Attached files
file | filename |
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8-K - FORM 8-K - SOCKET MOBILE, INC. | form-8k1028.htm |
EX-10 - EXHIBIT 10.4 - SOCKET MOBILE, INC. | ex10-4rra.htm |
EX-99.1 - EXHIBIT 99.1 - SOCKET MOBILE, INC. | ex99-1pressrelease.htm |
EX-10 - EXHIBIT 10.5 - SOCKET MOBILE, INC. | ex10-5securityagreement.htm |
EX-10 - EXHIBIT 10.1 - SOCKET MOBILE, INC. | ex10-1secpurchaseagreement.htm |
EX-10 - EXHIBIT 10.2 - SOCKET MOBILE, INC. | ex10-2seniorconvertiblenote.htm |
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(d) Cashless Exercise. Notwithstanding anything contained herein to
the contrary (other than Section 1(f) below), if at the time of exercise hereof
a Registration Statement (as defined in the Registration Rights Agreement (as
defined in the Securities Purchase Agreement)) is not effective (or the prospectus
contained therein is not available for use on a continuous basis) for the resale
by the Holder of all of the Registrable Securities (as defined in the Registration
Rights Agreement) at market prices from time to time, then the Holder may, in
its sole discretion, exercise this Warrant in whole or in part and, in lieu
of making the cash payment otherwise contemplated to be made to the Company
upon such exercise in payment of the Aggregate Exercise Price, elect instead
to receive upon such exercise the "Net Number" of shares of Common
Stock determined according to the following formula (a "Cashless Exercise"):
Net Number = (A x B) - (A x C)
                       B
For purposes of the foregoing formula:
A= the total number of shares with respect to which this Warrant is then being exercised. |
B= as applicable: (i) the Closing Sale Price of the Common Stock on the Trading Day immediately preceding the date of the applicable Exercise Notice if such Exercise Notice is (1) both executed and delivered pursuant to Section 1(a) hereof on a day that is not a Trading Day or (2) both executed and delivered pursuant to Section 1(a) hereof on a Trading Day prior to the opening of "regular trading hours" (as defined in Rule 600(b)(64) of Regulation NMS promulgated under the federal securities laws) on such Trading Day, (ii) the Bid Price of the Common Stock as of the time of the Holder's execution of the applicable Exercise Notice if such Exercise Notice is executed during "regular trading hours" on a Trading Day and is delivered within two (2) hours thereafter pursuant to Section 1(a) hereof or (iii) the Closing Sale Price of the Common Stock on the date of the applicable Exercise Notice if the date of such Exercise Notice is a Trading Day and such Exercise Notice is both executed and delivered pursuant to Section 1(a) hereof after the close of "regular trading hours" on such Trading Day. |
C= the Exercise Price then in effect for the applicable Warrant Shares at the time of such exercise. |
(e) Disputes. In the case of a dispute as to the determination
of the Exercise Price or the arithmetic calculation of the number of Warrant
Shares to be issued pursuant to the terms hereof, the Company shall promptly
issue to the Holder the number of Warrant Shares that are not disputed and resolve
such dispute in accordance with Section 13.
(f) Limitations on Exercises.
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      (i) Beneficial Ownership. Notwithstanding
anything to the contrary contained in this Warrant, this Warrant shall not be
exercisable by the Holder hereof to the extent (but only to the extent) that
after giving effect to such exercise the Holder (together with any of its affiliates)
would beneficially own in excess of 4.99% (the "Maximum Percentage")
of the Common Stock. To the extent the above limitation applies, the determination
of whether this Warrant shall be exercisable (vis-à-vis other convertible,
exercisable or exchangeable securities owned by the Holder or any of its affiliates)
and of which such securities shall be convertible, exercisable or exchangeable
(as the case may be, as among all such securities owned by the Holder) shall,
subject to such Maximum Percentage limitation, be determined on the basis of
the first submission to the Company for conversion, exercise or exchange (as
the case may be). No prior inability to exercise this Warrant pursuant to this
paragraph shall have any effect on the applicability of the provisions of this
paragraph with respect to any subsequent determination of exercisability. For
the purposes of this paragraph, beneficial ownership and all determinations
and calculations (including, without limitation, with respect to calculations
of percentage ownership) shall be determined in accordance with Section 13(d)
of the 1934 Act (as defined in the Securities Purchase Agreement) and the rules
and regulations promulgated thereunder. The provisions of this paragraph shall
be implemented in a manner otherwise than in strict conformity with the terms
of this paragraph to correct this paragraph (or any portion hereof) which may
be defective or inconsistent with the intended Maximum Percentage beneficial
ownership limitation herein contained or to make changes or supplements necessary
or desirable to properly give effect to such Maximum Percentage limitation.
The limitations contained in this paragraph shall apply to a successor Holder
of this Warrant. The holders of Common Stock shall be third party beneficiaries
of this paragraph and the Company may not waive this paragraph without the consent
of holders of a majority of its Common Stock. For any reason at any time, upon
the written or oral request of the Holder, the Company shall within one (1)
Business Day confirm orally and in writing to the Holder the number of shares
of Common Stock then outstanding, including by virtue of any prior conversion
or exercise of convertible or exercisable securities into Common Stock, including,
without limitation, pursuant to this Warrant or securities issued pursuant to
the Securities Purchase Agreement. By written notice to the Company, any Holder
may increase or decrease the Maximum Percentage to any other percentage not
in excess of 9.99% specified in such notice; provided that (i) any such increase
will not be effective until the 61st day after such notice is delivered to the
Company, and (ii) any such increase or decrease will apply only to the Holder
sending such notice and not to any other holder of SPA Warrants.
      (ii) Principal Market Regulation. The Company shall not issue any shares of Common Stock upon exercise of this Warrant if the issuance of such shares of Common Stock would exceed the aggregate number of shares of Common Stock which the Company may issue upon conversion or exercise (as the case may be) of the Notes and the SPA Warrants without breaching the Company's obligations under the rules or regulations of the Principal Market (the number of shares which may be issued without violating such rules and regulations, the "Exchange Cap"), except that such limitation shall not apply in the event that the Company (A) obtains the approval of its stockholders as required by the applicable rules of the Principal Market for issuances of shares of Common Stock in excess of such amount or (B) obtains a written opinion from outside counsel to the Company that such approval is not required, which opinion shall be reasonably satisfactory to the Holder. Until such approval or such written opinion is obtained, no Buyer shall be issued in the aggregate, upon exercise or conversion (as the case may be) of any SPA Warrants or any of the Notes, shares of Common Stock in an amount greater than the product of (i) the Exchange Cap multiplied by (ii) the quotient of (1) the original principal amount of Notes issued to such Buyer pursuant to the Securities Purchase Agreement on the Closing Date divided by (2) the aggregate original principal amount of all Notes issued to the Buyers pursuant to the Securities Purchase Agreement on the Closing Date (with respect to each Buyer, the "Exchange Cap Allocation"). In the event that any Buyer shall sell or otherwise transfer any of such Buyer's SPA Warrants, the transferee shall be allocated a pro rata portion of such Buyer's Exchange Cap Allocation with respect to such portion of such
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SPA Warrants so transferred, and the restrictions of the prior sentence shall
apply to such transferee with respect to the portion of the Exchange Cap Allocation
so allocated to such transferee. Upon exercise and conversion in full of a holder's
SPA Warrants and Notes, the difference (if any) between such holder's Exchange
Cap Allocation and the number of shares of Common Stock actually issued to such
holder upon such holder's exercise in full of such SPA Warrants and such holder's
conversion in full of such Notes shall be allocated to the respective Exchange
Cap Allocations of the remaining holders of SPA Warrants and Notes on a pro
rata basis in proportion to the shares of Common Stock underlying the SPA Warrants
and Notes then held by each such holder. In the event that the Company is prohibited
from issuing any Warrant Shares for which an Exercise Notice has been received
as a result of the operation of this Section 1(f)(ii), the Company shall pay
cash in exchange for cancellation of such Warrant Shares, at a price per Warrant
Share equal to the difference between the Closing Sale Price of the Common Stock
for the Trading Day immediately preceding the date of the attempted exercise
and the Exercise Price as of such date of attempted exercise.
(g) Insufficient Authorized Shares. The Company shall at all times keep
reserved for issuance under this Warrant a number of shares of Common Stock
at least equal to 100% of the maximum number of shares of Common Stock as shall
be necessary to satisfy the Company's obligation to issue shares of Common Stock
hereunder (without regard to any limitation otherwise contained herein with
respect to the number of shares of Common Stock that may be acquirable upon
exercise of this Warrant). If, notwithstanding the foregoing, and not in limitation
thereof, at any time while any of the SPA Warrants remain outstanding the Company
does not have a sufficient number of authorized and unreserved shares of Common
Stock to satisfy its obligation to reserve for issuance upon exercise of the
SPA Warrants at least a number of shares of Common Stock (the "Required
Reserve Amount") equal to the number of shares of Common Stock as shall
from time to time be necessary to effect the exercise of all of the SPA Warrants
then outstanding (an "Authorized Share Failure"), then the
Company shall immediately take all action necessary to increase the Company's
authorized shares of Common Stock to an amount sufficient to allow the Company
to reserve the Required Reserve Amount for all the SPA Warrants then outstanding.
Without limiting the generality of the foregoing sentence, as soon as practicable
after the date of the occurrence of an Authorized Share Failure, but in no event
later than ninety (90) days after the occurrence of such Authorized Share Failure,
the Company shall hold a meeting of its stockholders for the approval of an
increase in the number of authorized shares of Common Stock. In connection with
such meeting, the Company shall provide each stockholder with a proxy statement
and shall use its reasonable best efforts to solicit its stockholders' approval
of such increase in authorized shares of Common Stock and to cause its board
of directors to recommend to the stockholders that they approve such proposal.
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2. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES. The Exercise
Price and number of Warrant Shares issuable upon exercise of this Warrant are
subject to adjustment from time to time as set forth in this Section 2.
(a) Stock Dividends and Splits. Without limiting any provision of Section
2(b) or Section 4, if the Company, at any time on or after the date of the Securities
Purchase Agreement, (i) pays a stock dividend on one or more classes of its
then outstanding shares of Common Stock or otherwise makes a distribution on
any class of capital stock that is payable in shares of Common Stock, (ii) subdivides
(by any stock split, stock dividend, recapitalization or otherwise) one or more
classes of its then outstanding shares of Common Stock into a larger number
of shares or (iii) combines (by combination, reverse stock split or otherwise)
one or more classes of its then outstanding shares of Common Stock into a smaller
number of shares, then in each such case the Exercise Price shall be multiplied
by a fraction of which the numerator shall be the number of shares of Common
Stock outstanding immediately before such event and of which the denominator
shall be the number of shares of Common Stock outstanding immediately after
such event. Any adjustment made pursuant to clause (i) of this paragraph shall
become effective immediately after the record date for the determination of
stockholders entitled to receive such dividend or distribution, and any adjustment
pursuant to clause (ii) or (iii) of this paragraph shall become effective immediately
after the effective date of such subdivision or combination. If any event requiring
an adjustment under this paragraph occurs during the period that an Exercise
Price is calculated hereunder, then the calculation of such Exercise Price shall
be adjusted appropriately to reflect such event.
(b) Adjustment Upon Issuance of Shares of Common Stock. If and whenever
on or after the date of the Securities Purchase Agreement, the Company issues
or sells, or in accordance with this Section 2 is deemed to have issued or sold,
any shares of Common Stock (including the issuance or sale of shares of Common
Stock owned or held by or for the account of the Company, but excluding any
Excluded Securities issued or sold or deemed to have been issued or sold) for
a consideration per share (the "New Issuance Price") less than
a price equal to the Exercise Price in effect immediately prior to such issue
or sale or deemed issuance or sale (such Exercise Price then in effect is referred
to as the "Applicable Price") (the foregoing a "Dilutive
Issuance"), then immediately after such Dilutive Issuance, the Exercise
Price then in effect shall be reduced to an amount equal to the New Issuance
Price. For purposes of determining the adjusted Exercise Price under this Section
2(b), the following shall be applicable:
      (i) Issuance of Options. If the Company in any manner grants or sells any Options and the lowest price per share for which one share of Common Stock is issuable upon the exercise of any such Option or upon conversion, exercise or exchange of any Convertible Securities issuable upon exercise of any such Option is less than the Applicable Price, then such share of Common Stock shall be deemed to be outstanding and to have been issued and sold by the Company at the time of the granting or sale of such Option for such price per share. For purposes of this Section 2(b)(i), the "lowest price per share for which one share of Common Stock is issuable upon the exercise of any such Options or upon conversion, exercise or exchange of any Convertible Securities issuable upon exercise of any such Option" shall be equal to (1) the lower of (x) the sum of the lowest amounts of consideration (if any) received or receivable by the Company with respect to any one share of Common Stock upon the granting or sale of such Option, upon exercise of such Option and upon conversion, exercise or exchange of any Convertible Security issuable upon exercise of such Option and (y) the lowest exercise price set forth in such
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Option for which one share of Common Stock is issuable upon the exercise of
any such Options or upon conversion, exercise or exchange of any Convertible
Securities issuable upon exercise of any such Option minus (2) the sum of all
amounts paid or payable to the holder of such Option (or any other Person) upon
the granting or sale of such Option, upon exercise of such Option and upon conversion,
exercise or exchange of any Convertible Security issuable upon exercise of such
Option plus the value of any other consideration received or receivable by,
or benefit conferred on, the holder of such Option (or any other Person). Except
as contemplated below, no further adjustment of the Exercise Price shall be
made upon the actual issuance of such shares of Common Stock or of such Convertible
Securities upon the exercise of such Options or upon the actual issuance of
such shares of Common Stock upon conversion, exercise or exchange of such Convertible
Securities.
      (ii) Issuance of Convertible Securities. If the Company in any manner issues or sells any Convertible Securities and the lowest price per share for which one share of Common Stock is issuable upon the conversion, exercise or exchange thereof is less than the Applicable Price, then such share of Common Stock shall be deemed to be outstanding and to have been issued and sold by the Company at the time of the issuance or sale of such Convertible Securities for such price per share. For the purposes of this Section 2(b)(ii), the "lowest price per share for which one share of Common Stock is issuable upon the conversion, exercise or exchange thereof" shall be equal to (1) the lower of (x) the sum of the lowest amounts of consideration (if any) received or receivable by the Company with respect to one share of Common Stock upon the issuance or sale of the Convertible Security and upon conversion, exercise or exchange of such Convertible Security and (y) the lowest conversion price set forth in such Convertible Security for which one share of Common Stock is issuable upon conversion, exercise or exchange thereof minus (2) the sum of all amounts paid or payable to the holder of such Convertible Security (or any other Person) upon the issuance or sale of such Convertible Security plus the value of any other consideration received or receivable by, or benefit conferred on, the holder of such Convertible Security (or any other Person). Except as contemplated below, no further adjustment of the Exercise Price shall be made upon the actual issuance of such shares of Common Stock upon conversion, exercise or exchange of such Convertible Securities, and if any such issue or sale of such Convertible Securities is made upon exercise of any Options for which adjustment of this Warrant has been or is to be made pursuant to other provisions of this Section 2(b), except as contemplated below, no further adjustment of the Exercise Price shall be made by reason of such issue or sale.
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      (iii) Change in Option Price or Rate of Conversion.
If the purchase or exercise price provided for in any Options, the additional
consideration, if any, payable upon the issue, conversion, exercise or exchange
of any Convertible Securities, or the rate at which any Convertible Securities
are convertible into or exercisable or exchangeable for shares of Common Stock
increases or decreases at any time, the Exercise Price in effect at the time
of such increase or decrease shall be adjusted to the Exercise Price which would
have been in effect at such time had such Options or Convertible Securities
provided for such increased or decreased purchase price, additional consideration
or increased or decreased conversion rate, as the case may be, at the time initially
granted, issued or sold. For purposes of this Section 2(b)(iii), if the terms
of any Option or Convertible Security that was outstanding as of the date of
issuance of this Warrant are increased or decreased in the manner described
in the immediately preceding sentence, then such Option or Convertible Security
and the shares of Common Stock deemed issuable upon exercise, conversion or
exchange thereof shall be deemed to have been issued as of the date of such
increase or decrease. No adjustment pursuant to this Section 2(b) shall be made
if such adjustment would result in an increase of the Exercise Price then in
effect.
      (iv) Calculation of Consideration Received. If any Option or Convertible Security or Adjustment Right is issued in connection with the issuance or sale or deemed issuance or sale of any other securities of the Company, together comprising one integrated transaction, (x) such Option or Convertible Security (as applicable) or Adjustment Right (as applicable) will be deemed to have been issued for consideration equal to the Black Scholes Consideration Value thereof and (y) the other securities issued or sold or deemed to have been issued or sold in such integrated transaction shall be deemed to have been issued for consideration equal to the difference of (I) the aggregate consideration received or receivable by the Company minus (II) the Black Scholes Consideration Value of each such Option or Convertible Security (as applicable) or Adjustment Right (as applicable). If any shares of Common Stock, Options or Convertible Securities are issued or sold or deemed to have been issued or sold for cash, the consideration received therefor will be deemed to be the net amount of consideration received by the Company therefor. If any shares of Common Stock, Options or Convertible Securities are issued or sold for a consideration other than cash, the amount of such consideration received by the Company will be the fair value of such consideration, except where such consideration consists of publicly traded securities, in which case the amount of consideration received by the Company for such securities will be the arithmetic average of the VWAPs of such security for each of the five (5) Trading Days immediately preceding the date of receipt. If any shares of Common Stock, Options or Convertible Securities are issued to the owners of the non-surviving entity in connection with any merger in which the Company is the surviving entity, the amount of consideration therefor will be deemed to be the fair value of such portion of the net assets and business of the non-surviving entity as is attributable to such shares of Common Stock, Options or Convertible Securities, as the case may be. The fair value of any consideration other than cash or publicly traded securities will be determined jointly by the Company and the Holder. If such parties are unable to reach agreement within ten (10) days after the occurrence of an event requiring valuation (the "Valuation Event"), the fair value of such consideration will be determined within five (5) Trading Days after the tenth (10th) day following such Valuation Event by an independent, reputable appraiser jointly selected by the Company and the Holder. The determination of such appraiser shall be final and binding upon all parties absent manifest error and the fees and expenses of such appraiser shall be borne by the Company.
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      (v) Record Date. If the Company takes
a record of the holders of shares of Common Stock for the purpose of entitling
them (A) to receive a dividend or other distribution payable in shares of Common
Stock, Options or in Convertible Securities or (B) to subscribe for or purchase
shares of Common Stock, Options or Convertible Securities, then such record
date will be deemed to be the date of the issue or sale of the shares of Common
Stock deemed to have been issued or sold upon the declaration of such dividend
or the making of such other distribution or the date of the granting of such
right of subscription or purchase (as the case may be).
      (vi) Exercise Floor Price. No adjustment
pursuant to this Section 2 shall cause the Exercise Price to be less than $2.44
(as adjusted for any stock dividend, stock split, stock combination, reclassification
or similar transaction occurring after the date of the Securities Purchase Agreement)
(the "Exercise Floor Price"). Notwithstanding the foregoing,
nothing contained in this Section 2(b)(vi) shall apply after the Company has
obtained the written approval of its stockholders providing for the Company's
issuance of all of the Securities (as defined in the Securities Purchase Agreement)
in accordance with applicable law and the rules and regulations of the Principal
Market prior to such date.
(c) Number of Warrant Shares. Simultaneously with any adjustment to
the Exercise Price pursuant to paragraphs (a), (b) or (d) of this Section 2,
the number of Warrant Shares that may be purchased upon exercise of this Warrant
shall be increased or decreased proportionately, so that after such adjustment
the aggregate Exercise Price payable hereunder for the adjusted number of Warrant
Shares shall be the same as the aggregate Exercise Price in effect immediately
prior to such adjustment (without regard to any limitations on exercise contained
herein).
(d) Holder's Right of Alternative Exercise Price Following Issuance of Certain
Options or Convertible Securities. In addition to and not in limitation
of the other provisions of this Section 2, if the Company in any manner issues
or sells any Options or Convertible Securities (any such securities, "Variable
Price Securities") after the Subscription Date that are convertible
into or exchangeable or exercisable for shares of Common Stock at a price which
varies or may vary with the market price of the Common Shares, including by
way of one or more reset(s) to a fixed price, but exclusive of such formulations
reflecting customary anti-dilution provisions (such as share splits, share combinations,
share dividends and similar transactions) (each of the formulations for such
variable price being herein referred to as, the "Variable Price"),
the Company shall provide written notice thereof via facsimile and overnight
courier to the Holder on the date of issuance of such Convertible Securities
or Options. From and after the date the Company issues any such Convertible
Securities or Options with a Variable Price, the Holder shall have the right,
but not the obligation, in its sole discretion to substitute the Variable Price
for the Exercise Price upon exercise of this Warrant by designating in the Exercise
Notice delivered upon any exercise of this Warrant that solely for purposes
of such exercise the Holder is relying on the Variable Price rather than the
Exercise Price then in effect. The Holder's election to rely on a Variable Price
for a particular exercise of this Warrant shall not obligate the Holder to rely
on a Variable Price for any future exercises of this Warrant.
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(e) Other Events. In the event that the Company (or any Subsidiary (as
defined in the Securities Purchase Agreement)) shall take any action to which
the provisions hereof are not strictly applicable, or, if applicable, would
not operate to protect the Holder from dilution or if any event occurs of the
type contemplated by the provisions of this Section 2 but not expressly provided
for by such provisions (including, without limitation, the granting of stock
appreciation rights, phantom stock rights or other rights with equity features),
then the Company's board of directors shall in good faith determine and implement
an appropriate adjustment in the Exercise Price and the number of Warrant Shares
(if applicable) so as to protect the rights of the Holder, provided that no
such adjustment pursuant to this Section 2(e) will increase the Exercise Price
or decrease the number of Warrant Shares as otherwise determined pursuant to
this Section 2, provided further that if the Holder does not accept such adjustments
as appropriately protecting its interests hereunder against such dilution, then
the Company's board of directors and the Holder shall agree, in good faith,
upon an independent investment bank of nationally recognized standing to make
such appropriate adjustments, whose determination shall be final and binding
and whose fees and expenses shall be borne by the Company.
(f) Calculations. All calculations under this Section 2 shall be made
by rounding to the nearest cent or the nearest 1/100th of a share, as applicable.
The number of shares of Common Stock outstanding at any given time shall not
include shares owned or held by or for the account of the Company, and the disposition
of any such shares shall be considered an issue or sale of Common Stock.
3. RIGHTS UPON DISTRIBUTION OF ASSETS. In addition to any adjustments
pursuant to Section 2 above, if the Company shall declare or make any dividend
or other distribution of its assets (or rights to acquire its assets) to holders
of shares of Common Stock, by way of return of capital or otherwise (including,
without limitation, any distribution of cash, stock or other securities, property
or options by way of a dividend, spin off, reclassification, corporate rearrangement,
scheme of arrangement or other similar transaction) (a "Distribution"),
at any time after the issuance of this Warrant, then, in each such case, the
Holder shall be entitled to participate in such Distribution to the same extent
that the Holder would have participated therein if the Holder had held the number
of shares of Common Stock acquirable upon complete exercise of this Warrant
(without regard to any limitations on exercise hereof, including without limitation,
the Maximum Percentage) immediately before the date on which a record is taken
for such Distribution, or, if no such record is taken, the date as of which
the record holders of shares of Common Stock are to be determined for the participation
in such Distribution (provided, however, to the extent that the Holder's right
to participate in any such Distributions would result in the Holder exceeding
the Maximum Percentage, then the Holder shall not be entitled to participate
in such Distribution to such extent (or the beneficial ownership of any such
shares of Common Stock as a result of such Distribution to such extent) and
such Distribution to such extent shall be held in abeyance for the benefit of
the Holder until such time, if ever, as its right thereto would not result in
the Holder exceeding the Maximum Percentage).
4. PURCHASE RIGHTS; FUNDAMENTAL TRANSACTIONS.
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(a) Purchase Rights. In addition to any adjustments pursuant to Section
2 above, if at any time the Company grants, issues or sells any Options, Convertible
Securities or rights to purchase stock, warrants, securities or other property
pro rata to the record holders of any class of shares of Common Stock (the "Purchase
Rights"), then the Holder will be entitled to acquire, upon the terms
applicable to such Purchase Rights, the aggregate Purchase Rights which the
Holder could have acquired if the Holder had held the number of shares of Common
Stock acquirable upon complete exercise of this Warrant (without regard to any
limitations on exercise hereof, including without limitation, the Maximum Percentage)
immediately before the date on which a record is taken for the grant, issuance
or sale of such Purchase Rights, or, if no such record is taken, the date as
of which the record holders of shares of Common Stock are to be determined for
the grant, issue or sale of such Purchase Rights (provided, however, to the
extent that the Holder's right to participate in any such Purchase Right would
result in the Holder exceeding the Maximum Percentage, then the Holder shall
not be entitled to participate in such Purchase Right to such extent (or beneficial
ownership of such shares of Common Stock as a result of such Purchase Right
to such extent) and such Purchase Right to such extent shall be held in abeyance
for the Holder until such time, if ever, as its right thereto would not result
in the Holder exceeding the Maximum Percentage).
(b) Fundamental Transactions. The Company shall not enter into or be party to a Fundamental Transaction unless (i) the Successor Entity assumes in writing all of the obligations of the Company under this Warrant and the other Transaction Documents (as defined in the Securities Purchase Agreement) in accordance with the provisions of this Section 4(b) pursuant to written agreements in form and substance satisfactory to the Holder and approved by the Holder prior to such Fundamental Transaction, including agreements to deliver to the Holder in exchange for this Warrant a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Warrant, including, without limitation, which is exercisable for a corresponding number of shares of capital stock equivalent to the shares of Common Stock acquirable and receivable upon exercise of this Warrant (without regard to any limitations on the exercise of this Warrant) prior to such Fundamental Transaction, and with an exercise price which applies the exercise price hereunder to such shares of capital stock (but taking into account the relative value of the shares of Common Stock pursuant to such Fundamental Transaction and the value of such shares of capital stock, such adjustments to the number of shares of capital stock and such exercise price being for the purpose of protecting the economic value of this Warrant immediately prior to the consummation of such Fundamental Transaction) and (ii) the Successor Entity (including its Parent Entity) is a publicly traded corporation whose common stock is quoted on or listed for trading on an Eligible Market. Upon the consummation of each Fundamental Transaction, the Successor Entity shall succeed to, and be substituted for (so that from and after the date of the applicable Fundamental Transaction, the provisions of this Warrant and the other Transaction Documents referring to the "Company" shall refer instead to the Successor Entity), and may exercise every right and power of the Company and shall assume all of the obligations of the Company under this Warrant and the other Transaction Documents with the same effect as if such Successor Entity had been named as the Company herein. Upon consummation of each Fundamental Transaction, the Successor Entity shall deliver to the Holder confirmation that there shall be issued upon exercise of this Warrant at any time after the consummation of the applicable Fundamental Transaction, in lieu of the shares of Common Stock (or other securities, cash, assets or other property (except such items still issuable under Sections 3 and 4(a) above, which shall continue to be receivable thereafter)) issuable upon the exercise of this Warrant prior to the applicable Fundamental Transaction, such shares of publicly traded common stock (or its equivalent) of the Successor Entity (including its Parent Entity) which the Holder would have been entitled to receive upon the happening of the applicable Fundamental Transaction had this Warrant been exercised immediately prior to the applicable Fundamental Transaction (without regard to any limitations on the exercise of this Warrant, except to the extent prohibited by the rules and regulations of the Principal Market), as adjusted in accordance with the provisions of this Warrant. Notwithstanding the foregoing, and
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without limiting Section 1(f) hereof, the Holder may elect, at its sole option,
by delivery of written notice to the Company to waive this Section 4(b) to permit
the Fundamental Transaction without the assumption of this Warrant. In addition
to and not in substitution for any other rights hereunder, prior to the consummation
of each Fundamental Transaction pursuant to which holders of shares of Common
Stock are entitled to receive securities or other assets with respect to or
in exchange for shares of Common Stock (a "Corporate Event"),
the Company shall make appropriate provision to insure that the Holder will
thereafter have the right to receive upon an exercise of this Warrant at any
time after the consummation of the applicable Fundamental Transaction but prior
to the Expiration Date, in lieu of the shares of the Common Stock (or other
securities, cash, assets or other property (except such items still issuable
under Sections 3 and 4(a) above, which shall continue to be receivable thereafter))
issuable upon the exercise of the Warrant prior to such Fundamental Transaction,
such shares of stock, securities, cash, assets or any other property whatsoever
(including warrants or other purchase or subscription rights) which the Holder
would have been entitled to receive upon the happening of the applicable Fundamental
Transaction had this Warrant been exercised immediately prior to the applicable
Fundamental Transaction (without regard to any limitations on the exercise of
this Warrant, except to the extent prohibited by the rules and regulations of
the Principal Market). Provision made pursuant to the preceding sentence shall
be in a form and substance reasonably satisfactory to the Holder.
(c) Black Scholes Value.
      (i) Notwithstanding the foregoing and the provisions
of Section 4(b) above, in the event of any announcement of any Fundamental Transaction
(including, without limitation, a Fundamental Transaction that is announced
prior to the Initial Exercise Date) or other occurrence of a Fundamental Transaction,
then, at the request of the Holder delivered at any time after the earlier of
(i) the consummation of such Fundamental Transaction and (ii) the announcement
of such Fundamental Transaction, in each case, through the date that is ninety
(90) days after the later of (x) the date of the consummation of such Fundamental
Transaction and (y) the date of the announcement of such Fundamental Transaction,
the Company or the Successor Entity (as the case may be) shall purchase this
Warrant from the Holder on the date of such request by paying to the Holder
cash in an amount equal to the Black Scholes Value.
      (ii) In the event of any announcement of any
Redemption Issuance (including, without limitation, a Redemption Issuance that
is announced prior to the Initial Exercise Date) or other occurrence of a Redemption
Issuance, then, at the request of the Holder delivered at any time after the
earlier of (i) the announcement of such Redemption Issuance and (ii) the consummation
of such Redemption Issuance, in each case, through the Expiration Date, the
Company shall purchase this Warrant from the Holder on the date of such request
by paying to the Holder cash in an amount equal to the Black Scholes Redemption
Value.
13
(d) Application. The provisions of this Section 4 shall apply similarly
and equally to successive Fundamental Transactions and Corporate Events and
shall be applied as if this Warrant (and any such subsequent warrants) were
fully exercisable and without regard to any limitations on the exercise of this
Warrant (provided that the Holder shall continue to be entitled to the benefit
of the Maximum Percentage, applied however with respect to shares of capital
stock registered under the 1934 Act and thereafter receivable upon exercise
of this Warrant (or any such other warrant)).
5. NONCIRCUMVENTION. The Company hereby covenants and agrees that the
Company will not, by amendment of its Certificate of Incorporation (as defined
in the Securities Purchase Agreement), Bylaws (as defined in the Securities
Purchase Agreement) or through any reorganization, transfer of assets, consolidation,
merger, scheme of arrangement, 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, and will at all times in good faith carry
out all the provisions of this Warrant and take all action as may be required
to protect the rights of the Holder. Without limiting the generality of the
foregoing, the Company (i) shall not increase the par value of any shares of
Common Stock receivable upon the exercise of this Warrant above the Exercise
Price then in effect, (ii) shall take all such actions as may be necessary or
appropriate in order that the Company may validly and legally issue fully paid
and non-assessable shares of Common Stock upon the exercise of this Warrant,
and (iii) shall, so long as any of the SPA Warrants are outstanding, take all
action necessary to reserve and keep available out of its authorized and unissued
shares of Common Stock, solely for the purpose of effecting the exercise of
the SPA Warrants, the maximum number of shares of Common Stock as shall from
time to time be necessary to effect the exercise of the SPA Warrants then outstanding
(without regard to any limitations on exercise).
6. WARRANT HOLDER NOT DEEMED A STOCKHOLDER. Except as otherwise specifically
provided herein, the Holder, solely in its capacity as a holder of this Warrant,
shall not be entitled to vote or receive dividends or be deemed the holder of
share capital of the Company for any purpose, nor shall anything contained in
this Warrant be construed to confer upon the Holder, solely in its capacity
as the Holder of this Warrant, any of the rights of a stockholder of the Company
or any right to vote, give or withhold consent to any corporate action (whether
any reorganization, issue of stock, reclassification of stock, consolidation,
merger, conveyance or otherwise), receive notice of meetings, receive dividends
or subscription rights, or otherwise, prior to the issuance to the Holder of
the Warrant Shares which it is then entitled to receive upon the due exercise
of this Warrant. In addition, nothing contained in this Warrant shall be construed
as imposing any liabilities on the Holder to purchase any securities (upon exercise
of this Warrant or otherwise) or as a stockholder of the Company, whether such
liabilities are asserted by the Company or by creditors of the Company. Notwithstanding
this Section 6, the Company shall provide the Holder with copies of the same
notices and other information given to the stockholders of the Company generally,
contemporaneously with the giving thereof to the stockholders.
7. REISSUANCE OF WARRANTS.
(a) Transfer of Warrant. If this Warrant is to be transferred, the Holder shall surrender this Warrant to the Company, whereupon the Company will forthwith issue and deliver upon the order of the Holder a new Warrant (in accordance with Section 7(d)), registered as the Holder may request, representing the right to purchase the number of Warrant Shares being transferred by the Holder and, if less than the total number of Warrant Shares then underlying this Warrant is being transferred, a new Warrant (in accordance with Section 7(d)) to the Holder representing the right to purchase the number of Warrant Shares not being transferred.
14
(b) Lost, Stolen or Mutilated Warrant. Upon receipt by the Company of
evidence reasonably satisfactory to the Company of the loss, theft, destruction
or mutilation of this Warrant (as to which a written certification and the indemnification
contemplated below shall suffice as such evidence), and, in the case of loss,
theft or destruction, of any indemnification undertaking by the Holder to the
Company in customary and reasonable form and, in the case of mutilation, upon
surrender and cancellation of this Warrant, the Company shall execute and deliver
to the Holder a new Warrant (in accordance with Section 7(d)) representing the
right to purchase the Warrant Shares then underlying this Warrant.
(c) Exchangeable for Multiple Warrants. This Warrant is exchangeable,
upon the surrender hereof by the Holder at the principal office of the Company,
for a new Warrant or Warrants (in accordance with Section 7(d)) representing
in the aggregate the right to purchase the number of Warrant Shares then underlying
this Warrant, and each such new Warrant will represent the right to purchase
such portion of such Warrant Shares as is designated by the Holder at the time
of such surrender; provided, however, no warrants for fractional shares of Common
Stock shall be given.
(d) Issuance of New Warrants. Whenever the Company is required to issue
a new Warrant pursuant to the terms of this Warrant, such new Warrant (i) shall
be of like tenor with this Warrant, (ii) shall represent, as indicated on the
face of such new Warrant, the right to purchase the Warrant Shares then underlying
this Warrant (or in the case of a new Warrant being issued pursuant to Section
7(a) or Section 7(c), the Warrant Shares designated by the Holder which, when
added to the number of shares of Common Stock underlying the other new Warrants
issued in connection with such issuance, does not exceed the number of Warrant
Shares then underlying this Warrant), (iii) shall have an issuance date, as
indicated on the face of such new Warrant which is the same as the Issuance
Date, and (iv) shall have the same rights and conditions as this Warrant.
15
8. NOTICES. Whenever notice is required to be given under this Warrant,
unless otherwise provided herein, such notice shall be given in accordance with
Section 9(f) of the Securities Purchase Agreement. The Company shall provide
the Holder with prompt written notice of all actions taken pursuant to this
Warrant, including in reasonable detail a description of such action and the
reason therefor. Without limiting the generality of the foregoing, the Company
will give written notice to the Holder (i) immediately upon each adjustment
of the Exercise Price and the number of Warrant Shares, setting forth in reasonable
detail, and certifying, the calculation of such adjustment(s) and (ii) at least
fifteen (15) days prior to the date on which the Company closes its books or
takes a record (A) with respect to any dividend or distribution upon the shares
of Common Stock, (B) with respect to any grants, issuances or sales of any Options,
Convertible Securities or rights to purchase stock, warrants, securities or
other property to holders of shares of Common Stock or (C) for determining rights
to vote with respect to any Fundamental Transaction, dissolution or liquidation,
provided in each case that such information shall be made known to the public
prior to or in conjunction with such notice being provided to the Holder and
(iii) at least ten (10) Trading Days prior to the consummation of any Fundamental
Transaction. To the extent that any notice provided hereunder constitutes, or
contains, material, non-public information regarding the Company or any of its
Subsidiaries, the Company shall simultaneously file such notice with the SEC
(as defined in the Securities Purchase Agreement) pursuant to a Current Report
on Form 8-K. It is expressly understood and agreed that the time of execution
specified by the Holder in each Exercise Notice shall be definitive and may
not be disputed or challenged by the Company.
9. AMENDMENT AND WAIVER. Except as otherwise provided herein, the provisions
of this Warrant (other than Section 1(f)(i)) may be amended and the Company
may take any action herein prohibited, or omit to perform any act herein required
to be performed by it, only if the Company has obtained the written consent
of the Holder. The Holder shall be entitled, at its option, to the benefit of
any amendment of (i) any other similar warrant issued under the Securities Purchase
Agreement or (ii) any other similar warrant. No consideration shall be offered
or paid to the Holder to amend or consent to a waiver or modification of any
provision of this Warrant unless the same consideration is also offered to all
of the holders of the other SPA Warrants. No waiver shall be effective unless
it is in writing and signed by an authorized representative of the waiving party.
10. SEVERABILITY. If any provision of this Warrant is prohibited by
law or otherwise determined to be invalid or unenforceable by a court of competent
jurisdiction, the provision that would otherwise be prohibited, invalid or unenforceable
shall be deemed amended to apply to the broadest extent that it would be valid
and enforceable, and the invalidity or unenforceability of such provision shall
not affect the validity of the remaining provisions of this Warrant so long
as this Warrant as so modified continues to express, without material change,
the original intentions of the parties as to the subject matter hereof and the
prohibited nature, invalidity or unenforceability of the provision(s) in question
does not substantially impair the respective expectations or reciprocal obligations
of the parties or the practical realization of the benefits that would otherwise
be conferred upon the parties. The parties will endeavor in good faith negotiations
to replace the prohibited, invalid or unenforceable provision(s) with a valid
provision(s), the effect of which comes as close as possible to that of the
prohibited, invalid or unenforceable provision(s).
11. GOVERNING LAW. This Warrant shall be governed by and construed and enforced in accordance with, and all questions concerning the construction, validity, interpretation and performance of this Warrant shall be governed by, the internal laws of the State of New York, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of New York or any other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State of New York. The Company hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in The City of New York, Borough of Manhattan, for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. In the event that any provision of this Warrant is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to
16
the extent that it may conflict therewith and shall be deemed modified to conform
with such statute or rule of law. Any such provision which may prove invalid
or unenforceable under any law shall not affect the validity or enforceability
of any other provision of this Warrant. Nothing contained herein shall be deemed
or operate to preclude the Holder from bringing suit or taking other legal action
against the Company in any other jurisdiction to collect on the Company's obligations
to the Holder, to realize on any collateral or any other security for such obligations,
or to enforce a judgment or other court ruling in favor of the Holder. THE
COMPANY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE TO, AND AGREES NOT TO
REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION
WITH OR ARISING OUT OF THIS WARRANT OR ANY TRANSACTION CONTEMPLATED HEREBY.
12. CONSTRUCTION; HEADINGS. This Warrant shall be deemed to be jointly
drafted by the Company and the Holder and shall not be construed against any
Person as the drafter hereof. The headings of this Warrant are for convenience
of reference and shall not form part of, or affect the interpretation of, this
Warrant. Terms used in this Warrant but defined in the other Transaction Documents
shall have the meanings ascribed to such terms on the Closing Date (as defined
in the Securities Purchase Agreement) in such other Transaction Documents unless
otherwise consented to in writing by the Holder.
13. DISPUTE RESOLUTION. In the case of a dispute as to the determination
of the Exercise Price, the Closing Bid Price, the Closing Sale Price, the Bid
Price or fair market value or the arithmetic calculation of the number of Warrant
Shares (as the case may be), the Company or the Holder (as the case may be)
shall submit the disputed determinations or arithmetic calculations (as the
case may be) via facsimile (i) within two (2) Business Days after receipt of
the applicable notice giving rise to such dispute to the Company or the Holder
(as the case may be) or (ii) if no notice gave rise to such dispute, at any
time after the Holder learned of the circumstances giving rise to such dispute
(including, without limitation, as to whether any issuance or sale or deemed
issuance or sale was an issuance or sale or deemed issuance or sale of Excluded
Securities). If the Holder and the Company are unable to agree upon such determination
or calculation (as the case may be) of the Exercise Price, the Closing Bid Price,
the Closing Sale Price, the Bid Price or fair market value or the number of
Warrant Shares (as the case may be) within three (3) Business Days of such disputed
determination or arithmetic calculation being submitted to the Company or the
Holder (as the case may be), then the Company shall, within two (2) Business
Days submit via facsimile (a) the disputed determination of the Exercise Price,
the Closing Bid Price, the Closing Sale Price, the Bid Price or fair market
value (as the case may be) to an independent, reputable investment bank selected
by the Company and approved by the Holder or (b) the disputed arithmetic calculation
of the number of Warrant Shares to the Company's independent, outside accountant.
The Company shall cause at its expense the investment bank or the accountant
(as the case may be) to perform the determinations or calculations (as the case
may be) and notify the Company and the Holder of the results no later than ten
(10) Business Days from the time it receives such disputed determinations or
calculations (as the case may be). Such investment bank's or accountant's determination
or calculation (as the case may be) shall be binding upon all parties absent
demonstrable error.
17
14. REMEDIES, CHARACTERIZATION, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE
RELIEF. The remedies provided in this Warrant shall be cumulative and in
addition to all other remedies available under this Warrant and the other Transaction
Documents, at law or in equity (including a decree of specific performance and/or
other injunctive relief), and nothing herein shall limit the right of the Holder
to pursue actual damages for any failure by the Company to comply with the terms
of this Warrant. The Company covenants to the Holder that there shall be no
characterization concerning this instrument other than as expressly provided
herein. Amounts set forth or provided for herein with respect to payments, exercises
and the like (and the computation thereof) shall be the amounts to be received
by the Holder and shall not, except as expressly provided herein, be subject
to any other obligation of the Company (or the performance thereof). The Company
acknowledges that a breach by it of its obligations hereunder will cause irreparable
harm to the Holder and that the remedy at law for any such breach may be inadequate.
The Company therefore agrees that, in the event of any such breach or threatened
breach, the holder of this Warrant shall be entitled, in addition to all other
available remedies, to an injunction restraining any breach, without the necessity
of showing economic loss and without any bond or other security being required.
The Company shall provide all information and documentation to the Holder that
is requested by the Holder to enable the Holder to confirm the Company's compliance
with the terms and conditions of this Warrant (including, without limitation,
compliance with Section 2 hereof). The issuance of shares and certificates for
shares as contemplated hereby upon the exercise of this Warrant shall be made
without charge to the Holder or such shares for any issuance tax or other costs
in respect thereof, provided that the Company shall not be required to pay any
tax which may be payable in respect of any transfer involved in the issuance
and delivery of any certificate in a name other than the Holder or its agent
on its behalf.
15. TRANSFER. This Warrant may be offered for sale, sold, transferred
or assigned without the consent of the Company, except as may otherwise be required
by Section 2(g) of the Securities Purchase Agreement.
16. CERTAIN DEFINITIONS. For purposes of this Warrant, the following
terms shall have the following meanings:
(a) "AboCom Exchange" means the private placement of Common
Stock of the Company to AboCom Systems, Inc, in exchange for the cancellation
of up to $500,000 of trade indebtedness payable by the Company, occurring at
any time after the First Adjustment Date (as defined in the Notes), in a single
closing, with an exchange price per share of Common Stock, as determined in
accordance with Section 7 of the Notes, greater then the Conversion Price (as
defined in the Notes) then in effect and no Adjustment Rights, with gross proceeds
to the Company not to exceed $500,000.
(b) "Approved Stock Plan" means any employee benefit plan
which has been approved by the board of directors of the Company prior to or
subsequent to the date hereof pursuant to which shares of Common Stock and standard
options to purchase Common Stock may be issued to any employee, officer or director
for services provided to the Company in their capacity as such.
18
(c) "Adjustment Right" means any right granted with respect
to any securities issued in connection with, or with respect to, any issuance
or sale (or deemed issuance or sale in accordance with Section 2) of shares
of Common Stock (other than rights of the type described in Section 3 and 4
hereof) that could result in a decrease in the net consideration received by
the Company in connection with, or with respect to, such securities (including,
without limitation, any cash settlement rights, cash adjustment or other similar
rights).
(d) "Bid Price" means, for any security as of the particular
time of determination, the bid price for such security on the Principal Market
as reported by Bloomberg as of such time of determination, or, if the Principal
Market is not the principal securities exchange or trading market for such security,
the bid price of such security on the principal securities exchange or trading
market where such security is listed or traded as reported by Bloomberg as of
such time of determination, or if the foregoing does not apply, the bid price
of such security in the over-the-counter market on the electronic bulletin board
for such security as reported by Bloomberg as of such time of determination,
or, if no bid price is reported for such security by Bloomberg as of such time
of determination, the average of the bid prices of any market makers for such
security as reported in the "pink sheets" by Pink Sheets LLC (formerly
the National Quotation Bureau, Inc.) as of such time of determination. If the
Bid Price cannot be calculated for a security as of the particular time of determination
on any of the foregoing bases, the Bid Price of such security as of such time
of determination shall be the fair market value as mutually determined by the
Company and the Holder. If the Company and the Holder are unable to agree upon
the fair market value of such security, then such dispute shall be resolved
in accordance with the procedures in Section 13. All such determinations shall
be appropriately adjusted for any stock dividend, stock split, stock combination
or other similar transaction during such period.
(e) "Black Scholes Consideration Value" means the value of
the applicable Option, Convertible Security or Adjustment Right (as the case
may be) as of the date of issuance thereof calculated using the Black Scholes
Option Pricing Model obtained from the "OV" function on Bloomberg
utilizing (i) an underlying price per share equal to the Closing Sale Price
of the Common Stock on the Trading Day immediately preceding the public announcement
of the execution of definitive documents with respect to the issuance of such
Option or Convertible Security (as the case may be), (ii) a risk-free interest
rate corresponding to the U.S. Treasury rate for a period equal to the remaining
term of such Option, Convertible Security or Adjustment Right (as the case may
be) as of the date of issuance of such Option, Convertible Security or Adjustment
Right (as the case may be) and (iii) an expected volatility equal to the greater
of 100% and the 100 day volatility obtained from the HVT function on Bloomberg
(determined utilizing a 365 day annualization factor) as of the Trading Day
immediately following the date of issuance of such Option, Convertible Security
or Adjustment Right (as the case may be).
(f) "Black Scholes Value" means the value of the unexercised portion of this Warrant remaining on the date of the Holder's request pursuant to Section 4(c)(i), which value is calculated using the Black Scholes Option Pricing Model obtained from the "OV" function on Bloomberg utilizing (i) an underlying price per share equal to the greater of (1) the highest Closing Sale Price of the Common Stock during the period beginning on the Trading Day immediately preceding the announcement of the applicable Fundamental Transaction (or the consummation of the applicable Fundamental Transaction, if earlier) and ending on the Trading Day of the Holder's request pursuant to Section 4(c)(i) and (2) the sum of the price per share being offered in cash in the applicable Fundamental Transaction (if any) plus the value of the non-cash consideration being offered in the applicable Fundamental Transaction (if any), (ii) a strike price equal to the lower of (x) the Exercise Price in effect on the date of the Holder's request pursuant to Section 4(c)(i) and (y) if any Redemption Issuances has occurred on or prior to such date, the lowest purchase price per share of Common Stock sold or issued (or deemed to be sold or issued) in any such
19
Redemption Issuance (as calculated in accordance with Section 7 of the Notes),
(iii) a risk-free interest rate corresponding to the U.S. Treasury rate for
a period equal to the greater of (1) the remaining term of this Warrant as of
the date of the Holder's request pursuant to Section 4(c)(i) and (2) the remaining
term of this Warrant as of the date of consummation of the applicable Fundamental
Transaction and (iv) an expected volatility equal to the greater of 100% and
the 100 day volatility obtained from the HVT function on Bloomberg (determined
utilizing a 365 day annualization factor) as of the Trading Day immediately
following the public announcement of the applicable Fundamental Transaction.
(g) "Black Scholes Redemption Value" means the value of the
unexercised portion of this Warrant remaining on the date of the Holder's request
pursuant to Section 4(c)(ii), which value is calculated using the Black Scholes
Option Pricing Model obtained from the "OV" function on Bloomberg
utilizing (i) an underlying price per share equal to the greater of (1) the
highest Closing Sale Price of the Common Stock during the period beginning on
the Trading Day immediately preceding the announcement of the applicable Redemption
Issuance (or the consummation of the applicable Redemption Issuance, if earlier)
and ending on the Trading Day of the Holder's request pursuant to Section 4(c)(ii)
and (2) the product of (x) the highest purchase price per share of Common Stock
sold or issued (or deemed to be sold or issued) in any Redemption Issuance (as
calculated in accordance with Section 7 of the Notes) that has occurred prior
to and including the date of the Holder's request pursuant to Section 4(c)(i)
and (y) the quotient of (A) the Exercise Price as of the Subscription Date,
divided by (B) the lowest purchase price per share of Common Stock sold or issued
(or deemed to be sold or issued) in any Redemption Issuance (as calculated in
accordance with Section 7 of the Notes) that has occurred prior to and including
the date of the Holder's request pursuant to Section 4(c)(i), (ii) a strike
price equal to the lower of (x) the Exercise Price in effect on the date of
the Holder's request pursuant to Section 4(c)(i) and (y) the lowest purchase
price per share of Common Stock sold or issued (or deemed to be sold or issued)
in any Redemption Issuance (as calculated in accordance with Section 7 of the
Notes) that has occurred prior to and including such date, (iii) a risk-free
interest rate corresponding to the U.S. Treasury rate for a period equal to
the greater of (1) the remaining term of this Warrant as of the date of the
Holder's request pursuant to Section 4(c)(ii) and (2) the remaining term of
this Warrant as of the date of consummation of the applicable Redemption Issuance
and (iv) an expected volatility equal to the greater of 100% and the 100 day
volatility obtained from the HVT function on Bloomberg (determined utilizing
a 365 day annualization factor) as of the Trading Day immediately following
the public announcement of the applicable Redemption Issuance.
(h) "Bloomberg" means Bloomberg, L.P.
(i) "Business Day" means any day other than Saturday, Sunday
or other day on which commercial banks in The City of New York are authorized
or required by law to remain closed.
20
(j) "Closing Bid Price" and "Closing Sale Price"
means, for any security as of any date, the last closing bid price and last
closing trade price, respectively, for such security on the Principal Market,
as reported by Bloomberg, or, if the Principal Market begins to operate on an
extended hours basis and does not designate the closing bid price or the closing
trade price (as the case may be) then the last bid price or last trade price,
respectively, of such security prior to 4:00:00 p.m., New York time, as reported
by Bloomberg, or, if the Principal Market is not the principal securities exchange
or trading market for such security, the last closing bid price or last trade
price, respectively, of such security on the principal securities exchange or
trading market where such security is listed or traded as reported by Bloomberg,
or if the foregoing does not apply, the last closing bid price or last trade
price, respectively, of such security in the over-the-counter market on the
electronic bulletin board for such security as reported by Bloomberg, or, if
no closing bid price or last trade price, respectively, is reported for such
security by Bloomberg, the average of the bid prices, or the ask prices, respectively,
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
Bid Price or the Closing Sale Price cannot be calculated for a security on a
particular date on any of the foregoing bases, the Closing Bid Price or the
Closing Sale Price (as the case may be) of such security on such date shall
be the fair market value as mutually determined by the Company and the Holder.
If the Company and the Holder are unable to agree upon the fair market value
of such security, then such dispute shall be resolved in accordance with the
procedures in Section 13. All such determinations shall be appropriately adjusted
for any stock dividend, stock split, stock combination or other similar transaction
during such period.
(k) "Common Stock" means (i) the Company's shares of common
stock, $0.001 par value per share, and (ii) any capital stock into which such
common stock shall have been changed or any share capital resulting from a reclassification
of such common stock.
(l) "Convertible Securities" means any stock or other security
(other than Options) that is at any time and under any circumstances, directly
or indirectly, convertible into, exercisable or exchangeable for, or which otherwise
entitles the holder thereof to acquire, any shares of Common Stock.
(m) "Eligible Market" means The New York Stock Exchange, the
NYSE Amex, the Nasdaq Global Select Market, the Nasdaq Global Market or the
Principal Market.
(n) "Excluded Securities" means (i) shares of Common Stock
or standard options to purchase Common Stock to directors, officers or employees
of the Company in their capacity as such pursuant to an Approved Stock Plan
(as defined below), provided that (A) all such issuances (taking into account
the shares of Common Stock issuable upon exercise of such options) after the
date hereof pursuant to this clause (i) do not, in the aggregate, exceed more
than 5% of the Common Stock issued and outstanding immediately prior to the
date hereof and (B) the exercise price of any such options is not lowered, none
of such options are amended to increase the number of shares issuable thereunder
and none of the terms or conditions of any such options are otherwise materially
changed in any manner that adversely affects any of the Buyers; (ii) shares
of Common Stock issued upon the conversion or exercise of Convertible Securities
(other than standard options to purchase Common Stock issued pursuant to an
Approved Stock Plan that are covered by clause (i) above) issued prior to the
date hereof, provided that the conversion price of any such Convertible Securities
(other than standard options to purchase Common Stock issued pursuant to an
Approved Stock Plan that are covered by clause (i) above) is not lowered, none
of such Convertible Securities (other than standard options to purchase Common
Stock issued pursuant to an Approved Stock Plan that are covered by clause (i)
above) are amended to increase the number of shares issuable thereunder and
none of the terms or conditions of any such Convertible Securities (other than
standard options to purchase Common Stock issued pursuant to an Approved Stock
Plan that are covered by clause (i) above) are otherwise materially changed
in any manner that adversely affects any of the Buyers; (iii) the shares of
Common Stock issuable upon exercise of the Notes, (iv) the shares of Common
Stock issuable upon exercise of the Warrants, and (v) shares of Common Stock
issued in the AboCom Exchange.
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(o) "Expiration Date" means the date that is the fifth (5th)
anniversary of the Initial Exercise Date or, if such date falls on a day other
than a Business Day or on which trading does not take place on the Principal
Market (a "Holiday"), the next date that is not a Holiday.
(p) "Fundamental Transaction" means that (i) the Company or
any of its Subsidiaries shall, directly or indirectly, in one or more related
transactions, (1) consolidate or merge with or into (whether or not the Company
or any of its Subsidiaries is the surviving corporation) any other Person, or
(2) sell, lease, license, assign, transfer, convey or otherwise dispose of all
or substantially all of its respective properties or assets to any other Person,
or (3) allow any other Person to make a purchase, tender or exchange offer that
is accepted by the holders of more than 50% of the outstanding shares of Voting
Stock of the Company (not including any shares of Voting Stock of the Company
held by the Person or Persons making or party to, or associated or affiliated
with the Persons making or party to, such purchase, tender or exchange offer),
or (4) consummate a stock or share purchase agreement or other business combination
(including, without limitation, a reorganization, recapitalization, spin-off
or scheme of arrangement) with any other Person whereby such other Person acquires
more than 50% of the outstanding shares of Voting Stock of the Company (not
including any shares of Voting Stock of the Company held by the other Person
or other Persons making or party to, or associated or affiliated with the other
Persons making or party to, such stock or share purchase agreement or other
business combination), or (5) (I) reorganize, recapitalize or reclassify the
Common Stock, (II) effect or consummate a stock combination, reverse stock split
or other similar transaction involving the Common Stock or (III) make any public
announcement or disclosure with respect to any stock combination, reverse stock
split or other similar transaction involving the Common Stock (including, without
limitation, any public announcement or disclosure of (x) any potential, possible
or actual stock combination, reverse stock split or other similar transaction
involving the Common Stock or (y) board or stockholder approval thereof, or
the intention of the Company to seek board or stockholder approval of any stock
combination, reverse stock split or other similar transaction involving the
Common Stock), or (ii) any "person" or "group" (as these
terms are used for purposes of Sections 13(d) and 14(d) of the 1934 Act and
the rules and regulations promulgated thereunder) is or shall become the "beneficial
owner" (as defined in Rule 13d-3 under the 1934 Act), directly or indirectly,
of 50% of the aggregate ordinary voting power represented by issued and outstanding
Voting Stock of the Company.
(q) "Options" means any rights, warrants or options to subscribe
for or purchase shares of Common Stock or Convertible Securities.
22
(r) "Parent Entity" of a Person means an entity that, directly
or indirectly, controls the applicable Person and whose common stock or equivalent
equity security is quoted or listed on an Eligible Market, or, if there is more
than one such Person or Parent Entity, the Person or Parent Entity with the
largest public market capitalization as of the date of consummation of the Fundamental
Transaction.
(s) "Person" means an individual, a limited liability company,
a partnership, a joint venture, a corporation, a trust, an unincorporated organization,
any other entity or a government or any department or agency thereof.
(t) "Principal Market" means the Nasdaq Capital Market.
(u) "Redemption Issuance" means any issuance or sale or deemed
issuance of Common Stock, at any time after the Subscription Date, which is
a Dilutive Issuance (as defined in the Notes) at a purchase price per share
of Common Stock, as determined in accordance with Section 7 of the Notes, less
than the Exercise Floor Price.
(v) "Successor Entity" means the Person (or, if so elected
by the Holder, the Parent Entity) formed by, resulting from or surviving any
Fundamental Transaction or the Person (or, if so elected by the Holder, the
Parent Entity) with which such Fundamental Transaction shall have been entered
into.
(w) "Trading Day" means any day on which the Common Stock
is traded on the Principal Market, or, if the Principal Market is not the principal
trading market for the Common Stock, then on the principal securities exchange
or securities market on which the Common Stock is then traded, provided that
"Trading Day" shall not include any day on which the Common Stock
is scheduled to trade on such exchange or market for less than 4.5 hours or
any day that the Common Stock is suspended from trading during the final hour
of trading on such exchange or market (or if such exchange or market does not
designate in advance the closing time of trading on such exchange or market,
then during the hour ending at 4:00:00 p.m., New York time) unless such day
is otherwise designated as a Trading Day in writing by the Holder.
(x) "Voting Stock" of a Person means capital stock of such
Person of the class or classes pursuant to which the holders thereof have the
general voting power to elect, or the general power to appoint, at least a majority
of the board of directors, managers or trustees of such Person (irrespective
of whether or not at the time capital stock of any other class or classes shall
have or might have voting power by reason of the happening of any contingency).
23
(y) "VWAP" means, for any security as of any date, the dollar
volume-weighted average price for such security on the Principal Market (or,
if the Principal Market is not the principal trading market for such security,
then on the principal securities exchange or securities market on which such
security is then traded) during the period beginning at 9:30:01 a.m., New York
time, and ending at 4:00:00 p.m., New York time, as reported by Bloomberg through
its "Volume at Price" function or, if the foregoing does not apply,
the dollar volume-weighted average price of such security in the over-the-counter
market on the electronic bulletin board for such security during the period
beginning at 9:30:01 a.m., New York time, and ending at 4:00:00 p.m., New York
time, as reported by Bloomberg, or, if no dollar volume-weighted average price
is reported for such security by Bloomberg for such hours, the average of the
highest closing bid price and the lowest closing ask price of any of the market
makers for such security as reported in the "pink sheets" by Pink
Sheets LLC (formerly the National Quotation Bureau, Inc.). If VWAP cannot be
calculated for such security on such date on any of the foregoing bases, the
VWAP of such security on such date shall be the fair market value as mutually
determined by the Company and the Holder. If the Company and the Holder are
unable to agree upon the fair market value of such security, then such dispute
shall be resolved in accordance with the procedures in Section 13. All such
determinations shall be appropriately adjusted for any stock dividend, stock
split, stock combination or other similar transaction during such period.
[signature page follows]
24
IN WITNESS WHEREOF, the Company has caused this Warrant to Purchase
Common Stock to be duly executed as of the Issuance Date set out above.
                                                                         SOCKET MOBILE, INC.
                                                                        By:_________________________
                                                                              Name:
                                                                              Title:
EXHIBIT A
EXERCISE NOTICE
TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS
WARRANT TO PURCHASE COMMON STOCK
SOCKET MOBILE, INC.
The undersigned holder hereby exercises the right to purchase _________________ of the shares of Common Stock ("Warrant Shares") of Socket Mobile, Inc., a Delaware corporation (the "Company"), evidenced by Warrant to Purchase Common Stock No. _______ (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.
In the event that the Holder has elected a Cashless Exercise with respect to
some or all of the Warrant Shares to be issued pursuant hereto, the Holder hereby
represents and warrants that (i) this Exercise Notice was executed by the Holder
at __________ [a.m.][p.m.] on the date set forth below and (ii) if applicable,
the Bid Price as of such time of execution of this Exercise Notice was $________.
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 Aggregate Exercise Price in the sum
of $___________________ to the Company in accordance with the terms of the Warrant.
3. Delivery of Warrant Shares. The Company shall deliver to Holder,
or its designee or agent as specified below, __________ Warrant Shares in accordance
with the terms of the Warrant. Delivery shall be made to Holder, or for its
benefit, to the following address:
_______________________
_______________________
_______________________
4. Maximum Percentage. Notwithstanding anything to the contrary contained
herein, this Exercise Notice shall constitute a representation by the Holder
of the Warrant submitting this Exercise Notice that, after giving effect to
the conversion provided for in this Exercise Notice , such Holder (together
with its affiliates) will not have beneficial ownership (together with the beneficial
ownership of such Person's affiliates) of a number of Common Shares which exceeds
the Maximum Percentage (as defined in the Warrant) of the total outstanding
Common Shares of the Company as determined pursuant to the provisions of Section
1(f) of the Warrant.
Date: _______________ __, ______
______________________________
Name of Registered Holder
By: ___________________________
      Name:
      Title:
EXHIBIT B
ACKNOWLEDGMENT
The Company hereby acknowledges this Exercise Notice and hereby directs ______________ to issue the above indicated number of shares of Common Stock in accordance with the Transfer Agent Instructions dated _________, 20__, from the Company and acknowledged and agreed to by _______________.
                                                                         SOCKET MOBILE, INC.
                                                                        By:_________________________
                                                                              Name:
                                                                              Title: