Exhibit 10.4
THIS WARRANT AND THE SECURITIES ISSUABLE UPON THE EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933. THEY MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED, HYPOTHECATED, OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, OR AN OPINION
OF COUNSEL SATISFACTORY TO THE COMPANY THAT REGISTRATION IS NOT REQUIRED UNDER
SUCH ACT OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SUCH ACT.
STOCK PURCHASE WARRANT
This Stock Purchase Warrant (this "Warrant"), dated May 5, 2005, is
issued to Frost National Bank, Custodian, FBO Renaissance US Growth Investment
Trust PLC, Trust No. W00740100, a Texas corporation (the "Holder"), by
Integrated Security Systems, Inc., a Delaware corporation (the "Company").
1. Purchase of Shares. Subject to the terms and conditions
hereinafter set forth, the Holder is entitled, upon surrender of this Warrant at
the principal office of the Company (or at such other place as the Company shall
notify the holder hereof in writing), to purchase from the Company 514,706 fully
paid and non-assessable shares of Common stock, no par value (the "Common
Stock"), of the Company (as adjusted pursuant to Section 7 hereof, the "Shares")
for the purchase price specified in Section 2 below.
2. Purchase Price. The purchase price for the Shares is $0.34 per
share. Such price shall be subject to adjustment pursuant to Section 7 hereof
(such price, as adjusted from time to time, is herein referred to as the
"Warrant Price").
3. Exercise Period. This Warrant is exercisable in whole or in part
at any time from the date hereof through May 5, 2010.
4. Method of Exercise. While this Warrant remains outstanding and
exercisable in accordance with Section 3 above, the Holder may exercise, in
whole or in part, the purchase rights evidenced hereby. Such exercise shall be
effected by:
(a) surrender of this Warrant, together with a duly executed
copy of the form of Exercise Notice attached hereto, to the Secretary
of the Company at its principal officer, and the payment to the Company
of an amount equal to the aggregate purchase price for the number of
Shares being purchased; or
(b) if the Company's Common Stock is publicly traded as of such
date, the instruction to retain that number of Shares having a value
equal to the aggregate exercise price of the Shares as to which this
Warrant is being exercised and to issue to the Holder the remainder of
such Shares computed using the following formula:
Y(A-B)
X = ------
A
Where: X = the number of shares of Common Stock to be issued to the
Holder.
Y = the number of shares of Common Stock as to which this Warrant is
being exercised.
A = the fair market value of one share of Common Stock.
B = the Warrant Price.
As used herein, the "fair market value of one share of Common
Stock" shall mean:
(1) Except in the circumstances described in clause (2)
or (3) hereof, the closing price of the Company's Common Stock,
as reported in the WALL STREET JOURNAL, on the trading day
immediately prior to the date of exercise;
(2) If such exercise is in conjunction with a merger,
acquisition, or other consolidation pursuant to which the
Company is not the surviving entity, the value received by the
holders of the Common Stock pursuant to such transaction for
each share; or
(3) If such exercise is in conjunction with the initial
public offering of the Company, the price at which the Common
Stock is sold to the public in such offering.
5. Certificates for Shares. Upon the exercise of the purchase
rights evidenced by this Warrant, one or more certificates for the number of
Shares so purchased shall be issued as soon as practicable thereafter, and in
any event within thirty (30) days of the delivery of the subscription notice.
6 Reservation of Shares. The Company covenants that it will at all
times keep available such number of authorized shares of its Common Stock, free
from all preemptive rights with respect thereto, which will be sufficient to
permit the exercise of this Warrant for the full number of Shares specified
herein. The Company further covenants that such Shares, when issued pursuant to
the exercise of this Warrant, will be duly and validly issued, fully paid and
non-assessable and free from all taxes, liens and charges with respect to the
issuance thereof.
7. Adjustment of Warrant Price and Number of Shares. The number and
kind of securities purchasable upon exercise of this Warrant and the Warrant
Price shall be subject to adjustment from time to time as follows:
(a) Stock Dividends, Subdivisions, Combinations and Other
Issuances. If the Company shall at any time prior to the expiration of
this Warrant subdivide its Common Stock, by stock split or otherwise,
combine its Common Stock or issue additional shares of its Common Stock
as a dividend with respect to any shares of its Common Stock, the
number of Shares issuable on the exercise of this Warrant shall
forthwith be proportionately increased in the case of a subdivision or
stock dividend and proportionately decreased in the case of a
combination. Appropriate adjustments shall also be made to the purchase
price payable per share, but the aggregate purchase price payable for
the total number of Shares purchasable under this Warrant (as adjusted)
shall remain the same. Any adjustment under this Section 7(a) shall
become effective at the close of business on the date the subdivision
or combination becomes effective or as of the record date of such
dividend, or, in the event that no record date is fixed, upon the
making of such dividend.
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(b) Reclassification, Reorganization, Merger, Sale or
Consolidation. In the event of any reclassification, capital
reorganization or other change in the Common Stock of the Company
(other than as a result of a subdivision, combination or stock dividend
provided for in Section (a) above) or in the event of a consolidation
or merger of the Company with or into, or the sale of all or
substantially all of the properties and assets of the Company, to any
person, and the connection therewith consideration is payable to
holders of Common Stock in cash, securities or other property, then as
a condition of such reclassification, reorganization or change,
consolidation, merger or sale, lawful provision shall be made, and duly
executed documents evidencing the same shall be delivered to the
Holder, so that the Holder shall have the right at any time prior to
the expiration of this Warrant to purchase, at a total price equal to
that payable upon the exercise of this Warrant immediately prior to
such event, the kind and amount of cash, securities or other property
receivable in connection with such reclassification, reorganization or
change, consolidation, merger or sale, by a holder of the same number
of shares of Common Stock as were exercisable by the Holder immediately
prior to such reclassification, reorganization or change,
consolidation, merger or sale. In any such case, appropriate provisions
shall be made with respect to the rights and interest of the Holder so
that the provisions hereof shall thereafter be applicable with respect
to any cash, securities or property deliverable upon exercise hereof.
Notwithstanding the foregoing, (i) if the Company merges or
consolidates with, or sells all or substantially all of its property
and assets to, any other person, and consideration is payable to
holders of Common Stock in exchange for their Common Stock in
connection with such merger, consolidation or sale which consists
solely of cash, or (ii) in the event of the dissolution, liquidation or
winding up of the Company, then the Holder shall be entitled to receive
distributions on the date of such event on an equal basis with holders
of Common Stock as if this Warrant had been exercised immediately prior
to such event, less the Warrant Price. Upon receipt of such payment, if
any, the rights of the Holder shall terminate and cease, and this
Warrant shall expire. In case of any such merger, consolidation or sale
of assets, the surviving or acquiring person and, in the event of any
dissolution, liquidation or winding up of the Company, the Company
shall promptly, after receipt of this surrendered Warrant, make payment
by delivering a check in such amount as is appropriate (or, in the case
of consideration other than case, such other consideration as is
appropriate) to such person as it may be directed in writing by the
Holder surrendering this Warrant.
(c) Certain Distributions. In case the Company shall fix a
record date for the making of a dividend or distribution of cash,
securities or property to all holders of Common Stock (excluding any
dividends or distributions referred to in Sections 7(a) or 7(b) above,
the number of Shares purchasable upon an exercise of this Warrant after
such record date shall be adjusted to equal the product obtained by
multiplying the number of Shares purchasable upon an exercise of this
Warrant immediately prior to such record date by a fraction, the
numerator of which shall be the Warrant Price immediately prior to such
distribution, and the denominator of which shall be the Warrant Price
immediately prior to such distribution, less the fair market value per
Share, as determined by the Holder, of the cash, securities or property
so distributed. Such adjustment shall be made successively whenever any
such distribution is made and shall become effective on the effective
date of distribution.
8. Pre-Exercise Rights. Prior to exercise of this Warrant, the
Holder shall not be entitled to any rights of a shareholder with respect to the
Shares, including without limitation, the right to vote such Shares, receive
preemptive rights or be notified of shareholder meetings, and the Holder shall
not be entitled to any notice or other communication concerning the business or
affairs of the Company.
9. Restricted Securities. The Holder understands that this Warrant
and the Shares purchasable hereunder constitute "restricted securities" under
the federal securities laws inasmuch as they are being, or will be, acquired
from the Company in transactions not involving a public offering and accordingly
may not, under such laws and applicable regulations, be resold or transferred
without registration under the Securities Act of 1933, as amended, or an
applicable exemption from registration. In this connection, the Holder
acknowledges that Rule 144 of the Securities and Exchange Commission is not now,
and may not in the future be, available for resales of the Shares purchased
hereunder. The Holder further acknowledges that the Shares and any other
securities issued upon exercise of this Warrant shall bear a legend
substantially in the form of the legend appearing on the face hereof.
10. Certification of Investment Purpose. Unless a current
registration statement under the Securities Act of 1933, as amended, shall be in
effect with respect to the securities to be issued upon exercise of this
Warrant, the Holder hereof, by accepting this Warrant, covenants and agrees
that, at the time of exercise hereof, the Holder will deliver to the Company a
written certification that the securiti4es acquired by the Holder are acquired
for investment purposes only and that such securities are not acquired with a
view to, or for sale in connection with, any distribution thereof.
11. Successors and Assigns. The terms and provisions of this Warrant
shall inure to the benefit of, and be binding upon, the Company and the Holder
and their respective successors and assigns.
13. Governing Law. This Warrant shall be governed by the laws of the
State of Texas, excluding the conflicts of laws provisions thereof.
INTEGRATED SECURITY SYSTEMS, INC.
By: /S/ C. A. XXXXXXX, JR.
----------------------
C. A. Xxxxxxx, Jr.
Chairman and Chief
Executive Officer
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EXERCISE NOTICE
Dated ______________, _______
The undersigned hereby irrevocably elects to exercise the Stock
Purchase Warrant, dated May 5, 2005 issued by Integrated Security Systems, Inc.,
a Delaware corporation (the "Company") to the undersigned to the extent of
purchasing _______________ shares of Common Stock and hereby makes payment of
$____________ in payment of the aggregate Warrant Price of such Shares.
RENAISSANCE US GROWTH INVESTMENT TRUST FUND PLC
By: ___________________________________
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