COMMON STOCK PURCHASE WARRANT VIKING SYSTEMS, INC.
Exhibit
10.4
NEITHER
THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS EXERCISABLE HAVE
BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES
COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY,
MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM,
OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS
EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE
SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF
THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT
OR
OTHER LOAN SECURED BY SUCH SECURITIES.
COMMON
STOCK PURCHASE WARRANT
VIKING
SYSTEMS, INC.
| Warrant Shares: __________ |
Initial
Exercise Date: July 31, 2007
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THIS
COMMON STOCK PURCHASE WARRANT (the “Warrant”) certifies that, for value
received, __________________(the “Holder”), is entitled, upon the terms
and subject to the limitations on exercise and the conditions hereinafter set
forth, at any time on or after the date hereof (the “Initial Exercise
Date”) and on or prior to the close of business on February 23, 2014 (the
“Termination Date”) but not thereafter, to subscribe for and purchase
from Viking Systems, Inc., a Delaware corporation (the “Company”), up to
____________ shares (the “Warrant Shares”) of common stock, par value
$.001 per share, of the Company (the “Common Stock”). The
purchase price of one share of Common Stock under this Warrant shall be equal
to
the Exercise Price, as defined in Section 2(b).
Section
1.
Definitions. Capitalized terms used and not
otherwise defined herein shall have the meanings set forth in that certain
Securities Purchase Agreement (the “Purchase Agreement”), dated July 31,
2007, as the same may be amended, among the Company and the purchasers signatory
thereto.
Section
2.
Exercise.
a) Exercise
of Warrant. Exercise of the purchase rights represented by this
Warrant may be made, in whole or in part, at any time or times on or after
the
Initial Exercise Date and on or before the Termination Date by delivery to
the
Company of a duly executed facsimile copy of the Notice of Exercise Form
annexed hereto (or such other office or agency of the Company as it
may designate by notice in writing to the registered Holder at the address
of
such Holder appearing on the books of the Company); and, within 3 Trading Days
of the date said Notice of Exercise is delivered to the Company, the Company
shall have received payment of the aggregate Exercise Price of the
shares thereby purchased by wire transfer or cashier’s check drawn on a United
States bank. Notwithstanding anything herein to the contrary, the
Holder shall not be required to physically surrender this Warrant to the Company
until the Holder has purchased all of the Warrant Shares available hereunder
and
the Warrant has been exercised in full, in which case, the Holder shall
surrender this Warrant to the Company for cancellation within 3 Trading Days
of
the date the final Notice of Exercise is delivered to the
Company. Partial exercises of this Warrant resulting in purchases of
a portion of the total number of Warrant Shares available hereunder shall have
the effect of lowering the outstanding number of Warrant Shares purchasable
hereunder in an amount equal to the applicable number of Warrant Shares
purchased. The Holder and the Company shall maintain records showing
the number of Warrant Shares purchased and the date of such
purchases. The Company shall deliver any objection to any Notice of
Exercise Form within 1 Business Day of receipt of such notice. In the
event of any dispute or discrepancy, the records of the Holder shall be
controlling and determinative in the absence of manifest error. The Holder
and
any assignee, by acceptance of this Warrant, acknowledge and agree that, by
reason of the provisions of this paragraph, following the purchase of a portion
of the Warrant Shares hereunder, the number of Warrant Shares available for
purchase hereunder at any given time may be less than the amount stated on
the
face hereof.
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b) Exercise
Price. The exercise price per share of the Common Stock under
this Warrant shall be $0.18, subject to adjustment hereunder
(the “Exercise Price”).
c) Cashless
Exercise. If at any time after one year from the date of issuance
of this Warrant there is no effective Registration Statement registering, or
no
current prospectus available for, the resale of the Warrant Shares by the
Holder, then this Warrant may also be exercised at such time by means of a
“cashless exercise” in which the Holder shall be entitled to receive a
certificate for the number of Warrant Shares equal to the quotient obtained
by
dividing [(A-B) x (X)] by (A), where:
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(A)
=
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the
VWAP on the Trading Day immediately preceding the date of such
election;
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(B)
=
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the
Exercise Price of this Warrant, as adjusted;
and
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(X)
=
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the
number of Warrant Shares issuable upon exercise of this Warrant in
accordance with the terms of this Warrant by means of a cash exercise
rather than a cashless exercise.
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Notwithstanding
anything herein to the contrary, on the Termination Date, this Warrant shall
be
automatically exercised via cashless exercise pursuant to this Section
2(c).
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d) Exercise
Limitations.
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i.
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Holder’s
Restrictions. The Company shall not effect any exercise of
this Warrant, and a Holder shall not have the right to exercise
any portion of this Warrant, pursuant to Section 2(c) or otherwise,
to the
extent that after giving effect to such issuance after exercise as
set
forth on the applicable Notice of Exercise, such Holder (together
with
such Holder’s Affiliates, and any other person or entity acting as a group
together with such Holder or any of such Holder’s Affiliates), as set
forth on the applicable Notice of Exercise, would beneficially own
in
excess of the Beneficial Ownership Limitation (as defined below).
For purposes of the foregoing sentence, the number of shares of Common
Stock beneficially owned by such Holder and its Affiliates shall
include
the number of shares of Common Stock issuable upon exercise of this
Warrant with respect to which such determination is being made, but
shall
exclude the number of shares of Common Stock which would be issuable
upon
(A) exercise of the remaining, nonexercised portion of this Warrant
beneficially owned by such Holder or any of its Affiliates and (B)
exercise or conversion of the unexercised or nonconverted portion
of any
other securities of the Company (including, without limitation, any
other
Debentures or Warrants) subject to a limitation on conversion or
exercise
analogous to the limitation contained herein beneficially owned by
such
Holder or any of its affiliates. Except as set forth in the
preceding sentence, for purposes of this Section 2(d)(i), beneficial
ownership shall be calculated in accordance with Section 13(d) of
the
Exchange Act and the rules and regulations promulgated thereunder,
it
being acknowledged by a Holder that the Company is not representing
to
such Holder that such calculation is in compliance with Section 13(d)
of
the Exchange Act and such Holder is solely responsible for any schedules
required to be filed in accordance therewith. To the
extent that the limitation contained in this Section 2(d) applies,
the
determination of whether this Warrant is exercisable (in relation
to other
securities owned by such Holder together with any Affiliates) and
of which
a portion of this Warrant is exercisable shall be in the sole discretion
of a Holder, and the submission of a Notice of Exercise shall be
deemed to
be each Holder’s determination of whether this Warrant is exercisable (in
relation to other securities owned by such Holder together with any
Affiliates) and of which portion of this Warrant is exercisable,
in each
case subject to such aggregate percentage limitation, and the Company
shall have no obligation to verify or confirm the accuracy of such
determination. In addition, a determination as to any
group status as contemplated above shall be determined in accordance
with
Section 13(d) of the Exchange Act and the rules and regulations
promulgated thereunder. For purposes of this Section 2(d), in
determining the number of outstanding shares of Common Stock, a Holder
may
rely on the number of outstanding shares of Common Stock as reflected
in
(x) the Company’s most recent Form 10-QSB or Form 10-KSB, as the case may
be, (y) a more recent public announcement by the Company or (z) any
other
notice by the Company or the Company’s Transfer Agent setting forth the
number of shares of Common Stock outstanding. Upon the written or
oral request of a Holder, the Company shall within two Trading Days
confirm orally and in writing to such Holder the number of shares
of
Common Stock then outstanding. In any case, the number of
outstanding shares of Common Stock shall be determined after giving
effect
to the conversion or exercise of securities of the Company, including
this
Warrant, by such Holder or its Affiliates since the date as of which
such
number of outstanding shares of Common Stock was reported. The
“Beneficial Ownership Limitation” shall be 4.99% of the number of
shares of the Common Stock outstanding immediately after giving effect
to
the issuance of shares of Common Stock issuable upon exercise of
this
Warrant. The Beneficial Ownership Limitation provisions of this
Section 2(d)(i) may be waived by such Xxxxxx, at the election of
such
Holder, upon not less than 61 days’ prior notice to the Company to change
the Beneficial Ownership Limitation to 9.99% of the number of shares
of
the Common Stock outstanding immediately after giving effect to the
issuance of shares of Common Stock upon exercise of this Warrant,
and the
provisions of this Section 2(d) shall continue to apply. Upon
such a change by a Holder of the Beneficial Ownership Limitation
from such
4.99% limitation to such 9.99% limitation, the Beneficial Ownership
Limitation may not be further waived by such Holder. The
provisions of this paragraph shall be construed and implemented in
a
manner otherwise than in strict conformity with the terms of this
Section
2(d)(i) to correct this paragraph (or any portion hereof) which may
be
defective or inconsistent with the intended Beneficial Ownership
Limitation herein contained or to make changes or supplements necessary
or
desirable to properly give effect to such limitation. The limitations
contained in this paragraph shall apply to a successor holder of
this
Warrant.
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3
e) Mechanics
of Exercise.
i. Authorization
of Warrant Shares. The Company covenants that all Warrant Shares
which may be issued upon the exercise of the purchase rights represented by
this
Warrant will, upon exercise of the purchase rights represented by this Warrant,
be duly authorized, validly issued, fully paid and nonassessable and free from
all taxes, liens and charges created by the Company in respect of the issue
thereof (other than taxes in respect of any transfer occurring contemporaneously
with such issue).
ii. Delivery
of Certificates Upon Exercise. Certificates for shares purchased
hereunder shall be transmitted by the transfer agent of the Company to the
Holder by crediting the account of the Holder’s prime broker with the Depository
Trust Company through its Deposit Withdrawal Agent Commission (“DWAC”)
system if the Company is a participant in such system, and otherwise by physical
delivery to the address specified by the Holder in the Notice of Exercise within
3 Trading Days from the delivery to the Company of the Notice of Exercise Form,
surrender of this Warrant (if required) and payment of the aggregate Exercise
Price as set forth above (“Warrant Share Delivery Date”). This
Warrant shall be deemed to have been exercised on the date the Exercise Price
is
received by the Company. The Warrant Shares shall be deemed to have
been issued, and Holder or any other person so designated to be named therein
shall be deemed to have become a holder of record of such shares for all
purposes, as of the date the Warrant has been exercised by payment to the
Company of the Exercise Price (or by cashless exercise, if permitted) and all
taxes required to be paid by the Holder, if any, pursuant to Section 2(e)(vii)
prior to the issuance of such shares, have been paid.
iii. Delivery
of New Warrants Upon Exercise. If this Warrant shall have been
exercised in part, the Company shall, at the request of a Holder and upon
surrender of this Warrant certificate, at the time of delivery of the
certificate or certificates representing Warrant Shares, deliver to Holder
a new
Warrant evidencing the rights of Holder to purchase the unpurchased Warrant
Shares called for by this Warrant, which new Warrant shall in all other respects
be identical with this Warrant.
iv. Rescission
Rights. If the Company fails to cause its transfer agent to
transmit to the Holder a certificate or certificates representing the Warrant
Shares pursuant to this Section 2(e)(iv) by the Warrant Share Delivery Date,
then the Holder will have the right to rescind such exercise.
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v. Compensation
for Buy-In on Failure to Timely Deliver Certificates Upon
Exercise. In addition to any other rights available to the
Holder, if the Company fails to cause its transfer agent to transmit to the
Holder a certificate or certificates representing the Warrant Shares pursuant
to
an exercise on or before the Warrant Share Delivery Date, and if after such
date
the Holder is required by its broker to purchase (in an open market transaction
or otherwise) or the Holder’s brokerage firm otherwise purchases, shares of
Common Stock to deliver in satisfaction of a sale by the Holder of the Warrant
Shares which the Holder anticipated receiving upon such exercise (a
“Buy-In”), then the Company shall (1) pay in cash to the Holder the
amount by which (x) the Holder’s total purchase price (including brokerage
commissions, if any) for the shares of Common Stock so purchased exceeds (y)
the
amount obtained by multiplying (A) the number of Warrant Shares that the Company
was required to deliver to the Holder in connection with the exercise at issue
times (B) the price at which the sell order giving rise to such purchase
obligation was executed, and (2) at the option of the Holder, either reinstate
the portion of the Warrant and equivalent number of Warrant Shares for which
such exercise was not honored or deliver to the Holder the number of shares
of
Common Stock that would have been issued had the Company timely complied with
its exercise and delivery obligations hereunder. For example, if the
Holder purchases Common Stock having a total purchase price of $11,000 to cover
a Buy-In with respect to an attempted exercise of shares of Common Stock with
an
aggregate sale price giving rise to such purchase obligation of $10,000, under
clause (1) of the immediately preceding sentence the Company shall be required
to pay the Holder $1,000. The Holder shall provide the Company written notice
indicating the amounts payable to the Holder in respect of the Buy-In and,
upon
request of the Company, evidence of the amount of such loss. Nothing
herein shall limit a Holder’s right to pursue any other remedies available to it
hereunder, at law or in equity including, without limitation, a decree of
specific performance and/or injunctive relief with respect to the Company’s
failure to timely deliver certificates representing shares of Common Stock
upon
exercise of the Warrant as required pursuant to the terms hereof.
vi. No
Fractional Shares or Scrip. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant. As to any fraction of a share which Holder would otherwise
be entitled to purchase upon such exercise, the Company shall at its election,
either pay a cash adjustment in respect of such final fraction in an amount
equal to such fraction multiplied by the Exercise Price or round up to the
next
whole share.
vii. Charges,
Taxes and Expenses. Issuance of certificates for Warrant Shares
shall be made without charge to the Holder for any issue or transfer tax or
other incidental expense in respect of the issuance of such certificate, all
of
which taxes and expenses shall be paid by the Company, and such certificates
shall be issued in the name of the Holder or in such name or names as may be
directed by the Holder; provided, however, that in the event
certificates for Warrant Shares are to be issued in a name other than the name
of the Holder, this Warrant when surrendered for exercise shall be accompanied
by the Assignment Form attached hereto duly executed by the Holder; and the
Company may require, as a condition thereto, the payment of a sum sufficient
to
reimburse it for any transfer tax incidental thereto.
viii. Closing
of Books. The Company will not close its stockholder books or
records in any manner which prevents the timely exercise of this Warrant,
pursuant to the terms hereof.
5
Section
3. CertainAdjustments.
a) Stock
Dividends and Splits. If the Company, at any time while this Warrant is
outstanding: (A) pays a stock dividend or otherwise make a distribution or
distributions on shares of its Common Stock or any other equity or equity
equivalent securities payable in shares of Common Stock (which, for avoidance
of
doubt, shall not include any shares of Common Stock issued by the Company upon
exercise of this Warrant), (B) subdivides outstanding shares of Common Stock
into a larger number of shares, (C) combines (including by way of reverse stock
split) outstanding shares of Common Stock into a smaller number of shares,
or
(D) issues by reclassification of shares of the Common Stock any shares of
capital stock of the Company, then in each case the Exercise Price shall be
multiplied by a fraction of which the numerator shall be the number of shares
of
Common Stock (excluding treasury shares, if any) outstanding immediately before
such event and of which the denominator shall be the number of shares of Common
Stock outstanding immediately after such event and the number of shares issuable
upon exercise of this Warrant shall be proportionately adjusted. Any
adjustment made pursuant to this Section 3(a) shall become effective immediately
after the record date for the determination of stockholders entitled to receive
such dividend or distribution and shall become effective immediately after
the
effective date in the case of a subdivision, combination or
re-classification.
b) Subsequent
Equity Sales. If the Company or any Subsidiary thereof, as applicable, at
any time while this Warrant is outstanding, shall sell or grant any option
to
purchase, or sell or grant any right to reprice its securities, or otherwise
dispose of or issue (or announce any offer, sale, grant or any option to
purchase or other disposition) any Common Stock or Common Stock Equivalents
entitling any Person to acquire shares of Common Stock, at an effective price
per share less than the then Exercise Price (such lower price, the “Base
Share Price” and such issuances collectively, a “Dilutive Issuance”)
(if the holder of the Common Stock or Common Stock Equivalents so issued shall
at any time, whether by operation of purchase price adjustments, reset
provisions, floating conversion, exercise or exchange prices or otherwise,
or
due to warrants, options or rights per share which are issued in connection
with
such issuance, be entitled to receive shares of Common Stock at an effective
price per share which is less than the Exercise Price, such issuance shall
be
deemed to have occurred for less than the Exercise Price on such date of the
Dilutive Issuance), then the Exercise Price shall be reduced and only reduced
to
equal the Base Share Price and the number of Warrant Shares issuable hereunder
shall be increased such that the aggregate Exercise Price payable hereunder,
after taking into account the decrease in the Exercise Price, shall be equal
to
the aggregate Exercise Price prior to such adjustment; provided,
however, in no event shall the Exercise Price be adjusted pursuant
to
this Section 3(b) to less than $0.05, subject to adjustment for reverse and
forward stock splits, stock dividends, stock combinations and other similar
transactions of the Common Stock that occur after the date of this
Warrant. Such adjustment shall be made whenever such Common Stock or
Common Stock Equivalents are issued. Notwithstanding the foregoing,
no adjustments shall be made, paid or issued under this Section 3(b) in respect
of an Exempt Issuance. The Company shall notify the Holder in
writing, no later than the Trading Day following the issuance of any Common
Stock or Common Stock Equivalents subject to this Section 3(b), indicating
therein the applicable issuance price, or applicable reset price, exchange
price, conversion price and other pricing terms (such notice the “Dilutive
Issuance Notice”). For purposes of clarification, whether or not
the Company provides a Dilutive Issuance Notice pursuant to this Section 3(b),
upon the occurrence of any Dilutive Issuance, after the date of such Dilutive
Issuance the Holder is entitled to receive a number of Warrant Shares based
upon
the Base Share Price regardless of whether the Holder accurately refers to
the
Base Share Price in the Notice of Exercise.
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c) Subsequent
Rights Offerings. If the Company, at any time while the Warrant
is outstanding, shall issue rights, options or warrants to all holders of Common
Stock (and not to Holders) entitling them to subscribe for or purchase shares
of
Common Stock at a price per share less than the VWAP at the record date
mentioned below, then the Exercise Price shall be multiplied by a fraction,
of
which the denominator shall be the number of shares of the Common Stock
outstanding on the date of issuance of such rights or warrants plus the number
of additional shares of Common Stock offered for subscription or purchase,
and
of which the numerator shall be the number of shares of the Common Stock
outstanding on the date of issuance of such rights or warrants plus the number
of shares which the aggregate offering price of the total number of shares
so
offered (assuming receipt by the Company in full of all consideration payable
upon exercise of such rights, options or warrants) would purchase at such
VWAP. Such adjustment shall be made whenever such rights or warrants
are issued, and shall become effective immediately after the record date for
the
determination of stockholders entitled to receive such rights, options or
warrants.
d) Pro
Rata Distributions. If the Company, at any time prior to the
Termination Date, shall distribute to all holders of Common Stock (and not
to
Holders of the Warrants) evidences of its indebtedness or assets (including
cash
and cash dividends) or rights or warrants to subscribe for or purchase any
security other than the Common Stock (which shall be subject to Section 3(b)),
then in each such case the Exercise Price shall be adjusted by multiplying
the
Exercise Price in effect immediately prior to the record date fixed for
determination of stockholders entitled to receive such distribution by a
fraction of which the denominator shall be the VWAP determined as of the record
date mentioned above, and of which the numerator shall be such VWAP on such
record date less the then per share fair market value at such record date of
the
portion of such assets or evidence of indebtedness so distributed applicable
to
one outstanding share of the Common Stock as determined by the Board of
Directors in good faith. In either case the adjustments shall be
described in a statement provided to the Holder of the portion of assets or
evidences of indebtedness so distributed or such subscription rights applicable
to one share of Common Stock. Such adjustment shall be made whenever
any such distribution is made and shall become effective immediately after
the
record date mentioned above.
e) Fundamental
Transaction. If, at any time while this Warrant is outstanding, (A) the
Company effects any merger or consolidation of the Company with or into another
Person, (B) the Company effects any sale of all or substantially all of its
assets in one or a series of related transactions, (C) any tender offer or
exchange offer (whether by the Company or another Person) is completed pursuant
to which holders of Common Stock are permitted to tender or exchange their
shares for other securities, cash or property, or (D) the Company effects any
reclassification of the Common Stock or any compulsory share exchange pursuant
to which the Common Stock is effectively converted into or exchanged for other
securities, cash or property (each “Fundamental Transaction”), then, upon
any subsequent exercise of this Warrant, the Holder shall have the right to
receive, for each Warrant Share that would have been issuable upon such exercise
immediately prior to the occurrence of such Fundamental Transaction, the number
of shares of Common Stock of the successor or acquiring corporation or of the
Company, if it is the surviving corporation, and any additional consideration
(the “Alternate Consideration”) receivable as a result of such merger,
consolidation or disposition of assets by a Holder of the number of shares
of
Common Stock for which this Warrant is exercisable immediately prior to such
event. For purposes of any such exercise, the determination of the Exercise
Price shall be appropriately adjusted to apply to such Alternate Consideration
based on the amount of Alternate Consideration issuable in respect of one share
of Common Stock in such Fundamental Transaction, and the Company shall apportion
the Exercise Price among the Alternate Consideration in a reasonable manner
reflecting the relative value of any different components of the Alternate
Consideration. If holders of Common Stock are given any choice as to
the securities, cash or property to be received in a Fundamental Transaction,
then the Holder shall be given the same choice as to the Alternate Consideration
it receives upon any exercise of this Warrant following such Fundamental
Transaction. To the extent necessary to effectuate the foregoing
provisions, any successor to the Company or surviving entity in such Fundamental
Transaction shall issue to the Holder a new warrant consistent with the
foregoing provisions and evidencing the Holder’s right to exercise such warrant
into Alternate Consideration. The terms of any agreement pursuant to which
a
Fundamental Transaction is effected shall include terms requiring any such
successor or surviving entity to comply with the provisions of this Section
3(e)
and insuring that this Warrant (or any such replacement security) will be
similarly adjusted upon any subsequent transaction analogous to a Fundamental
Transaction. Notwithstanding anything to the contrary, in the event of a
Fundamental Transaction that is (1) an all cash transaction, (2) a “Rule 13e-3
transaction” as defined in Rule 13e-3 under the Securities Exchange Act of 1934,
as amended, or (3) a Fundamental Transaction involving a person or entity not
traded on a national securities exchange, the Nasdaq Global Select Market,
the
Nasdaq Global Market, the Nasdaq Capital Market, the Company or any successor
entity shall pay at the Holder’s option, exercisable at any time concurrently
with or within 30 days after the consummation of the Fundamental Transaction,
an
amount of cash equal to the value of this Warrant as determined in accordance
with the Black-Scholes option pricing formula using an expected volatility
equal
to the 100 day historical price volatility obtained from the HVT function on
Bloomberg L.P. as of the trading day immediately prior to the public
announcement of the Fundamental Transaction.
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f) Calculations.
All calculations under this Section 3 shall be made to the nearest cent or
the
nearest 1/100th of a share, as the case may be. For purposes of this Section
3,
the number of shares of Common Stock deemed to be issued and outstanding as
of a
given date shall be the sum of the number of shares of Common Stock (excluding
treasury shares, if any) issued and outstanding.
g) Voluntary
Adjustment By Company. The Company may at any time during the term of this
Warrant reduce the then current Exercise Price to any amount and for any period
of time deemed appropriate by the Board of Directors of the
Company.
h) Notice
to Holder.
i. Adjustment
to Exercise Price. Whenever the Exercise Price is adjusted pursuant to any
provision of this Section 3, the Company shall promptly mail to the Holder
a
notice setting forth the Exercise Price after such adjustment and setting forth
a brief statement of the facts requiring such adjustment. If the Company enters
into a Variable Rate Transaction (as defined in the Purchase Agreement) despite
the prohibition thereon in the Purchase Agreement, the Company shall be deemed
to have issued Common Stock or Common Stock Equivalents at the lowest possible
conversion or exercise price at which such securities may be converted or
exercised.
ii. Notice
to Allow Exercise by Xxxxxx. If (A) the Company shall declare a dividend (or
any other distribution in whatever form) on the Common Stock; (B) the Company
shall declare a special nonrecurring cash dividend on or a redemption of the
Common Stock; (C) the Company shall authorize the granting to all holders of
the
Common Stock rights or warrants to subscribe for or purchase any shares of
capital stock of any class or of any rights; (D) the approval of any
stockholders of the Company shall be required in connection with any
reclassification of the Common Stock, any consolidation or merger to which
the
Company is a party, any sale or transfer of all or substantially all of the
assets of the Company, of any compulsory share exchange whereby the Common
Stock
is converted into other securities, cash or property; (E) the Company shall
authorize the voluntary or involuntary dissolution, liquidation or winding
up of
the affairs of the Company; then, in each case, the Company shall cause to
be
mailed to the Holder at its last address as it shall appear upon the Warrant
Register of the Company, at least 20 calendar days prior to the applicable
record or effective date hereinafter specified, a notice stating (x) the date
on
which a record is to be taken for the purpose of such dividend, distribution,
redemption, rights or warrants, or if a record is not to be taken, the date
as
of which the holders of the Common Stock of record to be entitled to such
dividend, distributions, redemption, rights or warrants are to be determined
or
(y) the date on which such reclassification, consolidation, merger, sale,
transfer or share exchange is expected to become effective or close, and the
date as of which it is expected that holders of the Common Stock of record
shall
be entitled to exchange their shares of the Common Stock for securities, cash
or
other property deliverable upon such reclassification, consolidation, merger,
sale, transfer or share exchange; provided that the failure to mail such notice
or any defect therein or in the mailing thereof shall not affect the validity
of
the corporate action required to be specified in such notice. The
Holder is entitled to exercise this Warrant during the 20-day period commencing
on the date of such notice to the effective date of the event triggering such
notice.
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i) Adjustment
on the Filing Date of the Registration Statement. If the average
of the VWAPs for 20 Trading Days immediately prior to the later of (i) April
2,
2007 or (ii) the actual initial filing date of the Registration Statement (such
later date, the “Reset Date” and the average of the VWAPs for such 20
Trading Day period, the “Reset Price”) is less than the then applicable
Exercise Price as of the Reset Date, the Exercise Price shall be reduced
effective as of such Reset Date to the greater of (x) $0.12 (subject to
adjustment for forward and reverse stock splits, stock dividends,
recapitalizations and the like) and (y) the Reset Price, and the number of
Warrant Shares issuable hereunder shall be increased such that the aggregate
Exercise Price payable hereunder, after taking into account the decrease in
the
Exercise Price, shall be equal to the aggregate Exercise Price prior to such
adjustment. For clarity, the Exercise Price can only be adjusted
downward pursuant to this Section 3(i).
j) Adjustment
upon Failure to Obtain Certain Operational Milestones. In
the event that the Company fails to achieve any of the following
milestones:
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(A)
|
gross
revenue of more than $650,000 for the fiscal quarter ending March
31,
2007;
|
|
(B)
|
sales
of at least ten “3D Vision System Units” to unaffiliated third parties
during the fiscal quarter ending March 31,
2007;
|
|
(C)
|
gross
revenue of more than $800,000 for the fiscal quarter ending June
30,
2007;
|
|
(D)
|
sales
of at least twelve “3D Vision System Units” to unaffiliated third parties
during the fiscal quarter ending June 30,
2007;
|
|
(E)
|
gross
revenue of more than $1,250,000 for the fiscal quarter ending September
30, 2007; or
|
|
(F)
|
sales
of at least eighteen “3D Vision System Units” to unaffiliated third
parties during the fiscal quarter ending September 30,
2007;
|
then,
immediately upon a milestone not being met (as determined below), the Exercise
Price shall be reduced to $0.12 (subject to adjustment for forward and reverse
stock splits, stock dividends, recapitalizations and the like). For
purposes of determining whether or not the Company has satisfied one of the
foregoing milestones, the parties shall rely on information contained in the
Company’s 10-QSBs for the quarter ending March 31, 2007 (as to clauses (A) and
(B)), June 30, 2007 (as to clauses (C) and (D)) and September 30, 2007 (as
to
clauses (E) and (F)) or as to each corresponding milestone, Current Reports
on
Form 8-K filed prior to April 2, 2007 (as to clauses (A) and (B), July 2, 2007
(as to clauses (C) and (D) and October 2, 2007 (as to clauses (E) and
(F). If the Company does not file a Form 10-QSB or Form 8-K that
confirms that it has satisfied all of the milestones set forth in this Section
3(j) prior to April 2, 2007 (as to clauses (A) and (B)), July 2, 2007 (as to
clauses (C) and (D)) or October 2, 2007 (as to clauses (E) and (F)), the Company
shall be deemed to have not satisfied all of such milestones, and the Exercise
Price shall be reduced as provided in this Section 3(j). For clarity,
the Exercise Price can only be adjusted downward pursuant to this Section
3(j).
Section
4. Transfer
of Warrant.
9
a) Transferability. Subject
to compliance with any applicable securities laws and the conditions set forth
in Section 4(d) hereof and to the provisions of Section 4.1 of the Purchase
Agreement, this Warrant and all rights hereunder (including, without limitation,
any registration rights) are transferable, in whole or in part, upon surrender
of this Warrant at the principal office of the Company or its designated agent,
together with a written assignment of this Warrant substantially in the form
attached hereto duly executed by the Holder or its agent or attorney and funds
sufficient to pay any transfer taxes payable upon the making of such
transfer. Upon such surrender and, if required, such payment, the
Company shall execute and deliver a new Warrant or Warrants in the name of
the
assignee or assignees and in the denomination or denominations specified in
such
instrument of assignment, and shall issue to the assignor a new Warrant
evidencing the portion of this Warrant not so assigned, and this Warrant shall
promptly be cancelled. A Warrant, if properly assigned, may be
exercised by a new holder for the purchase of Warrant Shares without having
a
new Warrant issued.
b) New
Warrants. This Warrant may be divided or combined with other Warrants upon
presentation hereof at the aforesaid office of the Company, together with a
written notice specifying the names and denominations in which new Warrants
are
to be issued, signed by the Holder or its agent or attorney. Subject
to compliance with Section 4(a), as to any transfer which may be involved in
such division or combination, the Company shall execute and deliver a new
Warrant or Warrants in exchange for the Warrant or Warrants to be divided or
combined in accordance with such notice.
c) Warrant
Register. The Company shall register this Warrant, upon records to be
maintained by the Company for that purpose (the “Warrant Register”), in
the name of the record Holder hereof from time to time. The Company
may deem and treat the registered Holder of this Warrant as the absolute owner
hereof for the purpose of any exercise hereof or any distribution to the Holder,
and for all other purposes, absent actual notice to the contrary.
d) Transfer
Restrictions. If, at the time of the surrender of this Warrant in connection
with any transfer of this Warrant, the transfer of this Warrant shall not be
registered pursuant to an effective registration statement under the Securities
Act and under applicable state securities or blue sky laws, the Company may
require, as a condition of allowing such transfer, that (i) the Holder or
transferee of this Warrant, as the case may be, furnish to the Company a written
opinion of counsel (which opinion shall be in form, substance and scope
customary for opinions of counsel in comparable transactions) to the effect
that
such transfer may be made without registration under the Securities Act and
under applicable state securities or blue sky laws, and (ii) the Holder or
transferee execute and deliver to the Company an investment letter in form
and
substance acceptable to the Company, and (iii) the transferee be an “accredited
investor” as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7), or (a)(8)
promulgated under the Securities Act or a “qualified institutional buyer” as
defined in Rule 144A(a) promulgated under the Securities Act.
Section
5. Miscellaneous.
10
a) No
Rights as Shareholder Until Exercise. This Warrant does not
entitle the Holder to any voting rights or other rights as a shareholder of
the
Company prior to the exercise hereof as set forth in Section
2(e)(ii).
b) Loss,
Theft, Destruction or Mutilation of Warrant. The Company covenants that upon
receipt by the Company of evidence reasonably satisfactory to it of the loss,
theft, destruction or mutilation of this Warrant or any stock certificate
relating to the Warrant Shares, and in case of loss, theft or destruction,
of
indemnity or security reasonably satisfactory to it (which, in the case of
the
Warrant, shall not include the posting of any bond), and upon surrender and
cancellation of such Warrant or stock certificate, if mutilated, the Company
will make and deliver a new Warrant or stock certificate of like tenor and
dated
as of such cancellation, in lieu of such Warrant or stock
certificate.
c) Saturdays,
Sundays, Holidays, etc. If the last or appointed day for the
taking of any action or the expiration of any right required or granted herein
shall not be a Business Day, then such action may be taken or such right may
be
exercised on the next succeeding Business Day.
d) Authorized
Shares.
The
Company covenants that during the period the Warrant is outstanding, it will
reserve from its authorized and unissued Common Stock a sufficient number of
shares to provide for the issuance of the Warrant Shares upon the exercise
of
any purchase rights under this Warrant. The Company further covenants
that its issuance of this Warrant shall constitute full authority to its
officers who are charged with the duty of executing stock certificates to
execute and issue the necessary certificates for the Warrant Shares upon the
exercise of the purchase rights under this Warrant. The Company will
take all such reasonable action as may be necessary to assure that such Warrant
Shares may be issued as provided herein without violation of any applicable
law
or regulation, or of any requirements of the Trading Market upon which the
Common Stock may be listed.
Except
and to the extent as waived or consented to by the Holder, the Company shall
not
by any action, including, without limitation, amending its certificate of
incorporation or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms of
this
Warrant, but will at all times in good faith assist in the carrying out of
all
such terms and in the taking of all such actions as may be necessary or
appropriate to protect the rights of Holder as set forth in this Warrant against
impairment. Without limiting the generality of the foregoing, the
Company will (a) not increase the par value of any Warrant Shares above the
amount payable therefor upon such exercise immediately prior to such increase
in
par value, (b) take all such action as may be necessary or appropriate in order
that the Company may validly and legally issue fully paid and nonassessable
Warrant Shares upon the exercise of this Warrant, and (c) use commercially
reasonable efforts to obtain all such authorizations, exemptions or consents
from any public regulatory body having jurisdiction thereof as may be necessary
to enable the Company to perform its obligations under this
Warrant.
11
Before
taking any action which would result in an adjustment in the number of Warrant
Shares for which this Warrant is exercisable or in the Exercise Price, the
Company shall obtain all such authorizations or exemptions thereof, or consents
thereto, as may be necessary from any public regulatory body or bodies having
jurisdiction thereof.
e) Jurisdiction.
All questions concerning the construction, validity, enforcement and
interpretation of this Warrant shall be determined in accordance with the
provisions of the Purchase Agreement.
f) Restrictions. The
Holder acknowledges that the Warrant Shares acquired upon the exercise of this
Warrant, if not registered, will have restrictions upon resale imposed by state
and federal securities laws.
g) Nonwaiver
and Expenses. No course of dealing or any delay or failure to
exercise any right hereunder on the part of Holder shall operate as a waiver
of
such right or otherwise prejudice Holder’s rights, powers or remedies,
notwithstanding the fact that all rights hereunder terminate on the Termination
Date. If the Company willfully and knowingly fails to comply with any
provision of this Warrant, which results in any material damages to the Holder,
the Company shall pay to Holder such amounts as shall be sufficient to cover
any
costs and expenses including, but not limited to, reasonable attorneys’ fees,
including those of appellate proceedings, incurred by Holder in collecting
any
amounts due pursuant hereto or in otherwise enforcing any of its rights, powers
or remedies hereunder.
h) Notices. Any
notice, request or other document required or permitted to be given or delivered
to the Holder by the Company shall be delivered in accordance with the notice
provisions of the Purchase Agreement.
i) Limitation
of Liability. No provision hereof, in the absence of any
affirmative action by Holder to exercise this Warrant to purchase Warrant
Shares, and no enumeration herein of the rights or privileges of Holder, shall
give rise to any liability of Holder for the purchase price of any Common Stock
or as a stockholder of the Company, whether such liability is asserted by the
Company or by creditors of the Company.
j) Remedies. Holder,
in addition to being entitled to exercise all rights granted by law, including
recovery of damages, will be entitled to specific performance of its rights
under this Warrant. The Company agrees that monetary damages would
not be adequate compensation for any loss incurred by reason of a breach by
it
of the provisions of this Warrant and hereby agrees to waive and not to assert
the defense in any action for specific performance that a remedy at law would
be
adequate.
12
k) Successors
and Assigns. Subject to applicable securities laws, this Warrant
and the rights and obligations evidenced hereby shall inure to the benefit
of
and be binding upon the successors of the Company and the successors and
permitted assigns of Holder. The provisions of this Warrant are
intended to be for the benefit of all Holders from time to time of this Warrant
and shall be enforceable by any such Holder or holder of Warrant
Shares.
l) Amendment. This
Warrant may be modified or amended or the provisions hereof waived with the
written consent of the Company and the Holder.
m) Severability. Wherever
possible, each provision of this Warrant shall be interpreted in such manner
as
to be effective and valid under applicable law, but if any provision of this
Warrant shall be prohibited by or invalid under applicable law, such provision
shall be ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provisions or the remaining provisions of
this Warrant.
n) Headings. The
headings used in this Warrant are for the convenience of reference only and
shall not, for any purpose, be deemed a part of this Warrant.
********************
13
IN
WITNESS WHEREOF, the Company has caused this Warrant to be executed by its
officer thereunto duly authorized as of the date first above
indicated.
|
VIKING
SYSTEMS, INC.
|
|
|
By:__________________________________________
Name:
Xxxxxx X. Xxxxxx
Title:
President and Chief Executice Officer
|
14
NOTICE
OF EXERCISE
TO: VIKING
SYSTEMS, INC.
(1) The
undersigned hereby elects to purchase ________ Warrant Shares of the Company
pursuant to the terms of the attached Warrant (only if exercised in full),
and
tenders herewith payment of the exercise price in full, together with all
applicable transfer taxes, if any.
(2) Payment
shall take the form of (check applicable box):
[ ]
in lawful money of the United States; or
[
]
[if permitted] the cancellation of such number of Warrant Shares as is
necessary, in accordance with the formula set forth in subsection 2(c), to
exercise this Warrant with respect to the maximum number of Warrant Shares
purchasable pursuant to the cashless exercise procedure set forth in subsection
2(c).
(3) Please
issue a certificate or certificates representing said Warrant Shares in the
name
of the undersigned or in such other name as is specified below:
_______________________________
The
Warrant Shares shall be delivered to the following DWAC Account Number or by
physical delivery of a certificate to:
_______________________________
_______________________________
_______________________________
(4)
Accredited Investor. The undersigned is an “accredited
investor” as defined in Regulation D promulgated under the Securities Act of
1933, as amended.
[SIGNATURE
OF HOLDER]
Name
of
Investing Entity:
________________________________________________________________________
Signature
of Authorized Signatory of Investing Entity:
_________________________________________________
Name
of
Authorized Signatory:
___________________________________________________________________
Title
of
Authorized Signatory:
____________________________________________________________________
Date:
________________________________________________________________________________________
ASSIGNMENT
FORM
(To
assign the foregoing warrant, execute
this
form
and supply required information.
Do
not
use this form to exercise the warrant.)
FOR
VALUE
RECEIVED, [____] all of or [_______] shares of the foregoing Warrant and all
rights evidenced thereby are hereby assigned to
_______________________________________________
whose address is
_______________________________________________________________.
_______________________________________________________________
Dated: ______________,
_______
Holder’s
Signature: _____________________________
Holder’s
Address: _____________________________
_____________________________
Signature
Guaranteed: ___________________________________________
NOTE: The
signature to this Assignment Form must correspond with the name as it appears
on
the face of the Warrant, without alteration or enlargement or any change
whatsoever, and must be guaranteed by a bank or trust
company. Officers of corporations and those acting in a fiduciary or
other representative capacity should file proper evidence of authority to assign
the foregoing Warrant.
