EXHIBIT 4.1
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), OR ANY STATE SECURITIES LAW, AND MAY NOT BE OFFERED FOR SALE, SOLD OR
TRANSFERRED UNLESS A REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE
SECURITIES LAWS SHALL BE EFFECTIVE WITH RESPECT THERETO, OR AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS IS
AVAILABLE IN CONNECTION WITH SUCH OFFER, SALE OR TRANSFER. SUBJECT TO COMPLIANCE
WITH THE REQUIREMENTS OF THE SECURITIES ACT AND APPLICABLE STATE SECURITIES
LAWS, THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT MAY
BE PLEDGED OR HYPOTHECATED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR
OTHER LOAN SECURED BY THIS WARRANT OR ANY OF THE SECURITIES ISSUABLE UPON
EXERCISE OF THIS WARRANT.
WARRANT TO PURCHASE COMMON STOCK
OF
CITADEL SECURITY SOFTWARE INC.
Issue Date: May 9, 2005
THIS CERTIFIES that ______________ or any subsequent holder hereof (the
"Holder"), has the right to purchase from CITADEL SECUIRTY SOFTWARE INC., a
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Delaware corporation (the "Company"), up to _______ fully paid and nonassessable
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shares of the Company's common stock, par value $0.01 per share (the "Common
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Stock"), subject to adjustment as provided herein, at a price per share equal to
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the Exercise Price (as defined below), at any time beginning on the date on
which this Warrant is issued (the "Issue Date") and ending at 6:00 p.m., eastern
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time, on the date that is the tenth (10th) anniversary of the Issue Date (the
"Expiration Date"). This Warrant is issued pursuant to a Securities Purchase
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Agreement, dated as of May 9, 2005 (the "Securities Purchase Agreement").
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Capitalized terms used herein and not otherwise defined shall have the
respective meanings set forth in the Securities Purchase Agreement.
1. Exercise.
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(a) Right to Exercise; Exercise Price. The Holder shall have the right to
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exercise this Warrant at any time and from time to time during the period
beginning on the Issue Date and ending on the Expiration Date as to all or any
part of the shares of Common Stock covered hereby (the "Warrant Shares"). The
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"Exercise Price" for each Warrant Share purchased by the Holder upon the
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exercise of this Warrant shall be equal to $1.75, subject to adjustment for the
events specified in Section 6 below.
(b) Exercise Notice. In order to exercise this Warrant, the Holder shall
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send by facsimile transmission, at any time prior to 6:00 p.m., eastern time, on
the Business Day on which the Holder wishes to effect such exercise (the
"Exercise Date"), to the Company an executed copy of the notice of exercise in
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the form attached hereto as Exhibit A (the "Exercise Notice"), and a copy of the
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original Warrant, and, in the case of a Cash Exercise (as defined below), shall
forward to the Company the Exercise Price. The Exercise Notice shall also state
the name or names (with address) in which the shares of Common Stock that are
issuable on such exercise shall be issued. In the case of a dispute as to the
calculation of the Exercise Price or the number of Warrant Shares issuable
hereunder (including, without limitation, the calculation of any adjustment
pursuant to Section 6 below), the Company shall promptly issue to the Holder the
number of Warrant Shares that are not disputed and shall submit the disputed
calculations to an independent registered public accounting firm of national
recognition within two (2) Business Days following the date on which the
Exercise Notice is delivered to the Company. The Company shall cause such
accountant to calculate the Exercise Price and/or the number of Warrant Shares
issuable hereunder and to notify the Company and the Holder of the results in
writing no later than three (3) Business Days following the day on which such
accountant received the disputed calculations (the "Dispute Procedure"). Such
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accountant's calculation shall be deemed conclusive absent manifest error. The
fees of any such accountant shall be borne by the party whose calculations were
most at variance with those of such accountant.
(c) Holder of Record. The Holder shall, for all purposes, be deemed to
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have become the holder of record of the Warrant Shares specified in an Exercise
Notice on the Exercise Date specified therein, irrespective of the date of
delivery of such Warrant Shares. Except as specifically provided herein,
nothing in this Warrant shall be construed as conferring upon the Holder hereof
any rights as a stockholder of the Company prior to the Exercise Date.
(d) Cancellation of Warrant. This Warrant shall be canceled upon its
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exercise and, if this Warrant is exercised in part, the Company shall, at the
time that it delivers Warrant Shares to the Holder pursuant to such exercise as
provided herein, issue a new warrant, and deliver to the Holder a certificate
representing such new warrant, with terms identical in all respects to this
Warrant (except that such new warrant shall be exercisable into the number of
shares of Common Stock with respect to which this Warrant shall remain
unexercised); provided, however, that the Holder shall be entitled to exercise
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all or any portion of such new warrant at any time following the time at which
this Warrant is exercised, regardless of whether the Company has actually issued
such new warrant or delivered to the Holder a certificate therefor.
2. Delivery of Warrant Shares Upon Exercise. Upon receipt of an Exercise
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Notice pursuant to Section 1 above, the Company shall, (A) in the case of a Cash
Exercise no later than
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the close of business on the later to occur of (i) the third (3rd) Business Day
following the Exercise Date set forth in such Exercise Notice and (ii) such
later date on which the Company shall have received payment of the Exercise
Price, (B) in the case of a Cashless Exercise (as defined below), no later than
the close of business on the third (3rd) Business Day following the Exercise
Date set forth in such Exercise Notice, and (C) with respect to Warrant Shares
that are the subject of a Dispute Procedure, the close of business on the third
(3rd) Business Day following the determination made pursuant to Section 1(b)
(each of the dates specified in (A), (B) or (C) being referred to as a "Delivery
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Date"), issue and deliver or caused to be delivered to the Holder the number of
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Warrant Shares as shall be determined as provided herein. The Company shall
effect delivery of Warrant Shares to the Holder by, as long as the Transfer
Agent participates in the Depository Trust Company ("DTC") Fast Automated
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Securities Transfer program ("FAST"), crediting the account of the Holder or its
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nominee at DTC (as specified in the applicable Exercise Notice) with the number
of Warrant Shares required to be delivered, no later than the close of business
on such Delivery Date. In the event that the Transfer Agent is not a
participant in FAST, or if the Warrant Shares are not otherwise eligible for
delivery through FAST, or if the Holder so specifies in an Exercise Notice or
otherwise in writing on or before the Exercise Date, the Company shall effect
delivery of Warrant Shares by delivering to the Holder or its nominee physical
certificates representing such Warrant Shares, no later than the close of
business on such Delivery Date.
3. Failure to Deliver Warrant Shares.
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(a) In the event that the Company fails for any reason to deliver to the
Holder the number of Warrant Shares specified in the applicable Exercise Notice
on or before the Delivery Date therefor (an "Exercise Default"), and such
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default continues for seven (7) Business Days following delivery of a written
notice of such default by the Holder to the Company, the Company shall pay to
the Holder payments ("Exercise Default Payments") in the amount of (i) (N/365)
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multiplied by (ii) the aggregate Exercise Price of the Warrant Shares which are
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the subject of such Exercise Default multiplied by (iii) the lower of fifteen
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percent (15%) and the maximum rate permitted by applicable law (the "Default
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Interest Rate"), where "N" equals the number of days elapsed between the
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original Delivery Date of such Warrant Shares and the date on which all of such
Warrant Shares are issued and delivered to the Holder. Cash amounts payable
hereunder shall be paid on or before the fifth (5th) Business Day of the
calendar month following the calendar month in which such amount has accrued.
(b) In the event that the Holder has not received certificates representing
the Warrant Shares by the seventh (7th) Business Day following an Exercise
Default, the Holder may, upon written notice to the Company (an "Exercise
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Default Notice"), regain on the date of such notice the rights of the Holder
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under the exercised portion of this Warrant that is the subject of such Exercise
Default, in which case the Exercise Price upon any subsequent exercise of such
portion of this Warrant will be equal to the lesser of (x) the lowest Exercise
Price occurring during the period beginning on related Delivery Date and ending
on the date on which the Exercise Default Notice is delivered to the Company and
(y) the Exercise Price in effect on the applicable Exercise Date (it being
understood that the Holder may deliver an Exercise Notice at any time following
delivery of an Exercise Default Notice to the Company). In such event, the
Holder shall retain all of the Holder's rights and remedies with respect to the
Company's failure to deliver such Warrant
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Shares (including without limitation the right to receive the cash payments
specified in Section 3(a) above).
(c) Nothing herein shall limit the Holder's right to pursue actual damages
for the Company's failure to issue and deliver Warrant Shares on the applicable
Delivery Date (including, without limitation, damages relating to any purchase
of Common Stock by the Holder to make delivery on a sale effected in
anticipation of receiving Warrant Shares upon exercise, such damages to be in an
amount equal to (A) the aggregate amount paid by the Holder for the Common Stock
so purchased minus (B) the aggregate amount of net proceeds, if any, received by
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the Holder from the sale of the Warrant Shares issued by the Company pursuant to
such exercise), and the Holder shall have the right to pursue all remedies
available to it at law or in equity (including, without limitation, a decree of
specific performance and/or injunctive relief); provided, however, that, in the
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event, following an Exercise Default, the Company delivers to the Holder the
Warrant Shares that are required to be issued by the Company pursuant to such
exercise, the Holder shall use commercially reasonable efforts to sell such
shares promptly following such delivery.
4. Exercise Limitations. In no event shall the Holder be permitted to
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exercise this Warrant, or part thereof, if, upon such exercise, the number of
shares of Common Stock beneficially owned by the Holder (other than shares which
would otherwise be deemed beneficially owned except for being subject to a
limitation on conversion or exercise analogous to the limitation contained in
this Section 4), would exceed 4.99% of the number of shares of Common Stock then
issued and outstanding. As used herein, beneficial ownership shall be determined
in accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, and the rules thereunder. To the extent that the limitation contained
in this Section 4 applies, the submission of an Exercise Notice by the Holder
shall be deemed to be the Holder's representation that this Warrant is
exercisable pursuant to the terms hereof and the Company shall be entitled to
rely on such representation without making any further inquiry as to whether
this Section 4 applies. Nothing contained herein shall be deemed to restrict the
right of a Holder to exercise this Warrant, or part thereof, at such time as
such exercise will not violate the provisions of this Section 4. The limitation
contained in this Section 4 shall cease to apply (x) upon sixty (60) days' prior
written notice from the Holder to the Company, (y) immediately upon written
notice from the Holder to the Company at any time after the public announcement
or other disclosure of a Major Transaction (as defined below).
5. Payment of the Exercise Price; Cashless Exercise. The Holder may pay
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the Exercise Price in either of the following forms or, at the election of
Holder, a combination thereof:
(a) through a cash exercise (a "Cash Exercise") by delivering immediately
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available funds, or
(b) if an effective Registration Statement is not available for the resale
of all of the Warrant Shares issuable hereunder at the time an Exercise Notice
is delivered to the Company, through a cashless exercise (a "Cashless
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Exercise"). The Holder may effect a Cashless Exercise by surrendering this
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Warrant to the Company and noting on the Exercise Notice that the Holder
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wishes to effect a Cashless Exercise, upon which the Company shall issue to the
Holder the number of Warrant Shares determined as follows:
X = Y x (A-B)/A
where: X = the number of Warrant Shares to be issued to the Holder;
Y = the number of Warrant Shares with respect to which this
Warrant is being exercised;
A = the Market Price as of the Exercise Date; and
B = the Exercise Price.
For purposes of Rule 144, it is intended and acknowledged that the Warrant
Shares issued in a Cashless Exercise transaction shall be deemed to have been
acquired by the Holder, and the holding period for the Warrant Shares required
by Rule 144 shall be deemed to have been commenced, on the Issue Date.
6. Anti-Dilution Adjustments; Distributions; Other Events. The Exercise
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Price and the number of Warrant Shares issuable hereunder shall be subject to
adjustment from time to time as provided in this Section 6. In the event that
any adjustment of the Exercise Price or the number of Warrant Shares as required
herein results in a fraction of a cent or fraction of a share, as applicable,
such Exercise Price or number of Warrant Shares shall be rounded up or down to
the nearest cent or share, as applicable.
(a) Subdivision or Combination of Common Stock. If the Company, at any
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time after the Issue Date, subdivides (by any stock split, stock dividend,
recapitalization, reorganization, reclassification or otherwise) its shares of
Common Stock into a greater number of shares, then after the date of record for
effecting such subdivision, the Exercise Price in effect immediately prior to
such subdivision will be proportionately reduced. If the Company, at any time
after the initial issuance of this Warrant, combines (by reverse stock split,
recapitalization, reorganization, reclassification or otherwise) its shares of
Common Stock into a smaller number of shares, then, after the date of record for
effecting such combination, the Exercise Price in effect immediately prior to
such combination will be proportionally increased.
(b) Distributions. If the Company shall declare or make any distribution
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of its assets (or rights to acquire its assets) to holders of Common Stock as a
partial liquidating dividend or otherwise (including any dividend or
distribution to the Company's stockholders in cash or shares (or rights to
acquire shares) of capital stock of a subsidiary) (a "Distribution"), the
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Company shall deliver written notice of such Distribution (a "Distribution
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Notice") to the Holder at least fifteen (15) Business Days prior to the earlier
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to occur of (i) the record date for determining stockholders entitled to such
Distribution (the "Record Date") and (ii) the date on which such Distribution is
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made (the "Distribution Date"). The Holder shall be entitled to receive, at its
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option (to be exercised by written notice delivered to the Company following the
date on which a Distribution Notice is delivered to the Holder), either (A) the
same amount and
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type of assets being distributed in such Distribution as though the Holder were
a holder on the Record Date therefor of a number of shares of Common Stock into
which this Warrant is exercisable as of such Record Date (such number of shares
to be determined at the Exercise Price then in effect and without giving effect
to any limitations on such exercise contained in this Warrant or the Securities
Purchase Agreement) or (B) a reduction in the Exercise Price as of the Record
Date therefor, such reduction to be effected by reducing the Exercise Price in
effect on the Business Day immediately preceding the Record Date by an amount
equal to the fair market value of the assets to be distributed divided by the
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number of shares of Common Stock as to which such Distribution is to be made,
such fair market value to be reasonably determined in good faith by the
independent members of the Company's Board of Directors. Notwithstanding
anything herein to the contrary, if the Holder does not notify the Company of
whether the Holder has elected clause (A) or (B) in the preceding sentence on or
prior to the Distribution Date, the Holder shall be deemed to have elected
clause (B) of the preceding sentence.
(c) Dilutive Issuances.
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(i) Adjustment Upon Dilutive Issuance. If, at any time after the
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Issue Date, the Company issues or sells, or in accordance with subparagraph (ii)
of this Section 6(c), is deemed to have issued or sold, any shares of Common
Stock for a consideration per share less than the Exercise Price on the date of
such issuance or sale (or deemed issuance or sale) (a "Dilutive Issuance"), then
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the Exercise Price shall be adjusted so as to equal the consideration received
or receivable by the Company (on a per share basis) for the additional shares of
Common Stock so issued, sold or deemed issued or sold in such Dilutive Issuance
(which, in the case of a deemed issuance or sale, shall be calculated in
accordance with subparagraph (ii) below) ); provided, however, that until
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Stockholder Approval is obtained, in no event shall the Conversion Price be
adjusted to an amount that is less than the Floor Price then in effect.
(ii) Effect On Exercise Price Of Certain Events. For purposes of
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determining the adjusted Exercise Price under subparagraph (i) of this Section
6(c), the following will be applicable:
(A) Issuance Of Purchase Rights. If the Company issues or sells
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any options, warrants, or other rights to purchase or subscribe for Common
Stock or Convertible Securities ("Purchase Rights"), whether or not
immediately exercisable, and the price per share for which Common Stock is
issuable upon the exercise of such Purchase Rights (and the price of any
conversion of Convertible Securities, if applicable) is less than the
Exercise Price in effect on the date of issuance or sale of such Purchase
Rights, then the maximum total number of shares of Common Stock issuable
upon the exercise of all such Purchase Rights (assuming full conversion,
exercise or exchange of Convertible Securities, if applicable) shall, as of
the date of the issuance or sale of such Purchase Rights, be deemed to be
outstanding and to have been issued and sold by the Company for such price
per share. For purposes of the preceding sentence, the "price per share for
which Common Stock is issuable upon the exercise of such Purchase Rights"
shall be determined by dividing (x) the total amount, if any, received or
receivable by the Company as consideration for the issuance or sale of all
such Purchase Rights, plus the minimum aggregate amount (without giving
effect to anti-dilution provisions) of additional consideration, if any,
payable to the Company upon the exercise of all such
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Purchase Rights, plus, in the case of Convertible Securities issuable upon
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the exercise of such Purchase Rights, the minimum aggregate amount of
additional consideration payable upon the conversion, exercise or exchange
of all such Convertible Securities (determined in accordance with the
calculation method set forth in subparagraph (ii)(B) below), by (y) the
maximum total number of shares of Common Stock issuable upon the exercise
of all such Purchase Rights (assuming full conversion, exercise or exchange
of Convertible Securities, if applicable). Except as provided in Section
6(c)(ii)(C) hereof, no further adjustment to the Exercise Price shall be
made upon the actual issuance of such Common Stock upon the exercise of
such Purchase Rights or upon the conversion, exercise or exchange of
Convertible Securities issuable upon exercise of such Purchase Rights.
(B) Issuance Of Convertible Securities. If the Company issues
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or sells any securities or other instruments that are convertible into or
exercisable or exchangeable for Common Stock" ("Convertible Securities"),
whether or not immediately convertible, exercisable or exchangeable, and
the price per share for which Common Stock is issuable upon such
conversion, exercise or exchange is less than the Exercise Price in effect
on the date of issuance or sale of such Convertible Securities, then the
maximum total number of shares of Common Stock issuable upon the
conversion, exercise or exchange of all such Convertible Securities
(without giving effect to anti-dilution provisions) shall, as of the date
of the issuance or sale of such Convertible Securities, be deemed to be
outstanding and to have been issued and sold by the Company for such price
per share. If the Convertible Securities so issued or sold do not have a
fluctuating conversion or exercise price or exchange ratio, then for the
purposes of the immediately preceding sentence, the "price per share for
which Common Stock is issuable upon such conversion, exercise or exchange"
shall be determined by dividing (A) the total amount, if any, received or
receivable by the Company as consideration for the issuance or sale of all
such Convertible Securities, plus the minimum aggregate amount of
additional consideration, if any, payable to the Company upon the
conversion, exercise or exchange of all such Convertible Securities
(determined in accordance with the calculation method set forth in this
subparagraph (ii)(B)), by (B) the maximum total number of shares of Common
Stock issuable upon the exercise, conversion or exchange of all such
Convertible Securities. If the Convertible Securities so issued or sold
have a fluctuating conversion or exercise price or exchange ratio (a
"Variable Rate Convertible Security"), then for purposes of the first
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sentence of this subparagraph (ii)(B), the "price per share for which
Common Stock is issuable upon such conversion, exercise or exchange" shall
be deemed to be the lowest price per share which would be applicable
(assuming all holding period and other conditions to any discounts
contained in such Variable Rate Convertible Security have been satisfied)
if the conversion price of such Variable Rate Convertible Security on the
date of issuance or sale thereof were seventy-five percent (75%) of the
actual conversion price on such date (the "Assumed Variable Market Price"),
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and, further, if the conversion price of such Variable Rate Convertible
Security at any time or times thereafter is less than or equal to the
Assumed Variable Market Price last used for making any adjustment under
this Section 6(c) with respect to any Variable Rate Convertible Security,
the Exercise Price in effect at such time shall be readjusted to equal the
Exercise Price which would have resulted if the Assumed Variable Market
Price at the time of issuance of the Variable Rate Convertible Security
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had been seventy-five percent (75%) of the actual conversion price of such
Variable Rate Convertible Security existing at the time of the adjustment
required by this sentence. No further adjustment to the Exercise Price
shall be made upon the actual issuance of such Common Stock upon
conversion, exercise or exchange of such Convertible Securities.
(C) Change In Option Price Or Conversion Rate. If there is a
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change at any time in (x) the amount of additional consideration payable to
the Company upon the exercise of any Purchase Rights; (y) the amount of
additional consideration, if any, payable to the Company upon the
conversion, exercise or exchange of any Convertible Securities the
adjustment for which is not otherwise covered under Section 6(c)(ii)(B)
above; or (z) the rate at which any Convertible Securities are convertible
into or exercisable or exchangeable for Common Stock, then in any such
case, the Exercise Price in effect at the time of such change shall be
readjusted to the Exercise Price which would have been in effect at such
time had such Purchase Rights or Convertible Securities still outstanding
provided for such changed additional consideration or changed conversion,
exercise or exchange rate, as the case may be, at the time initially issued
or sold.
(D) Calculation Of Consideration Received. If any Common Stock,
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Purchase Rights or Convertible Securities are issued or sold for cash, the
consideration received therefor will be the amount received by the Company
therefor. In case any Common Stock, Purchase Rights or Convertible
Securities are issued or sold for a consideration part or all of which
shall be other than cash, including in the case of a strategic or similar
arrangement in which the other entity will provide services to the Company,
purchase services from the Company or otherwise provide intangible
consideration to the Company, the amount of the consideration other than
cash received by the Company (including the net present value of the
consideration expected by the Company for the provided or purchased
services) shall be the fair market value of such consideration, except
where such consideration consists of securities, in which case the amount
of consideration received by the Company will be the average of the last
sale prices thereof on the principal market for such securities during the
period of ten Trading Days immediately preceding the date of receipt. In
case any Common Stock, Purchase Rights or Convertible Securities are issued
in connection with any merger or consolidation in which the Company is the
surviving corporation, the amount of consideration therefor will be deemed
to be the fair market value of such portion of the net assets and business
of the non-surviving corporation as is attributable to such Common Stock,
Purchase Rights or Convertible Securities, as the case may be. The
independent members of the Company's Board of Directors shall calculate
reasonably and in good faith, using standard commercial valuation methods
appropriate for valuing such assets, the fair market value of any
consideration other than cash or securities; provided, however, that if the
Holder does not agree to such fair market value calculation within three
Business Days after receipt thereof from the Company, then such fair market
value shall be determined in good faith by an investment banker or other
appropriate expert of national reputation selected by the Holder and
reasonably acceptable to the Company, with the costs of such appraisal to
be borne by the Company.
(iii) Exceptions To Adjustment Of Exercise Price. Notwithstanding the
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foregoing, no adjustment to the Exercise Price shall be made pursuant to this
Section 6(c) upon
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the issuance of any Excluded Securities. For purposes hereof, "Excluded
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Securities" means (I) securities purchased under the Securities Purchase
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Agreement; (II) securities issued upon conversion or exercise of the Preferred
Stock or the Warrants and securities issued upon conversion of the Series A
Preferred Stock or; (III) shares of Common Stock issuable or issued to
employees, consultants or directors from time to time upon the exercise of
options, in such case granted or to be granted in the discretion of the Board of
Directors pursuant to one or more stock option plans or agreements or restricted
stock plans or agreements in effect as of the Issue Date and up to an additional
500,000 shares of Common Stock issuable or issued to employees, directors,
consultants or lenders from time to time as shares or upon the exercise of
options or warrants, which may be granted in the discretion of the Board of
Directors pursuant to one or more agreements, stock option plans or agreements
or restricted stock plans or agreements approved by the Independent Directors of
the Board of Directors after the Issue Date; (IV) shares of Common Stock issued
in connection with any stock split, stock dividend or recapitalization of the
Company; and (V) shares of Common Stock issued in connection with the
acquisition by the Company of any corporation or other entity occurring after
the Effective Date and as long as a fairness opinion with respect to such
acquisition is rendered by an investment bank of national recognition.
(iv) Notice Of Adjustments. Upon the occurrence of each adjustment or
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readjustment of the Exercise Price pursuant to this Section 6(c) resulting in a
change in the Exercise Price by more than one percent (1%), or any change in the
number or type of stock, securities and/or other property issuable upon exercise
of this Warrant, the Company, at its expense, shall promptly compute such
adjustment or readjustment or change and prepare and furnish to the Holder a
certificate setting forth such adjustment or readjustment or change and showing
in detail the facts upon which such adjustment or readjustment or change is
based. The Company shall, at its expense and upon the written request at any
time of the Holder, furnish to the Holder a like certificate setting forth (i)
such adjustment or readjustment or change, (ii) the Exercise Price at the time
in effect and (iii) the number of shares of Common Stock and the amount, if any,
of other securities or property which at the time would be received upon
exercise of this Warrant.
(d) Major Transactions. In the event of a merger, consolidation, business
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combination, tender offer, exchange of shares, recapitalization, reorganization,
redemption or other similar event, as a result of which shares of Common Stock
of the Company shall be changed into the same or a different number of shares of
the same or another class or classes of stock or securities or other assets of
the Company or another entity or the Company shall sell all or substantially all
of its assets (each of the foregoing being a "Major Transaction"), the Company
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will give the Holder at least thirty (30) days written notice prior to the
closing of such Major Transaction, and: (i) the Holder shall be permitted to
exercise this Warrant in whole or in part at any time prior to the record date
for the receipt of such consideration and shall be entitled to receive, for each
share of Common Stock issuable to Holder for such exercise, the same per share
consideration payable to the other holders of Common Stock in connection with
such Major Transaction, and (ii) if and to the extent that the Holder retains
any portion of this Warrant following such record date, the Company will cause
the surviving or, in the event of a sale of assets, purchasing entity, as a
condition precedent to such Major Transaction, to assume the obligations of the
Company under this Warrant, with such adjustments to the Exercise Price and
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the securities covered hereby as may be necessary in order to preserve the
economic benefits of this Warrant to the Holder.
(e) Adjustments; Additional Shares, Securities or Assets. In the event
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that at any time, as a result of an adjustment made pursuant to this Section 6,
the Holder of this Warrant shall, upon exercise of this Warrant, become entitled
to receive securities or assets (other than Common Stock) then, wherever
appropriate, all references herein to shares of Common Stock shall be deemed to
refer to and include such shares and/or other securities or assets; and
thereafter the number of such shares and/or other securities or assets shall be
subject to adjustment from time to time in a manner and upon terms as nearly
equivalent as practicable to the provisions of this Section 6. Any adjustment
made herein other than pursuant to Section 6(c) hereof that results in a
decrease in the Exercise Price shall also effect a proportional increase in the
number of shares of Common Stock into which this Warrant is exercisable.
7. Fractional Interests.
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No fractional shares or scrip representing fractional shares shall be
issuable upon the exercise of this Warrant, but on exercise of this Warrant, the
Holder hereof may purchase only a whole number of shares of Common Stock. If,
on exercise of this Warrant, the Holder hereof would be entitled to a fractional
share of Common Stock or a right to acquire a fractional share of Common Stock,
the Company shall, in lieu of issuing any such fractional share, pay to the
Holder an amount in cash equal to the product resulting from multiplying such
fraction by the Market Price as of the Exercise Date.
8. Transfer of this Warrant.
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The Holder may sell, transfer, assign, pledge or otherwise dispose of
this Warrant, in whole or in part, as long as such sale or other disposition is
made pursuant to an effective registration statement or an exemption from the
registration requirements of the Securities Act, and applicable state security
laws, and is otherwise made in accordance with the applicable provisions of the
Securities Purchase Agreement. Upon such transfer or other disposition, the
Holder shall deliver this Warrant to the Company together with a written notice
to the Company, substantially in the form of the Transfer Notice attached hereto
as Exhibit B (the "Transfer Notice"), indicating the person or persons to whom
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this Warrant shall be transferred and, if less than all of this Warrant is
transferred, the number of Warrant Shares to be covered by the part of this
Warrant to be transferred to each such person. Within three (3) Business Days of
receiving a Transfer Notice and the original of this Warrant, the Company shall
deliver to the transferee designated by the Holder a Warrant or Warrants of like
tenor and terms for the appropriate number of Warrant Shares and, if less than
all this Warrant is transferred, shall deliver to the Holder a Warrant for the
remaining number of Warrant Shares.
9. Benefits of this Warrant.
---------------------------
This Warrant shall be for the sole and exclusive benefit of the Holder
of this Warrant and nothing in this Warrant shall be construed to confer upon
any person other than the Holder of this Warrant any legal or equitable right,
remedy or claim hereunder.
10
10. Loss, theft, destruction or mutilation of Warrant.
-------------------------------------------------------
Upon receipt by the Company of evidence of the loss, theft,
destruction or mutilation of this Warrant, and (in the case of loss, theft or
destruction) of indemnity reasonably satisfactory to the Company, and upon
surrender of this Warrant, if mutilated, the Company shall execute and deliver a
new Warrant of like tenor and date.
11. Notice or Demands.
-------------------
Any notice, demand or request required or permitted to be given by the
Company or the Holder pursuant to the terms of this Warrant shall be in writing
and shall be deemed delivered (i) when delivered personally or by verifiable
facsimile transmission, unless such delivery is made on a day that is not a
Business Day, in which case such delivery will be deemed to be made on the next
succeeding Business Day, (ii) on the next Business Day after timely delivery to
an overnight courier and (iii) on the Business Day actually received if
deposited in the U.S. mail (certified or registered mail, return receipt
requested, postage prepaid), addressed as follows:
If to the Company:
Citadel Security Software Inc.
Two Lincoln Centre, Suite 1600
▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Phone: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
Wood & ▇▇▇▇▇▇▇, LLP
▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇ ▇. ▇▇▇▇
Tel: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
and if to the Holder, to such address as shall be designated by the Holder in
writing to the Company.
12. Applicable Law.
---------------
This Warrant is issued under and shall for all purposes be governed by
and construed in accordance with the laws of the State of New York applicable to
contracts made and to be performed entirely within the State of New York.
11
13. Amendments.
----------
No amendment, modification or other change to, or waiver of any
provision of, this Warrant may be made unless such amendment, modification or
change or waiver is (A) set forth in writing and is signed by the Company and
the Holder or (B) agreed to in writing by the holders of at least two-thirds
(2/3) of the number of shares into which the Warrants issued in connection with
the Series B Preferred Stock and then outstanding are exercisable (without
regard to any limitation contained herein on such exercise), it being understood
that upon the satisfaction of the conditions described in (A) or (B) above, each
Warrant (including any Warrant held by the Holder who did not execute the
agreement specified in (A) above) shall be deemed to incorporate any amendment,
modification, change or waiver effected thereby as of the effective date
thereof.
14. Entire Agreement.
-----------------
This Warrant, the Securities Purchase Agreement, the Certificate of
Designation, the Registration Rights Agreement, and the other Transaction
Documents constitute the entire agreement among the parties hereto with respect
to the subject matter hereof and thereof. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein and
therein. This Warrant, the Securities Purchase Agreement, the Certificate of
Designation, the Registration Rights Agreement, and the other Transaction
Documents supersede all prior agreements and understandings among the parties
hereto with respect to the subject matter hereof and thereof.
15. Headings.
--------
The headings in this Agreement are for convenience of reference only and
shall not limit or otherwise affect the meaning hereof.
16. Issue Tax.
----------
The issuance of certificates for Warrant Shares upon the exercise of this
Warrant shall be made without charge to the Holder or such shares for any tax or
other costs in respect thereof, provided that the Company shall not be required
to pay any tax which may be payable in respect of any transfer involved in the
issuance and delivery of any certificate in a name other than the holder of this
Warrant.
[Signature Page to Follow]
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IN WITNESS WHEREOF, the Company has duly executed and delivered this
Warrant as of the Issue Date.
CITADEL SECURITY SOFTWARE INC.
By: __________________________
Name:
Title:
EXHIBIT A to WARRANT
EXERCISE NOTICE
---------------
The undersigned Holder hereby irrevocably exercises the right to purchase
______ of the shares of Common Stock ("Warrant Shares") of Citadel Security
--------------
Software Inc. evidenced by the attached Warrant (the "Warrant"). Capitalized
-------
terms used herein and not otherwise defined shall have the respective meanings
set forth in the Warrant.
1. Form of Exercise Price. The Holder intends that payment of the
Exercise Price shall be made as:
______ a Cash Exercise with respect to _________________ Warrant
--------------
Shares; and/or
______ a Cashless Exercise with respect to _________________ Warrant
-----------------
Shares, as permitted by Section 5(b) of the attached Warrant.
2. Payment of Exercise Price. In the event that the Holder has elected a
Cash Exercise with respect to some or all of the Warrant Shares to be issued
pursuant hereto, the Holder shall pay the sum of $________________ to the
Company in accordance with the terms of the Warrant.
Date: ______________________
_____________________________________
Name of Registered Holder
By: ________________________________
Name:
Title:
14
EXHIBIT B to WARRANT
--------------------
TRANSFER NOTICE
---------------
FOR VALUE RECEIVED, the undersigned Holder of the attached Warrant hereby sells,
assigns and transfers unto the person or persons named below the right to
purchase _________ shares of the Common Stock of Citadel Security Software Inc.
evidenced by the attached Warrant.
Date: ______________________
_____________________________________
Name of Registered Holder
By: ________________________________
Name:
Title:
Transferee Name and Address:
________________________________________
________________________________________
________________________________________
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