FORM OF
IMAGEWARE SYSTEMS, INC.
PURCHASE WARRANT
Issued to:
PAULSON INVESTMENT COMPANY, INC.
Exercisable to Purchase
150,000 UNITS
THIS WARRANT HAS NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933
AND IS NOT TRANSFERABLE
EXCEPT AS PROVIDED HEREIN
Void after __________, 2005
This is to certify that, for value received and subject to the terms
and conditions set forth below, the Warrantholder (hereinafter defined) is
entitled to purchase, and the Company promises and agrees to sell and issue to
the Warrantholder, at any time on or after ______ ___, 2000 and on or before
__________ ___, 2005, up to 150,000 Units (hereinafter defined) at the Exercise
Price (hereinafter defined).
This Warrant Certificate is issued subject to the following terms and
conditions:
1. DEFINITIONS OF CERTAIN TERMS. Except as may be otherwise clearly
required by the context, the following terms have the following meanings:
(a) "Act" means the Securities Act of 1933, as amended.
(b) "Closing Date" means the date on which the Offering is closed.
(c) "Commission" means the Securities and Exchange Commission.
(d) "Common Stock" means the common stock, $0.01 par value, of the
Company.
(e) "Company" means ImageWare Systems, Inc., a California
corporation.
(f) "Company's Expenses" means any and all expenses payable by the
Company or the Warrantholder in connection with an offering described in Section
6 hereof, except Warrantholder's Expenses.
(g) "Effective Date" means the date on which the Registration
Statement is declared effective by the Commission.
(h) "Exercise Price" means the price at which the Warrantholder may
purchase one complete Unit (or Securities obtainable in lieu of one complete
Unit) upon exercise of Warrants as determined from time to time pursuant to the
provisions hereof. The initial Exercise Price is $_____ per Unit (120% of the
initial public offering price of a Unit). If a Warrant is exercised for a
component of a Unit or Units, then the price payable in connection with such
exercise shall be determined by allocating $0.001 to the Unit Warrant and the
balance of the Exercise Price to the share of Common Stock, or, in each case, to
any securities obtainable in addition to or in lieu of such Unit Warrant or
share of Common Stock by virtue of the application of Section 3 of this Warrant.
(i) "Offering" means the public offering of Units made pursuant to
the Registration Statement.
(j) "Participating Underwriter" means any underwriter participating
in the sale of the Securities pursuant to a registration under Section 6 of this
Warrant Certificate.
(k) "Registration Statement" means the Company's registration
statement (File No. 333-____), as amended on the Closing Date.
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(l) "Rules and Regulations" means the rules and regulations of the
Commission adopted under the Act.
(m) "Securities" means the securities obtained or obtainable upon
exercise of the Warrant or securities obtained or obtainable upon exercise,
exchange or conversion of such securities.
(n) "Unit" means, as the case may require, either one of the Units
offered to the public pursuant to the Registration Statement or one of the Units
obtainable on exercise of a Warrant, each Unit consisting of one share of Common
Stock and one Unit Warrant to purchase one share of Common Stock on the terms
and conditions described in the Registration Statement.
(o) "Unit Warrant" means a Common Stock purchase warrant included as
a component of a Unit.
(p) "Warrant Certificate" means a certificate evidencing the Warrant.
(q) "Warrantholder" means a record holder of the Warrant or
Securities. The initial Warrantholder is Paulson Investment Company, Inc.
(r) "Warrantholder's Expenses" means the sum of (i) the aggregate
amount of cash payments made to an underwriter, underwriting syndicate, or agent
in connection with an offering described in Section 6 hereof multiplied by a
fraction, the numerator of which is the aggregate sales price of the Securities
sold by such underwriter, underwriting syndicate, or agent in such offering on
behalf of the Warrantholder and the denominator of which is the aggregate sales
price of all of the securities sold by such underwriter, underwriting syndicate,
or agent in such offering and (ii) all out-of-pocket expenses of the
Warrantholder, except for the fees and disbursements of one firm retained as
legal counsel for the Warrantholder on behalf of all of the Warrantholders that
will be paid by the Company.
(s) "Warrant" means the warrant evidenced by this certificate, any
similar certificate issued in connection with the Offering, or any certificate
obtained upon transfer or partial exercise of the Warrant evidenced by any such
certificate.
2. EXERCISE OF WARRANTS. All or any part of the Warrant may be
exercised commencing on the first anniversary of the Effective Date and
ending at 5:00 p.m. (Pacific Time) on the fifth anniversary of the Effective
Date by surrendering this Warrant Certificate, together with appropriate
instructions, duly executed by the Warrantholder or by its duly authorized
attorney, at the office of the Company, 10833 Thornmint Road, San Diego,
California 92127, or at such other office or agency as the Company may
designate. Upon receipt of notice of exercise, the Company shall immediately
instruct its transfer agent to prepare certificates for the Securities to be
received by the Warrantholder upon completion of the Warrant exercise. When
such certificates are prepared, the Company shall notify the Warrantholder
and deliver such certificates to the Warrantholder or as per the
Warrantholder's instructions immediately upon payment in full by the
Warrantholder, in lawful money of the United States, of the Exercise Price
payable with respect to the Securities being purchased. If the Warrantholder
shall represent and warrant that all applicable registration and prospectus
delivery requirements for their sale have been complied with upon sale
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of the securities received upon exercise of the Warrant, such certificates
shall not bear a legend with respect to the Act.
If fewer than all the Securities purchasable under the Warrant are
purchased, the Company will, upon such partial exercise, execute and deliver
to the Warrantholder a new Warrant Certificate (dated the date hereof), in
form and tenor similar to this Warrant Certificate, evidencing that portion
of the Warrant not exercised. The Securities to be obtained on exercise of
the Warrant will be deemed to have been issued, and any person exercising the
Warrants will be deemed to have become a holder of record of those
Securities, as of the date of the payment of the Exercise Price.
3. ADJUSTMENTS IN CERTAIN EVENTS. The number, class, and price of
Securities for which this Warrant Certificate may be exercised are subject to
adjustment from time to time upon the happening of certain events as follows:
(a) If the outstanding shares of the Company's Common Stock are
divided into a greater number of shares or a dividend in stock is paid on the
Common Stock, the number of shares of Common Stock for which the Warrant is
then exercisable will be proportionately increased and the Exercise Price
will be proportionately reduced; and, conversely, if the outstanding shares
of Common Stock are combined into a smaller number of shares of Common Stock,
the number of shares of Common Stock for which the Warrant is then
exercisable will be proportionately reduced and the Exercise Price will be
proportionately increased. The increases and reductions provided for in this
subsection 3(a) will be made with the intent and, as nearly as practicable,
the effect that neither the percentage of the total equity of the Company
obtainable on exercise of the Warrants nor the price payable for such
percentage upon such exercise will be affected by any event described in this
subsection 3(a).
(b) In case of any change in the Common Stock through merger,
consolidation, reclassification, reorganization, partial or complete
liquidation, purchase of substantially all the assets of the Company, or
other change in the capital structure of the Company, then, as a condition of
such change, lawful and adequate provision will be made so that the holder of
this Warrant Certificate will have the right thereafter to receive upon the
exercise of the Warrant the kind and amount of shares of stock or other
securities or property to which he would have been entitled if, immediately
prior to such event, he had held the number of shares of Common Stock
obtainable upon the exercise of the Warrant. In any such case, appropriate
adjustment will be made in the application of the provisions set forth herein
with respect to the rights and interest thereafter of the Warrantholder, to
the end that the provisions set forth herein will thereafter be applicable,
as nearly as reasonably may be, in relation to any shares of stock or other
property thereafter deliverable upon the exercise of the Warrant. The
Company will not permit any change in its capital structure to occur unless
the issuer of the shares of stock or other securities to be received by the
holder of this Warrant Certificate, if not the Company, agrees to be bound by
and comply with the provisions of this Warrant Certificate.
(c) When any adjustment is required to be made in the number of
shares of Common Stock, other securities, or the property purchasable upon
exercise of the Warrant, the Company will promptly determine the new number of
such shares or other securities or property
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purchasable upon exercise of the Warrant and (i) prepare and retain on file a
statement describing in reasonable detail the method used in arriving at the
new number of such shares or other securities or property purchasable upon
exercise of the Warrant and (ii) cause a copy of such statement to be mailed
to the Warrantholder within thirty (30) days after the date of the event
giving rise to the adjustment.
(d) No fractional shares of Common Stock or other securities will
be issued in connection with the exercise of the Warrant, but the Company
will pay, in lieu of fractional shares, a cash payment therefor on the basis
of the mean between the bid and asked prices of the Common Stock in the
over-the-counter market or the last sale price of the Common Stock on the
Nasdaq SmallCap Market or a national securities exchange on the day
immediately prior to exercise.
(e) If securities of the Company or securities of any subsidiary
of the Company are distributed pro rata to holders of Common Stock, such
number of securities will be distributed to the Warrantholder or his assignee
upon exercise of his rights hereunder as such Warrantholder or assignee would
have been entitled to if this Warrant Certificate had been exercised prior to
the record date for such distribution. The provisions with respect to
adjustment of the Common Stock provided in this Section 3 will also apply to
the securities to which the Warrantholder or his assignee is entitled under
this subsection 3 (e).
(f) Notwithstanding anything herein to the contrary, there will be
no adjustment made hereunder on account of the sale by the Company of the
Common Stock or other Securities purchasable upon exercise of the Warrant.
4. RESERVATION OF SECURITIES. The Company agrees that the number of
shares of Common Stock, Unit Warrants or other Securities sufficient to provide
for the exercise of the Warrant upon the basis set forth above will at all times
during the term of the Warrant be reserved for issuance upon exercise of the
Warrant.
5. VALIDITY OF SECURITIES. All Securities delivered upon the exercise of
the Warrant will be duly and validly issued in accordance with their terms, and
the Company will pay all documentary and transfer taxes, if any, in respect of
the original issuance thereof upon exercise of the Warrant.
6. REGISTRATION OF SECURITIES ISSUABLE ON EXERCISE OF WARRANT
CERTIFICATE.
(a) The Company will register the Securities with the Commission
pursuant to the Act so as to allow the unrestricted sale of the Securities to
the public from time to time commencing on the first anniversary of the
Effective Date and ending at 5:00 p.m. (Pacific Time) on the fifth anniversary
of the Effective Date (the "Registration Period"). The Company will also file
such applications and other documents necessary to permit the sale of the
Securities to the public during the Registration Period in those states
designated by the Warrantholders among those in which the Units were qualified
for sale in the Offering or in such other states as the Company and the
Warrantholder agree to. In order to comply with the provisions of this Section
6(a), the Company is not required to file more than one registration statement
in addition to the Registration Statement.
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(b) The Company will pay all of the Company's Expenses and each
Warrantholder will pay its pro rata share of the Warrantholder's Expenses
relating to the registration, offer and sale of the Securities.
(c) Except as specifically provided herein, the manner and conduct
of the registration, including the contents of the registration statement,
will be entirely in the control and at the discretion of the Company. The
Company will file such post-effective amendments and supplements as may be
necessary to maintain the currency of the registration statement during the
Registration Period. In addition, if the Warrantholder participating in the
registration is advised by counsel that the registration statement, in their
opinion, is deficient in any material respect, the Company will use its best
efforts to cause the registration statement to be amended to eliminate the
concerns raised.
(d) The Company will furnish to the Warrantholder the number of
copies of a prospectus, including a preliminary prospectus, in conformity
with the requirements of the Act, and such other documents as it may
reasonably request in order to facilitate the disposition of Securities owned
by it.
(e) The Company will, at the request of Warrantholders holding at
least 50 percent of the then outstanding Warrants, (i) furnish an opinion of
the counsel representing the Company for the purposes of the registration
pursuant to this Section 6, addressed to the Warrantholders and any
Participating Underwriter, (ii) in the event of an underwritten offering,
furnish an appropriate letter from the independent public accountants of the
Company, addressed to the Warrantholders and any Participating Underwriter,
and (iii) make such representations and warranties to the Warrantholders and
any Participating Underwriter as are customarily given to underwriters of
public offerings of equity securities in connection with such offerings. A
request pursuant to this subsection (e) may be made on three occasions. The
documents required to be delivered pursuant to this subsection (e) will be
dated within ten days of the request and will be, in form and substance,
equivalent to similar documents furnished to the underwriters in connection
with the Offering, with such changes as may be appropriate in light of
changed circumstances.
7. INDEMNIFICATION IN CONNECTION WITH REGISTRATION.
(a) If any of the Securities are registered, the Company will
indemnify and hold harmless each selling Warrantholder, any person who
controls any selling Warrantholder within the meaning of the Act, and any
Participating Underwriter against any losses, claims, damages, or
liabilities, joint or several, to which any Warrantholder, controlling
person, or Participating Underwriter may be subject under the Act or
otherwise; and it will reimburse each Warrantholder, each controlling person,
and each Participating Underwriter for any legal or other expenses reasonably
incurred by the Warrantholder, controlling person, or Participating
Underwriter in connection with investigating or defending any such loss,
claim, damage, liability or action, insofar as such losses, claims, damages,
or liabilities, joint or several (or actions in respect thereof), arise out
of or are based upon any untrue statement or alleged untrue statement of any
material fact contained, on the effective date thereof, in any such
registration statement or any preliminary prospectus or final prospectus, or
any amendment or supplement thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated
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therein or necessary to make the statements therein not misleading; PROVIDED,
HOWEVER, that the Company will not be liable in any case to the extent that
any loss, claim, damage, or liability arises out of or is based upon any
untrue statement or alleged untrue statement or omission or alleged omission
made in any registration statement, preliminary prospectus, final prospectus,
or any amendment or supplement thereto, in reliance upon and in conformity
with written information furnished by a Warrantholder for use in the
preparation thereof. The indemnity agreement contained in this subsection
will not apply to amounts paid to any claimant in settlement of any suit or
claim unless such payment is first approved by the Company, such approval not
to be unreasonably withheld.
(b) Each selling Warrantholder, as a condition of the Company's
registration obligation, will indemnify and hold harmless the Company, each
of its directors, each of its officers who have signed any registration
statement or other filing, or any amendment or supplement thereto, and any
person who controls the Company within the meaning of the Act, against any
losses, claims, damages, or liabilities to which the Company or any such
director, officer, or controlling person may become subject under the Act or
otherwise, and will reimburse any legal or other expenses reasonably incurred
by the Company or any such director, officer, or controlling person in
connection with investigating or defending any such loss, claim, damage,
liability, or action, insofar as such losses, claims, damages, or liabilities
(or actions in respect thereof) arise out of or are based upon any untrue or
alleged untrue statement of any material fact contained in said registration
statement, any preliminary or final prospectus, or other filing or any
amendment or supplement thereto, or arise out of or are based upon the
omission or the alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading,
but only to the extent that such untrue statement or alleged untrue statement
or omission or alleged omission was made in said registration statement,
preliminary or final prospectus, or other filing, or amendment or supplement,
in reliance upon and in conformity with written information furnished by such
Warrantholder for use in the preparation thereof; PROVIDED, HOWEVER, that the
indemnity agreement contained in this subsection (b) will not apply to
amounts paid to any claimant in settlement of any suit or claim unless such
payment is first approved by the Warrantholder, such approval not to be
unreasonably withheld.
(c) Promptly after receipt by an indemnified party under
subsection (a) or (b) above of notice of the commencement of any action, such
indemnified party will, if a claim in respect thereof is to be made against
an indemnifying party, notify the indemnifying party of the commencement
thereof; but the omission to notify the indemnifying party will not relieve
it from any liability that it may have to any indemnified party otherwise
than under subsections (a) and (b).
(d) If any such action is brought against any indemnified party
and it notifies an indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in, and, to the extent
that it may wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with counsel satisfactory to such
indemnified party; and after notice from the indemnifying party to such
indemnified party of its election to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party for any legal
or other expenses subsequently incurred by such indemnified party in
connection with the defense thereof other than reasonable costs of
investigation.
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8. RESTRICTIONS ON TRANSFER. This Warrant Certificate and the Warrant
may not be sold, transferred, assigned or hypothecated for a one-year period
after the Effective Date except to underwriters of the Offering or to
individuals who are either a partner or an officer of such an underwriter or by
will or by operation of law. The Warrant may be divided or combined, upon
request to the Company by the Warrantholder, into a certificate or certificates
evidencing the same aggregate number of Warrants.
9. NO RIGHTS AS A SHAREHOLDER. Except as otherwise provided herein, the
Warrantholder will not, by virtue of ownership of the Warrant, be entitled to
any rights of a shareholder of the Company but will, upon written request to the
Company, be entitled to receive such quarterly or annual reports as the Company
distributes to its shareholders.
10. OPTIONAL CONVERSION.
(a) In addition to and without limiting the right of any Warrantholder
under the terms of this Warrant, the Warrantholder shall have the right (the
"Conversion Right") to convert this Warrant or any portion thereof into
Securities as provided in this Section 10 at any time or from time-to-time after
the first anniversary of the date hereof and prior to its expiration. Upon
exercise of the Conversion Right with respect to a particular number of Units
subject to this Warrant (the "Converted Securities"), the Company shall deliver
to the holder of this Warrant, without payment by the holder of any exercise
price or any cash or other consideration, that number of Units equal to the
quotient obtained by dividing the Net Value (as hereinafter defined) of the
Converted Securities by the sum of the fair market value (as defined in
paragraph (c) below) of a single share of Common Stock plus a single Unit
Warrant, determined in each case as of the close of business on the Conversion
Date (as hereinafter defined). The "Net Value" of the Converted Securities
shall be determined by subtracting the aggregate Exercise Price of the Converted
Securities from the aggregate fair market value of the Converted Securities.
Notwithstanding anything in this Section 10 to the contrary, the Conversion
Right cannot be exercised with respect to a number of Converted Securities
having a Net Value below $100. No fractional shares shall be issuable upon
exercise of the Conversion Right, and if the number of shares to be issued in
accordance with the foregoing formula is other than a whole number, the Company
shall pay to the holder of this Warrant an amount in cash equal to the fair
market value of the resulting fractional share.
(b) The Conversion Right may be exercised by the holder of this Warrant
by the surrender of this Warrant at the principal office of the Company
together with a written statement specifying that the holder thereby intends
to exercise the Conversion Right and indicating the number of Securities
subject to this Warrant which are being surrendered (referred to in paragraph
(a) above as the Converted Securities) in exercise of the Conversion Right.
Such conversion shall be effective upon receipt by the Company of this
Warrant together with the aforesaid written statement, or on such later date
as is specified therein (the "Conversion Date"), but not later than the
expiration date of this Warrant. Certificates for the shares of Common Stock
and Unit Warrants issuable upon exercise of the Conversion Right, together
with a check in payment of any fractional share and, in the case of a partial
exercise, a new Warrant evidencing the Securities remaining subject to this
Warrant, shall be issued as of the Conversion Date, and shall be delivered to
the holder of this Warrant within seven days following the Conversion Date.
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(c) For purposes of this Section 10, the "fair market value" of a share
of Common Stock or Unit Warrant as of a particular date shall be the mean
between the bid and asked price of the Common Stock or Unit Warrant, as the
case may be, as quoted in the over the counter market, or, if applicable, the
closing sale price of the Common Stock or Unit Warrant, as the case may be,
on the Nasdaq Stock Market or a national exchange.
11. NOTICE. Any notices required or permitted to be given hereunder
will be in writing and may be served personally or by mail addressed as
follows:
If to the Company:
10833 Thornmint Road
San Diego, California 92127
Attn: President
If to the Warrantholder:
at the address furnished
by the Warrantholder to the
Company for the purpose of
notice.
Any notice so given by mail will be deemed effectively given 48 hours after
mailing when deposited in the United States mail, registered or certified mail,
return receipt requested, postage prepaid and addressed as specified above. Any
party may by written notice to the other specify a different address for notice
purposes.
12. APPLICABLE LAW. This Warrant Certificate will be governed by and
construed in accordance with the laws of the State of Oregon, without reference
to conflict of laws principles thereunder. All disputes relating to this
Warrant Certificate shall be tried before the courts of Oregon located in
Multnomah County, Oregon, to the exclusion of all other courts that might have
jurisdiction.
Dated as of _______ ___, 2000.
IMAGEWARE SYSTEMS, INC.
By:________________________________
________________________________
Agreed and Accepted as of ________ ___, 2000
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PAULSON INVESTMENT COMPANY, INC.
By:_______________________________
_______________________________
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