EXHIBIT 4.2
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 __________ Shares of Common Stock of
INTERACTIVE SYSTEMS WORLDWIDE INC.
Warrant No. ____
THIS COMMON STOCK PURCHASE WARRANT CERTIFIES that, for value received,
_____________ (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 November 12, 2004 (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 ____________ 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 $3.36, subject to adjustment hereunder. CAPITALIZED TERMS USED AND NOT
OTHERWISE DEFINED HEREIN SHALL HAVE THE MEANINGS SET FORTH IN THAT CERTAIN
SECURITIES PURCHASE AGREEMENT (THE "PURCHASE AGREEMENT"), DATED NOVEMBER 12,
2004, BETWEEN THE COMPANY AND THE PURCHASERS SIGNATORY THERETO.
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 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 Holder's right to pursue any other remedies available to
it hereunder, at law or in equity including, without limitation, 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.
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(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.
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(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 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-Q or Form 10-K, 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).
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(d) If at any time after one year from the date of issuance of
this Warrant there is no effective Registration Statement registering
the resale of the Warrant Shares by the Holder, and until such time as
there is an effective Registration Statement, then this Warrant may
also be exercised at such time 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. 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.
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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:
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(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, 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.
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(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
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.
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(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.
(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.
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(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 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 and warrants issued by the
Company on November 24, 2003, 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.
12
(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 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.
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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.
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).
14
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.
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.
15
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.
(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.
16
(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.
(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.
17
(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 (a) in any Transaction
Document (including any exhibit or schedule thereto), (b) any place in
the Disclosure Schedule, or (c) except with respect to Sections
3.1(g), 3.1(s), 3.1(u), 3.1(v), 3.1(w), 3.1(dd), 3.1(ee), and 3.1(ff)
of the Purchase Agreement and with respect to Section 6(b) and Section
6(c) of the Registration Rights Agreement, in the Company's Form
10-KSB for the year ended September 30, 2003, the Proxy Statement for
the 2004 Annual Meeting of Shareholders, the Forms 10-QSB for the
quarters ended December 31, 2003, March 31, 2004 or June 30, 2004, or
all press releases issued after the filing of the Form 10-QSB for the
quarter ended June 30, 2004 and prior to the Closing Date, such matter
shall be deemed to have been disclosed to all of the Holders 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.
********************
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IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its officer thereunto duly authorized.
Dated: November 12, 2004
INTERACTIVE SYSTEMS WORLDWIDE INC.
By:
-----------------------------------
Name: XXXXXXX XXXXXXXX
Title: PRESIDENT
