THIS WARRANT HAS BEEN ACQUIRED FOR INVESTMENT AND ITS SALE HAS NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1993. NEITHER THIS WARRANT
NOR THE SECURITIES ISSUABLE UPON THE EXERCISE HEREOF NOR ANY INTEREST
THEREIN MAY BE OFFERED, SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR AN EXEMPTION THEREFROM.
Void after November 10, 2004
STOCK PURCHASE WARRANT
This Stock Purchase Warrant ("Warrant") is issued, for good and valuable
consideration, receipt of which is hereby acknowledged, to Xxxxx Xxxxxx (the
"Purchaser"), by ImageWare Software, Inc., a California corporation (the
"Company").
1. PURCHASE OF SHARES; PURCHASE PRICE. Subject to the terms and
conditions hereinafter set forth, the holder of this Warrant is entitled, upon
surrender of this Warrant at the office of the Company at 00000 Xxxxxxxxx Xxxx,
Xxx Xxxxx, Xxxxxxxxxx 00000 (or at such other place as the Company shall notify
the holder hereof in writing), to purchase from the Company 125,000 shares of
Common Stock for $6.00 per share. The shares of Common Stock of the Company
issuable upon exercise of this Warrant are hereinafter referred to as the
"Shares." Notwithstanding the provisions of Section 4 or 5 below, it is the
intent of the Company and the Purchaser that the amount of warrants to purchase
shares of Common Stock being granted hereunder and the $6.00 per share exercise
price are on a post-split basis after the 5.275 to 1 reverse stock split which
is anticipated to occur prior to the Company's filing of a registration
statement for its initial public offering of securities. If such reverse stock
split does not occur, the amount of warrants granted hereunder and the exercise
price will be adjusted accordingly.
2. EXERCISE PERIOD. This Warrant is exercisable at any time after
January 1, 2001 and before 5:00 P.M., San Diego, California time, on November
10, 2004, at which time this Warrant shall expire.
3. METHOD OF EXERCISE. During the period this Warrant remains
outstanding and exercisable in accordance with Section 2 above, the holder may
exercise this Warrant, in whole or in part, by:
a. surrendering this Warrant, together with a duly executed copy of
the form of Subscription attached hereto to the Secretary of the Company at its
principal offices; and
b. paying to the Company an amount equal to the aggregate Exercise
Price of the number of Shares being purchased.
4. ADJUSTMENT OF WARRANT PRICE AND NUMBER OF SHARES. The number of
Shares purchasable upon exercise of this Warrant and the Exercise Price shall be
subject to adjustment from time to time only as follows:
a. The Exercise Price of this Warrant and the number of Shares
issuable upon exercise of this Warrant shall be appropriately adjusted to
reflect any stock dividend, stock split, combination of shares of stock,
reclassification, recapitalization or other similar event affecting the number
of outstanding shares of Common Stock, as follows:
i. The Exercise Price in effect at the time of such event shall
be adjusted so that it shall equal the price determined by multiplying the
Exercise Price by a fraction, the denominator of which shall be the number of
shares of Common Stock outstanding immediately after giving effect to such
event, and of which the numerator shall be the number of shares of Common Stock
outstanding immediately prior to such event. Such adjustment shall be made
successively whenever any event specified above shall occur.
ii. Whenever the Exercise Price payable upon exercise of this
Warrant is adjusted pursuant to subparagraph (i) above, the number of Shares
purchasable upon exercise of this Warrant shall simultaneously be adjusted by
multiplying the number of Shares initially issuable upon exercise of this
Warrant by the initial Exercise Price in effect on the date hereof and dividing
the product so obtained by the Exercise Price, as adjusted.
b. In case the Company shall make or issue, or shall fix a record
date for the determination of eligible holders entitled to receive, a dividend
or other distribution with respect to the shares payable in (i) securities of
the Company (other than Shares of Common Stock) or (ii) assets (excluding cash
dividends paid or payable solely out of retained earnings), then in each case,
the holder of this Warrant on exercise hereof at any time after the
consummation, effective date or record date of such event, shall receive, in
addition to the Shares issuable on such exercise prior to such date, the
securities or other assets of the Company to which such holder would have been
entitled upon such date if such holder had exercised this Warrant immediately
prior thereto (all subject to further adjustment as provided in this Warrant).
c. In case of any merger of the Company with or into any other
corporation, entity or person, or any other corporate reorganization, in which
the Company shall not be the continuing or surviving entity of such
reorganization or merger, or any sale of all or substantially all of the assets
of the Company (any such transaction being hereinafter referred to as a
"Reorganization"), then, in each case, (i) the holder of this Warrant shall be
provided with written notice of the proposed Reorganization at least thirty (30)
days prior to the proposed Reorganization date, and (ii) the holder of this
Warrant, on exercise hereof at any time after the consummation or effective date
of such Reorganization (the "Effective Date"), shall receive, in lieu of the
Shares issuable on such exercise prior to the Effective Date, the stock and
other securities and property (including cash) to which such Holder would have
been entitled upon the Effective Date if such
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Holder had exercised this Warrant immediately prior thereto (all subject to
further adjustment as provided in this Warrant).
d. In case of any adjustment or readjustment in the price or kind of
securities issuable on the exercise of this Warrant, the Company will promptly
give written notice thereof to the holder of this Warrant in the form of a
certificate, certified and confirmed by the Board of Directors of the Company,
setting forth such adjustment or readjustment and showing in reasonable detail
the computation of such adjustment.
5. DILUTION OR IMPAIRMENT. The Company will not, by amendment of its
Articles of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue 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 will at all times in good faith assist in the
carrying out of all such terms and in the taking of all such action as may be
necessary or appropriate in order to protect the rights of the holder of this
Warrant against dilution or other impairment. Without limiting the generality
of the foregoing, the Company (a) will at all times reserve and keep available a
number of its authorized Shares of Common Stock, free from all preemptive rights
therein, which will be sufficient to permit the exercise of this Warrant and (b)
shall take all such action as may be necessary or appropriate in order that all
Shares as may be issued pursuant to the exercise of this Warrant will, upon
issuance, be duty and validly issued, fully paid and nonassessable and free from
all taxes, liens and charges with respect to the issue thereof.
6. 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 dividends
or other distributions thereon, exercise preemptive rights or be notified of
shareholder meetings, and such holder shall not be entitled to any notice or
other communication concerning the business or affairs of the Company, except as
set forth herein.
7. RESTRICTED SECURITIES. The holder understands that this Warrant and
the Shares purchasable hereunder constitute "restricted securities" under the
federal securities laws inasmuch as they have been, 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. 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.
8. CERTIFICATION OF INVESTMENT PURPOSE. Unless a current registration
statement under the Securities Act of 1933, as amended (the "Act"), shall be in
effect with respect to the offer and sale of the securities to be issued upon
exercise of this Warrant, the holder of this Warrant covenants and agrees that,
at the time of exercise hereof, such holder will deliver to the Company a
written certification that the securities acquired by the holder upon exercise
hereof are for the account of
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the holder, are being acquired for investment purposes only and are not being
acquired with a view to, or for sale in connection with, any public distribution
thereof.
9. RESTRICTIONS ON TRANSFER; REGISTRATION RIGHTS.
a. The Holder agrees that prior to making any disposition of the
Warrants or the Shares, the Holder shall give written notice to the Company
describing briefly the manner in which any such proposed disposition is to be
made; and no such disposition shall be made if the Company has notified the
Holder that in the opinion of counsel reasonably satisfactory to the Holder a
registration statement or other notification or post-effective amendment thereto
(hereinafter collectively a "Registration Statement") under the Act is required
with respect to such disposition and no such Registration Statement has been
filed by the Company with, and declared effective, by the Securities and
Exchange Commission.
b. (i) At any time commencing after the closing of the Company's
initial public offering of its securities and prior to November 30, 2003, the
Company will, as promptly as practicable (but in any event within 60 days),
after written request by a person or persons holding (or having the right to
acquire by virtue of holding the Warrants) at least 50% of the Shares which have
been (or may be) issued upon exercise of all of the Warrants that were issued to
the shareholders of XImage upon the acquisition of XImage by ImageWare, prepare
and file at the Company's expense a Registration Statement with the Commission
and appropriate Blue Sky authorities sufficient to permit the public offering of
the Shares (but not the Warrants) and will use its best efforts through its
officers, directors, auditors and counsel, in all matters necessary or
advisable, to cause such Registration Statement to become effective as promptly
as practicable and to keep such registration effective for a period of the
lesser of 90 days or the date of completion of the distribution described in the
Registration Statement; provided, however, that the Company shall only be
obligated to file one such Registration Statement under this Section 9(b)(i).
(ii) Whenever during the period ending on November 30, 2003,
the Company proposes to file with the Commission a Registration Statement (other
than as to securities issued pursuant to an employee benefit plan or as to a
transaction subject to Rule 145 promulgated under the Act or which a form S-4
Registration Statement could be used), it shall, promptly prior to each such
filing, give written notice of such proposed filing to the Holder and each
holder of Shares at their respective addresses as they appear on the records of
the Company, and shall offer to include and shall include in such filing any
proposed disposition of the Shares (but not the Warrants) upon receipt by the
Company, within 20 days after such written notice is given, of a request
therefor setting forth the facts with respect to such proposed disposition and
all other information with respect to such person reasonably necessary to be
included in such Registration Statement. If the registration for which the
Company gives notice is for a registered public offering involving an
underwriting, the Company shall so advise as part of the written notice given
pursuant to this Section. In such event, the right of any Holder or holder of
Shares to registration pursuant to Section 9(b)(i) shall be conditioned upon the
participation in such underwriting of the Holder or holder of Shares, and the
inclusion of their Shares in the underwriting shall be limited to the extent
4
provided herein. All Holders or holders of Shares proposing to distribute their
Shares through such underwriting shall enter into an underwriting agreement in
customary form with the managing underwriter selected for such underwriting by
the Company. Notwithstanding any other provision of this Section 9(b), if the
managing underwriter determines that marketing factors require a limitation of
the number of shares to be underwritten, such underwriter may limit the amount
of securities to be included in the registration and underwriting by the holders
of Company securities exercising "piggyback" registration rights (including the
Holder and each holder of Shares). The Company shall so advise all such holders
of Company securities exercising "piggyback" registration rights, and the number
of shares of such securities that may be included in the registration and
underwriting shall be allocated among all of such holders, in proportion, as
nearly as practicable, to the respective amounts of securities requested by such
holders to be included in such registration statement. Any securities excluded
or withdrawn from such registration and underwriting shall not be transferred
prior to one hundred twenty (120) days after the effective date of the
registration statement relating thereto, or such shorter period of time as the
underwriters may require.
(iii) In the event that any such Registration Statement is
utilized for a public offering of any of the Shares to be received upon exercise
of the Warrants pursuant to this Section 9, the Holder may elect to pay the
Exercise Price of the Warrants to the Company out of the proceeds of the sale of
the Shares pursuant to the Registration Statement concurrently with the closing
of such sale of the Shares. In such event, (1) the Shares will not be issued by
the Company until they are sold, and (2) the Shares will not be delivered to the
purchaser of such Shares until satisfactory provision is made for paying the
Warrant Price to the Company with respect to such Shares.
c. All fees, disbursements and out-of-pocket expenses (other than
the Holder's brokerage fees and commissions and legal fees of counsel to the
Holder, if any) in connection with the filing of any Registration Statement
under Section 9(b) (or obtaining the opinion of counsel and any no-action
position of the Commission with respect to sales under Rule 144) and in
complying with applicable securities and Blue Sky laws shall be borne by the
Company. The Company at its expense will supply any Holder and any holder of
Shares with copies of such Registration Statement and the prospectus included
therein and other related documents any opinions and no-action letters in such
quantities as may be reasonably requested by the Holder or holder of Shares.
d. The Company shall not be required by this Section 9 to file such
Registration Statement if, in the opinion of counsel for the Holders and holders
of Shares and the Company (or, should they not agree, in the opinion of another
counsel experienced in securities law matters acceptable to counsel for such
holders and the Company), the proposed transfer as to which such Registration
Statement is requested is exempt from applicable federal and state securities
laws under Rule 144 promulgated under the Act.
e. The provisions of this Section 9 and Section 10 hereof shall
apply to the extent as provided herein if the Company chooses to file an
Offering Statement under Regulation A promulgated under the Act.
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f. The Company agrees that until all Shares have been sold under a
Registration Statement or pursuant to Rule 144 under the Act, it will use its
best efforts to keep current in filing all materials required to be filed with
the Commission in order to permit the holders of such securities to sell the
same under Rule 144.
g. The Company shall be entitled, for a reasonable period of time
which in no event shall exceed 60 days (i) to postpone the filing of a
Registration Statement or any amendment or supplement thereto or to the
prospectus relating thereto otherwise required, or (ii) to suspend effectiveness
of the Registration Statement, if the Company (a) determines, in its reasonable
judgment, that the registration or sale of the Shares would materially interfere
with any pending or proposed financing, acquisition, corporate reorganization or
other material transaction involving the Company or any of its subsidiaries, and
(b) promptly gives those persons exercising their registration right hereunder
written notice of such determination.
h. The Company may require those persons exercising their
registration rights hereunder to furnish to the Company such information
regarding the distribution of such Shares as the Company may from time to time
request in writing and such other information as may be legally required in
connection with such registration.
i. At any time when a prospectus relating to a sale of the Shares is
required to be delivered under the Act, there occurs an event requiring the
preparation of a supplement or amendment to such prospectus so that, as
thereafter delivered to the purchasers of the Shares, such prospectus will not
contain an untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading, then the Company will promptly make available to any Holder any
such supplement of amendment. Each Holder agrees that, upon receipt of any
notice from the Company of the happening of any event of the kind described in
the preceding sentence hereof, such Holder will forthwith discontinue
disposition of Shares pursuant to the Registration Statement covering such
Shares until the Holder's receipt of the copies of the supplemented or amended
prospectus, and, if so directed by the Company, the Holder will deliver to the
Company all copies, other than permanent file copies then in the Holder's
possession of the prospectus covering such Shares current at the time of receipt
of such notice. If such amendments or supplements are not made by the Company
within ten (10) days of such notice by the Company or if in the opinion of
counsel to the Holders such amendments or supplements to the prospectus, if
made, are insufficient in light of the requirements of the Act and other
applicable law, the Holders shall not be deemed to have exercised their demand
registration rights pursuant to Section 9(b)(i) herein.
10. INDEMNIFICATION.
a. In the event of the filing of any Registration Statement with
respect to the Shares pursuant to Section 9 hereof, the Company agrees to
indemnify and hold harmless the Holder or any holder of Shares and each person,
if any, who controls the Holder or any holder of Shares
6
within the meaning of the Act, against any losses, claims, damages or
liabilities, joint or several (which shall, for all purposes of this Agreement,
include, but not be limited to, all costs of defense and investigation and all
attorneys' fees), to which the Holder or any holder of Shares or controlling
person may become subject, under the Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon any untrue statement or alleged untrue statement of any material
fact contained in any such Registration Statement or Prospectus included
therein, or amendment or supplement thereto, or arise out of or are based upon
the omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading;
provided, however, that the Company will not be liable in any such case to the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in such Registration Statement or Prospectus or amendment or
supplement thereto in reliance upon, and in conformity with, written
information furnished to the Company by such Holder, the holder of such Shares
or the underwriters of such offering specifically for use in the preparation
thereof. This indemnity will be in addition to any liability which the Company
may otherwise have.
b. The Holders and the holders of Shares agree that they will
indemnify and hold harmless the Company, each other person referred to in
subparts (1), (2) and (3) of Section 11(a) of the Act in respect of the
Registration Statement and each person, if any, who controls the Company within
the meaning of the Act, against any losses, claims, damages or liabilities
(which shall, for all purposes of this Agreement, include but not be limited to,
all costs of defense and investigation and all attorneys' fees) to which the
Company or any such director, officer or controlling person may become subject
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect hereof) arise out of or are based upon any
untrue statement of any material fact contained in such Registration Statement
or Prospectus included therein, or amendment or supplement thereto, or arise out
of or are based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, but in each case only to the extent that such untrue
statement or alleged untrue statement or omission or alleged omission was made
in such Registration Statement or Prospectus included therein, or amendment or
supplement thereto in reliance upon, and in conformity with, written information
furnished to the Company by the Holder or holder of Shares specifically for use
in the preparation thereof, this indemnity agreement will be in addition to any
liability which the Holder or holder of Shares may otherwise have.
c. Promptly after receipt by an indemnified party under this Section
10 of notice of the commencement of any action, such indemnified party will, if
a claim in respect thereof is to be made against the indemnifying party under
this Section 10, notify the indemnifying party of the commencement thereof; but
the omission so to notify the indemnifying party will not relieve the
indemnifying party from any liability which it may have to any indemnified party
otherwise than as to the a particular item as to which indemnification is then
being sought solely pursuant to this Section 10. In case any such action is
brought against any indemnified party, and it notifies the indemnifying party of
the commencement thereof, the indemnifying party will be entitled to participate
in, and, to the extent that it may wish, jointly with any other indemnifying
party similarly
7
notified, reasonably assume the defense thereof, subject to the provisions
herein stated, and after notice from the indemnifying party to such indemnified
party of its election so to assume the defense thereof, the indemnifying party
will not be liable to such indemnified party under this Section 10 for any
legal or other expenses subsequently incurred by such indemnified party in
connection with the defense thereof, other than reasonable costs of
investigation, unless the indemnifying party shall not pursue the action to its
final conclusion. The indemnified party shall have the right to employ
separate counsel in any such action and to participate in the defense thereof,
but the fees and expenses of such counsel shall not be at the expense of the
indemnifying party if the indemnifying party has assumed the defense of the
action with counsel reasonably satisfactory to the indemnified party; provided
that if the indemnified party is a Holder or a holder of Shares or a person who
controls a Holder or a holder of Shares within the meaning of the Act, the fees
and expenses of such counsel shall be at the expenses of the indemnifying party
if (i) the employment of such counsel has been specifically authorized in
writing by the indemnifying party or (ii) the named parties to any such action,
including any impleaded parties, include both a Holder or a holder of Shares or
such controlling person and the indemnifying party and a Holder or a holder of
Shares or such controlling person shall have been advised by such counsel that
there may be one or more legal defenses available to a Holder or a holder of
Shares or controlling person which are not available to or in conflict with any
legal defenses which may be available to the indemnifying party (in which case
the indemnifying party shall not have the right to assume the defense of such
action on behalf of a Holder or a holder of Shares or such controlling person,
it being understood, however, that the indemnifying party shall not, in
connection with any one such action or separate but substantially similar or
related actions in the same jurisdiction arising out of the same general
allegations or circumstances, be liable for the reasonable fees and expenses of
more than one separate firm of attorneys for the Holders, the holders of the
Shares and controlling persons, which firm shall be designated in writing by a
majority in interest of such holders and controlling persons based upon the
value of the securities included in the Registration Statement). No settlement
of any action against an indemnified party shall be made without the consent of
the indemnified and the indemnifying parties, which shall not be unreasonably
withheld in light of all factors of importance to such parties.
11. LOST, STOLEN, MUTILATED OR DESTROYED WARRANT. If this Warrant is
lost, stolen, mutilated or destroyed, the Company shall, upon receipt of a
reasonable agreement to indemnify the Company, and, in the case of a mutilated
warrant, upon the surrender thereof, issue in the name requested a new warrant
of like denomination and tenor as the Warrant so lost, stolen, mutilated or
destroyed.
12. SUCCESSORS AND ASSIGNS. The terms and provisions of this Warrant
shall inure to the benefit of, and be binding upon, the Company and the holders
hereof and their respective successors and permitted assigns.
13. GOVERNING LAW. This Warrant shall be governed by and construed in
accordance with the substantive laws of the State of California without regard
to principles of conflicts of laws.
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14. STATUS OF HOLDER. The holder represents and warrants that the holder
is not an affiliate of, or related party to, any underwriter or broker-dealer,
and acknowledges that the Company is issuing this Warrant in reliance upon such
representation and warranty of holder.
Dated: November 10, 1999 IMAGEWARE SOFTWARE, INC.
By:_____________________________________
S. Xxxxx Xxxxxx, Jr., President
________________________________________
Xxxxx Xxxxxx
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SUBSCRIPTION
ImageWare Software, Inc.
Attention: Corporate Secretary
The undersigned hereby elects to purchase, pursuant to the provisions of
the Stock Purchase Warrant issued by ImageWare Software, Inc. and held by the
undersigned, ______________ shares of Common Stock of ImageWare Software, Inc.
Payment of the purchase price per Share required under such Warrant
accompanies this Subscription.
The undersigned hereby represents and warrants that the undersigned is
acquiring such shares for his own account, for investment purposes only and not
for resale or with a view to distribution of such Shares or any part thereof.
Date: ___________
Signature: _________________________
Address: ___________________________
_____________________________
Name in which Shares should be registered:
------------------------------------------
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