COMMON STOCK PURCHASE WARRANT To Purchase ______ Shares of Common Stock of ARKADOS GROUP, INC.
EXHIBIT
4.2
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
To
Purchase ______ Shares of Common Stock of
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 the December 28, 2012
(the “Termination Date”) but not thereafter, to subscribe for and
purchase from Arkados Group, Inc. (formerly ▇▇▇▇▇▇.▇▇▇, Inc.), a Delaware
corporation (the “Company”), up to _________ shares (the “Warrant
Shares”) of Common Stock, par value $.0001 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, dated ________ 1 (the “Purchase Agreement”),
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
1
December 28, 2005
or June 30, 2006, as the case may be.
1
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); provided, however, within 5 Trading Days of the date
said Notice of Exercise is delivered to the Company, if this Warrant is
exercised in full, the Holder shall have surrendered this Warrant to the Company
and 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. 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.
b) Exercise
Price. The exercise price of the Common Stock under this Warrant
shall be $0.85, subject to adjustment hereunder (the
“Exercise Price”).
c) Cashless
Exercise. This Warrant may also be exercised, at the option of
the Holder 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)] by (A), where:
|
|
(A)
= the VWAP on the Trading Day immediately preceding the date of such
election;
|
|
|
(B) = the Exercise Price of this Warrant, as adjusted;
and
|
|
|
(X)
= 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.
|
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).
d) Exercise
Limitations. 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
2
issuance
after 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 the determination of such sentence 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), 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) 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) 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) may be waived by such
▇▇▇▇▇▇, at the election of such Holder, upon not less than 61 days’ prior notice
to the Company to change the Beneficial Ownership Limitation to
3
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 waived by such Holder. The provisions of this paragraph shall be
implemented in a manner otherwise than in strict conformity with the terms
of
this Section 2(d) 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.
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 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 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,
4
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.
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) 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, together with applicable confirmations
and other evidence reasonably requested by the Company. 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
5
entitled
to purchase upon such exercise, the Company shall pay a cash adjustment in
respect of such final fraction in an amount equal to such fraction multiplied
by
the Exercise Price.
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.
f) Redemption
at Election of ▇▇▇▇▇▇. If the Company shall agree to sell
substantially all of its assets in one or more transactions in which the
consideration consists solely of cash, cash equivalents, assumption of
indebtedness, or any combination thereof, the Holder shall have the right to
require the Company, by written notice to the Company, to redeem this Warrant,
in full and in cash, at the closing of such sale of assets. The
aggregate amount payable in full redemption of the Warrants required to be
redeemed upon such sale of assets shall be equal to the Warrant Cash Sale
Redemption Amount (as defined below). In the event that the Company
fails to pay the Warrant Cash Sale Redemption Amount within three business
days
of the closing of the sale transaction, interest shall accrue on the unpaid
Warrant Cash Redemption Amount at the rate of 18% per annum, or such lower
maximum amount of interest permitted to be charged under applicable law, until
the Warrant Cash Sale Redemption Amount is paid in full. Concurrently
with the payment in full of the Warrant Cash Sale Redemption Amount, the Holder
shall surrender this Warrant to or as directed by the Company (or the successor
company). The Holder may elect to exercise this Warrant
pursuant to Sections 2(a) or 2(c) hereof prior to actual payment in cash for
the
redemption.
g) Definitions
Applicable to Section 2(f). For the purposes of Section
2(f):
i. “Warrant
Cash Sale Redemption Amount” shall equal the sum of
(i) all unexercised Warrant Shares underlying this Warrant if the
Warrants were issued pursuant to a cashless exercise exercised on the date
the
redemption right hereunder is exercised based on the Effective Price (as defined
below) and (ii) all other amounts, costs, expenses and liquidated damages due
in
respect of this Debenture The “Effective Price” shall be the
cash consideration paid by the acquirer in such event (less the amount paid
in
redemption of the Debentures in
6
clause
(i) of the definition of Cash Sale Redemption Amount set forth therein) divided
by the sum of; (x) the issued and outstanding shares of Common Stock of the
Company then outstanding and (y) the shares of Common Stock into which the
outstanding Debentures may be converted on the day immediately preceding the
record date fixed for determining the holders of shares of Common Stock eligible
to receive a distribution (or if no such date has been fixed, the date of the
day immediately preceding the closing of the transaction) and (z) the number
of
shares deemed issuable to the Warrant holders pursuant to the mandatory
redemption provisions in this and the other Warrants which take effect upon
sale
of assets for cash consideration whether or not any Warrant holder shall have
elected to have their Warrants Redeemed; provided,
however, that the number of shares of Common Stock
issuable on conversion of the Debentures and issuable upon exercise of the
Warrants for this purpose shall be determined on a fully converted or exercised
basis and ignoring any conversion or exercise limitations therein.
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
pursuant to 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.
i. If
the
Company or any Subsidiary thereof, as applicable, at any time while this Warrant
is outstanding, shall (except for an Exempt Issuance) offer, sell, grant any
option to purchase or offer, 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”), as
7
adjusted
hereunder (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 is 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.
ii. If
the
Company or any Subsidiary there, as applicable, at any time while this Warrant
is outstanding, shall offer, sell, grant any option to purchase or offer, 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
VWAP on either the Trading Day immediately prior to the date agreements for
such
issuance are entered into or the date such issuance is consummated, whichever
results in a higher VWAP, but more than the then effective Exercise Price (which
is addressed in 3(b)(i) above) (such lower price, the “Market Base Price”
and such issuances collectively, a “Market Dilutive Issuance”), as
adjusted hereunder (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 is 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 Market Dilutive Issuance) then the Exercise Price shall be
reduced to a price determined by multiplying the then effective Exercise Price
by a fraction, the numerator of which is the number of shares of Common Stock
issued and outstanding immediately prior to the Market Dilutive Issuance plus
the number of shares of Common Stock which the aggregate offering price for
such
Market Dilutive Issuance would purchase at the then Market Base Price, and
the
denominator of which shall be the sum of the number of shares of Common Stock
issued and outstanding immediately prior to the Market Dilutive Issuance plus
the number of shares of Common Stock so issued or issuable in connection with
the Market Dilutive Issuance 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..
iii. Such
adjustments shall be made whenever such Common Stock or Common Stock Equivalents
are issued. Notwithstanding the foregoing, no
8
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, indicating therein the applicable issuance
price, or of 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 or Market Dilutive Issuance, as
applicable, after the date of such Dilutive Issuance or Market Dilutive
Issuance, as applicable, the Holder is entitled to receive a number of Warrant
Shares based upon the Base Share Price or the price determined pursuant to
3(b)(ii), as applicable, regardless of whether the Holder accurately refers
to
the Base Share Price or such price determined pursuant to 3(b)(ii) in the Notice
of Exercise.
c) 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.
d) 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 (in any such case, a “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, at the option of the Holder, (a) upon exercise of
this
Warrant, the number of shares of Common Stock of the successor or acquiring
corporation or of the Company, if
9
it
is the
surviving corporation, and any additional consideration (the “Alternate
Consideration”) receivable upon or as a result of such reorganization,
reclassification, 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 or (b) if the Company is acquired in an all
cash
transaction, cash equal to the value of this Warrant as determined in accordance
with the Black-Scholes option pricing formula. 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(d) and insuring that this Warrant (or
any
such replacement security) will be similarly adjusted upon any subsequent
transaction analogous to a Fundamental Transaction.
e) 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.
f) 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.
g) Notice
to Holders.
i. Adjustment
to Exercise Price. Whenever the Exercise Price is adjusted pursuant to this
Section 3, the Company shall promptly mail to each 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 issues a variable rate
security, 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 in the case of a Variable Rate Transaction (as defined
in
the Purchase Agreement).
10
ii. Notice
to Allow Exercise by ▇▇▇▇▇▇. If (A) the Company shall declare a dividend (or
any other distribution) 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.
Section
4. Transfer
of Warrant.
a) Transferability. Subject
to compliance with any applicable securities laws and the conditions set forth
in Sections 5(a) and 4(d) hereof and to the provisions of Section 4.1 of the
Purchase Agreement, this Warrant and all rights hereunder are transferable,
in
whole or in part, upon surrender of this Warrant at the principal office of
the
Company, 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
11
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 (i) that 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, (ii) that the holder or
transferee execute and deliver to the Company an investment letter in form
and
substance acceptable to the Company and (iii) that 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) under the Securities Act.
Section
5. Miscellaneous.
a) Title
to Warrant. Prior to the Termination Date and subject to
compliance with applicable laws and Section 4 of this Warrant, this Warrant
and
all rights hereunder are transferable, in whole or in part, at the office or
agency of the Company by the Holder in person or by duly authorized attorney,
upon surrender of this Warrant together with the Assignment Form annexed hereto
properly endorsed. The transferee shall sign an investment letter in
form and substance reasonably satisfactory to the Company.
b) 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. Upon the surrender of this
Warrant and the payment of the aggregate Exercise Price (or by means of a
cashless exercise), the Warrant Shares so purchased shall be and be deemed
to be
issued to such Holder as the record owner of such shares as of the close of
business on the later of the date of such surrender or payment.
12
c) 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.
d) 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 be a Saturday, Sunday or a legal holiday, then such action may be taken
or
such right may be exercised on the next succeeding day not a Saturday, Sunday
or
legal holiday.
e) 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.
13
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.
f) 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.
g) 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.
h) 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.
i) 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.
j) Limitation
of Liability. No provision hereof, in the absence of any
affirmative action by Holder to exercise this Warrant or 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.
k) 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 the defense in
any
action for specific performance that a remedy at law would be
adequate.
l) 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.
14
m) Amendment. This
Warrant may be modified or amended or the provisions hereof waived with the
written consent of the Company and the Holders of [60%] of the then
outstanding Warrants.
n) 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.
o) 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.
********************
15
IN
WITNESS WHEREOF, the Company has caused this Warrant to be executed by its
officer thereunto duly authorized.
Dated: __________________
| ARKADOS GROUP, INC. | |||
|
|
By:
|
/s/ | |
| Name: ▇▇▇▇▇▇▇ ▇▇▇▇-▇▇▇▇▇ | |||
| Title: Chief Financial Officer | |||
16
NOTICE
OF EXERCISE
(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
[
] 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:
_______________________________
_______________________________
_______________________________
(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, 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.