Exhibit 10.23
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE
OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. THIS WARRANT AND
THE COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE
SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF
(A) AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS WARRANT
UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR
(B) AN EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS.
Right
to Purchase up to the Specified Number of Warrant Shares (as
defined below) of Common
Stock of Silicon Mountain Memory, Incorporated
(subject to adjustment as provided herein)
COMMON STOCK PURCHASE WARRANT
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Issue Date: April 23, 2008 |
Silicon Mountain Memory,
Incorporated, a corporation organized under the laws of the State
of Colorado (the “ Company ”), hereby certifies
that, for value received, LAURUS MASTER FUND, LTD., or assigns (the
“ Holder ”), is entitled, subject to the terms
set forth below, to purchase from the Company (as defined herein)
from and after the Issue Date of this Warrant and at any time or
from time to time thereafter, up to such number of fully paid and
non-assessable shares of Common Stock (as hereinafter defined),
$0.01 par value per share, equal to the Specified Number of Warrant
Shares. The term Specified Number of Warrant Shares means, on any
date on which the Company receives an Exercise Notice (as defined
below) from the Holder, the Specified Number of Warrant Shares
computed on any date of determination (each, an “Exercise
Determination Date”) using the following formula:
(A/B)
— A — C
Where (i) “A” equals the
number of shares of Common Stock outstanding on a Fully Diluted
Basis (as defined below) on the date of issuance of this Warrant,
(ii) “B” equals 75%; provided, that , in
the event that (a) a Permitted Exercise Date (as defined
below) does not occur on or prior to March 31, 2009 and the
Company’s performance, on a consolidated basis, as tested on
March 31, 2009, equals and/or is greater than each Targeted
Level for the Target Period, or (b) in the event of a Transfer
of Control Transaction is commenced on or before April 23,
2009, “B” shall mean 80%; and (iii) “C”
equals the aggregate number of shares of Common Stock, if any,
Holder has previously acquired upon exercise of any portion of this
Warrant prior to the applicable Exercise Determination Date (such
aggregate number, the “Previously Acquired Warrant
Shares”). The calculation of the Previously Acquired Warrant
Shares shall be adjusted upon the occurrence of any event described
in Section 4 hereof in the manner specified therein. The
number and character of such shares of Common Stock and the
applicable Exercise Price (as defined below) per share are subject
to further adjustment as provided herein.
As used herein the following terms,
unless the context otherwise requires, have the following
respective meanings:
(a) “ Common Stock
” means (i) the Company’s Common Stock, par value
$0.01 per share; and (ii) any other securities into which or
for which any of the securities described in the preceding clause
(i) may be converted or exchanged pursuant to a plan of
recapitalization, reorganization, merger, sale of assets or
otherwise.
(b) “ Company ”
means Silicon Mountain Memory, Incorporated and any person or
entity which shall succeed, or assume the obligations of, Silicon
Mountain Memory, Incorporated hereunder.
(c) “ Exercise Price
” means a price of $0.01 per share.
(d) “ Fully Diluted
Basis ” means all outstanding shares of Common Stock of
the Company plus all shares of Common Stock of the Company issuable
on conversion or exercise of securities convertible into or
exercisable for shares of Common Stock of the Company, regardless
of whether any payment must be made pursuant to such conversion or
exercise or whether any conversion or exercise price is above or
below the market price of the shares of Common Stock of the
Company.
(e) “ Other Securities
” means any stock (other than Common Stock) and other
securities of the Company or any other person (corporate or
otherwise) which the Holder at any time shall be entitled to
receive, or shall have received, on the exercise of this Warrant,
in lieu of or in addition to Common Stock, or which at any time
shall be issuable or shall have been issued in exchange for or in
replacement of Common Stock or Other Securities pursuant to
Section 4 or otherwise.
(f) “ Permitted Exercise
Date ” shall mean the first date upon which the Holder is
entitled to exercise all or a portion of this Warrant pursuant to
Section 1.1 below.
(g) “ Security Agreement
” shall mean that certain Security and Purchase Agreement
dated as of September 25, 2006 by and among Company, Silicon
Mountain Holdings, Inc. (“ SMH ”), VCI Systems,
Inc. (“ VCI ”) and Holder (as amended, restated,
modified and/or supplemented from time to time, the “
Security Agreement ”).
(h) “ Specifed Event of
Default ” shall mean an “Event of Default”
arising under Section 19(a) and/or 19(i) of the Security
Agreement.
(i) “ Targeted Level
” shall mean, each of the following financial calculations
for the applicable period calculated in a manner and supported by
appropriate backup which calculations shall exclude any non-cash
and/or non-cash cost, in each case, acceptable to Holder in its
sole discretion:
(i)
Consolidated EBITDA — $708,000
(ii)
Consolidated Revenue — $23,826,000
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(iii)
Net Income — ($1,090,000)
(iv)
Cashflow — ($182,000)
(j) “ Target Period
” shall mean the period commencing on April 1, 2008 and
continuing through and including March 31, 2009
(k) “ Transfer of Control
Transaction ” shall mean (A) any sale or transfer of
the Company’s Common Stock or the common stock of Silicon
Mountain Holdings, Inc. (“ Parent ”) or any
merger, consolidation, share exchange, or combination of the
Company or Parent with or into another entity, which in each case
results in the holders of the voting securities of the Company or
Parent outstanding immediately prior thereto owning immediately
thereafter less than a majority of the voting securities of the
Company, Parent or the surviving entity, as the case may be,
outstanding immediately after such sale, transfer, merger,
consolidation share exchange, or combination; (B) a sale of
all or substantially all of the assets of the Company or Parent,
including, without limitation, equity in subsidiaries held by the
Company and/or Parent.
1. Exercise of Warrant
.
1.1
Exercise Restriction . This Warrant may only be exercised in
whole or in part on and after the later of (i) the business
day immediately preceding the consummation of a Transfer of Control
Transaction with such exercise to be effective upon the date of
consummation of the Transfer of Control Transaction and
(ii) the first date upon which a Specified Event of Default
shall have occurred.
1.2
Number of Shares Issuable upon Exercise . From and after the
date hereof, the Holder shall be entitled to receive, upon exercise
of this Warrant in whole or in part, by delivery of an original or
fax copy of an exercise notice in the form attached hereto as
Exhibit A (the “ Exercise Notice ”),
shares of Common Stock of the Company, subject to adjustment
pursuant to Section 4.
1.3
Fair Market Value . For purposes hereof, the “Fair
Market Value” of a share of Common Stock as of a particular
date (the “ Determination Date ”) shall
mean:
(a)
If the Company’s Common Stock is traded on the American Stock
Exchange or another national exchange or is quoted on the National
or Capital Market of The Nasdaq Stock Market, Inc. (“
Nasdaq ”), then the closing or last sale price,
respectively, reported for the last business day immediately
preceding the Determination Date.
(b)
If the Company’s Common Stock is not traded on the American
Stock Exchange or another national exchange or on the Nasdaq but is
traded on the NASD Over The Counter Bulletin Board, then the mean
of the average of the closing bid and asked prices reported for the
last business day immediately preceding the Determination
Date.
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(c)
Except as provided in clause (d) below, if the Company’s
Common Stock is not publicly traded, then as the Holder and the
Company agree or in the absence of agreement by arbitration in
accordance with the rules then in effect of the American
Arbitration Association, before a single arbitrator to be chosen
from a panel of persons qualified by education and training to pass
on the matter to be decided.
(d)
If the Determination Date is the date of a liquidation, dissolution
or winding up, or any event deemed to be a liquidation, dissolution
or winding up pursuant to the Company’s charter, then all
amounts to be payable per share to holders of the Common Stock
pursuant to the charter in the event of such liquidation,
dissolution or winding up, plus all other amounts to be payable per
share in respect of the Common Stock in liquidation under the
charter, assuming for the purposes of this clause (d) that all
of the shares of Common Stock then issuable upon exercise of this
Warrant are outstanding at the Determination Date.
1.4
Company Acknowledgment . The Company will, at the time of
the exercise of this Warrant, upon the request of the Holder
acknowledge in writing its continuing obligation to afford to the
Holder any rights to which the Holder shall continue to be entitled
after such exercise in accordance with the provisions of this
Warrant. If the Holder shall fail to make any such request, such
failure shall not affect the continuing obligation of the Company
to afford to the Holder any such rights.
1.5
Trustee for Warrant Holders . In the event that a bank or
trust company shall have been appointed as trustee for the Holder
pursuant to Subsection 3.2, such bank or trust company shall have
all the powers and duties of a warrant agent (as hereinafter
described) and shall accept, in its own name for the account of the
Company or such successor person as may be entitled thereto, all
amounts otherwise payable to the Company or such successor, as the
case may be, on exercise of this Warrant pursuant to this
Section 1.
2. Procedure for
Exercise .
2.1
Delivery of Stock Certificates, Etc., on Exercise . The
Company agrees that the shares of Common Stock purchased upon
exercise of this Warrant shall be deemed to be issued to the Holder
as the record owner of such shares as of the close of business on
the date on which this Warrant shall have been surrendered and
payment made for such shares in accordance herewith. As soon as
practicable after the exercise of this Warrant in full or in part,
and in any event within three (3) business days thereafter,
the Company at its expense (including the payment by it of any
applicable issue taxes) will cause to be issued in the name of and
delivered to the Holder, or as the Holder (upon payment by the
Holder of any applicable transfer taxes) may direct in compliance
with applicable securities laws, a certificate or certificates for
the number of duly and validly issued, fully paid and
non-assessable shares of Common Stock (or Other Securities) to
which the Holder shall be entitled on such exercise, plus, in lieu
of any fractional share to which the Holder would otherwise be
entitled, cash equal to such fraction multiplied by the then Fair
Market Value of one full share, together with any other stock or
other securities and property (including cash, where applicable) to
which the Holder is entitled upon such exercise pursuant to
Section 1 or otherwise.
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2.2
Exercise .
(a)
Payment may be made either (i) in cash by wire transfer of
immediately available funds or by certified or official bank check
payable to the order of the Company equal to the applicable
aggregate Exercise Price, (ii) by delivery of this Warrant, or
shares of Common Stock and/or Common Stock receivable upon exercise
of this Warrant in accordance with the formula set forth in
subsection (b) below, or (iii) by a combination of any of
the foregoing methods, for the number of shares of Common Stock
specified in such Exercise Notice (as such exercise number shall be
adjusted to reflect any adjustment in the total number of shares of
Common Stock issuable to the Holder per the terms of this Warrant)
and the Holder shall thereupon be entitled to receive the number of
duly authorized, validly issued, fully-paid and non-assessable
shares of Common Stock (or Other Securities) determined as provided
herein.
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