EXHIBIT 10.19
COMMON STOCK PURCHASE WARRANT
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE TRANSFERRED OR OTHERWISE
DISPOSED OF UNLESS REGISTERED UNDER THE ACT AND SUCH LAWS OR REGISTRATION UNDER
THE ACT AND SUCH LAWS IS NOT REQUIRED.
DOCUMENT SECURITY SYSTEMS, INC.
No. ____ Void after 500,000 Shares of Common Stock February 1, 2014
WARRANT TO PURCHASE COMMON STOCK
This certifies that, for value received, IDT Venture Capital
Corporation or its registered assigns (the "Holder") is entitled to acquire from
Document Security Systems, Inc., a New York corporation (the "Company"), in
whole or in part, up to an aggregate of 500,000 fully paid and nonassessable
shares of Common Stock of the Company, at a per share purchase price equal to
$2.50, subject to the provisions and upon the terms and conditions hereinafter
set forth. The number and type of shares and the Current Warrant Price (as
defined below) are subject to adjustment from time to time pursuant to the
provisions of Section 5 hereof.
As used herein, the terms "Common Stock" and "Common Shares" shall mean
the Company's presently authorized common stock, par value $0.02 per share, and
any stock into or for which such common stock may hereafter be converted or
exchanged.
1. Definitions.
Unless the context otherwise requires, when used herein the following
terms shall have the respective meanings set forth below:
(a) "Additional Common Shares" shall mean all Common Shares issued by
the Company after the date hereof, other than Common Shares issuable upon
exercise of this Warrant.
(b) "Board" shall mean the board of directors of the Company.
(c) "Convertible Securities" shall mean evidences of indebtedness,
shares of stock or other securities which are convertible into or exchangeable,
with or without payment of additional consideration in cash or property, for
Additional Common Shares, either immediately or upon the occurrence of a
specified date or a specified event.
(d) "Corporate Transaction" shall mean (x) any reorganization,
consolidation, merger, share exchange or similar business combination
transaction involving the Company with any other entity, (y) the sale,
assignment, conveyance, transfer, lease or other disposition by the Company of
all or substantially all of its assets or (z) the liquidation of the Company's
assets or the dissolution of the Company.
(e) "Current Warrant Price" shall mean the price at which a Common
Share may be purchased at any date pursuant to the exercise of this Warrant on
such date; the initial Current Warrant Price is stated in the preamble to this
Warrant.
(f) "Exercise Period" shall have the meaning set forth in Section 2 of
this Warrant.
(g) "Market Price" shall mean, with respect to a particular security,
on any given day, the average of the highest and lowest reported sale prices
regular way or, in case no such reported sales takes place on such day, the
average of the highest asked and lowest bid prices regular way, in either case
on the principal national securities exchange on which the applicable securities
are listed or admitted to trading, or if not listed or admitted to trading on
any national securities exchange, (i) the average of the highest and lowest sale
prices for such day reported by the Nasdaq Stock Market if such security is
traded over-the-counter and quoted in the Nasdaq Stock Market, or (ii) if such
security is so traded, but not so quoted, the average of the highest reported
asked and lowest reported bid prices of such security as reported by the Nasdaq
Stock Market or any comparable system, or (iii) if such security is not traded
on the Nasdaq Stock Market or any comparable system, the average of the highest
asked and lowest bid prices as furnished by two members of the National
Association of Securities Dealers, Inc. selected from time to time by the
Company in good faith for that purpose. If such security is not listed and
traded in a manner that the quotations referred to above are available for the
period required hereunder, the Market Price per share of Common Stock shall be
deemed to be the fair value per share of such security as determined in good
faith by the Board.
(h) "Person" shall mean any individual, sole proprietorship,
partnership, limited liability company, joint venture, trust, incorporated
organization, association, corporation, institution, public benefit corporation,
entity or government (whether federal, state, provincial, county, city,
municipal or otherwise, including, without limitation, any instrumentality,
division, agency, body or department thereof).
(i) "Warrant" shall mean the warrant represented hereby, as the same
may be amended, restated, supplemented or otherwise modified from time to time.
2. Term of Warrant.
The purchase right represented by this Warrant is exercisable, in whole
or in part, at any time and from time to time during the period beginning on
February 1, 2004 and ending at 11:59 p.m., New York City time, on February 1,
2014 (the "Exercise Period").
3. Method of Exercise; Payment; Issuance of New Warrant.
The purchase right represented by this Warrant may be exercised by the
Holder at any time and from time to time during the Exercise Period, in whole or
in part, by (a) the surrender of this Warrant (with the notice of exercise form
attached hereto as Exhibit 1 duly executed) at the principal office of the
Company and (b) the payment to the Company of an amount equal to the Current
Warrant Price multiplied by the number of shares then being purchased, at the
election of the Holder in one of the following manners: (i) by certified or
cashier's check or by wire transfer payable to the order of the Company, (ii) by
having the Company withhold shares of Common Stock issuable upon exercise of
-2-
this Warrant equal in value to the aggregate Current Warrant Price as to which
this Warrant is so exercised (or any portion thereof) based on the Market Price
of the Common Stock on the trading day prior to the date on which this Warrant
is surrendered as aforesaid; (iii) by delivering to the Company shares of Common
Stock equal in value to the aggregate Current Warrant Price as to which this
Warrant is so exercised (or any portion thereof) based on the Market Price of
the Common Stock on the trading day prior to the date on which this Warrant is
surrendered as aforesaid; or (iv) any combination of the foregoing. The Company
agrees that the shares so purchased shall be deemed to be issued to the Holder
as the record owner of such shares as of the close of business on the date on
which this Warrant shall have been surrendered and payment made for such shares
as aforesaid. In the event of any exercise of this Warrant, certificates for the
shares of stock so purchased shall be delivered to the Holder within a
reasonable time, not to exceed three (3) business days thereafter, and, unless
this Warrant has been fully exercised or expired, a new Warrant representing the
portion of the shares, if any, with respect to which this Warrant shall not then
have been exercised, shall also be issued to the Holder within a reasonable
time, not exceeding such three (3)-business day period.
4. Stock Fully Paid; Reservation of Shares; Listing.
All Common Shares which may be issued upon the exercise of the rights
represented by this Warrant will, upon issuance, be duly and validly authorized
and issued, fully paid and nonassessable, free from all preemptive rights and
free from all taxes, liens, security interests and charges with respect to the
issue thereof. Until the expiration of the Exercise Period, the Company shall at
all times have authorized, and reserved for the purpose of the issuance upon
exercise of the purchase rights evidenced by this Warrant, a sufficient number
of shares of its Common Stock to provide for the exercise of the rights
represented by this Warrant. The Company will procure, at its sole expense, the
listing of the shares issuable upon exercise of this Warrant on the principal
stock exchange (or the Nasdaq Stock Market) on which the Common Stock is then
listed or traded (if any). The Company agrees to take all action necessary to
ensure that the shares issuable upon exercise of this Warrant may be issued
without violation of any applicable law or regulation or of any requirement of
any securities exchange (or the Nasdaq Stock Market) on which such shares are
listed or traded.
5. Adjustment of Purchase Price and Number of Shares.
The kind of securities purchasable upon the exercise of this Warrant,
the Current Warrant Price and the number of shares purchasable upon exercise of
this Warrant shall be subject to adjustment from time to time upon the
occurrence of the following events:
(a) Stock Splits, Subdivisions, Reclassifications and Combinations. If
at any time the Company shall (i) fix a record date for the holders of its
Common Shares for the purpose of entitling them to receive a dividend payable
in, or other distribution of, shares of Common Stock, (ii) subdivide or
reclassify its outstanding Common Shares into a larger number of Common Shares
or (iii) combine or reclassify its outstanding Common Shares into a smaller
number of Common Shares, then, (A) the number of Common Shares issuable upon
exercise of this Warrant immediately after the occurrence of any such event
shall be adjusted to equal the number of Common Shares which a holder of the
same number of Common Shares issuable upon exercise of this Warrant immediately
prior to the occurrence of such event would own or be entitled to receive after
the happening of such event and (B) the Current Warrant Price shall be adjusted
to equal the quotient determined by dividing (1) the product of (x) the Current
Warrant Price and (y) the number of Common Shares issuable upon exercise of this
Warrant immediately prior to the adjustment, by (2) the new number of shares
issuable upon exercise of this Warrant resulting from the adjustment made
pursuant to clause (A) above.
-3-
(b) Certain Other Distributions. If at any time the Company shall fix a
record date for the holders of its Common Shares for the purpose of entitling
them to receive any dividend or other distribution of (i) cash (other than
ordinary cash dividends), (ii) any evidence of indebtedness of the Company or
any subsidiary thereof, any shares of any Person or any other assets or property
of any nature whatsoever (other than Common Shares or Convertible Securities) or
(iii) any warrants or other rights to subscribe for or purchase any evidence of
indebtedness of the Company or any subsidiary thereof, any shares of any Person
or any other assets or property of any nature whatsoever (other than Common
Shares or Convertible Securities), then, in each such case, (A) the number of
Common Shares issuable upon exercise of this Warrant shall be increased to equal
the product of the number of Common Shares issuable upon exercise of this
Warrant immediately prior to such adjustment multiplied by a fraction, (x) the
numerator of which is the Market Price per Common Share on such record date and
(y) the denominator of which is such Market Price per Common Share minus the
amount of such cash (if any) and the fair market value (as reasonably determined
in good faith by the Board and supported by an opinion from an investment
banking firm of recognized national standing acceptable to the Holder) of any
and all such evidences of indebtedness, shares, other assets or property or
warrants or other subscription or purchase rights distributable to a holder of
one Common Share, and (B) the Current Warrant Price shall be reduced to equal
(x) the Current Warrant Price multiplied by the number of Common Shares issuable
upon exercise of this Warrant immediately prior to such adjustment divided by
(y) the new number of shares issuable upon exercise of this Warrant resulting
from the adjustment made pursuant to clause (A) above; provided, that if the
event requiring adjustment by this Section 5(b) would cause the Current Warrant
Price to be equal to or less than $0, no such adjustment shall be made and the
Company shall distribute to each Holder such cash, any and all evidences of
indebtedness, shares of stock, other securities or property or warrants or other
subscription or purchase rights that would be distributable to such Holder had
such Holder exercised this Warrant immediately prior to such distribution.
(c) Issuance of Additional Common Shares. If at any time the Company
shall issue or sell any Additional Common Shares for consideration in an amount
per Additional Common Share less than the Market Price as of the day of such
issuance or sale, then (A) the number of shares of Common Stock for which this
Warrant is exercisable shall be increased to equal the product obtained by
multiplying the number of shares of Common Stock for which this Warrant is
exercisable immediately prior to such issuance or sale by a fraction (x) the
numerator of which shall be the number of shares of Common Stock outstanding
immediately after such issuance or sale and (y) the denominator of which shall
be the number of shares of Common Stock outstanding immediately prior to such
issuance or sale plus the number of shares which the aggregate offering price of
the total number of such Additional Common Shares would purchase at the Market
Price (on the last trading day immediately preceding such issuance or sale) and
(B) the Current Warrant Price shall be reduced to a price determined by
multiplying such Current Warrant Price by a fraction (x) the numerator of which
shall be the number of shares for which this Warrant is exercisable immediately
prior to such issue or sale and (y) the denominator of which shall be the number
of shares of Common Stock purchasable immediately after such issuance or sale.
(d) Issuance of Warrants or Other Rights. If at any time the Company
shall fix a record date for the holders of its Common Shares for the purpose of
entitling them to receive a distribution of, or shall in any manner (whether
directly or by assumption in a merger in which the Company is the surviving
corporation) issue or sell, any warrants or other rights to subscribe for or
-4-
purchase any Additional Common Shares or any Convertible Securities, whether or
not the rights to exchange or convert thereunder are immediately exercisable,
and the consideration received by the Company for any Additional Common Shares
issuable upon the exercise of such warrants or other rights or upon conversion
or exchange of such Convertible Securities shall be less than the Market Price
as of the day of such distribution, issuance or sale, then the Current Warrant
Price and the number of Common Shares issuable upon exercise of this Warrant
shall be adjusted as provided in Section 5(c) hereof on the basis that (i) the
maximum number of Additional Common Shares issuable pursuant to all such
warrants or other rights or necessary to effect the conversion or exchange of
all such Convertible Securities shall be deemed to have been issued and
outstanding and (ii) the Company shall have received all of the consideration,
if any, payable for such warrants or other rights as of the date of the actual
issuance thereof. No further adjustments of the Current Warrant Price or the
number of shares issuable upon exercise of this Warrant shall be made upon the
actual issuance of such Common Shares or of such Convertible Securities upon
exercise of such warrants or other rights or upon the actual issuance of such
Common Shares upon such conversion or exchange of such Convertible Securities.
(e) Issuance of Convertible Securities. If at any time the Company
shall fix a record date for the holders of its Common Shares for the purpose of
entitling them to receive a distribution of, or shall in any manner (whether
directly or by assumption in a merger in which the Company is the surviving
corporation) issue or sell, any Convertible Securities, whether or not the
rights to exchange or convert thereunder are immediately exercisable, and the
consideration received by the Company for any Additional Common Shares issuable
upon the conversion or exchange of such Convertible Securities shall be less
than the Market Price as of the day of such distribution, issuance or sale, then
the Current Warrant Price and the number of Common Shares issuance upon exercise
of this Warrant shall be adjusted as provided in Section 5(c) hereof on the
basis that (i) the maximum number of Additional Common Shares issuable upon the
conversion or exchange of all such Convertible Securities shall be deemed to
have been issued and outstanding and (ii) the Company shall have received all of
the consideration, if any, payable for such Convertible Securities as of the
date of actual issuance of such Convertible Securities. No further adjustment of
the Current Warrant Price or the number of shares issuable upon exercise of this
Warrant shall be made under this Section 5(e) upon the issuance of any
Convertible Securities which are issued pursuant to the exercise of any warrants
or other subscription or purchase rights therefor, if any such adjustment shall
previously have been made upon the issuance of such warrants or other rights
pursuant to Section 5(d) hereof. No further adjustment of the Current Warrant
Price or the number of shares issuable upon exercise of this Warrant shall be
made upon the actual issuance of such Common Shares upon conversion or exchange
of such Convertible Securities and, if any issuance or sale of such Convertible
Securities is made upon exercise of any warrant or other right to subscribe for
or to purchase any such Convertible Securities for which adjustments thereof
have been or are to be made pursuant to other provisions of this Section 5, no
further adjustments shall be made by reason of such issuance or sale.
(f) Superseding Adjustment. If, at any time after any adjustment of the
Current Warrant Price and the number of Common Shares issuable upon exercise of
this Warrant shall have been made pursuant to Section 5(d) or 5(e) hereof as the
result of any issuance of warrants, rights or Convertible Securities and either
-5-
(i) such warrants or rights, or the right of conversion or exchange in such
other Convertible Securities, shall expire, and all or a portion of such
warrants or rights, or the right of conversion or exchange with respect to all
or a portion of such other Convertible Securities, as the case may be, shall not
have been exercised or (ii) the consideration per share for which Common Shares
are issuable pursuant to such warrants or rights, or such other Convertible
Securities, shall be increased or decreased by virtue of provisions therein
contained, then such previous adjustment shall be rescinded and annulled and the
Additional Common Shares which were deemed to have been issued by virtue of the
computation made in connection with the adjustment so rescinded and annulled
shall no longer be deemed to have been issued by virtue of such computation.
Thereupon, a recomputation shall be made of the effect of such warrants or
rights or other Convertible Securities on this Warrant on the basis of (x)
treating the number of Additional Common Shares or other property, if any,
theretofore actually issued or issuable pursuant to the previous exercise of any
such warrants or rights or any such right of conversion or exchange, as having
been issued on the date or dates of any such exercise and for the consideration
actually received and receivable therefor and (y) treating any such warrants or
rights or any such other Convertible Securities which then remain outstanding as
having been granted or issued immediately after the time of such increase or
decrease of the consideration per share for which Common Shares or other
property are issuable under such warrants or rights or other Convertible
Securities, whereupon a new adjustment of the Current Warrant Price and the
number of Common Shares issuable upon exercise of this Warrant shall be made
pursuant to Section 5(d) or 5(e) hereof, as appropriate, which new adjustment
shall supersede the previous adjustment so rescinded and annulled; provided,
however, that no rescission or recomputation adjustment shall be made under this
Section 5(f) in respect of any portion of this Warrant which has been exercised
prior to the occurrence of any action otherwise requiring such rescission or
recomputation adjustment.
(g) Other Provisions Applicable to Adjustments Under this Section. The
following provisions shall be applicable to the making of adjustments provided
for in this Section 5:
(i) Computation of Consideration. To the extent that any
Additional Common Shares or any Convertible Securities or any warrants or other
rights to subscribe for or purchase any Additional Common Shares or any
Convertible Securities shall be issued for cash consideration, the consideration
received by the Company therefor shall be the amount of the cash received by the
Company therefor, or, if such Additional Common Shares or Convertible Securities
are offered by the Company for subscription, the subscription price, or, if such
Additional Common Shares or Convertible Securities are sold to underwriters or
dealers for public offering without a subscription offering, the public offering
price (in any such case subtracting (x) any amounts paid or receivable for
accrued interest or accrued dividends and (y) any compensation, discounts or
expenses paid or incurred by the Company for and in the underwriting of, or
otherwise in connection with, the issuance thereof). To the extent that such
issuance shall be for a consideration other than cash, then, except as herein
otherwise expressly provided, the amount of such consideration shall be deemed
to be the fair value of such consideration at the time of such issuance as
reasonably determined in good faith by the Board. In case any Additional Common
Shares or any Convertible Securities or any warrants or other rights to
subscribe for or purchase such Additional Common Shares or Convertible
Securities shall be issued in connection with any merger in which the Company
issues any securities, the amount of consideration therefor shall be deemed to
be the fair value, as reasonably determined in good faith by the Board, of such
portion of the assets and business of the nonsurviving corporation as such Board
in good faith shall reasonably determine to be attributable to such Additional
Common Shares, Convertible Securities, warrants or other rights, as the case may
be. The consideration for any Additional Common Shares issuable pursuant to any
warrants or other rights to subscribe for or purchase the same shall be the
consideration received by the Company for issuing such warrants or other rights
plus the lowest amount of additional consideration payable to the Company upon
exercise of such warrants or other rights. The consideration for any Additional
Common Shares issuable pursuant to the terms of any Convertible Securities shall
be the consideration, if any, received by the Company for issuing warrants or
-6-
other rights to subscribe for or purchase such Convertible Securities, plus the
consideration paid or payable to the Company in respect of the subscription for
or purchase of such Convertible Securities, plus the lowest amount of additional
consideration, if any, payable to the Company upon the exercise of the right of
conversion or exchange in such Convertible Securities. In case of the issuance
at any time of any Additional Common Shares or Convertible Securities in payment
or satisfaction of any dividends upon any class of stock other than Common
Shares, the Company shall be deemed to have received for such Additional Common
Shares or Convertible Securities a consideration equal to the amount of such
dividend so paid or satisfied.
(ii) When Adjustments to be Made; Rounding of Calculations;
Minimum Adjustments. The adjustments required by this Section 5 shall be made
whenever and as often as any specified event requiring an adjustment shall
occur. All calculations under this Section 5 shall be made to the nearest
one-tenth (1/10th) of a cent or to the nearest one-hundredth (1/100th) of a
share, as the case may be. No adjustment in the Current Warrant Price or the
number of Common Shares into which this Warrant is exercisable is required if
the amount of such adjustment would be less than $0.01 or one-tenth (1/10th) of
a Common Share, as the case may be; provided, however, that any adjustments
which by reason of this Section 5(g)(ii) are not required to be made will be
carried forward and given effect upon the earlier of (x) the date of any
subsequent adjustment and (y) the date of exercise of this Warrant. For the
purpose of any adjustment, any specified event shall be deemed to have occurred
at the close of business on the date of its occurrence.
(iii) When Adjustment Not Required. If the Company shall take
a record of the holders of its Common Shares for the purpose of entitling them
to receive a dividend or distribution or subscription or purchase rights and
shall thereafter and before the distribution to shareholders thereof legally
abandon its plan to pay or deliver such dividend, distribution, subscription or
purchase rights, then, thereafter, no adjustment shall be required by reason of
the taking of such record and any such adjustment previously made in respect
thereof shall be rescinded and annulled.
(iv) Escrow of Warrant Stock. If after any property becomes
distributable pursuant to this Section 5 by reason of the taking of any record
of the holders of Common Shares, but prior to the occurrence of the event for
which such record is taken, the Holder exercises this Warrant, then any
Additional Common Shares issuable and other property distributable upon exercise
by reason of such adjustment shall be held in escrow for the Holder by the
Company to be issued and/or distributed to the Holder upon and to the extent
that the event actually takes place. Notwithstanding any other provision to the
contrary herein, if the event for which such record was taken fails to occur or
is rescinded, then such escrowed shares shall be cancelled by the Company and
escrowed property returned.
(v) Challenge to Good Faith Determination. Whenever the Board
shall be required to make a determination in good faith of the fair value of any
item under this Section 5, such determination may be challenged by the Holder,
and any dispute shall be resolved by an investment banking firm of recognized
national standing selected by the Company and acceptable to such Holder, with
all costs thereof borne by the Company.
-7-
(h) Corporate Transactions. In case of any Corporate Transaction or
reclassification of Common Shares (other than a reclassification of Common
Shares referred to in Section 5(a) hereof), any Common Shares issued or issuable
upon exercise of this Warrant after the date of such Corporate Transaction or
reclassification (or, in the case of a liquidation of assets or a dissolution,
upon such liquidation or dissolution, without taking any further action) will be
exchangeable for the number of shares of stock or other securities or property
(including cash) to which the Common Shares issuable (at the time of such
Corporate Transaction or reclassification) upon exercise of this Warrant
immediately prior to such Corporate Transaction or reclassification would have
been entitled upon such Corporate Transaction or reclassification; and in any
such case, if necessary, the provisions set forth herein with respect to the
rights and interests thereafter of the Holder shall be appropriately adjusted so
as to be applicable, as nearly as may reasonably be, to any shares of stock or
other securities or property thereafter deliverable on the exercise of this
Warrant. In determining the kind and amount of stock, securities or the property
receivable upon consummation of such Corporate Transaction or reclassification,
if the holders of Common Shares have the right to elect the kind or amount of
consideration receivable upon consummation of such Corporate Transaction or
reclassification, then the Holder shall have the right to make a similar
election upon exercise of this Warrant with respect to the number of shares of
stock or other securities or property which the Holder will receive upon
exercise of this Warrant (or, in the case of a liquidation of assets or a
dissolution, upon such liquidation or dissolution, without taking any further
action). The foregoing provisions of this Section 5(h) shall similarly apply to
successive Corporate Transactions or such reclassifications.
(i) Other Action Affecting Common Shares. If at any time or from time
to time the Company shall take any action in respect of its Common Shares, other
than any action described in this Section 5 for which a specific adjustment is
provided, then, unless such action will not have a materially adverse effect
upon the rights of the Holder, the number of Common Shares or other stock
issuable upon exercise of this Warrant and/or the Current Warrant Price shall be
adjusted in such manner as may be equitable in the circumstances.
6. Notice of Adjustments.
Whenever the Current Warrant Price or the number of Common Shares or
the class or type of stock or other property issuable upon exercise of this
Warrant shall be adjusted pursuant to Section 5 hereof, the Company shall
prepare a certificate signed by its chief financial officer setting forth, in
reasonable detail, the event requiring the adjustment, the amount of the
adjustment, the method by which such adjustment was calculated (including a
description of the basis on which the Board determined the fair value of any
evidences of indebtedness, shares of stock, other securities or property or
warrants or other subscription or purchase rights referred to in Section 5(b) or
5(g)(i) hereof), the Current Warrant Price after giving effect to such
adjustment and the number of shares then issuable upon exercise of this Warrant
and (if such adjustment was made pursuant to Section 5(h) or 5(i) hereof)
describing the number and kind of any other shares of stock or other property
issuable upon exercise of this Warrant, and shall cause copies of such
certificate to be mailed (by first class mail, postage prepaid) to the Holder of
this Warrant at the address specified in Section 15(c) hereof, or at such other
address as may be provided to the Company in writing by the Holder. The Company
shall keep at its principal office copies of all such certificates and cause the
same to be available for inspection at said office during normal business hours
by the Holder or any prospective purchaser of a Warrant designated by the
Holder. The Holder shall be entitled to the same rights to receive notice of
corporate action as any holder of Common Shares.
-8-
7. Fractional Shares.
No fractional shares of Common Stock will be issued in conjunction with
any exercise hereunder, but in lieu of such fractional shares the Company shall
make a cash payment therefore on the basis of the Market Price then in effect.
8. Compliance with Securities Act.
The Holder of this Warrant, by acceptance hereof, agrees that this
Warrant and the shares of Common Stock to be issued on exercise hereof are being
acquired for investment and that it will not offer, sell or otherwise dispose of
this Warrant or any shares of Common Stock to be issued upon exercise hereof
except under circumstances which will not result in a violation of the
Securities Act of 1933, as amended (the "Act"). This Warrant and all shares of
Common Stock issued upon exercise of this Warrant shall be stamped and imprinted
with a legend substantially in the following form, unless sold pursuant to an
effective registration statement:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), OR APPLICABLE STATE SECURITIES LAWS AND
MAY NOT BE TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER
THE ACT AND SUCH LAWS OR REGISTRATION UNDER THE ACT AND SUCH LAWS IS
NOT REQUIRED."
The foregoing legend shall be removed from the certificates
representing the Warrant and any shares of Common Stock issued upon exercise of
the Warrant, at the request of the holder thereof, at such time as (i) they are
sold pursuant to an effective registration statement, (ii) they become eligible
for resale pursuant to Rule 144(k) or another provision of Rule 144 of the Act
pursuant to which all or a portion of the Shares could be sold in a single
transaction or (iii) an opinion of counsel is obtained to the effect that the
proposed transfer is exempt from the Act.
9. Transfer and Exchange of Warrant.
This Warrant may be transferred or exchanged without the consent of the
Company upon the Holder providing to the Company a written opinion by counsel
reasonably satisfactory to the Company opining that the transfer or exchange
will not violate any Federal or applicable state securities laws; provided,
however, that no such opinion shall be required in connection with a transfer
from any affiliate (within the meaning of Rule 405 under the Act) of IDT
Corporation to IDT Corporation or any other affiliate thereof or from IDT
Corporation to any affiliate thereof.
10. Registration Rights.
The Holder shall be entitled to certain registration rights with
respect to the shares of Common Stock issuable upon exercise of this Warrant as
set forth in that certain Securities Purchase Agreement, dated as of the date
hereof, by and between the Company and the original Holder hereof.
-9-
11. Rule 144 Information.
The Company covenants that it will file the reports required to be
filed by it under the Act and the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder (or, if the Company is not
required to file such reports, it will, upon the request of any Holder, make
publicly available such information as is described in Rule 144(c)(2) under the
Act). Upon the request of any Holder, the Company will deliver to such Holder a
written statement that it has complied with such requirements.
12. Merger or Consolidation of the Company.
The Company shall not merge or consolidate into, or sell, transfer or
lease all or substantially all of its property to, any other Person unless the
successor, transferee or lessee corporation or other Person, as the case may be
(if not the Company), (a) expressly assumes the due and punctual performance and
observance of each and every covenant and condition of this Warrant to be
performed and observed by the Company and (b) expressly agrees to exchange, at
the Holder's option, this Warrant for a warrant or warrants for such surviving
corporation's or other Person's shares of capital stock on terms substantially
similar to the terms under this Warrant.
13. Indemnification.
The Company agrees to indemnify and hold harmless the Holder, its
officers, directors, employees, partners, agents and attorneys from and against
any liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, claims, costs, attorneys' fees, expenses and disbursements of any kind
which may be imposed upon, incurred by or asserted against the Holder in any
manner relating to or arising out of (a) the Holder's exercise of this Warrant
and/or ownership of any shares of Common Stock issued in consequence thereof or
(b) any litigation to which the Holder is made a party in its capacity as a
shareholder or warrantholder of the Company; provided, however, that the Company
shall not be liable hereunder to the extent that any liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, claims, costs, attorneys'
fees, expenses or disbursements are found in a final non-appealable judgment by
a court to have resulted from the Holder's gross negligence or willful
misconduct in its capacity as a shareholder or warrantholder of the Company.
14. No Impairment.
The Company shall not, by any action, including, without limitation,
amending its certificate of incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issuance or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms of this Warrant, but shall at all times in
good faith assist in the carrying out of all such terms and in the taking of all
such actions as may be necessary or appropriate in order to protect the rights
of the Holder against impairment.
-10-
15. Miscellaneous.
(a) No Rights as Shareholder. The Holder of this Warrant shall not be
entitled to vote or receive dividends or be deemed the Holder of Common Stock or
any other securities of the Company that may at any time be issuable on the
exercise hereof for any purpose, nor shall anything contained herein be
construed to confer upon the Holder of this Warrant, as such, any of the rights
of a shareholder of the Company or any right to vote for the election of
directors or upon any matter submitted to shareholders at any meeting thereof,
or to give or withhold consent to any corporate action (whether upon any
recapitalization, issuance of stock, reclassification of stock, change of par
value or change of stock to no par value, consolidation, merger, conveyance or
otherwise) or to receive notice of meetings, or to receive dividends or
subscription rights or otherwise until the Warrant shall have been exercised and
the shares purchasable upon the exercise hereof shall have become deliverable,
as provided herein.
(b) Replacement. On receipt of evidence reasonably satisfactory to the
Company of the loss, theft, destruction, or mutilation of this Warrant and, in
the case of mutilation, on surrender and cancellation of this Warrant, the
Company, at the Holder's expense (it being understood that any such expense must
be reasonable), will execute and deliver, in lieu of this Warrant, a new Warrant
of like tenor.
(c) Notice. Any notice given to either party under this Warrant shall
be in writing, and any notice hereunder shall be deemed to have been given upon
the earlier of delivery thereof by hand delivery, by courier, or by standard
form of telecommunication or three (3) business days after the mailing thereof
in the U.S. mail if sent registered mail with postage prepaid, addressed to the
Company at its principal executive offices and to the Holder at its address set
forth in the Company's books and records or at such other address as the Holder
may have provided to the Company in writing.
(d) GOVERNING LAW. THIS WARRANT SHALL BE GOVERNED AND CONSTRUED UNDER
THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO THE CONFLICTS OF
LAWS PRINCIPLES THEREOF.
(e) Amendments. This Warrant may be amended, and the observance of any
term of this Warrant may be waived (either generally or in a particular instance
and either retroactively or prospectively), only with the written consent of
each of the Company and the Holder.
(f) Successors and Assigns. Subject to the provisions of Section 9
hereof, (i) this Warrant and the rights evidenced hereby shall inure to the
benefit of and be binding upon the successors of the Company and the successors
and assigns of the Holder and (ii) the provisions of this Warrant are intended
to be for the benefit of all Holders from time to time of this Warrant, and
shall be enforceable by any such Holder.
-11-
NYK 865878-2.055771.0043
This Warrant is dated as of the ____ day of _____________, 2003.
DOCUMENT SECURITY SYSTEMS, INC.
By:__________________________________
Name:
Title:
-12-
EXHIBIT 1
FORM OF NOTICE OF EXERCISE
TO: DOCUMENT SECURITY SYSTEMS, INC.
1. The undersigned hereby elects to purchase __________ shares of Common Stock
of DOCUMENT SECURITY SYSTEMS, INC. pursuant to the terms of the attached
Warrant, and tenders herewith payment of the purchase price of such shares in
the following manner:
Method(s) of Payment of aggregate Current Warrant Price: ______________
-----------------------------------------------------------------------
2. Please issue a certificate or certificates representing said shares of Common
Stock in the name of the undersigned or in such other name as is specified
below:
------------------------------------
(Name)
------------------------------------
(Address)
------------------------------------
-----------------------------
Signature
