Exhibit 10.3
EXHIBIT B TO THE
SECURITIES PURCHASE AGREEMENT
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR ANY STATE SECURITIES LAW, AND MAY NOT BE OFFERED FOR
SALE, SOLD OR TRANSFERRED UNLESS A REGISTRATION STATEMENT UNDER SUCH ACT AND
APPLICABLE STATE SECURITIES LAWS SHALL BE EFFECTIVE WITH RESPECT THERETO, OR
AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT AND APPLICABLE STATE
SECURITIES LAWS IS AVAILABLE IN CONNECTION WITH SUCH OFFER, SALE OR
TRANSFER. SUBJECT TO COMPLIANCE WITH THE REQUIREMENTS OF THE SECURITIES ACT
AND APPLICABLE STATE SECURITIES LAWS, THIS WARRANT AND THE SECURITIES
ISSUABLE UPON EXERCISE OF THIS WARRANT MAY BE PLEDGED OR HYPOTHECATED IN
CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY THIS
WARRANT OR ANY OF THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT.
SERIES B WARRANT
TO PURCHASE COMMON STOCK
OF
APPLIED DIGITAL SOLUTIONS, INC.
ISSUE DATE: APRIL __, 2004 WARRANT NO. B-1
THIS CERTIFIES that SATELLITE STRATEGIC FINANCE ASSOCIATES, LLC, a
Delaware limited liability company or any subsequent holder hereof (the
"Holder"), has the right to purchase from APPLIED DIGITAL SOLUTIONS, INC., a
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Missouri corporation (the "Company"), up to 666,667 fully paid and
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nonassessable shares of the Company's common stock, par value $0.01 per
share (the "Common Stock"), subject to adjustment as provided herein, at a
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price per share equal to the Exercise Price (as defined below), at any time
and from time to time beginning on the one-year anniversary of the date on
which this Warrant is issued (the date on which this Warrant is issued being
referred to herein as the "Issue Date") and ending at 5:00 p.m., eastern
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time, on the sixth (6th) anniversary of the Issue Date (the "Expiration
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Date"). This Warrant is issued pursuant to a Securities Purchase Agreement,
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dated as of April 13, 2004 (the "Securities Purchase Agreement").
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Capitalized terms used herein and not otherwise defined shall have the
respective meanings set forth in the Securities Purchase Agreement.
1. Exercise.
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(a) Right to Exercise; Exercise Price. The Holder shall have the
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right to exercise this Warrant at any time and from time to time during the
period beginning on the one-year anniversary of the Issue Date and ending on
the Expiration Date as to all or any part of the shares of Common Stock
covered hereby (the "Warrant Shares"). The "Exercise Price" for each Warrant
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Share purchased by the Holder upon the exercise of this Warrant shall be
equal to $3.2988, subject to adjustment for the events specified in Section
6 below.
(b) Exercise Notice. In order to exercise this Warrant, the Holder
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shall (i) send by facsimile transmission, at any time prior to 5:00 p.m.,
eastern time, on the Business Day on which the Holder wishes to effect such
exercise (the "Exercise Date"), to the Company an executed copy of the
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notice of exercise in the form attached hereto as Exhibit A (the "Exercise
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Notice"), (ii) deliver the original Warrant and, in the case of a Cash
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Exercise (as defined below), the Exercise Price to the Company. The Exercise
Notice shall also state the name or names (with address) in which the shares
of Common Stock that are issuable on such exercise shall be issued. If
shares are to be issued in the name of a person other than the Holder, the
Holder will pay all transfer taxes payable with respect thereto. In the case
of a dispute as to the calculation of the Exercise Price or the number of
Warrant Shares issuable hereunder (including, without limitation, the
calculation of any adjustment pursuant to Section 6 below), the Company
shall promptly issue to the Holder the number of Warrant Shares that are not
disputed and shall submit the disputed calculations to a certified public
accounting firm of national recognition (other than the Company's
independent accountants) within two (2) Business Days following the date on
which the Exercise Notice is delivered to the Company. The Company shall
cause such accountant to calculate the Exercise Price and/or the number of
Warrant Shares issuable hereunder and to notify the Company and the Holder
of the results in writing no later than three (3) Business Days following
the day on which such accountant received the disputed calculations (the
"Dispute Procedure"). Such accountant's calculation shall be deemed
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conclusive absent manifest error. The fees of any such accountant shall be
borne by the party whose calculations were most at variance with those of
such accountant.
(c) Holder of Record. The Holder shall, for all purposes, be deemed
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to have become the holder of record of the Warrant Shares specified in an
Exercise Notice on the Exercise Date specified therein, irrespective of the
date of delivery of such Warrant Shares. Except as specifically provided
herein, nothing in this Warrant shall be construed as conferring upon the
Holder hereof any rights as a shareholder of the Company, including, without
limitation, the right to vote, the right to receive dividends or other
distributions made to shareholders of the Company, and the right to exercise
preemptive rights, prior to the Exercise Date.
(d) Cancellation of Warrant. This Warrant shall be canceled upon
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its exercise and, if this Warrant is exercised in part, the Company shall,
at the time that it delivers Warrant Shares to the Holder pursuant to such
exercise as provided herein, issue a new warrant, and deliver to the Holder
a certificate representing such new warrant, with terms identical in all
respects to this Warrant (except that such new warrant shall be exercisable
into the number of shares of Common Stock with respect to which this Warrant
shall remain unexercised); provided,
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however, that the Holder shall be entitled to exercise all or any portion of
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such new warrant at any time following the time at which this Warrant is
exercised, regardless of whether the Company has actually issued such new
warrant or delivered to the Holder a certificate therefor.
2. Delivery of Warrant Shares Upon Exercise. Upon receipt of an
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Exercise Notice pursuant to paragraph 1 above, the Company shall, (A) in the
case of a Cash Exercise (as defined below) no later than the close of
business on the later to occur of (i) the third (3rd) Business Day following
the Exercise Date set forth in such Exercise Notice and (ii) the date on
which the Company has received payment of the Exercise Price and the taxes
specified in paragraph 1(b) above, if any, are paid in full, (B) in the case
of a Cashless Exercise (as defined below), no later than the close of
business on the third (3rd) Business Day following the Exercise Date set
forth in such Exercise Notice, and (C) with respect to Warrant Shares that
are the subject of a Dispute Procedure, the close of business on the third
(3rd) Business Day following the determination made pursuant to paragraph
1(b) (each of the dates specified in (A), (B) or (C) being referred to as a
"Delivery Date"), issue and deliver or cause to be delivered to the Holder
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the number of Warrant Shares as shall be determined as provided herein. The
Company shall effect delivery of Warrant Shares to the Holder by, as long as
the Transfer Agent participates in the Depository Trust Company ("DTC") Fast
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Automated Securities Transfer program ("FAST"), crediting the account of the
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Holder or its nominee at DTC (as specified in the applicable Exercise
Notice) with the number of Warrant Shares required to be delivered, no later
than the close of business on such Delivery Date. In the event that the
Transfer Agent is not a participant in FAST, or if the Warrant Shares are
not otherwise eligible for delivery through FAST, or if the Holder so
specifies in an Exercise Notice or otherwise in writing on or before the
Exercise Date, the Company shall effect delivery of Warrant Shares by
delivering to the Holder or its nominee physical certificates representing
such Warrant Shares, no later than the close of business on such Delivery
Date.
3. Failure to Deliver Warrant Shares.
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(a) In the event that the Company fails for any reason (other than
as a result of the Holder's failure to deliver the original Warrant to the
Company or, in the case of a Cash Exercise (as defined below), to pay the
aggregate Exercise Price for the Warrant Shares being purchased) to deliver
to the Holder the number of Warrant Shares specified in the applicable
Exercise Notice on or before the Delivery Date therefor (an "Exercise
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Default"), and such default continues for five (5) Business Days following
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delivery of a written notice of such default by the Holder to the Company,
the Company shall pay to the Holder payments ("Exercise Default Payments")
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in the amount of (i) (N/365) multiplied by (ii) the aggregate Exercise Price
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of the Warrant Shares which are the subject of such Exercise Default
multiplied by (iii) the lower of fifteen percent (15%) and the maximum rate
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permitted by applicable law (the "Default Interest Rate"), where "N" equals
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the number of days elapsed between the original Delivery Date of such
Warrant Shares and the date on which all of such Warrant Shares are issued
and delivered to the Holder. Cash amounts payable hereunder shall be paid on
or before the fifth (5th) Business Day of each calendar month following the
calendar month in which such amount has accrued.
(b) The Holder's rights and remedies hereunder are cumulative, and
no right or remedy is exclusive of any other. The Holder shall have the
right to pursue all other remedies
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available to it at law or in equity (including, without limitation, a decree
of specific performance and/or injunctive relief). Nothing herein shall
limit the Holder's right to pursue actual damages for the Company's failure
to issue and deliver Warrant Shares on the applicable Delivery Date
(including, without limitation, damages relating to any purchase of Common
Stock by the Holder to make delivery on a sale effected in anticipation of
receiving Warrant Shares upon exercise, such damages to be in an amount
equal to (A) the aggregate amount paid by the Holder for the Common Stock so
purchased minus (B) the aggregate amount of net proceeds, if any, received
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by the Holder from the sale of the Warrant Shares issued by the Company
pursuant to such exercise).
4. Exercise Limitations.
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(A) In no event shall the Holder be permitted to exercise this
Warrant, or part thereof, if, upon such exercise, the number of shares of
Common Stock beneficially owned by the Holder (other than shares which would
otherwise be deemed beneficially owned except for being subject to a
limitation on conversion or exercise analogous to the limitation contained
in this paragraph 4), would exceed 4.99% of the number of shares of Common
Stock then issued and outstanding. As used herein, beneficial ownership
shall be determined in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended, and the rules thereunder. To the extent
that the limitation contained in this paragraph 4 applies, the submission of
an Exercise Notice by the Holder shall be deemed to be the Holder's
representation that this Warrant is exercisable pursuant to the terms hereof
and the Company shall be entitled to rely on such representation without
making any further inquiry as to whether this Section 4 applies. The Company
shall have no liability to any person if the Holder's determination of
whether this Warrant is convertible pursuant to the terms hereof is
incorrect. Nothing contained herein shall be deemed to restrict the right of
a Holder to exercise this Warrant, or part thereof, at such time as such
exercise will not violate the provisions of this Section 4. This Section 4
may not be amended unless such amendment is agreed to in writing by the
Holder and approved by the holders of a majority of the Common Stock then
outstanding; provided, however, that the Holder shall have the right to
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waive the provisions of this Section 4 upon prior written notice to the
Company following the announcement of a Major Transaction (as defined
below), or otherwise upon sixty (60) days' prior written notice to the
Company.
(B) Until Shareholder Approval (as defined below) is obtained, or
the Holder obtains an opinion of counsel reasonably satisfactory to the
Company and its counsel that such approval is not required, the Holder shall
be prohibited from exercising this Warrant if, as a result of such exercise,
the aggregate number of Warrant Shares issued pursuant to all exercises of
this Warrant would exceed the Cap Amount (as defined below). If, at any
time, the sum of (i) the number of Warrant Shares theretofore issued under
this Warrant plus (ii) the number of Warrant Shares then issuable upon
exercise of this Warrant (without giving effect to any limitation on such
exercise contained in this Warrant), exceeds the Cap Amount, the Company
shall, upon the written request of the Holder, hold a meeting of its
shareholders within sixty (60) days following such request, and use its best
efforts to obtain the approval of its shareholders for the transactions
described herein and the other Transaction Documents ("Shareholder
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Approval"). In the event that Shareholder Approval is not obtained at a
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shareholder meeting held after such request by the Holder, the Company shall
continue to use its best efforts to seek Shareholder Approval as soon
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as practicable after such meeting but no less frequently than quarterly
thereafter. For purposes hereof, "Cap Amount" means 19.99% of the Common
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Stock outstanding on the Issue Date (subject to adjustment upon a stock
split, stock dividend or similar event). In the event that the Holder shall
sell or otherwise transfer all or any portion of this Warrant, the
transferee shall be deemed to have been allocated a pro rata share of the
Cap Amount.
5. Payment of the Exercise Price; Cashless Exercise. The Holder may
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pay the Exercise Price in either of the following forms or, at the election
of Holder, a combination thereof:
(a) through a cash exercise (a "Cash Exercise") by delivering
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immediately available funds, or
(b) if, following the one-year anniversary of the Issue Date, an
effective Registration Statement is not available for the resale of all of
the Warrant Shares issuable hereunder at the time an Exercise Notice is
delivered to the Company, through a cashless exercise (a "Cashless
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Exercise"). The Holder may effect a Cashless Exercise by surrendering this
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Warrant to the Company and noting on the Exercise Notice that the Holder
wishes to effect a Cashless Exercise, upon which the Company shall issue to
the Holder a number of Warrant Shares determined as follows:
X = Y x (A-B)/A
where: X = the number of Warrant Shares to be issued to the Holder;
Y = the number of Warrant Shares with respect to which this
Warrant is being exercised;
A = the Market Price as of the Exercise Date; and
B = the Exercise Price.
It is intended and acknowledged that the Warrant Shares issued in a
Cashless Exercise transaction shall be deemed to have been acquired by the
Holder, and the holding period for the Warrant Shares required by Rule 144
shall be deemed to have been commenced, on the Issue Date. For purposes
hereof, (A) "Market Price" means, as of a particular date, the average of
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the Closing Prices for the Common Stock occurring during the ten (10)
Trading Day period ending on (and including) the Trading Day immediately
preceding such date, and (B) "Closing Price" means, with respect to the
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Common Stock as of any Trading Day, the closing price on such date for the
Common Stock on the Principal Market as reported by Bloomberg Financial
Markets ("Bloomberg"), or if the Principal Market begins to operate on an
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extended hours basis, and does not designate the closing price, then the
last price at 4:00 p.m. (eastern time), as reported by Bloomberg, or if the
foregoing do not apply, the last closing price of the Common Stock in the
over-the-counter market on the electronic bulletin board for such security
as reported by Bloomberg, or, if no closing price is reported for such
security by Bloomberg, the last closing trade price for such security as
reported by Bloomberg, or, if no last closing trade price is
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reported for such security by Bloomberg, the average of the prices of any
market makers for such security as reported in the "pink sheets" by Pink
Sheets LLC (formerly the National Quotation Bureau, Inc.). If the Closing
Price cannot be calculated for the Common Stock on such date on any of the
foregoing bases, then the Company shall submit such calculation to an
independent investment banking firm of national reputation, and shall cause
such investment banking firm to perform such determination and notify the
Company and each Investor of the results of determination no later than two
(2) Business Days from the time such calculation was submitted to it by the
Company. Such investment banking firm's determination shall be deemed
conclusive absent manifest error. All such determinations shall be
appropriately adjusted for any stock dividend, stock split or other similar
transaction during such period.
6. Anti-Dilution Adjustments; Distributions; Other Events. The
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Exercise Price and the number of Warrant Shares issuable hereunder shall be
subject to adjustment from time to time as provided in this Section 6.
(a) Subdivision or Combination of Common Stock. If the Company, at
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any time after the Issue Date, subdivides (by any stock split, stock
dividend, recapitalization, reorganization, reclassification or otherwise)
its shares of Common Stock into a greater number of shares, then after the
date of record for effecting such subdivision, the Exercise Price in effect
immediately prior to such subdivision will be proportionately reduced. If
the Company, at any time after the Issue Date, combines (by reverse stock
split, recapitalization, reorganization, reclassification or otherwise) its
shares of Common Stock into a smaller number of shares, then, after the date
of record for effecting such combination, the Exercise Price in effect
immediately prior to such combination will be proportionally increased.
(b) Distributions. If the Company shall declare or make any
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distribution of its assets (or rights to acquire its assets) to holders of
Common Stock as a partial liquidating dividend or otherwise (including
without limitation any dividend or distribution to the Company's
stockholders in cash or shares (or rights to acquire shares) of capital
stock of a subsidiary) (a "Distribution"), the Company shall deliver written
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notice of such Distribution (a "Distribution Notice") to the Holder at least
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ten (10) Business Days prior to the earlier to occur of (i) the record date
for determining stockholders entitled to such Distribution (the "Record
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Date") and (ii) the date on which such Distribution is made (the
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"Distribution Date"). The Holder shall be entitled, at its option (to be
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exercised by written notice delivered to the Company on or before the tenth
(10th) Business Day following the date on which a Distribution Notice is
delivered to the Holder), either (A) upon any exercise of this Warrant on or
after the Record Date, to be entitled to receive on the Distribution Date
(for any exercise effected on or prior to the Distribution Date) or the
applicable Delivery Date (for any exercise effected after the Distribution
Date), the amount of such assets which would have been payable to the holder
with respect to the shares of Common Stock issuable upon such exercise
(without giving effect to any limitations on such exercise contained in this
Warrant) had the Holder been the holder of such shares of Common Stock on
the Record Date or (B) upon any exercise of this Warrant on or after the
Record Date, to reduce the Exercise Price applicable to such exercise by
reducing the Exercise Price in effect on the Business Day immediately
preceding the Record Date by an amount equal to the fair market value of the
assets to be distributed divided by the number of shares of Common Stock as
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to which such Distribution is to be made, such fair market value to
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be reasonably determined in good faith by the independent members of the
Board of Directors of the Company.
(c) Dilutive Issuances.
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(i) Adjustment Upon Dilutive Issuance. If, at any time after
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the Issue Date, the Company issues or sells, either directly or upon the
exercise of Convertible Securities or Purchase Rights, any shares of Common
Stock for no consideration or for a consideration per share less than the
Exercise Price on the date of such issuance or sale (a "Dilutive Issuance"),
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then the Exercise Price shall be adjusted as follows:
(A) If such Dilutive Issuance occurs prior to the
Effective Date (as defined in the Registration Rights Agreement),
then effective immediately upon the Dilutive Issuance, the Exercise
Price shall be adjusted so as to equal the consideration received
or receivable by the Company (on a per share basis) for the
additional shares of Common Stock so issued, sold or deemed issued
or sold in such Dilutive Issuance (which, in the case of a deemed
issuance or sale, shall be calculated in accordance with
subparagraph (ii) below).
(B) If such Dilutive Issuance occurs on or after the
Effective Date, then effective immediately upon the Dilutive
Issuance, the Exercise Price shall be adjusted so as to equal an
amount determined by multiplying such Exercise Price by the
following fraction:
N0 + N1
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N0 + N2
where:
N0 = the number of shares of Common Stock outstanding
immediately prior to the issuance, sale or deemed
issuance or sale of such additional shares of Common
Stock in such Dilutive Issuance (without taking into
account any shares of Common Stock issuable upon
conversion, exchange or exercise of any securities
or other instruments which are convertible into or
exercisable or exchangeable for Common Stock
("Convertible Securities") or options, warrants or
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other rights to purchase or subscribe for Common
Stock or Convertible Securities ("Purchase Rights"),
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including the Warrants);
N1 = the number of shares of Common Stock which the
aggregate consideration, if any, received or
receivable by the Company for the total number of
such additional shares of Common Stock so issued,
sold or deemed issued or sold in such Dilutive
Issuance (which, in the case of a deemed issuance or
sale, shall be calculated in accordance with
subparagraph (iii) below) would
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purchase at the Exercise Price in effect immediately
prior to such Dilutive Issuance; and
N2 = the number of such additional shares of Common
Stock so issued, sold or deemed issued or sold in
such Dilutive Issuance.
Notwithstanding the foregoing, no adjustment shall be
made pursuant hereto if such adjustment would result in an increase
in the Exercise Price.
(ii) Adjustment Upon Below Market Issuance. If, at any time
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after the Issue Date, the Company issues or sells, or in accordance with
subparagraph (iii) of this paragraph (c), is deemed to have issued or sold,
any shares of Common Stock for no consideration or for a consideration per
share less than the Market Price on the date of such issuance or sale (or
deemed issuance or sale) (a "Below Market Issuance"), then the Exercise
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Price shall be adjusted so as to equal an amount determined by multiplying
such Exercise Price by the following fraction:
N0 + N1
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N0 + N2
where:
N0 = the number of shares of Common Stock outstanding
immediately prior to the issuance, sale or deemed
issuance or sale of such additional shares of Common
Stock in such Below Market Issuance (without taking
into account any shares of Common Stock issuable
upon conversion, exchange or exercise of any
Convertible Securities or Purchase Rights, including
the Warrants);
N1 = the number of shares of Common Stock which the
aggregate consideration, if any, received or
receivable by the Company for the total number of
such additional shares of Common Stock so issued,
sold or deemed issued or sold in such Below Market
Issuance (which, in the case of a deemed issuance or
sale, shall be calculated in accordance with
subparagraph (iii) below) would purchase at the
Market Price in effect on the date of such Below
Market Issuance; and
N2 = the number of such additional shares of Common
Stock so issued, sold or deemed issued or sold in
such Below Market Issuance.
Notwithstanding the foregoing, no adjustment shall be
made pursuant to this paragraph (c)(ii) if such adjustment would
result in an increase in the Exercise Price or if such adjustment
would lead to a higher exercise price than an adjustment pursuant
to paragraph c(i), in which case the provisions of paragraph (c)(i)
shall apply.
(iii) Effect On Exercise Price Of Certain Events. For purposes
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of determining
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the adjusted Exercise Price under subparagraph (i) or (ii) of this paragraph
(c), the following will be applicable:
(A) Issuance Of Purchase Rights. If the Company issues or
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sells any Purchase Rights, whether or not immediately exercisable,
and the price per share for which Common Stock is issuable upon the
exercise of such Purchase Rights (and the price of any conversion
of Convertible Securities, if applicable) is less than the Market
Price in effect on the date of issuance or sale of such Purchase
Rights, then the maximum total number of shares of Common Stock
issuable upon the exercise of all such Purchase Rights (assuming
full conversion, exercise or exchange of Convertible Securities, if
applicable) shall, as of the date of the issuance or sale of such
Purchase Rights, be deemed to be outstanding and to have been
issued and sold by the Company for such price per share. For
purposes of the preceding sentence, the "price per share for which
Common Stock is issuable upon the exercise of such Purchase Rights"
shall be determined by dividing (x) the total amount, if any,
received or receivable by the Company as consideration for the
issuance or sale of all such Purchase Rights, plus the minimum
aggregate amount of additional consideration, if any, payable to
the Company upon the exercise of all such Purchase Rights, plus, in
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the case of Convertible Securities issuable upon the exercise of
such Purchase Rights, the minimum aggregate amount of additional
consideration payable upon the conversion, exercise or exchange
thereof (determined in accordance with the calculation method set
forth in subparagraph (iii)(B) below) at the time such Convertible
Securities first become convertible, exercisable or exchangeable,
by (y) the maximum total number of shares of Common Stock issuable
upon the exercise of all such Purchase Rights (assuming full
conversion, exercise or exchange of Convertible Securities, if
applicable). No further adjustment to the Exercise Price shall be
made upon the actual issuance of such Common Stock upon the
exercise of such Purchase Rights or upon the conversion, exercise
or exchange of Convertible Securities issuable upon exercise of
such Purchase Rights. To the extent that shares of Common Stock or
Convertible Securities are not delivered pursuant to such Purchase
Rights, upon the expiration or termination of such Purchase Rights,
the Exercise Price shall be readjusted to the Exercise Price that
would then be in effect had the adjustments made upon the issuance
of such Purchase Rights been made on the basis of delivery of only
the number of shares of Common Stock actually delivered.
(B) Issuance Of Convertible Securities. If the Company
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issues or sells any Convertible Securities, whether or not
immediately convertible, exercisable or exchangeable, and the price
per share for which Common Stock is issuable upon such conversion,
exercise or exchange is less than the Market Price in effect on the
date of issuance or sale of such Convertible Securities, then the
maximum total number of shares of Common Stock issuable upon the
conversion, exercise or exchange of all such Convertible Securities
shall, as of the date of the issuance or sale of such Convertible
Securities, be deemed to be outstanding and to have been issued and
sold by the Company for such price per share. If the Convertible
Securities so issued or sold do not have a fluctuating conversion
or exercise price or exchange ratio, then for the purposes of the
immediately preceding sentence, the "price per share for which
Common Stock is issuable upon such conversion, exercise or
exchange" shall be determined by dividing (x) the total amount, if
any, received or receivable by the Company as consideration for the
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issuance or sale of all such Convertible Securities, plus the
minimum aggregate amount of additional consideration, if any,
payable to the Company upon the conversion, exercise or exchange
thereof (determined in accordance with the calculation method set
forth in this subparagraph (iii)(B)) at the time such Convertible
Securities first become convertible, exercisable or exchangeable,
by (y) the maximum total number of shares of Common Stock issuable
upon the exercise, conversion or exchange of all such Convertible
Securities. If the Convertible Securities so issued or sold have a
fluctuating conversion or exercise price or exchange ratio (a
"Variable Rate Convertible Security") (provided, however, that if
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the conversion or exercise price or exchange ratio of a Convertible
Security may fluctuate solely as a result of provisions designed to
protect against dilution, such Convertible Security shall not be
deemed to be a Variable Rate Convertible Security), then for
purposes of the first sentence of this subparagraph (B), the "price
per share for which Common Stock is issuable upon such conversion,
exercise or exchange" shall be deemed to be the lowest price per
share which would be applicable (assuming all holding period and
other conditions to any discounts contained in such Variable Rate
Convertible Security have been satisfied) if the conversion price
of such Variable Rate Convertible Security on the date of issuance
or sale thereof were seventy-five percent (75%) of the actual
conversion price on such date (the "Assumed Variable Market
-----------------------
Price"), and, further, if the conversion price of such Variable
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Rate Convertible Security at any time or times thereafter is less
than or equal to the Assumed Variable Market Price last used for
making any adjustment under this paragraph (c) with respect to any
Variable Rate Convertible Security, the Exercise Price in effect at
such time shall be readjusted to equal the Exercise Price which
would have resulted if the Assumed Variable Market Price at the
time of issuance of the Variable Rate Convertible Security had been
seventy-five percent (75%) of the actual conversion price of such
Variable Rate Convertible Security existing at the time of the
adjustment required by this sentence. No further adjustment to the
Exercise Price shall be made upon the actual issuance of such
Common Stock upon conversion, exercise or exchange of such
Convertible Securities. To the extent that shares of Common Stock
are not delivered pursuant to conversion of such Convertible
Securities, upon the expiration or termination of the right to
convert such Convertible Securities into Common Stock, the Exercise
Price shall be readjusted to the Exercise Price that would then be
in effect had the adjustments made upon the issuance of such
Convertible Securities been made on the basis of delivery of only
the number of shares of Common Stock actually delivered.
(C) Change In Option Price Or Conversion Rate. If,
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following an adjustment to the Exercise Price upon the issuance of
Purchase Rights or Convertible Securities pursuant to a Below
Market Issuance, there is a change at any time in (x) the amount of
additional consideration payable to the Company upon the exercise
of any Purchase Rights; (y) the amount of additional consideration,
if any, payable to the Company upon the conversion, exercise or
exchange of any Convertible Securities; or (z) the rate at which
any Convertible Securities are convertible into or exercisable or
exchangeable for Common Stock (in each such case, other than under
or by reason of provisions designed to protect against dilution),
then in any such case, the Exercise Price in effect at the time of
such change shall be readjusted to the Exercise Price which would
have been in effect at such time had such Purchase Rights or
Convertible Securities still outstanding provided for such changed
additional consideration or changed conversion,
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exercise or exchange rate, as the case may be, at the time
initially issued or sold.
(D) Calculation Of Consideration Received. If any Common
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Stock, Purchase Rights or Convertible Securities are issued or sold
for cash, the consideration received therefor will be the amount
received by the Company therefor. In case any Common Stock,
Purchase Rights or Convertible Securities are issued or sold for a
consideration part or all of which shall be other than cash,
including in the case of a strategic or similar arrangement in
which the other entity will provide services to the Company,
purchase services from the Company or otherwise provide intangible
consideration to the Company, the amount of the consideration other
than cash received by the Company (including the net present value
of the consideration expected by the Company for the provided or
purchased services) shall be the fair market value of such
consideration, except where such consideration consists of
securities, in which case the amount of consideration received by
the Company will be the average of the last sale prices thereof on
the principal market for such securities during the period of ten
Trading Days immediately preceding the date of receipt. In case any
Common Stock, Purchase Rights or Convertible Securities are issued
in connection with any merger or consolidation in which the Company
is the surviving corporation, the amount of consideration therefor
will be deemed to be the fair market value of such portion of the
net assets and business of the non-surviving corporation as is
attributable to such Common Stock, Purchase Rights or Convertible
Securities, as the case may be. Notwithstanding anything else
herein to the contrary, if Common Stock, Purchase Rights or
Convertible Securities are issued or sold in conjunction with each
other as part of a single transaction or in a series of related
transactions, the Holder may elect to determine the amount of
consideration deemed to be received by the Company therefor by
deducting the fair value of any type of securities (the
"Disregarded Securities") issued or sold in such transaction or
----------------------
series of transactions. If the holder makes an election pursuant to
the immediately preceding sentence, no adjustment to the Exercise
Price shall be made pursuant to this paragraph (c) for the issuance
of the Disregarded Securities or upon any conversion, exercise or
exchange thereof. The independent members of the Corporation's
Board of Directors shall calculate reasonably and in good faith,
using standard commercial valuation methods appropriate for valuing
such assets, the fair market value of any consideration other than
cash or securities.
(E) Issuances Pursuant To Existing Securities. If the
-----------------------------------------
Company issues (or becomes obligated to issue) shares of Common
Stock pursuant to any antidilution or similar adjustments (other
than as a result of stock splits, stock dividends and the like)
contained in any Convertible Securities or Purchase Rights
outstanding as of the date hereof but not included in the
Disclosure Schedule to the Securities Purchase Agreement, then all
shares of Common Stock so issued shall be deemed to have been
issued for no consideration. If the Company issues (or becomes
obligated to issue) shares of Common Stock pursuant to any
antidilution or similar adjustments contained in any Convertible
Securities or Purchase Rights disclosed in a schedule to the
Securities Purchase Agreement as a result of the issuance of the
Warrants and the number of shares that the Company issues (or is
obligated to issue) as a result of such initial issuance exceeds
the amount specified in such schedule, such excess shares shall be
deemed to have been issued for no consideration.
11
(iv) Exceptions To Adjustment Of Exercise Price.
------------------------------------------
Notwithstanding the foregoing, no adjustment to the Exercise Price shall be
made pursuant to this paragraph (c) upon the issuance of any Excluded
Securities. For purposes hereof, "Excluded Securities" means (I) securities
-------------------
purchased under the Securities Purchase Agreement; (II) securities issued
upon exercise of the Warrants; (III) shares of Common Stock issuable or
issued to (x) employees or directors from time to time either directly or
upon the exercise of options, in such case granted or to be granted in the
discretion of the Board of Directors (or a duly authorized committee
thereof) pursuant to one or more stock option plans or restricted stock
plans or stock purchase plans in effect as of the Issue Date or adopted
-----------------------
after the Issue Date by the Board of Directors (or a duly authorized
committee thereof) or by the Company's shareholders, or (y) vendors, either
directly or pursuant to warrants to purchase Common Stock that are
outstanding on the date hereof or issued hereafter, provided such issuances
are approved by the Board of Directors (or a duly authorized committee
thereof) or by the Company's shareholders; (IV) shares of Common Stock
issued in connection with any stock split, stock dividend or
recapitalization of the Company; (V) shares of Common Stock issued in
connection with the acquisition by the Company or a Subsidiary of any Person
---------------
or business not for the purpose or with the effect of raising equity
capital; (VI) shares of Common Stock issued in connection with any
Convertible Securities or Purchase Rights outstanding on the date hereof;
(VII) shares issued to Persons with whom the Corporation is entering into a
joint venture, strategic alliance or other commercial relationship in
connection with the operation of the Company's business and not in
connection with a transaction the primary purpose of which is to raise
equity capital; and (VIII) shares of Common Stock, Convertible Securities or
Purchase Rights issued in connection with the settlement of a bona fide
litigation approved by the Board of Directors.
(v) Notice Of Adjustments. Upon the occurrence of one or more
---------------------
adjustments or readjustments of the Exercise Price pursuant to this
paragraph (c) resulting in a change in the Exercise Price by more than one
percent (1%) in the aggregate, or any change in the number or type of stock,
securities and/or other property issuable upon exercise of this Warrant, the
Company, at its expense, shall promptly compute such adjustment or
readjustment or change and prepare and furnish to the Holder a certificate
setting forth such adjustment or readjustment or change and showing in
detail the facts upon which such adjustment or readjustment or change is
based. The Company shall, upon the written request at any time of the
Holder, furnish to the Holder a like certificate setting forth (i) such
adjustment or readjustment or change, (ii) the Exercise Price at the time in
effect and (iii) the number of shares of Common Stock and the amount, if
any, of other securities or property which at the time would be received
upon exercise of this Warrant.
(d) Major Transactions. In the event of a merger, consolidation,
------------------
business combination, tender offer, exchange of shares, recapitalization,
reorganization, redemption or other similar event, as a result of which
shares of Common Stock of the Company shall be changed into the same or a
different number of shares of the same or another class or classes of stock
or securities or other assets of the Company or another entity or the
Company shall sell all or substantially all of its assets (each of the
foregoing being a "Major Transaction"), the Company will give the Holder at
-----------------
least ten (10) Business Days written notice prior to the closing of such
Major Transaction; provided, however, that the Company shall publicly
-------- -------
disclose the terms of any such Major Transaction on or before the date on
which it delivers notice of a Major Transaction to the Holder. Upon the
occurrence of a Major Transaction, (i) the Holder shall be
12
permitted to exercise this Warrant in whole or in part at any time prior to
the record date for the receipt of such consideration and shall be entitled
to receive, for each share of Common Stock issued to Holder for such
exercise, the same per share consideration paid to the other holders of
Common Stock in connection with such Major Transaction, and (ii) if and to
the extent that the Holder retains any portion of this Warrant following
such record date, the Company will cause the surviving or, in the event of a
sale of assets, purchasing entity, as a condition precedent to such Major
Transaction, to assume the obligations of the Company under this Warrant,
with such adjustments to the Exercise Price and the securities covered
hereby as are deemed appropriate by the Company's Board of Directors in
order to preserve the economic benefits of this Warrant to the Holder.
(e) Adjustments; Additional Shares, Securities or Assets. In the
----------------------------------------------------
event that at any time, as a result of an adjustment made pursuant to this
paragraph 6, the Holder of this Warrant shall, upon exercise of this
Warrant, become entitled to receive securities or assets (other than Common
Stock) then, wherever appropriate, all references herein to shares of Common
Stock shall be deemed to refer to and include such shares and/or other
securities or assets; and thereafter the number of such shares and/or other
securities or assets shall be subject to adjustment from time to time in a
manner and upon terms as nearly equivalent as practicable to the provisions
of this paragraph 6. Any adjustment made herein other than pursuant to
Section 6(c) hereof that results in a decrease in the Exercise Price shall
also effect a proportional increase in the number of shares of Common Stock
into which this Warrant is exercisable.
7. Fractional Interests.
--------------------
No fractional shares or scrip representing fractional shares
shall be issuable upon the exercise of this Warrant. If, on exercise of this
Warrant, the Holder hereof would be entitled to a fractional share of Common
Stock or a right to acquire a fractional share of Common Stock, the Company
shall, in lieu of issuing any such fractional share, pay to the Holder an
amount in cash equal to the product resulting from multiplying such fraction
by the Market Price as of the Exercise Date.
8. Transfer of this Warrant.
------------------------
The Holder may sell, transfer, assign, pledge or otherwise
dispose of this Warrant, in whole or in part, as long as such sale or other
disposition is made pursuant to an effective registration statement or an
exemption from the registration requirements of the Securities Act, and
applicable state securities laws, and is otherwise made in accordance with
the applicable provisions of the Securities Purchase Agreement. Upon such
transfer or other disposition, the Holder shall deliver this Warrant to the
Company together with a written notice to the Company, substantially in the
form of the Transfer Notice attached hereto as Exhibit B (the "Transfer
--------- --------
Notice"), indicating the person or persons to whom this Warrant shall be
------
transferred and, if less than all of this Warrant is transferred, the number
of Warrant Shares to be covered by the part of this Warrant to be
transferred to each such person. Within ten (10) Business Days of receiving
a Transfer Notice, an executed Investment Certificate and the original of
this Warrant, the Company shall deliver to the each transferee designated by
the Holder a Warrant or Warrants of like tenor and terms for the appropriate
number of Warrant Shares and, if less than all this
13
Warrant is transferred, shall deliver to the Holder a Warrant for the
remaining number of Warrant Shares.
9. Benefits of this Warrant.
------------------------
This Warrant shall be for the sole and exclusive benefit of the
Holder of this Warrant and nothing in this Warrant shall be construed to
confer upon any person other than the Holder of this Warrant any legal or
equitable right, remedy or claim hereunder.
10. Loss, theft, destruction or mutilation of Warrant.
-------------------------------------------------
Upon receipt by the Company of evidence of the loss, theft,
destruction or mutilation of this Warrant, and (in the case of loss, theft
or destruction) of indemnity reasonably satisfactory to the Company, and
upon surrender of this Warrant, if mutilated, the Company shall execute and
deliver a new Warrant of like tenor and date in replacement for the lost,
stolen, destroyed or mutilated Warrant.
11. Notice or Demands.
-----------------
Any notice, demand or request required or permitted to be given
by the Company or the Holder pursuant to the terms of this Warrant shall be
in writing and shall be deemed delivered (i) when delivered personally or by
verifiable facsimile transmission, unless such delivery is made on a day
that is not a Business Day, in which case such delivery will be deemed to be
made on the next succeeding Business Day, (ii) on the next Business Day
after timely delivery to an overnight courier and (iii) on the Business Day
actually received if deposited in the U.S. mail (certified or registered
mail, return receipt requested, postage prepaid), addressed as follows:
If to the Company:
Applied Digital Solutions Inc
000 Xxxxx Xxxx Xxx, Xxxxx 000
Xxxx Xxxxx, XX 00000
Attn: Xxxxx X. Xxxxxxxxx
Tel: 000-000-0000
Fax: 000-000-0000
with a copy to:
Holland & Knight LLP
000 Xxxxxxxx Xxxxxx, Xxxxx 0000
Xxxxx, Xxxxxxx 00000
Mailing Address: X.X. Xxx 000000, Xxxxxxx, 00000
Attn: Xxxxxx X. Xxxxxxx, Esq.
Tel: 000-000-0000
Fax: 000-000-0000
14
and if to the Holder, to such address as shall be designated by the Holder
in writing to the Company.
12. Taxes.
-----
(a) The issue of stock certificates on exercises of this Warrant
shall be made without charge to the exercising Holder for any tax in respect
of the issue thereof. The Company shall not, however, be required to pay any
tax which may be payable in respect of any transfer involved in the issue
and delivery of stock in any name other than that of the Holder of any
Warrant exercised, and the Company shall not be required to issue or deliver
any such stock certificate unless and until the person or persons requesting
the issue thereof shall have paid to the Company the amount of such tax or
shall have established to the reasonable satisfaction of the Company that
such tax has been paid.
(b) Notwithstanding any other provision of this Warrant or any
other Transaction Document, for income tax purposes, any assignee or
transferee shall agree that the Company and the Transfer Agent shall be
permitted to withhold from any amounts payable to such assignee or
transferee any taxes required by law to be withheld from such amounts.
Unless exempt from the obligation to do so, each assignee or transferee
shall, upon request, execute and deliver to the Company or the Transfer
Agent, as applicable, a properly completed Form W-8 or W-9, indicating that
such assignee or transferee is not subject to back-up withholding for United
States Federal income tax purposes.
13. Applicable Law.
--------------
This Warrant is issued under and shall for all purposes be
governed by and construed in accordance with the laws of the State of
Delaware applicable to contracts made and to be performed entirely within
the State of Delaware.
14. Amendments.
----------
No amendment, modification or other change to, or waiver of any
provision of, this Warrant may be made unless such amendment, modification
or change is (A) set forth in writing and is signed by the Company and the
Holder and (B) agreed to in writing by the holders of at least sixty-six
percent (66%) of the number of shares into which the Warrants are
exercisable (without regard to any limitation contained therein on such
exercise), it being understood that upon the satisfaction of the conditions
described in (A) and (B) above, each Warrant (including any Warrant held by
the Holder who did not execute the agreement specified in (B) above) shall
be deemed to incorporate any amendment, modification, change or waiver
effected thereby as of the effective date thereof.
[Signature Page to Follow]
15
IN WITNESS WHEREOF, the Company has duly executed and delivered
this Warrant as of the Issue Date.
APPLIED DIGITAL SOLUTIONS, INC.
By:
--------------------------
Name:
Title:
16
EXHIBIT A to WARRANT
--------------------
EXERCISE NOTICE
---------------
The undersigned Holder hereby irrevocably exercises the right
to purchase __________ of the shares of Common Stock ("Warrant Shares") of
--------------
APPLIED DIGITAL SOLUTIONS, INC. evidenced by the attached Warrant (the
"Warrant"). Capitalized terms used herein and not otherwise defined shall
-------
have the respective meanings set forth in the Warrant.
1. Form of Exercise Price. The Holder intends that payment of the
Exercise Price shall be made as:
______ a Cash Exercise with respect to _________________ Warrant
-------------
Shares; and/or
______ a Cashless Exercise with respect to _________________
-----------------
Warrant Shares, as permitted by Section 5(b) of the attached Warrant.
2. Payment of Exercise Price. In the event that the Holder has
elected a Cash Exercise with respect to some or all of the Warrant Shares to
be issued pursuant hereto, the Holder shall pay the sum of $________________
to the Company in accordance with the terms of the Warrant.
Date:
----------------------
------------------------------------
Name of Registered Holder
By:
--------------------------------
Name:
Title:
By tendering this Exercise Notice, the Holder represents to the
Company that it is an "accredited investor" as that term is defined in Rule
501 of Regulation D, and that it is acquiring the Warrants Shares solely for
its own account, and not with a present view to the public resale or
distribution of all or any part thereof, except pursuant to sales that are
registered under the Securities Act or are exempt from the registration
requirements of the Securities Act; provided, however, that, in making such
-------- -------
representation, the Holder does not agree to hold the Warrants Shares for
any minimum or specific term and reserves the right to sell, transfer or
otherwise dispose of the Warrants Shares at any time in accordance with the
provisions of the Warrant and with Federal and state securities laws
applicable to such sale, transfer or disposition.
17
EXHIBIT B to WARRANT
--------------------
TRANSFER NOTICE
---------------
FOR VALUE RECEIVED, the undersigned Holder of the attached Warrant hereby
sells, assigns and transfers unto the person or persons named below the
right to purchase __________ shares of the Common Stock of APPLIED DIGITAL
SOLUTIONS, INC. evidenced by the attached Warrant. By signing this Transfer
Notice, the transferee agrees to be legally bound by the terms of the
attached Warrant and of the related Securities Purchase Agreement and
Registration Rights Agreement applicable to an Investor.
Date:
----------------------
------------------------------------
Name of Registered Holder
By:
--------------------------------
Name:
Title:
Accepted and Agreed:
------------------------
Transferee Name
By:
--------------------------------
Name:
Title:
Address:
----------------------------------------
----------------------------------------
----------------------------------------
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