LOAN AND
INDEMNIFICATION AGREEMENT
This Loan and Indemnification Agreement dated as of November 24, 1999 is
entered into between ▇▇▇▇▇▇▇ ▇.▇. ▇▇▇▇▇▇▇ ("Lender ") and ImageWare Software,
Inc. ("Borrower").
WHEREAS, Borrower is currently undertaking an initial public offering
underwritten by Lender's employer, ▇▇▇▇▇▇▇ Investment Company, Inc. ("▇▇▇▇▇▇▇");
WHEREAS, Borrower is in need of working capital until it receives the
proceeds of its initial public offering;
WHEREAS, U.S. Bank National Association ("U.S. Bank") has agreed to lend to
Lender $500,000 at a variable interest rate (the "Loan") pursuant to the terms a
promissory note dated November 15, 1999;
WHEREAS, Lender has agreed to advance the proceeds of the Loan to Borrower
pursuant to the terms of the Promissory Note (the "Promissory Note") dated of
even date herewith; and
WHEREAS, ▇▇▇▇▇▇▇ has agreed to indemnify Lender in the event of a default
under the U.S. Bank Promissory Note and as such be ultimately responsible for
any payments due to U.S. Bank thereunder.
NOW, THEREFORE, in consideration of the premises and in order to induce
Lender to make the loan to Borrower, the parties hereto agree as follows:
SECTION 1. LOAN. Borrower promises to pay to the order of Lender or
Lender's designee Five Hundred Thousand Dollars ($500,000.00) loaned by Lender
to Borrower hereunder. Borrower shall also pay interest on the Five Hundred
Thousand Dollars ($500,000.00) at rates in accordance with the terms hereof.
SECTION 2. INTEREST RATES. Interest on this loan will accrue from the
date of this Loan Agreement and the Note until it is paid in full at the rate of
interest applicable to the promissory note attached thereto as set forth in the
section thereof entitled "Variable Interest Rate."
SECTION 3. PAYMENTS. (a) Borrower shall pay monthly payments of accrued
interest on this loan from Lender beginning on December 15, 1999 and continuing
on the fifteenth day of each month thereafter directly to U.S. Bank at the
address and for the account of Lender specified on the signature page hereto,
and shall send a copy of such documents as may evidence the payments to Lender
at the address specified in Section 9 below.
(b) All payments hereunder by Borrower to Lender, Lender's designee,
▇▇▇▇▇▇▇ or U.S. Bank, as the case may be, shall be made free and clear of
set-off or counterclaim, in lawful currency of the United States and in
immediately available funds. Whenever any payment hereunder shall be due on a
day that is not a business day, the date for payment thereof shall be extended
to the next succeeding business day.
SECTION 4. MATURITY DATE. (a) Borrower shall repay the entire principal
balance of the Loan together with all accrued and unpaid interest and any other
sums due under this Loan Agreement upon the earlier of (x) a written or oral
demand by Lender, (y) the closing of Borrower's initial public offering
underwritten by ▇▇▇▇▇▇▇ from the proceeds of such initial public offering, or
(z) April 3, 2000.
(b) If a demand for payment is made at any time to Lender by U.S. Bank,
Lender shall notify Borrower orally or in writing and Borrower shall repay the
Loan and all fees as required pursuant to the terms of the promissory note with
U.S. Bank. If Lender repays the Loan or any portion thereof pursuant to such
demand for payment, then Borrower agrees to immediately repay Lender or ▇▇▇▇▇▇▇,
as the case may be, an amount equal to the amount so paid or, if unable to do so
at the time of such demand for payment, pay Lender upon the earlier of (y) the
closing of Borrower's initial public offering underwritten by ▇▇▇▇▇▇▇ from the
proceeds of such initial public offering or (z) April 3, 2000. Failing such
payments, Borrower shall be considered in default of this Loan Agreement and
shall issue such warrants and make such payments as required by Section 6 below.
SECTION 5. FEES. (a) Borrower agrees to pay or cause to be paid to
Lender, ▇▇▇▇▇▇▇ or U.S. Bank, all fees, including loan fees, costs, out-of-
pocket expenses, premiums, penalties, late charges and disbursements (the
"Related Payments") provided for in this Loan Agreement, the Promissory Note and
the promissory note attached thereto that may be due in connection with any
payment by Lender or ▇▇▇▇▇▇▇ to U.S. Bank under the Loan or in connection with
nonpayment by Borrower of the loan when required.
(b) Borrower agrees to pay ▇▇▇▇▇▇▇ a loan fee in respect of the loan
evidenced by this Loan Agreement and the Promissory Note in the form of a cash
payment of $75,000 upon the closing of the initial public offering underwritten
by ▇▇▇▇▇▇▇ from the proceeds thereof.
SECTION 6. EVENTS OF DEFAULT. (a) If Borrower fails to pay, when due,
any of the obligations under this Loan Agreement or the Promissory Note, or if
Borrower fails to perform any obligation or covenant in this Loan Agreement, or
fails or neglects to perform, keep or observe any other material term,
provision, condition, covenant or agreement contained in this Loan Agreement,
then Borrower shall:
(i) issue to ▇▇▇▇▇▇▇ a warrant, in the form attached hereto as Exhibit A,
exercisable for five years from the date of issuance, to purchase, at an
exercise price of $1.00 per share, one share of Borrower's common stock for each
$1.00 paid by Lender or ▇▇▇▇▇▇▇ to U.S. Bank with respect to the Loan,
including, interest, fees, late charges, and any other payments made by Lender
or ▇▇▇▇▇▇▇ in connection with such Loan; and
(ii) in the event Borrower's initial public offering underwritten by
▇▇▇▇▇▇▇ is not completed by April 3, 2000, but Borrower completes another
financing transaction involving the issuance of equity securities, the
incurrence of debt or otherwise prior to December 31, 2000, the proceeds of
which are in excess of $575,000, then Borrower agrees to use the proceeds from
such financing, even if closed after April 3, 2000, to immediately repay the
loan of Lender, including interest, fees, late charges, and any other payments
made by Lender or ▇▇▇▇▇▇▇ in connection with such Loan and pay ▇▇▇▇▇▇▇ a cash
payment of $75,000 in respect of the loan fee.
(b) Any default by Lender under any of the agreements relating to the Loan
shall be and constitute a default under this Loan Agreement and, at the election
of Lender, trigger the payments by Borrower under Sections 1 through 6.
SECTION 7. TERM. This Loan Agreement and the Promissory Note shall
terminate upon the first to occur of (i) repayment in full by Borrower of the
principal amount of the loan with all accrued interest, fees, late charges, and
any other payments made by Lender or ▇▇▇▇▇▇▇ in connection with such Loan,
payment in full by Borrower to ▇▇▇▇▇▇▇ of the $75,000 loan fee and satisfaction
of all other obligations of Borrower under this Loan Agreement and the
Promissory Note, (ii) issuance of the Warrant pursuant to Section 6 with the
continuing obligation for payment under Section 6(a)(ii) (in the event of the
tender of such payment, ▇▇▇▇▇▇▇ shall, at its sole election, either accept such
payment and surrender the previously issued warrant, or refuse such payment and
retain the previously issued warrant), or (iii) the mutual written consent of
Borrower, Lender and ▇▇▇▇▇▇▇.
SECTION 8. AMENDMENTS, ETC. Notwithstanding any other provision of
this Loan Agreement, no amendment or waiver of any provision of this Loan
Agreement or consent to any departure by Borrower therefrom shall in any case be
effective unless the same shall be in writing, accepted and signed by the
parties hereto, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given.
SECTION 9. NOTICES. Except as otherwise expressly provided herein, all
notices, consents, approvals and other communications provided for herein shall
be in writing (the terms "in writing" or "written", as used herein with respect
to such communications, include reference to communications that are telecopied,
sent by overnight courier or messenger, but not communications sent by e-mail or
similar electronic formats) and telecopied or sent by overnight courier or
messenger to the intended recipient at the address or telecopy number set forth
beneath its name on the signature page hereof; or as to any party, at such other
address or telecopy number as shall be designated by such party in a notice to
the party sending such communication. Each such notice, request or other
communication shall be effective (i) if given by registered mail, return receipt
requested, three (3) business days after the date such communication is
deposited in the mails addressed as aforesaid or (ii) if given by any other
means, when delivered at the address specified in this Section 9, provided that
notices given by telecopier or other facsimile transmission shall not be
effective until received.
SECTION 10. NO WAIVER; REMEDIES. No failure on the part of Lender to
exercise, and no delay in exercising, any right hereunder shall operate as a
waiver thereof nor
shall any single or partial exercise of any right hereunder preclude any other
further exercise thereof or the exercise of any other right. The remedies herein
provided are cumulative and not exclusive of any remedies provided by law.
SECTION 11. INDEMNIFICATION. Borrower agrees to indemnify and hold
harmless Lender his heirs, representatives, assigns, and ▇▇▇▇▇▇▇ or any of its
affiliates, officers, directors, employees or agents, from and against any and
all claims, damages, losses, liabilities, reasonable costs or expenses
whatsoever (other than costs or expenses payable pursuant to another provision
of this Loan Agreement) which Lender or ▇▇▇▇▇▇▇ may incur (or which may be
claimed against them by any person or entity whatsoever) by reason of or in
connection with (a) the execution, delivery, administration or enforcement of
this Loan Agreement or the Promissory Note, or (b) the execution and delivery or
transfer of, or payment or failure to pay under, this Loan Agreement or the
Promissory Note. Nothing in this Section 11 is intended to limit the obligation
of Borrower contained in Sections 1 through 6 hereof. If any action shall be
brought against Lender or ▇▇▇▇▇▇▇ in respect of which indemnity may be sought
against Borrower, Lender or ▇▇▇▇▇▇▇ shall promptly notify Borrower in writing,
and Borrower shall promptly assume the defense thereof, including the retention
of counsel reasonably satisfactory to Lender and ▇▇▇▇▇▇▇, the payment of all
expenses and the right to negotiate and consent to settlement. Lender and
▇▇▇▇▇▇▇ shall have the right to employ separate counsel in any such action and
to participate in the defense thereof, and the fees and expenses of such counsel
shall be at the expense of Borrower. Borrower shall not be liable for any
settlement of any such action effected without its consent by Lender or ▇▇▇▇▇▇▇,
but if settled with the consent of Borrower or if there be a final judgment for
the plaintiff in any such action against Borrower or Lender or ▇▇▇▇▇▇▇, with or
without the consent of Borrower, Borrower agrees to indemnify and hold harmless
each of Lender and ▇▇▇▇▇▇▇ to the extent provided herein.
SECTION 12. CONTINUING OBLIGATION. This Agreement is a continuing
obligation and shall (a) be binding upon Borrower or its successor and (b) inure
to the benefit of and be enforceable by Lender or its successor.
SECTION 13. LIABILITY OF LENDER. Neither Lender, his heirs,
representatives, assigns, nor ▇▇▇▇▇▇▇ or any of its affiliates, officers,
directors, employees, or agents shall be liable or responsible to Borrower or
any creditors or shareholders of Borrower for (a) the use which may be made of
the loan or the proceeds thereof; (b) the validity, sufficiency or genuineness
of documents, even if such documents should in fact prove to be in any or all
respects invalid, insufficient, fraudulent or forged; (c) payments by Lender or
▇▇▇▇▇▇▇ against presentation of documents which do not comply with the terms of
the loan of Lender or the Loan, including failure of any documents to bear any
reference or adequate reference to the loan of Lender or the Loan; or (d) any
other circumstances whatsoever in making or failing to make payment under the
loan of Lender or the Loan.
SECTION 14. OBLIGATIONS ABSOLUTE. The payment obligations of Borrower
under this Loan Agreement are absolute, unconditional and irrevocable, and will
be paid strictly in accordance with the terms of this Loan Agreement under all
circumstances, including the following circumstances:
(a) Any lack of validity or enforceability of all or any of the Loan,
the Promissory Note, this Loan Agreement or any of the other related documents;
(b) Any amendment or waiver of, or any consent to departure from, any
of the terms and conditions of all or any of the Loan, the Promissory Note, this
Loan Agreement or any of the other related documents;
(c) The existence of any claim, set-off, defense or other rights that
Borrower may have at any time against any beneficiary or transferee of the
Promissory Note, this Loan Agreement, or the Loan (or any person or entity for
whom or for which any such beneficiary or any such transferee may be acting),
Lender, ▇▇▇▇▇▇▇, U.S. Bank or any other person or entity, whether in connection
with this Loan Agreement, the related documents or any unrelated transaction; or
(d) Any other circumstances or happening whatsoever, whether or not
similar to any of the preceding.
SECTION 15. AUTHORIZATIONS AND WAIVERS. Borrower consents to, waives
notice of, and authorizes and agrees that none of the following, on one or any
number of occasions, will affect Borrower's liability:
(a) any increase or decrease in the amount of credit extended to
Lender, any extension of time for payment, any acceptance of partial payments,
or any other modification in the terms of the credit granted to or the
relationship with Lender and U.S. Bank;
(b) any change, amendment, or renegotiation of any term or condition
of any agreement between Lender and U.S. Bank;
(c) any settlement, compromise, discharge or release of any
indebtedness, including in any bankruptcy proceeding, any impairment of or
failure to perfect any security interest in any collateral, or any release or
agreement not to ▇▇▇ Lender;
(d) any sale, transfer or other conveyance by Lender of its assets to
any entity or other person; and
(e) any other thing between U.S. Bank and Lender or U.S. Bank and
▇▇▇▇▇▇▇, whether or not specified, which may be done or waived.
SECTION 16. ADDITIONAL WAIVERS. Borrower also waives (a) all notices of
any default by Lender; (b) all notices of the settlement or adjustment of any
defaults or disputes; (c) all presentments; (d) all demands for performance; (e)
all notices of nonpayment or nonperformance; (f) all protests; (g) all notices
of protest; (h) all notices of dishonor; (i) all other notices to which Borrower
might be entitled; (j) all defenses related to any disability or other defense
of Borrower other than full payment of the indebtedness in legal tender; (k) all
right to deduct or assert setoff, counterclaims or recoupment; and (l) all
requirements of diligence.
SECTION 17. SEVERABILITY. Any provision of this Loan Agreement which is
prohibited, unenforceable or not authorized in any jurisdiction shall, as to
such jurisdiction, be ineffective only to the extent of such prohibition,
unenforceability or non-authorization without invalidating the remaining
provisions hereof or affecting the validity, enforceability or legality of such
provision in any other jurisdiction.
SECTION 18. GOVERNING LAW. This Agreement, in its entirety, shall be
governed by, and construed in accordance with, the laws of the State of Oregon.
SECTION 19. VENUE AND JURISDICTION. Borrower hereby irrevocably submits
to the jurisdiction of any state or federal court sitting in Multnomah County,
Oregon, in any action or proceeding brought to enforce or otherwise arising out
of or relating to this Loan Agreement, and hereby waives any objection to venue
in any such court and any claim that such forum is an inconvenient forum. The
parties agree that jurisdiction and venue with respect to any lawsuit between or
among the parties involving the interpretation, compliance or enforcement of any
provision under this Loan Agreement shall be exclusively in the state or federal
courts located in Multnomah County, Oregon.
SECTION 20. COUNTERPARTS. This Agreement may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
SECTION 21. HEADINGS. Section headings in this Loan Agreement are
included herein for convenience of reference only and shall not constitute a
part of this Loan Agreement for any other purpose.
SECTION 22. NO ASSIGNMENT BY BORROWER. Borrower shall not assign or
otherwise transfer any of its rights or obligations hereunder without the prior
written consent of Lender and ▇▇▇▇▇▇▇, which consent shall not be unreasonably
withheld or delayed.
SECTION 23. ATTORNEYS' FEES. In any litigation involving Borrower and
Lender or ▇▇▇▇▇▇▇ in connection with the interpretation of this Loan Agreement
or the Promissory Note, or the enforcement of any right of either of them under
this Loan Agreement or the Promissory Note, the prevailing party shall be
entitled to payment by the other party of all court costs and reasonable
attorneys' fees incurred by the prevailing party in connection with such
litigation (whether incurred at the trial, appellate, or administrative levels),
in such amount as the court or administrative body may judge reasonable, all of
which may be incorporated into and be a part of any judgment or decision
rendered in such litigation.
IN WITNESS WHEREOF, the parties hereto have caused this Loan Agreement to
be duly executed and delivered by their respective officers thereunto duly
authorized as of the date first above written.
BORROWER:
IMAGEWARE SOFTWARE, INC.
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
---------------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
-------------------------
Title: V.P & CFO
------------------------
Fax: ▇▇▇-▇▇▇-▇▇▇▇
--------------------------
Address:10883 ▇▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
LENDER:
/s/ ▇▇▇▇▇▇▇ ▇.▇. ▇▇▇▇▇▇▇ U.S. Bank Account No.:153650190975
------------------------------------ Address: ▇▇▇▇ ▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇ ▇.▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇
Address: ▇▇▇ ▇.▇. ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇
ACCEPTED AND AGREED:
▇▇▇▇▇▇▇ INVESTMENT COMPANY, INC.
By: /s/ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
---------------------------
Name: ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
-------------------------
Title: Senior VP, Research
------------------------
Fax: ▇▇▇-▇▇▇-▇▇▇▇
--------------------------
Address: ▇▇▇ ▇.▇. ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇
EXHIBIT A
FORM OF
IMAGEWARE SOFTWARE, INC.
PURCHASE WARRANT
Issued to:
▇▇▇▇▇▇▇ INVESTMENT COMPANY, INC.
Exercisable to Purchase
575,000 SHARES OF THE COMPANY'S COMMON STOCK
THIS WARRANT HAS NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933
AND IS NOT TRANSFERABLE
EXCEPT AS PROVIDED HEREIN
Void after [April 3,] 2005
This is to certify that, for value received and subject to the
terms and conditions set forth below, the Warrantholder (hereinafter defined) is
entitled to purchase, and the Company promises and agrees to sell and issue to
the Warrantholder, at any time on or after [April 3,] 2000 and on or before
[April 3,] 2005, up to 575,000 shares of Common Stock (hereinafter defined) at
the Exercise Price (hereinafter defined).
This Warrant Certificate is issued subject to the following
terms and conditions:
1. DEFINITIONS OF CERTAIN TERMS. Except as may be otherwise clearly
required by the context, the following terms have the following meanings:
(a) "Act" means the Securities Act of 1933, as amended.
(b) "Issue Date" means April 3, 2000.
(c) "Commission" means the Securities and Exchange Commission.
(d) "Common Stock" means the common stock, $0.01 par value, of
the Company.
(e) "Company" means ImageWare Software, Inc., a California
corporation.
(f) "Exercise Price" means the price at which the
Warrantholder may purchase one share of Common Stock (or Securities obtainable
in lieu of one share of Common Stock) upon exercise of Warrants as determined
from time to time pursuant to the provisions hereof. The initial Exercise Price
is $1.00 per share of Common Stock.
(g) "Rules and Regulations" means the rules and regulations of
the Commission adopted under the Act.
(h) "Securities" means the securities obtained or obtainable
upon exercise of the Warrant or securities obtained or obtainable upon exercise,
exchange or conversion of such securities.
(i) "Warrant Certificate" means a certificate evidencing the
Warrant.
(j) "Warrantholder" means a record holder of the Warrant or
Securities. The initial Warrantholder is ▇▇▇▇▇▇▇ Investment Company, Inc.
(k) "Warrant" means the warrant evidenced by this certificate,
or any certificate obtained upon transfer or partial exercise of the Warrant
evidenced by any such certificate.
2. EXERCISE OF WARRANTS. All or any part of the Warrant may be
exercised commencing on the date the Warrant is issued and ending at 5:00 p.m.
(Pacific Time) on the fifth anniversary of the Issue Date by surrendering this
Warrant Certificate, together with appropriate instructions, duly executed by
the Warrantholder or by its duly authorized attorney, at the office of the
Company, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, or at such other
office or agency as the Company may designate. Upon receipt of notice of
exercise, the Company shall immediately instruct its transfer agent to prepare
certificates for the Securities to be received by the Warrantholder upon
completion of the Warrant exercise. When such certificates are prepared, the
Company shall notify the Warrantholder and deliver such certificates to the
Warrantholder or as per the Warrantholder's instructions immediately upon
payment in full by the Warrantholder, in lawful money of the United States, of
the Exercise Price payable with respect to the Securities being purchased. If
the Warrantholder shall represent and warrant that all applicable registration
and prospectus delivery requirements for their sale have been complied with upon
sale of the
Page 1 - Purchase Warrant
securities received upon exercise of the Warrant, such certificates shall not
bear a legend with respect to the Act.
If fewer than all the Securities purchasable under the Warrant are
purchased, the Company will, upon such partial exercise, execute and deliver to
the Warrantholder a new Warrant Certificate (dated the date hereof), in form and
tenor similar to this Warrant Certificate, evidencing that portion of the
Warrant not exercised. The Securities to be obtained on exercise of the Warrant
will be deemed to have been issued, and any person exercising the Warrants will
be deemed to have become a holder of record of those Securities, as of the date
of the payment of the Exercise Price.
3. ADJUSTMENTS IN CERTAIN EVENTS. The number, class, and price of
Securities for which this Warrant Certificate may be exercised are subject to
adjustment from time to time upon the happening of certain events as follows:
(a) If the outstanding shares of the Company's Common Stock
are divided into a greater number of shares or a dividend in stock is paid on
the Common Stock, the number of shares of Common Stock for which the Warrant is
then exercisable will be proportionately increased and the Exercise Price will
be proportionately reduced; and, conversely, if the outstanding shares of Common
Stock are combined into a smaller number of shares of Common Stock, the number
of shares of Common Stock for which the Warrant is then exercisable will be
proportionately reduced and the Exercise Price will be proportionately
increased. The increases and reductions provided for in this subsection 3(a)
will be made with the intent and, as nearly as practicable, the effect that
neither the percentage of the total equity of the Company obtainable on exercise
of the Warrants nor the price payable for such percentage upon such exercise
will be affected by any event described in this subsection 3(a).
(b) In case of any change in the Common Stock through merger,
consolidation, reclassification, reorganization, partial or complete
liquidation, purchase of substantially all the assets of the Company, or other
change in the capital structure of the Company, then, as a condition of such
change, lawful and adequate provision will be made so that the holder of this
Warrant Certificate will have the right thereafter to receive upon the exercise
of the Warrant the kind and amount of shares of stock or other securities or
property to which he would have been entitled if, immediately prior to such
event, he had held the number of shares of Common Stock obtainable upon the
exercise of the Warrant. In any such case, appropriate adjustment will be made
in the application of the provisions set forth herein with respect to the rights
and interest thereafter of the Warrantholder, to the end that the provisions set
forth herein will thereafter be applicable, as nearly as reasonably may be, in
relation to any shares of stock or other property thereafter deliverable upon
the exercise of the Warrant. The Company will not permit any change in its
capital structure to occur unless the issuer of the shares of stock or other
securities to be received by the holder of this Warrant Certificate, if not the
Company, agrees to be bound by and comply with the provisions of this Warrant
Certificate.
(c) When any adjustment is required to be made in the number
of shares of Common Stock, other securities, or the property purchasable upon
exercise of the Warrant, the Company will promptly determine the new number of
such shares or other securities or property purchasable upon exercise of the
Warrant and (i) prepare and retain on file a statement describing in reasonable
detail the method used in arriving at the new number of such shares or other
securities or property purchasable upon exercise of the Warrant and (ii) cause a
copy of such
Page 2 - Purchase Warrant
statement to be mailed to the Warrantholder within thirty (30) days after the
date of the event giving rise to the adjustment.
(d) No fractional shares of Common Stock or other securities
will be issued in connection with the exercise of the Warrant, but the Company
will pay, in lieu of fractional shares, a cash payment therefor on the basis of
the mean between the bid and asked prices of the Common Stock in the
over-the-counter market or the last sale price of the Common Stock on the Nasdaq
SmallCap Market or a national securities exchange, as the case may be, on the
day immediately prior to exercise.
(e) If securities of the Company or securities of any
subsidiary of the Company are distributed pro rata to holders of Common Stock,
such number of securities will be distributed to the Warrantholder or his
assignee upon exercise of his rights hereunder as such Warrantholder or assignee
would have been entitled to if this Warrant Certificate had been exercised prior
to the record date for such distribution. The provisions with respect to
adjustment of the Common Stock provided in this Section 3 will also apply to the
securities to which the Warrantholder or his assignee is entitled under this
subsection 3(e).
(f) Notwithstanding anything herein to the contrary, there
will be no adjustment made hereunder on account of the sale by the Company of
the Common Stock or other Securities purchasable upon exercise of the Warrant.
4. RESERVATION OF SECURITIES. The Company agrees that the number of
shares of Common Stock or other Securities sufficient to provide for the
exercise of the Warrant upon the basis set forth above will at all times during
the term of the Warrant be reserved for issuance upon exercise of the Warrant.
5. VALIDITY OF SECURITIES. All Securities delivered upon the exercise
of the Warrant will be duly and validly issued in accordance with their terms,
and the Company will pay all documentary and transfer taxes, if any, in respect
of the original issuance thereof upon exercise of the Warrant.
6. REGISTRATION RIGHTS.
(a) DEFINITIONS. For purposes of this subsection 6, the
following terms shall have the following definitions.
(i) The terms "Form ▇-▇," "▇▇▇▇ ▇-▇," "Form S-4" and
"Form S-8" mean such respective forms under the Act,
as in effect on the date hereof or any successor
registration forms to Form ▇-▇, ▇▇▇▇ ▇-▇, Form S-4
and Form S-8, respectively, under the Act
subsequently adopted by the Commission.
(ii) The term "Holder" means the Warrantholder and
any person owning Registrable Securities (as defined
below) or any assignee thereof in accordance with
Section 6(m) hereof.
(iii) The term "Immediate Family" means, with respect
to any natural person, each of such person's spouse,
father, mother, brothers, sisters and lineal
descendants and ancestors.
(iv) The terms "register," "registered," and
"registration" refer to a registration effected by
preparing and filing a registration statement or
similar document in compliance with the Act, and the
automatic
Page 3 - Purchase Warrant
effectiveness or the declaration or ordering of
effectiveness of such registration statement or
document.
(v) The term "Registrable Securities" means (i) any
shares of Common Stock held by a Holder or any
capital stock issued as a dividend or other
distribution with respect to, in exchange for, or in
replacement of such Common Stock; and (ii) any other
shares of capital stock acquired after the date
hereof by any Holder or any capital stock issued as a
dividend or other distribution with respect to, in
exchange for, or in replacement of such stock;
provided, however, that any shares previously sold
pursuant to a registered public offering or pursuant
to an exemption from the registration requirements of
the Act under which the transferee does not receive
"restricted securities" shall cease to be Registrable
Securities.
(b) REQUEST FOR REGISTRATION.
(i) At any time after the earlier of (i) April 3,
2001 or (ii) the date six months after the closing
date of the first registered public offering of
securities of the Company, if the Company shall
receive a written request from the Warrantholder that
the Company effect the registration under the Act of
Registrable Securities, then the Company shall,
within five days of the receipt thereof, give written
notice of such request to all Holders and shall,
subject to the limitations of this Section 6(b), use
its best efforts to effect such a registration as
soon as practicable and in any event to file within
60 days of the receipt of such request a registration
statement under the Act covering all the Registrable
Securities which the Holders shall in writing request
(within 20 days of receipt of the notice given by the
Company pursuant to this Section 6(b)) to be included
in such registration and to have such registration
statement become effective.
(ii) If the Warrantholder intends to distribute the
Registrable Securities covered by their request by
means of an underwriting, they shall so advise the
Company as part of their request made pursuant to
this Section 6(b) and the Company shall include such
information in the written notice referred to in
Section 6(b). In such event, the right of any Holder
to include its Registrable Securities in such
registration shall be conditioned upon such Holder's
participation in such underwriting and the inclusion
of such Holder's Registrable Securities in the
underwriting (unless otherwise mutually agreed by a
majority in interest of the Holders and such Holder)
to the extent provided herein. All Holders proposing
to distribute their securities through such
underwriting shall (together with the Company as
provided in Section 6(d)(iv), enter into an
underwriting agreement in customary form with the
underwriter or underwriters selected for such
underwriting by the Company and reasonably acceptable
to the Warrantholder; provided, however, that if the
underwriter is not reasonably acceptable to a the
Warrantholder, the Warrantholder may select an
underwriter or underwriters which shall be reasonably
acceptable to the Company. Notwithstanding any other
provision of this Section 6, if, in the
Page 4 - Purchase Warrant
case of a registration requested pursuant to Section
6(b), the underwriter advises the Warrantholder in
writing that marketing factors require a limitation
of the number of shares to be underwritten, then the
Warrantholder shall so advise the Company and all
Holders of Registrable Securities which would
otherwise be underwritten pursuant hereto, and all
the securities other than Registrable Securities
sought to be included in the underwriting shall first
be excluded. To the extent that further limitation is
required, the number of Registrable Securities that
may be included in the underwriting shall be
allocated first to the Warrantholder then pro rata
among all Holders thereof desiring to participate in
such underwriting (according to the number of
Registrable Securities then held by each such
Holder). No Registrable Securities requested by any
Holder to be included in a registration pursuant to
Section 6(b) shall be excluded from the underwriting
unless all securities other than Registrable
Securities are first excluded.
(iii) The Company is obligated to effect pursuant to
Section 6(b) only one registration initiated by the
Warrantholder.
(iv) Notwithstanding the foregoing provisions of this
Section 6, in the event that the Company is requested
to file any registration statement pursuant to this
Section 6, (1) the Company shall not be obligated to
effect the filing of such registration statement:
(a) during the 90 days following the
effective date of any other registration
statement pertaining to an underwritten
public offering of securities for the
account of the Company or any Holder;
(b) if, in the case of the initial public
offering of the Company's securities, the
Company and the Warrantholder are unable to
obtain the commitment of the underwriter
selected pursuant to Section 6(b)(ii) to
underwrite the offering on a firm commitment
basis; or
(c) for a period of up to 90 days after the
date of a request for registration pursuant
to this Section 6 if at the time of such
request (1) the Company is engaged, or has
fixed plans to engage, within 90 days of the
time of such request, in a firm commitment
underwritten public offering of Common Stock
in which the holders of Registrable
Securities include Registrable Securities
pursuant to Section 6(c); or (2) the Company
is currently engaged in a self-tender or
exchange offer and the filing of a
registration statement would cause a
violation of the Securities Exchange Act of
1934, as amended (the "1934 Act");
or (2) if the Company shall furnish to the Holders
requesting such registration statement a certificate
signed by the Chief Executive Officer of the Company
stating that, in the good faith judgment of the Board
of Directors, it would not be in the best interests
of the Company and its
Page 5 - Purchase Warrant
shareholders generally for such registration
statement to be filed, the Company shall have the
right to defer such filing for a period of not more
than 90 days after receipt of the request of the
relevant Warrantholder; provided, however, that the
Company may not utilize the right set forth in this
Section 6(b)(iv)(2) more than once in any
twelve-month period.
(c) COMPANY REGISTRATION. If (but without any obligation to do
so) the Company proposes to register (including for this purpose a registration
effected by the Company for shareholders other than the Warrantholder) any of
its capital stock or other securities under the Act in connection with the
public offering of such securities solely for cash (other than a registration on
Form S-8 relating solely to the sale of securities to participants in a Company
stock plan or a registration on Form S-4 or a Rule 145 transaction), the Company
shall, at such time, promptly give each Holder written notice of such
registration. Upon the written request of any Holder given within 20 days after
mailing of such notice by the Company, the Company shall, subject to the
provisions of Section 6, cause a registration statement covering all of the
Registrable Securities that each such Holder has requested to be registered to
become effective under the Act.
(d) OBLIGATIONS OF THE COMPANY. Whenever required under this
Section 6 to effect the registration of any Registrable Securities, the Company
shall, as expeditiously as reasonably possible, prepare and file with the SEC a
registration statement with respect to such Registrable Securities and cause
such registration statement to become effective, and, upon the request of the
Holders of a majority of the Registrable Securities registered thereunder, keep
such registration statement effective for up to 180 days or until such earlier
time at which such Holders have informed the Company in writing that the
distribution of their securities has been completed (such 180-day or shorter
period, the "Effectiveness Period"). In addition, the Company shall:
(i) Prepare and file with the SEC such amendments and
supplements to such registration statement and the
prospectus used in connection with such registration
statement, and cause each such amendment and
supplement to become effective, as may be necessary
to comply with the provisions of the Act with respect
to the disposition of all securities covered by such
registration statement during the Effectiveness
Period.
(ii) Furnish to the Holders such number of copies of
a prospectus, including a preliminary prospectus, in
conformity with the requirements of the Act, and such
other documents as they may reasonably request in
order to facilitate the disposition of Registrable
Securities owned by them.
(iii) Register or qualify the securities covered by
such registration statement under such other
securities or Blue Sky laws of such states and
jurisdictions as shall be reasonably requested by the
Holders, except that the Company shall not be
required in connection therewith or as a condition
thereto to qualify to do business, subject itself to
taxation or file a general consent to service of
process in any such state or jurisdiction.
(iv) In the event of any underwritten public
offering, enter into and perform its obligations
under an underwriting agreement, in usual and
customary form, with the managing underwriter of such
offering. Each Holder participating in such
underwriting shall also enter into and perform
Page 6 - Purchase Warrant
its obligations under such an underwriting agreement,
including furnishing any opinion of counsel or
entering into a lock-up agreement reasonably
requested by the managing underwriter.
(v) Notify each Holder of Registrable Securities
covered by such registration statement, at any time
when a prospectus relating thereto covered by such
registration statement is required to be delivered
under the Act, of the happening of any event as a
result of which the prospectus included in such
registration statement, as then in effect, includes
an untrue statement of a material fact or omits to
state a material fact required to be stated therein
or necessary to make the statements therein not
misleading in the light of the circumstances then
existing and promptly file such amendments and
supplements which may be required pursuant to Section
6(d)(ii) on account of such event and use its best
efforts to cause each such amendment and supplement
to become effective.
(vi) Furnish, at the request of any Holder requesting
registration of Registrable Securities pursuant to
this Section 6, on the date that such Registrable
Securities are delivered to the underwriters for sale
in connection with a registration pursuant to this
Section 6, if such securities are being sold through
underwriters, or, if such securities are not being
sold through underwriters, on the date that the
registration statement with respect to such
securities becomes effective, (i) an opinion or
opinions, dated such date, of the counsel
representing the Company for the purposes of such
registration, in form and substance as is customarily
given by company counsel to the underwriters in an
underwritten public offering, addressed to the
underwriters, if any, and to the Holders requesting
registration of Registrable Securities and (ii) a
letter dated such date, from the independent
certified public accountant of the Company, in form
and substance as is customarily given by independent
certified public accountants to underwriters in an
underwritten public offering, addressed to the
underwriters, if any, and to the Holders requesting
registration of Registrable Securities.
(vii) Apply for listing and list the Registrable
Securities being registered on any national
securities exchange on which a class of the Company's
equity securities is listed or, if the Company does
not have a class of equity securities listed on a
national securities exchange, apply for qualification
and use its best efforts to qualify the Registrable
Securities being registered for inclusion on the
automated quotation system of the National
Association of Securities Dealers, Inc.
(viii) Without in any way limiting the types of
registrations to which this Section 6 shall apply, in
the event that the Company shall effect a "shelf
registration" under Rule 415 promulgated under the
Act, the Company shall take all necessary action,
including, without limitation, the filing of
post-effective amendments, to permit the Holders to
include their Registrable Securities in such
registration in accordance with the terms of this
Section 6.
Page 7 - Purchase Warrant
(e) FURNISH INFORMATION. It shall be a condition precedent to
the obligations of the Company to take any action pursuant to this Section 6 in
respect of the Registrable Securities of any selling Holder that such selling
Holder shall furnish to the Company such information regarding itself, the
Registrable Securities held by it, and the intended method of disposition of
such securities as shall be required to effect the registration of its
Registrable Securities.
(f) EXPENSES OF DEMAND REGISTRATION. All expenses other than
underwriting discounts and commissions relating to Registrable Securities
incurred in connection with each registration, filing or qualification pursuant
to Section 6(b)(i) including (without limitation) all registration, filing and
qualification fees, printing and accounting fees, fees and disbursements of
counsel for the Company, and the fees and disbursements of counsel for the
selling Holders, shall be borne by the Company. All underwriting discounts and
commissions relating to Registrable Securities included in any registration
effected pursuant to Section 6(b)(i) will be borne and paid ratably by the
Holders of such Registrable Securities.
(g) EXPENSES OF COMPANY REGISTRATION. The Company shall bear
and pay all expenses incurred in connection with any registration, filing or
qualification of Registrable Securities with respect to any registration
pursuant to Section 6(c) for each Holder, including, without limitation, all
registration, filing and qualification fees, printing and accounting fees, fees
and disbursements of counsel for the Company and the fees and disbursements of
counsel for the selling Holders. Underwriting discounts and commissions relating
to Registrable Securities included in any registration effected pursuant to
Section 6(c) will be borne and paid ratably by the Holders of such Registrable
Securities.
(h) UNDERWRITING REQUIREMENTS. In connection with any offering
involving an underwriting of securities being issued by the Company, the Company
shall not be required under Section 6(c) to include any of the Holders'
securities in such underwriting unless such Holders accept the terms of the
underwriting as agreed upon between the Company and the underwriters selected by
it, and then only in such quantity, if any, as in the reasonable opinion of the
underwriters, marketing factors allow. If the managing underwriter for the
offering shall advise the Company in writing that the total amount of
securities, including Registrable Securities, requested by shareholders to be
included in such offering exceeds the amount of securities to be sold other than
by the Company that marketing factors allow, then the Company shall be required
to include in the offering only that number of such securities, including
Registrable Securities, which the managing underwriter believes marketing
factors allow (the securities so included to be reduced as follows: (a) all
securities which shareholders other than the Company and the Holders seek to
include in the offering shall be excluded from the offering to the extent
limitation on the number of shares included in the underwriting is required, and
(b) if further limitation on the number of shares to be included in the
underwriting is required, then the number of shares held by Holders that may be
included in the underwriting shall be reduced so that the number of shares
included in the underwriting are pro rata in accordance with the number of
shares of Registrable Securities held by each such Holder), but in no event
shall the amount of securities of the selling Holders included in the offering
be reduced below 25% of the total amount of securities included in such
offering, unless such offering is the initial public offering of the Company's
securities in which case the selling Holders may be excluded if the managing
underwriter makes the determination described above and no securities other than
those of the Company are included. For purposes of the preceding parenthetical
concerning apportionment, for any selling shareholder which is a Holder of
Registrable Securities and which is a partnership, a limited liability company
or a
Page 8 - Purchase Warrant
corporation, the partners, retired partners, members, retired members and
shareholders of such Holder, or the estates and family members of such partners,
retired partners, members and retired members and any trusts for the benefit of
any of the foregoing persons shall collectively be deemed to be a "Selling
Holder," and any pro rata reduction with respect to such "Selling Holder" shall
be based upon the aggregate amount of shares carrying registration rights owned
by all entities and individuals included in such "Selling Holder," as defined in
this sentence.
(i) INDEMNIFICATION. In the event any Registrable Securities
are included in a registration statement under this Section 6:
(i) The Company will indemnify and hold harmless each
Holder, the officers, directors, partners, members,
agents and employees of each Holder, any underwriter
(as defined in the Act) for such Holder and each
person, if any, who controls or is deemed to control
such Holder or underwriter within the meaning of the
Act or the 1934 Act, against any losses, claims,
damages or liabilities (joint or several) to which
they may become subject under the Act, the 1934 Act
or any other federal or state law, insofar as such
losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any
of the following statements, omissions or violations
(each a "Violation"): (i) any untrue statement or
alleged untrue statement of a material fact contained
in such registration statement, including any
preliminary prospectus or final prospectus contained
therein or any amendments or supplements thereto,
(ii) the omission or alleged omission to state
therein a material fact required to be stated therein
or necessary to make the statements therein, in light
of the circumstances in which they were made, not
misleading, or (iii) any violation or alleged
violation by the Company of the Act, the 1934 Act,
any state securities law or any rule or regulation
promulgated under the Act, the 1934 Act or any state
securities law in connection with any matter relating
to such registration statement. The Company will
reimburse each such Holder, officer, director,
partner, member, agent, employee, underwriter or
controlling person or person who is deemed to control
for any legal or other expenses reasonably incurred
by them in connection with investigating or defending
any such loss, claim, damage, liability, or action.
The indemnity agreement contained in this Section
6(i)(i) shall not apply to amounts paid in settlement
of any loss, claim, damage, liability or action if
such settlement is effected without the consent of
the Company (which consent shall not be unreasonably
withheld), nor shall the Company be liable to a
Holder in any such case for any such loss, claim,
damage, liability or action (1) to the extent that it
arises out of or is based upon a Violation which
occurs in reliance upon and in conformity with
written information furnished expressly for use in
connection with such registration by or on behalf of
such Holder, underwriter or controlling person or (2)
in the case of a sale directly by a Holder of
Registrable Securities (including a sale of such
Registrable Securities through any underwriter
retained by such Holder engaging in a distribution
solely on behalf of such Holder), such untrue
statement or alleged untrue statement or omission or
alleged omission was contained in a
Page 9 - Purchase Warrant
preliminary prospectus and corrected in a final or
amended prospectus, and such Holder failed to deliver
a copy of the final or amended prospectus at or prior
to the confirmation of the sale of the Registrable
Securities to the person asserting any such loss,
claim, damage or liability in any case in which such
delivery is required by the Act.
(ii) Each Holder which includes any Registrable
Securities in any registration statement will
indemnify and hold harmless the Company, each of its
directors, each of its officers who have signed the
registration statement, each person, if any, who
controls the Company within the meaning of the Act,
each employee, agent, and any underwriter for the
Company, and any other Holder or other shareholder
selling securities in such registration statement or
any of its directors, officers, partners, members,
agents or employees or any person who controls such
Holder or such other shareholder or such underwriter,
against any losses, claims, damages, or liabilities
(joint or several) to which the Company or any such
director, officer, controlling person, employee,
agent, or underwriter or controlling person, or other
such Holder, shareholder, director, officer or
controlling person may become subject, under the Act,
the 1934 Act or other federal or state law, insofar
as such losses, claims, damages or liabilities (or
actions in respect thereto) arise out of or are based
upon any Violation, in each case to the extent (and
only to the extent) that such Violation occurs in
reliance upon and in conformity with written
information furnished by or on behalf of such Holder
expressly for use in connection with such
registration, and each such Holder will reimburse any
legal or other expenses reasonably incurred by the
Company or any such director, officer, controlling
person, agent or underwriter or controlling person,
other Holder or other shareholder, officer, director,
partner, member, agent, employee, or controlling
person in connection with investigating or defending
any such loss, claim, damage, liability, or action;
provided, however, that the liability of any Holder
hereunder shall be limited to the amount of net
proceeds (after deduction of all underwriters'
discounts and commissions paid by such Holder in
connection with the registration in question)
received by such Holder, in the offering giving rise
to the Violation; and provided, further, that the
indemnity agreement contained in this Section
6(i)(ii) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability
or action if such settlement is effected without the
consent of the Holder, which consent shall not be
unreasonably withheld or delayed nor, in the case of
a sale directly by the Company of its securities
(including a sale of such securities through any
underwriter retained by the Company to engage in a
distribution solely on behalf of the Company), shall
the Holder be liable to the Company in any case in
which such untrue statement or alleged untrue
statement or omission or alleged omission was
contained in a preliminary prospectus and corrected
in a final or amended prospectus, and the Company
failed to deliver a copy of the final or amended
prospectus at or prior to the confirmation of the
sale of the securities to the person asserting any
such loss, claim, damage or liability in any case in
which such
Page 10 - Purchase Warrant
delivery is required by the Act. The obligations of
the Holders hereunder are several, and not joint.
(iii) Promptly after receipt by an indemnified party
under this Section 6(i) of notice of the commencement
of any action (including any governmental action),
such indemnified party will, if a claim in respect
thereof is to be made against any indemnifying party
under this Section 6(i), deliver to the indemnifying
party a written notice of the commencement thereof
and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying
party so desires, jointly with any other indemnifying
party similarly noticed, to assume and control the
defense thereof with counsel mutually satisfactory to
the parties; provided, however, that an indemnified
party shall have the right to retain its own counsel,
with the fees and expenses to be paid by the
indemnifying party, if representation of such
indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to
actual or potential differing interests, as
reasonably determined by either party, between such
indemnified party and any other party represented by
such counsel in such proceeding. The failure to
deliver written notice to the indemnifying party
within a reasonable time of the commencement of any
such action, if prejudicial to its ability to defend
such action, shall relieve such indemnifying party of
any liability to the indemnified party under this
Section 6(i) to the extent of such prejudice, but the
omission so to deliver written notice to the
indemnifying party will not relieve it of any
liability that it may have to any indemnified party
otherwise than under this Section 6(i).
(iv) The obligations of the Company and the Holders
under this Section 6(i) shall survive the completion
of any offering of Registrable Securities in a
registration statement whether under this Section 6
or otherwise.
(j) Notwithstanding anything to the contrary herein, any
indemnification obligation arising out of any claims subject to the
indemnification provisions contained in the Underwriting Agreement shall be
governed entirely by the Underwriting Agreement, and not by the provisions of
this Warrant.
(k) REPORTS UNDER SECURITIES EXCHANGE ACT OF 1934; RESALES
UNDER RULE 144; FORM S-3 REGISTRATION. With a view to making available to the
Holders the benefits of Rule 144 promulgated under the Act ("Rule 144") and any
other rule or regulation of the SEC that may at any time permit a Holder to sell
securities of the Company to the public without registration, and with a view to
making it possible for Holders to have the resale of the Registrable Securities
registered pursuant to a registration statement on Form S-3, the Company agrees
to:
(i) make and keep public information available, as
those terms are understood and defined in Rule 144,
at all times after 90 days after the effective date
of the first registration statement filed by the
Company for the offering of its securities to the
general public;
Page 11 - Purchase Warrant
(ii) concurrently with the first registered public
offering, take such action, including the voluntary
registration of its Common Stock under Section 12 of
the 1934 Act or compliance with the reporting
requirements of Section 15(d) of the 1934 Act, as is
necessary to enable the Holders to utilize Form S-3
for the sale of their Registrable Securities;
(iii) after the first registered public offering,
file with the SEC in a timely manner all reports and
other documents required of the Company under the Act
and the 1934 Act; and
(iv) furnish to any Holder, so long as the Holder
owns any Registrable Securities, forthwith upon
request (1) a written statement by the Company as to
its compliance with the reporting requirements of
Rule 144 (at any time after 90 days after the
effective date of the first registration statement
filed by the Company for the offering of the
securities to the general public), the Act and the
1934 Act (at any time after it has become subject to
such reporting requirements), or as to its
qualification as a registrant whose securities may be
resold pursuant to Form S-3 (at any time after it so
qualifies), (2) a copy of the most recent annual or
quarterly report of the Company and such other
reports and documents so filed by the Company, and
(3) such other documents as may be reasonably
requested in availing any Holder of any rule or
regulation of the SEC which permits the selling of
any such securities without registration or pursuant
to such form.
(l) LOCK-UP AGREEMENTS. If reasonably requested by the Company
and the managing underwriter, the Holders agree to enter into lock-up agreements
pursuant to which they will not, for a period of no more than 180 days following
the effective date of the first registration statement for a public offering of
the Company's securities, offer, sell or otherwise dispose of the Registrable
Securities or other equity securities of the Company, except the Registrable
Securities sold pursuant to such registration statement, without the prior
consent of the Company and the underwriter, provided that the officers,
directors and all holders of more than 1% of the shares of Common Stock prior to
the public offering (calculated for the purpose as if all securities convertible
into or exercisable for Common Stock, directly or indirectly, are so converted
or exercised) of the Company enter such lock-up agreements for the same period
and on the same terms.
(m) ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the
Company to register Registrable Securities pursuant to this Section 6 may be
assigned by any Holder to a transferee, and by such transferee to a subsequent
transferee, but only if such rights are transferred (a)(i) to an affiliate,
subsidiary, partner (former or current), member or shareholder of such Holder or
transferee or an account managed or advised by the manager or adviser of such
Holder or transferee, (ii) by gift or bequest or through inheritance to, or for
the benefit of, any member or members of such Holder's immediate family or to a
trust for the benefit of any member or members of such Holder's immediate
family, or (iii) to a trust in respect of which such Holder serves as trustee,
provided, however, that the trust instrument governing such trust shall provide
that such Holder, as trustee, shall retain sole and exclusive control over the
voting and disposition of such rights until the termination of this Agreement,
or (b) in connection with the sale or other transfer of not fewer than an
aggregate of 25,000 Registrable Securities (as adjusted for stock splits,
Page 12 - Purchase Warrant
combinations, stock dividends and similar recapitalization events which affect
the number of issued and outstanding shares of Registrable Securities) or some
lesser number, if such lesser number represents all the Registrable Securities
then held by such Holder. Any transferee to whom rights under this Agreement are
transferred shall (i) as a condition to such transfer, deliver to the Company a
written instrument by which such transferee agrees to be bound by the
obligations imposed upon Holders under this Agreement to the same extent as if
such transferee were a Holder under this Agreement and (ii) be deemed to be a
Holder hereunder.
(n) UNDERWRITERS AND ADVISORS. The Company shall not engage an
underwriter or acquisition advisor without such underwriter or advisor first
being approved of by the Warrantholder.
7. NO RIGHTS AS A SHAREHOLDER. Except as otherwise provided herein, the
Warrantholder will not, by virtue of ownership of the Warrant, be entitled to
any rights of a shareholder of the Company but will, upon written request to the
Company, be entitled to receive such quarterly or annual reports as the Company
distributes to its shareholders.
8. NOTICE. Any notices required or permitted to be given hereunder will
be in writing and may be served personally or by mail; and if served will be
addressed as follows:
If to the Company:
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: President
If to the Warrantholder:
at the address furnished
by the Warrantholder to the
Company for the purpose of
notice.
Any notice so given by mail will be deemed effectively given 48 hours
after mailing when deposited in the United States mail, registered or certified
mail, return receipt requested, postage prepaid and addressed as specified
above. Any party may by written notice to the other specify a different address
for notice purposes.
9. OPTIONAL CONVERSION.
(a) In addition to and without limiting the right of any
Holder under the terms of this Warrant, the Warrantholder shall have the right
(the "Conversion Right") to convert this Warrant or any portion thereof into
Securities as provided in this Section 9 at any time or from time to time after
the Issue Date and prior to its expiration. Upon exercise of the Conversion
Right with respect to a particular number of Securities subject to this Warrant
(the "Converted Securities"), the Company shall deliver to the holder of this
Warrant, without payment by the holder of any exercise price or any cash or
other consideration, that number of Securities equal to the quotient obtained by
dividing the Net Value (as hereinafter defined) of the Converted Securities
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by the sum of the fair market value (as defined in paragraph (c) below) of a
single share of Common Stock , determined in each case as of the close of
business on the Conversion Date (as hereinafter defined). The "Net Value" of the
Converted Securities shall be determined by subtracting the aggregate Exercise
Price of the Converted Securities from the aggregate fair market value of the
Converted Securities. Notwithstanding anything in this Section 9 to the
contrary, the Conversion Right cannot be exercised with respect to a number of
Converted Securities having a Net Value below $100. No fractional shares shall
be issuable upon exercise of the Conversion Right, and if the number of shares
to be issued in accordance with the foregoing formula is other than a whole
number, the Company shall pay to the holder of this Warrant an amount in cash
equal to the fair market value of the resulting fractional share.
(b) The Conversion Right may be exercised by the holder of
this Warrant by the surrender of this Warrant at the principal office of the
Company together with a written statement specifying that the holder thereby
intends to exercise the Conversion Right and indicating the number of Securities
subject to this Warrant which are being surrendered (referred to in paragraph
(a) above as the Converted Securities) in exercise of the Conversion Right. Such
conversion shall be effective upon receipt by the Company of this Warrant
together with the aforesaid written statement, or on such later date as is
specified therein (the "Conversion Date"), but not later than the expiration
date of this Warrant. Certificates for the shares of Common Stock issuable upon
exercise of the Conversion Right, together with a check in payment of any
fractional share and, in the case of a partial exercise, a new Warrant
evidencing the Securities remaining subject to this Warrant, shall be issued as
of the Conversion Date, and shall be delivered to the holder of this Warrant
within seven days following the Conversion Date.
(c) For purposes of this Section 9, the "fair market value" of
a share of Common Stock as of a particular date shall be the mean between the
bid and asked price of the Common Stock, as the case may be, as quoted in the
over the counter market, or, if applicable, the closing sale price of the Common
Stock, as the case may be, on the Nasdaq Stock Market or a national exchange.
10. APPLICABLE LAW. This Warrant Certificate will be governed by and
construed in accordance with the laws of the State of Oregon, without reference
to conflict of laws principles thereunder. All disputes relating to this Warrant
Certificate shall be tried before the courts of Oregon located in Multnomah
County, Oregon, to the exclusion of all other courts that might have
jurisdiction.
Dated as of ___________ , 2000.
IMAGEWARE SOFTWARE, INC.
By:________________________________
___________________________________
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Agreed and Accepted as of _____________, 2000
▇▇▇▇▇▇▇ INVESTMENT COMPANY, INC.
By:________________________________
___________________________________
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