EXHIBIT 10.4
THIS SECURITY HAS NOT BEEN REGISTERED UNDER EITHER THE SECURITIES ACT OF 1933,
AS AMENDED (THE “ACT”), OR APPLICABLE BLUE SKY LAWS, AND IS SUBJECT TO CERTAIN
INVESTMENT REPRESENTATIONS. THIS SECURITY MAY NOT BE SOLD, OFFERED FOR SALE OR
TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION UNDER THE ACT AND
APPLICABLE BLUE SKY LAWS, OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY
THAT SUCH REGISTRATION IS NOT REQUIRED.
Warrant No.                     
WARRANT TO PURCHASE CAPITAL STOCK
of
DIGITILITI, INC.
a Delaware corporation
Void after January __, 2016
This certifies that, for value received,
[                                        ], or his, her or its successors or
assigns (“Holder”), is entitled during the Exercise Period (as defined below),
subject to the terms set forth below, to purchase from Digitiliti, Inc., a
Delaware corporation (the “Company”), up to [                    ] shares of
Common Stock, par value $.001 per share, of the Company (“Common Stock”) at the
price of $0.30 per share, subject to adjustment as set forth below (the
“Purchase Price”), upon surrender of this Warrant at the principal office of the
Company referred to below, with the subscription form attached hereto (the
“Subscription Form”) duly executed, and simultaneous payment therefor in the
manner specified in Section 1 or in accordance with Section 5. The Purchase
Price and the number of shares of capital stock purchasable hereunder are
subject to adjustment as provided in Section 3. This Warrant is one of the
warrants (collectively, the “Warrants”) referred to and issued pursuant to that
certain Convertible Promissory Note and Warrant Purchase Agreement dated as of
January  _____, 2011 (the “Purchase Agreement”).
As used herein, “Exercise Date” means the particular date (or dates) on which
this Warrant is exercised. “Exercise Period” means the period during which this
Warrant is exercisable; such period shall begin on the date hereof and shall end
at 6:00 p.m., Central Daylight Time, on January  _____, 2016. “Issue Date” means
the date hereof, January  _____, 2011. “Warrant” includes this Warrant and any
warrant delivered in substitution or exchange therefor as provided herein.
“Warrant Shares” means any shares of capital stock acquired by Holder upon
exercise of this Warrant.
1. Exercise.
(a) This Warrant may be exercised, in whole or in part, at any time or from time
to time, on any business day during the Exercise Period, for all or any part of
the number of shares of capital stock called for hereby, by surrendering it at
the principal office of the Company at 266 East 7th Street, Saint Paul, MN
55101, together with an executed Subscription Form which is completed in
accordance with Section 5, or which is accompanied by a check in an amount equal
to (i) the number of Warrant Shares being purchased, multiplied by (ii) the
Purchase Price.
(b) This Warrant may be exercised for less than the full number of Warrant
Shares as of the Exercise Date. Upon such partial exercise, this Warrant shall
be surrendered, and a new Warrant of the same tenor and for the purchase of the
Warrant Shares not purchased upon such exercise shall be issued to Holder by the
Company.

 

 

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(c) A Warrant shall be deemed to have been exercised immediately prior to the
close of business on the date of its surrender for exercise as provided above,
and the person entitled to receive the Warrant Shares issuable upon such
exercise shall be treated for all purposes as the holder of such shares of
record as of the close of business on such date. As soon as practicable on or
after such date, and in any event within five business days thereafter, the
Company shall issue and deliver to the person or persons entitled to receive the
same a certificate or certificates for the number of full shares of capital
stock issuable upon such exercise, together with cash, in lieu of any fraction
of a share, equal to such fraction of the current fair market value of one full
share as reasonably determined in good faith by the Company’s Board of Directors
(the “Board”).
2. Payment of Taxes. All shares of capital stock issued upon the exercise of
this Warrant shall be validly issued, fully paid and non-assessable and the
Company shall pay all taxes and other governmental charges that may be imposed
in respect of the issue or delivery thereof, other than any tax or other charge
imposed in connection with any transfer involved in the issue of any certificate
for shares of capital stock in any name other than that of the registered Holder
of this Warrant surrendered in connection with the purchase of such shares, and
in such case the Company shall not be required to issue or deliver any stock
certificate until such tax or other charge has been paid or it has been
established to the Company’s satisfaction that no tax or other charge is due.
3. Certain Adjustments.
(a) Adjustment for Reorganization, Consolidation, Merger. In case of any
reclassification or change of outstanding Company securities, or of any
reorganization of the Company (or any other entity, the stock or securities of
which are at the time receivable upon the exercise of this Warrant) or any
similar corporate reorganization on or after the date hereof, then and in each
such case Holder, upon the exercise hereof at any time after the consummation of
such reclassification, change, reorganization, merger or conveyance, shall be
entitled to receive, in lieu of the stock or other securities and property
receivable upon the exercise hereof prior to such consummation, the stock or
other securities or property to which Holder would have been entitled upon such
consummation if Holder had exercised this Warrant immediately prior thereto, the
terms of this Section 3 shall be applicable to the Company securities properly
receivable upon the exercise of this Warrant after such consummation.
(b) Adjustments for Dividends in Common Stock. In case at any time after the
Issue Date the Company shall declare any dividend on the Common Stock (or any
other securities that are at the time receivable upon the exercise of this
Warrant) which is payable in shares of Common Stock (or any other securities
that are at the time receivable upon the exercise of this Warrant), the number
of Warrant Shares issuable upon exercise of this Warrant shall be
proportionately increased and the Purchase Price shall be proportionately
decreased.
(c) Stock Split and Reverse Stock Split. If the Company at any time or from time
to time after the Issue Date effects a subdivision of the Common Stock (or any
other securities that are at the time receivable upon exercise of this Warrant),
the Purchase Price shall be proportionately decreased and the number of Warrant
Shares issuable upon exercise of this Warrant shall be proportionately
increased. If the Company at any time or from time to time after the Issue Date
combines the outstanding shares of Common Stock (or any other securities that
are at the time receivable upon exercise of this Warrant) into a smaller number
of shares, the Purchase Price shall be proportionately increased and the number
of Warrant Shares issuable upon exercise of this Warrant shall be
proportionately decreased. Each adjustment under this Section 3(c) shall become
effective at the close of business on the date the subdivision or combination
becomes effective.

 

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(d) Accountants’ Certificate as to Adjustment. In each case of an adjustment in
the shares of capital stock receivable on the exercise of this Warrant, if
Holder so requests in writing, the Company at its expense shall cause
independent public accountants of recognized standing selected by the Company
(who may be the independent public accountants then auditing the books of the
Company) to compute such adjustment in accordance with the terms of this Warrant
and prepare a certificate setting forth such adjustment and showing the facts
upon which such adjustment is based. The Company will promptly thereafter mail a
copy of each such certificate to each holder of a Warrant at the time
outstanding.
(e) Rights Under Warrant Agreement. The Company will not, by amendment of its
Certificate of Incorporation, as amended, or through reorganization,
consolidation, merger, dissolution, issue or sale of securities, sale of assets
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
action as may be necessary or appropriate in order to protect the rights of the
holders of the Warrants under this Warrant Agreement.
4. Notices of Record Date. If either (a) the Company shall take a record of the
holders of its Common Stock (or other stock or securities at the time receivable
upon the exercise of the Warrants) for the purpose of entitling them to receive
any dividend or other distribution, or any right to subscribe for or purchase
any shares of stock of any class or any other securities, or to receive any
other right; or (b) the Company undertakes a voluntary dissolution, liquidation
or winding-up of the Company, then, and in each such case, the Company shall
mail or cause to be mailed to each holder of a Warrant at the time outstanding a
notice specifying, as the case may be, (1) the date on which a record is to be
taken for the purpose of such dividend, distribution or right, and stating the
amount and character of such dividend, distribution or right, or (2) the date on
which such reorganization, reclassification, consolidation, merger, conveyance,
dissolution, liquidation or winding-up is to take place, and the time, if any is
to be fixed, as of which the holders of record of Common Stock (or such stock or
securities at the time receivable upon the exercise of the Warrants) shall be
entitled to exchange their shares of Common Stock (or such other stock or
securities) for securities or other property deliverable upon such
reorganization, reclassification, consolidation, merger, conveyance,
dissolution, liquidation or winding-up. Such notice shall be mailed at 30 days
prior to the date therein specified.
5. Cashless Exercise.
(a) Holder may, at its option, in lieu of paying the Purchase Price upon
exercise of this Warrant pursuant to Section 1, elect to instead receive a
number of Warrant Shares computed using the following formula:
X = Y(A-B)
      A
where: X = the number of Warrant Shares issuable to Holder upon exercise under
this Section 5; Y = the number of Warrant Shares requested by Holder on the
Subscription Form; A = the Fair Market Value (as defined below) of one share of
Common Stock (or such stock or securities at the time receivable upon exercise
of this Warrant) as of the exercise date; and B = the Purchase Price.

 

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(b) As used in this Section 5, “Fair Market Value” of a share of capital stock
on any particular date shall mean:
(i) if the exercise is in connection with a liquidation, dissolution or winding
up (as defined in the Certificate of Incorporation), the fair market value of
the Warrant Shares shall be deemed to be the value received by the holders of
such stock pursuant to such liquidation, dissolution or winding up; or
(ii) if the exercise is not in connection with a liquidation, dissolution or
winding up, and the capital stock is traded publicly on an exchange or national
quotation system, the average of the closing bid and asked prices of the
Company’s capital stock quoted in the over-the-counter market summary or the
closing price quoted on any exchange on which the common stock is listed,
whichever is applicable, as published in the Midwest Edition of the Wall Street
Journal (or other reliable source if such quote is not available in the Wall
Street Journal) for the ten trading days immediately prior to but not including
the date of determination of the Fair Market Value; or
(iii) if (i) or (ii) is not applicable, the fair market value of the Warrant
Shares thereof, as mutually determined by the Company and Holder or, if the
Company and Holder are unable to reach such agreement, as determined by a
nationally recognized independent investment banker or valuation consultant
(which has not been retained by the Company or any of its affiliates for the two
years preceding such determination) selected in good faith by the Board.
6. Put Right. In connection with a bona fide business acquisition of the
Company, whether by merger, consolidation, sale of assets, sale or exchange of
shares or otherwise (an “Acquisition”), upon the written request of Holder, the
Company (or its successor entity) shall purchase this Warrant from Holder
contemporaneously with the closing of the Acquisition by paying to Holder cash
in an amount equal to the Black Scholes Value obtained from the “OV” function on
the Bloomberg Financial Markets of the remaining unexercised portion of this
Warrant on the date immediately prior to the date on which the Acquisition is
consummated. The Company will provide Holder notice of a pending Acquisition not
less than 20 nor more than 60 days prior to the closing thereof; provided,
however, nothing herein shall obligate the Company to provide Holder with
material, non-public information.
7. No Rights as Shareholder. Prior to the exercise of this Warrant, Holder shall
not be entitled to any rights of a shareholder with respect to the Warrant
Shares, including without limitation the right to vote such Warrant Shares,
receive dividends or other distributions thereon or be notified of shareholder
meetings, and Holder shall not be entitled to any notice or other communication
concerning the business or affairs of the Company. However, nothing in this
Section 7 shall limit the right of Holder to be provided the notices required
under this Warrant. In addition, nothing contained in this Warrant shall be
construed as imposing any liabilities on Holder to purchase any securities (upon
exercise of this Warrant or otherwise) or as a shareholder of the Company,
whether such liabilities are asserted by the Company or by creditors of the
Company.
8. Compliance with Securities Act. Holder, by acceptance hereof, agrees that
this Warrant and the Warrant Shares to be issued upon exercise hereof are being
acquired for investment and not with a view towards resale and that it will not
offer, sell or otherwise dispose of this Warrant or any Warrant Shares to be
issued upon exercise hereof except under circumstances which will not result in
a violation of the Act. Upon exercise of this Warrant, Holder shall confirm in
writing, in the form of Exhibit A, that the Warrant Shares so purchased are
being acquired for investment and not with a view toward distribution or resale.
This Warrant and all shares of Warrant Shares issued upon exercise of this
Warrant (unless registered under the Act) shall be stamped or imprinted with the
legend indicated on the first page of this Warrant.

 

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9. Loss or Mutilation. Upon receipt by the Company of evidence satisfactory to
it (in the exercise of reasonable discretion) of the ownership of and the loss,
theft, destruction or mutilation of any Warrant and (in the case of loss, theft
or destruction) of indemnity satisfactory to it (in the exercise of reasonable
discretion), and (in the case of mutilation) upon surrender and cancellation
thereof, the Company will execute and deliver in lieu thereof a new Warrant of
like tenor.
10. Notices. All notices, requests, demands, approvals, consents, and other
communications which are required or may be given hereunder shall be (a) in
writing; (b) addressed to the address furnished to the Company by Holder, unless
Holder notifies the Company of a change of address (in which case the latest
noticed address shall be used); and (c) deemed to have been duly given (i) on
the date given by hand delivery or facsimile, or (ii) the day after deposit with
a recognized overnight courier; provided that if the actual or deemed notice
date is not a business day, the date of actual or deemed notice shall be the
next business day thereafter.
11. Change; Waiver. Neither this Warrant nor any term hereof may be changed,
waived, discharged or terminated orally, but only by an instrument in writing
signed by the Company and the Majority Noteholders (as defined in the Purchase
Agreement).
12. Headings. The headings in this Warrant are for purposes of convenience in
reference only, and shall not be deemed to constitute a part hereof.
13. Governing Law. This Warrant is delivered in Minnesota and shall be construed
and enforced in accordance with and governed by the internal laws, and not the
law of conflicts thereof.

 

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IN WITNESS WHEREOF, the Company has caused its duly authorized officer to
execute this Warrant as of the date first above written.

                      COMPANY:    
 
                    DIGITILITI, INC.    
 
               
 
  By:                          
 
      Name:        
 
      Its:  
 
   
 
         
 
   

[Signature Page to Warrant]

 

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EXHIBIT A
SUBSCRIPTION FORM
(To be executed only upon exercise of Warrant)
The undersigned registered owner of this Warrant irrevocably exercises this
Warrant and purchases _________________of the number of shares of Common Stock
of DIGITILITI, INC., a Delaware corporation, purchasable with this Warrant, and
herewith (check one of the following)

  (a) ________  
makes payment therefore in the amount of $_________; or
    (b) ________  
authorizes Digitiliti, Inc. to issue the shares in accordance with the Cashless
Exercise Provisions of Section 5 of the Warrant.

The undersigned hereby represents and warrants that the undersigned is acquiring
such shares for its own account for investment purposes only, and not for resale
or with a view to distribution of such shares or any part thereof.
Dated: ______________

         
 
 
 
(Signature of Registered Owner)    
 
       
 
 
 
(Street Address)    
 
       
 
 
 
(City), (State), (Zip)    

 

 

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FORM OF ASSIGNMENT
FOR VALUE RECEIVED the undersigned registered owner of this Warrant hereby
sells, assigns and transfers unto the Assignee named below all of the rights of
the undersigned under the within Warrant, with respect to the number of shares
of Common Stock set forth below:

                    Name of Assignee   Address   No. of Shares          

and does hereby irrevocably constitute and appoint _________ Attorney to make
such transfer on the books of DIGITILITI, INC., a Delaware corporation,
maintained for the purpose, with full power of substitution in the premises.
Dated: _______________

         
 
 
 
(Signature)    
 
           
 
(Print Name)
   
 
       
 
(Witness)
       
 
       
 
(Print Name)