Exhibit 10.3
Form 8-K
Viking Systems, Inc.
File No. 000-49636
THE SALE AND ISSUANCE OF THE SECURITIES REPRESENTED BY THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
UNDER THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION. THESE SECURITIES
MAY NOT BE OFFERED, SOLD, PLEDGED, OR TRANSFERRED, UNLESS A REGISTRATION
STATEMENT UNDER THE ACT IS IN EFFECT AS TO THESE SECURITIES OR AN EXEMPTION FROM
SUCH REGISTRATION REQUIREMENTS IS AVAILABLE, AND SUCH OFFER, SALE, PLEDGE, OR
TRANSFER IS IN COMPLIANCE WITH APPLICABLE SECURITIES LAWS OF ANY STATE OR OTHER
JURISDICTION.
WARRANT TO PURCHASE COMMON STOCK
of
VIKING SYSTEMS, INC.
This certifies that ST. CLOUD CAPITAL PARTNERS, L.P., and its assignees
(the "Holder") are entitled, subject to the terms set forth below, to purchase
from Viking Systems, Inc., a Nevada corporation (the "Company"), Nine Hundred
Thirty-Seven Thousand Five Hundred (937,500) shares (the "Warrant Shares") of
common stock, $.001 par value, of the Company (the "Common Stock") upon
surrender of this warrant at the principal office of the Company referred to
below, together with a notice of exercise in the form of annex 1 duly completed
and executed (the "Notice of Exercise"), and simultaneous payment for the
Warrant Shares in lawful money of the United States, or otherwise as provided
below, at the exercise price referred to in section 2. This warrant is issued to
the Holder pursuant to the terms and conditions of that certain Securities
Purchase Agreement dated as of the date hereof, and any amendments, supplements
or addendums thereto (the "Securities Purchase Agreement") entered into by the
Company, the Lead Lender and Collateral Agent and those Persons described in the
Securities Purchase Agreement as an "Investor." Capitalized terms not otherwise
defined herein shall have the meanings ascribed to them in the Securities
Purchase Agreement.
1. Term. Subject to the terms set forth in this warrant, this warrant shall
be exercisable by the Holder, in whole or in part, at any time before 5:00 p.m.,
California time, on September 22, 2008 (the "Expiration Date"), and shall not be
exerciseable thereafter.
2. Exercise Price. The exercise price at which this warrant may be
exercised shall equal $.40 per share of Common Stock (the "Exercise Price"), as
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adjusted from time to time pursuant to section 9. If the Exercise Price is
reduced, it is referred to as the "Adjusted Exercise Price."
3. Exercise of Warrant. This warrant is exercisable by the Holder in whole
at any time or in part from time to time by the surrender of this warrant and
the Notice of Exercise duly completed and executed by the Holder, at the
principal office of the Company, and upon payment to the Company by wire
transfer of the exercise price referred to in section 2 provided that the
warrant is exercised for at least 25% of the Warrant Shares. If this warrant
shall be exercised in part only, the Company shall, upon surrender of this
warrant for cancellation, issue to or on the order of the Holder a new warrant
evidencing the rights of the Holder thereof to purchase the balance of the
Warrant Shares purchasable hereunder as to which the warrant has not been
exercised.
4. Fractional Shares. No fractional shares shall be issued upon exercise of
this warrant. At the Company's sole discretion, in lieu of any fractional share
to which the Holder would otherwise be entitled, the Company may make a cash
payment equal to the fair market value of a share of Common Stock on the date of
exercise multiplied by that fraction.
5. Replacement of Warrant. On receipt of evidence reasonably satisfactory
to the Company of the loss, theft, destruction, or mutilation of this warrant
and, in the case of loss, theft, or destruction, on delivery of an indemnity
agreement reasonably satisfactory in form and substance to the Company or, in
the case of mutilation, on surrender and cancellation of this warrant, the
Company, at its expense, shall execute and deliver, in lieu of this warrant, a
new warrant of identical tenor and amount.
6. Rights of Stockholders. The Holder, as such, shall not be entitled to
vote or receive dividends or be deemed the holder of Common Stock or any other
securities of the Company that may at any time be issuable on the exercise of
this warrant for any purpose, nor shall anything in this warrant be construed to
confer upon the Holder, as such, any rights of a stockholder of the Company or
any right to vote for the election of directors or upon any matter submitted to
stockholders at any meeting, or to give or withhold consent to any corporate
action or to receive notice of meetings, or to receive dividends or subscription
rights or otherwise, until this warrant shall have been exercised.
7. Transfers. The Holder may transfer this warrant by executing an
assignment in the form of annex 2 and delivering this warrant and the executed
assignment form in the same manner as a negotiable instrument. The Company, on
surrender of this warrant for exchange properly endorsed on the assignment form
and at its expense, shall issue to or on the order of the Holder a new warrant
or warrants of like tenor, in the name of the Holder or as the Holder may direct
(on payment by the Holder of any applicable transfer taxes), for the number of
shares then issuable upon exercise of this warrant. The Holder, by acceptance of
this warrant, acknowledges that this warrant and the shares of Common Stock to
be issued upon exercise of this warrant are being or will be acquired by the
Holder for investment, and that the Holder shall not offer, sell, or otherwise
dispose of this warrant or any shares of Common Stock to be issued upon exercise
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of this warrant, except under circumstances that will not result in a violation
of the Act or any state securities laws.
8. Reservation of Stock. As long as this warrant is exercisable, the
Company shall reserve and keep available, free from preemptive rights, out of
its authorized and unissued Common Stock a sufficient number of shares to
provide for the issuance of Common Stock upon the exercise in whole of this
warrant and, from time to time, shall take all steps necessary to amend its
certificate of incorporation to provide sufficient reserves of shares of Common
Stock issuable upon exercise in whole of this warrant. The Company covenants
that all Warrant Shares which may be issued upon exercise of this warrant will,
upon issue and full payment thereof by Holder in accordance with the terms of
this warrant, be fully paid, nonassessable, free of preemptive rights and free
from all taxes, liens, charges and security interests with respect to the issue
thereof.
9. Adjustments. The Exercise Price in effect at any time and the number and
kind of securities issuable upon exercise of this warrant shall be subject to
adjustment from time to time upon the happening of certain events as follows:
(a) New Issuances. If, at any time after the issuance of this warrant
and prior to the Expiration Date, the Company issues or sells any shares of
Common Stock, or any warrants, options or other rights to purchase Common
Stock (a "New Issuance"), for a consideration per share (the "New Issuance
Price"), which is less than the lower of (x) the "Initial Base Price" (as
defined below) or (y) the "Adjusted Base Price" (as defined below), the
Exercise Price of this warrant shall be reduced to an amount equal to the
product of (A) the Exercise Price in effect immediately prior to the New
Issuance and (B) an amount determined by dividing the New Issuance Price by
the lower of the Initial Base Price or the Adjusted Base Price.
(i) For purposes of this Agreement, the "Initial Base Price"
shall be $.20 per share. The Initial Base Price shall be reduced to
the New Issuance Price if the New Issuance Price is less than the
Initial Base Price. The result of such reduction is referred to as the
"Adjusted Base Price." An example of the adjustments required by this
section 9(a) is as follows:
At a time when the Exercise Price is $.40 per share and the
Initial Base Price is $.20 per share, the Company sells shares of
Common Stock at $.15 per share (i.e., the New Issuance Price).
The Exercise Price of the warrant shall be reduced as follows:
$.40 x ($.15 / $.20) = $.30, the new Exercise Price.
Thereafter, the Adjusted Base Price is $.15 per share. If the
Company then sells shares of its Common Stock at $.12 per share (i.e.,
the New Issuance Price), the Exercise Price of the warrant shall be
reduced as follows:
$.30 x ($.12 / $.15) = $.24, the new Exercise Price.
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(ii) For purposes of this Agreement, the New Exercise Price of a
warrant, option or other right to purchase shares of the Common Stock
shall be the exercise or conversion price of such warrant, option or
other right plus any consideration paid to acquire such warrant,
option or other right.
(iii) Notwithstanding anything in this Agreement to the contrary,
the issuance of any shares of Common Stock to the Investors under the
terms of the Securities Purchase Agreement shall not affect the
Exercise Price or the Initial Base Price or Adjusted Base Price for
purposes of this section 9(a).
(b) Splits and Subdivisions. If the Company should at any time or from
time to time prior to the Expiration Date fix a record date for the
effectuation of a split or subdivision of the outstanding shares of Common
Stock or the determination of the holders of Common Stock entitled to
receive a dividend or other distribution payable in additional shares of
Common Stock or other securities or rights convertible into, or entitling
the holder thereof to receive directly or indirectly, additional shares of
Common Stock (hereinafter referred to as the "Warrant Stock Equivalents")
without payment of any consideration by such holder for the additional
shares of Common or Warrant Stock Equivalents, then, as of such record date
(or the date of such distribution, split or subdivision if no record date
is fixed), the Exercise Price shall be proportionately decreased and the
number of shares of Common Stock which this warrant is exercisable for, if
any, shall be appropriately increased in proportion to such increase of
outstanding shares.
(c) Combination of Shares. If prior to the Expiration Date, the number
of shares of Common Stock outstanding at any time after the date hereof is
decreased by a combination of the outstanding shares of Common Stock, the
Exercise Price shall be proportionately increased and the number of shares
of Common Stock which this warrant is exercisable for, if any, shall be
appropriately decreased in proportion to such decrease in outstanding
shares.
(d) Reorganization, Merger, Consolidation or Sale. If at any time or
from time to time prior to the Expiration Date, there shall be a capital
reorganization (other than a subdivision, combination, reclassification or
exchange of shares provided for elsewhere in this Section 9) or a merger or
consolidation of the Company with or into another corporation, or the sale
or transfer of all or substantially all of the Company's assets to another
Person shall be effected in such a way that holders of shares of Common
Stock shall be entitled to receive stock, securities or assets with respect
to or in exchange for their shares of Common Stock, then as a part of such
reorganization, merger, consolidation, sale or transfer, provision shall be
made so that the Holder shall thereafter be entitled to receive upon the
exercise of this warrant, the number of shares of stock or other securities
or property of the Company, or of the successor corporation resulting from
such reorganization, merger, consolidation, sale or transfer, to which a
holder of the number of shares of Common Stock (or any shares of stock or
other securities which may be) issuable upon the exercise of this warrant
would have received if this warrant had been exercised immediately prior to
such reorganization, merger, consolidation, sale or transfer. The Company
will not effect any such consolidation, merger, sale or transfer unless
prior to the consummation thereof the successor entity (if other than the
Company) resulting from such consolidation, merger or the entity purchasing
such assets shall assume by written instrument (i) the obligation to
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deliver to the Holder such securities or assets as, in accordance with the
foregoing provisions, the Holder may be entitled to purchase, and (ii) all
other obligations of the Company under this warrant. The provisions of this
section 9(d) shall similarly apply to successive consolidations, mergers,
exchanges, sales and transfers. In the event that in connection with any
such capital reorganization, consolidation, merger, sale or transfer,
additional shares of Common Stock shall be issued in exchange, conversion,
substitution or payment, in whole or in part, for a security of the Company
other than Common Stock, any such issue shall be treated as an issue of
Common Stock covered by the provisions of section 9(d) hereof.
(e) Reclassification, Conversion or Reorganization. If the Common
Stock (or any shares of stock or other securities which may be) issuable
upon the exercise of this Common shall be changed into the same or
different number of shares of any class or classes of stock, whether by
capital reorganization, conversion, reclassification or otherwise (other
than a subdivision or combination of shares or stock dividend provided for
in sections 9(b) and 9(c) above, or a reorganization, merger,
consolidation, sale or transfer provided for in section 9(d) above), then
and in each such event the Holder shall be entitled to receive upon the
exercise of this warrant the kind and amount of shares of stock and other
securities and property receivable upon such reorganization, conversion,
reclassification or other change, to which a holder of the number of shares
of Common Stock (or any shares of stock or other securities which may be)
issuable upon the exercise of this warrant would have received if this
warrant had been exercised immediately prior to such reorganization,
conversion, reclassification or other change, all subject to further
adjustment as provided herein.
(f) Notice of Adjustment. Upon any adjustment of the Exercise Price
and the number of Warrant Shares or other capital stock, as applicable,
issuable upon exercise of the warrant, then and in each such case the
Company, at its sole expense, shall give written notice thereof (i) by
certified or registered mail, postage prepaid, (ii) by a nationally known
overnight delivery service, or (iii) delivered by hand, addressed to the
Holder at his address as shown on the books of the Company, which notice
shall state the exercise price resulting from such adjustment and adjusted
number of Warrant Shares or other capital stock, as applicable, issuable
upon exercise of the warrant, setting forth in reasonable detail the method
upon which such calculation is based.
(g) Limitations on Adjustments. Anything in this warrant to the
contrary notwithstanding, no adjustment of the exercise price shall be
required, unless such adjustment, either by itself or with other
adjustments not previously made, would require a change of at least $0.01
in such exercise price; provided, that any adjustment that, by reason of
this section 9(g), is not required to be made shall be carried forward and
taken into account in any subsequent adjustment.
10. Early Termination. The Holder shall have no right to exercise this
warrant at any time after the later of (a) the consummation of a Termination
Event (as defined below), and (b) the 20th trading day following the date on
which the Company gives the Holder the written notice referred to in the next
sentence. The Company shall give the Holder not fewer than 20 trading days'
advance written notice of the consummation of a Termination Event. As used in
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this agreement, the term "Termination Event" means (y) the consummation of a
merger of the Company with an unaffiliated third party, in which the shares of
Common Stock are converted solely into the right to receive cash, or (z) if the
Common Stock is quoted on NASDAQ or the New York Stock Exchange (the "NYSE") or
American Stock Exchange (the "AMEX"), the average of the closing price of the
Common Stock on any 30 consecutive trading days on NASDAQ, the NYSE, or the
AMEX, as the case may be, during the exercise period equals or exceeds 300% of
the exercise price at which this warrant may then be exercised.
11. Equity Participation. This warrant is issued in connection with the
Securities Purchase Agreement. It is intended that this warrant constitute an
equity participation under California law and not constitute interest on the
Promissory Note. If under any circumstances whatsoever, fulfillment of any
obligation of this warrant, the Securities Purchase Agreement, or any other
agreement or document executed in connection with the Securities Purchase
Agreement, shall violate the lawful limit of any applicable usury statute or any
other applicable law with regard to obligations of like character and amount,
then the obligation to be fulfilled shall be reduced to such lawful limit, such
that in no event shall there occur, under this warrant, the Securities Purchase
Agreement, or any other document or instrument executed in connection with the
Securities Purchase Agreement, any violation of such lawful limit, but such
obligation shall be fulfilled to the lawful limit. If any sum is collected in
excess of the lawful limit, such excess shall be applied to reduce the principal
amount of the Promissory Note and, following full payment of the Promissory
Note, shall be returned to the Company.
12. Expenses. The Company shall pay all expenses and other charges payable
in connection with the preparation, issuance and delivery of this warrant and
all substitute warrants. and all taxes (other than any issuance taxes,
including, without limitation, documentary stamp taxes, transfer taxes and other
governmental charges, which shall be paid by the Company) in connection with
such issuance and delivery of this warrant and the Warrant Shares.
13. Severability. If any provision of this warrant or the application
thereof to any person or circumstances shall be invalid or unenforceable to any
extent, the remainder of this warrant and the application of such provisions to
other persons or circumstances shall not be affected thereby and shall be
enforced to the greatest extent permitted by law.
14. Amendments. This warrant may be amended only by an instrument executed
by the Company and the Holder.
15. Governing Law. This warrant shall be governed by and construed in
accordance with the law of the State of California, applicable to agreements
made and to be performed in California, without giving effect to its conflict of
laws principles.
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Dated: March 22, 2005
VIKING SYSTEMS, INC.
By: /s/ Thomas B. Marsh
Name: Thomas B. Marsh
Title: President and Chief
Executive Officer
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ANNEX 1
NOTICE OF EXERCISE
To: Viking Systems, Inc.
(1) The undersigned hereby irrevocably elects to purchase _________ shares
of Common Stock of Viking Systems, Inc. pursuant to the attached warrant, and
tenders payment of the purchase price for such shares by a cash payment of
$__________.
(2) In exercising the warrant, the undersigned hereby confirms and
acknowledges that the shares of Common Stock are being acquired for investment,
and that the undersigned shall not offer, sell, or otherwise dispose of any such
shares of Common Stock except under circumstances that will not result in a
violation of the Securities Act of 1933, as amended, or any state securities
laws.
(3) Please issue a certificate or certificates representing such shares of
Common Stock, and, to the extent the Company determines not to issue fractional
shares, pay any cash for any fractional share, to:
Name Address Number of Shares
---- ------- ----------------
(4) Please issue a new warrant for the unexercised portion of the attached
warrant in the name of the undersigned and/or, if the undersigned has completed
an assignment form in the form of annex 2 to the warrant, in such other names
and amounts as specified in the assignment form.
Dated:_________________________ Holder: ____________________________________
By: ____________________________________
Name:
Title:
ANNEX 2
ASSIGNMENT FORM
For value received, the undersigned registered owner of this warrant hereby
sells, assigns and transfers to the assignee named below all the rights of the
undersigned under the warrant attached to this assignment with respect to the
number of shares of Common Stock set forth below:
Name of Assignee Address Number of Shares
The undersigned represents and warrants to the Company that the assignee
has represented and warranted to the undersigned that (a) it is an "accredited
investor" within the meaning of Regulation D under the Securities Act of 1933,
as amended (the "Act"), (b) by reason of its business or financial experience,
it has the capacity to protect its own interests in connection with the
acquisition of this warrant and the underlying shares of Common Stock, and (c)
this warrant and the shares of Common Stock to be issued upon exercise of this
warrant are being acquired for investment and that it shall not offer, sell, or
otherwise dispose of this warrant or any shares of stock to be issued upon
exercise of this warrant, except under circumstances that will not result in a
violation of the Act or any state securities laws. Further, the undersigned
represents and warrants to the Company that it has furnished the assignee a copy
of this instrument, and the assignee has acknowledged that, upon exercise of
this warrant, the assignee shall, if requested by the Company, confirm in
writing, in a form satisfactory to the Company, that the shares of stock so
purchased are being acquired for investment and not with a view toward
distribution or resale in violation of the Act.
Dated: _________________________ Holder: ____________________________________
By: ____________________________________
Name:
Title: