Contract
THIS
WARRANT AND THE SECURITIES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER
THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR OTHERWISE
TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT
TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY
AND
ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.
WARRANT
TO PURCHASE COMMON STOCK
Date:
October 25, 2006
THIS
WARRANT CERTIFIES THAT, for the agreed upon value of $10.00 and for other good
and valuable consideration, CAMBRIA INVESTMENT FUND, L.P., a California limited
partnership (“Holder”),
and
the other Holders described on Schedule 1 of the Agreement (as defined below),
is entitled to purchase a total of up to 750,000 shares of common stock (the
“Shares”)
of
AUXILIO, INC., a Nevada corporation (“Company”).
Company and Holder have entered into a Loan and Security Agreement of even
date
herewith (the “Agreement”),
pursuant to which Holder agreed to make a loan to Company in the amount of
up to
$1,500,000 (the “Loan”),
and
Company agreed to issue this Warrant. This Warrant may be exercised at any
time
during the term hereof, at the initial exercise price per Share equal to the
closing bid price of Company’s common stock as of the date of the Agreement,
which amount is equal to $0.46 per share (the “Exercise
Price”)
as
adjusted pursuant to Article
2
of this
Warrant, subject to the provisions and upon the terms and conditions set forth
in this Warrant (the “Warrant”).
This
Warrant gives Holder the right to purchase a total of up to 750,000 shares
of
common stock (the “Warrant
Shares”),
depending upon the amount drawn on the Loan. Upon the execution of this Warrant,
300,000 of the 750,000 Warrant Shares shall immediately vest. Upon the initial
advance of the Loan, an additional 30,000 Warrant Shares shall vest, and for
each $100,000 drawn down on the Loan (starting at $101,000), an additional
30,000 Warrant Shares shall vest.
ARTICLE
1. EXERCISE
1.1 Method
of Exercise.
Holder
may exercise this Warrant by delivering a duly executed Notice of Exercise
in
substantially the form attached hereto as Appendix
1
to the
principal office of Company. Unless Holder is exercising the conversion right
set forth in Section
1.2,
Holder
shall also deliver to Company a check for the aggregate Exercise Price for
the
Shares being purchased.
1.2 Cashless
Exercise.
In lieu
of exercising this Warrant as specified in Section
1.1,
Holder
may from time to time convert this Warrant, in whole or in part, into a number
of Shares determined by dividing (a) the aggregate fair market value of the
Shares or other securities otherwise issuable upon exercise of this Warrant
minus the aggregate Exercise Price of such Shares by (b) the fair market value
of one Share. The fair market value of the Shares shall be determined pursuant
to Section
1.4.
1.3 No
Shareholder Rights.
This
Warrant does not entitle Holder to any voting rights as a shareholder of Company
prior to the exercise hereof.
1.4 Fair
Market Value.
If the
Shares are traded in a public market, the fair market value of the Shares shall
be the closing price of the Shares (or the closing price of Company’s stock into
which the Shares are convertible) reported for the business day immediately
before Holder delivers its Notice of Exercise to Company. If the Shares are
not
traded in a public market, the Board of Directors of Company shall determine
the
fair market value in its reasonable good faith judgment. The foregoing
notwithstanding, if Holder advises the Board of Directors in writing that Holder
disagrees with such determination, then Company and Holder shall promptly agree
upon a reputable investment banking or public accounting firm to undertake
such
valuation. If the valuation of such investment banking or public accounting
firm
is greater than that determined by the Board of Directors, then all fees and
expenses of such investment banking or public accounting firm shall be paid
by
Company. In all other circumstances, Holder shall pay such fees and
expenses.
1.5 Delivery
of Certificate and New Warrant.
Promptly after Holder exercises this Warrant, Company shall deliver to Holder
certificates for the Shares acquired and, if this Warrant has not been fully
exercised or converted and has not expired, a new Warrant representing the
Shares not so acquired in exchange for Holder’s delivery to Company of this
Warrant.
1.6 Replacement
of Warrants.
On
receipt of evidence reasonably satisfactory to Company of the loss, theft,
destruction or mutilation of this Warrant and, in the case of loss, theft or
destruction, on delivery of an indemnity agreement reasonably satisfactory
in
form and amount to Company, or in the case of mutilation or surrender and
cancellation of this Warrant, Company at its expense shall execute and deliver,
in lieu of this Warrant, a new warrant of like tenor.
1.7 Sale,
Merger, or Consolidation of Company
(a) Acquisition.
For the
purpose of this Warrant, “Acquisition”
means
any sale, license, or other disposition of all or substantially all of the
assets of Company, or any reorganization, consolidation, or merger of Company
where the holders of Company’s securities before the transaction beneficially
own less than fifty percent (50%) of the outstanding voting securities of the
surviving entity after the transaction.
(b) Assumption
of Warrant.
Upon
the closing of any Acquisition, the successor entity shall assume the
obligations of this Warrant, and this Warrant shall be exercisable for the
same
securities, cash, and property as would be payable for the Shares issuable
upon
exercise of the unexercised portion of this Warrant as if such Shares were
outstanding on the record date for the Acquisition and subsequent closing.
The
Exercise Price shall be adjusted accordingly. If the successor entity refuses
to
assume this Warrant in connection with the Acquisition, the Company shall give
Holder written notice at least 5 days prior to the closing of the Acquisition
of
such fact. In such event, notwithstanding any other provision of this Warrant
to
the contrary, Holder may immediately exercise this Warrant in the manner
specified in this Warrant with such exercise effective immediately prior to
closing of the Acquisition. If Holder elects not to exercise this Warrant,
then
this Warrant will terminate immediately prior to the closing of the
Acquisition.
ARTICLE
2. ADJUSTMENTS TO THE SHARES.
2.1 Stock
Dividends, Splits, Etc.
If
Company declares or pays a dividend on its common stock (or the Shares if the
Shares are securities other than common stock) payable in common stock, or
other
securities, subdivides the outstanding common stock into a greater amount of
common stock, or, if the Shares are securities other than common stock,
subdivides the Shares in a transaction that increases the amount of common
stock
into which the Shares are convertible, then upon exercise of this Warrant,
for
each Share acquired, Holder shall receive, without cost to Holder, the total
number and kind of securities to which Holder would have been entitled had
Holder owned the Shares of record as of the date the dividend or subdivision
occurred.
2.2 Reclassification,
Exchange or Substitution.
Upon
any reclassification, exchange, substitution, or other event that results in
a
change of the number and/or class of the securities issuable upon exercise
or
conversion of this Warrant, Holder shall be entitled to receive, upon exercise
or conversion of this Warrant, the number and kind of securities and property
that Holder would have received for the Shares if this Warrant had been
exercised immediately before such reclassification, exchange, substitution,
or
other event. Company or its successor shall promptly issue to Holder a new
Warrant for such new securities or other property. The new Warrant shall provide
for adjustments which shall be as nearly equivalent as may be practicable to
the
adjustments provided for in this Article
2
including, without limitation, adjustments to the Exercise Price and to the
number of securities or property issuable upon exercise of the new Warrant.
The
provisions of this Section
2.2
shall
similarly apply to successive reclassifications, exchanges, substitutions,
or
other events.
2.3 Adjustments
for Combinations, Etc.
If the
outstanding Shares are combined or consolidated, by reclassification or
otherwise, into a lesser number of shares, the Exercise Price shall be
proportionately increased.
2.4 Adjustments
for Dilutive Issuances.
If at
any time while this Warrant is outstanding, the Company issues or sells shares
of Common Stock for a consideration per share less than the then Exercise Price
or for no consideration (such lower price, the “Base Share Price” and such
issuances collectively, a “Dilutive Issuance”), then, the Exercise Price shall
be reduced to a price equal to the quotient obtained by dividing (1) an amount
equal to the sum of (a) the total number of shares of Common Stock outstanding
immediately prior to such issuance, multiplied by the Exercise Price in effect
immediately prior to such issuance, and (b) the consideration received by the
Company upon such issuance, by (2) the total number of shares of Common Stock
outstanding immediately after the issuance of such Common Stock (as set forth
in
this clause (ii), the “Quotient”). Such adjustment shall be made whenever such
shares of Common Stock are issued. Upon each adjustment of the Exercise Price
pursuant to the provisions of this Section, the number of Warrant Shares
issuable upon the exercise of each Warrant shall be adjusted to the nearest
full
amount by multiplying a number equal to the Exercise Price in effect immediately
prior to such adjustment by the number of Warrant Shares issuable upon exercise
of the Warrants immediately prior to such adjustment and dividing the product
so
obtained by the Quotient. Notwithstanding anything to the contrary herein,
this
Section 2.4 shall not apply to the following (1) the granting of options to
employees, officers, directors or consultants of the Company pursuant to any
stock option plan or other written compensatory agreement duly adopted by a
majority of the members of the Board of Directors of the Company or a majority
of the members of a committee of non-employee directors established for such
purpose, or (2) the shares of Common Stock issued upon conversion of the notes
issued to the Laurus Master Fund LTD, provided that such notes have not been
amended since the date hereof, or (3) the issuance of securities in connection
with acquisitions, joint ventures, arrangements related to the Company’s
operations and strategic relationships, or other strategic investments, the
primary purpose of which is not to raise capital.
2.5 No
Impairment.
Company
shall not, by amendment of its Certificate of Incorporation or through a
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 under
this Warrant by Company, but shall at all times in good faith assist in carrying
out of all the provisions of this Article
2
and in
taking all such action as may be necessary or appropriate to protect Holder’s
rights under this Article against impairment. If Company takes any action
affecting the Shares or its common stock other than as described above that
adversely affects Holder’s rights under this Warrant, the Exercise Price shall
be adjusted downward and the number of Shares issuable upon exercise of this
Warrant shall be adjusted upward in such a manner that the aggregate Exercise
Price of this Warrant is unchanged.
2.6 Fractional
Shares.
No
fractional Shares shall be issuable upon exercise or conversion of the Warrant
and the number of Shares to be issued shall be rounded down to the nearest
whole
Share. If a fractional share interest arises upon any exercise or conversion
of
the Warrant, Company shall eliminate such fractional share interest by paying
Holder an amount computed by multiplying the fractional interest by the fair
market value of a full Share.
2.7 Certificate
as to Adjustments.
Upon
each adjustment of the Exercise Price, Company at its expense shall promptly
compute such adjustment, and furnish Holder with a certificate of its chief
financial officer setting forth such adjustment and the facts upon which such
adjustment is based. Company shall, upon written request, furnish Holder a
certificate setting forth the Exercise Price in effect upon the date thereof
and
the series of adjustments leading to such Exercise Price.
ARTICLE
3. REPRESENTATIONS
AND COVENANTS OF THE COMPANY.
3.1 Representations
and Warranties.
Company
hereby represents and warrants to Holder that all Shares which may be issued
upon the exercise of the purchase right represented by this Warrant and all
securities, if any, issuable upon conversion of the Shares, shall, upon
issuance, be duly authorized, validly issued, fully paid and nonassessable,
and
free of any liens and encumbrances except for restrictions on transfer provided
for herein or under applicable federal and state securities laws.
3.2 Notice
of Certain Events.
If
Company proposes at any time (a) to declare any dividend or distribution upon
its common stock, whether in cash, property, stock or other securities and
whether or not a regular cash dividend; (b) to offer for subscription pro rata
to the holders of any class or series or other rights; (c) to effect any
reclassification or recapitalization of common stock; (d) to merge or
consolidate with or into any other corporation, or sell, lease, license, or
convey all or substantially all of its assets, or to liquidate, dissolve or
wind
up; or (e) to offer holders of registration rights the opportunity to
participate in an underwritten Public Offering of Company’s securities for cash,
then, in connection with each such event, Company shall give Holder (1) the
same
notice as is given to holders of Company’s common stock of the date on which a
record will be taken for such dividend, distribution or subscription rights
(and
specifying the date on which the holders of common stock will be entitled
thereto) or for determining rights to vote, if any, in respect of the matters
referred to in (c) and (d) above; (2) in the case of the matters referred to
in
(c) and (d) above the same notice as is given to holders of Company’s common
stock on the date when the same will take place (and specifying the date on
which the holders of common stock will be entitled to exchange their common
stock for securities or other property deliverable upon the occurrence of such
event); and (3) in the case of the matter referred to in (e) above, the same
notice as is given to the holders of such registration rights. For the purpose
of this Warrant, a “Public Offering” means the sale of Company’s common stock
pursuant to a registration statement under the Securities Act of 1933, as
amended (the “Securities Act”, for an underwritten public offering (other than a
registration statement on Form X-0, Xxxx X-0 or comparable forms), which results
in aggregate cash proceeds (prior to underwriters’ commissions and expenses) to
Company of more than $5,000,000.
3.3 Information
Rights.
So long
as Holder holds this Warrant and/or any of the Shares, Company shall deliver
to
Holder promptly after mailing, copies of all notices or other written
communications to the shareholders of Company.
3.4 Registration
Under Securities Act of 1933, as amended - “Piggyback” Registration
Rights.
If at
any time Company shall determine to register under the Securities Act (including
pursuant to a demand of any security holder of Company exercising registration
rights) any of its common stock (except securities to be issued solely in
connection with any acquisition of any entity or business, shares issuable
solely pursuant to employee benefit plans eligible for registration on Form
S-8
or shares to be registered on any registration statement that does not permit
secondary sales), it shall send to Holder written notice of such determination
at least twenty (20) days prior to each such filing and, if within ten (10)
days
after receipt of such notice, any Holder shall so request in writing, Company
shall use its reasonable best efforts to include in such registration statement
(to the extent permitted by applicable regulation) all or any part of the Shares
(collectively referred to in this Section
3.4
as
"Securities")
that
such Holder requests to be registered. If any Holder disapproves of the terms
of
such underwriting, such Holder may elect to withdraw therefrom by written notice
to Company and the underwriter. Company shall use its reasonable best efforts
to
cause the managing underwriter or underwriters of a proposed underwritten
offering (the "Company
Underwriter")
to
permit Holders who have requested to participate in the registration for such
offering to include such Securities in such offering. Notwithstanding the
foregoing, if the Company Underwriter delivers a written opinion to Holders
that
the total amount or kind of securities which they, Company and any other persons
intend to include in such offering (the "Total
Securities")
is
sufficiently large so as to prevent Company from effecting a successful offering
of the Total Securities, then the amount or kind of securities to be offered
for
the account of anyone other than Company shall be excluded from the underwriting
by reason of the underwriter’s marketing limitation to the extent so required by
such limitation as follows: (a) first, the securities (which shall include
the Securities held by such stockholders distributing their securities through
such underwriting shall be excluded in a manner such that the number of any
shares that may be included by such holders are allocated in proportion, as
nearly as practicable to the amounts of such securities proposed to be offered
by such persons in such registration, (b) if after all securities held by
such stockholders have been excluded and additional shares shall be excluded,
Registrable Securities of such stockholders distributing their Registrable
Securities through such underwriting shall be excluded in a manner such that
the
number of any Registrable Securities that may be included by such holders are
allocated in proportion, as nearly as practicable to the amounts of Registrable
Securities held by such holders; and (c) if after securities held by such
stockholders have been excluded and additional shares shall be excluded,
securities of Company shall be excluded. Notwithstanding the provisions of
this
Section
3.4,
Company
shall have the right, at any time after it shall have given written notice
pursuant to this Section 3.4
(irrespective of whether a written request for inclusion of Securities shall
have been made), to elect not to file any such proposed registration statement
or to withdraw or terminate the same after the filing and prior to the effective
date thereof.
(a) Effectiveness.
If
necessary to permit distribution of the Securities, Company shall use its
reasonable best efforts to maintain the effectiveness for up to one (1) year
of
the registration statement pursuant to which any of the Securities are being
offered, and from time to time will amend or supplement such registration
statement and the prospectus contained therein as and to the extent necessary
to
comply with the Securities Act and any applicable state securities statute
or
regulation. Notwithstanding the foregoing, if the registration by Company of
the
resale of Securities is eligible for Form S-3 or any successor to such form,
Company shall use its best efforts to maintain the effectiveness of the
registration statement until all registered Securities are sold. Holder shall
notify Company promptly of the completion of the offering of its Securities
under any such effective registration statement.
(i) Company
shall not be required to effect a registration statement pursuant to this
Section
3.4
after
Company has previously effected two (2) registrations pursuant to this
Section
3.4,
and
such registrations have been declared or ordered effective; or
(ii) If
requested by Company or a representative of the underwriters of common stock
(or
other securities) of Company, each Holder shall not sell or otherwise transfer
or dispose of any common stock (or other securities) of Company held by such
Holder (other than those included in a registration statement) for a period
specified by the representative of the underwriters, not to exceed one hundred
eighty (180) days following the effective date of a registration statement
of
Company filed under the Securities Act for Company’s
initial
Public Offering of common stock.
(b) Further
Obligations of Company.
Whenever, under the preceding paragraphs of this Section
3.4,
Company
is required hereunder to register Securities, it agrees that it shall also
do
the following:
(i) Furnish
to each selling Holder such copies of each preliminary and final prospectus
and
any other documents as such Holder may reasonably request to facilitate the
public offering of its Securities;
(ii) Use
its
reasonable best efforts to register or qualify the Securities to be registered
pursuant to this Section
3.4
under
the applicable securities or blue sky laws of such jurisdictions as any selling
Holder may reasonably request; and
(iii) Permit
each
selling Holder or such Holder's counsel or other representatives to inspect
and
copy such corporate documents and records as may reasonably be requested by
them
in connection with such registration.
(c) Expenses.
Except
for underwriters' discounts and brokerage commissions allocable to the
Securities, Company shall bear all costs and expenses of each registration
contemplated in Section
3.4
including, but not limited to, printing, legal (including the reasonable fees
and expenses of one counsel to Holders) and accounting fees and expenses,
Securities Exchange Commission and National Association of Securities Dealers
filing fees and Blue Sky fees and expenses in any jurisdiction in which the
securities to be offered are to be registered or qualified.
(d) Transfer
of Registration Rights.
The
registration rights of Holders of Securities under this Section
3.4
shall
inure to the benefit of and be exercisable by any transferee of
Securities.
ARTICLE
4. REPRESENTATIONS AND WARRANTIES OF HOLDER
Holder
hereby represents and warrants to Company that this Warrant is being acquired
as
an investment and not with a view to distribute. Holder is an “Accredited
Investor” as defined in Regulation D under the Securities Act.
ARTICLE
5. MISCELLANEOUS.
5.1 Term.
This
Warrant is exercisable, in whole or in part, at any time and from time to time
on or before the seventh (7th)
anniversary of the date first set forth above.
5.2 Legends.
This
Warrant and the Shares (and the securities issuable, directly or indirectly,
upon conversion of the Shares, if any) shall be imprinted with a legend in
substantially the following form:
(a) THIS
SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE
REGISTRATION THEREOF UNDER SUCH ACT OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT
REQUIRED.
(b) Any
legend
required by the Blue Sky laws of any state to the extent such laws are
applicable to this Warrant and the Shares.
5.3 Compliance
with Securities Laws on Transfer.
This
Warrant and the Shares issuable upon exercise of this Warrant (and the
securities issuable, directly or indirectly, upon conversion of the Shares,
if
any) may not be transferred or assigned in whole or in part without compliance
with applicable federal and state securities laws by the transferor and the
transferee (including, without limitation, the delivery of investment
representation letters and legal opinions reasonably satisfactory to Company,
as
reasonable requested by Company). Notwithstanding the preceding, Holder may
grant a participation interest in the Warrant, or the Shares, without Company’s
consent.
5.4 Transfer
Procedure.
Except
as otherwise provided herein, and subject to the provisions of Section
5.2,
Holder
may, with the written consent of Company, which consent shall not be
unreasonably withheld, transfer all or part of this Warrant or the Shares
issuable upon exercise of this Warrant (or the securities issuable, directly
or
indirectly, upon conversion of the Shares, if any) by giving Company notice
of
the portion of the Warrant being transferred setting forth the name, address
and
taxpayer identification number of the transferee and surrendering this Warrant
to Company for reissuance to the transferee(s) (and Holder if applicable).
Notwithstanding the foregoing, Holder may transfer all or part of this Warrant
or the Shares issuable upon exercise of this Warrant (or the securities
issuable, directly or indirectly, upon conversion of the Shares, if any) without
consent of Company in the following instances;
(a) transfers
to any holders of Company common stock or other Company securities as of the
date hereof;
(b) transfers
to affiliates of Holder; and
(c) transfers
subsequent to the effectiveness of a registration statement covering the
Shares.
5.5 Notices.
All
notices and other communications from Company to Holder, or vice versa, shall
be
deemed delivered and effective when given personally or mailed by first-class
registered or certified mail, postage prepaid, at such address as may have
been
furnished to Company or Holder, as the case may be, in writing by Company or
such Holder from time to time.
5.6 Waiver.
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.
5.7 Attorneys’
Fees.
In the
event of any dispute between the parties concerning the terms and provisions
of
this Warrant, the party prevailing in such dispute shall be entitled to collect
from the other party all costs incurred in such dispute, including reasonable
attorneys’ fees.
5.8 Governing
Law.
This
Warrant shall be governed by and construed in accordance with the laws of the
State of California, without giving effect to its principles regarding conflicts
of law.
IN
WITNESS WHEREOF, the parties hereto have caused this Warrant to be executed
as
of the day and year set forth above.
“Company”
AUXILIO,
INC.,
a
Nevada
corporation
By:
_____________________________
Name:
Xxxxxx X. Xxxxx
Title:
Chief Executive Officer
“Holder”
CAMBRIA
INVESTMENT FUND, L.P.
a
California limited partnership
By:
CAMBRIA INVESTMENT ADVISORS, LLC
a
California limited liability company,
its
general partner
By:
_____________________________
Xxxx
X.
Xxxxxxxxxx, President
APPENDIX
1
NOTICE
OF EXERCISE
1. The
undersigned hereby elects to purchase ___________ shares of the Common Stock
of
AUXILIO, INC. pursuant to the terms of the attached Warrant, and tenders
herewith payment of the purchase price of such shares in full.
1. The
undersigned hereby elects to convert the attached Warrant into Shares / cash
{strike one} in the manner specified in the Warrant. This conversion is
exercised with respect to _______________________ of the Shares covered by
the
Warrant.
{Strike
paragraph that does not apply.}
2. Please
issue a certificate or certificates representing said shares in the name of
the
undersigned or in such other name as is specified below:
______________________________________
(Name)
______________________________________
______________________________________
(Address)
3. The
undersigned represents it is acquiring the shares solely for its own account
and
not as a nominee for any other party and not with a view toward the resale
or
distribution thereof except in compliance with applicable securities
laws.
By:
_________________________________
Name:
____________________________
Title:
_____________________________
____________________
(Date)
