Document:

ex101.htm

 

	
No. __________ 

	 Exhibit 10.1

 

AUXILIO, INC.

 

8% CONVERTIBLE PROMISSORY NOTE

 

$_____________ July 29, 2011

 

THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AS AMENDED (THE “ACT”), OR ANY STATE SECURITIES LAWS.  SUCH SECURITIES MAY NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT AS PERMITTED UNDER THE ACT AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR AN EXEMPTION THEREFROM.  THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL (WHICH MAY BE COUNSEL FOR THE COMPANY) IN FORM AND SUBSTANCE REASONABLY SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT.

 

AUXILIO, INC., a Nevada corporation (the “Company”), for value received, hereby promises to pay to the order of _________________________________ (“Investor”), whose address is _____________________________________________________________, at said address or such other addresses as may be designated in writing by Investor from time to time, or Investor’s registered assigns, the principal amount of _____________________________ and No/100 Dollars ($____,000), together with interest thereon from the date of issuance of this 8% Convertible Promissory Note (the “Note”) on the unpaid principal balance at an annual rate of interest equal to eight percent (8%) per annum, compounded annually (on the basis of a 360-day year), such principal and interest to be payable as provided below on July 29, 2014 (the “Maturity Date”).

 

The following is a statement of rights of the holder of this Note and the conditions to which this Note is subject, to which the holder hereof, by the acceptance of this Note, assents:

 

1. Payment.

 

(A) Principal.  Subject to the provisions of Section 2 hereof relating to the conversion of this Note, the Company shall make payment of principal on the Maturity Date in United States currency.

 

(B) Interest.  Subject to the provisions of Section 2 hereof relating to the conversion of this Note, interest only payments, in arrears, of an amount equal to the interest on the unpaid principal balance of the Note shall be due and payable no later than thirty (30) days following the close of each calendar quarter.  The first interest payment for interest accrued from the date hereof shall be due and payable no later than October 31, 2011.  Payments shall be made in United States currency.

 

(C) Pre-Payment.  The Company may call the Note for prepayment if (a) the Company’s Common Stock (the “Common Stock”) closes at or above $2.00 per share for 20 consecutive days; and (b) the Company’s Common Stock has had daily trading volume at or above 100,000 shares for the same 20 consecutive days. Investor shall have 60 days from the date on which the Company calls the Note (“Call Date”) to convert the Note; thereafter any outstanding Note may be prepaid by the Company. Upon prepayment, each Investor will receive: (i) accrued but unpaid interest to the redemption date; plus (ii) the principal amount of such Investor’s Note; plus (iii) an amount representing interest that would have accrued from the redemption date to the maturity date of the Note had the Note not been prepaid.

 

 

  

  

  

 

 

2. Conversion.

 

(A) Investor Conversion Rights. At any time prior to the Maturity Date the Investor may elect to convert all or part of the unpaid principal amount of this Note and any unpaid interest accrued thereon (the sum of such principal and accrued interest being hereinafter collectively referred to as the “Outstanding Balance”), into shares of Common Stock.  The conversion price (the “Conversion Price”) shall be $1.00 per share of Common Stock.  The number of shares of Common Stock into which this Note shall be convertible shall be determined by dividing (i) the Outstanding Balance by (ii) the Conversion Price.  For the purposes of this Section 2(A), conversion shall be deemed to occur on the date that the Company receives an executed copy of the Notice of Conversion attached hereto as Exhibit A.  Any failure by the Investor to provide such notice shall be deemed to be an election not to convert any portion of the Investor’s Outstanding Balance.

 

(B) Automatic Conversion.  If (a) there is an Extraordinary Corporate Transaction, and (b) the per share price of the Company’s Common Stock in such Transaction equals or exceeds the Conversion Price, then the Note will be automatically converted into Company Common Stock. “Extraordinary Corporate Transaction” shall mean any transaction, or a series of transactions, that results, directly or indirectly, in the transfer of 100% of the Company including, without limitation, any sale of stock, sale of assets, sale of membership interests, merger or consolidation, reorganization, recapitalization or restructuring, tender or exchange offer, negotiated purchase or  leveraged buyout.

 

(C) Surrender of Note.  Upon conversion of this Note into Common Stock as provided in this Section 2, the Investor shall surrender this Note at the offices of the Company at 26300 La Alameda, Suite 100, Mission Viejo, California 92691 and the Company shall, at its expense, deliver to the Investor as soon as practicable a certificate representing the number of shares of Common Stock provided in Section 2(A) or Section 2(B), as applicable.  The Company will place on each certificate a legend substantially the same as that appearing on this Note, in addition to any legend required by any applicable state or federal law.  Irrespective of the date of issuance and delivery of any certificates with respect thereto, shares of Common Stock purchased by conversion under this Section 2 shall be, and be deemed to be, issued to the Investor as the record owner of such shares as of the close of business on the deemed date of conversion as provided in Section 2(A) and Section 2(B).

 

(D) Exchange of Note.  If (a) within one year after the date hereof the Company completes an additional round of debt financing with new investors (“New Debt”) and (b) the New Debt contains Economic Terms (as defined below) that are more favorable to New Debt holders than the Economic Terms of this Note, then the Investor shall have the option to exchange this Note for an equal principal amount of new notes (“New Notes”) with the same Economic Terms as the New Debt. “Economic Terms” shall mean and refer to interest rate, payment frequency, amortization, conversion price, warrant coverage and registration rights.  In the event of an exchange pursuant to Section 2(D), this Note shall be surrendered in the same manner as Section 2(C) above.

 

 

  

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(E) Partial Conversion.  If this Note is converted in part under Section 2(A) above, the remaining portion of this Note not so converted shall remain entitled to the conversion rights provided herein.  In the event the Investor elects a partial conversion, the Note shall be surrendered pursuant to Section 2(C) above, and an amended and restated note for the remaining principal balance shall be issued by the Company to the Investor.

 

(F) No Fractional Shares.  No fractional shares or scrip representing fractional shares shall be issued upon the conversion of this Note.  With respect to any fraction of a share called for upon the conversion exercise of this Note, an amount equal to such fraction multiplied by the Conversion Price shall be paid in cash to the Investor.

 

(G) General.  The foregoing conversion rights are subject in all respects to compliance by the Company with all applicable laws, rules and regulations.

 

3. Pari Passu.  This Note is one of several convertible promissory notes of the Company issued contemporaneously herewith (the “July 2011 Notes”) evidencing indebtedness incurred by the Company for interim financing provided to the Company.  This Note and the other July 2011 Notes shall rank pari passu as to the payment of principal and interest.  The Investor agrees that any payments or prepayments to Investor and to the holders of the other July 2011 Notes, whether principal, interest or otherwise, shall be made pro rata among  the Investor and the holders of the other July 2011 Notes based upon the aggregate unpaid principal amount of this Note and the other July 2011 Notes.  By accepting this Note, the Investor agrees that if the Investor or any other holder of a July 2011 Note obtains any payments (whether voluntary, involuntary, by prepayment, set-off or otherwise) of the principal or interest on this Note or any other July 2011 Note in excess of such holder’s pro rata share of payments received by all holders of the July 2011 Notes, such holder shall purchase from the other holders of this Note and the other July 2011 Notes such participation in such promissory notes held by them as is necessary to cause all such holders to share the excess payment ratably among each of them as provided in this Section 3.

 

4. Adjustments.  Subject and pursuant to the provisions of this Section 4, the Conversion Price shall be subject to adjustment from time to time as set forth hereinafter.

 

(A)     If the Company shall, at any time or from time to time while this Note is outstanding, pay a dividend or make a distribution on its Common Stock in shares of Common Stock, subdivide its outstanding shares of Common Stock into a greater number of shares or combine its outstanding shares of Common Stock into a smaller number of shares or issue by reclassification of its outstanding shares of Common Stock any shares of its capital stock (including any such reclassification in connection with a consolidation or merger in which the Company is the continuing corporation), then the Conversion Price in effect immediately prior to the date on which such change shall become effective shall be adjusted by multiplying such Conversion Price by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such change and the denominator of which shall be the number of shares of Common Stock outstanding immediately after giving effect to such change.  Such adjustments shall be made successively whenever any event listed above shall occur.

 

 

  

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(B) In case the Company shall fix a payment date for the making of a distribution to all holders of Common Stock (including any such distribution made in connection with a consolidation or merger in which the Company is the continuing corporation) of evidences of indebtedness or assets (other than cash dividends or cash distributions payable out of consolidated earnings or earned surplus or dividends or distributions referred to in Section 4(A)), or subscription rights or warrants, the Conversion Price to be in effect after such payment date shall be determined by multiplying the Conversion Price in effect immediately prior to such payment date by a fraction, the numerator of which shall be the total number of shares of Common Stock outstanding multiplied by the closing bid price of the Common Stock as listed on the applicable public market immediately prior to such payment date (the “Market Price”), less the fair market value (as determined by the Company’s Board of Directors in good faith) of said assets or evidences of indebtedness so distributed, or of such subscription rights or warrants, and the denominator of which shall be the total number of shares of Common Stock outstanding multiplied by such Market Price.

 

(C) An adjustment to the Conversion Price shall become effective immediately after the payment date in the case of each dividend or distribution and immediately after the effective date of each other event which requires an adjustment.

 

(D) In the event that, as a result of an adjustment made pursuant to this Section 4, the Investor shall become entitled to receive any shares of capital stock of the Company other than shares of Common Stock, the number of such other shares so receivable upon conversion of this Note shall be subject thereafter to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Conversion Shares.

 

5. Default Interest; Collection Fees; Waiver.  Any and all past due principal and interest on the Notes shall accrue interest at 12% per annum from and after the date it becomes due.  In the event of a default on the Notes and if the Notes are placed in the hands of an attorney for collection (whether or not suit is filed), or if the amount owing under the Notes is collected by suit or legal proceedings or through bankruptcy proceedings, the Company agrees to pay in addition to all sums then due, including outstanding principal and accrued but unpaid interest, all reasonable attorneys’ fees and expenses incurred in any action to collect amounts owing under the Notes.

 

The Company hereby waives demand and presentment for payment, notice of nonpayment, protest, notice of protests, notice of dishonor, notice of intention to accelerate and notice of acceleration, bringing of suit and diligence in taking any action to collect amounts called for hereunder and in the handling of securities at any time existing in connection herewith. In addition, the Company is and shall be directly and primarily liable for the payment of all sums owing and to be owing hereon, regardless of and without any notice, diligence, act or omission as or with respect to the collection of any amount called for hereunder.

 

 

  

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6. Maximum Rate of Interest.  Notwithstanding any provisions to the contrary in this Note, or in any of the documents relating hereto, in no event shall this Note or such documents require the payment or permit the charging or collection of interest in excess of the maximum amount or highest lawful rate permitted by the applicable usury laws.  It is the intention of the Company and the Investor to comply in all respects with applicable usury laws, and in no event shall the Company pay, for the use, forebearance or detention of money, interest at a rate or in an amount in excess of the highest lawful rate permitted by applicable law.  If any such excess interest is contracted for, charged or received under this Note or under the terms of any of the documents relating hereto, or in the event the maturity of the indebtedness evidenced by this Note is accelerated in whole or in part, or in the event that all or part of the principal or accrued unpaid interest of this Note shall be prepaid, so that under any of such circumstances the amount of interest contracted for, charged or received under this Note or under any of the documents relating hereto, on the amount of principal actually outstanding from time to time under this Note, shall exceed the maximum amount of interest permitted by the applicable usury laws, then in any such event (a) the provisions of this Section 6 shall govern and control, (b) neither the Company nor any other person or entity now or hereafter liable for the payment hereof, shall be obligated to pay the amount of such interest to the extent that it is in excess of the maximum amount of interest permitted by the applicable usury laws, (c) any such excess which may have been collected shall be either applied as a credit against the then unpaid principal amount hereof or refunded to the Company, at the holder’s option, and (d) the effective rate of interest shall be automatically reduced to the maximum lawful rate of interest allowed under the applicable usury laws as now or hereafter construed by the courts having jurisdiction thereof.  It is further agreed that without limitation of the foregoing, all calculations of the rate of interest contracted for, charged or received under this Note or under such other documents which are made for the purpose of determining whether such rate exceeds the maximum lawful rate of interest, shall be made, to the extent permitted by the applicable usury laws, by amortizing, prorating, allocating and spreading during the period of the full stated term of the indebtedness evidenced hereby, all interest at any time contracted for, charged or received from the Company or otherwise by the holder or holders hereof in connection with such indebtedness.

 

7. Certain Events.  The Outstanding Balance of this Note shall become immediately due and payable upon any of the following events: (i) the admission in writing by the Company of its insolvency, (ii) the commission of any voluntary act of bankruptcy by the Company, (iii) the execution by the Company of a general assignment for the benefit of creditors, (iv) the filing by or against the Company of any petition in bankruptcy or any petition for relief under the provisions of the federal bankruptcy act or any other state or federal law for the relief of debtors and the continuation of such petition without dismissal for a period of sixty (60) days or more, (v) the failure of Company to make any payment required hereunder, provided that the Company shall be given a thirty (30) day right to cure such non-payment, (vi) the appointment of a receiver or trustee to take possession of the property or assets of the Company, (vii) any dissolution of the Company, (viii) the adoption by the Company of any plan of liquidation, (ix) the sale by the Company in bulk of any of its assets pursuant to a plan of liquidation or for the purpose of liquidating its business, (x) the redemption or acquisition by the Company of any of its outstanding stock other than pursuant to a stock purchase agreement or stock repurchase agreements which may currently or hereafter exist between the Company and certain of its employees, consultants or directors, (xi) the commencement against the Company of any case, proceeding or other action seeking issuance of a warrant of attachment, execution, distraint or similar process against all or any substantial part of its assets which results in the entry of an order for any such relief which shall not have been vacated, discharged, or stayed or bonded pending appeal within sixty (60) days from the entry thereof, or (xii) any challenge or contest by the Company or any affiliate of the Company in any action, suit or proceeding of the validity or enforceability of this Note or the warrants issued on even date herewith by the Company to Investor (each, individually, an “Event of Default”).

 

 

  

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8. Amendments and Waivers.  Except as otherwise provided herein, no provision of this Note may be waived or amended in any respect except by the written consent of the Company and the Investor; provided, however, that if holders of 50.1% or more in principal amount of the outstanding July 2011 Notes agree in writing to waive any provision of or otherwise amend such July 2011 Notes, then in such instance the provisions of this Note shall be so waived or amended; provided, further that no such waiver or amendment may reduce the principal amount of or interest on this Note or change the stated Maturity Date of this Note or reduce the percentage of holders of July 2011 Notes necessary to waive or amend the provisions of this Note, without the written consent of Investor.  INVESTOR ACKNOWLEDGES THAT BECAUSE THIS NOTE MAY BE AMENDED WITH THE CONSENT OF THE INVESTORS HOLDING 50.1% OF THE OUTSTANDING PRINCIPAL AMOUNT OF NOTES, AN INVESTOR’S RIGHTS HEREUNDER MAY BE AMENDED, MODIFIED, TERMINATED OR WAIVED WITHOUT ITS CONSENT.

 

9. Security. This Note is secured by a Security Agreement executed by the Company and the Investor and dated contemporaneously herewith.  Pursuant to the Security Agreement, Investor agrees to subordinate its interest in the collateral securing this Note in the event that the Company issues Senior Debt. “Senior Debt” is defined in the Security Agreement as any loan or debt extended by a commercial bank, commercial finance company, other lending institution or any institutional investor, and shall include lines of credit or similar financing facilities. Pursuant to the Security Agreement, the security interest of the Investors shall be subordinated to Senior Debt for the term of the Note or a New Note.

 

10. Miscellaneous.  The Company hereby waives to the full extent permitted by law all rights to plead any statute of limitations or laches as a defense to any action hereunder.  This Note shall be governed by and construed in accordance with the laws of the State of California applicable to agreements made to be performed in California, without reference to any principles of choice of law or conflicts of law.

 

  

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IN WITNESS WHEREOF, the Company has caused this Note to be duly executed as of the date first written above.

 

AUXILIO, INC.

By:                        s/                                                      

Name:  Paul T. Anthony

Title:   Chief Financial Officer

ATTEST:

 

_______________________________

 

  

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AUXILIO, INC.

NOTICE OF CONVERSION

To: Auxilio, Inc.

26300 La Alameda, Suite 100

Mission Viejo, CA 92691

Attn: Paul T. Anthony, CFO

Dear. Mr. Anthony:

The undersigned holder of the Convertible Promissory Note enclosed herewith (the “Note”) and as specified below hereby irrevocably exercises the option to convert the amount due under the Note set forth below, in accordance with the terms of the Note. In the event that the undersigned exercises such option on or after a date on which Auxilio, Inc. (the “Company”) pays any principal or interest, such conversion is subject to the undersigned including together with this notice the amount of such payment. The undersigned (i) agrees to receive, pursuant to the terms of the Note, upon conversion the Company’s common stock (the “Stock”) (as adjusted pursuant to the terms of the Note) and (ii) directs that the Stock deliverable upon the conversion, and any securit(y)(ies) representing any unconverted principal amount hereof, be issued and delivered to the undersigned in full or partial satisfaction of the Note, as the case may be.

	Name:	
______________________________________

	Amount Converted:      	
 

$______________________________________                               

	Address: 	
______________________________________

 

______________________________________

 

______________________________________

 

 

	
 

Amount Received to-date from the Company:

	
 

 

 

 

$______________________________________                              

	Taxpayer ID:	

______________________________________

	  

Dated: ___________________, 20____

	
Note:  THE SIGNATURE MUST CORRESPOND WITH THE NAME OF THE REGISTERED HOLDER AS WRITTEN ON THE NOTE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ANY CHANGE WHATEVER.

 

 

	

Signature

 

 

Individual or Entity Name (and Title, if applicable)

 

 

 

 

Address

	

Signature of Spouse/Partner (if applicable)

 

 

Name 

 

 

 

 

Address

 

Exhibit A

Notice of Conversion Formex102.htm

 

Exhibit 10.2

	  

THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AS AMENDED (THE “ACT”), OR ANY STATE SECURITIES LAWS.  SUCH SECURITIES MAY NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT AS PERMITTED UNDER THE ACT AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR AN EXEMPTION THEREFROM.  THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL (WHICH MAY BE COUNSEL FOR THE COMPANY) IN FORM AND SUBSTANCE REASONABLY SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT.

 

SUBJECT TO THE PROVISIONS OF SECTION 10 HEREOF, THIS WARRANT SHALL BE VOID AFTER 5:00 P.M. EASTERN TIME ON JULY 29, 2016, (THE “EXPIRATION DATE”).

 

	
No. __________ 

	 July 29, 2011

 

AUXILIO, INC.

 

WARRANT TO PURCHASE _________ SHARES OF

COMMON STOCK

 

FOR VALUE RECEIVED, _________________________ (“Warrantholder”), is entitled to purchase, subject to the provisions of this Warrant (the “Warrant”), from Auxilio, Inc., a Nevada corporation (“Company”), at any time from and after the date six months after the date hereof (the “Initial Exercise Date”) and not later than 5:00 P.M., Eastern time, on the Expiration Date (as defined above), at an exercise price per share equal to $1.50 (the exercise price in effect being herein called the “Warrant Price”), ___________ shares (“Warrant Shares”) of the Company’s Common Stock (“Common Stock”).  The number of Warrant Shares purchasable upon exercise of this Warrant and the Warrant Price shall be subject to adjustment from time to time as described herein.

 

This Warrant is one of a series of Warrants of like tenor issued by the Company pursuant to that certain Investment Unit Purchase Agreement dated July 29, 2011, among the Company and the Investors named therein (the “Purchase Agreement”), and covering an aggregate of  ___________ shares of Common Stock (collectively, the “Company Warrants”).

 

Section 1. Registration.  The Company shall maintain books for the transfer and registration of the Warrant.  Upon the initial issuance of this Warrant, the Company shall issue and register the Warrant in the name of the Warrantholder.

 

Section 2. Transfers.  As provided herein, this Warrant may be transferred only pursuant to a registration statement filed under the Securities Act of 1933, as amended (the “Securities Act”), or an exemption from such registration.  Subject to such restrictions, the Company shall transfer this Warrant from time to time upon the books to be maintained by the Company for that purpose, upon surrender hereof for transfer, properly endorsed or accompanied by appropriate instructions for transfer and such other documents as may be reasonably required by the Company, including, if required by the Company, an opinion of its counsel to the effect that such transfer is exempt from the registration requirements of the Securities Act, to establish that such transfer is being made in accordance with the terms hereof, and a new Warrant shall be issued to the transferee and the surrendered Warrant shall be canceled by the Company.

 

 

  

  

  

 

 

Section 3. Exercise of Warrant.

 

(a) Subject to the provisions hereof, the Warrantholder may exercise this Warrant, in whole or in part, at any time after the Initial Exercise Date and prior to its expiration upon surrender of the Warrant, together with delivery of a duly executed Warrant exercise form, in the form attached hereto as Appendix A (the “Exercise Agreement”) and payment by cash, certified check or wire transfer of funds, or pursuant to a cashless exercise pursuant to Section 3(b) below, of the aggregate Warrant Price for that number of Warrant Shares then being purchased, to the Company during normal business hours on any business day at the Company’s principal executive offices (or such other office or agency of the Company as it may designate by notice to the Warrantholder).  The Warrant Shares so purchased shall be deemed to be issued to the Warrantholder or the Warrantholder’s designee, as the record owner of such shares, as of the close of business on the date on which this Warrant shall have been surrendered (or the date evidence of loss, theft or destruction thereof and security or indemnity satisfactory to the Company has been provided to the Company), the Warrant Price shall have been paid and the completed Exercise Agreement shall have been delivered.  Certificates for the Warrant Shares so purchased shall be delivered to the Warrantholder within a reasonable time, not exceeding three (3) business days, after this Warrant shall have been so exercised.  The certificates so delivered shall be in such denominations as may be requested by the Warrantholder and shall be registered in the name of the Warrantholder or such other name as shall be designated by the Warrantholder, as specified in the Exercise Agreement.  If this Warrant shall have been exercised only in part, then, unless this Warrant has expired, the Company shall, at its expense, at the time of delivery of such certificates, deliver to the Warrantholder a new Warrant representing the right to purchase the number of shares with respect to which this Warrant shall not then have been exercised.  As used herein, “business day” means a day, other than a Saturday or Sunday, on which banks in New York City, New York are open for the general transaction of business.  Each exercise hereof shall constitute the re-affirmation by the Warrantholder that the representations and warranties contained in Section 5 of the Purchase Agreement are true and correct in all material respects with respect to the Warrantholder as of the time of such exercise.  Notwithstanding the foregoing, to effect the exercise of the Warrant hereunder, the Warrantholder shall not be required to physically surrender this Warrant to the Company unless the entire Warrant is exercised.  The Warrantholder and the Company shall maintain records showing the amount exercised and the dates of such exercise.  The Warrantholder and any assignee, by acceptance of this Warrant, acknowledge and agree that, by reason of the provision of the paragraph, following exercise of a portion of the Warrant, the number of Warrant Shares of this Warrant may be less than the amount stated on the face hereof.

 

(b) Subject to the provisions hereof, the Warrantholder may effect one or more cashless exercises by surrendering Warrants to the warrant agent or such other agent as designated by the Company and giving written notice that the Warrantholder wishes to effect a cashless exercise by surrendering some Warrants without exercise, upon which the Company shall issue, or cause to be issued, to the Warrantholder up to the number of Warrant Shares determined as follows:

 

 

  

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X           =           Y x (A-B)/A

 

where:

 

X           =           the maximum number of Warrant Shares that may be issued to the Warrantholder;

 

Y           =           the number of Warrant Shares with respect to which the Warrant Certificates are being exercised;

 

A           =           the Market Price as of the Date of Exercise; and

 

B           =           the Exercise Price.

 

“Market Price” of a share of Common Stock on any date shall mean, (i) if the shares of Common Stock are listed on any national securities exchange, the last sale price of the Common Stock reported by such exchange on that date; (ii) if the shares of Common Stock are not quoted on a any such market or listed on any such exchange and the shares of Common Stock are traded in the over-the-counter market, the last price reported on such day by the OTC Bulletin Board; (iii) if the shares of Common Stock are not quoted on a any such market, listed on any such exchange or quoted on the OTC Bulletin Board, then the last price quoted on such day in the over-the-counter market as reported by the National Quotation Bureau Incorporated (or any similar organization or agency succeeding its functions of reporting prices); or (iv) if none of clauses (i)-(iii) are applicable, then as determined by mutual agreement of the Company and the Warrantholder; or if the Company and the Warrantholder are unable to agree on a Market Price, either party may submit the matter to arbitration as provided in Section 17.

 

“Date of Exercise” means the date on which the Company has received from Warrantholder (i) the Warrant, and (ii) a written notice of election to exercise signed by Warrantholder and indicating the number of Warrant Shares to be purchased.

 

This rights granted herein shall not in any way limit any other remedies that a Warrantholder may have under the Registration Rights Agreement (the “Registration Rights Agreement”) or in any other agreement or any other remedies that may be available pursuant to applicable law for breach by the Company of the Registration Rights Agreement.

 

(c) Company’s Failure to Timely Deliver Securities.  If within three (3) Trading Days after the Company’s receipt of the facsimile copy of an Exercise Notice the Company shall fail to issue and deliver a certificate to the Warrantholder and register such shares of Common Stock on the Company’s share register or credit the Warrantholder’s balance account with the Depository Trust & Clearing Corporation for the number of shares of Common Stock to which the Warrantholder is entitled upon the Warrantholder’s exercise hereunder or pursuant to the Company’s obligation set forth in clause (ii) below, and if on or after such Trading Day the Warrantholder purchases (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by the Warrantholder of shares of Common Stock issuable upon such exercise that the Warrantholder anticipated receiving from the Company (a “Buy-In”), then the Company shall, within six (6) Business Days after the Warrantholder’s request and in the Warrantholder’s discretion, either (i) pay cash to the Warrantholder in an amount equal to the Warrantholder’s total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased (the “Buy-In Price”), at which point the Company’s obligation to deliver such certificate (and to issue such shares of Common Stock) or credit such Warrantholder’s balance account with DTC shall terminate, or (ii) promptly honor its obligation to deliver to the Warrantholder a certificate or certificates representing such shares of Common Stock or credit such Warrantholder’s balance account with DTC and pay cash to the Warrantholder in an amount equal to the excess (if any) of the Buy-In Price over the product of (A) such number of shares of Common Stock, times (B) the Market Price on the date of exercise.

 

 

  

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Section 4. Compliance with the Securities Act of 1933. This Warrant may only be exercised by the Warrantholder if the Warrantholder is an “accredited investor” as defined by Rule 501 of Regulation D.  The Company may cause the legend set forth on the first page of this Warrant to be set forth on each Warrant, and a similar legend on any security issued or issuable upon exercise of this Warrant, unless counsel for the Company is of the opinion as to any such security that such legend is unnecessary.

 

Section 5. Payment of Taxes.  The Company will pay any documentary stamp taxes attributable to the initial issuance of Warrant Shares issuable upon the exercise of the Warrant; provided, however, that the Company shall not be required to pay any tax or taxes which may be payable in respect of any transfer involved in the issuance or delivery of any certificates for Warrant Shares in a name other than that of the Warrantholder in respect of which such shares are issued, and in such case, the Company shall not be required to issue or deliver any certificate for Warrant Shares or any Warrant until the person requesting the same has paid to the Company the amount of such tax or has established to the Company’s reasonable satisfaction that such tax has been paid.  The Warrantholder shall be responsible for income taxes due under federal, state or other law, if any such tax is due.

 

Section 6. Mutilated or Missing Warrants.  In case this Warrant shall be mutilated, lost, stolen, or destroyed, the Company shall issue in exchange and substitution of and upon surrender and cancellation of the mutilated Warrant, or in lieu of and substitution for the Warrant lost, stolen or destroyed, a new Warrant of like tenor and for the purchase of a like number of Warrant Shares, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction of the Warrant, and with respect to a lost, stolen or destroyed Warrant, reasonable indemnity or bond with respect thereto, if requested by the Company.

 

Section 7. Reservation of Common Stock.  At any time when this Warrant is exercisable, the Company shall at all applicable times keep reserved until issued (if necessary) as contemplated by this Section 7, out of the authorized and unissued shares of Common Stock, at least a number of shares of Common Stock equal to 120% of the number of shares of Common Stock as shall from time to time be necessary to effect the exercise of all of this Warrant then outstanding.  The Company agrees that all Warrant Shares issued upon due exercise of the Warrant shall be, at the time of delivery of the certificates for such Warrant Shares, duly authorized, validly issued, fully paid and non-assessable shares of Common Stock of the Company.

 

 

  

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Section 8. Adjustments.

 

(a) If the Company shall, at any time or from time to time while this Warrant is outstanding, pay a dividend or make a distribution on its Common Stock in shares of Common Stock, subdivide its outstanding shares of Common Stock into a greater number of shares or combine its outstanding shares of Common Stock into a smaller number of shares or issue by reclassification of its outstanding shares of Common Stock any shares of its capital stock (including any such reclassification in connection with a consolidation or merger in which the Company is the continuing corporation), then (i) the Warrant Price in effect immediately prior to the date on which such change shall become effective shall be adjusted by multiplying such Warrant Price by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such change and the denominator of which shall be the number of shares of Common Stock outstanding immediately after giving effect to such change and (ii) the number of Warrant Shares purchasable upon exercise of this Warrant shall be adjusted by multiplying the number of Warrant Shares purchasable upon exercise of this Warrant immediately prior to the date on which such change shall become effective by a fraction, the numerator of which is shall be the Warrant Price in effect immediately prior to the date on which such change shall become effective and the denominator of which shall be the Warrant Price in effect immediately after giving effect to such change, calculated in accordance with clause (i) above.  Such adjustments shall be made successively whenever any event listed above shall occur.

 

(b) If any capital reorganization, reclassification of the capital stock of the Company, consolidation or merger of the Company with another corporation in which the Company is not the survivor, or sale, transfer or other disposition of all or substantially all of the Company’s assets to another corporation shall be effected, then, as a condition of such reorganization, reclassification, consolidation, merger, sale, transfer or other disposition, lawful and adequate provision shall be made whereby each Warrantholder shall thereafter have the right to purchase and receive upon the basis and upon the terms and conditions herein specified and in lieu of the Warrant Shares immediately theretofore issuable upon exercise of the Warrant, such shares of stock, securities or assets as would have been issuable or payable with respect to or in exchange for a number of Warrant Shares equal to the number of Warrant Shares immediately theretofore issuable upon exercise of the Warrant, had such reorganization, reclassification, consolidation, merger, sale, transfer or other disposition not taken place, and in any such case appropriate provision shall be made with respect to the rights and interests of each Warrantholder to the end that the provisions hereof (including, without limitation, provision for adjustment of the Warrant Price) shall thereafter be applicable, as nearly equivalent as may be practicable in relation to any shares of stock, securities or assets thereafter deliverable upon the exercise hereof.  The Company shall not effect any such consolidation, merger, sale, transfer or other disposition unless prior to or simultaneously with the consummation thereof the successor corporation (if other than the Company) resulting from such consolidation or merger, or the corporation purchasing or otherwise acquiring such assets or other appropriate corporation or entity shall assume the obligation to deliver to the Warrantholder, at the last address of the Warrantholder appearing on the books of the Company, such shares of stock, securities or assets as, in accordance with the foregoing provisions, the Warrantholder may be entitled to purchase, and the other obligations under this Warrant.  The provisions of this paragraph (b) shall similarly apply to successive reorganizations, reclassifications, consolidations, mergers, sales, transfers or other dispositions.

 

 

  

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(c) In case the Company shall fix a payment date for the making of a distribution to all holders of Common Stock (including any such distribution made in connection with a consolidation or merger in which the Company is the continuing corporation) of evidences of indebtedness or assets (other than cash dividends or cash distributions payable out of consolidated earnings or earned surplus or dividends or distributions referred to in Section 8(a)), or subscription rights or warrants, the Warrant Price to be in effect after such payment date shall be determined by multiplying the Warrant Price in effect immediately prior to such payment date by a fraction, the numerator of which shall be the total number of shares of Common Stock outstanding multiplied by the Market Price per share of Common Stock immediately prior to such payment date, less the fair market value (as determined by the Company’s Board of Directors in good faith) of said assets or evidences of indebtedness so distributed, or of such subscription rights or warrants, and the denominator of which shall be the total number of shares of Common Stock outstanding multiplied by such Market Price per share of Common Stock immediately prior to such payment date.

 

(d) An adjustment to the Warrant Price shall become effective immediately after the payment date in the case of each dividend or distribution and immediately after the effective date of each other event which requires an adjustment.

 

(e) In the event that, as a result of an adjustment made pursuant to this Section 8, the Warrantholder shall become entitled to receive any shares of capital stock of the Company other than shares of Common Stock, the number of such other shares so receivable upon exercise of this Warrant shall be subject thereafter to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Warrant Shares contained in this Warrant.

 

(f) To the extent permitted by applicable law and the listing requirements of any stock market or exchange on which the Common Stock is then listed, the Company from time to time may decrease the Warrant Price by any amount for any period of time if the period is at least twenty (20) days, the decrease is irrevocable during the period and the Board shall have made a determination that such decrease would be in the best interests of the Company, which determination shall be conclusive provided however, that the Warrant Price may not be decreased below the Market Price on the date of the execution of Purchase Agreement.  Whenever the Warrant Price is decreased pursuant to the preceding sentence, the Company shall provide written notice thereof to the Warrantholder at least five (5) days prior to the date the decreased Warrant Price takes effect, and such notice shall state the decreased Warrant Price and the period during which it will be in effect.  Notwithstanding the foregoing, the Company shall treat all holders of the Company Warrants equally.

 

 

  

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Section 9. Fractional Interest.  The Company shall not be required to issue fractions of Warrant Shares upon the exercise of this Warrant.  If any fractional share of Common Stock would, except for the provisions of the first sentence of this Section 9, be deliverable upon such exercise, the Company, in lieu of delivering such fractional share, shall pay to the exercising Warrantholder an amount in cash equal to the Market Price (determined in accordance with Section 3(b)) of such fractional share of Common Stock on the date of exercise.

 

Section 10. Benefits.  Nothing in this Warrant shall be construed to give any person, firm or corporation (other than the Company and the Warrantholder) any legal or equitable right, remedy or claim, it being agreed that this Warrant shall be for the sole and exclusive benefit of the Company and the Warrantholder.

 

Section 11. Notices to Warrantholder.  Upon the happening of any event requiring an adjustment of the Warrant Price, the Company shall promptly give written notice thereof to the Warrantholder at the address appearing in the records of the Company, stating the adjusted Warrant Price and the adjusted number of Warrant Shares resulting from such event and setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based.  Failure to give such notice to the Warrantholder or any defect therein shall not affect the legality or validity of the subject adjustment.

 

Section 12. Identity of Transfer Agent.  The Transfer Agent for the Common Stock is Colonial Stock Transfer.  Upon the appointment of any subsequent transfer agent for the Common Stock or other shares of the Company’s capital stock issuable upon the exercise of the rights of purchase represented by the Warrant, the Company will mail to the Warrantholder a statement setting forth the name and address of such transfer agent.

 

Section 13. Notices.  Unless otherwise provided, any notice required or permitted under this Warrant shall be given in writing and shall be deemed effectively given and received as hereinafter described (i) if given by personal delivery, then such notice shall be deemed received upon such delivery, (ii) if given by telex or facsimile, then such notice shall be deemed received upon receipt of confirmation of complete transmittal, (iii) if given by certified mail return receipt requested, then such notice shall be deemed received upon the day such return receipt is signed, and (iv) if given by an internationally recognized overnight air courier, then such notice shall be deemed given one business day after delivery to such carrier.  Copies of such notices shall also be transmitted by email to the email address provided for on the signature page of the Purchase Agreement.  All notices shall be addressed as follows: if to the Warrantholder, at its address as set forth in the Company’s books and records and, if to the Company, at the address as follows, or at such other address as the Warrantholder or the Company may designate by ten days’ advance written notice to the other:

 

If to the Company:

Auxilio, Inc.

26300 La Alameda, Suite 100

Mission Viejo, CA 92691

Attention:  Paul T. Anthony

Facsimile:  (949) 614-0701

 

 

  

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With a copy to:

Kirton & McConkie

60 E. South Temple, Suite 1800

Salt Lake City, UT 84111

Attention:  Alexander N. Pearson

Facsimile:  (801) 212-2006

Section 14. Registration Rights.  The initial Warrantholder (and its applicable assignees as provided in the Registration Rights Agreement) is entitled to the benefit of certain registration rights with respect to the shares of Common Stock issuable upon the exercise of this Warrant as provided in the Registration Rights Agreement.

 

Section 15. Successors.  All the covenants and provisions hereof by or for the benefit of the Warrantholder shall bind and inure to the benefit of its respective successors and assigns hereunder.

 

Section 16. Governing Law; Consent to Jurisdiction; Waiver of Jury Trial.  This Warrant shall be governed by, and construed in accordance with, the internal laws of the State of California, without reference to the choice of law provisions thereof.  The Company and, by accepting this Warrant, the Warrantholder, each irrevocably submits to the exclusive jurisdiction of the courts of the State of California located in Orange County and the United States District Court for the Central District of California for the purpose of any suit, action, proceeding or judgment relating to or arising out of this Warrant and the transactions contemplated hereby.  Service of process in connection with any such suit, action or proceeding may be served on each party hereto anywhere in the world by the same methods as are specified for the giving of notices under this Warrant.  The Company and, by accepting this Warrant, the Warrantholder, each irrevocably consents to the jurisdiction of any such court in any such suit, action or proceeding and to the laying of venue in such court.  The Company and, by accepting this Warrant, the Warrantholder, each irrevocably waives any objection to the laying of venue of any such suit, action or proceeding brought in such courts and irrevocably waives any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum.  EACH OF THE COMPANY AND, BY ITS ACCEPTANCE HEREOF, THE WARRANTHOLDER HEREBY WAIVES ANY RIGHT TO REQUEST A TRIAL BY JURY IN ANY LITIGATION WITH RESPECT TO THIS WARRANT AND REPRESENTS THAT COUNSEL HAS BEEN CONSULTED SPECIFICALLY AS TO THIS WAIVER.

 

Section 17. Dispute Resolution.  In the case of a dispute as to the determination of the Market Price, the Company shall submit the disputed determinations via facsimile to the Warrantholder.  If the Warrantholder and the Company are unable to agree upon such determination of the Market Price within three business days of such disputed determination being submitted to the Warrantholder, then the Company shall, within two business days, submit via facsimile the disputed determination of the Market Price to an independent, reputable investment bank selected by the Company and approved by the Warrantholder.  The Company shall cause at its expense the investment bank to perform the determinations and notify the Company and the Warrantholder of the results no later than ten business days from the time it receives the disputed determinations or calculations.  Such investment bank’s determination shall be binding upon all parties absent demonstrable error.

 

 

  

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Section 18. No Rights as Stockholder.  Prior to the exercise of this Warrant, the Warrantholder shall not have or exercise any rights as a stockholder of the Company by virtue of its ownership of this Warrant.

 

Section 19. Amendment; Waiver.  Any term of this Warrant may be amended or waived (including the adjustment provisions included in Section 8 of this Warrant) upon the written consent of the Company and the holders of Warrants representing at least 50.1% of the number of shares of Common Stock then subject to all outstanding Warrants (the “Majority Holders”); provided, that (x) any such amendment or waiver must apply to all Warrants; and (y) the number of Warrant Shares subject to this Warrant, the Warrant Price and the Expiration Date may not be amended, and the right to exercise this Warrant may not be altered or waived, without the written consent of the Warrantholder.

 

Section 20. Remedies; Other Obligations; Breaches and Injunctive Relief.  The remedies provided in this Warrant shall be cumulative and in addition to all other remedies available under this Warrant and the other Transaction Documents, at law or in equity (including a decree of specific performance and/or other injunctive relief), and nothing herein shall limit the right of the Warrantholder right to pursue actual damages for any failure by the Company to comply with the terms of this Warrant.  The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Warrantholder and that the remedy at law for any such breach may be inadequate.  The Company therefore agrees that, in the event of any such breach or threatened breach, the Warrantholder shall be entitled, in addition to all other available remedies, an injunction restraining any breach, without the necessity of showing economic loss and without any bond or other security being required.

 

Section 21. Section Headings.  The section headings in this Warrant are for the convenience of the Company and the Warrantholder and in no way alter, modify, amend, limit or restrict the provisions hereof.

 

[Signature Page Follows]

 

  

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IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed, as of the 29th day of July, 2011.

 

AUXILIO, INC.

By:                    s/                                                           

Name: Paul T. Anthony

Title:            Chief Financial Officer

Signature Page to

Warrant to Purchase _____ Shares of

Common Stock

4834-4136-3977.1

  

  

  

 

APPENDIX A

 

AUXILIO, INC.

 

WARRANT EXERCISE FORM

 

To Auxilio, Inc.:

The undersigned hereby irrevocably elects to exercise the right of purchase represented by the within Warrant (“Warrant”) for, and to purchase thereunder by the payment of the Warrant Price and surrender of the Warrant, _______________ shares of Common Stock (“Warrant Shares”) provided for therein, and requests that certificates for the Warrant Shares be issued as follows:

 

 

	  
	
Name

	  
	
  

 

	
Address

	  
	
Federal Tax ID or Social Security No.

and delivered by certified mail to the above address, or electronically (provide DWAC Instructions):

   

	  
	
 

	  
	
 

	  
	
 

 

or other (specify):

 

	  
	
 

	  
	
 

	  
	
 

 

and, if the number of Warrant Shares shall not be all the Warrant Shares purchasable upon exercise of the Warrant, that a new Warrant for the balance of the Warrant Shares purchasable upon exercise of this Warrant be registered in the name of the undersigned Warrantholder or the undersigned’s Assignee as below indicated and delivered to the address stated below.

 

[signatures on following page]

 

Appendix A

Warrant Exercise Form

4834-4136-3977.1

  

  

  

 

 

	
Dated: ___________________, ____

 

 

 

	  
	

Signature

 

 

Individual or Entity Name (and Title, if applicable)

 

 

 

 

Address

 

 

Federal Identification or Social Security No.

 

 

 

 

 

 

 

 

Note:  The signature must correspond with the name of the Warrantholder as written on the first page of the Warrant in every particular, without alteration or enlargement or any change whatever, unless the Warrant has been assigned.

 

	

Signature of Spouse/Partner (if applicable)

 

 

Name (please print)

 

 

 

 

Address

 

 

Federal Identification or Social Security No.

 

Assignee:

 

 

 

Appendix A

Warrant Exercise Form

4834-4136-3977.1

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