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Exhibit 4.2
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE HEREUNDER HAVE NOT BEEN
REGISTERED UNDER TEE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE
SECURITIES LAWS AND MAY NOT BE TRANSFERRED UNLESS REGISTERED UNDER SAID ACT AND
ANY APPLICABLE STATE SECURITIES LAWS OR IN THE OPINION OF COUNSEL SATISFACTORY
TO THE COMPANY PURSUANT TO AN EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS.
WARRANT
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Company: INTEGRATED INFORMATION SYSTEMS, INC.,
an Arizona corporation
Number of Shares: 100,000 or such greater or lesser number of shares as shall represent one
percent (1.0%) of the outstanding Common Stock of the Company, on a fully
diluted basis, as of December 18, 1997.
Class of Stock: Common Stock
Initial Exercise Price: As described in Paragraph 1
Issued as of: December 18, 1997
Expiration Date: As described in Paragraph 1
FOR VALUE RECEIVED, the adequacy and receipt of which is hereby
acknowledged, INTEGRATED INFORMATION SYSTEMS, INC., an Arizona corporation,
hereby certifies that IMPERIAL BANK, a California banking corporation, and its
successors and assigns, are entitled to purchase from the Company at any time
and from time to time on and after the date hereof until 12:00 midnight Arizona
local time on the Expiration Date at an initial Exercise Price (as described in
Paragraph 1), fully paid and nonassessable shares of Common Stock of the
Company, on the terms and conditions hereinafter set forth.
The number of such shares of Common Stock and the Exercise Price are
subject to adjustment as provided in the Warrant. Anything contained in this
Warrant to the contrary notwithstanding, the number of shares of Common Stock
which may be issued upon exercise of this Warrant by any Regulated Warrantholder
shall never exceed such amount as may be permitted under the Bank Holding
Company Act, or any successor
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statute, or under any other federal or state banking laws or regulations to
which such Regulated Warrantholder may be subject at the time of such exercise.
1. Certain Definitions. As used in this Warrant, the following terms
have the following definitions:
"Additional Shares of Common Stock" means all shares of Common Stock
issued or issuable by the Company after the date of this Warrant.
"Change in Control" means: (i) any Person or group of Persons who
becomes the beneficial owner (within the meaning of Rule 13d-3 under the
Securities Act of 1934 and the rules, regulations and interpretations of the
Securities and Exchange Commission thereunder), directly or indirectly, of
securities of the Company representing in excess of fifty percent (50.0%) of the
combined voting power entitled to be cast generally of the Company's then
outstanding voting securities; (ii) if individuals who as of the Closing Date
constitute the Board of Directors cease for any reason to constitute a majority
thereof; or (iii) any change in the identity of the current chief executive
officer of the Company.
"Common Stock" means the Company's Common Stock, no par value per
share, and includes any common stock of the Company of any class or classes
resulting from any reclassification or reclassifications thereof which is not
limited to a fixed sum or percentage of par value in respect of the rights of
the holders thereof to participate in dividends and in the distribution of
assets upon the voluntary or involuntary liquidation, dissolution or winding up
of the Company.
"Company" means INTEGRATED INFORMATION SYSTEMS, INC., an Arizona
corporation.
"Convertible Securities" means evidence of indebtedness, shares of
stock or other securities which are at any time directly or indirectly
convertible into or exchangeable for Additional Shares of Common Stock.
"Current Market Price" means with respect to a share of Common Stock or
any other security as of a relevant date:
(i) the Fair Value thereof as determined in accordance with
clause (ii) of the definition of Fair Value with respect to Common
Stock or any other security that is not listed on a national securities
exchange or traded on the over-the-counter market or quoted on NASDAQ,
and
(ii) the average of the daily closing prices for the ten (10)
trading days before such date (excluding any trades which are not bona
fide arm's length transactions) with respect to Common Stock that is
listed on a national securities exchange or traded on the
over-the-counter market or quoted on NASDAQ.
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The closing price for each day shall be:
(i) the last sale price of shares of Common Stock or such
other security on such date or, if no such sale takes place on such
date, the average of the closing bid and asked prices thereof on such
date, in each case as officially reported on the principal national
securities exchange on which the same are then listed or admitted to
trading, or
(ii) if no shares of Common Stock or if no securities of the
same class as such security are then listed or admitted to trading on
any national securities exchange, the average of the reported closing
bid and asked prices thereof on such due in the over-the-counter market
as shown by the National Association of Securities Dealers automated
quotation system or, if no shares of Common Stock or if no securities
of the same class as such other security are then quoted in such
system, as published by the National Quotation Bureau, Incorporated or
any similar successor organization, and in either case as reported by
any member firm of the New York Stock Exchange selected by
Warrantholder.
"Exchange Act" means the Securities Exchange Act of 1934.
"Exercise Date" means the date upon which this Warrant is exercised.
"Exercise Period" means the period commencing on the Issue Date and
ending at 12:00 midnight Arizona local time on the Expiration Date.
"Exercise Price" means initially Two Dollars and No Cents ($2.00) per
share, subject to adjustment as provided in this Warrant.
"Expiration Date" means the date that is the later of:
(i) the tenth (10th) anniversary of the Issue Date (the "Fixed
Date"); or
(ii) thirty (30) days after the date that a Fair Value
Determination(s) is made (provided that the procedure for determining
Fair Value is initiated prior to the Fixed Date).
"Fair Value" means:
(i) with respect to a share of Common Stock, the Current
Market Price thereof, and
(ii) with respect to any other property, assets, business or
entity, an amount determined in accordance with the following
procedure:
(a) The Company and the holder of the Warrant and
Warrant Shares, as applicable, shall use their best efforts to
mutually agree to a
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determination of Fair Value within ten (10) days of the date
of the event requiring that such a determination be made.
(b) If the Company and such holder are unable to
reach agreement within said ten (10) day period, the Company
and Warrantholder shall, within the immediately subsequent ten
(10) day period, select a mutually acceptable independent
valuation professional who shall issue a determination of Fair
Value of the Warrant Shares within sixty (60) days.
(c) In the event the Company and Warrantholder are
unable to reach agreement with respect to a mutually
acceptable independent valuation professional within the
aforementioned ten (10) day period, Warrantholder shall submit
to the Company a list of three (3) independent valuation
professionals. Within the immediately subsequent ten (10) day
period, the Company shall select one (1) independent valuation
professional from such list. The independent valuation
professional so selected shall issue a determination of Fair
Value of the Warrant Shares within the immediate subsequent
sixty (60) day period.
In all of the above cases, Warrantholder shall select qualified
appraisers or investment bankers to determine such Fair Value. Warrantholder may
select any investment banking firm of recognized national standing that does not
regularly perform investment banking services for Warrantholder. The independent
valuation professional shall be engaged by, and shall issue their determination
for the benefit of, Warrantholder, and the determination so made shall be
conclusive and binding on the Company and Warrantholder. The fees and expenses
of any such determination made by any and all such independent valuation
professionals shall be paid equally by the Company and Warrantholder. If there
is more than one holder of a Warrant and/or Warrant Shares entitled to a
determination of Fair Value in any particular instance, each action to be taken
by a holder of such Warrant and/or Warrant Shares under this Agreement shall be
taken by a majority in interest of such holders and the action taken by such
majority (including as to any mutual agreement with the Company with respect to
Fair Value and as to any selection of independent valuation professionals) shall
be binding upon all such holders. In the case of a determination the Fair Value
per share of Common Stock, the Company and such holders shall not take into
consideration, and shall instruct all such independent valuation professionals
not to take into consideration, any premium for shares representing control of
the Company, any discount for any minority interest therein or any restrictions
on transfer under applicable federal and state securities laws or otherwise.
"Imperial" means IMPERIAL BANK, a California banking corporation, and
its successors and assigns.
"Issue Date" means the date upon which this Warrant is issued.
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"Indemnified Party" and "Indemnifying Party" have the meanings set
forth in Paragraph 21(c).
"Loan Documents" means that certain Credit Facilities Agreement of even
date herewith between the Company and Imperial.
"Person" means an individual, partnership, corporation, including a
"business trust," limited liability company, joint stock company, trust,
unincorporated association, joint venture or other entity, or a government or
any political subdivision or agency thereof.
"Registrable Stocks" means:
(i) all Warrant Shares which are issuable to Warrantholder
pursuant to the Warrants, whether or not the Warrants have in fact been
exercised and whether or not such Warrant Shares have in fact been
issued,
(ii) all Warrant Shares acquired by Warrantholder pursuant to
the Warrants,
(iii) any shares of Common Stock, whether or not such shares
of Common Stock have in fact been issued, and stocks or other
securities of the Company issued upon conversion of, in a stock split
or reclassification of, or a stock dividend or other distribution on,
or in substitution or exchange for, or otherwise in connection with,
such Warrant Shares or in a merger or consolidation involving the
Company or its assets.
For purposes of Paragraphs 19-22, a Warrantholder of record shall be
treated as the record holder of the related Warrant Shares and other securities
issuable pursuant to the Warrants.
"Regulated Warrantholder" means a Warrantholder which is, or the parent
of which is, subject to the Bank Holding Company Act, or any successor statute,
or any other federal or state banking laws and regulations.
"Securities Act" means the Securities Act of 1933, as amended.
"Warrant(s)" means this Warrant and any warrants issued in exchange or
replacement of this Warrant or upon transfer hereof.
"Warrantholder" means Imperial.
"Warrant Shares" means shares of Common Stock issuable to Warrantholder
pursuant to the Warrants.
2. Exercise of Warrant. This Warrant may be exercised, in whole or in
part, at any time and from time to time during the Exercise Period by written
notice to the Company and upon payment to the Company of the Exercise Price
(subject to adjustment
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as provided herein) for the shares of Common Stock in respect of which the
Warrant is exercised; provided, however, this Warrant may not be exercised so
long as the Company is a subchapter S corporation.
3. Form of Payment of Exercise Price. Anything contained herein to the
contrary notwithstanding, at the option of Warrantholder, the Exercise Price may
be paid in any one or a combination of the following forms: (a) by wire transfer
to the Company, (b) by the Warrantholder's check to the Company, (c) by the
cancellation of any indebtedness owed by the Company and/or any subsidiaries of
the Company to the Warrantholder, and/or (d) by the surrender to the Company of
Warrants, Warrant Shares, Common Stock and/or other securities of the Company
and/or any subsidiaries of the Company having a Fair Value equal to the Exercise
Price.
4. Cashless Exercise.
(a) In lieu of exercising this Warrant as specified in
Paragraphs 2 and 3 above, Warrantholder may from time to time at
Warrantholder's option convert this Warrant, in whole or in part, into
a number of shares of Common Stock of the Company determined by
dividing,
(i) the aggregate Fair Value of such shares or other
securities otherwise issuable upon exercise of this Warrant
minus the aggregate Exercise Price of such shares,
by
(ii) the Fair Value of one such share.
5. Certificates for Warrant Shares; New Warrant. The Company agrees
that the Warrant Shares shall be deemed to have been issued to Warrantholder as
the record owner of such Warrant Shares as of the close of business on the date
on which payment for such Warrant Shares has been made (or deemed to be made by
conversion) in accordance with the terms of this Warrant. Certificates for the
Warrant Shares shall be delivered to Warrantholder within a reasonable time, not
exceeding ten (10) days, after this Warrant has been exercised or converted. A
new Warrant representing the number of shares, if any, with respect to which
this Warrant remains exercisable also shall be issued to Warrantholder within
such time so long as this Warrant has been surrendered to the Company at the
time of exercise.
6. Adjustment of Exercise Price, Number of Shares and Nature of
Securities Issuable Upon Exercise of Warrants. The Exercise Price shall be
subject to adjustment from time to time as hereinafter provided. Upon each
adjustment of the Exercise Price, Warrantholder shall thereafter be entitled to
purchase, at the Exercise Price resulting from such adjustment, a number of
shares determined by,
(a) multiplying the Exercise Price in effect immediately prior
to such adjustment by the number of shares purchasable pursuant hereto
immediately prior to such adjustment; and
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(b) dividing the product thereof by the Exercise Price
resulting from such adjustment.
7. Adjustment of Exercise Price Upon Issuance of Common Stock.
(a) If and whenever after the date hereof the Company shall
issue or sell Additional Shares of Common Stock without consideration
or for a consideration per share less than the Current Market Price or
the Exercise Price then in effect immediately prior to the issuance or
sale of such shares, then the Exercise Price in effect immediately
prior to such issuance or sale of such shares shall be reduced to a
number which shall be calculated by dividing,
(i) an amount equal to the sum of (A) the number of
shares of Common Stock outstanding, immediately prior to such
issue or sale multiplied by the then existing Exercise Price
plus (B) the aggregate consideration, if any, received by the
Company upon such issue or sale,
by
(ii) the total number of shares of Common Stock
outstanding immediately after such issue or sale.
(b) No adjustment of the Exercise Price, however, shall be
made in an amount less than $.01 per share, 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 $.01 per share or more.
(c) The provisions of this Paragraph 7 and Paragraph 8 shall
not apply to: (1) any Additional Shares of Common Stock which are
distributed to holders of Common Stock pursuant to a stock split for
which an adjustment is provided for under Paragraph 11; (ii) any
private offering by the Company made prior to June 30, 1998, involving
1,000,000 or less shares of Common Stock; or (iii) 2,000,000 shares of
Common Stock currently reserved for stock options exercisable by
employees and directors of the Company.
8. Adjustment of Exercise Price Upon Issuance of Additional Shares of
Common Stock and Convertible Securities. For purposes of Paragraph 7, the
following provisions shall also be applicable:
(a) In case at any time on or after the date hereof, the
Company shall declare any dividend, or authorize any other
distribution, upon any stock of the Company of any class, payable in
Additional Shares of Common Stock or by the issuance of Convertible
Securities, such declaration or distribution shall be deemed to have
been issued or sold (as of the record date) without consideration and
shall thereby cause an adjustment in the Exercise Price as required by
Paragraph 7.
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(b) (i) In case at any time on or after the date hereof, the
Company shall in any manner issue or sell any Convertible Securities,
whether or not the rights to exchange or convert thereunder are
immediately, exercisable, there shall be determined the price per share
for which Additional Shares of Common Stock are issuable upon the
conversion or exchange thereof, such determination to be made by
dividing,
(A) the total amount received or receivable by the
Company as consideration for the issue or sale of
such Convertible Securities, plus the minimum
aggregate amount of additional consideration, if any,
payable to the Company upon the conversion or
exchange thereof,
by
(B) the maximum aggregate number of Additional Shares
of Common Stock issuable upon conversion or exchange
of all such Convertible Securities;
and such issue or sale shall be deemed to be an issue or sale for cash
(as of the date of issue or sale of such Convertible Securities) of
such maximum number of Additional Shares of Common Stock at the price
per share so determined, and shall thereby cause an adjustment in the
Exercise Price, if such an adjustment is required by Paragraph 7
hereof.
(ii) If such Convertible Securities shall by their
terms provide for any increase or decrease, with the passage of time,
in the amount of additional consideration, if any, payable to the
Company, or in the rate of exchange upon the conversion or exchange
thereof, the adjusted Exercise Price last determined pursuant to
Paragraph 8(b)(i) above, shall, upon any such increase or decrease
becoming effective, be further adjusted to reflect the increase or
decrease of additional consideration or rate of exchange, using the
maximum aggregate number of Additional Shares of Common Stock first
utilized under Paragraph 8(b)(i)(B) above for determination of the
price per share for which Additional Shares of Common Stock are
issuable upon the conversion or exchange of such Convertible
Securities.
(iii) If any rights of conversion or exchange
evidenced by such Convertible Securities shall expire without having
been exercised, the adjusted Exercise Price shall forthwith be
readjusted to such Exercise Price as would have been in effect had an
adjustment with respect to such Convertible Securities been made on the
basis that the only Additional Shares of Common Stock issued or sold
were those issued upon the conversion or exchange of such Convertible
Securities, and that they were issued or sold for the consideration
actually received by the Company upon such exercise, plus the
consideration, if any, actually received by the Company for the
granting of such Convertible Securities.
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(c) (i) In case at any time on or after the date hereof, the
Company shall in any manner grant or issue any rights or options to
subscribe for, purchase or otherwise acquire Additional Shares of
Common Stock, whether or not such rights or options are immediately
exercisable (excluding, however, the options described in Paragraph
7(c)(iii) hereof), there shall be determined the price per share for
which Additional Shares of Common Stock are issuable upon the exercise
of such rights or options, such determination to be made by dividing,
(A) the total amount, if any, received or receivable
by the Company as consideration for the granting of
such rights or options, plus the minimum aggregate
amount of additional consideration, if any, payable
to the Company upon the exercise of such rights or
options if the maximum number of Additional Shares
were issued pursuant to such rights or options for
such minimum aggregate amount of additional
consideration,
by
(B) the maximum number of Additional Shares of Common
Stock of the Company issuable upon the exercise of
all such rights or options;
and the granting of such rights or options shall be deemed to be an
issue or sale for cash (as of the date of the granting of such rights
or options) of such maximum number of Additional Shares of Common Stock
at the price per share so determined, and shall thereby cause an
adjustment in the Exercise Price, if such an adjustment is required by
Paragraph 7 hereof.
(ii) If such rights or options shall by their terms
provide for any increase or decrease, with the passage of time, in the
amount of additional consideration, if any, payable to the Company, or
in the rate of exchange upon the conversion or exchange thereof, the
adjusted Exercise Price last determined pursuant to Paragraph 8(c)(i)
above, shall, upon any such increase or decrease becoming effective, be
further adjusted to reflect the increase or decrease of additional
consideration or rate of exchange, using the maximum aggregate number
of Additional Shares of Common Stock first utilized under Paragraph
8(c)(i)(B) above for determination of the price per share for which
Additional Shares of Common Stock are issuable upon the exercise of all
such rights and options.
(iii) If any such rights or options shall expire
without having been exercised, the adjusted Exercise Price shall
forthwith be readjusted to such Exercise Price as would have been in
effect had an adjustment with respect to such rights or options been
made on the basis that the only Additional Shares of Common Stock so
issued or sold were those issued or sold upon the exercise of such
rights or options and that they were issued or sold for the
consideration
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actually received by the Company upon such exercise, plus the
consideration, if any, actually received by the Company for the
granting of such rights or options.
(d) (i) In case at any time on or after the date hereof, the
Company shall grant any rights or options to subscribe for, purchase or
otherwise acquire Convertible Securities, there shall be determined the
price per share for which Additional Shares of Common Stock are
issuable upon the exchange or conversion of such Convertible Securities
if such rights or options were exercised, such determination to be made
by dividing,
(A) the total amount, if any, received or receivable
by the Company as consideration for the issuance of
such rights or options, plus the minimum aggregate
amount of additional consideration, if any, payable
to the Company upon the exercise of such rights or
options if the maximum number of Convertible
Securities were issued pursuant to such rights or
options for such minimum aggregate amount of
additional consideration, plus the minimum aggregate
amount of additional consideration, if any, payable
to the Company upon the exchange or conversion of
such Convertible Securities if the maximum number of
Additional Shares were issued pursuant to such
Convertible Securities for such minimum aggregate
amount of additional consideration,
by
(B) the maximum aggregate number of Additional Shares
of Common Stock issuable upon the exchange or
conversion of the Convertible Securities;
and the issue or sale of such rights or options shall be deemed to be
an issue or sale for cash (as of the date of the granting of such
rights or options) of such maximum number of Additional Shares of
Common Stock at the price per share so determined, and thereby shall
cause an adjustment in the Exercise Price, if such an adjustment is
required by Paragraph 7.
(ii) If such rights or options to subscribe for or otherwise
acquire Convertible Securities shall by their terms provide for any
increase or decrease, with the passage of time, in the amount of
additional consideration, if any, payable to the Company, or in the
rate of exchange upon the conversion or exchange thereof, the adjusted
Exercise Price last determined pursuant to Paragraph 8(d)(i) above,
shall, upon any such increase or decrease becoming effective, be
further adjusted to reflect the increase or decrease of additional
consideration or rate of exchange, using the maximum aggregate number
of Additional Shares of Common Stock first utilized under Paragraph
8(d)(i)(B) above for determination of the price per share for which
Additional Shares of Common Stock are issuable upon the conversion or
exchange of such Convertible Securities.
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(iii) If any such rights, options or rights of
conversion or exchange of such Convertible Securities shall expire
without having been exercised, exchanged or converted, the adjusted
Exercise Price shall forthwith be readjusted to such Exercise Price as
would have been in effect had an adjustment been made with respect to
such rights, options or rights of conversion or exchange of such
Convertible Securities on the basis that the only Additional Shares of
Common Stock so issued or sold were those actually issued or sold upon
the exercise of such rights or options and exchange or conversion of
such Convertible Securities and that they were issued or sold for the
consideration actually received by the Company upon exercise of such
rights and options and exchange or conversion of such Convertible
Securities, plus the consideration, if any, actually received by the
Company for the granting of such rights, options or Convertible
Securities.
(e) In any case where an adjustment has been made in the
Exercise Price upon the issuance of Convertible Securities or any
rights or options to purchase Convertible Securities or Additional
Shares of Common Stock pursuant to this Paragraph 8, no further
adjustment shall be made at the time of the conversion of any such
Convertible Securities or at the time of the exercise of any such
rights or options.
(f) In case at any time on or after the issuance of this
Warrant any shares of Common Stock or Convertible Securities shall be
issued or sold for a consideration other than cash, the amount of the
consideration other than cash payable to the Company shall be deemed to
be the Fair Value of such consideration.
(g) In case at any time the Company shall fix a record date of
the holders of its Common Stock for the purpose of entitling them (i)
to receive a dividend or other distribution payable in Common Stock,
Convertible Securities or rights or options to purchase either thereof,
or (ii) to subscribe for or purchase Common Stock, Convertible
Securities or rights or options to purchase either thereof, then such
record date shall be deemed to be the date of the issue or sale of the
shares of Common Stock deemed, pursuant to this Paragraph 8, to have
been issued or sold upon the declaration of such dividend or the making
of such other distribution or the date of the granting of such right of
subscription or purchase, as the case may be.
(h) The number of shares of Common Stock outstanding at any
given time shall not include shares owned or held by or for the account
of the Company, and the disposition of any such shares shall be
considered an issue or sale of Common Stock for the purposes of this
Paragraph 8.
9. Reorganization, Reclassification, Consolidation, Merger or Sale.
(a) If any capital reorganization or reclassification of the
capital stock of the Company, or any consolidation or merger of the
Company with another
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corporation, or the sale of all or substantially all of its assets to
another corporation shall be effected in such a way that holders of
Common Stock shall be entitled to receive cash, stock, securities or
assets with respect to or in exchange for Common Stock, then, as a
condition of such reorganization, reclassification, consolidation,
merger or sale, lawful and adequate provisions shall be made whereby
Warrantholder shall thereafter have the right to purchase and receive
upon the basis and upon the terms and conditions specified in this
Warrant upon exercise of this Warrant and in lieu of the shares of the
Common Stock of the Company immediately theretofore purchasable and
receivable upon the exercise of the rights represented hereby, such
cash, shares of stock, securities or assets as may be issued or payable
with respect to or in exchange for a number of outstanding shares of
Common Stock equal to the number of shares of such Common Stock
immediately theretofore purchasable and receivable upon the exercise of
the rights represented hereby, and in any such case appropriate
provision shall be made with respect to the rights and interest of
Warrantholder to the end that the provisions hereof (including, without
limitation, provisions for adjustments of the Exercise Price and of the
number of shares purchasable and receivable upon the exercise of this
Warrant) shall thereafter be applicable, as nearly as may be, in
relation to any shares of stock, securities or assets thereafter
deliverable upon the exercise hereof.
(b) The Company shall not effect any consolidation, merger or
sale of all or substantially all of the assets of the Company unless
prior to or simultaneous with the consummation thereof the successor
corporation (if other than the Company) resulting from such
consolidation, merger or purchase of such assets shall assume, by
written instrument executed and mailed or delivered to Warrantholder,
the obligation to deliver to Warrantholder such cash (or cash
equivalent), shares of stock, securities or assets as, in accordance
with the foregoing provisions, Warrantholder may be entitled to receive
and containing the express assumption of such successor corporation of
the due and punctual performance and observance of each provision of
this Warrant to be performed and observed by the Company and of all
liabilities and obligations of the Company hereunder; provided,
however, in the case of any consolidation or merger of the Company with
another corporation or the sale of all or substantially all of its
assets to another corporation effected in such a manner that the
holders of Common Stock shall be entitled to receive stock, securities
or assets with respect to or in exchange for Common Stock, then, at the
election of each Warrantholder or the Company, in lieu of receiving
such stock, securities or assets, such Warrantholder shall receive cash
equal to the Fair Value of the Common Stock issuable upon exercise of
the Warrant, less the Exercise Price payable upon exercise thereof.
(c) Upon any "change in control" of the Company, the
appreciation rights described in Paragraphs 7-9 and 15(f) shall become
immediately and contemporaneously exercisable. In addition, should
Warrantholder not participate in the sale of, nor receive a
proportionate interest in, the proceeds of any sale of twenty-five
percent (25%) or more of the Common Stock of the Company, then
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such appreciation right in their entirety shall become immediately and
contemporaneously exercisable.
(d) In case any Additional Shares of Common Stock or
Convertible Securities or any rights or options to purchase any
Additional Shares of Common Stock or Convertible Securities shall be
issued in connection with any merger or acquisition of another
corporation into the Company, the amount of consideration therefor
shall be deemed to be the Fair Value of such portion of the assets of
such merged corporation as the Board of Directors of the Company shall
in good faith determine to be attributable to such Additional Shares of
Common Stock, Convertible Securities or rights or options, as the case
may be, and the Exercise Price shall be adjusted in accordance with
Paragraph 9.
10. Arbitration. In case at any time or from time to time a dispute
arises between the Company and the Warrantholder concerning the interpretation
and application of Paragraphs 6-9 and 15(f) as the same affects the exercise
rights of Warrantholder under any provision of this Warrant, or if Warrantholder
objects to the determinations made pursuant to Paragraph 14 hereof, unless the
adjustment proposed to be made shall be agreed upon by the Company and
Warrantholder, the Board of Directors of the Company shall appoint a firm of
independent certified public accountants of recognized national standing (who
have not been employed by the Company within the last five years), acceptable to
Warrantholder, who at the Company's expense shall give their opinion upon the
adjustment, if any, on a basis consistent with the standards established in the
other provisions of Paragraphs 6-9, necessary with respect to the Exercise Price
and the number of shares purchasable upon exercise of the Warrants, so as to
preserve, without dilution, the exercise rights of Warrantholder. Upon receipt
of such opinion, such Board of Directors shall forthwith make the adjustments
described therein.
11. Stock Splits and Reverse Splits. In case at any time the Company
shall subdivide its outstanding shares of Common Stock into a greater number of
shares, the Exercise Price in effect immediately prior to such subdivision shall
be proportionately reduced and the number of shares of Common Stock purchasable
pursuant to this Warrant immediately prior to such subdivision shall be
proportionately increased, and conversely, in case at any time the Company shall
combine its outstanding shares of Common Stock into a smaller number of shares,
the Exercise Price in effect immediately prior to such combination shall be
proportionately increased and the number of shares of Common Stock purchasable
upon the exercise of this Warrant immediately prior to such combination shall be
proportionately reduced.
12. Dissolution, Liquidation and Wind-Up. In case the Company shall
dissolve, liquidate or wind, up its affairs prior to the expiration of this
Warrant, upon the exercise of this Warrant Warrantholder shall be entitled to
receive, in lieu of the shares of Common Stock of the Company to which
Warrantholder would have been entitled, the same kind and amount of assets as
would have been issued, distributed or paid to Warrantholder upon any such
dissolution, liquidation or winding up with respect to such shares of Common
Stock of the Company, had Warrantholder been the holder of record of the Warrant
Shares receivable upon the exercise of this Warrant on the record date for
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the determination of those persons entitled to receive any such liquidating
distribution. After any such dissolution, liquidation or winding up which shall
result in any cash distribution in excess of the Exercise Price provided for by
this Warrant, Warrantholder may, at Warrantholder's option, exercise the same
without making payment of the Exercise Price, and in such case the Company
shall, upon the distribution to Warrantholder, consider that said Exercise Price
has been paid in full to it and in making settlement to Warrantholder, shall
deduct from the amount payable to Warrantholder an amount equal to such Exercise
Price.
13. Noncash Consideration. In case any Additional Shares of Common
Stock or Convertible Securities or any rights or options to purchase any
Additional Shares of Common Stock or Convertible Securities shall be issued for
a consideration in a form other than cash, the amount of such consideration
shall be deemed to be the Fair Value thereof.
14. Adjustment Certificate. In each case of an adjustment in the number
of shares of Common Stock or other stock, securities or property receivable on
the exercise of the Warrants, the Company shall compute such adjustment in
accordance with the terms of this Warrant and prepare a certificate setting
forth such adjustment and showing in detail the facts upon which such adjustment
is based, including a statement of (a) the consideration received or to be
received by the Company for any Additional Shares of Common Stock, rights,
options or Convertible Securities issued or sold or deemed to have been issued
or sold, (b) the number of shares of Common Stock of each class outstanding or
deemed to be outstanding, (c) the adjusted Exercise Price and (d) the number of
shares issuable upon exercise of this Warrant. The Company will forthwith mail a
copy of each such certificate to each Warrantholder.
15. Special Agreements of the Company.
(a) Avoidance of Certain Actions. The Company will not, by
amendment of its Articles or Certificates of Incorporation or through
any reorganization, transfer of assets, consolidation, merger, issue or
sale of securities or otherwise, avoid or take any action which would
have the effect of avoiding the observance or performance of any of the
terms to be observed or performed hereunder by the Company, but will at
all times in good faith assist in carrying out all of the provisions of
this Warrant and in taking all of such action as may be necessary or
appropriate in order to protect the rights of Warrantholder hereunder.
(b) Compliance with Law. The Company shall comply with all
applicable laws, rules and regulations of the United States and of all
states, municipalities and agencies of any other jurisdiction
applicable to the Company and shall do all things necessary to
preserve, renew and keep in full force and effect and in good standing
its corporate existence and authority necessary to continue its
business.
(c) Information Rights. So long as Warrantholder holds this
Warrant and/or any of the Warrant Shares, the Company shall deliver to
Warrantholder (i)
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promptly after mailing, copies of all communications to the
shareholders of the Company, (ii) within ninety (90) days after the end
of each fiscal year of the Company, the annual audited financial
statements of the Company certified by the independent public
accountants of recognized standing, and (iii) within forty-five (45)
days after the end of each of the first three quarters of each fiscal
year, the Company's quarterly, unaudited financial statements.
(d) Listing on Securities Exchanges; Registration. If, and so
long as, any class of the Company's Common Stock shall be listed on any
national securities exchange (as defined in the Exchange Act), the
Company will, at its expense, obtain and maintain the approval for
listing upon official notice of issuance of all Warrant Shares and
maintain the listing of Warrant Shares after their issuance; and the
Company will so list on such national securities exchange, will
register under the Exchange Act (or any similar statute then in
effect), and will maintain such listing of, any other securities that
at any time are issuable upon exercise of this Warrant if and at the
time any securities of the same class shall be listed on such national
securities exchange by the Company.
(e) Put Option With Respect to the Warrant. Provided the
Company does not affect a public offering of its stock within the sixty
(60) months following the Issue Date, thereafter, through and including
the Expiration Date, Warrantholder, at its option, at any time and from
time to time, may require the Company to purchase all of the Warrant
which is then unexercised, and the Company shall purchase all of the
Warrant designated by Warrantholder. The rights of Warrantholder under
this subparagraph are herein referred to as the "Put". Warrantholder
may exercise the Put as it desires so long as the Warrant is to any
extent unexpired and unexercised, by giving written notice of such
exercise to the Company; provided, however, that the Put shall
terminate immediately prior to the closing of the Company's first
firmly underwritten public offering registered under the Securities
Act, from which the Company receives gross proceeds of not less than
$_____.00. Upon the exercise of the Put, the Company shall pay to the
order of Warrantholder, at Warrantholder's office in Phoenix, Arizona,
or at such other place as the holder hereof may from time to time
designate in writing, without presentment for payment, diligence,
grace, exhibition of any promissory note evidencing the Company's
obligation to pay, protest or special notice of any kind, all of which
are hereby expressly waived, the difference between (i) $200,000.00
(adjusted pro rata to the extent the Warrant has been previously
exercised or to the extent that less than the entire Warrant is being
purchased by the Company), and (ii) the Fair Value of the Warrant (or
that portion thereof being put to the Company). For purposes of this
subparagraph, the Fair Value of the Warrant shall be the Fair Value of
the consideration that would have been received by Warrantholder if the
Warrant had then been exercised as of the date Warrantholder gives
notice of its exercise of the Put. The Company's obligation to pay
Warrantholder pursuant to this subparagraph shall be evidenced by a
promissory note, in form and substance satisfactory to Warrantholder
(the "Put Note"), duly executed and delivered to Warrantholder no later
than five (5) days after the determination of Fair Value contemplated
by this
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subparagraph, and shall be payable, without interest, in five equal
annual installments, on the same day of each year, beginning on the
first annual anniversary of the date of the Put Note. The Put Note
shall not be secured by any of the Collateral that secures the Loans
and the Obligations.
(f) The Company's Call Rights. (i) Provided no Default or
Potential Default then exists under the Loan Documents, the Company
shall have the exclusive right to repurchase (and Warrantholder shall
be obligated to sell only to the Company) all of the Warrant Shares.
If, prior to the Maturity Dates of both Credit Facilities (as defined
in the Loan Documents), the Company prepays in full both Credit
Facilities, and the right to borrow or reborrow monies under both
Credit Facilities is terminated, the Company shall have the exclusive
right during the "Exclusivity Period" (as herein defined), to purchase
(and Warrantholder shall be obligated to sell only to the Company) all
of the Warrant Shares. The two hundred seventy (270) day period
following (A) the prepayment in full of, and (B) termination of rights
to borrow under, both Credit Facilities, and (C) Warrantholder's
written notice to the Company of the latter's right to purchase the
Warrant Shares, shall be known as the "Exclusivity Period".
(i) Notice of Exercise of Call Rights. The Company's
right to purchase the Warrant Shares pursuant to Paragraph
15(f)(i) shall be exercisable by the Company by delivery of a
written notice to Warrantholder of the Company's exercise of
its call right. The Company shall give such notice not less
than twenty (20) days prior to the expiration of the
Exclusivity Period, or within ten (10) days after the last
occurring Maturity Date (whichever is applicable). If the
right to purchase the Warrant Shares pursuant to Paragraph
15(f)(i) is timely exercised, on the last day of the
Exclusivity Period, or within eighty (80) days after the last
occurring Maturity Date (whichever is applicable),
Warrantholder shall deliver to the Company the certificate or
certificates representing the Warrant Shares being purchased,
duly endorsed with signature guaranteed, but otherwise without
representation or warranty of any kind (except a warranty that
Warrantholder has the authority to sell the Warrant Shares to
the Company, and a warranty that the Warrant Shares are free
and clear of liens), and the Company shall deliver to
Warrantholder the purchase price therefor in immediately
available funds. In the event the Company does not timely
exercise its call rights, or timely pay the purchase price for
the Warrant Shares, the call rights granted by Paragraph
15(f)(i) shall be deemed terminated and of no further force
and effect, and Warrantholder may proceed to sell the Warrant
Shares (and related rights) to any other Person upon such
terms and for such price as Warrantholder may elect.
(ii) Call Purchase Price. The purchase price payable
by the Company for the Warrant Shares purchased pursuant to
Paragraph 15(f)(i) and 15(f)(ii), shall be determined based on
an independent valuation of the Company, made within six (6)
months of purchase price payment due date, the cost of which
shall be borne solely by the Company, performed
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by an investment banking firm or nationally recognized
accounting firm acceptable to both parties; provided, however,
that where there is a public market for the Warrant Shares,
the purchase price of such shares shall be the average of the
mean of bid and asked prices of the Company's Common Stock
during the week immediately preceding the date of re-purchase,
as reported in The Wall Street Journal (or, if not so
reported, as otherwise reported by the National Association of
Shares Automated Quotation System), or in the event the
Warrant Shares are listed on the New York Stock Exchange, the
American Stock Exchange or the NASDAQ/National Market System,
the purchase price shall be the average of the closing prices
on such exchange during the week immediately preceding the
date of re-purchase of the Warrant Shares, as reported in The
Wall Street Journal.
(g) Reservation of Shares. The Company covenants and agrees
that all Warrant Shares will, upon issuance, be validly issued, fully
paid and nonassessable and free from all preemptive rights of any
stockholder, and from all taxes, liens and charges with respect to the
issue thereof. The Company further covenants and agrees that during the
period within which the rights represented by this Warrant may be
exercised, the Company will at all times have authorized, and reserved,
a sufficient number of shares of Common Stock to provide for the
exercise of the rights represented by this Warrant. The Company hereby
covenants and agrees to take all such action as may be necessary to
assure that the par value per share of the Common Stock is at all times
equal to or less than the Exercise Price.
(h) Securing Governmental Approvals. If any shares of Common
Stock required to be reserved for the purposes of exercise of this
Warrant require registration with or approval of any governmental
authority under any federal law (other than the Securities Act) or
under any state law before such shares may be issued upon exercise of
this Warrant, to the extent not prohibited by law the Company will, at
its expense, as expeditiously as possible, cause such shares to be duly
registered or approved, as the case may be.
16. Fractional Shares. No fractional shares or scrip representing
fractional shares shall be issued upon the exercise of this Warrant. With
respect to any fraction of a share called for upon exercise hereof, the Company
shall pay to the Warrantholder an amount in cash equal to such fraction
multiplied by the Current Market Value of one share of Common Stock.
17. Notices of Stock Dividends, Subscriptions, Reclassifications,
Consolidations, Mergers, etc. If at any time:
(a) the Company shall declare a cash dividend (or an increase
in the then existing dividend rate), or declare a dividend on Common
Stock payable otherwise than in cash out of its net earnings after
taxes for the prior fiscal year; or
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(b) the Company shall authorize the granting to the holders of
Common Stock of rights to subscribe for or purchase any shares of
capital stock of any class or of any other rights; or
(c) there shall be any capital reorganization, or
reclassification, or redemption of the capital stock of the Company, or
consolidation or merger of the Company with, or sale of all or
substantially all of its assets to, another corporation or firm; or
(d) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company,
then the Company shall give to Warrantholder at the address of Warrantholder as
shown on the books of the Company, at least ten (10) days prior to the
applicable record date hereinafter specified, a written notice summarizing such
action or event, and stating as applicable the record date for any such dividend
or rights (or, if a record date is not to be selected, the date as of which the
holders of Common Stock of record entitled to such dividend or rights are to be
determined), the date on which any such reorganization, reclassification,
consolidation, merger, sale of assets, dissolution, liquidation or winding up is
expected to become effective, and the date as of which it is expected the
holders of Common Stock of record shall be entitled to effect any exchange of
their shares of Common Stock for cash (or cash equivalent), securities or other
property deliverable upon any such reorganization, reclassification,
consolidation, merger, sale of assets, dissolution, liquidation or winding up.
18. Registered Holder; Transfer of Warrants or Warrant Shares.
(a) Maintenance of Registration Books; Ownership of this
Warrant. The Company shall keep at its principal office a register in
which the Company shall provide for the registration, transfer and
exchange of this Warrant. The Company shall not at any time, except
upon the dissolution, liquidation or winding-up of the Company, close
such register so as to result in preventing or delaying the exercise or
transfer of this Warrant.
(b) Exchange and Replacement. This Warrant is exchangeable
upon surrender hereof by the registered holder to the Company at its
principal office for new Warrants of like tenor and date representing
in the aggregate the right to purchase the number of shares purchasable
hereunder, each of such new Warrants to represent the right to purchase
such number of shares as shall be designated by said registered holder
at the time of surrender. Subject to Paragraphs 25(d) and 25(i) hereof,
this Warrant and all rights hereunder are transferable in whole or in
part upon the books of the Company by the registered holder hereof in
person or by duly authorized attorney, and new Warrants shall be made
and delivered by the Company, of the same tenor and date as this
Warrant but registered in the name of the transferee(s), upon surrender
of this Warrant, duly endorsed, to said office of the Company. Upon
receipt by the Company of evidence reasonably satisfactory to it of the
loss, theft, destruction or mutilation of this Warrant, and upon
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surrender and cancellation of this Warrant, if mutilated, the Company
will make and deliver a new Warrant of like tenor, in lieu of this
Warrant, without requiring the posting of any bond or the giving of any
other security. This Warrant shall be promptly canceled by the Company
upon the surrender hereof in connection with any exchange, transfer or
replacement. The Company shall pay all expenses, taxes and other
charges payable in connection with the preparation, execution and
delivery of Warrants pursuant to this Paragraph 18.
(c) Warrants and Warrant Shares Not Registered. The holder of
this Warrant, by accepting this Warrant, represents and acknowledges
that this Warrant and the Warrant Shares are not being registered under
the Securities Act on the grounds that the issuance of this Warrant and
the offering and sale of such Warrant Shares are exempt from
registration under Paragraph 4(2) of the Securities Act as not
involving any public offering.
19. Registration.
(a) Required Registration. Whenever the Company shall receive
a written request therefor from any one or more holders of at least 10%
of the combined number of shares of Common Stock of the Company plus
all shares of Common Stock which are issuable to all warrantholders
pursuant to warrants then outstanding (including Registrable Stock, and
including shares issuable whether or not the warrants have in fact been
exercised and whether or not such shares have in fact been issued), the
Company shall promptly prepare and file a registration statement under
the Securities Act covering the shares of stock which are the subject
of such request and shall use its best efforts to cause such
registration statement to become effective as expeditiously as
possible. Upon the receipt of such request, the Company shall promptly
give written notice to all holders of shares of stock that such
registration is to be effected. The Company shall include in such
registration statement such shares of stock for which it has received
written requests to register such shares by the holders thereof within
thirty (30) days after the effectiveness of the Company's written
notice to such other holders. Except as hereinafter expressly provided,
without the written consent of the holders of a majority of the shares
of stock for which registration has been requested pursuant to this
Paragraph, neither the Company nor any other holder of securities of
the Company may include securities in such registration.
(b) Incidental Registration. Each time the Company shall
determine to file a registration statement under the Securities Act
(other than on Form S-8 or Form S-4) in connection with the proposed
offer and sale for money of any of its securities by it or by any of
its security holders, the Company will give written notice of its
determination to all holders of Registrable Stock (which notice shall
describe the date of proposed filing and the date by which the
registration rights granted pursuant to this subparagraph must be
exercised, the nature and method of any such sale or disposition of
securities and shall include a list of the jurisdictions, if any, in
which the Company proposes to register or qualify the securities under
the applicable securities or "Blue Sky" laws of such
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jurisdictions). Upon the written request of a holder of any Registrable
Stock, the Company will cause all such Registrable Stock, the holders
of which have so requested registration thereof, to be included in such
registration statement, all to the extent requisite to permit the sale
or other disposition by the prospective seller or sellers of the
Registrable Stock to be so registered in accordance with the terms of
the proposed offering. If the registration statement is to cover an
underwritten distribution, the Company shall use its best efforts to
cause the Registrable Stock requested for inclusion pursuant to this
Paragraph 19(b) to be included in the underwriting on the same terms
and conditions as the securities otherwise being sold through the
underwriters. If, in the good faith judgment of the managing
underwriter of such public offering, the inclusion of all of the
Registrable Stock requested to be registered would materially and
adversely affect the successful marketing of the other shares proposed
to be offered, then the amount of the Registrable Stock to be included
in the offering shall be reduced and the Registrable Stock and the
other shares to be offered shall participate in such offering as
follows: the shares to be sold by the Company, the Registrable Stock to
be included in such offering and the other shares of Common Stock to be
included in such offering shall each be reduced pro rata in proportion
to the number of shares of Common Stock proposed to be included in such
offering by each holder of such shares and by the Company.
(c) Registration Procedures. If and whenever the Company is
required by the provisions of Paragraph 19(a) or 19(b) to effect the
registration of Registrable Stock under the Securities Act, the Company
will, at its expense, as expeditiously as possible:
(i) In accordance with the Securities Act and the
rules and regulations of the Commission, prepare and file with
the Commission a registration statement on the form of
registration statement appropriate with respect to such
securities and use its best efforts to cause such registration
statement to become and remain effective until the securities
covered by such registration statement have been sold, and
prepare and file with the Commission such amendments to such
registration statement and supplements to the prospectus
contained therein as may be necessary to keep such
registration statement effective and such registration
statement and prospectus accurate and complete until the
securities covered by such registration statement have been
sold;
(ii) If the offering is to be underwritten, in whole
or in part, enter into a written underwriting agreement with
the holders of the Registrable Stock participating in such
offering and the underwriter in form and substance reasonably
satisfactory to the managing underwriter of the public
offering and the holders of the Registrable Stock
participating in such offering;
(iii) Furnish to the holders of securities
participating in such registration and to the underwriters of
the securities being registered such
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reasonable number of copies of the registration statement,
preliminary prospectus, final prospectus and such other
documents as such underwriters and holders may reasonably
request in order to facilitate the public offering of such
securities;
(iv) Use its best efforts to register to qualify the
securities covered by such registration statement under such
state securities or blue sky laws of such jurisdictions as
such participating holders and underwriters may reasonably
request;
(v) Notify the holders participating in such
registration, promptly after it shall receive notice thereof,
of the date and time when such registration statement and each
post-effective amendment thereto has become effective or a
supplement to any prospectus forming a part of such
registration statement has been filed;
(vi) Notify such holders promptly of any request by
the Commission for the amending or supplementing of such
registration statement or prospectus or for additional
information;
(vii) Prepare and file with the Commission, promptly
upon the request of any such holders, any amendments or
supplements to such registration statement or prospectus
which, in the opinion of counsel for such holders, is required
under the Securities Act or the rules and regulations
thereunder in connection with the distribution of the
Registrable Stock by such holders;
(viii) Prepare and promptly file with the Commission,
and promptly notify such holders of the filing of, such
amendments or supplements to such registration statement or
prospectus as may be necessary to correct any statements or
omissions if, at the time when a prospectus relating to such
securities is required to be delivered under the Securities
Act, any event has occurred as the result of which any such
prospectus or any other prospectus as then in effect may
include an untrue statement of a material fact or omit to
state any material fact required to be stated therein or
necessary to make the statements therein not misleading;
(ix) In case any of such holders or any underwriter
for any such holders is required to deliver a prospectus at a
time when the prospectus then in circulation is not in
compliance with the Securities Act or the rules and
regulations of the Commission, prepare promptly upon request
such amendments or supplements to such registration statement
and such prospectus as may be necessary in order for such
prospectus to comply with the requirements of the Securities
Act and such rules and regulations;
(x) Advise such holders, promptly after it shall
receive notice or obtain knowledge thereof, of the issuance of
any stop order by the
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Commission suspending the effectiveness of such registration
statement or the initiation or threatening of any proceeding
for that purpose and promptly use its best efforts to prevent
the issuance of any stop order or to obtain its withdrawal if
such stop order should be issued;
(xi) If requested by the managing underwriter or
underwriters or a holder of Registrable Stock being sold in
connection with an underwritten offering, immediately
incorporate in a prospectus supplement or post-effective
amendment such information as the managing underwriters and
the holders of a majority of the Registrable Stock being sold
agree should be included therein relating to the plan of
distribution with respect to such Registrable Stock, including
information with respect to the Registrable Stock being sold
to such underwriters, the purchase price being paid therefor
by such underwriters and with respect to any other terms of
the underwritten (or best efforts underwritten) offering of
the Registrable Stock to be sold in such offering; and make
all required filings of such prospectus supplement or
post-effective amendment as soon as notified of the matters to
be incorporated in such prospectus supplement or
post-effective amendment;
(xii) Cooperate with the selling holders of
Registrable Stock and the managing underwriters, if any, to
facilitate the timely preparation and delivery of certificates
representing Registrable Stock to be sold and not bearing any
restrictive legends; and enable such Registrable Stock to be
in such denominations and registered in such names as the
managing underwriters may request at least two business days
prior to any sale of Registrable Securities to the
underwriters;
(xiii) Prepare a prospectus supplement or
post-effective amendment to the registration statement or the
related prospectus or any document incorporated therein by
reference or file any other required documents so that, as
thereafter delivered to the purchasers of the Registrable
Stock, the prospectus will not contain an untrue statement of
material fact or omit to state any material fact necessary to
make the statements therein not misleading;
(xiv) Enter into such agreements (including an
underwriting agreement) and take all such other actions in
connection therewith in order to expedite or facilitate the
disposition of such Registrable Securities and in such
connection, whether or not an underwriting agreement is
entered into and whether or not the registration is an
underwritten registration:
(A) make such representations and warranties
to the holders of such Registrable Stock and the
underwriters, if any, in form, substance and scope as
are customarily made by issuers to underwriters in
primary underwritten offerings;
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(B) If an underwriting agreement is entered
into, the same shall set forth in full the
indemnification provisions and procedures of
Paragraph 21 hereof with respect to all parties to be
indemnified pursuant to said Paragraph; and
(C) The Company shall deliver such documents
and certificates as may be requested by the holders
of the majority of the Registrable Stock being sold
and the managing underwriters, if any, to evidence
compliance with the terms of this Paragraph 19(c) and
with any customary conditions contained in the
underwriting agreement or other agreement entered
into by the Company.
The above shall be done at each closing under such underwriting or
similar agreement or as and to the extent required thereunder;
(xv) Make available for inspection by a
representative of the holders of a majority of the Registrable
Stock, any underwriter participating in any disposition
pursuant to a registration statement, and any attorney or
accountant retained by the sellers or underwriter, all
financial and other records, pertinent corporate documents and
properties of the Company, and cause the Company's officers,
directors and employees to supply all information reasonably
requested by any such representative, underwriter, attorney or
accountant in connection with the preparation of the
registration statement; provided, that any records,
information or documents that are designated by the Company in
writing as confidential shall be kept confidential by such
persons unless disclosure of such records, information or
documents is required by court or administrative order;
(xvi) Otherwise use its best efforts to comply with
all applicable rules and regulations of the Commission, and
make generally available to the Company's security holders,
earning statements satisfying the provisions of Paragraph
11(a) of the Securities Act, no later than forty-five (45)
days after the end of any twelve (12) month period (or ninety
(90) days, if such a period is a fiscal year) (i) commencing
at the end of any fiscal quarter in which Registrable Stock is
sold to underwriters in an underwritten offering, or, if not
sold to underwriters in such an offering, (ii) beginning with
the first month of the Company's first fiscal quarter
commencing after the effective date of a registration
statement;
(xvii) Not file any amendment or supplement to such
registration statement or prospectus to which a majority in
interest of such holders has objected on the grounds that such
amendment or supplement does not comply in all material
respects with the requirements of the Securities Act or the
rules and regulations thereunder, after having been furnished
with a copy thereof at least five (5) business days prior to
the filing thereof; provided, however, that the failure of
such holders or their counsel to
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review or object to any amendment or supplement to such
registration statement or prospectus shall not affect the
rights of such holders or any controlling person or persons
thereof or any underwriter or underwriters therefor under
Paragraph 21 hereof; and
(xviii) At the request of any such holder (i) furnish
to such holder on the effective date of the registration
statement or, if such registration includes an underwritten
public offering, at the closing provided for in the
underwriting agreement, an opinion, dated such date, of the
counsel representing the Company for the purposes of such
registration, addressed to the underwriters, if any, and to
the holder or holders making such request, covering such
matters with respect to the registration statement, the
prospectus and each amendment or supplement thereto,
proceedings under state and federal securities laws, other
matters relating to the Company, the securities being
registered and the offer and sale of such securities as are
customarily the subject of opinions of issuer's counsel
provided to underwriters in underwritten public offerings, and
such opinion of counsel shall additionally cover such legal
and factual matters with respect to the registration as such
requesting holder or holders may reasonably request, and (ii)
use its best effort to furnish to such holder letters dated
each such effective date and such closing date, from the
independent certified public accountants of the Company,
addressed to the underwriters, if any, and to the holder or
holders making such request, stating that they are independent
certified public accountants within the meaning of the
Securities Act and dealing with such matters as the
underwriters may request, or, if the offering is not
underwritten, that in the opinion of such accountants the
financial statements and other financial data of the Company
included in the registration statement or the prospectus or
any amendment or supplement thereto comply in all material
respects with the applicable accounting requirements of the
Securities Act, and additionally covering such other financial
matters, including information as to the period ending
immediately prior to the date of such letter with respect to
the registration statement and prospectus, as such requesting
holder or holders may reasonably request.
20. Expenses.
(a) All expenses incident to the Company's performance of or
compliance with this Warrant, including, without limitation, the
following shall be borne by the Company, regardless of whether the
registration statement becomes effective:
(i) All registration and filing fee (including those
with respect to filings required to be made with the National
Association of Securities Dealers, Inc.);
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(ii) Fees and expenses of compliance with all
securities or blue sky laws (including fees and disbursements
of counsel for the underwriters or selling holders in
connection with blue sky qualifications of the Registrable
Stock in determination of their eligibility for investment
under the laws of such jurisdictions as the managing
underwriters or holders of a majority of the Registrable Stock
being sold may designate, but excluding selling commissions,
discounts or Warrantholder's counsel fees);
(iii) Printing, messenger, telephone and delivery
expenses;
(iv) Fees and disbursements of counsel for the
Company, the underwriters and for the sellers of the
Registrable Stock as hereinafter provided;
(v) Fees and disbursements of all independent
certified public accountants of the Company (including the
expenses of any special audit and "comfort" letters required
by or incident to such performance);
(vi) Fees and disbursements of underwriters
(excluding discounts, commissions or fees of underwriters,
selling brokers, dealer managers or similar securities
industry professionals relating to the distribution of the
Registrable Stock or legal expenses of any person other than
the Company and the selling holders); and
(vii) Fees and expenses of other persons retained by
the Company.
(b) The Company will, in any event, pay its internal expenses
(including without limitation, all salaries and expenses of its
officers and employees performing legal or accounting duties), the
expense of any annual audit, the fees an expenses incurred in
connection with the listing of the securities to be registered on each
securities exchange on which similar securities issued by the Company
are then listed, rating agency fees and the fees and expenses of any
person, including special experts, retained by the Company.
(c) In connection with the registration statement required
hereunder, the Company will reimburse the holders of Registrable Stock
being registered pursuant to the registration statement for the
reasonable fees and disbursements of not more than one counsel (or more
than one counsel if conflict exists among such selling holders in the
exercise of the reasonable judgment of counsel for the selling holders
and counsel for the Company) chosen by the holders of a majority of
such Registrable Stock.
21. Indemnification.
(a) The Company hereby agrees to indemnify each of the holders
of Registrable Stock against all claims, losses, damages and
liabilities (or actions in respect thereof) arising out of or based on
any untrue statement (or alleged untrue
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statement) of a material fact contained in any registration statement,
preliminary or final prospectus, or other, document incident to any
such registration, qualification or compliance (or in any related
registration statement, notification or the like) or any omission (or
alleged omission) to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading, or any violation by the Company of any rule or regulation
promulgated under the Securities Act applicable to the Company and
relating to action or inaction required of the Company in Connection
with any such registration, qualification or compliance, and to
reimburse the holders of Registrable Stock (including officers and
directors of the same and controlling persons) for any legal and any
other expenses reasonably incurred in connection with investigating or
defending any such claim, loss, damage, liability or action, provided,
however, the Company will not be liable in any such case to the extent
that any such claim, loss, damage or liability arises out of or is
based on any untrue statement or omission based upon written
information furnished to the Company by Warrantholder in an instrument
duly executed by Warrantholder and stated to be specifically for use
therein.
(b) Warrantholder severally and not jointly agree to indemnify
the Company and its officers and directors and each person, if any, who
controls any thereof within the meaning of Paragraph 15 of the
Securities Act and their respective successors against all claims,
losses, damages and liabilities (or actions in respect hereof) arising
out of or based on any untrue statement of a material fact contained in
any prospectus, offering circular or other document incident to any
registration, qualification or compliance relating to securities
purchased pursuant to the Warrants (or in any related registration
statement, notification or the like) or any omission (or alleged
omission) to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading and
will reimburse the Company and each other person indemnified pursuant
to this subsection (b) for any legal and any other expenses reasonably
incurred in connection with investigating or defending any such claim,
loss, damage, liability or action; provided, however, that this
subsection (b) shall apply only if (and only to the extent that) such
statement or omission was made in reliance upon information (including,
without limitation, written negative responses to inquiries) furnished
to the Company by an instrument duly executed by Warrantholder and
stated to be specifically for use in such prospectus, or other document
(or related registration statement, notification or the like) or any
amendment or supplement thereto.
(c) Each party entitled to indemnification hereunder (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which
indemnity may be sought, and shall permit the Indemnifying Party (at
such Indemnifying Party's expense) to assume the defense of any claim
or any litigation resulting therefrom, provided that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or
litigation, shall be reasonably satisfactory to the Indemnified Party,
and the
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Indemnified Party may participate in such defense at such party's
expense, and provided further, the omission by any Indemnified Party to
give notice as provided herein shall not relieve the Indemnifying Party
of its obligations under this Paragraph 21 except to the extent that
the omission results in a failure of actual notice to the Indemnifying
Party and such Indemnifying Party is materially damaged solely as a
result of the failure to give notice. No Indemnifying Party, in the
defense of any such claim or litigation, shall, except with the consent
of each Indemnified Party, consent to entry of any judgment or enter
into any settlement which does not include as an unconditional term
thereof the giving by the claimant or plaintiff to such Indemnified
Party of a release from all liability in respect to such claim or
litigation.
(d) If the indemnification provided for in this Paragraph 21
is unavailable or insufficient to hold harmless an Indemnified Party in
respect of any losses, claims, damages, liabilities, expenses or
actions in respect thereof referred to herein, then the indemnifying
Party shall contribute to the amount paid or payable by such
Indemnified Party as a result of such losses, claims, damages,
liabilities, expenses or actions in such proportion as is appropriate
to reflect the relative fault of the Indemnifying Party on the one
hand, and the Indemnified Party on the other, in connection with the
statements or omissions which resulted in such losses, claims, damages,
liabilities, expenses or actions as well as any other relevant
equitable considerations, including the failure to give the notice
required hereunder. The relative fault of the Indemnifying Party and
the Indemnified Party shall be determined by reference to, among other
things whether the untrue or alleged untrue statement of a material
fact relates to information supplied by the Indemnifying Party or the
Indemnified Party and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such statement or
omission. The Company and Warrantholder agree that it would not be just
and equitable if contributions pursuant to this Paragraph 21 were
determined by pro rata allocation or by any other method of allocation
which did not take account of the equitable considerations referred to
above. The amount paid or payable to an Indemnified Party as a result
of the losses, claims, damages, liabilities or actions in respect
thereof, referred to above, shall be deemed to include any legal or
other expenses reasonably incurred by such Indemnified Party in
connection with investigating or defending any such action or claim.
Notwithstanding the contribution provisions of this Paragraph 21, in no
event shall the amount contributed by any seller of Registrable Stock
exceed the aggregate net offering proceeds received by such seller from
the sale of Registrable Stock to which such contribution or
indemnification claim relates. No person guilty of fraudulent
misrepresentations (within the meaning of Paragraph 11(f) of the
Securities Act) shall be entitled to contribution from any person who
is not guilty of such fraudulent misrepresentation.
(e) The indemnification required by this Paragraph 21 shall be
made by periodic payments during the course of the investigation or
defense, as and when bills are received or expenses incurred.
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22. Reporting Requirements Under Exchange Act.
(a) The Company shall maintain such registration of its Common
Stock under Section 12 of the Exchange Act as shall be required
thereunder, and shall keep effective such registration and shall timely
file such information, documents and reports as the Commission may
require or prescribe under Section 13 of the Exchange Act, or
otherwise. From and after the effective date of the first registration
statement filed by the Company under the Securities Act, the Company
shall (as required to do so) timely file such information, documents
and reports as the Commission may require or prescribe under Section 13
or 15(d) (whichever is applicable) of the Exchange Act. Immediately
upon becoming subject to the reporting requirements of either Sections
13 or 15(d) of the Exchange Act, the Company shall forthwith upon
request furnish any holder of Registrable Stock (i) a written statement
by the Company that it has complied with such reporting requirements,
(ii) a copy of the most recent annual or quarterly report of the
Company, and (iii) such other reports and documents filed by the
Company with the Commission as such holder may reasonably request in
availing itself of an exemption for the sale of Registrable Stock
without registration under the Securities Act. The Company acknowledges
and agrees that the purpose of the requirements contained in this
Paragraph 22 is to enable any such holder to comply with the current
public information requirement contained in Rule 144 under the
Securities Act should such holder ever wish to dispose of any of the
securities of the Company acquired by it without registration under the
Securities Act in reliance upon Rule 144 (or any other similar
exemptive provision). In addition, the Company shall take such other
measures and file such other information, documents and reports as
shall hereafter be required by the Commission as a condition to the
availability of Rule 144 under the Securities Act (or any similar
exemptive provision hereafter in effect).
(b) Stockholder Information. The Company may require each
holder of Registrable Stock as to which any registration is to be
effected pursuant to Paragraphs 19-22 to furnish the Company such
information, with respect to such holder and the distribution of such
Registrable Stock, as shall be required by law or by the Commission in
connection therewith.
23. Representation and Warranties. The Company hereby represents
and warrants to and covenants with Imperial, each Warrantholder, and each holder
of Warrant Shares that:
(a) Organization and Capitalization of the Company. The
Company is a corporation duly organized, validly existing and in good
standing under the laws of the State of Arizona. As of the date hereof,
the authorized capital of the Company consists of 50,000,000 shares of
Common Stock and no shares of Preferred Stock, of which 10,000,000
shares of Common Stock and no shares of Preferred Stock are issued and
outstanding. The Company has, and at all times during the Exercise
Period will have, reserved for issuance pursuant to the Warrants that
number of shares of Common Stock that are issuable pursuant to
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the Warrants. Except as otherwise described on Schedule 1 (attached
hereto), no unissued shares of Common Stock are reserved for any
purpose other than for issuance upon the exercise of the Warrants. As
of the date hereof and except as otherwise described on Schedule 1
hereto, the Company has not issued or agreed to issue any stock
purchase rights or convertible securities (other than this Warrant),
and there are no preemptive rights in effect with respect to the
issuance of any shares of Common Stock. All the outstanding shares of
Common Stock and Preferred Stock have been validly issued without
violation of any preemptive or similar rights, are fully paid and
nonassessable and have been issued in compliance with all federal and
applicable state securities laws.
(b) Authority. The Company has full corporate power and
authority to execute and deliver this Warrant, to issue the shares of
Common Stock issuable upon exercise of this Warrant, and to perform all
of its obligations hereunder, and the execution, delivery and
performance hereof has been duly authorized by all necessary corporate
action on its part. This Warrant has been duly executed on behalf of
the Company and constitutes the legal, valid and binding obligation of
the Company enforceable in accordance with its terms.
(c) No Legal Bar. Neither the execution, delivery or
performance of this Warrant nor the issuance of the shares of Common
Stock issuable upon exercise of this Warrant will (a) conflict with or
result in a violation of the Certificate of Incorporation or By-Laws of
the Company, (b) conflict with or result in a violation of any law,
statute, regulation, order or decree applicable to the Company or any
affiliate, (c) require any consent or authorization or filing with, or
other act by or in respect of any governmental authority or (d) result
in a breach of, constitute a default under or constitute an event
creating rights of acceleration, termination or cancellation under any
mortgage, lease, contract, franchise, instrument or other agreement to
which the Company is a party or by which it is bound.
(d) Validity of Shares. When issued upon the exercise of this
Warrant as contemplated herein, the shares of Common Stock so issued
will have been validly issued and will be fully paid and nonassessable.
On the date hereof, the par value of the Common Stock is less than the
Exercise Price per share of Common Stock.
Warrantholder represents and warrants to and covenants with the Company
that: (i) it is an accredited investor as defined in Regulation D under the
Securities Act; (ii) Warrantholder is acquiring the Warrant Shares for its own
account, for investment purposes only and not with a view to immediate resale or
distribution, either in whole or in part; (iii) Warrantholder will provide upon
Company's reasonable request, such information as it has to enable Company to
comply with the Securities Act; and (iv) Warrantholder understands and agrees
that: (A) the shares will not be registered under federal or state securities
laws and cannot be resold in whole or in part unless they are so registered or
sold pursuant to an exemption from registration; and (B) a legend will be placed
on the certificates representing the shares indicating that such shares have not
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been registered under federal or state securities laws, and are subject to
restrictions on sale.
24. Miscellaneous Provisions.
(a) Conflict with Any Shareholder Agreement. In the event of a
conflict between any of the provisions of this Agreement and any
provisions of any shareholder agreement entered into by a Warrantholder
with respect to the Warrant or the Warrant Shares, the parties shall
first endeavor to read such provisions in such a manner so as to avoid
and minimize such conflict. If such conflict is irreconcilable, the
provisions of this Agreement shall govern.
(b) Governing Law, Venue an Waiver of Jury Trial. This Warrant
shall be deemed to have been made in the State of Arizona and the
validity of this Warrant, the construction, interpretation, and
enforcement thereof, and the rights of the parties thereto shall be
determined under, governed by, and construed in accordance with the
internal laws of the State of Arizona, without regard to principles of
conflict of laws. The parties agree that all actions or proceedings
arising in connection with this Warrant shall be tried and litigated
only in the state or federal courts located in the County of Maricopa,
State of Arizona or, at the sole option of a Warrantholder, in any
other court in which a Warrantholder shall initiate legal or equitable
proceedings and which has subject matter jurisdiction over the matter
in controversy. Warrantholder and the Company each waive the right to a
trial by jury and any right each may have to assert the doctrine of
forum non conveniens or to object to venue to the extent any proceeding
is brought in accordance with this Paragraph 25(c). Service of process,
sufficient for personal jurisdiction in any action against the Company,
may be made by registered or certified mail, return receipt requested,
to its address indicated in Paragraph 25(d).
(c) Notices. All notices hereunder shall be in writing and
shall be deemed to have been given five (5) days after being mailed by
certified mail, addressed to the address below stated of the party to
which notice is given, or to such changed address as such party may
have fixed by notice:
To the Company: INTEGRATED INFORMATION SYSTEMS, INC.
Fountainhead Corporate Park
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
President & CEO
To Warrantholder IMPERIAL BANK
or holder of Warrant Shares: One Arizona Center
▇▇▇ ▇▇▇▇ ▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
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With a copy (which shall ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
not constitute notice) to: Senior Vice President and
General Counsel
IMPERIAL BANK
▇▇▇▇ ▇▇▇▇▇ ▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
provided, however, that any notice of change of address shall be
effective only upon receipt.
(d) Successors and Assigns. This Warrant shall be binding upon
and inure to the benefit of the Company, Warrantholder and the holders
of Warrant Shares and the successors, assigns and transferees of the
Company, Warrantholder and the holders of Warrant Shares.
(e) Attorneys' Fees. The parties hereto agree that in
connection with the enforcement of this Warrant or concerning any
matter in any way arising out of, or consequential to the protection,
assertion, or enforcement of rights hereunder, the prevailing party in
any action or other proceeding in any court or arbitration shall be
entitled to recover from the non-prevailing party all reasonable costs,
expenses and fees incurred by such prevailing party, the amount of
which costs, expenses and fees will be determined by a court sitting
without a jury, or the arbitrator, as applicable.
(f) Entire Agreement; Amendments and Waivers. This Warrant
sets forth the entire understanding of the parties with respect to the
transactions contemplated hereby. The failure of any party to seek
redress for the violation or to insist upon the strict performance of
any term of this Warrant shall not constitute a waiver of such term and
such party shall be entitled to enforce such term without regard to
such forbearance. This Warrant may be amended. The Company may take any
action herein prohibited or omit to take action herein required to be
performed by it, and any breach of or compliance with any covenant,
agreement, warranty or representation may be waived, only if the
Company has obtained the written consent or written waiver of the
majority in interest of the Warrantholders, and then such consent or
waiver shall be effective only in the specific instance and for the
specific purpose for which given.
(g) Severability. If any terms of this Warrant as applied to
any person or to any circumstance is prohibited, void, invalid or
unenforceable in any jurisdiction, such term shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
invalidity without in any way affecting any other term of this Warrant
or affecting the validity or enforceability of this Warrant or of such
provision in any other jurisdiction.
(h) Headings. The headings in this Warrant are inserted only
for convenience of reference and shall not be used in the construction
of any of its terms.
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(i) Transferability. This Warrant may be assigned, transferred
or sold in whole or in part by Warrantholder at any time, without the
consent of Company, so long as each such assignment, transfer or sale
represents rights to have issued to the assignee, transferee or
purchaser, at least .25% of the Common Stock in the Company.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officers effective as of the date first set forth above.
INTEGRATED INFORMATION SYSTEMS, INC.,
an Arizona corporation
By _______________________________________
Name: ____________________________________
Title: ___________________________________
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