change, waiver, discharge or
termination is sought. This Warrant shall be governed by and construed
in accordance with the laws of State of New York without regard to
principles of conflicts of laws. Any action brought concerning the
transactions contemplated by this Warrant shall be brought only in the
state courts of New York or in the federal courts located in the state
of New York; provided, however, that the Holder may choose to waive
this provision and bring an action outside the state of New York. The
individuals executing this Warrant on behalf of the Company agree to
submit to the jurisdiction of such courts and waive trial by jury. The
prevailing party shall be entitled to recover from the other party its
reasonable attorney's fees and costs. In the event that any provision
of this Warrant is invalid or unenforceable under any applicable
statute or rule of law, then such provision shall be deemed inoperative
to the extent that it may conflict therewith and shall be deemed
modified to conform with such statute or rule of law. Any such
provision which may prove invalid or unenforceable under any law shall
not affect the validity or enforceability of any other provision of
this Warrant. The headings in this Warrant are for purposes of
reference only, and shall not limit or otherwise affect any of the
terms hereof. The invalidity or unenforceability of any provision
hereof shall in no way affect the validity or enforceability of any
other provision hereof. The Company acknowledges that legal counsel
participated in the preparation of this Warrant and, therefore,
stipulates that the rule of construction that ambiguities are to be
resolved against the drafting party shall not be applied in the
interpretation of this Warrant to favor any party against the other
party.
[BALANCE OF PAGE INTENTIONALLY LEFT BLANK;
SIGNATURE PAGE FOLLOWS.]
7
IN WITNESS WHEREOF, the Company has executed this Warrant as of the
date first written above.
SCIENCE DYNAMICS CORPORATION
WITNESS:
By:
-----------------------------
Name:
-----------------------------
Title:
- ----------------------------------- -----------------------------
8
EXHIBIT A
FORM OF SUBSCRIPTION
(To Be Signed Only On Exercise Of Warrant)
TO: Science Dynamics Corporation
Attention: Chief Financial Officer
The undersigned, pursuant to the provisions set forth in the attached
Warrant (No.____), hereby irrevocably elects to purchase (check applicable box):
_______ shares of the Common Stock covered by such Warrant; or
- ------------
- ------------ the maximum number of shares of Common Stock covered by such
Warrant pursuant to the cashless exercise procedure set forth
in Section 2.
The undersigned herewith makes payment of the full Exercise Price for
such shares at the price per share provided for in such Warrant, which is
$___________. Such payment takes the form of (check applicable box or boxes):
- ------------ $__________ in lawful money of the United States; and/or
- ------------ the cancellation of such portion of the attached Warrant as is
exercisable for a total of _______ shares of Common Stock
(using a Fair Market Value of $_______ per share for purposes
of this calculation); and/or
- ------------ the cancellation of such number of shares of Common Stock as
is necessary, in accordance with the formula set forth in
Section 2.2, to exercise this Warrant with respect to the
maximum number of shares of Common Stock purchasable pursuant
to the cashless exercise procedure set forth in Section 2.
The undersigned requests that the certificates for such shares be
issued in the name of, and delivered to _____________________________ whose
address is _____________________________________________________________.
The undersigned represents and warrants that all offers and sales by
the undersigned of the securities issuable upon exercise of the within Warrant
shall be made pursuant to registration of the Common Stock under the Securities
Act of 1933, as amended (the "Securities Act") or pursuant to an exemption from
registration under the Securities Act.
Dated:
----------------------- ----------------------------------------
(Signature must conform to name of
holder as specified on the face of
the Warrant)
Address:
--------------------------
--------------------------
A-1
EXHIBIT B
FORM OF TRANSFEROR ENDORSEMENT
(To Be Signed Only On Transfer Of Warrant)
For value received, the undersigned hereby sells, assigns, and
transfers unto the person(s) named below under the heading "Transferees" the
right represented by the within Warrant to purchase the percentage and number of
shares of Common Stock of Science Dynamics Corporation into which the within
Warrant relates specified under the headings "Percentage Transferred" and
"Number Transferred," respectively, opposite the name(s) of such person(s) and
appoints each such person Attorney to transfer its respective right on the books
of Science Dynamics Corporation with full power of substitution in the premises.
Percentage Number
Transferees Address Transferred Transferred
- ----------- ------- ----------- -----------
- -------------------------------------- ----------------------------------- ----------------- ----------------
- -------------------------------------- ----------------------------------- ----------------- ----------------
- -------------------------------------- ----------------------------------- ----------------- ----------------
- -------------------------------------- ----------------------------------- ----------------- ----------------
Dated:
----------------------- ----------------------------------------
(Signature must conform to name of
holder as specified on the face of
the Warrant)
Address:
--------------------------
--------------------------
SIGNED IN THE PRESENCE OF:
----------------------------------------
(Name)
ACCEPTED AND AGREED:
[TRANSFEREE]
- ------------------------------------
(Name)
B-1