Document:

ex4-1.htm

EXHIBIT 4.1

THIS WARRANT AND THE SECURITIES REPRESENTED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES ACT OF ANY STATE AND MAY NOT BE SOLD OR TRANSFERRED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACTS COVERING THIS WARRANT AND THE SECURITIES REPRESENTED BY THIS WARRANT OR PURSUANT TO AN EXEMPTION FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACTS.

BIOLARGO, INC.

[FORM OF] WARRANT TO PURCHASE COMMON STOCK

	
WARRANT NO. XXX

	
ISSUED:  XXXX, 2012

 

THIS CERTIFIES THAT, for value received,              XXXX          (the “Holder”), is entitled to subscribe for and purchase from BIOLARGO, INC., a corporation organized under the laws of the state of Delaware (the “Company”), subject to Section 1(b) hereof, commencing at the time periods prescribed herein and ending at 5:00 p.m. California time on March 31, 2014, XXXX shares (the “Shares”) of common stock, par value, $0.00067, of the Company (the “Common Stock”). The exercise price for each Share subject to this Warrant (the “Warrant Price”) is equal to $0.50. The number of Shares and the Warrant Price are subject to adjustment from time to time as provided in Section 4 of this Warrant.

This Warrant is issued in connection with and as consideration for the initial Holder’s purchase of common stock in the Company’s private securities offering dated May 14, 2012.

1.             Method of Exercise; Payment; Issuance of New Warrant.

 

(a) The purchase right represented by this Warrant may be exercised by the Holder, in whole or in part, subject to the limitation set forth below, and from time to time, by (i) the surrender of this Warrant (with a notice of exercise in the form attached hereto as Exhibit A, duly executed) at the principal office of the Company and (ii) the payment to the Company, by check or wire transfer of funds to an account specified in writing by the Company, of an amount equal to the aggregate Warrant Price. The Shares so purchased, representing the aggregate number of shares specified in the executed Exhibit A, shall be delivered to the Holder within a reasonable time, not exceeding ten (10) business days, after this Warrant shall have been so exercised. Upon receipt by the Company of this Warrant at the office of the Company, in proper form for exercise and accompanied by the amount equal to the aggregate Warrant Price, the Holder shall be deemed to be the holder of record of the Shares issuable upon such exercise, notwithstanding that the stock transfer books of the Company shall then be closed or that certificates representing such Shares shall not then be actually delivered to the Holder.

 

(b) If this Warrant shall have been exercised only in part, the Company shall, at the time of delivery of such Shares, deliver to the Holder a new Warrant evidencing the right to purchase the remaining Shares called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant, or, at the request of Holder, appropriate notation may be made on this Warrant which shall then be returned to Holder.

 

  

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2.             Stock Fully Paid; Reservation of Shares.  All Shares that may be issued upon the exercise of the rights represented by this Warrant will, upon issuance, be fully paid and nonassessable, and free from all preemptive rights, taxes, liens and charges with respect to the issue thereof; provided, however, that the Company shall not be required to pay any transfer taxes with respect to the issue of shares in any name other than that of the registered holder hereof.  During the period within which the rights represented by this Warrant may be exercised, the Company will at all times have authorized, and reserved for the purpose of the issue upon exercise of the purchase rights evidenced by this Warrant, a sufficient number of shares of Common Stock to provide for the exercise of the rights represented by this Warrant.  The Company shall at all times take all such action and obtain all such permits or orders as may be necessary to enable the Company lawfully to issue such Common Stock as duly and validly issued, fully paid and nonassessable shares upon exercise in full of this Warrant.

 

3.             Fractional Shares.  No fractional shares of Common Stock will be issued in connection with any exercise hereunder, but in lieu of such fractional shares the Company shall make a cash payment therefor upon the basis of the Fair Market Value of such Shares.

 

4.             Adjustment.  This Warrant shall be subject to adjustment from time to time upon the occurrence of certain events, as follows:

 

(a)      Adjustment for Stock Splits and Combinations.  If the Company shall at any time or from time to time after the date hereof effect a subdivision of the outstanding Common Stock, the Warrant Price then in effect immediately before that subdivision shall be proportionately decreased.  If the Company shall at any time or from time to time after the date hereof combine the outstanding Common Stock, the Warrant Price then in effect immediately before the combination shall be proportionately increased.  Any adjustment under this subsection shall become effective at the close of business on the date the subdivision or combination becomes effective.

 

(b)      Adjustment for Certain Dividends and Distributions.  In the event the Company at any time or from time to time after the date hereof shall make or issue a dividend or other distribution payable in additional shares of Common Stock, then and in each such event the Warrant Price shall be decreased as of the time of such issuance, by multiplying the Warrant Price by a fraction:

 

	
  

	
(x)

	
the numerator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance; and

 

	
  

	
(y)

	
the denominator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance plus the number of shares of Common Stock issuable in payment of such dividend or distribution.

(c)      Adjustment of Number of Shares.  Upon each adjustment of the Warrant Price pursuant to either Section 4(a) or 4(b) of this Warrant, the number of shares of Common Stock purchasable upon exercise of this Warrant shall be adjusted to the number of shares of Common Stock, calculated to the nearest one hundredth of a share, obtained by multiplying the number of shares of Common Stock purchasable immediately prior to such adjustment upon the exercise of the Warrant by the Warrant Price in effect prior to such adjustment and dividing the product so obtained by the new Warrant Price.

 

  

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(d)      Adjustment for Reclassification, Exchange and Substitution.  If the Common Stock issuable upon the exercise of this Warrant are changed into the same or different number of shares of any class or classes of stock, whether by recapitalization, reclassification or otherwise (other than a subdivision or combination provided for in Section 4(a) above, a dividend or distribution provided for in Section 4(b) above, or a reorganization, merger, consolidation or sale of assets, provided for in Section 4(e) below), then and in any such event the Holder shall have the right thereafter to exercise this Warrant into the kind and amount of stock and other securities receivable upon such recapitalization, reclassification or other change, by holders of the number of shares of Common Stock for which this Warrant might have been exercised immediately prior to such recapitalization, reclassification or change.

 

(e)      Reorganization, Mergers, Consolidations or Sales of Assets.  If at any time or from time to time there is a capital reorganization of the Common Stock (other than a subdivision or combination provided for in Section 4(a) above, a dividend or distribution provided for in Section 4(b) above, or a reclassification or exchange of shares provided for in Section 4(d) above) or a merger or consolidation of the Company with or into another entity, or a sale of all or substantially all of the Company’s properties and assets to any other person or entity, then, as a part of such reorganization, merger, consolidation or sale, provision shall be made so that the Holder shall thereafter be entitled to receive upon exercise of this Warrant the number of shares of stock or other securities, money or property of the Company, or of the successor entity resulting from such merger or consolidation or sale, to which a holder of Common Stock deliverable upon conversion would have been entitled on such capital reorganization, merger, consolidation, or sale.  The Company shall not effect any reorganization, merger, consolidation or sale unless prior to the consummation thereof each entity or person (other than the Company) that may be required to deliver any cash, securities or other property upon the exercise of this Warrant shall assume, by written instrument delivered to the Holder, the obligation to deliver to the Holder such cash, securities or other property as in accordance with the foregoing provisions the Holder may be entitled to receive.  The foregoing provisions of this Section 4(e) shall similarly apply to successive reorganizations, mergers, consolidations and sales.

 

(f)      No Impairment.  The Company will not, by amendment of its Articles 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 to be observed or performed hereunder by the Company but will at all times in good faith assist in the carrying out of all the provisions of this Section and in the taking of all such action as may be necessary or appropriate in order to protect the conversion rights of the Holder against dilution or other impairment. Without limiting the generality of the foregoing, the Company will not issue any capital stock of any class which is preferred as to dividends or as to the distribution of assets upon the voluntary or involuntary dissolution, liquidation or winding up of the Company.

 

(g)      Notice of Adjustments.  Whenever this Warrant shall be adjusted pursuant to this Section 4, the Company shall make a certificate signed by an officer of the Company setting forth, in reasonable detail, the event requiring the adjustment, the amount of the adjustment, the method by which such adjustment was calculated, and the new Warrant Price and the type or the number of Shares purchasable after giving effect to such adjustment, and shall cause copies of such certificate to be mailed (by first class mail, postage prepaid) to the Holder.

 

  

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5.             The Company’s Obligation to Make Payments.

 

(a)      Dividends and Distributions.  In the event the Company at any time or from time to time after the date hereof shall make or issue a dividend or other distribution, whether payable in cash, securities or other property of the Company, with respect to any of its capital stock for which an adjustment is not made pursuant to Section 4 of this Warrant, then and in each such event, the Company shall concurrently make a cash payment to the Holder equal to the product of (i) the quotient obtained by dividing (x) the amount of cash plus the fair value of any property or securities distributed by (y) the number of shares of Common Stock outstanding on the record date for such dividend or distribution and (ii) the number of Shares on such record date.

 

(b)      Redemption of Capital Stock.  In the event the Company at any time or from time to time after the date hereof shall repurchase or redeem any of its capital stock or any rights, including without limitation, options, warrants or other convertible or exchangeable securities, to acquire such capital stock, then and in each such event, the Company shall concurrently make a cash payment to the Holder equal to the product of (i) the quotient obtained by dividing (x) the aggregate amount of cash and the aggregate fair value of any property paid out by the Company in connection with any such repurchase or redemption by (y) the number of shares of Common Stock outstanding on a fully diluted basis immediately after such repurchase or redemption and (2) the number of Shares.

 

6.             Notice of Record Date.  In the event:

 

	
  

	
(1)

	
that the Company declares a dividend (or any other distribution) on any of its capital stock (including without limitation, its Common Stock);

 

	
  

	
(2)

	
that the Company repurchases or redeems any of its capital stock (including without limitation, its Common Stock) or any rights to acquire such capital stock;

 

	
  

	
(3)

	
that the Company subdivides or combines its outstanding shares of Common Stock;

 

	
  

	
(4)

	
of any reclassification of the Common Stock, or of any consolidation, merger or share exchange of the Company into or with another entity, or of the sale of all or substantially all of the assets of the Company;

 

	
  

	
(5)

	
of the involuntary or voluntary dissolution, liquidation or winding up of the Company; or

	
  

	
(6)

	
of any offer of its Common Stock or any rights to acquire such Common Stock for consideration paid per share of Common Stock less than the Warrant Price then in effect.

 

then the Company shall notify the Holder at least 30 days prior to the date specified in (A), (B) or (C) below, in writing stating:

 

(A)           the record date of such dividend, distribution, repurchase, redemption, subdivision or combination, or, if a record is not to be taken, the date as to which the holders of Common Stock of record to be entitled to such dividend, distribution, repurchase, redemption, subdivision or combination are to be determined;

 

  

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(B)           the date on which such reclassification, consolidation, merger, share exchange, sale, dissolution, liquidation or winding up is expected to become effective, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their shares of Common Stock for securities or other property deliverable upon such reclassification, consolidation, merger, sale, dissolution or winding up; or

 

(C)           the date on which such offering of its Common Stock or any rights to acquire such Common Stock for consideration paid per share of Common Stock less than the Warrant Price is expected to become consummated.

7.             Compliance with Securities Act; Disposition of Warrant or Common Stock.

 

(a)      Compliance with Securities Act.  The Holder, by acceptance hereof, agrees that this Warrant and the Shares to be issued upon exercise hereof are being acquired for investment and that such Holder will not offer, sell or otherwise dispose of this Warrant or any Common Stock to be issued upon exercise hereof except under circumstances which will not result in a violation of the Securities Act of 1933, as amended (the “Act”).  All Shares issued upon exercise of this Warrant (unless registered under the Act or sold or transferred pursuant to Rule 144 promulgated under the Act) shall be stamped or imprinted with a legend in substantially the following form:

 

“THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES ACTS OF ANY STATE AND MAY NOT BE SOLD OR TRANSFERRED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACTS COVERING THIS SECURITY OR PURSUANT TO AN EXEMPTION FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACTS.”

(b)      Disposition of Warrant or Shares.  Subject to the terms and conditions of this Warrant and applicable securities laws, this Warrant and the rights represented by this Warrant may be transferred, assigned or pledged, in whole or in part with prior written notice to the Company. Any transfer shall be accompanied by the Notice of Transfer form attached hereto as Exhibit B.

 

8.             Rights as Shareholders.  The Holder shall not, by virtue hereof, be entitled to any rights of a shareholder in the Company, either at law or equity, and the rights of the Holder are limited to those expressed in this Warrant and are not enforceable against the Company except to the extent set forth herein.

 

9.             Representations and Warranties.  The Company represents and warrants to the Holder as follows:

 

(a)      This Warrant has been duly authorized and executed by the Company and is a valid and binding obligation of the Company enforceable in accordance with its terms;

 

(b)      The Shares have been duly authorized and reserved for issuance by the Company and, when issued in accordance with the terms hereof, will be validly issued, fully paid and nonassessable;

 

(c)      The rights, preferences, privileges and restrictions granted to or imposed upon the Shares and the holders thereof are as set forth in the Company’s Certificate of Incorporation;

 

  

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(d)      The execution and delivery of this Warrant are not, and the issuance of the Shares upon exercise of this Warrant in accordance with the terms hereof will not be, inconsistent with the Company’s Articles of Incorporation or by-laws, do not and will not contravene any law, governmental rule or regulation, judgment or order applicable to the Company, and, except for consents that have already been obtained by the Company, do not and will not conflict with or contravene any provision of, or constitute a default under, any indenture, mortgage, contract or other instrument of which the Company is a party or by which it is bound or require the consent or approval of, the giving of notice to, the registration with or the taking of any action in respect of or by, any federal, state or local government authority or agency or other person; and

 

10.           Modification and Waiver.  This Warrant and any provision hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of the same is sought.

 

11.           Notices.  Except as otherwise expressly provided herein, all notices and other communications provided for hereunder shall be in writing (including telegraphic, telex, telecopier or cable communication) and mailed, telegraphed, telexed, telecopied, cabled or delivered to the applicable party at its address specified opposite its signature below, or at such other address as shall be designated by such party in a written notice to the other.  All such notices and communications shall, when mailed, telegraphed, telexed, telecopied or cabled or sent by overnight courier, be effective when deposited in the mails, delivered to the telegraph company, cable company or overnight courier, as the case may be, or sent by telex or telecopier.

 

12.           Descriptive Headings.  The descriptive headings of the several sections of this Warrant are inserted for convenience only and do not constitute a part of this Warrant.

 

13.           Governing Law.  THIS WARRANT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA.

 

14.           Binding Effect on Successors.  This Warrant shall be binding upon any entity succeeding the Company by merger, consolidation or acquisition of all or substantially all of the Company’s assets, and all of the obligations of the Company relating to the Common Stock issuable upon the exercise of this Warrant shall survive the exercise, and termination of this Warrant and all of the covenants and agreements of the Company shall inure to the benefit of the successors and assigns of the Holder.

 

15.           Severability.  In case any one or more of the provisions contained in this Warrant shall be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby.  The parties shall endeavor in good faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions, the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions.

 

16.           Lost Warrants or Stock Certificates.  The Company covenants to the Holder that upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction, or mutilation of this Warrant or any stock certificate and, in the case of any such loss, theft or destruction, upon receipt of an indemnity reasonably satisfactory to the Company, or in the case of any such mutilation upon surrender and cancellation of such Warrant or stock certificate, the Company will make and deliver a new Warrant or stock certificate, of like tenor, in lieu of the lost, stolen, destroyed or mutilated Warrant or stock certificate.

 

  

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IN WITNESS WHEREOF, the Company has caused this Warrant to be executed and delivered by its duly authorized officer on the day and year first above written.

  BIOLARGO, INC.

      By:                     XXXXXX                       

  Name: Dennis P. Calvert, President

  Address: 16150 Heron Avenue

    La Mirada, California 90638

    Attention: Dennis P. Calvert

 

ACKNOWLEDGED AND ACCEPTED:

By:                                                                        

Print Name:  __________________________                                                                           

Address: __________________________

 __________________________

                ___________________________

Federal ID

or Social Security No.  ________________

 

 

  

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EXHIBIT A

NOTICE OF EXERCISE

TO:           BIOLARGO, INC.

(1)           The undersigned hereby elects to purchase __________ shares of Common Stock of BIOLARGO, INC. (the “Company”) pursuant to the terms of the attached Warrant, and, unless such Warrant allows the exercise to be “cashless,” tenders herewith payment of the Warrant Price for such shares in full.

(2)           The undersigned represents and warrants to the Company that, as of the date hereof, the undersigned is an “accredited investor” as that term is defined in Rule 501(a) of Regulation D under the Securities Exchange Act of 1934, as amended.

(3)           Please issue a certificate or certificates representing said shares of Common Stock in the name of the undersigned or in such other name as is specified below:

 

 

	 	 	 	 
	 	 	(Name)	 
	 	 	 	 
	 	 	 	 
	 	 	 	 
	 	 	(Name)	 

(4)           Please issue a new Warrant for the unexercised portion of the attached Warrant in the name of the undersigned or in such other name as is specified below:

 

	 	 	 	 
	 	 	(Name)	 
	 	 	 	 
	 	 	 	 
	 	 	(Address)	 
	 	 	 	 
	 	 	 	 
	 	 	(Federal ID or Social Security No.)	 
	 	 	 	 
	 	 	 	 
	 	 	(Signature)	 
	 	 	 	 
	 	 	 	 
	 	 	(Date)	 

 

  

  

  

 

EXHIBIT B

NOTICE OF TRANSFER

(To be signed only upon transfer of Warrant and subject to other conditions of this Warrant)

FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto ____________________________________________ the right represented by the attached Warrant to purchase __________ shares of the Common Stock of BIOLARGO, INC., to which the attached Warrant relates, and appoints _____________________ as Attorney-in-fact to transfer such right on the books of BIOLARGO, INC., with full power of substitution in the premises.

The undersigned understands that any transfer of the attached Warrant is subject to full compliance with Federal and applicable state securities laws and other requirements, which requirements shall be determined and which issues shall be decided by BIOLARGO, INC., in its sole and absolute discretion, prior to consenting to and recognizing such transfer.

Dated:                                           

 

	 	 	 	 
	 	 	
(Signature must conform in all respects to the name of the Holder as specified on the face of the Warrant)

	 
	 	 	 	 
	 	 	 	 
	 	 	 	 
	 	 	 	 
	 	 	(Address)	 
	 	 	 	 

Signed in the presence of:ex10-2.htm

Exhibit 10.2

DIGITAL ANGEL CORPORATION

STOCK OPTION AGREEMENT

	  	  
	
OPTIONEE:

	
L. Michael Haller

	
GRANT DATE:

	
August 27, 2012

	
NUMBER OF OPTION SHARES:

	
10,000,000 (ten million)

	
EXERCISE PRICE PER SHARE:

	
$0.05 (five cents) per Share

	
EXPIRATION DATE:

	
August 26, 2022

	  	  

THIS AGREEMENT (this “Agreement”) is made as of the Grant Date set forth above by and between Digital Angel Corporation, a Delaware corporation (the “Company”), and the Optionee named above, who is either an employee, consultant, independent contractor or other service provider of the Company or an Affiliate of the Company (the “Optionee”).  Where not defined or clarified herein, capitalized terms and context for interpretation of such terms are as defined or set forth in the employment agreement between Optionee and the Company dated August 23, 2012 (the “Haller Employment Agreement”).

NOW, THEREFORE, in consideration of the mutual covenants hereinafter set forth, and for other good and valuable consideration, the parties hereby agree as follows:

1.           Grant of Option.  The Company hereby grants to the Optionee the right and option (the “Option”) to purchase all or any part of the aggregate number of shares of common stock, $.01 par value per share, of the Company (“Common Stock”) set forth above (the “Option Shares”) (such number being subject to adjustment as provided in Section 9 hereof) on the terms and subject to the conditions set forth in this Agreement.  This Option is not intended to be an “incentive stock option” within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”).

2.           Purchase Price.  The per share purchase price of the Option Shares shall be the Exercise Price Per Share set forth above (such Exercise Price Per Share being subject to adjustment as provided in Section 9 hereof).

3.           Term and Exercise of Option.

(a)           The term of this Option shall commence on the Grant Date set forth above and shall continue until the Expiration Date set forth above, unless earlier terminated as provided herein.

(b)           Subject to the earlier termination of this Option pursuant to its terms, this Option shall vest and become exercisable according to the vesting schedule and conditions set forth in Section 4 herein.

(c)           To exercise this Option, the Optionee shall give written notice to the Company, to the attention of its Chief Financial Officer or other designated agent, in substantially the form attached hereto as Exhibit A, and the Optionee shall deliver payment in full and all related taxes for the Option Shares with respect to which this Option is then being exercised, as provided in Section 7(a) below.

 

  

  

  

(d)           Neither the Optionee nor the Optionee’s legal representatives, as the case may be, will be, or will be deemed to be, a holder of any Option Shares for any purpose unless and until and to the extent this Option has been exercised.

4.           Vesting of Option.

The Option Shares granted pursuant to this Option will vest in tranches upon successful attainment of certain performance targets described below.

Vesting schedule and incentive targets (“Incentive Targets”) applicable to the Option Shares are as follows, all references being to the Company’s results and financial performance:

	
  

	
•

	
A)  Tranche 1:  2,000,000 Option Shares shall be vested in full upon issuance.

	
  

	
•

	
B)  Tranche 2:  2,000,000 Option Shares shall be vested upon the achievement of all the following targets:

(1)  Either:

	
  

	
o

	
the gross revenue attributable to published games is at least one million dollars ($1,000,000) or

	
  

	
o

	
the gross revenue attributable to other deals including, without limitation, licensing, joint ventures, partnerships, or mergers and acquisitions brought to Company by Optionee is at least two million dollars ($2,000,000);

and

(2) Either: (subject to *Note below):

	
  

	o	
The aggregate positive net cash flow, excluding income taxes, for Company as a whole from September 1, 2012 is at least $250,000; or

	
  

	
o

	
If the preceding has been at least 50% achieved (i.e., net cash flow of at least $125,000) and the Company share price closes at or above $0.25 for at least 10 consecutive trading days.

	
  

	
•

	
C)  Tranche 3:  2,000,000 Stock Options shall be vested upon the achievement of all the following targets:

	
  

	
(1)

	
Either:

	
  

	
o

	
the gross revenue attributable to published games is at least two million dollars ($2,000,000) or

	
  

	
o

	
the gross revenue attributable to other deals including, without limitation, licensing, joint ventures, partnerships, or mergers and acquisitions brought to Company by Optionee is at least four million dollars ($4,000,000);

and

 

  

  

  

	
  

	
(2)

	
Either: (subject to *Note below):

	
  

	
o

	
The aggregate positive net cash flow, excluding income taxes, for Company as a whole from September 1, 2012 is at least $700,000; or

	
  

	
o

	
If the preceding has been at least 50% achieved (i.e., net cash flow of at least $350,000) and the Company share price closes at or above $0.50 for at least 10 consecutive trading days.

	
  

	
•

	
D)  Tranche 4:  2,000,000 Stock Options shall be vested upon the achievement of all the following targets:

	
  

	
(1)

	
Either:

	
  

	
o

	
the gross revenue attributable to published games is at least three million dollars ($3,000,000) or

	
  

	
o

	
the gross revenue attributable to other deals including, without limitation, licensing, joint ventures, partnerships, or mergers and acquisitions brought to Company by Optionee is at least six million dollars ($6,000,000);

and

	
  

	
(2)

	
Either: (subject to *Note below):

	
  

	
o

	
The aggregate positive net cash flow, excluding income taxes, for Company as a whole from September 1, 2012 is at least $1,100,000; or

	
  

	
o

	
If the preceding has been at least 50% achieved (i.e., net cash flow of at least $550,000) and the Company share price closes at or above $0.75 for at least 10 consecutive trading days.

	
  

	
•

	
E)  Tranche 5:  2,000,000 Stock Options shall be vested upon the achievement of all the following targets:

	
  

	
(1)

	
Either:

	
  

	
o

	
the gross revenue attributable to published games is at least four million dollars ($4,000,000) or

	
  

	
o

	
the gross revenue attributable to other deals including, without limitation, licensing, joint ventures, partnerships, or mergers and acquisitions brought to Company by Optionee is at least eight million dollars ($8,000,000);

and

 

  

  

  

	
  

	
(2)

	
Either: (subject to *Note below):

	
  

	
o

	
The aggregate positive net cash flow, excluding income taxes, for Company as a whole from September 1, 2012 is at least $1,600,000; or

	
  

	
o

	
If the preceding has been at least 50% achieved (i.e., net cash flow of at least $800,000) and the Company share price closes at or above $1.00 for at least 10 consecutive trading days.

*Note:  The consolidated aggregate positive net cash flow targets described in sub-paragraphs B) through E) above (referencing Tranches 2-5) are based upon certain projections and assumptions as of the Effective Date of the Haller Employment Agreement.  The Company assumes the risk resulting from any negative change in such projections and assumptions regarding the cash flows of Signature operations and regarding any reduction in the estimated receipt of funds from the AllFlex escrow.  If any such negative change occurs, the parties agree that such change will cause a pro rata adjustment of the consolidated aggregate positive net cash flow targets set forth above.

Determination that targets have been achieved and that the tranches of Stock Options described in sub-paragraphs (B) through (E) above have therefore vested shall be based upon the Company’s results as reflected in its quarterly and annual financial reports prepared and published on Form 10-Q and Form 10-K.  Each vesting shall be confirmed by decision of the Company’s Board of Directors or, if delegated to the Compensation Committee, by such Compensation Committee, upon majority vote of the non-interested directors.

5.           Registration of Shares.  In the event that any Stock Options are exercised prior to the registration of the shares underlying such Stock Options, the shares to be issued upon exercise shall bear a restrictive legend until such time as the applicable S-8 has been filed and the shares registered with the SEC.

6.           Change of Control.  In the event of a Change in Control, all unvested Stock Options shall immediately accelerate and become vested.  For purposes of this Agreement, “Change in Control” means any bona fide, third-party change of control as follows:  (a) any person or entity (or persons or entities acting as a group) other than one of its Affiliates acquires stock of the Company that, together with stock then held by such person, entity, or group, results in such person, entity, or group holding more than fifty percent (>50%) of the total combined voting power of all classes of the then issued and outstanding securities of the Company; or (b) the sale of all or substantially all of the properties and assets of the employer to any person or entity that is not a subsidiary, parent, or Affiliate of the Company.  Notwithstanding the foregoing, the sale of Signature Communications (division or subsidiary as the case may be) or the wind-down of Signature Industries Ltd. is specifically excluded from the definition of Change of Control; similarly the granting, vesting, or exercise of stock options under this Agreement will not trigger any Change of Control rights.

7.           Limitations on Exercise of Option.

(a)           The exercise of this Option will be contingent upon receipt of the full Exercise Price of such Option Shares together with all Tax Payments (described in Section 8 below).  Payment of the Exercise Price and Tax Payments shall be made in cash or by a certified or cashier’s check.  No Option Shares will be issued until full payment therefor has been made and the Optionee has executed any and all agreements that the Company may reasonably require the Optionee to execute.

(b)           The issuance of Option Shares upon the exercise of this Option shall be subject to all applicable laws, rules, and regulations.  If, in the opinion of the Board of Directors of the Company or a Committee of the Board of Directors, (i) the listing, registration or qualification of the Option Shares upon any securities exchange or under any state or federal law, (ii) the consent or approval of any regulatory body, or (iii) an agreement of the Optionee with respect to the disposition of the Option Shares, is necessary or desirable as a condition to the issuance or sale of the Option Shares, this Option shall not be exercised and/or the Option Shares shall not be sold unless and until such listing, registration, qualification, consent, approval or agreement is effected or obtained in form satisfactory to the Board of Directors or the Committee.

  

  

  

8.           Tax Consequences and Tax Payments.  The Optionee is responsible to pay any and all federal, state or local taxes which are due or will become due by reason of the granting, vesting, or exercise of any of the Option Shares.  The Optionee understands and agrees that Optionee shall be required, as a condition of exercise, to submit payment to the Company of any and all federal, state or local taxes required to be withheld or paid by the Company at the time of exercise of any Option Shares (“Tax Payments”).  The Optionee acknowledges and represents to the Company that the Optionee has obtained advice with respect to the tax and other financial consequences of the grant and exercise of the Option Shares including, without limitation, advice with respect to the election that the Optionee may make under Section 83(b) of the Code.

9.           Nontransferability of Option.  This Option shall not be transferable by the Optionee other than by will or the laws of descent and distribution, and during the lifetime of the Optionee, this Option shall be exercisable only by the Optionee.

10.           No Right to Continued Employment or Engagement of Services.  This Option will not confer upon the Optionee, if applicable, any right with respect to continuance of employment or continuance of engagement of services by the Company or an Affiliate of the Company, nor will it interfere in any way with the Company’s right or the Affiliate’s right to terminate the Optionee’s employment or engagement at any time.

11.           Termination of Employment.  Unvested Stock Options shall become fully vested and exercisable on a pro-rata basis to the extent that Optionee has achieved some or all of the applicable incentive targets as outlined for each unvested Tranche upon any termination of employment as set forth in Sections 4.3(b) and (c) of the Haller Employment Agreement which occurs at least six months after the Effective Date of the Haller Employment Agreement, and shall remain exercisable for a period of 60 (sixty) days following any such termination (subject to earlier expiration of the original option term).  Upon any termination of employment described in Section 4.3(a) of the Haller Employment Agreement, and upon any termination of employment within six months following the Effective Date, all unvested options shall terminate immediately.

12.           Adjustments. In the event of any change in the outstanding shares of Common Stock by reason of any stock dividend, stock split, reverse stock split, reclassification, combination, exchange of shares, or other similar recapitalization of the Company, there shall be an appropriate and proportionate adjustment to the number of Option Shares and the per share Exercise Price Per Share hereunder so that the Optionee then shall receive for the aggregate Exercise Price paid by the Optionee upon exercise of this Option the number of shares the Optionee would have received if this Option had been exercised before such recapitalization event occurred.  No adjustment shall be made under this Section 9 upon the issuance by the Company of any warrants, rights, or options to acquire additional Common Stock or of securities convertible into Common Stock unless such warrants, rights, options or convertible securities are issued to all of the Company’s shareholders on a proportionate basis.

13.           Effect of Certain Transactions.  Notwithstanding any provision in this Option to the contrary, immediately before the effective time of any of merger, exchange or other reorganization of the Company, the Option shall be automatically converted into an Option to acquire the kind and amount of shares of stock or other securities or property that the Optionee would have owned or have been entitled to receive immediately after the occurrence of the event, had the Option been exercised in full immediately before the effective time of such event; provided, however, that the Expiration Date of the Option shall remain unchanged, and, in any such case, appropriate adjustment shall be made in the application of the provisions of this Option with respect to the rights and interests thereafter of the Optionee, to the end that the provisions set forth in this Option shall thereafter correspondingly be made applicable, as nearly as may reasonably be, in relation to any shares of stock or other securities or property thereafter deliverable on the exercise of this Option.

 

  

  

  

 

14.           Amendment.  This Option may only be amended by written agreement between Optionee and the Company.

15.           Governing Law.  The validity, construction, interpretation, administration and effect of this Option will be governed by and construed exclusively in accordance with the laws of the State of Delaware, notwithstanding the conflicts of laws principles of any jurisdictions.  All parties agree to submit to the jurisdiction of the state and federal courts of Delaware and agree not to raise or assert the defense that such forum is not convenient for such party.

IN WITNESS WHEREOF, the Company has caused this Agreement to be executed in its corporate name by its duly authorized officer as of the Grant Date set forth above.

 

	 	 
COMPANY:

	 
	 	 
Digital Angel Corporation

	 
	 	 	 	 
	 	
By: 

	/s/ Daniel Penni	 
	 	 	Daniel Penni	 
	 	 	Its: Chairman of the Board of Directors	 

 

 

 

	 	 
OPTIONEE:

	 
	 	 	 	 
	 	 	/s/ L. Michael Haller    	 
	 	 
L. Michael Haller

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