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FORM OF FINDER WARRANT
NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS EXERCISABLE
HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE 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, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO
SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS
SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
LOAN SECURED BY SUCH SECURITIES, BUT ANY PLEDGEE SHALL BE SUBJECT TO THE
REQUIREMENTS SET FORTH IN THIS WARRANT AS A HOLDER.
COMMON STOCK PURCHASE WARRANT
To Purchase 65,753 Shares of Common Stock of
INTERACTIVE SYSTEMS WORLDWIDE INC.
Warrant No. ____
THIS COMMON STOCK PURCHASE WARRANT (the "Warrant") certifies
that, for value received, Xxxxxxx Xxxx (the "Holder"), is entitled, upon the
terms and subject to the limitations on exercise and the conditions hereinafter
set forth, at any time on or after August 3, 2005 (the "Initial Exercise Date")
and on or prior to the close of business on the fifth anniversary of the Initial
Exercise Date (the "Termination Date") but not thereafter, to subscribe for and
purchase from Interactive Systems Worldwide Inc., a corporation incorporated in
Delaware (the "Company"), up to 65,753 shares (the "Warrant Shares") of Common
Stock, par value $0.001 per share, of the Company (the "Common Stock"). The
purchase price of one share of Common Stock (the "Exercise Price") under this
Warrant shall be $4.38, subject to adjustment hereunder. The Exercise Price and
the number of Warrant Shares for which the Warrant is exercisable shall be
subject to adjustment as provided herein. CAPITALIZED TERMS USED AND NOT
OTHERWISE DEFINED HEREIN SHALL HAVE THE MEANINGS SET FORTH IN THAT CERTAIN
SECURITIES PURCHASE AGREEMENT (THE "PURCHASE AGREEMENT"), DATED AUGUST 3, 2005,
BETWEEN THE COMPANY AND THE PURCHASERS SIGNATORY THERETO.
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1. Title to Warrant. Prior to the Termination Date and subject
to compliance with applicable laws and Section 7 of this Warrant, this Warrant
and all rights hereunder are transferable, in whole or in part (but if in part,
not in amounts less than the right to purchase 10,000 Warrant Shares), at the
office or agency of the Company by the Holder in person or by duly authorized
attorney, upon surrender of this Warrant together with the Assignment Form
annexed hereto properly endorsed, provided that any such transferee is an
"accredited investor" as defined in Rule 501(a) promulgated under the Securities
Act. Prior to any transfer, the transferee shall sign an investment letter in
form and substance reasonably satisfactory to the Company. Notwithstanding
anything to the contrary contained herein, no Holder may assign this Warrant or
any of its rights hereunder to a competitor or potential competitor of the
Company.
2. Authorization of Warrant Shares. The Company represents and
warrants that all Warrant Shares which may be issued upon the exercise of the
purchase rights represented by this Warrant will, upon exercise of the purchase
rights represented by this Warrant, be duly authorized, validly issued, fully
paid and nonassessable and free from all taxes, liens and charges in respect of
the issue thereof (other than taxes in respect of any transfer occurring
contemporaneously with such issue or income taxes, if any, payable by the
Holder).
3. Exercise of Warrant.
(a) Exercise of the purchase rights represented by
this Warrant may be made at any time or times on or after the Initial
Exercise Date and on or before the Termination Date by delivery to the
Company of a duly executed original or facsimile copy of the Notice of
Exercise Form annexed hereto (or such other office or agency of the
Company as the Company may designate by notice in writing to the
registered Holder at the address of such Holder appearing on the books
of the Company) together with payment of the aggregate Exercise Price
(in cash except as provided in Section 3(d)) of the shares thereby
purchased by wire transfer to an account designated by the Company or
cashier's check drawn on a United States bank; provided, however, that
within 3 Trading Days after the date such Notice of Exercise is
delivered to the Company, the Holder shall surrender this Warrant to
the Company. Certificates for shares purchased hereunder shall be
delivered to the Holder within 5 Trading Days after the date on which
the Notice of Exercise shall have been delivered by original or
facsimile copy and payment of the aggregate Exercise Price shall have
been received by the Company as set forth above ("Warrant Share
Delivery Date"); provided, however, that in the event the Warrant is
not surrendered by the Holder and received by the Company within 4
Trading Days after the date on which the aggregate exercise price shall
have been paid and the Notice of Exercise shall be delivered by
facsimile copy, the Warrant Share Delivery Date shall be extended to
the extent such 4 Trading Day period is exceeded. This Warrant shall be
deemed to have been exercised on the date the Notice of Exercise is
delivered to the Company and the aggregate Exercise Price shall have
been paid. The Warrant Shares shall be deemed to have been issued, and
Holder or any other person so designated to be named therein shall be
deemed to have become a holder of record of such shares for all
purposes, as of the date the Warrant has been exercised by payment to
the Company of the Exercise Price and all taxes required to be paid by
the Holder, if any, pursuant to
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Section 5 prior to the issuance of such shares, have been paid. If the
Company fails to deliver to the Holder a certificate or certificates
representing the Warrant Shares pursuant to this Section 3(a) by the
2nd Trading Day following the Warrant Share Delivery Date, then the
Holder will have the right to rescind such exercise. In addition to any
other rights available to the Holder, if the Company fails to deliver
to the Holder a certificate or certificates representing the Warrant
Shares pursuant to an exercise on or before the Warrant Share Delivery
Date, and if after such date the Holder is required by its broker to
purchase (in an open market transaction or otherwise) shares of Common
Stock to deliver in satisfaction of a sale by the Holder of the Warrant
Shares which the Holder anticipated receiving upon such exercise (a
"Buy-In"), then the Company shall (1) pay in cash to the Holder the
amount by which (x) the Holder's total purchase price (including
brokerage commissions, if any) for the shares of Common Stock so
purchased exceeds (y) the amount obtained by multiplying (A) the number
of Warrant Shares that the Company was required to deliver to the
Holder in connection with the exercise at issue times (B) the price at
which the sell order giving rise to such purchase obligation was
executed, and (2) at the option of the Holder, either reinstate the
portion of the Warrant and equivalent number of Warrant Shares for
which such exercise was not honored or deliver to the Holder the number
of shares of Common Stock that would have been issued had the Company
timely complied with its exercise and delivery obligations hereunder.
For example, if the Holder purchases Common Stock having a total
purchase price of $11,000 to cover a Buy-In with respect to an
attempted exercise of shares of Common Stock with an aggregate sale
price giving rise to such purchase obligation of $10,000, under clause
(1) of the immediately preceding sentence the Company shall be required
to pay the Holder $1,000. The Holder shall provide the Company written
notice indicating the amounts payable to the Holder in respect of the
Buy-In, together with applicable confirmations and other evidence
reasonably requested by the Company. Nothing herein shall limit a
Xxxxxx's right to pursue any other remedies available to it hereunder,
at law or in equity including a decree of specific performance and/or
injunctive relief with respect to the Company's failure to timely
deliver certificates representing shares of Common Stock upon exercise
of the Warrant as required pursuant to the terms hereof.
(b) If this Warrant shall have been exercised in
part, the Company shall promptly deliver to Holder a new Warrant
evidencing the rights of Holder to purchase the unpurchased Warrant
Shares called for by this Warrant, which new Warrant shall in all other
respects be identical with this Warrant.
(c) The Company shall not effect any exercise of this
Warrant, and the Holder shall not have the right to exercise any
portion of this Warrant, pursuant to Section 3(a) or otherwise, to the
extent that after giving effect to such issuance after exercise, the
Holder (together with the Holder's Affiliates), as set forth on the
applicable Notice of Exercise, would beneficially own in excess of
4.99% of the number of shares of the Common Stock outstanding
immediately after giving effect to such issuance. For purposes of the
foregoing sentence, the number of shares of Common Stock beneficially
owned by the Holder and its Affiliates shall include the number of
shares of Common Stock issuable upon exercise of this Warrant with
respect to which the determination of such sentence is being made, but
shall exclude the number of shares of Common Stock
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which would be issuable upon (A) exercise of the remaining,
nonexercised portion of this Warrant or any other warrant or Capital
Shares Equivalents beneficially owned by the Holder or any of its
Affiliates and (B) payment by the Company in shares of Common Stock of
the principal of, or interest on, any debentures held by the Holder or
its Affiliates, and (ii) dividends on the shares of Preferred Stock, or
exercise or conversion of the unexercised or nonconverted portion of
any other securities of the Company (including any other shares of
Preferred Stock or Warrants) subject to a limitation on conversion or
exercise analogous to the limitation contained herein beneficially
owned by the Holder or any of its Affiliates. Except as set forth in
the preceding sentence, for purposes of this Section 3(c), beneficial
ownership shall be calculated in accordance with Section 13(d) of the
Exchange Act. (To the extent that the limitation contained in this
Section 3(c) applies, the determination of whether this Warrant is
exercisable (in relation to other securities owned by the Holder,
together with any of its Affiliates) and of which portion of this
Warrant is exercisable shall be in the sole discretion of such Holder,
and the submission of a Notice of Exercise shall be deemed to be such
Holder's determination of whether this Warrant is exercisable (in
relation to other securities owned by such Holder, together with any of
its Affiliates) and of which portion of this Warrant is exercisable, in
each case subject to such aggregate percentage limitation.) To ensure
compliance with this restriction, the Holder will be deemed to
represent to the Company each time it delivers a Notice of Exercise
that such Notice of Exercise has not violated the restrictions set
forth in this paragraph and the Company shall have no obligation to
verify or confirm the accuracy of such determination. For purposes of
this Section 3(c), in determining the number of outstanding shares of
Common Stock, the Holder may rely on the number of outstanding shares
of Common Stock as reflected in the most recent of the following: (x)
the Company's Form 10-QSB or Form 10-KSB, as the case may be, (y) a
public announcement by the Company or (z) any other notice by the
Company or the Company's Transfer Agent setting forth the number of
shares of Common Stock outstanding. Upon the written or oral request of
the Holder, the Company shall within two Trading Days confirm orally
and in writing to the Holder the number of shares of Common Stock then
outstanding. In any case, the number of outstanding shares of Common
Stock shall be determined after giving effect to the conversion or
exercise of securities of the Company, including this Warrant, by the
Holder or its Affiliates since the date as of which such number of
outstanding shares of Common Stock was reported. The provisions of this
Section 3(c) may be waived by the Holder upon, at the election of the
Holder, not less than 61 days' prior notice to the Company, and the
provisions of this Section 3(c) shall continue to apply until such 61st
day (or such later date, as determined by the Holder, as may be
specified in such notice of waiver). The provisions of this paragraph
shall be implemented in a manner otherwise than in strict conformity
with the terms of this Section 3(c) to correct this paragraph (or any
portion hereof) which may be defective or inconsistent with the
intended 4.99% beneficial ownership limitation herein contained or to
make changes or supplements necessary or desirable to properly give
effect to such 4.99% limitation. The limitations contained in this
paragraph shall apply to a successor holder of this Warrant. The
holders of Common Stock of the Company shall be third party
beneficiaries of this Section 3(c) and the Company may not waive this
Section 3(c) without the consent of holders of a majority of its Common
Stock.
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(d) This Warrant may be exercised by means of a
"cashless exercise" in which the Holder shall be entitled to receive a
certificate for the number of Warrant Shares equal to the quotient
obtained by dividing [(A-B) (X)] by (A), where:
(A) = the VWAP on the Trading Day immediately preceding
the date of such election;
(B) = the Exercise Price of this Warrant, as adjusted; and
(X) = the number of Warrant Shares issuable upon exercise
of this Warrant in accordance with the terms of this
Warrant by means of a cash exercise rather than a
cashless exercise.
(e) In the event that this Warrant is exercised
prior to the Effective Date, the shares issuable upon such exercise shall bear
the legend set forth in Section 4.1(b) of the Purchase Agreement.
4. No Fractional Shares or Scrip. No fractional shares or
scrip representing fractional shares shall be issued upon the exercise of this
Warrant. As to any fraction of a share which Holder would otherwise be entitled
to purchase upon such exercise, the Company shall pay a cash adjustment in
respect of such final fraction in an amount equal to such fraction multiplied by
the Exercise Price.
5. Charges, Taxes and Expenses. Issuance of certificates for
Warrant Shares shall be made without charge to the Holder for any issue or
transfer tax or other incidental expense in respect of the issuance of such
certificate, all of which taxes and expenses shall be paid by the Company, and
such certificates shall be issued in the name of the Holder or in such name or
names as may be directed by the Holder; provided, however, that in the event
certificates for Warrant Shares are to be issued in a name other than the name
of the Holder, this Warrant when surrendered for exercise shall be accompanied
by the Assignment Form attached hereto duly executed by the Holder; and the
Company may require, as a condition thereto, the payment of a sum sufficient to
reimburse it for any transfer tax incidental thereto.
6. Closing of Books. The Company will not close its
stockholder books or records in any manner which prevents the timely exercise of
this Warrant, pursuant to the terms hereof.
7. Transfer, Division and Combination.
(a) Subject to compliance with any applicable
securities laws and the conditions set forth in Sections 1 and 7(e)
hereof and to the provisions of Section 4.1 of the Purchase Agreement,
this Warrant and all rights hereunder are transferable, in whole or in
part, upon surrender of this Warrant at the principal office of the
Company, together with a written assignment of this Warrant
substantially in the form attached hereto duly executed by the Holder
or its duly authorized agent or attorney and funds sufficient to pay
any transfer taxes payable upon the making of such transfer. No such
assignment shall be valid and enforceable unless such assignee is an
"accredited investor" and until any such assignee shall have executed
and delivered to the Company an accredited investor questionnaire. Upon
such surrender and, if required, such payment, the Company shall
execute and deliver a new Warrant or Warrants in the name of the
assignee or assignees and in the denomination or denominations
specified in such instrument of assignment, and shall issue to the
assignor a new Warrant evidencing the portion of this Warrant not so
assigned, and this Warrant shall promptly be cancelled. A Warrant, if
properly assigned, may be exercised by a new holder for the purchase of
Warrant Shares without having a new Warrant issued.
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(b) This Warrant may be divided or combined with
other Warrants upon presentation hereof at the aforesaid office of the
Company, together with a written notice specifying the names and
denominations in which new Warrants are to be issued, signed by the
Holder or its duly authorized agent or attorney; provided, however,
that Warrants to purchase less than 10,000 Warrant Shares need not be
issued unless the total number of Warrant Shares for which the Warrant
may be exercised is less than 10,000 Warrant Shares. Subject to
compliance with Section 7(a), as to any transfer which may be involved
in such division or combination, the Company shall execute and deliver
a new Warrant or Warrants in exchange for the Warrant or Warrants to be
divided or combined in accordance with such notice.
(c) The Company shall prepare, issue and deliver at
its own expense (other than transfer taxes) the new Warrant or Warrants
under this Section 7.
(d) The Company agrees to maintain, at its aforesaid
office, books for the registration and the registration of transfer of
the Warrants.
(e) If, at the time of the surrender of this Warrant
in connection with any transfer of this Warrant, the transfer of this
Warrant shall not be registered pursuant to an effective registration
statement under the Securities Act and under applicable state
securities or blue sky laws, the Company may require, as a condition of
allowing such transfer (i) that the Holder or transferee of this
Warrant, as the case may be, furnish to the Company a written opinion
of counsel (which opinion shall be in form, substance and scope
customary for opinions of counsel in comparable transactions and shall
be reasonably satisfactory to the Company) to the effect that such
transfer may be made without registration under the Securities Act and
under applicable state securities or blue sky laws, (ii) that the
holder or transferee execute and deliver to the Company an investment
letter in form and substance acceptable to the Company and (iii) that
the transferee be an "accredited investor" as defined in Rule 501(a)
promulgated under the Securities Act.
8. No Rights as Shareholder Until Exercise. This Warrant does
not entitle the Holder to any voting rights or other rights as a shareholder of
the Company prior to the exercise hereof. Upon the surrender of this Warrant and
the payment of the aggregate Exercise Price (or by means of a cashless exercise
as provided in Section 3(d)) and all applicable taxes, if any, the Warrant
Shares so purchased shall be and be deemed to be issued to such Holder as the
record owner of such shares as of the close of business on the later of the date
of such surrender or payment. The Company shall be entitled to treat the Holder
of the Warrant as the owner in fact thereof for all purposes and shall not be
bound to recognize any equitable or other claim to or interest in such Warrant
on the part of any other person, and shall not be liable for any registration or
transfer of Warrants which are registered or to be registered in the name of a
fiduciary or the nominee of a fiduciary unless made with the actual knowledge
that a fiduciary or nominee is committing a breach of trust in requesting such
registration or transfer, or with the knowledge of such facts that its
participation therein amounts to bad faith.
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9. Loss, Theft, Destruction or Mutilation of Warrant. The
Company covenants that upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this Warrant
or any stock certificate relating to the Warrant Shares, and in case of loss,
theft or destruction, of indemnity or security reasonably satisfactory to it
(which, in the case of the Warrant, shall not include the posting of any bond),
and upon surrender and cancellation of such Warrant or stock certificate, if
mutilated, the Company will make and deliver a new Warrant or stock certificate
of like tenor and dated as of such cancellation, in lieu of such Warrant or
stock certificate.
10. Saturdays, Sundays, Holidays, etc. If the last or
appointed day for the taking of any action or the expiration of any right
required or granted herein shall be a Saturday, Sunday or a legal holiday, then
such action may be taken or such right may be exercised on the next succeeding
day not a Saturday, Sunday or legal holiday.
11. Adjustments of Exercise Price and Number of Warrant
Shares.
(a) Stock Splits, etc. The number and kind of
securities purchasable upon the exercise of this Warrant and the
Exercise Price shall be subject to adjustment from time to time upon
the happening of any of the following. In case the Company, at any time
while the Warrant is outstanding, shall (i) pay a dividend in shares of
Common Stock or make a distribution in shares of Common Stock to all
holders of its outstanding Common Stock, (ii) subdivide its outstanding
shares of Common Stock into a greater number of shares, (iii) combine
(including by way of reverse stock split) its outstanding shares of
Common Stock into a smaller number of shares of Common Stock, or (iv)
issue any shares of its capital stock in a reclassification of the
Common Stock, then the number of Warrant Shares purchasable upon
exercise of this Warrant immediately prior thereto shall be adjusted so
that the Holder shall be entitled to receive the kind and number of
Warrant Shares or other securities of the Company which it would have
owned or have been entitled to receive had such Warrant been exercised
in advance thereof. Upon each such adjustment of the kind and number of
Warrant Shares or other securities of the Company which are purchasable
hereunder, the Holder shall thereafter be entitled to purchase the
number of Warrant Shares or other securities resulting from such
adjustment at an Exercise Price per Warrant Share or other security
obtained by multiplying the Exercise Price in effect immediately prior
to such adjustment by the number of Warrant Shares purchasable pursuant
hereto immediately prior to such adjustment and dividing by the number
of Warrant Shares or other securities of the Company that are
purchasable pursuant hereto immediately after such adjustment. An
adjustment made pursuant to this paragraph shall become effective
immediately after the effective date of such event retroactive to the
record date, if any, for such event.
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(b) Anti-Dilution Provisions. During the Exercise
Period, the Exercise Price shall be subject to adjustment from time to
time as provided in this Section 11(b). In the event that any
adjustment of the Exercise Price as required herein results in a
fraction of a cent, such Exercise Price shall be rounded up or down to
the nearest cent.
(i) Adjustment of Exercise Price. If and whenever the
Company issues or sells, or in accordance with Section
11(b)(ii) hereof is deemed to have issued or sold, any shares
of Common Stock for a consideration per share of less than the
then Exercise Price, or for no consideration (such lower
price, the "Base Share Price" and such issuances collectively,
a "Dilutive Issuance"), then, the Exercise Price shall be
reduced to equal the Base Share Price; provided, however, that
it is acknowledged and agreed that this provision shall only
have the effect of reducing the Exercise Price of the Warrant.
Such adjustment shall be made whenever such shares of Common
Stock or Capital Shares Equivalent are issued as a Dilutive
Issuance, without duplication.
(ii) Effect on Exercise Price of Certain Events. For
purposes of determining the adjusted Exercise Price under
Section 11(b) hereof, the following will be applicable:
(A) Issuance of Rights or Options.
If the Company in any manner issues or grants any
warrants, rights or options, whether or not
immediately exercisable, to subscribe for or to
purchase Common Stock or Capital Shares Equivalent
(such warrants, rights and options to purchase Common
Stock or Capital Shares Equivalent are hereinafter
referred to as "Options") and the effective price per
share for which Common Stock is issuable upon the
exercise of such Options is less than the Exercise
Price ("Below Base Price Options"), then the maximum
total number of shares of Common Stock issuable upon
the exercise of all such Below Base Price Options
(assuming full exercise, conversion or exchange of
Capital Shares Equivalent, if applicable) will, as of
the date of the issuance or grant of such Below Base
Price Options, be deemed to be outstanding and to
have been issued and sold by the Company for such
price per share and the maximum consideration payable
to the Company upon such exercise (assuming full
exercise, conversion or exchange of Capital Shares
Equivalent, if applicable) will be deemed to have
been received by the Company. For purposes of the
preceding sentence, the "effective price per share
for which Common Stock is issuable upon the exercise
of such Below Base Price Options" is determined by
dividing (i) the total amount, if any, received or
receivable by the Company as consideration for the
issuance or granting of all such Below Base Price
Options, plus the minimum aggregate amount of
additional consideration, if any, payable to the
Company upon the exercise of all such Below Base
Price Options,
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plus, in the case of Capital Shares Equivalent
issuable upon the exercise of such Below Base Price
Options, the minimum aggregate amount of additional
consideration payable upon the exercise, conversion
or exchange thereof at the time such Capital Shares
Equivalent first become exercisable, convertible or
exchangeable, by (ii) the maximum total number of
shares of Common Stock issuable upon the exercise of
all such Below Base Price Options (assuming full
conversion of Capital Shares Equivalent, if
applicable). No further adjustment to the Exercise
Price will be made upon the actual issuance of such
Common Stock upon the exercise of such Below Base
Price Options or upon the exercise, conversion or
exchange of Capital Shares Equivalent issuable upon
exercise of such Below Base Price Options.
Notwithstanding the foregoing, to the extent the
shares of Common Stock (or securities convertible
into or exchangeable for shares of Common Stock) are
not delivered, upon 5 Trading Days prior written
notice to the Holder, the Exercise Price shall be
readjusted after the expiration of such rights,
options, or warrants (but only with respect to
Warrants exercised after such expiration), to the
Exercise Price which would then be in effect had the
adjustments made upon the issuance of such rights,
options or warrants been made upon the basis of
delivery of only the number of shares of Common Stock
(or securities convertible into or exchangeable for
such shares of Common Stock) actually issued. In case
any subscription price may be paid in a consideration
part or all of which shall be in a form other than
cash, the value of such consideration shall be as
determined in good faith by the Board of Directors of
the Company, whose determination shall be conclusive
absent manifest error.
(B) Issuance of Capital Shares
Equivalent. If the Company in any manner issues or
sells any Capital Shares Equivalent, whether or not
immediately convertible (other than where the same
are issuable upon the exercise of Options) and the
effective price per share for which Common Stock is
issuable upon such exercise, conversion or exchange
of such Capital Share Equivalents is less than the
Exercise Price, then the maximum total number of
shares of Common Stock issuable upon the exercise,
conversion or exchange of all such Capital Shares
Equivalent will, as of the date of the issuance of
such Capital Shares Equivalent, be deemed to be
outstanding and to have been issued and sold by the
Company for such price per share and the maximum
consideration payable to the Company upon such
exercise (assuming full exercise, conversion or
exchange of Capital Shares Equivalent, if applicable)
will be deemed to have been received by the Company.
For the purposes of the preceding sentence, the
"effective price per share for which Common Stock is
issuable upon such exercise, conversion or exchange"
is determined by dividing (i) the total amount, if
any, received or receivable by the Company as
consideration for the issuance or sale of all such
Capital Shares Equivalent, plus the minimum aggregate
amount of additional
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consideration, if any, payable to the Company upon
the exercise, conversion or exchange thereof at the
time such Capital Shares Equivalent first become
exercisable, convertible or exchangeable, by (ii) the
maximum total number of shares of Common Stock
issuable upon the exercise, conversion or exchange of
all such Capital Shares Equivalent. No further
adjustment to the Exercise Price will be made upon
the actual issuance of such Common Stock upon
exercise, conversion or exchange of such Capital
Shares Equivalent. Notwithstanding the foregoing, to
the extent the shares of Common Stock (or securities
convertible into or exchangeable for shares of Common
Stock) are not delivered, upon 5 Trading Days prior
written notice to the Holder, the Exercise Price
shall be readjusted after the expiration of such
rights, options, or warrants (but only with respect
to Warrants exercised after such expiration), to the
Exercise Price which would then be in effect had the
adjustments made upon the issuance of such rights,
options or warrants been made upon the basis of
delivery of only the number of shares of Common Stock
(or securities convertible into or exchangeable for
such shares of Common Stock) actually issued. In case
any subscription price may be paid in a consideration
part or all of which shall be in a form other than
cash, the value of such consideration shall be as
determined in good faith by the Board of Directors of
the Company, whose determination shall be conclusive
absent manifest error.
(C) Change in Option Price or
Conversion Rate. If there is a change at any time in
(i) the amount of additional consideration payable to
the Company upon the exercise of any Options; (ii)
the amount of additional consideration, if any,
payable to the Company upon the exercise, conversion
or exchange of any Capital Shares Equivalent; or
(iii) the rate at which any Capital Shares Equivalent
are convertible into or exchangeable for Common Stock
(in each such case, other than under or by reason of
provisions designed to protect against dilution), the
Exercise Price in effect at the time of such change
will be readjusted to the Exercise Price which would
have been in effect at such time had such Options or
Capital Shares Equivalent still outstanding provided
for such changed additional consideration or changed
conversion rate, as the case may be, at the time
initially granted, issued or sold. Notwithstanding
the foregoing, to the extent the shares of Common
Stock (or securities convertible into or exchangeable
for shares of Common Stock) are not delivered, upon 5
Trading Days prior written notice to the Holder, the
Exercise Price shall be readjusted after the
expiration of such rights, options, or warrants (but
only with respect to Warrants exercised after such
expiration), to the Exercise Price which would then
be in effect had the adjustments made upon the
issuance of such rights, options or warrants been
made upon the basis of delivery of only the number of
shares of Common Stock (or securities convertible
into or exchangeable for such shares of Common Stock)
actually issued. In case any subscription price may
be paid in a consideration part or all of which shall
be in a form other than cash, the value of such
consideration shall be as determined in good faith by
the Board of Directors of the Company, whose
determination shall be conclusive absent manifest
error.
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(D) Calculation of Consideration
Received. If any Common Stock, Options or Capital
Shares Equivalent are issued, granted or sold for
cash, the consideration received therefor for
purposes of this Warrant will be the amount received
by the Company therefor, before deduction of
reasonable commissions, underwriting discounts or
allowances or other reasonable expenses paid or
incurred by the Company in connection with such
issuance, grant or sale. In case any Common Stock,
Options or Capital Shares Equivalent are issued or
sold for a consideration part or all of which shall
be other than cash, the amount of the consideration
other than cash received by the Company will be the
fair market value of such consideration, except where
such consideration consists of securities, in which
case the amount of consideration received by the
Company will be the fair market value (the mean
between the closing bid and asked prices, if traded
on any market) thereof as of the date of receipt. In
case any Common Stock, Options or Capital Shares
Equivalent are issued in connection with any merger
or consolidation in which the Company is the
surviving corporation, the amount of consideration
therefor will be deemed to be the fair market value
of such portion of the net assets and business of the
non-surviving corporation as is attributable to such
Common Stock, Options or Capital Shares Equivalent,
as the case may be. The fair market value of any
consideration other than cash or securities will be
determined in good faith by the Board of Directors of
the Company.
(E) Exceptions to Adjustment of
Exercise Price. Notwithstanding the foregoing, no
adjustment will be made under this Section 11(b) in
respect of (1) the granting or issuance of shares of
Common Stock or options (or exercise thereof) to or
by employees, officers, directors or consultants
(provided that in the case of consultants, such
issuance of Capital Shares and grants of Capital
Share Equivalents does not exceed, in the aggregate,
200,000 Capital Shares or Capital Shares Equivalents
convertible into or exchangeable for 200,000 Capital
Shares per any 12 month period) of the Company or any
Subsidiary pursuant to any stock option plan or
employee incentive plan or agreement duly adopted or
approved by a majority of the non-employee members of
the Board of Directors of the Company or a majority
of the members of a committee of non-employee
directors established for such purpose, or (2) the
conversion or exercise of the shares of Preferred
Stock or any other security issued by the Company in
connection with the offer and sale of this Company's
securities pursuant to the Purchase Agreement, (3)
the issuance of any Common Stock as dividends on the
shares of Preferred
11
Stock or as payment of principal or interest on the
debentures issued by the Company on November 24,
2003, or (4) the exercise of or conversion of any
Capital Shares Equivalent, Options, rights or
warrants issued and outstanding on the Closing Date,
including but not limited to the debentures,
preferred stock and warrants issued by the Company on
November 24, 2003 and November 12, 2004, provided
that the securities have not been amended in order to
reduce the exercise or conversion price thereof or
increase the number of shares issuable thereunder,
since the date of the Purchase Agreement except as a
result of the Purchase Agreement, or (5) issuances of
Capital Shares or Capital Share Equivalents in
connection with acquisitions, mergers, joint
ventures, strategic investments, or strategic
partnering arrangements the primary purpose of which
is not to raise capital, or the subsequent exercise
of any such Capital Share Equivalents.
(iii) Minimum Adjustment of Exercise Price. No
adjustment of the Exercise Price shall be made in an amount of
less than 1% of the Exercise Price in effect at the time such
adjustment is otherwise required to be made, but any such
lesser adjustment shall be carried forward and shall be made
at the time and together with the next subsequent adjustment
which, together with any adjustments so carried forward, shall
amount to not less than 1% of such Exercise Price.
12. Reorganization, Reclassification, Merger, Consolidation or
Disposition of Assets.
(a) In case the Company shall reorganize its capital,
reclassify its capital stock, consolidate or merge with or into another
corporation (where the Company is not the surviving corporation or
where there is a change in, or distribution with respect to, the Common
Stock of the Company), or sell, transfer or otherwise dispose of all or
substantially all of its property, assets or business to another
corporation and, pursuant to the terms of such reorganization,
reclassification, merger, consolidation or disposition of all or
substantially all of its assets, shares of common stock of the
successor or acquiring corporation, or any cash, shares of stock or
other securities or property of any nature whatsoever (including
warrants or other subscription or purchase rights) in addition to or in
lieu of common stock of the successor or acquiring corporation ("Other
Property"), are to be received by or distributed to the holders of
Common Stock of the Company, then the Holder shall have the right
thereafter to receive upon exercise of this Warrant, the number of
shares of common stock of the successor or acquiring corporation or of
the Company, if it is the surviving corporation, and Other Property
receivable upon or as a result of such reorganization,
reclassification, merger, consolidation or disposition of assets by a
Holder of the number of shares of Common Stock for which this Warrant
is exercisable immediately prior to such event. In case of any such
reorganization, reclassification, merger, consolidation or disposition
of assets, the successor or acquiring corporation (if other than the
Company) shall expressly assume the due and punctual observance and
performance of each and every covenant and condition of this Warrant to
12
be performed and observed by the Company and all the obligations and
liabilities hereunder, subject to such modifications as may be deemed
appropriate (as determined in good faith by resolution of the Board of
Directors of the Company) in order to provide for adjustments of
Warrant Shares for which this Warrant is exercisable which shall be as
nearly equivalent as practicable to the adjustments provided for in
this Section 12. For purposes of this Section 12, "common stock of the
successor or acquiring corporation" shall include stock of such
corporation of any class which is not preferred as to dividends or
assets over any other class of stock of such corporation and which is
not subject to redemption and shall also include any evidences of
indebtedness, shares of stock or other securities which are convertible
into or exchangeable for any such stock, either immediately or upon the
arrival of a specified date or the happening of a specified event and
any warrants or other rights to subscribe for or purchase any such
stock. The foregoing provisions of this Section 12 shall similarly
apply to successive reorganizations, reclassifications, mergers,
consolidations or disposition of assets.
(b) Notwithstanding anything to the contrary herein contained,
in the event of a transaction contemplated by Section 12(a) or similar
transaction in which the surviving, continuing, successor, or
purchasing person, corporation or entity demands that all outstanding
Warrants be extinguished prior to the closing date of the contemplated
transaction, the Company shall give prior notice (the "Merger Notice")
thereof to the Holders advising them of such transaction. The Holders
shall have ten calendar days after the date of the Merger Notice to
elect to (i) exercise the Warrants in the manner provided herein, (ii)
receive from the surviving, continuing, successor, or purchasing
corporation the same consideration receivable by a holder of the number
of shares of Common Stock for which this Warrant might have been
exercised immediately prior to such consolidation, merger, sale, or
purchase reduced by such amount of the consideration as has a market
value equal to the Exercise Price, as determined by the Board of
Directors of the Company, whose determination shall be conclusive and
binding, or (iii) receive cash equal to the value of this Warrant as
determined in accordance with the Black-Scholes option pricing formula
using the method agreed upon among the parties at the Closing. If any
Holder fails to timely notify the Company of its election, the Holder
shall be deemed for all purposes to have elected the option set forth
in (ii) above. Any amounts receivable by a Holder who has elected the
option set forth in (ii) above shall be payable at the same time as
amounts payable to stockholders in connection with any such
transactions.
13. Voluntary Adjustment by the Company. The Company may at
any time during the term of this Warrant reduce the then current Exercise Price
to any amount and for any period of time deemed appropriate by the Board of
Directors of the Company.
14. Notice of Adjustment. Whenever the number of Warrant
Shares or number or kind of securities or other property purchasable upon the
exercise of this Warrant or the Exercise Price is adjusted, as herein provided,
the Company shall give notice thereof to the Holder, which notice shall state
the number of Warrant Shares (and other securities or property) purchasable upon
the exercise of this Warrant and the Exercise Price of such Warrant Shares (and
other securities or property) after such adjustment, setting forth a brief
statement of the facts requiring such adjustment and setting forth the
computation by which such adjustment was made.
13
15. Notice of Corporate Action. If at any time:
(a) the Company shall take a record of the holders of
its Common Stock for the purpose of entitling them to receive a
dividend or other distribution, or any right to subscribe for or
purchase any evidences of its indebtedness, any shares of stock of any
class or any other securities or property, or to receive any other
right, or
(b) there shall be any capital reorganization of the
Company, any reclassification or recapitalization of the capital stock
of the Company or any consolidation or merger of the Company with, or
any sale, transfer or other disposition of all or substantially all the
property, assets or business of the Company to, another corporation;
or,
(c) there shall be a voluntary or involuntary
dissolution, liquidation or winding up of the Company;
then, in any one or more of such cases, the Company shall give to Holder (i) at
least 10 days' prior written notice of the date on which a record date shall be
selected for such dividend, distribution or right or for determining rights to
vote in respect of any such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, liquidation or winding up, and (ii)
in the case of any such reorganization, reclassification, merger, consolidation,
sale, transfer, disposition, dissolution, liquidation or winding up, at least 10
days' prior written notice of the date when the same shall take place. Such
notice in accordance with the foregoing clause also shall specify (i) the date
on which any such record is to be taken for the purpose of such dividend,
distribution or right, the date on which the holders of Common Stock shall be
entitled to any such dividend, distribution or right, and the amount and
character thereof, and (ii) the date on which any such reorganization,
reclassification, merger, consolidation, sale, transfer, disposition,
dissolution, liquidation or winding up is to take place and the time, if any
such time is to be fixed, as of which the holders of Common Stock shall be
entitled to exchange their Warrant Shares for securities or other property
deliverable upon such disposition, dissolution, liquidation or winding up. Each
such written notice shall be sufficiently given if addressed to Holder at the
last address of Xxxxxx appearing on the books of the Company and delivered in
accordance with Section 17(d).
16. Authorized Shares. The Company covenants that during the
period the Warrant is outstanding, it will reserve from its authorized and
unissued Common Stock a sufficient number of shares to provide for the issuance
of the Warrant Shares upon the exercise of any purchase rights under this
Warrant. The Company further covenants that its issuance of this Warrant shall
constitute full authority to its officers who are charged with the duty of
executing stock certificates to execute and issue the necessary certificates for
the Warrant Shares upon the exercise of the purchase rights under this Warrant.
The Company will take all such reasonable action as may be necessary to assure
that such Warrant Shares may be issued as provided herein without violation of
any applicable law or regulation, or of any requirements of the Principal Market
upon which the Common Stock may be listed.
14
Except and to the extent as waived or consented to by the
Holder, the Company shall not by any action, including amending its certificate
of incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms of this Warrant, but will at all times in good faith assist in the
carrying out of all such terms and in the taking of all such actions as may be
necessary or appropriate to protect the rights of Holder as set forth in this
Warrant against impairment. Without limiting the generality of the foregoing,
the Company will (a) not increase the par value of any Warrant Shares above the
amount payable therefor upon such exercise immediately prior to such increase in
par value, (b) take all such action as may be reasonably necessary or
appropriate in order that the Company may validly and legally issue fully paid
and nonassessable Warrant Shares upon the exercise of this Warrant, and (c) use
commercially reasonable efforts to obtain all such authorizations, exemptions or
consents from any public regulatory body having jurisdiction thereof as may be
necessary to enable the Company to perform its obligations under this Warrant.
Before taking any action which would result in an adjustment
in the number of Warrant Shares for which this Warrant is exercisable or in the
Exercise Price, the Company shall obtain all such authorizations or exemptions
thereof, or consents thereto, as may be necessary from any public regulatory
body or bodies having jurisdiction thereof.
17. Miscellaneous.
(a) Governing Law; Venue; Waiver of Jury Trial. All
questions concerning the construction, validity, enforcement and
interpretation of 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
party agrees that all legal proceedings concerning the interpretations,
enforcement and defense of the transactions contemplated by this
Warrant (whether brought against a party hereto or its respective
Affiliates, directors, officers, shareholders, employees or agents)
shall be commenced exclusively in the state and federal courts sitting
in the City of New York, borough of Manhattan (the "New York Courts").
Each party hereby irrevocably submits to the exclusive jurisdiction of
the New York Courts for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or
discussed herein, and hereby irrevocably waives, and agrees not to
assert in any suit, action or proceeding, any claim that it is not
personally subject to the jurisdiction of any such court, or that the
New York Courts are an improper or inconvenient venue for such
proceeding. Each party hereby irrevocably waives personal service of
process and consents to process being served in any such suit, action
or proceeding by mailing a copy thereof via registered or certified
mail or overnight delivery (with evidence of delivery) to such party at
the address in effect for notices to it under this Warrant and agrees
that such service shall constitute good and sufficient service of
process and notice thereof. Nothing contained herein shall be deemed to
limit in any way any right to serve process in any manner permitted by
law. The parties hereto hereby irrevocably waive, to the fullest extent
permitted by applicable law, any and all right to trial by jury in any
legal proceeding arising out of or relating to this Warrant or the
transactions contemplated thereby. If either party shall commence an
action or proceeding to enforce any provisions of this Warrant, then
the prevailing party in such action or proceeding shall be reimbursed
by the other party for its attorneys' fees and other costs and expenses
incurred with the investigation, preparation and prosecution of such
action or proceeding.
15
(b) Restrictions. The Holder acknowledges that the
Warrant Shares acquired upon the exercise of this Warrant, if not
registered, will have restrictions upon resale imposed by state and
federal securities laws.
(c) Nonwaiver and Expenses. No course of dealing or
any delay or failure to exercise any right hereunder on the part of
Holder shall operate as a waiver of such right or otherwise prejudice
Xxxxxx's rights, powers or remedies, notwithstanding all rights
hereunder terminate on the Termination Date.
(d) Notices. Any notice, request or other document
required or permitted to be given or delivered to the Holder by the
Company shall be delivered in accordance with the notice provisions of
the Purchase Agreement.
(e) Limitation of Liability. No provision hereof, in
the absence of any affirmative action by Holder to exercise this
Warrant or purchase Warrant Shares, and no enumeration herein of the
rights or privileges of Holder, shall give rise to any liability of
Holder for the purchase price of any Common Stock or as a stockholder
of the Company, whether such liability is asserted by the Company or by
creditors of the Company.
(f) Remedies. Holder, in addition to being entitled
to exercise all rights granted by law, including recovery of damages,
will be entitled to specific performance of its rights under this
Warrant. The Company agrees that monetary damages would not be adequate
compensation for any loss incurred by reason of a breach by it of the
provisions of this Warrant and hereby agrees to waive the defense in
any action for specific performance that a remedy at law would be
adequate.
(g) Successors and Assigns. Subject to applicable
securities laws, this Warrant and the rights and obligations evidenced
hereby shall inure to the benefit of and be binding upon the successors
of the Company and the successors and permitted assigns of Holder;
provided, however, that the Holder may not assign its rights to a
competitor or potential competitor of the Company. The provisions of
this Warrant are intended to be for the benefit of all Holders from
time to time of this Warrant and shall be enforceable by any such
Holder or holder of Warrant Shares.
(h) Amendment. This Warrant may be modified or
amended or the provisions hereof waived with the written consent of the
Company and the Holder.
(i) Severability. If any provision of this Warrant is
held to 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 to agree upon a valid and enforceable provision that is a
reasonable substitute therefor, and upon so agreeing, shall incorporate
such substitute provision in this Warrant.
16
(j) Construction. 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. The
language used in this Warrant will be deemed to be the language chosen
by the parties to express their mutual intent, and no rules of strict
construction will be applied against any party.
(k) Interpretation. Unless the context otherwise
requires, the terms defined in this Section 17 shall have the meanings
herein specified for all purposes of this Warrant, applicable to both
the singular and plural forms of any of the terms defined herein. When
a reference is made in this Warrant to a Section, such reference shall
be to a Section of this Warrant unless otherwise indicated. Whenever
the words "include," "includes" or "including" are used in this
Warrant, they shall be deemed to be followed by the words "without
limitation." The use of any gender herein shall be deemed to include
the neuter, masculine and feminine genders wherever necessary or
appropriate. When any matter is disclosed (i) in any Transaction
Document (including any exhibit or schedule thereto), (ii) any place in
the Disclosure Schedule, or (iii) except with respect to Sections
3.1(g), 3.1(s), 3.1(u), 3.1(w), 3.1(dd), 3.1(ee), 3.1(gg), 3.1(hh),
3.1(ii), 3.1(jj) and 3.1(kk) of the Purchase Agreement and with respect
to Section 6(b) and Section 6(c) of the Registration Rights Agreement,
in the Company's most recent Form 10-KSB, the Proxy Statement for the
2005 Annual Meeting of Shareholders, the forms 10-QSB for the quarters
ended December 31, 2004 and March 31, 2005, and all press releases
issued after the filing of the Form 10-QSB for the quarter ended March
31, 2005 and prior to the Closing Date, such matter shall be deemed to
have been disclosed to the Holder for all purposes pursuant to all of
the Transaction Documents. If any period of time for the performance
under the Transaction Documents ends on a day that is not a Trading
Day, such period of time shall be automatically extended to end at the
end of the next succeeding Trading Day.
(l) Headings. The headings used in this Warrant are
for the convenience of reference only and shall not, for any purpose,
be deemed a part of this Warrant.
17
18. Piggy-Back Registration Rights. If at any time prior to
the Termination Date there is not an effective registration statement(s)
covering the resale of all of the Warrant Shares and the Company shall determine
to prepare and file with the Commission a registration statement relating to an
offering for its own account or the account of others under the Securities Act
of any of its equity securities, other than on Form S-4 or Form S-8 (each as
promulgated under the Securities Act) or their then equivalents relating to
equity securities to be issued solely in connection with any acquisition of any
entity or business or equity securities issuable in connection with stock option
or other employee benefit plans, then the Company shall send to the Holder
written notice of such determination and, if within five Trading Days after
receipt of such notice, the Holder shall so request in writing, the Company
shall include in such registration statement all or any part of such Warrant
Shares such holder requests to be registered; provided, that, the Company shall
not be required to register any Warrant Shares pursuant to this Section 18 that
are eligible for resale pursuant to Rule 144(k) promulgated under the Securities
Act or that are the subject of a then effective registration statement.
********************
18
IN WITNESS WHEREOF, the Company has caused this Warrant to be
executed by its officer thereunto duly authorized.
Dated: August 3, 2005
INTERACTIVE SYSTEMS WORLDWIDE INC.
By:________________________________
Name: XXXXXXX XXXXXXXX
Title: PRESIDENT
19
NOTICE OF EXERCISE
To: INTERACTIVE SYSTEMS WORLDWIDE INC.
(1) The undersigned hereby elects to purchase ________ Warrant
Shares of Interactive Systems Worldwide Inc. pursuant to the terms of the
attached Warrant (only if exercised in full), and tenders herewith payment of
the exercise price in full, together with all applicable transfer taxes, if any.
(2) Payment shall take the form of (check applicable box):
[ ] in lawful money of the United States; or
[ ] the cancellation of such number of Warrant Shares
as is necessary, in accordance with the formula set
forth in subsection 3(d), to exercise this Warrant
with respect to the maximum number of Warrant Shares
purchasable pursuant to the cashless exercise
procedure set forth in subsection 3(d).
(3) Please issue a certificate or certificates representing said
Warrant Shares in the name of the undersigned or in such other name as is
specified below:
________________________________________
The Warrant Shares shall be delivered to the following:
________________________________________
________________________________________
________________________________________
(4) Accredited Investor. The undersigned is an "accredited investor" as
defined in Regulation D promulgated under the Securities Act of 1933, as
amended.
[PURCHASER]
By: ______________________________
Name:
Title:
Dated: ________________________
ASSIGNMENT FORM
(To assign the foregoing warrant, execute
this form and supply required information.
Do not use this form to exercise the warrant.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced
thereby are hereby assigned to
_______________________________________________ whose address is
_______________________________________________________________.
________________________________________________________________
Dated: ______________, _______
Holder's Signature: _________________________
Holder's Address:_____________________________
_____________________________
Signature Guaranteed: _________________________________________
NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Warrant, without alteration or enlargement or any
change whatsoever, and must be guaranteed by a bank or trust company. Officers
of corporations and those acting in a fiduciary or other representative capacity
should file proper evidence of authority to assign the foregoing Warrant.
