EXHIBIT C WARRANT AGREEMENT
EXHIBIT 10.3
EXHIBIT C
THIS WARRANT AGREEMENT (this "Agreement"), dated as of the 14th day of May, 2004, is made and entered into by and between INTERNATIONAL AUTOMATED SYSTEMS, INC., a Utah corporation (the "Company"), and Xxxxxx Xxxxxxx, an individual/corporation (together with its permitted assigns, the "Warrantholder").
R E C I T A L S
WHEREAS, the Company and the Warrantholder are parties to that certain Strategic Relationship Agreement, dated as of the date hereof (the "Strategic Relationship Agreement"), pursuant to which, among other things, the Warrantholder will provide Strategic Advice (as defined in the Strategic
Relationship Agreement) to the Company; and
(a) This Warrant shall vest in full upon its issuance. The Warrant is exercisable, in whole or in part, at any time from the Grant Date as follows: (i) 5,000,000 Shares shall become exercisable on January 1, 2005; (ii) 5,000,000 Shares shall become exercisable on January 1, 2006; (iii) 5,000,000 Shares shall become exercisable on January 1, 2007; (iv) 10,000,000 Shares shall become exercisable on January 1, 2008; (v) 10,000,000 Shares shall become exercisable on January 1, 2009; (vi) 65,000,000 Shares shall become exercisable on January 1, 2010;
(b) In the event that a Dispute exists as of any Determination Date, if the Warrantholder shall contact the Company within ten (10) business days after receipt of Notice (the "10-Day Cure Period") to schedule a meeting to occur within the 10-Day Cure Period during which the parties will work together to cure such Dispute (and such meeting is actually held during such 10-Day Cure Period other than through no fault of the Warrantholder or other than as mutually agreed by the parties), those shares which would have become exercisable on such Determination Date but for such Dispute shall become exercisable unless such Dispute becomes the basis for termination of the Strategic Relationship Agreement in accordance with Section 4(b)(ii) thereof. Notwithstanding anything herein to the contrary, the Warrant will not become exercisable with respect to such Shares due to become exercisable on a Determination Date if, on or as of such Determination Date, the Strategic Relationship Agreement has been or is terminated in accordance with its terms. In addition, if the Term (as defined in the Strategic Relationship Agreement) of the Strategic Relationship Agreement is extended in accordance with Section 4(f) thereof, any Shares that have not yet become exercisable shall immediately thereafter become exercisable.
(c) If, at any time of exercise, the Warrantholder does not purchase all of the Shares to which the Warrantholder is entitled under this Agreement, the Warrantholder has the right thereafter to purchase any such Shares not so purchased and such right shall continue without an expiration date. The Warrant shall only be exercisable in respect of whole Shares, and, in lieu of fractional interests, the Company shall pay the Warrantholder a sum in cash equal to such fraction multiplied by the then-effective Exercise Price. Certificates for Shares so purchased, together with any other securities or property to which the Warrantholder is entitled upon such exercise, shall be delivered to the Warrantholder by the Company at the Company's expense promptly after this Warrant has been so exercised. Each such certificate shall be in such denominations of Common Stock as may be requested by the Warrantholder and shall be registered in the name of the Warrantholder.
3. Method of Exercise of Warrant.
(a) The Warrant shall be exercisable by the delivery to the Secretary of the Company of a written notice accompanied by (i) delivery of an executed Exercise Agreement in the form attached hereto as Exhibit D and (ii) unless an election is made by the Warrantholder under Section 3(b) hereof, payment of the full purchase price of the Shares to be purchased upon such exercise. Unless an election is made by the Warrantholder under Section 3(b) hereof, payment shall be made in cash in the form of a certified or cashier's check payable to the order of the Company or by wire transfer of immediately available funds to an account designated by the Company.
(b) In lieu of exercising this Warrant for cash, the Warrantholder may elect to receive shares equal to the value (as determined below) of this Warrant (or the portion thereof being canceled) by surrender of this Warrant at the principal office of the Company, together with an executed Exercise Agreement in the form attached hereto as Exhibit D, in which event the Company shall issue to the Warrantholder a number of Shares computed using the following formula:
X = Y (A-B)
-------
A
Where:
X = the number of Shares to be issued to the Warrantholder.
Y = the number of Shares purchasable under the Warrant or, if only a portion of the Warrant is being exercised, the portion of the Warrant being exercised (at the date of such calculation).
A = the Fair Market Value (as defined below) of one share of Common Stock.
B = the Exercise Price (as adjusted to the date of such calculation).
"Fair Market Value" shall be (i) if the Common Stock of the Company is publicly traded on a national securities exchange or The Nasdaq Stock Market, the average of the closing prices of the Common Stock on such exchange or market over the five (5) trading days ending immediately prior to the date on which the Company receives the applicable Exercise Agreement, (ii) if the Common Stock is actively traded over- the-counter, the average of the closing bid prices over the five (5)- day period ending immediately prior to the date on which the Company receives the applicable Exercise Agreement and (iii) if there is no active public market, the value determined in good faith by the Board of Directors of the Company.
herein without violation of any applicable law or regulation, or of any requirements of any securities exchange upon which securities of the Company may be listed; provided, however, that the Company shall not be required to effect a registration under federal or state securities laws with respect to such exercise. The Company will not on or after the date of this Warrant enter into any agreement with respect to its securities which is inconsistent with the rights granted the Warrantholder or otherwise conflicts with the provisions hereof. The rights granted to the Warrantholder hereunder do not in any way conflict with and are not inconsistent with the rights granted to holders of the Company's securities under any other agreements, except rights that have been waived.
(a) If the Company shall at any time subdivide its Common Stock, by stock split or otherwise, or combine its Common Stock, or issue additional shares of its Common Stock as a dividend with respect to any shares of its Common Stock, the number of Shares issuable on the exercise of this Warrant shall be forthwith proportionately increased in the case of a subdivision or stock dividend, or proportionately decreased in the case of a combination. Appropriate adjustments shall also be made to the Exercise Price as provided herein, but the aggregate purchase price payable for the total number of Shares purchasable under this Warrant (as adjusted) shall remain the same. Any adjustment under this Section 6(a) shall become effective at the close of business on the date of the subdivision or combination becomes effective or as of the record date of such dividend, or in the event that no record date is fixed, upon making of such dividend.
(b) In case of (i) any reclassification, capital reorganization, or change or conversion in the Common Stock of the Company (other than as a result of a subdivision, combination, or stock dividend provided for in Section 6(a) above) or (ii) any dividend or distribution of Common Stock (other than as a result of a subdivision, combination or stock dividend provided for in Section 6(a) above), or other securities which are at any time directly or indirectly convertible into or exchangeable for any other securities of the Company or another issuer, cash, evidence of indebtedness of the Company or another issuer or any rights or options to subscribe for, purchase or otherwise acquire any of the foregoing by way of dividend or other distribution, then, as a condition of such reclassification, reorganization, or change, lawful provision shall be made, and duly executed documents evidencing the same from the Company or its successor shall be delivered to the Warrantholder, so that the Warrantholder shall have the right at any time to purchase, at a total price equal to that payable upon the exercise of this Warrant, the kind and amount of shares of stock and other securities and property receivable in connection with such
reclassification, reorganization or change by a holder of the same number of shares of Common Stock as were purchasable by the Warrantholder immediately prior to such reclassification, reorganization or change. In any such case appropriate provisions shall be made with respect to the rights and interest of the Warrantholder so that the provisions hereof shall thereafter be applicable with respect to any Shares or other securities and property deliverable upon exercise hereof, and appropriate adjustments shall be made to the Exercise Price as provided herein; provided further the aggregate purchase price shall remain the same.
(c) Promptly after any adjustment to the number or class of Shares subject to this Warrant and the Exercise Price, the Company shall give written notice thereof to the Warrantholder, setting forth in reasonable detail and certifying the calculation of such adjustment. In case of any of the events described in Section 6(c) above, the Company shall give reasonable prior written notice thereof to the Warrantholder, which shall be at least 15 days prior to each such event, setting forth in reasonable detail a description of any such event including, among other things, the date on which the event is scheduled to occur; provided, however, if a record date is set by the Company with respect to any such event, the Company will provide the Warrantholder reasonable prior written notice of such record date, which shall be at least 15 days prior to such record date. Any and all notices shall be delivered in accordance with Section 10 below.
on such representations (all such representations being made as of the date hereof):
(f) No General Solicitation. The Warrantholder represents that it was not presented with or solicited by any promotional meeting or material relating to the Warrant or the Shares.
"OWNERSHIP OF THE SHARES EVIDENCED BY THIS CERTIFICATE AND ANY INTEREST THEREIN ARE SUBJECT TO RESTRICTIONS ON TRANSFER UNDER APPLICABLE LAW AND UNDER AN AGREEMENT WITH THE COMPANY, INCLUDING RESTRICTIONS ON SALE, ASSIGNMENT, TRANSFER, PLEDGE OR OTHER DISPOSITION, A COPY OF WHICH IS AVAILABLE FOR REVIEW AT THE OFFICE OF THE SECRETARY OF THE COMPANY."
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES ACT OF 1933, AS AMENDED ("ACT"), NOR HAVE THEY BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE. NO TRANSFER OF SUCH SECURITIES WILL BE PERMITTED UNLESS A REGISTRATION STATEMENT UNDER THE ACT IS IN EFFECT AS TO SUCH TRANSFER, THE TRANSFER IS MADE IN ACCORDANCE WITH RULE 144 UNDER THE ACT, OR IN THE OPINION OF COUNSEL TO THE CORPORATION, REGISTRATION UNDER THE ACT IS UNNECESSARY IN ORDER FOR SUCH TRANSFER TO COMPLY WITH THE ACT AND WITH APPLICABLE STATE SECURITIES LAWS."
If to the Company, to:
International Automated Systems, Inc.
XX Xxx 000
Xxxxxxxx Xxxx, Xxxx 00000
Attention: Chief Executive Officer with a copy to internal counsel
Facsimile: 801-
e-mail: xxxxxxx@xxxx.xxx
with a copy to:
International Automated Systems, Inc.
000 Xxxxx XX 000
Xxxxx, Xxxx 00000
Attention: Chief Executive Officer with a copy to internal counsel
Facsimile: 801-
e-mail: xxxxxxx@xxxx.xxx
If to the Warrantholder, to:
or to such other person or at such other address as either party shall hereafter designate.
10. Modifications, Amendments and Waivers. This Agreement may not be amended,
modified or altered except by a written instrument executed by both parties hereto in the same manner in which this Agreement has been executed.
12. Governing Law and Venue. This Agreement is to be governed by and construed in accordance with the laws of the State of Utah applicable to contracts made and to be performed wholly within such state, and without regard to the conflicts of laws principles thereof.
International Automated Systems, INC.,
a Utah corporation
By:_______________________
Name: ____________________
Title: _____________________
Xxxxxx X. Xxxxxxx
a Individual
By: ______________________
Name: ____________________
Title: _____________________