PREFERRED STOCK PURCHASE AGREEMENT
This Preferred Stock Purchase Agreement is made and entered into as of
the 15th day of May, 1998, between Datakey, Inc., a Minnesota corporation (the
"Company"), and those investors whose names are listed on Schedule A attached
hereto (collectively, the "Investors").
For good and valuable consideration, the receipt and adequacy of which
are hereby acknowledged by the Company and the Investors, the Company and the
Investors agree as follows:
1. Sale and Purchase of Securities. Subject to the terms and
conditions hereof, the Company agrees to sell to the Investors at the Closing
(as defined herein), and the Investors agree to purchase from the Company at the
Closing, such shares of the Company's Series A Convertible Cumulative Preferred
Stock (the "Preferred Stock") with the rights and preferences provided in the
Certificate of Designation for such Preferred Stock attached hereto as Exhibit A
(the "Certificate of Designation") in the amounts set forth in Schedule A
attached hereto, and a five-year Warrant in the form attached hereto as Exhibit
B (the "Warrant") to purchase that number of shares of the Company's common
stock, $.05 par value per share, set forth in Schedule A at an exercise price of
$6.30 per share. The Preferred Stock and the Warrant are sometimes collectively
referred to herein as the "Securities."
2. Closing.
(a) Closing. The closing of the purchase and sale of the
Securities hereunder shall take place at the offices of Xxxxxxx, Street and
Deinard Professional Association, Minneapolis, Minnesota, at 1:30 p.m.,
Minnesota time, on May 15, 1998 or at such other place or different time or day
as may be mutually acceptable to the Investors and the Company (the "Closing").
At the Closing, the Company will deliver to each Investor a Warrant representing
the right to purchase that number of shares of the common stock of the Company
set forth opposite such Investor's name on Schedule A attached hereto, dated
such Closing date and will deliver to each Investor a certificate representing
the number of shares of Preferred Stock set forth opposite such Investor's name
on Schedule A and each Investor shall cause to be delivered to the Company a
wire transfer or check payable to the Company in the amount set forth opposite
such Investor's name on Schedule A.
3. Representations and Warranties by the Company. To induce the
Investors to enter into this Agreement and to purchase the Securities, the
Company hereby represents and warrants to the Investors as follows:
(a) Disclosure. The Company has provided the Investors with
all the information it has requested in deciding whether to purchase the
Securities and all information the Company believes is necessary or appropriate
relating to an investment in the Company. There are no facts which individually
or in the aggregate materially adversely affect the business, assets, financial
condition or prospects of the Company, except as set forth in this Agreement or
any other written statements delivered in connection with this Agreement. This
Agreement and the other written information delivered in connection with the
transactions contemplated herein (collectively, the "Disclosed Information")
fairly presents all material information regarding the Company as of the date
hereof and, as of the date of the Closing, the Disclosed Information will (i)
fairly present all material information regarding the Company, and (ii) not
include any 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.
(b) Organization, Good Standing, Etc. The Company is duly
incorporated and validly existing as a corporation in good standing under the
laws of the State of Minnesota, with power and authority to own its properties
and conduct its business as now conducted and proposed to be conducted. The
Company is duly qualified to do business as a foreign corporation and is in good
standing in all states or jurisdictions in which the ownership or lease of its
property or the conduct of its business requires such qualification and the
failure to be so qualified would have a material adverse effect on the Company's
business. The Company has one subsidiary.
(c) Financial Statements. The financial statements (including
all related schedules and notes) included in the Disclosed Information fairly
represent the financial condition and results of operations of the Company as of
the dates and for the periods indicated; such statements have been prepared in
accordance with generally accepted accounting principles consistently applied
throughout the periods indicated; and the report of the public accountant
included in the Disclosed Information is issued by an independent public
accountant within the meaning of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and the rules and regulations thereunder.
(d) Authorization and Enforceability. The Company has full
legal power, right and authority to enter into this Agreement and the
Registration Rights Agreement among the Company and the Investors, the form of
which is attached hereto as Exhibit E (the "Registration Rights Agreement") and
to issue the Securities. This Agreement, the Registration Rights Agreement and
the Securities, have been duly authorized, executed and delivered on behalf of
the Company and are the valid and binding obligations of the Company,
enforceable in accordance with their respective terms and subject, as to
enforcement, to applicable bankruptcy, insolvency, reorganization, moratorium
and other laws affecting the rights of creditors generally, to the exercise of
judicial discretion as to the availability of equitable remedies such as
specific performance and injunction and subject, as to enforcement of the
indemnification provisions, to limitations under applicable securities laws. The
Securities when delivered pursuant to the terms of this Agreement will be
validly issued, fully paid and nonassessable.
(e) License and Approvals. The Company has all licenses,
certificates, permits and other approvals from governmental and regulatory
authorities necessary for the conduct of its business as it is currently being
conducted and as proposed to be conducted except those which would not have a
material adverse effect or the Company if not obtained.
(f) Intellectual Property. The Company owns or possesses all
assets, patents, patent applications, trademarks, service marks, trade names,
trademark registrations, service xxxx registrations, copyrights, licenses,
inventions, trade secrets and rights necessary for the conduct of its business
as it is currently being conducted and as proposed to be conducted and has not
received any notice of conflict with the asserted rights of others in respect
thereof. To the best of the Company's knowledge, no name which the Company uses
and no other aspect of the business of the Company involves or gives rise to any
infringement of, or license or similar fees for, any patents, patent
applications, trademarks, service marks, trade names, trademark registrations,
service xxxx registrations, copyrights, licenses, inventions, trade secrets or
other similar rights of others.
(g) Defaults. The Company is not in breach, default or
violation of, and the execution of this Agreement and the Registration Rights
Agreement and the consummation of the transactions herein and therein
contemplated will not conflict with or result in any breach of, any of the terms
or conditions of, or constitute a default or violation under, (i) the Articles
of Incorporation, as amended, or Bylaws, as amended, of the Company, (ii) any
indenture, agreement or other instrument to which the Company is now a party, or
(iii) to the best of the Company's knowledge, any law or any order, rule or
regulation applicable to the Company of any court or of any federal or state
regulatory body or administrative agency having jurisdiction over the Company or
its property.
(h) Consents. No consent, authorization, approval, permit or
order of or filing with any governmental or regulatory authority is required
under current laws and regulations in connection with the execution and delivery
of this Agreement or the Registration Rights Agreement or the offer, issuance,
sale or delivery of the Securities, other than the qualification thereof, if
required, under applicable state securities laws, which qualification has been
or will be effected as a condition of the sale of the Securities to the
Investors. The Company has not, directly or through an agent, offered the
Securities or any similar securities for sale to, or solicited any offers to
acquire such securities from, persons other than the Investors. Under the
circumstances contemplated by this Agreement, the offer, issuance, sale and
delivery of the Securities will not, under current laws and regulations, require
compliance with the prospectus delivery or registration requirements of the
Securities Act of 1933, as amended (the "Securities Act"). The Company has filed
all reports or other documentation that it is required to file under the
Exchange Act, any rules or regulations promulgated thereunder, the applicable
rules and regulations of the National Association of Securities Dealers ("NASD")
and all applicable state securities laws, and the information contained in such
reports or other documents did not make any untrue statement of a material fact
or omit to state a material fact necessary in order to make the statements
therein made, in the light of the circumstances under which they were made, not
misleading.
(i) Valid Issuance of Preferred Stock. The Preferred Stock,
when authorized, issued, sold and delivered in accordance with the terms hereof
will be duly and validly issued, fully paid and nonassessable and will be free
of restrictions on transfer other than under this Agreement, and, based in part
upon the representations of the Investors in this Agreement, will be issued in
compliance with federal and state securities laws. The Company has a sufficient
number of shares of Preferred Stock authorized and reserved for issuance
pursuant to the provisions of Section 4(c) of Exhibit A attached hereto.
(j) Valid Issuance of Common Stock. The shares of the
Company's common stock issuable upon conversion of the Preferred Stock and upon
exercise of the Warrant have been reserved for issuance and, when issued and
delivered in accordance with the terms thereof, will be duly authorized, validly
issued, fully paid and non-assessable, shall be free of any pledges, liens,
encumbrances and restrictions, and will be issued in compliance with all
applicable federal and state securities laws.
(k) Litigation/Proceedings. There are no pending, threatened
or, to the Company's knowledge, contemplated actions, suits, proceedings or
investigations before or by any court or governmental agency, authority or body,
or any arbitrator, which are not ordinary, routine and incidental to the
business of the Company or which might result in any material adverse change in
the business condition (financial and other) or properties of the Company.
(l) Capital Stock. The authorized capital stock of the
Company consists of 12,500,000 shares, including the following: (a) 10,000,000
shares of common stock, of which 2,909,735 shares are issued and outstanding;
(b) 400,000 shares of convertible preferred stock, of which 150,000 shares are
issued and outstanding; (c) 150,000 shares of Series A Convertible Cumulative
Preferred Stock; and (d) 1,950,000 undesignated shares. Except for an aggregate
of 765,333 shares of the Company's common stock which are subject to outstanding
options to employees under the Company's various stock option plans, there are
no outstanding rights to acquire from the Company any shares of its capital
stock. All outstanding shares of the Company's capital stock have been duly
authorized, validly issued, fully paid and nonassessable and have been issued
pursuant to valid registrations under, or valid exemptions from, the
registration requirements of the Securities Act and appropriate state blue sky
laws.
(m) Title to Properties. The Company has good and marketable
title, free and clear of all liens, encumbrances and equities, and of all
charges or claims, to all of the real and personal property owned by it, except
liens, encumbrances and equities, and charges or claims, which are not material
and do not materially affect the value of such property or interfere with the
conduct of the Company's business. The Company has valid and binding leases to
all of the real and personal property necessary for the conduct of its business
with such exceptions as do not materially interfere with the conduct of its
business.
(n) Tax Returns. The Company has filed all necessary federal,
state and foreign income, franchise and other tax returns and has paid all taxes
shown as due thereon, and the Company has received no notice of any tax
deficiency which has been asserted against the Company.
(o) Authority. The Company has all requisite power and
authority to issue, sell and deliver the Preferred Stock and Warrant in
accordance with and upon the terms set forth in this Agreement. The Company has
duly taken all required action for the due and proper authorization, issuance,
sale and delivery of the Preferred Stock and Warrant. No preemptive rights or
other rights of subscription, first refusal or similar rights of security
holders of the Company exist with respect to the issuance and sale of the
Preferred Stock and Warrant by the Company or the shares of the Company's common
stock issuable upon conversion and exercise, respectively, thereof. With the
exception of the holder of the Convertible Preferred Stock (as such term is
defined in Exhibit A attached hereto), no security holder of the Company
possesses any registration rights. The issuance of the Securities and the shares
of the Company's common stock underlying the Securities will not result in the
issuance of any additional shares of the Company's common stock or the
triggering of other anti-dilution or similar rights contained in any options,
warrants or other securities issued by, or agreements of, the Company.
(p) Investment Company. In retaining and using the proceeds
from the sale of the Securities, the Company will not be required to register as
an "Investment Company" under the Investment Company Act of 1940, as amended.
(q) Bad Boy Certification. Neither the Company, any of its
predecessors, any affiliated issuer nor any of the Company's directors,
officers, beneficial owners of 10% or more of any class of its equity securities
or other affiliates nor any promoter of the Company is subject to any of the
disabilities enumerated in Exhibit C hereto and the representations and
warranties contained therein are true and correct.
(r) Fees and Commissions. Other than pursuant to agreements
with Xxxxxx, Xxxxxxx & Xxxxx, Incorporated, the Company has not incurred any
liability for any finder's or broker's fee or agent's commission in connection
with the execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby.
(s) Changes, Dividends, Etc. Except for the transactions
contemplated by this Agreement, since the date of the most recent financial
statements of the Company provided to Investors, the Company has not: (i)
incurred any debts, obligations or liabilities, absolute, accrued or contingent
and whether due or to become due, except current liabilities incurred in the
ordinary course of business which (individually or in the aggregate) will not
materially and adversely affect the business, properties or prospects of the
Company; (ii) paid any obligation or liability other than, or discharged or
satisfied any liens or encumbrances other than those securing, current
liabilities, in each case in the ordinary course of business; (iii) declared or
made any payment to or distribution to its shareholders as such, or used or
redeemed any of its shares of capital stock, or obligated itself to do so; (iv)
mortgaged, pledged or subjected to lien, charge, security interest or other
encumbrance any of its assets, tangible or intangible, except in the ordinary
course of business; (v) sold, transferred or leased any of its assets except in
the ordinary course of business; (vi) suffered any physical damage, destruction
or loss (whether or not covered by insurance) materially and adversely affecting
the tangible properties, business or prospects of the Company; (vii) encountered
any labor difficulties or labor union organizing activities; (viii) issued or
sold any shares of capital stock or other securities or granted any options
other than to employees, warrants, or other purchase rights with respect thereto
other than pursuant to this Agreement; (ix) made any acquisition or disposition
of any material assets or became involved in any other material transaction,
other than for fair value in the ordinary course of business; or (x) agreed to
do any of the foregoing other than pursuant hereto. There has been no material
adverse change in the financial condition, operations, results of operations or
business of the Company since the date of the most recent financial statements
of the Company provided to the Investors.
(t) Reporting. The Company is subject to the reporting
requirements of the Securities Act and the Exchange Act and (i) has timely filed
all reports and statement required to be filed thereunder in the 12-month period
prior to the date hereof, and (ii) each report and statement was true and
complete in all material respects when filed.
4. Representations of the Investors. Each Investor represents for
itself that:
(a) Investment Intent. The Securities being acquired by the
Investor are being purchased for investment for the Investor's own account and
not with the view to, or for resale in connection with, any distribution or
public offering thereof. The Investor understands that the Securities have not
been registered under the Securities Act or any state securities laws by reason
of their contemplated issuance in a transaction exempt from the registration
requirements of the Securities Act and applicable state securities laws, and
that the reliance of the Company upon these exemptions is predicated in part
upon this representation by the Investor. The Investor further understands that
the Securities, and the shares of the Company's common stock issuable upon
conversion or exercise thereof, may not be transferred or resold without (i)
registration under the Securities Act and any applicable state securities laws,
or (ii) an exemption from the requirements of the Securities Act and applicable
state securities laws.
(b) Location of Principal Office, Qualification as an
Accredited Investor, Etc. The state in which the Investor's principal office is
located is the State set forth in the Investor's address on Schedule A attached
hereto. The Investor qualifies as an accredited investor for purposes of
Regulation D promulgated under the Securities Act. The Investor acknowledges
that the Company has made available to the Investor at a reasonable time prior
to the execution of this Agreement the opportunity to ask questions and receive
answers concerning the business and affairs of the Company and the terms and
conditions of the sale of Securities contemplated by this Agreement and to
obtain any additional information (which the Company possesses or can acquire
without unreasonable effort or expense) as may be necessary to verify the
accuracy of information furnished to the Investor. The Investor (i) is able to
bear the loss of its entire investment in the Securities without any material
adverse effect on its business, operations or prospects, and (ii) has such
knowledge and experience in financial and business matters that it is capable of
evaluating the merits and risks of the investment to be made by it pursuant to
this Agreement.
(c) Acts and Proceedings. This Agreement has been duly
authorized by all necessary action on the part of the Investor, has been duly
executed and delivered by the Investor, and is a valid and binding agreement of
the Investor.
5. Conditions of the Investors' Obligation. The obligation to purchase
and pay for the Securities at the Closing is subject to the fulfillment prior to
or on the Closing date of the conditions set forth in this Section 5. In the
event that any such condition is not satisfied to the satisfaction of each
Investor, then the Investors shall not be obligated to proceed with the purchase
of the Securities at the Closing.
(a) Representations and Warranties. The representations and
warranties of the Company under this Agreement shall be true on and as of the
Closing date with the same effect as though made on and as of the Closing date.
(b) Compliance with Agreement. The Company shall have
performed and complied with all agreements or conditions required by this
Agreement to be performed and complied with by it prior to or as of the Closing
date.
(c) Certificate of Officers. The Company shall have delivered
to the Investors a certificate, dated the Closing date, executed by the
President and the Chief Financial Officer of the Company, and certifying to the
satisfaction of the conditions specified in Sections 5(a) and 5(b).
(d) Opinion of the Company's Counsel. The Investors shall
have received from Xxxxxxxxxx & Xxxxx, P.A., counsel for the Company, an
opinion, dated the Closing date, in the form attached hereto as Exhibit D.
(e) Supporting Documents. The Investors shall have received
the following:
(i) A copy of the resolutions of the Board of
Directors of the Company certified by the Secretary of the Company authorizing
and approving the execution, delivery and performance of this Agreement and
issuance of the Securities;
(ii) A certificate of incumbency executed by
the Secretary of the Company certifying the names, titles and signatures of the
officers of the Company authorized to execute this Agreement and further
certifying that the Articles of Incorporation and Bylaws of the Company
delivered to the Investors at the time of the execution of this Agreement have
been validly adopted and have not been amended or modified; and
(iii) A copy of the Articles of Incorporation and
Bylaws of the Company as of such date and such additional supporting
documentation and other information with respect to the transactions
contemplated hereby as the Investors may reasonably request.
(f) Qualification Under State Securities Laws. All
registrations, qualifications, permits and approvals required under applicable
state securities laws for the lawful execution and delivery of this Agreement
and the offer, sale, issuance and delivery of the Securities to the Investors at
the Closing shall have been obtained.
(g) Proceeding and Documents. All corporate and other
proceedings and actions taken in connection with the transactions contemplated
hereby and all certificates, opinions, agreements, instruments and documents
mentioned herein or incident to any such transaction shall be satisfactory in
form and substance to the Investors.
(h) File Certificate of Designation. It shall be a condition
to the Investors' obligation to close the transactions contemplated hereby that
the Company have filed the Certificate of Designation with the Secretary of
State of the State of Minnesota and that such certificate be accepted and duly
filed by such Secretary's office.
(i) Execution of Registration Rights Agreement. It shall be a
condition to the Investors' obligation to close the transactions contemplated
hereby that the Company execute and deliver to the Investors the Registration
Rights Agreement attached hereto as Exhibit E.
6. Affirmative Covenants of the Company. The Company covenants and
agrees as follows:
(a) Corporate Existence. The Company will maintain its
corporate existence in good standing and comply with all applicable laws and
regulations of the United States or of any state or political subdivision
thereof and of any government authority where failure to so comply would have a
material adverse impact on the Company or its business or operations.
(b) Books of Accounts. The Company will keep books of record
and account in which full, true and correct entries are made of all of its
respective dealings, business and affairs, in accordance with generally accepted
accounting principles. The Company will employ certified public accountants who
are "independent" within the meaning of the accounting regulations of the
Securities and Exchange Commission.
(c) Patents and Other Intangible Rights. The Company will
apply for, or obtain assignments of, or licenses to use, all patents,
trademarks, trade names and copyrights which in the opinion of a prudent and
experienced businessperson operating in the industry in which the Company is
operating are desirable or necessary for the conduct and protection of the
business of the Company.
(d) Certain Information. For a period of five years from the
date hereof, the Company will furnish to the Investors (i) within 90 days after
the end of each fiscal year, a copy of the Company's annual report on Form 10-K,
including audited financial statements, together with a report thereon of its
independent public accountant; (ii) within 45 days after the end of each of the
first three quarters of each fiscal year, the Company's quarterly report on Form
10-Q, including quarterly condensed financial statements of the Company; and
(iii) as soon as practicable after filing, any other report or statement filed
by the Company under the Securities Act or the Exchange Act. The requirements of
this Section will be met with respect to a particular form if such form is
available to the Investors in electronic format on the Internet within the
periods specified above for such form.
(e) Timely Filings. The Company will timely file all reports
and statements to be filed by the Company pursuant to the reporting requirements
of the Securities Act and the Exchange Act and each such report and statement
will be true and complete in all material respects when filed.
(f) Indemnification. The Company will indemnify and hold
harmless the Investors and each person, if any, who controls the Investors
within the meaning of the Securities Act, from and against any and all loss,
damage, liability, cost and expense to which the Investors or any such
controlling person may become subject, insofar as such losses, damages,
liabilities, costs or expenses are caused by (i) any untrue statement or alleged
untrue statement of any material fact contained herein, or arise out of or are
based upon the omission or alleged omission to state herein a material fact
required to be stated herein or necessary to make the statements herein, in
light of the circumstances in which they were made, not misleading, or (ii) any
breach of any representation, warranty or agreement of the Company hereunder;
provided, however, that the Company will not be liable in any such case to the
extent that a court of competent jurisdiction shall have determined by a final
judgment that such loss, damage, liability, cost or expense resulted exclusively
from actions taken or omitted to be taken by the Investors or such controlling
person due to their, his or her gross negligence, bad faith, willful misconduct
or breach of this Agreement. Promptly after receipt by the Investors pursuant to
this Section of notice of the commencement of any action involving the subject
matter of the foregoing indemnity provisions, the Investors will, if a claim
thereof is to be made against the Company pursuant to the provisions hereof,
promptly notify the Company of the commencement thereof; but the omission to so
notify the Company will not relieve it from any liability which it may have to
the Investors otherwise than hereunder. In case such action is brought against
the Investors and they notify the Company of the commencement thereof, the
Company shall have the right to participate in, and, to the extent that it may
wish, to assume the defense thereof, with counsel satisfactory to the Investors;
provided, however, if the defendants in any action include both the Investors
and the Company and there is a conflict of interest which would prevent counsel
for the Company from also representing the Investors, the Investors shall have
the right to select separate counsel for participation in the defense of such
action on behalf of the Investors. After notice from the Company to the
Investors of its election so to assume the defense thereof, the Company will not
be liable to the Investors pursuant to the provisions of this Section for any
legal or other expense subsequently incurred by the Investors in connection with
the defense thereof other than reasonable costs of investigation, unless (i) the
Investors shall have employed counsel in accordance with the proviso of the
preceding sentence, (ii) the Company shall not have employed counsel
satisfactory to the Investors to represent the Investors within a reasonable
time after the notice of the commencement of the action, or (iii) the Company
has authorized the employment of counsel for the Investors at the expense of the
Company.
(g) Fees of Counsel. At the Closing, the Company shall pay
the fees and expenses of legal counsel to the Investors as well as the fees and
expenses of counsel to Xxxxxx, Xxxxxxx & Xxxxx, Incorporated ("MJK") incurred
through the date of the Closing. In addition, at the Closing, the Company shall
pay MJK 7% of the Purchase Price and shall issue MJK a warrant to purchase that
number of shares of the Company's common stock equal to 10% of the number of
shares of the Company's common stock issuable upon conversion of the Preferred
Stock sold by the Company to the Investors at the Closing, assuming the
conversion of the Preferred Stock on the date of Closing. The exercise price of
MJK's warrant shall be 110% of the closing bid price of the Company's common
stock on the day prior to Closing.
(h) Reservation of Shares. The Company will, at all times,
reserve and keep available (i) authorized and unissued shares of Preferred Stock
sufficient for issuance pursuant to the terms of Section 4(c) of Exhibit A
attached hereto, and (ii) authorized and unissued shares of its common stock
sufficient for issuance upon conversion of the Preferred Stock and exercise of
the Warrant.
7. Restriction on Transfer of Preferred Stock, Warrant and Shares.
(a) Legend. Each share of Preferred Stock, each Warrant, and
each certificate representing shares of the Company's common stock shall be
endorsed with a legend in substantially the form which follows:
"The securities represented by this certificate may not be transferred
without (i) the opinion of counsel satisfactory to this corporation
that such transfer may lawfully be made without registration under the
Securities Act of 1933, as amended, and all applicable state securities
laws, or (ii) such registration."
(b) Removal of Legend. Any legend endorsed on a certificate
evidencing a security pursuant to Section 7(a) hereof shall be removed, and the
Company shall issue a certificate without such legend to the holder of such
security, if such security is being disposed of pursuant to a registration under
the Securities Act or pursuant to Rule 144 or any similar rule then in effect or
if such holder provides the Company with an opinion of counsel satisfactory to
the Company to the effect that a transfer of such security may be made without
registration. In addition, if the holder of such security delivers to the
Company an opinion of such counsel to the effect that no subsequent transfer of
such security will require registration under the Securities Act, the Company
will promptly upon such contemplated transfer deliver new certificates
evidencing such security that do not bear the legend set forth in Section 7(a).
8. Miscellaneous.
(a) Changes, Waivers, Etc. Neither this Agreement nor any
provisions hereof may be changed, waived, discharged or terminated orally, but
only by a statement in writing, signed by the party against which enforcement of
the change, waiver, discharge or termination is sought.
(b) Notices. All notices, requests, consents and other
communications required or permitted hereunder shall be in writing and shall be
delivered, or mailed first-class postage prepaid, registered or certified mail
or shall be sent by facsimile transmission followed by mailed copy:
if to the Investors at their respective addresses
set forth on Schedule A, or at such other address or facsimile number as any
Investor may specify in writing to the Company; or
if to the Company at Datakey, Inc., 000 Xxxx Xxxxxxxxx
Xxxxx, Xxxxxxxxxx, Xxxxxxxxx 00000, Attention: President, facsimile number (612)
890-2726; or at such other address or facsimile number as the Company may
specify by written notice to the Investors;
and such notices and other communications shall for
all purposes of this Agreement be treated as being effective or having been
given if delivered personally, if sent by mail, when received, or, if sent by
facsimile, upon the sender's receipt of confirmation from its facsimile machine
of transmission.
(c) Survival of Representations and Warranties. All
representations and warranties and agreements contained herein shall survive the
execution and delivery of this Agreement, any investigation at any time made by
the Investors or on its behalf, and the sale and purchase of the Securities and
payment therefor. All statements contained in any certificate, instrument or
other writing delivered by or on behalf of the Company pursuant to this
Agreement (other than legal opinions) at the Closing shall constitute
representations and warranties by the Company hereunder.
(d) Headings. The headings of the sections of this Agreement
have been inserted for convenience of reference only and do not constitute a
part of this Agreement.
(e) Choice of Law. The laws of the state of New York shall
govern the validity of this Agreement, the construction of its terms and the
interpretation of the rights and duties of the parties hereunder. Each of the
Company and the Investors irrevocably consent to the exclusive jurisdiction of
the United States Federal courts and state courts, located in New York County,
New York, in any suit or proceeding relating to, based on or arising under this
Agreement and irrevocably agree that all claims in respect of such suit or
proceeding may be determined in such courts. The Company irrevocably waives the
defense of an inconvenient forum to the maintenance of such suit or proceeding.
Service of process on the Company mailed by first class mail shall be deemed in
every respect effective service of process upon the Company in any such suit or
proceeding. Nothing herein shall affect the right of any Investor to serve
process in any manner permitted by law.
(f) Counterparts. This Agreement may be executed at different
times and in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
(g) Parties in Interest. All the terms and provisions of this
Agreement shall be binding upon and inure to the benefit of and be enforceable
by the respective successors and assigns of the parties hereto, whether so
expressed or not, and, in particular, shall inure to the benefit of and be
enforceable by the holder or holders from time to time of any of the Securities.
(h) Entire Agreement. This Agreement, including and
incorporating all Exhibits and Schedules hereto, constitutes and contains the
entire agreement and understanding of the parties regarding the subject matter
of this Agreement and supersedes any and all prior negotiations, correspondence,
understandings and agreements, written or oral, among the parties with respect
to the subject matter hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized representatives as of the date indicated
above.
Datakey, Inc. Special Situations Private Equity Fund, L.P.:
By: /s/ Xxxx Xxxxxx By: /s/ Xxxxx Greenhouse
Its: Chief Financial Officer Its:
Tax Identification Number:
Special Situations Technology Fund, L.P.: Xxxxxx X. Xxxxxxx
By: /s/ Xxxxx Greenhouse By: /s/ Xxxxxxx X. Xxxxxxx
Its: Attorney-in-Fact
Tax Identification Number: Tax Identification Number:
Xxxxxxx X. Xxxxxx, TTEE
FBO Xxxxxxx X. Xxxxxx Revocable Xxxxx X. Xxxxxxxx
Trust U/A DTD 7-3-96
By: /s/ Xxxxxxx X. Xxxxxxx By: /s/ Xxxxxxx X. Xxxxxxx
Attorney-in-Fact Attorney-in Fact
Tax Identification Number: Tax Identification Number:
Xxxxx Xxxxxxx as Custodian FBO Xxxxxxx Xxxxx Jaffray as Custodian
A. Xxxxxxxx XXX 000-000000-000 FBO Xxxxxxx X. Xxxxxxx
By: /s/ Xxxxxxx X. Xxxxxxx By: /s/ Xxxxxxx X. Xxxxxxx
Attorney-in-Fact Attorney-in Fact
Tax Identification Number: 00-0000000 Tax Identification Number: 00-0000000
Xxxxx X. Xxxxxxx, TTEE
FBO Xxxxx X. Xxxxxxx
Revocable Living Trust Pyramid Partners, L.P.
U/A DTD 6-1-97
By: /s/ Xxxxxxx X. Xxxxxxx By: /s/ Xxxxxxx X. Xxxxxxx
Attorney-in-Fact Attorney-in Fact
Tax Identification Number: Tax Identification Number:
Industricorp & Co., Inc. Xxxxxx X. & Xxxxxxxx X. Xxxxxxx XX
FBO Twin City Carpenters Pension Plan
/s/ Xxxxx XxXxxxxx /s/ Xxxxxx X. Xxxxxxx
By: Union Bank & Trust, Xxxxxx X. Xxxxxxx
Its Officer /s/ Xxxxxxx X. Xxxxxxx
Xxxxxxx X. Xxxxxxx
Tax Identification Number:
Xxxx Xxxxxx XXX
/s/ Xxxx X. Xxxxxx
By: Xxxx Xxxxxx
Schedule A-2
SCHEDULE A
INVESTORS
Names and Address Preferred Shares Warrant Shares Amount ($)
Special Situations Private Equity 58,544 110,119 $924,995.20
Fund, L.P.
000 Xxxx 00xx Xxxxxx
00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Special Situations Technology Fund, 15,823 29,763 $250,003.40
L.P.
000 Xxxx 00xx Xxxxxx
00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Xxxx Xxxxxx XXX 1,583 2,978 $25,011.40
Xxxxxx X. Xxxxxxx 1,265 2,379 $19,987.00
Xxxxxxx X. Xxxxxx, TTEE FBO Xxxxxxx 1,265 2,379 $19,987.00
X. Xxxxxx Revocable Trust
U/A DTD 7-3-96
Xxxxx X. Xxxxxxxx 1,265 2,379 $19,987.00
Xxxxx Xxxxxxx as Custodian FBO 1,265 2,379 $19,987.00
Xxxxxxx X. Xxxxxxxx
XXX 000-000000-000
Xxxxx Xxxxxxx as Custodian FBO 1,265 2,379 $19,987.00
Xxxxxxx X. Xxxxxxx
XXX 980-576-905-610
Xxxxx X. Xxxxxxx TTEE 1,265 2,379 $19,987.00
FBO Xxxxx X. Xxxxxxx
Revocable Living Trust
U/A DTD 6-1-97
Pyramid Partners L.P. 4,460 8,389 70,468.00
Industricorp & Co., Inc. 10,000 18,810 $158,000.00
FBO Twin City Carpenters Pension Plan
Xxxxxx X. and Xxxxxxx X. Xxxxxxx, XX 2,000 3,762 $31,600.00
------- ------- -------------
TOTALS 100,000 188,095 $1,580,000.00
EXHIBIT A
RIGHTS, PREFERENCES AND RESTRICTIONS OF PREFERRED STOCK
The rights, preferences, restrictions and other matters relating to the
Series A Convertible Cumulative Preferred Stock (the "Series A Preferred Stock")
are as follows:
1. Dividend Provisions. Upon issuance, dividends shall accrue on each
share of outstanding Series A Preferred Stock at an annual rate equal to $1.264
per share per annum (8% of the Original Issue Price, as defined herein). Such
dividends shall be cumulative and shall be payable upon any conversion of the
Series A Preferred Stock pursuant to Section 3 hereof. Such dividends shall only
be paid out of legally available funds of the Company. Such dividends shall be
payable by the Company, in its sole discretion, all in cash or all by the
issuance of a number of shares of the Company's unrestricted, freely tradable
common stock equal to the dividends owing on the Series A Preferred Stock;
provided, however, that prior to the payment of any such dividend by the
issuance of shares of the Company's common stock, the Company shall deliver to
the Investors an opinion of its counsel stating that all such shares have been
validly registered, and that they are duly authorized, validly issued and
nonassessable. For the purposes hereof, the number of shares of the Company's
common stock issuable in lieu of any cash dividend payment shall equal the total
dividend payment then due divided by the per share price of such stock. The per
share price of the Company's common stock shall be determined based on the
average closing bid price of such stock quoted on The Nasdaq Stock Market for
the ten consecutive trading days prior to the payment of such dividends.
Dividends on shares of the Series A Preferred Stock shall accrue beginning on
the date of issuance of the shares of Series A Preferred Stock, shall compound
on an annual basis and shall be payable upon conversion of the Series A
Preferred Stock (a "Payment Date"). All accrued and unpaid dividends on the
Series A Preferred Stock must be paid before any dividends may be declared or
paid on any other junior series of preferred or common stock issued by the
Company.
2. Liquidation Preference.
(a) In the event of any liquidation, dissolution or winding up
of the Company, either voluntary or involuntary, the holders of the previously
issued Convertible Preferred Stock (the "Convertible Preferred Stock") and the
Series A Preferred Stock shall be entitled to receive, prior and in preference
to any distribution of any of the assets of the Company to the holders of common
stock by reason of their ownership thereof, an amount per share equal to $2.50
for the Convertible Preferred Stock, and for the Series A Preferred Stock the
sum of (i) $15.80, as adjusted pursuant to Section 4(c) hereof (the "Original
Issue Price"), and (ii) an amount equal to cumulative unpaid dividends on such
shares (respectively, a "Liquidation Amount"). If upon the occurrence of such an
event, the assets and funds thus distributed among the holders of the
Convertible Preferred Stock and the Series A Preferred Stock shall be
insufficient to permit the payment to such holders of the full aforesaid
preferential amounts, then, the entire assets and funds of the Company legally
available for distribution shall be distributed ratably among the holders of the
Convertible Preferred Stock and the Series A Preferred Stock in proportion to
the amount of such stock owned by each such holder multiplied by the appropriate
Liquidation Amount.
(b) Upon the completion of the distribution required by
subparagraph (a) of this Section 2, if assets remain in the Company, the
remaining assets of the Company shall be distributed ratably among the holders
of the Company's common stock and the Series A Preferred Stock in proportion to
the number of shares of common stock held by each (assuming full conversion of
all shares of Series A Preferred Stock).
(c) (i) For purposes of this Section 2, a liquidation,
dissolution or winding up of the Company shall be deemed to be occasioned by, or
to include, (A) the acquisition of the Company by another entity by means of any
transaction or series of related transactions (including any reorganization,
merger or consolidation but excluding any merger effected exclusively for the
purpose of changing the domicile of the Company); or (B) a sale of all or
substantially all of the assets of the Company, unless the Company's
shareholders as constituted immediately prior to such acquisition or sale will,
immediately after such acquisition or sale (by virtue of securities issued as
consideration for the Company's acquisition or sale or otherwise) hold at least
50% of the voting power of the surviving or acquiring entity.
(ii) In any of such events, if the consideration
received by the Company is other than cash, its value will be deemed its fair
market value.
(iii) In the event the requirements of this Section 2
are not complied with, the Company shall forthwith either:
(A) cause such closing to be postponed until
such time as the requirements of this Section 2 have been complied with, or
(B) cancel such transaction, in which event
the rights, preferences and privileges of the holders of the Convertible
Preferred Stock and the Series A Preferred Stock shall revert to and be the same
as such rights, preferences and privileges existing immediately prior to the
date of the first notice referred to in subsection 2(c)(iv) hereof.
(iv) The Company shall give each holder of record of
Convertible Preferred Stock and the Series A Preferred Stock written notice of
such impending transaction not later than 20 days prior to the shareholders'
meeting called to approve such transaction, or 20 days prior to the closing of
such transaction, whichever is earlier, and shall also notify such holders in
writing of the final approval of such transaction; provided, however, that the
holder of any shares of then outstanding Convertible Preferred Stock or Series A
Preferred Stock shall have the right during such 20-day period to convert such
shares pursuant to Section 3 hereof. The first of such notices shall describe
the material terms and conditions of the impending transaction and the
provisions of this Section 2, and the Company shall thereafter give such holders
prompt notice of any material changes. The transaction shall in no event take
place sooner than 20 days after the Company has given the first notice provided
for herein or sooner than ten days after the Company has given notice of any
material changes provided for herein; provided, however, that such periods may
be shortened upon the written consent of the holders of the Convertible
Preferred Stock and the Series A Preferred Stock that are entitled to such
notice rights or similar notice rights and that represent at least a majority of
the voting power of all then outstanding shares of each of the classes of
preferred stock, voting separately as a class.
3. Conversion.
(a) Conversion Right. At the option of the holder thereof,
each share of Series A Preferred Stock shall be convertible at any time during
the period commencing on the day on which the Series A Preferred Stock is issued
and expiring on May 15, 2000 (the date which is the second anniversary of the
date of issuance of the Series A Preferred Stock); provided, however, that such
expiration date shall be extended for a number of days equal to the number of
days beyond the 90th day following the date of issuance of the Series A
Preferred Stock that the Registration Statement (as such term is defined in the
Registration Rights Agreement, of even date herewith, entered into by and
between the Company and the Investors set forth on Schedule A thereto) is not
effective (such date, including any extension thereof pursuant to the foregoing
proviso, being herein referred to as the "Second Anniversary"). The Series A
Preferred Stock shall be convertible at the office of the Company or any
transfer agent for such stock into such number of fully paid and nonassessable
shares of the Company's common stock as is determined by dividing the Original
Issue Price, subject to adjustment as provided in Section 4, by the Conversion
Price applicable to such shares, determined as hereafter provided, in effect on
the date the certificates representing such shares are surrendered for
conversion (the "Conversion Date"). The Conversion Price shall be equal to the
average closing bid price of one share of the Company's common stock as quoted
by the Nasdaq SmallCap Market, the Nasdaq National Market or the principal
exchange upon which shares of the Company's common stock may be listed, or, if
the Company's common stock shall not then be quoted on the Nasdaq SmallCap
Market or the Nasdaq National Market or listed on a national securities
exchange, but shall otherwise be traded in the over-the-counter market, on such
over-the-counter market for the ten-day period ending on the day prior to the
Conversion Date (the "Trading Period") multiplied by .8 (the "Conversion
Price"); provided, however, that in no event shall the Conversion Price exceed
$5.00 per share or be less than $2.75 (the "Maximum Price" and "Minimum Price,"
respectively) per share; and provided, further, that appropriate adjustments
shall be made in determining the average closing bid price if a recapitalization
or other event affecting the Company's common stock shall occur during the
Trading Period.
(b) Dividend Payment. Should the Company, pursuant to Section
1 hereof, not elect to pay all outstanding, cumulative, accrued and unpaid
dividends on the Series A Preferred Stock in shares of its common stock, the
Company shall pay, in immediately available funds, to the holder of any shares
of Series A Preferred Stock being converted, within two days, all such dividends
on the date that it receives notice of such holder's intent to convert such
shares pursuant to (d) below. Separately, should the Company elect to pay all
outstanding, cumulative, accrued and unpaid dividends on the Series A Preferred
Stock in shares of its common stock, it shall, within two business days of
receiving a holder's notice of intent to convert, deliver certificates
representing such shares to the holder of the Series A Preferred Stock.
(c) Automatic Conversion. Any shares of Series A Preferred
Stock remaining outstanding on the Second Anniversary shall be automatically
converted pursuant to the conversion terms of Section 3(a) above. The Conversion
Date with respect to such automatic conversion shall be the Second Anniversary.
In any event, the Company shall, within two business days after automatic
conversion of the Series A Preferred Stock, issue and deliver a certificate or
certificates for the number of shares of the Company's common stock to which
each former holder of Series A Preferred Stock is entitled. Notwithstanding the
foregoing, no automatic conversion of the Series A Preferred Stock shall occur
pursuant to this Section unless (i) all shares of the Company's common stock
underlying the shares of Series A Preferred Stock may be sold pursuant to an
effective registration statement under the Securities Act of 1933, as amended,
(ii) the Company's common stock is listed and trading on The Nasdaq Stock
Market, and (iii) the Company has reserved and available for issuance a number
of shares of its common stock sufficient to cover conversion of all outstanding
shares of Series A Preferred Stock.
(d) Mechanics of Conversion. Before any holder of Series A
Preferred Stock shall be entitled to convert the same into shares of the
Company's common stock, he, she or it shall surrender the certificate or
certificates therefor, duly endorsed, at the office of the Company or of any
transfer agent for the Series A Preferred Stock, and shall give written notice,
via facsimile, to the Company, at its principal corporate office, of the
election to convert the same and shall state therein the name or names in which
the certificate or certificates for shares of the Company's common stock are to
be issued. The Company shall, immediately thereafter (and in any event no more
than two business days thereafter), issue and deliver to such holder of Series A
Preferred Stock at the address shown on the Company's records or at such other
address as such party may designate by written notice to the Company, or to the
nominee or nominees of such holder, a certificate or certificates for the number
of shares of the Company's common stock to which such holder shall be entitled
pursuant to Section 3(a) and a certificate representing shares of Series A
Preferred Stock not so converted by the holder. Such conversion shall be deemed
to have been made immediately prior to the close of business on the Conversion
Date, and the person or persons entitled to receive the shares of the Company's
common stock issuable upon such conversion shall be treated for all purposes as
the record holder or holders of such shares of the Company's common stock as of
such date.
(e) Mechanics of Automatic Conversion. On the Conversion Date
with respect to the automatic conversion pursuant to subsection 3(c) above, the
certificates representing shares of Series A Preferred Stock shall immediately
represent that number of shares of the Company's common stock into which such
shares are convertible. Holders of Series A Preferred Stock shall deliver their
certificates, duly endorsed in blank, to the principal office of the Company,
together with a notice setting out the name or names (with addresses) and
denominations in which the certificates representing such shares of common stock
issuable upon conversion are to be issued and including instructions for
delivery thereof. The person entitled to receive the shares of the Company's
common stock issuable upon such conversion shall be treated for all purposes as
the record holder of such shares of common stock at and on the Conversion Date,
and the rights of such person as a holder of shares of Series A Preferred Stock
shall cease and terminate at and on the Conversion Date, in any case without
regard to any failure by such holder to deliver the certificates or the notice
required by this subsection 3(e). On the Conversion Date with respect to
automatic conversion, the Company shall pay all outstanding, cumulative, accrued
and unpaid dividends, either by the issuance of shares of its common stock or in
cash, pursuant to the provisions set forth in (a) above; provided, however, that
should the Company elect to pay such dividends by the issuance of additional
shares of its common stock, the person entitled to receive such shares of the
Company's common stock issuable upon such conversion shall be treated for all
purposes as the record holder of such additional shares on the Conversion Date
(f) No Impairment. The Company will not, by amendment of its
Articles of Incorporation or through any reorganization, recapitalization,
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 to be observed or performed hereunder by the
Company, but will at all times in good faith assist in the carrying out of all
the provisions of this Section 3 and in the taking of all such action as may be
necessary or appropriate in order to protect the conversion rights of the
holders of the Series A Preferred Stock against impairment.
(g) No Fractional Shares. No fractional shares shall be issued
upon the conversion of any share or shares of the Series A Preferred Stock, and
the number of shares of the Company's common stock to be issued shall be rounded
to the nearest whole share. Whether or not fractional shares are issuable upon
such conversion shall be determined on the basis of the total number of shares
of Series A Preferred Stock the holder is at the time converting into shares of
the Company's common stock and the number of shares of such common stock
issuable upon such aggregate conversion.
(h) Notices of Record Date. In the event of any taking by the
Company of a record of the holders of any class of securities for the purpose of
determining the holders thereof who are entitled to receive any dividend or
other distribution, any right to subscribe for, purchase or otherwise acquire
any shares of stock of any class or any other securities or property, or to
receive any other right, the Company shall mail to each holder of Series A
Preferred Stock, at least 20 days prior to the date specified therein, a notice
specifying the date on which any such record is to be taken for the purpose of
such dividend, distribution or right, and the amount and character of such
dividend, distribution or right.
(i) Reservation of Stock Issuable Upon Conversion. The Company
shall at all times reserve and keep available out of its authorized but unissued
shares of common stock, solely for the purpose of effecting the conversion of
the shares of the Series A Preferred Stock, such number of its shares of its
common stock as shall from time to time be sufficient to effect the conversion
of all outstanding shares of the Series A Preferred Stock; and if at any time
the number of authorized but unissued shares of the Company's common stock shall
not be sufficient to effect the conversion of all then outstanding shares of the
Series A Preferred Stock, in addition to such other remedies as shall be
available to the holder of such Series A Preferred Stock, the Company will take
such corporate action as may, in the opinion of its counsel, be necessary to
increase its authorized but unissued shares of common stock to such number of
shares as shall be sufficient for such purposes, including engaging in best
efforts to obtain the requisite shareholder approval of any necessary amendment
to the Company's Articles of Incorporation.
(j) Notices. Any notice required by the provisions of this
Section 3 to be given to the holders of shares of Series A Preferred Stock shall
be deemed given if deposited in the United States mail, postage prepaid, and
addressed to each holder of record at his, her or its address appearing on the
books of the Company.
4. Anti-Dilution Provisions.
The Original Issue Price shall be subject to adjustment from
time to time upon the happening of any of the following events: (a) In the event
the Company shall issue or sell any shares of its common stock (except as
provided in paragraph (e) hereof) for a consideration per share less than the
greater of (A) $5.00, or (B) 80% of the Market Price (as defined below) on the
date of such issue or sale, then the Original Issue Price shall be increased to
such greater price (calculated to the nearest cent) as shall be determined by
multiplying the Original Issue Price by a fraction, the numerator of which shall
be the number of shares of the Company's common stock outstanding immediately
after the issuance or sale of such additional shares, and the denominator of
which shall be the sum of (i) the number of shares of the Company's common stock
outstanding immediately prior to the issuance or sale of such additional shares,
and (ii) the number of shares of the Company's common stock which the aggregate
consideration received for the issuance or sale of such additional shares would
purchase at the greater of $5.00, or if such shares of the Company's common
stock shall have been issued for a consideration per share less than 80% of the
Market Price on the date of issuance or sale, the current Market Price. For
purposes of this paragraph, all shares of the Company's common stock issuable
upon exercise of outstanding options and warrants shall be deemed to be
outstanding.
(b) For the purposes of paragraph 4(a) above, the following
subparagraphs (i) to (vii), inclusive, shall be applicable:
(i) If at any time the Company shall issue or sell any
rights to subscribe for, or any rights or options to purchase, shares of its
common stock or any stock or other securities convertible into or exchangeable
for such common stock (such convertible or exchangeable stock or securities
being hereinafter called "Convertible Securities"), whether or not such rights
or options or the right to convert or exchange any such Convertible Securities
shall be immediately exercisable, and the price per share for which shares of
the Company's common stock shall be issuable upon the exercise of such rights or
options or upon conversion or exchange of such Convertible Securities
(determined by dividing (1) the total amount, if any, received or receivable by
the Company as consideration for the granting of such rights or options, plus
the minimum aggregate amount of additional consideration payable to the Company
upon the exercise of such rights or options, plus, in the case of any such
rights or options which shall relate to Convertible Securities, the minimum
aggregate amount of additional consideration, if any, payable upon the issue or
sale of such Convertible Securities and upon the conversion or exchange thereof,
by (2) the total number of shares of the Company's common stock issuable upon
the exercise of such rights or options or upon the conversion or exchange of all
such Convertible Securities issuable upon the exercise of such rights or
options) shall be less than the greater of (x) the $5.00, or (y) 80% of the
Market Price at the time of such issue or sale, then the total number of shares
of the Company's common stock issuable upon the exercise of such rights or
options or upon conversion or exchange of the total amount of such Convertible
Securities issuable upon the exercise of such rights or options shall (as of the
date of granting of such rights or options) be deemed to be outstanding and to
have been issued for such price per share, and except as provided in paragraph
4(d), no further adjustments of the Original Issue Price shall be made upon the
actual issue of such shares of common stock or of such Convertible Securities,
upon the exercise of such rights or options or upon the actual issue of such
common stock upon conversion or exchange of such Convertible Securities.
(ii) If at any time the Company shall issue or sell any
Convertible Securities, whether or not the rights to exchange or convert
thereunder shall be immediately exercisable, and the price per share for which
shares of the Company's common stock shall be issuable upon such conversion or
exchange (determined by dividing (1) the total amount received or receivable by
the Company as consideration for the issue or sale of such Convertible
Securities, plus the minimum aggregate amount of additional consideration, if
any, payable to the Company upon the conversion or exchange thereof, by (2) the
total number of shares of the Company's common stock issuable upon the
conversion or exchange of all such Convertible Securities) shall be less than
the greater of (x) $5.00, or (y) 80% of the Market Price at the time of such
issue or sale, then the total number of shares of the Company's common stock
issuable upon conversion or exchange of all such Convertible Securities shall
(as of the date of the issue or sale of such Convertible Securities) be deemed
to be outstanding and to have been issued for such price per share, and, except
as provided in paragraph 4(d), no further adjustments of the Original Issue
Price shall be made upon the actual issue of such shares of common stock upon
conversion or exchange of such Convertible Securities. In addition, if any issue
or sale of such Convertible Securities shall be made upon exercise of any rights
to subscribe for or to purchase or any option to purchase any such Convertible
Securities for which adjustments of the Original Issue Price shall have been or
shall be made pursuant to other provisions of this paragraph 4(b)(ii), no
further adjustment of the Original Issue Price shall be made by reason of such
issue or sale.
(iii) If at any time the Company shall declare and pay a
dividend or make any other distribution upon the shares of its common stock
payable in such stock or Convertible Securities, any such stock or Convertible
Securities, as the case may be, issuable in payment of such dividend or
distribution shall be deemed to have been issued or sold without consideration.
(iv) If at any time any shares of the Company's common
stock or Convertible Securities or any rights or options to purchase shares of
any such stock or Convertible Securities shall be issued or sold for cash, the
consideration received therefor shall be deemed to be the amount received by the
Company therefor, without deduction therefrom of any expenses incurred or any
underwriting commissions or concessions or discounts paid or allowed by the
Company in connection therewith. In case any shares of the Company's common
stock or Convertible Securities or any rights or options to purchase any such
common stock or Convertible Securities shall be issued or sold for a
consideration other than cash, the amount of the consideration other than cash
received by the Company shall be deemed to be the fair value of such
consideration as determined by the Company's Board of Directors, without
deduction therefrom of any expenses incurred or any underwriting commissions or
concessions or discounts paid or allowed by the Company in connection therewith.
In case any shares of the Company's common stock or Convertible Securities or
any rights or options to purchase any such common stock or Convertible
Securities shall be issued in connection with any merger of another corporation
into the Company, the amount of consideration therefor shall be deemed to be the
fair value of the net assets of such merged corporation as determined by the
Company's Board of Directors after deducting therefrom all cash and other
consideration (if any) paid by the Company in connection with such merger.
(v) If at any time the Company shall take a record of
the holders of its common stock for the purpose of entitling them (1) to receive
a dividend or other distribution payable in shares of the Company's common stock
or in Convertible Securities, or (2) to subscribe for or purchase shares of the
Company's common stock or Convertible Securities, then such record date shall be
deemed to be the date of the issue or sale of the shares of the Company's common
stock deemed to have been issued or sold upon the declaration of such dividend
or the making of such other distribution or the date of the granting of such
right of subscription or purchase, as the case may be.
(vi) The number of shares of the Company's common stock
outstanding at any given time shall not include shares owned or held by or for
the account of the Company, provided that such shares are neither issued, sold
or otherwise distributed by the Company.
(vii) For purposes hereof, the "Market Price" shall mean
the average closing bid price of the Company's common stock on the Nasdaq
SmallCap Market, the Nasdaq National Market or the principal exchange upon which
shares of the Company's common stock may be listed, or, if the Company's common
stock shall not then be quoted on the Nasdaq SmallCap Market or the Nasdaq
National Market or listed on a national securities exchange, but shall otherwise
be traded in the over-the-counter market, on such over-the-counter market, in
each case for the ten day period immediately preceding any determination of such
"Market Price" (subject to appropriate adjustments which shall be made in
determining the average closing bid price if a recapitalization or other event
affecting the Company's common stock shall occur during such 10-day period). If
at any time shares of the Company's common stock shall not be quoted on the
Nasdaq SmallCap Market or the Nasdaq National Market, listed on a national
securities exchange, or otherwise traded in the over-the-counter market, the
"Market Price" of a share of the Company's common stock shall be deemed to be
the higher of (x) the book value thereof (as determined by any firm of
independent public accountants of nationally recognized standing selected by the
Company's Board of Directors) as of the last day of any month ending within 60
days preceding the date of determination, or (y) the fair value thereof (as
determined in good faith by the Company's Board of Directors) as of a date which
shall be within 15 days of the date of determination.
(c) In case at any time the Company shall subdivide its
outstanding shares of common stock into a greater number of shares, the Original
Issue Price in effect immediately prior to such subdivision, the Maximum Price
and the Minimum Price shall be proportionately reduced, and the Company shall
subdivide the Series A Preferred Stock in the same proportion. In case at any
time the outstanding shares of the Company's common stock shall be combined into
a smaller number of shares, the Original Issue Price in effect immediately prior
to such combination, the Maximum Price and the Minimum Price shall be
proportionately increased, and the Company shall combine the Series A Preferred
Stock in the same proportion. Any adjustment under this paragraph 4(c) shall
become effective at the close of business on the date the subdivision or
combination shall become effective. The Company will take such corporate action
as may, in the opinion of its counsel, be necessary to increase its authorized
but unissued shares of Series A Preferred Stock to such number of shares as
shall be sufficient for any such purposes, including engaging in best efforts to
obtain the requisite shareholder approval of any necessary amendment to the
Company's Articles of Incorporation.
(d) If the purchase or exercise price provided for in any
right or option referred to in paragraph 4(b)(i), or the rate at which any
Convertible Securities referred to in paragraph 4(b)(i) or (ii) shall be
convertible into or exchangeable for shares of the Company's common stock, shall
change or a different purchase or exercise price or rate shall become effective
at any time or from time to time (including any change resulting from
termination of such right, option or convertible security), then, upon such
change becoming effective, the Original Issue Price then in effect hereunder
shall forthwith be increased or decreased to such Original Issue Price as would
have been obtained had the adjustments made upon the granting or issuance of
such rights or options or Convertible Securities been made upon the basis of (A)
the issuance of the number of shares of the Company's common stock theretofore
actually delivered upon the exercise of such options or rights or upon the
conversion or exchange of such Convertible Securities, and (B) the granting or
issuance at the time of such change of any such options, rights or Convertible
Securities then still outstanding for the consideration, if any, received by the
Company therefor and to be received on the basis of such changed price.
(e) The Company shall not be required to make any adjustment
to the Original Issue Price in the case of:
(i) the granting, after the date hereof, by the Company
of stock options under the Company's 1997 Stock Option Plan, so long as the
shares of the Company's common stock underlying such options are covered by the
800,000 shares currently reserved for issuance under such plan as of the date
hereof, assuming approval by the Company's shareholders of the 300,000 share
increase at the Company's 1998 Annual Meeting of Shareholders;
(ii) the issuance of shares of the Company's common
stock, pursuant to the exercise of the options referred to in paragraph 4(e)(i)
above or the exercise of any other options or warrants outstanding as of the
date hereof; or
(iii) the issuance of shares of the Series A Preferred
Stock hereunder or of shares of the Company's common stock upon the conversion
of any shares of the Series A Preferred Stock or upon the exercise of the
Warrant or the Warrant issued to Xxxxxx, Xxxxxxx & Xxxxx, Incorporated on the
same date as the Preferred Stock Purchase Agreement to which this certificate of
Designation is an Exhibit.
5. Voting Rights. The holder of each share of Series A Preferred Stock
shall have the right to the number of votes on all matters submitted to the
Company's shareholders that shall be equal to the number of shares of the
Company's common stock into which such holder's shares of Series A Preferred
Stock shall then be convertible (assuming a conversion as of the record date set
for the vote).
6. Status of Converted Stock. In the event any shares of Series A
Preferred Stock shall be converted pursuant to Section 3 hereof, the shares of
Series A Preferred Stock so converted shall be canceled and shall not be
issuable by the Company. The Articles of Incorporation of the Company shall be
appropriately amended to effect the corresponding reduction in the Company's
authorized capital stock.
7. Notice of Adjustment. The Company shall provide all holders of
shares of Series A Preferred Stock five business days prior written notice of
any adjustments in the Original Issue Price, the Maximum Price, the Minimum
Price or any other adjustments made pursuant to the provisions hereof.
EXHIBIT B
NEITHER THIS WARRANT NOR THE SECURITIES INTO WHICH THIS WARRANT IS
EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE AND HAVE BEEN ISSUED IN RELIANCE UPON AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO
AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS THEREUNDER AND IN
COMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS.
DATAKEY, INC.
WARRANT
Warrant No. [__] May 15, 1998
DATAKEY, INC., a Minnesota corporation (the "Company"), hereby
certifies that, for value received, __________, or its registered assigns
("Holder"), is entitled, subject to the terms set forth below, to purchase from
the Company _______ shares of common stock, par value $.05 per share ("Common
Stock"), of the Company (each such share, a "Warrant Share" and all such shares,
the "Warrant Shares") at an exercise price equal to $6.30 per share (as adjusted
from time to time as provided in Section 8 hereof, the "Exercise Price"), at any
time and from time to time from and after the date hereof and through and
including May 14, 2003 (the "Expiration Date"), and subject to the following
terms and conditions:
1. Registration of Warrant. The Company shall register this Warrant,
upon records to be maintained by the Company for that purpose (the "Warrant
Register"), in the name of the record Holder hereof from time to time. The
Company may deem and treat the registered Holder of this Warrant as the absolute
owner hereof for the purpose of any exercise hereof or any distribution to the
Holder, and for all other purposes, and the Company shall not be affected by
notice to the contrary.
2. Registration of Transfers and Exchanges.
(a) Subject to the provisions of (b) below, the Company shall
register the transfer of any portion of this Warrant in the Warrant Register,
upon surrender of this Warrant, with the Form of Assignment attached hereto duly
completed and signed, to the Company at the office specified in or pursuant to
the terms hereof. Upon any such registration or transfer, a new warrant to
purchase Common Stock, in substantially the form of this Warrant (any such new
warrant, a "New Warrant"), evidencing the portion of this Warrant so transferred
shall be issued to the transferee and a New Warrant evidencing the remaining
portion of this Warrant not so transferred, if any, shall be issued to the
transferring Holder. The acceptance of the New Warrant by the transferee thereof
shall be deemed the acceptance by such transferee of all of the rights and
obligations of a Holder of this Warrant.
(b) In the event the Holder of this Warrant desires to
transfer this Warrant, or any Warrant Shares issued upon the exercise hereof
prior to the registration thereof pursuant to Section 4, the Holder shall
provide the Company with a written notice describing the manner of such transfer
and an opinion of counsel (reasonably acceptable to the Company) that the
proposed transfer may be effected without registration or qualification (under
any federal or state law), whereupon such Holder shall be entitled to transfer
this Warrant or to dispose of any Warrant Shares in accordance with the notice
delivered by such Holder to the Company; provided, however, that an appropriate
legend may be endorsed on this Warrant or the certificates for such Warrant
Shares respecting restrictions upon transfer thereof necessary or advisable in
the opinion of counsel satisfactory to the Company to prevent further transfers
which would be in violation of Section 5 of the Securities Act.
(c) This Warrant is exchangeable, upon the surrender hereof
by the Holder to the office of the Company specified in or pursuant to the terms
hereof for one or more New Warrants, evidencing in the aggregate the right to
purchase the number of Warrant Shares which may then be purchased hereunder. Any
such New Warrants will be dated the date of such exchange.
3. Duration and Exercise of Warrants.
(a) This Warrant shall be exercisable by the registered
Holder on any business day before 5:00 P.M., Minneapolis, Minnesota time, at any
time and from time to time on or after the date hereof to and including the
Expiration Date. At 5:00 P.M., Minneapolis, Minnesota time on the Expiration
Date, the portion of this Warrant not exercised prior thereto shall be and
become void and of no value. Except as set forth in Section 13 hereof, this
Warrant may not be redeemed by the Company.
(b) Subject to provisions elsewhere contained in this
Warrant, upon surrender of this Warrant, with the Form of Election to Purchase
attached hereto duly completed and signed, to the Company at its address for
notice as set forth in Section 11 hereof, and upon payment of the Exercise Price
multiplied by the number of Warrant Shares that the Holder intends to purchase
hereunder, in lawful money of the United States of America, in cash or by
certified or official bank check or checks, all as specified by the Holder in
the Form of Election to Purchase, the Company shall promptly (but in no event
later than two business days after the Date of Exercise (as defined herein))
issue or cause to be issued and cause to be delivered to the Holder and in such
name or names as the Holder may designate, a certificate for the Warrant Shares
issuable upon such exercise. Any person so designated by the Holder to receive
Warrant Shares shall be deemed to have become holder of record of such Warrant
Shares as of the Date of Exercise of this Warrant.
A "Date of Exercise" means the date on which the
Company shall have received (i) this Warrant (or any New Warrant, as
applicable), with the Form of Election to Purchase attached hereto (or attached
to such New Warrant) appropriately completed and duly signed, and (ii) payment
of the Exercise Price for the number of Warrant Shares so indicated by the
Holder hereof to be purchased.
(c) This Warrant shall be exercisable either in its entirety
or for a portion of the number of Warrant Shares. If this Warrant is exercised
for a number of Warrant Shares which is less than all of the Warrant Shares
which may be purchased under this Warrant, the Company shall issue or cause to
be issued, at its expense, a New Warrant evidencing the right to purchase the
remaining number of Warrant Shares for which no exercise has been evidenced by
this Warrant.
4. Registration Provisions. The shares of Common Stock underlying this
Warrant shall be registered by the Company under the Securities Act pursuant to
the terms of that Registration Rights Agreement, dated May 15, 1998, by and
between the Company and Holder.
5. Payment of Taxes. The Company will pay all taxes attributable to
the transfer of this Warrant or the issuance of Warrant Shares upon the exercise
of this Warrant.
6. Replacement of Warrant. If this Warrant is mutilated, lost, stolen
or destroyed, the Company shall issue or cause to be issued in exchange and
substitution for and upon cancellation hereof, or in lieu of and substitution
for this Warrant, a New Warrant, but only upon receipt of evidence reasonably
satisfactory to the Company of such loss, theft or destruction and indemnity, if
reasonably satisfactory to it. Applicants for a New Warrant under such
circumstances shall also comply with such other reasonable regulations and
procedures and pay such other reasonable charges as the Company may reasonably
prescribe.
7. Reservation of Warrant Shares. The Company covenants that it will
at all times reserve and keep available out of the aggregate of its authorized
but unissued shares of Common Stock, solely for the purpose of enabling it to
issue Warrant Shares upon exercise of this Warrant as herein provided, the
number of Warrant Shares which are then issuable and deliverable upon the
exercise of this entire Warrant, free from preemptive rights or any other actual
contingent purchase rights of persons other than the Holder (taking into account
the adjustments and restrictions of Section 8). The Company covenants that all
Warrant Shares that shall be so issuable and deliverable shall, upon issuance
and the payment of the applicable Exercise Price in accordance with the terms
hereof, be duly and validly authorized and issued and fully paid and
nonassessable.
8. Certain Adjustments. The Exercise Price and the number of Warrant
Shares purchasable upon the exercise of this Warrant shall be subject to
adjustment from time to time upon the happening of any of the following events:
(a) In the event the Company shall issue or sell any shares
of its Common Stock (except as provided in paragraph (f) hereof) for a
consideration per share less than the greater of (A) the Exercise Price, or (B)
80% of the Market Price (as defined below) on the date of such issue or sale,
then the Exercise Price shall be reduced to such price (calculated to the
nearest cent) as shall be determined by multiplying the Exercise Price by a
fraction, the numerator of which shall be the sum of (i) the number of shares of
Common Stock outstanding immediately prior to the issuance or sale of such
additional shares, and (ii) the number of shares of Common Stock which the
aggregate consideration received for the issuance or sale of such additional
shares would purchase at the greater of the Exercise Price, or if such shares of
Common Stock shall have been issued for a consideration per share less than 80%
of the Market Price on the date of issuance or sale, the current Market Price,
and the denominator of which shall be the number of shares of Common Stock
outstanding immediately after the issuance or sale of such additional shares.
For purposes of this paragraph, all shares of the Common Stock issuable upon
exercise of outstanding options and warrants shall be deemed to be outstanding.
(b) For the purposes of Section 8(a) above, the following
subparagraphs (i) to (vii), inclusive, shall be applicable:
(i) If at any time the Company shall issue or sell any
rights to subscribe for, or any rights or options to purchase, shares of Common
Stock or any stock or other securities convertible into or exchangeable for such
Common Stock (such convertible or exchangeable stock or securities being
hereinafter called "Convertible Securities"), whether or not such rights or
options or the right to convert or exchange any such Convertible Securities
shall be immediately exercisable, and the price per share for which shares of
Common Stock shall be issuable upon the exercise of such rights or options or
upon conversion or exchange of such Convertible Securities (determined by
dividing (1) the total amount, if any, received or receivable by the Company as
consideration for the granting of such rights or options, plus the minimum
aggregate amount of additional consideration payable to the Company upon the
exercise of such rights or options, plus, in the case of any such rights or
options which shall relate to Convertible Securities, the minimum aggregate
amount of additional consideration, if any, payable upon the issue or sale of
such Convertible Securities and upon the conversion or exchange thereof, by (2)
the total number of shares of Common Stock issuable upon the exercise of such
rights or options or upon the conversion or exchange of all such Convertible
Securities issuable upon the exercise of such rights or options) shall be less
than the greater of (x) the Exercise Price, or (y) 80% of the Market Price at
the time of such issue or sale, then the total number of shares of Common Stock
issuable upon the exercise of such rights or options or upon conversion or
exchange of the total amount of such Convertible Securities issuable upon the
exercise of such rights or options shall (as of the date of granting of such
rights or options) be deemed to be outstanding and to have been issued for such
price per share, and except as provided in Section 8(e), no further adjustments
of the Exercise Price shall be made upon the actual issue of such shares of
Common Stock or of such Convertible Securities, upon the exercise of such rights
or options or upon the actual issue of such Common Stock upon conversion or
exchange of such Convertible Securities.
(ii) If at any time the Company shall issue or sell any
Convertible Securities, whether or not the rights to exchange or convert
thereunder shall be immediately exercisable, and the price per share for which
shares of Common Stock shall be issuable upon such conversion or exchange
(determined by dividing (1) the total amount received or receivable by the
Company as consideration for the issue or sale of such Convertible Securities,
plus the minimum aggregate amount of additional consideration, if any, payable
to the Company upon the conversion or exchange thereof, by (2) the total number
of shares of Common Stock issuable upon the conversion or exchange of all such
Convertible Securities) shall be less than the greater of (x) the Exercise
Price, or (y) 80% of the Market Price at the time of such issue or sale, then
the total number of shares of Common Stock issuable upon conversion or exchange
of all such Convertible Securities shall (as of the date of the issue or sale of
such Convertible Securities) be deemed to be outstanding and to have been issued
for such price per share, and, except as provided in Section 8(e), no further
adjustments of the Exercise Price shall be made upon the actual issue of such
shares of Common Stock or upon conversion or exchange of such Convertible
Securities. In addition, if any issue or sale of such Convertible Securities
shall be made upon exercise of any rights to subscribe for or to purchase or any
option to purchase any such Convertible Securities for which adjustments of the
Exercise Price shall have been or shall be made pursuant to other provisions of
this Section 8(b)(ii), no further adjustment of the Exercise Price shall be made
by reason of such issue or sale.
(iii) If at any time the Company shall declare and pay
a dividend or make any other distribution upon the shares of Common Stock
payable in such stock or Convertible Securities, any such stock or Convertible
Securities, as the case may be, issuable in payment of such dividend or
distribution shall be deemed to have been issued or sold without consideration.
(iv) If at any time any shares of Common Stock or
Convertible Securities or any rights or options to purchase shares of any such
stock or Convertible Securities shall be issued or sold for cash, the
consideration received therefor shall be deemed to be the amount received by the
Company therefor, without deduction therefrom of any expenses incurred or any
underwriting commissions or concessions or discounts paid or allowed by the
Company in connection therewith. In case any shares of Common Stock or
Convertible Securities or any rights or options to purchase any such Common
Stock or Convertible Securities shall be issued or sold for a consideration
other than cash, the amount of the consideration other than received by the
Company shall be deemed to be the fair value of such consideration as determined
by the Company's Board of Directors, without deduction therefrom of any expenses
incurred or any underwriting commissions or concessions or discounts paid or
allowed by the Company in connection therewith. In case any shares of Common
Stock or Convertible Securities or any rights or options to purchase any such
Common Stock or Convertible Securities shall be issued in connection with any
merger of another corporation into the Company, the amount of consideration
therefor shall be deemed to be the fair value of the net assets of such merged
corporation as determined by the Company's Board of Directors after deducting
therefrom all cash and other consideration (if any) paid by the Company in
connection with such merger.
(v) If at any time the Company shall take a record of
the holders of Common Stock for the purpose of entitling them (1) to receive a
dividend or other distribution payable in shares of Common Stock or in
Convertible Securities, or (2) to subscribe for or purchase shares of Common
Stock or Convertible Securities, then such record date shall be deemed to be the
date of the issue or sale of the shares of Common Stock deemed to have been
issued or sold upon the declaration of such dividend or the making of such other
distribution or the date of the granting of such right of subscription or
purchase, as the case may be.
(vi) The number of shares of Common Stock outstanding
at any given time shall not include shares owned or held by or for the account
of the Company, provided that such shares are neither issued, sold or otherwise
distributed by the Company.
(vii) For purposes hereof, the "Market Price" shall
mean the average closing bid price of the Common Stock on the Nasdaq SmallCap
Market, the Nasdaq National Market or the principal exchange upon which shares
of Common Stock may be listed, or, if the Common Stock shall not then be quoted
on the Nasdaq SmallCap Market or the Nasdaq National Market or listed on a
national securities exchange, but shall otherwise be traded in the
over-the-counter market, on such over-the-counter market, in each case for the
ten day period immediately preceding the date of determination of such "Market
Price." If at any time shares of Common Stock shall not be quoted on the Nasdaq
SmallCap Market or the Nasdaq National Market, listed on a national securities
exchange, or otherwise traded in the over-the-counter market, the "Market Price"
of a share of Common Stock shall be deemed to be the higher of (x) the book
value thereof (as determined by any firm of independent public accounts of
nationally recognized standing selected in good faith by the Company's Board of
Directors) as of the last day of any month ending within 60 days preceding the
date of determination, or (y) the fair value thereof (as determined in good
faith by the Company's Board of Directors) as of a date which shall be within 15
days of the date of determination.
(c) In case at any time the Company shall subdivide its
outstanding shares of Common Stock into a greater number of shares, the Exercise
Price shall be proportionately reduced. In case at any time the outstanding
shares of Common Stock shall be combined into a smaller number of shares, the
Exercise Price shall be proportionately increased. Any adjustment under this
Section 8(c) shall become effective at the close of business on the date the
subdivision or combination shall become effective.
(d) The Company shall provide the Holder with at least ten
days prior written notice of any capital reorganization or reclassification of
the capital stock of the Company, or consolidation or merger of the Company with
another corporation, or the sale of all or substantially all of the Company's
assets to another corporation. Further, if any of the foregoing events shall be
effected in such a way that holders of Common Stock shall be entitled to receive
stock, securities or assets with respect to or in exchange for Common Stock,
then, as a condition of such reorganization, reclassification, consolidation,
merger or sale, lawful and adequate provision shall be made whereby the holder
hereof shall thereafter have the right to purchase and receive, upon the basis
and upon the terms and conditions specified in this Warrant and in lieu of the
shares of Common Stock of the Company immediately theretofore purchasable and
receivable upon the exercise of the rights represented hereby, such stock,
securities or assets as may be issued or payable with respect to or in exchange
for a number of outstanding shares of such Common Stock equal to the number of
shares of such stock immediately theretofore purchasable and receivable upon the
exercise of the rights represented hereby had such reorganization,
reclassification, consolidation, merger or sale not taken place, and in any such
case appropriate provisions shall be made with respect to the rights and
interests of the Holder of this Warrant to the end that the provisions hereof
(including provisions for adjustments of the Warrant purchase price and of the
number of shares of Common Stock purchasable upon the exercise of this Warrant)
shall thereafter be applicable, as nearly as may be, in relation to any shares
of stock, securities or assets thereafter deliverable upon the exercise hereof.
The Company shall not effect any such consolidation, merger or sale unless prior
to the consummation thereof the successor corporation (if other than the
Company) resulting from such consolidation or merger, or the corporation
purchasing such assets, shall assume by operation of law or written instrument,
the obligation to deliver to such holder such shares of stock, securities or
assets as, in accordance with the foregoing provisions, such holder may be
entitled to purchase. Notice of such assumption shall be promptly mailed to the
registered holder hereof at the last address of such holder appearing on the
books of the Company.
(e) If the purchase or exercise price provided for in any
right or option referred to in Section 8(b)(i), or the rate at which any
Convertible Securities referred to in Section 8(b)(i) or (ii) shall be
convertible into or exchangeable for shares of Common Stock, shall change or a
different purchase or exercise price or rate shall become effective at any time
or from time to time (including any change resulting from termination of such
right, option or convertible security), then, upon such change becoming
effective, the Exercise Price shall forthwith be increased or decreased to such
Exercise Price as would have been obtained had the adjustments made upon the
granting or issuance of such rights or options or Convertible Securities been
made upon the basis of (A) the issuance of the number of shares of Common Stock
theretofore actually delivered upon the exercise of such options or rights or
upon the conversion or exchange of such Convertible Securities, and (B) the
granting or issuance at the time of such change of any such options, rights or
Convertible Securities then still outstanding for the consideration, if any,
received by the Company therefor and to be received on the basis of such changed
price.
(f) The Company shall not be required to make any adjustment
to the Exercise Price in the case of:
(i) the granting, after the date hereof, by the Company
of stock options under the Company's 1997 Stock Option Plan, so long as the
shares of Common Stock underlying such options are covered by the 800,000 shares
currently reserved for issuance under such plan as of the date hereof, assuming
approval of the Company's shareholders of the 300,000 share increase at the
Company's 1998 Annual Meeting of Shareholders;
(ii) the issuance of shares of Common Stock, pursuant
to the exercise of the options referred to in Section 8(e)(i) above or the
exercise of any other options or warrants outstanding as of the date hereof; or
(iii) the issuance of shares of the Preferred Stock
pursuant to the Preferred Stock Purchase Agreement to which this Warrant is an
Exhibit or of shares of Common Stock upon the conversion of any shares of such
Preferred Stock or upon the exercise of this Warrant or any warrants issued to
Xxxxxx, Xxxxxxx & Xxxxx, Incorporated on the same date as the Preferred Stock
Purchase Agreement to which this Warrant is an Exhibit.
(g) Whenever the Exercise Price payable upon exercise of this
Warrant shall be adjusted pursuant to this Section, the number of Warrant Shares
purchasable upon exercise of this Warrant shall be simultaneously adjusted by
multiplying the number of Warrant Shares issuable immediately prior to such
adjustment by the Exercise Price in effect immediately prior to such adjustment
and dividing the product so obtained by the Exercise Price, as adjusted.
9. Payment of Exercise Price. The Holder may pay the Exercise Price in
cash or pursuant to a cashless exercise, as set forth below.
(a) Cash Exercise. The Holder shall deliver immediately
available funds.
(b) Cashless Exercise. The Holder shall surrender this
Warrant to the Company together with a notice of cashless exercise, in which
event the Company shall issue to the Holder the number of Warrant Shares
determined as follows:
X = Y (A-B)/A
where:
X = the number of Warrant Shares to be issued to the
Holder.
Y = the number of Warrant Shares with respect to
which this Warrant is being exercised.
A = the average of the closing bid prices of the
Common Stock for the five trading days immediately prior to (but not including)
the Date of Exercise.
B = the Exercise Price.
For purposes of Rule 144 promulgated under the Securities Act, it is intended,
understood and acknowledged that the Warrant Shares issued in a cashless
exercise transaction shall be deemed to have been acquired by the Holder, and
the holding period for the Warrant Shares shall be deemed to have been
commenced, on the issue date.
10. Fractional Shares. The Company shall not be required to issue or
cause to be issued fractional Warrant Shares on the exercise of this Warrant.
The number of full Warrant Shares which shall be issuable upon the exercise of
this Warrant shall be computed on the basis of the aggregate number of Warrant
Shares purchasable on exercise of this Warrant so presented. If any fraction of
a Warrant Share would, except for the provisions of this Section 10, be issuable
on the exercise of this Warrant, the Company shall, at its option, (i) pay an
amount in cash equal to the Exercise Price multiplied by such fraction, or (ii)
round the number of Warrant Shares issuable, up to the next whole number.
11. Notices. Any and all notices or other communications or deliveries
hereunder shall be in writing and shall be deemed given and effective on the
earliest of (i) the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile telephone number specified in this
Section, (ii) the business day following the date of mailing, if sent by a
nationally recognized overnight courier service, or (iii) upon actual receipt by
the party to whom such notice is required to be given. The addresses for such
communications shall be: (1) if to the Company, to 000 Xxxx Xxxxxxxxx Xxxxx,
Xxxxxxxxxx, XX 00000, Attention: President, facsimile No.: (000) 000-0000, or
(ii) if to the Holder, to the Holder at the address or facsimile number
appearing on the Warrant Register or such other address or facsimile number as
the Holder may provide to the Company in accordance with this Section 11.
12. Warrant Agent.
(a) The Company shall serve as warrant agent under this
Warrant. Upon 30 days' notice to the Holder, Company may appoint a new warrant
agent.
(b) Any corporation into which the Company or any new warrant
agent may be merged or any corporation resulting from any consolidation to which
the Company or any new warrant agent shall be a party or any corporation to
which the Company or any new warrant agent transfers substantially all of its
corporate trust or shareholders services business shall be a successor warrant
agent under this Warrant without any further act. Any such successor warrant
agent shall promptly cause notice of its succession as warrant agent to be
mailed (by first class mail, postage prepaid) to the Holder at the Holder's last
address as shown on the Warrant Register.
13. Call of Warrant. Subject to the conditions set forth below, the
Company shall be permitted to call this Warrant from the Holder in the event
that the closing bid price for shares of the Common Stock is at least $8-5/8 for
ten consecutive trading days prior to the Expiration Date of this Warrant.
Notwithstanding the foregoing, the Company may only exercise its right to call
this Warrant from the Holder if at the time of such call (i) all Warrant Shares
may be sold pursuant to an effective registration statement under the Securities
Act, (ii) the Common Stock is listed and trading on The Nasdaq Stock Market, and
(iii) the Company has reserved and available for issuance a number of shares of
its Common Stock sufficient to cover the exercise of this Warrant in full. The
Company must provide the Holder with at least 20 days advance written notice
(the "Warrant Notice") of its intent to call this Warrant pursuant to the terms
hereof and the Holder shall have 20 business days from the date of receipt of
the Warrant Notice to exercise this Warrant (the "Sale Period"). If the Holder
does not exercise this Warrant during the Sale Period, the Holder shall
surrender this Warrant to the Company at the end of the Sale Period for
cancellation by the Company, and the Company shall transfer to the Holder, via
wire transfer of immediately available funds, an amount equal to $.10 multiplied
by the number of shares of Common Stock subject to exercise of this Warrant.
Notwithstanding the foregoing, the Sale Period shall be extended by that number
of days during such period for which the registration, listing and reservation
requirements set forth in clauses (i)-(iii) of this Section 13 shall not be
satisfied.
14. Miscellaneous.
(a) This Warrant shall be binding on and inure to the benefit
of the parties hereto and their respective successors and permitted assigns.
This Warrant may be amended only in writing signed by the Company and the
Holder.
(b) Subject to Section 14(a), above, nothing in this Warrant
shall be construed to give to any person or corporation other than the Company
and the Holder any legal or equitable right, remedy or cause under this Warrant;
this Warrant shall be for the sole and exclusive benefit of the Company and the
Holder.
(c) This Warrant shall be governed by and construed and
enforced in accordance with the internal laws of the State of New York without
regard to the principles of conflicts of law thereof. Each of the Company and
the Holder irrevocably consent to the exclusive jurisdiction of the United
States Federal courts and state courts, located in New York County, New York, in
any suit or proceeding relating to, based on or arising under this Agreement and
irrevocably agree that all claims in respect of such suit or proceeding may be
determined in such courts. The Company irrevocably waives the defense of an
inconvenient forum to the maintenance of such suit or proceeding. Service of
process on the Company mailed by first class mail shall be deemed in every
respect effective service of process upon the Company in any such suit or
proceeding. Nothing herein shall affect the right of the Holder to serve process
in any manner permitted by law.
(d) The headings herein are for convenience only, do not
constitute a part of this Warrant and shall not be deemed to limit or affect any
of the provisions hereof.
In case any one or more of the provisions of this Warrant shall be invalid or
unenforceable in any respect, the validity and enforceability of the remaining
terms and provisions of this Warrant shall not in any way be affected or
impaired thereby and the parties will attempt in good faith to agree upon a
valid and enforceable provision which shall be a commercially reasonable
substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Warrant.
IN WITNESS WHEREOF, Datakey, Inc. has caused this Warrant to be
executed by its duly authorized officer and this Warrant to be dated as of May
15, 1998.
DATAKEY, INC.
By __________________________________
Its: ___________________________
FORM OF ELECTION TO PURCHASE
(To be executed by the Holder to exercise the right to purchase shares of Common
Stock under the foregoing Warrant)
To DATAKEY, INC.
In accordance with the Warrant enclosed with this Form of Election to
Purchase, the undersigned hereby irrevocably elects to purchase __________
shares of Common Stock, par value $.05 per share, of Datakey, Inc. and (i)
______ encloses herewith $_______ in cash or certified or official bank check or
checks, which sum represents the aggregate Exercise Price (as defined in the
Warrant) for the number of shares of Common Stock to which this Form of Election
to Purchase relates, together with any applicable taxes payable by the
undersigned pursuant to the Warrant, or (ii) _____ hereby elects to exercise the
enclosed Warrant pursuant to the cashless exercise provisions set forth therein
(xxxx one).
The undersigned requests that certificates for the shares of Common
Stock issuable upon this exercise be issued in the name of
PLEASE INSERT SOCIAL SECURITY OR TAX
IDENTIFICATION NUMBER
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(Please print name and address)
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If the number of shares of Common Stock issuable upon this exercise
shall not be all of the shares of Common Stock which the undersigned is entitled
to purchase in accordance with the enclosed Warrant, the undersigned requests
that a New Warrant (as defined in the Warrant) evidencing the right to purchase
the shares of Common Stock not issuable pursuant to the exercise evidenced
hereby be issued in the name of and delivered to:
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(Please print name and address)
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Dated: ______________________ Name of Holder:
(Print)______________________________________
(By:)________________________________________
(Name:)______________________________________
(Title:)_____________________________________
(Signature must conform in all respects to name of
holder as specified on the face of the Warrant)
FORM OF ASSIGNMENT
(To be completed and signed only upon transfer of Warrant)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ____________________________ the right represented by the within Warrant to
purchase ______ shares of Common Stock of Datakey, Inc. to which the within
Warrant relates and appoints ________________ attorney to transfer said right on
the books of Datakey, Inc. with full power of substitution in the premises.
Dated:
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(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant)
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Address of Transferee
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In the presence of:
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EXHIBIT C
COMPANY BAD BOY CERTIFICATE
1. Neither the Company, any of its predecessors nor any affiliated
corporation:
(a) has filed a registration statement which is the subject of
any pending proceeding or examination under Section 8 of the Securities Act or
is the subject of any refusal order or stop order thereunder within the past
five years;
(b) is subject to any pending proceeding under Rule 258
promulgated under the Securities Act or any similar rule adopted under Section
3(b) of the Securities Act, or to an order entered thereunder within the past
five years;
(c) has been convicted within the past five years of any
felony or misdemeanor in connection with the purchase or sale of any security or
involving the making of any false filing with the Commission;
(d) is subject to any order, judgment, or decree of any court
of competent jurisdiction temporarily or preliminary restraining or enjoining,
or is subject to any order, judgment, or decree of any court of competent
jurisdiction, entered within the past five years, permanently restraining or
enjoining, such person from engaging in or continuing any conduct or practice in
connection with the purchase or sale of any security or involving the making of
any false filing with the Commission; or
(e) is subject to a United States Postal Service false
representation order entered under Section 3005 of Title 39, United States Code,
within the past five years, or is subject to a temporary restraining order or
preliminary injunction entered under Section 3007 of Title 39, United States
Code, with respect to conduct alleged to have violated Section 3005 of Title 39,
United States Code.
2. None of the Company's directors, officers, general partners, or
beneficial owners of 10% or more of any class of its equity securities, nor any
of its promoters presently connected with it in any capacity:
(a) has been convicted within the past ten years of any felony
or misdemeanor in connection with the purchase or sale of any security,
involving the making of a false filing with the Commission, or arising out of
the conduct of the business of an underwriter, broker, dealer, municipal
securities dealer, or investment advisor;
(b) is subject to any order, judgment, or decree of any court
of competent jurisdiction temporarily or preliminarily enjoining or restraining,
or is subject to any order, judgment, or decree of any court of competent
jurisdiction, entered within the past five years, permanently enjoining or
restraining such person from engaging in or continuing any conduct or practice
in connection with the purchase or sale of any security or involving the making
of a false filing with the Commission, or arising out of the conduct of the
business of an underwriter, broker, dealer, municipal securities dealer, or
investment advisor;
(c) is subject to an order of the Commission entered pursuant
to Section 15(b), Section 15(B)(a) or 15(B)(c) of the Exchange Act; or is
subject to an order of the Commission entered pursuant to Section 203(e) or (f)
of the Investment Advisors Act of 1940;
(d) is suspended or expelled from membership in, or suspended
or barred from association with a member of, an exchange registered as a
national securities exchange pursuant to Section 6 of the Exchange Act, an
association registered as a national securities association under Section 15A of
the Exchange Act, or a Canadian securities exchange or association for any act
or omission to act constituting conduct inconsistent with just and equitable
principles of trade; or
(e) is subject to a United States Postal Service false
representation order entered under Section 3005 of Title 39, United States Code,
within the past five years; or is subject to a restraining order or preliminary
injunction entered under Section 3005 of Xxxxx 00, Xxxxxx Xxxxxx Code.
For the purposes hereof, Beneficial Owner means a person having the power to
vote or direct the vote or the power to dispose or direct the disposition of any
of the Company's securities.
3. The Company has filed all reports required by the Exchange Act
during the past 12 calendar months.
