Document:

pbal_ex10x2.htm

    EXHIBIT
10.2

     

     

     

     

    LOAN
AGREEMENT

     

    Dated as
of January 15, 2010

     

    by and
between

     

    JAMES
SIMPSON FOUNDATION,

    A
CALIFORNIA NON PROFIT CORPORATION

    

    as
Lender

     

    and

     

    PEPPERBALL
TECHNOLOGIES, INC.

    as
Borrower

     

    TOTAL
CREDIT AMOUNT:  $200,000

     

    
      	
              Maturity
      Date:

            	
              December
      10, 2010

            
	
              Formula:

            	
              As
      set forth in Agreement

            
	
              Interest:

            	
              15%
      per annum, fixed

            

    

    

    The
information set forth above is subject to the terms and conditions set forth in
the balance of this Agreement.  The parties agree as
follows:

     

     

     

     

     

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    1.  Closing;
Payments.

     

    (a)  Closing.  Upon the
execution of this Loan Agreement Lender shall deliver to Borrower $200,000
(sometimes referred to as “Credit Facility”)

     

    (b)  Interest.  The Credit Facility shall
be interest-only through February 28, 2010, amortizing thereafter at $8,000 per
month (in addition to the monthly interest payments) for the first month, then
$16,000 per month thereafter through Maturity (See Amortization and Fee Payment
Schedule below).

     

    (c)  Maturity
Date.   All amounts outstanding hereunder are due and
payable on December 10, 2010.

     

    (d)  Amortization of
Principal.  The amortization of principal associated with this
Credit Facility shall be made as follows:

    
       

      
        	Month	 	Amortization of
      Principal	 
	 	 	 	 
	March 31	 	$  8,000  
      	 
	April 30	 	16,000	 
	May 31	 	16,000	 
	June 30	 	16,000	 
	July 31	 	16,000	 
	August 31	 	16,000	 
	September
    30	 	16,000	 
	October 31	 	16,000	 
	November
30	 	16,000	 

      

    

    

    

     

    (e)  Late Payment.  If
any payment of interest or any other amount owing to Lender is not made within
ten (10) days after the due date, Borrower shall pay Lender a late payment fee
equal to the greater of $500 or 10% of the amount of such late
payment.  The terms of this paragraph shall not be construed as
Lender’s consent to Borrower’s failure to pay any amounts in strict accordance
with this Agreement, and Lender’s charging any such fees and/or acceptance of
any such payments shall not restrict Lender’s exercise of any remedies arising
out of any such failure.

     

    2.  Security
Interest.  As security for all present and future indebtedness,
guarantees, liabilities, and other obligations of Borrower to Lender under this
Agreement, including all fees specified in Section 1 (collectively, the
“Obligations”), Borrower grants Lender a security interest in all of Borrower’s
personal property, whether now owned or hereafter acquired, including without
limitation all of the following:  all accounts, cash, patents,
copyrights, trademarks, goodwill, general intangibles, chattel paper, documents,
letters of credit, instruments, deposit accounts, investment property,
inventory, fixtures and equipment, as such terms are defined in Division 9
of the Uniform Commercial Code in effect on the date hereof, and all products,
proceeds and insurance proceeds of the foregoing, but excluding any equipment
subject to existing equipment leases or motor vehicle leases or equipment lines
of credit in place prior to the date hereof and such other equipment or motor
vehicles acquired hereafter under such facilities (collectively, the
“Collateral”).  Borrower authorizes Lender to execute such documents
and take such actions as Lender reasonably deems appropriate from time to time
to perfect or continue the security interest granted
hereunder.  Borrower shall enter into such deposit account control
agreements, and shall take such other steps as Lender may reasonably request, to
perfect or assure the first priority of the security interest granted
hereunder.

     

     

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    3.  Representations and
Warranties.  Borrower represents to Lender as follows (which
shall be deemed continuing throughout the term of this Agreement):

     

    (a)  Authorization.  Borrower
is and will continue to be, duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation, and Borrower
is and will continue to be qualified and licensed to do business in all
jurisdictions in which it is required to do so; the execution, delivery and
performance by Borrower of this Agreement, and all other documents contemplated
hereby have been duly and validly authorized by all necessary corporate action,
and do not violate Borrower’s Certificate of Incorporation or by-laws, or any
law or any material agreement or instrument which is binding upon Borrower or
its property.  Except as disclosed on Exhibit A, Borrower has no
wholly owned or partially owned subsidiaries and is not a partner or joint
venturer in any partnership or joint venture.

     

    (b)  State of Incorporation; Places of
Business; Locations of Collateral.  Borrower is a corporation
incorporated and in good standing under the laws of the State of
Colorado.  The address set forth in this Agreement under Borrower’s
signature is Borrower’s chief executive office.

     

    (c)  Title to Collateral; Permitted
Liens.  Borrower is now, and will at all times in the future
be, the sole owner of all the Collateral, except for items of Equipment that are
leased by Borrower.  The Collateral now is and will remain free and
clear of any and all liens, security interests, encumbrances and adverse claims,
except for (i) purchase money security interests in specific items of
Equipment; (ii) leases of specific items of Equipment; (iii) liens for
taxes, fees, assessments or other governmental charges or levies, either not
delinquent or being contested in good faith by appropriate proceedings, provided
the same have no priority over any of Lender’s security interests; and
(iv) liens of materialmen, mechanics, warehousemen, carriers, or other
similar liens arising in the ordinary course of business and securing
obligations that are not delinquent.

     

    (d)  Tax Returns and
Payments.  Borrower has timely filed, and will timely file, all
tax returns and reports required by applicable law, and Borrower has timely
paid, and will timely pay, all applicable taxes, assessments, deposits and
contributions now or in the future owed by Borrower.

     

    (e)  Compliance with
Law.  Borrower has complied, and will comply, in all material
respects, with all provisions of all applicable laws and
regulations.

     

    (f)  Information.  All
information provided to Lender by or on behalf of Borrower on or prior to the
date of this Agreement is true and correct in all material respects, and no
representation or other statement made by Borrower to Lender contains any untrue
statement of a material fact or omits to state a material fact necessary to make
any statements made to Lender not misleading at the time made.

     

     

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    (g)   Litigation.  Except
as disclosed on Exhibit
A, there is no claim or litigation pending or (to best of Borrower’s
knowledge) threatened against Borrower.  Borrower will promptly inform
Lender in writing of any claim or litigation in the future which, either
separately or in the aggregate, involve a claim in excess of
$200,000.

     

    (h)   Subsidiaries.  Except
as disclosed on Exhibit
A, Borrower has no wholly-owned or partially owned subsidiaries and Exhibit A sets forth all
Advances by Borrower to, and all investments by Borrower in, any person, entity,
corporation partnership or joint venture.

     

    (i)   Deposit and Investment
Accounts.  Borrower maintains only the operating, savings,
deposit, securities and investment accounts listed on Exhibit A.

     

    4.  Covenants.

     

    (a)   Insurance.  Borrower
will maintain insurance on the Collateral and Borrower’s business, in amounts
and of a type that are customary to businesses similar to Borrower’s, and Lender
will be named in a loss payable endorsement in favor of Lender, in form
reasonably acceptable to Lender.

     

    (b)           Negative
Covenants.  Without Lender’s prior written consent, Borrower
shall not do any of the following:  (i) permit or suffer an
acquisition of all or substantially all of Borrower’s assets other than an
acquisition, the terms of which provide for immediate payment of all amounts
outstanding under this Agreement; (ii) acquire any assets outside the
ordinary course of business; (iii)  sell, lease, encumber, license or
transfer any Collateral except for sales in the ordinary course of business (in
which case Lender retains its security interest in the proceeds of such
disposition); (iv) pay or declare any dividends on Borrower’s stock;
(v) redeem, purchase or otherwise acquire, any of Borrower’s stock;
(vi) make any investments in, or Advances or advances to, any person,
including without limitation any investments in, or downstreaming of funds to,
any subsidiary or affiliate of Borrower, except in the ordinary course of
business as conducted on the date hereof; or (vii)  incur any indebtedness
outside the ordinary course of business, other than debt of up to $1,000,000
subordinated on terms reasonably acceptable to Lender, or make any payment on
any of Borrower’s indebtedness that is subordinate to the Obligations, other
than regularly scheduled interest payments for so long as an Event of Default is
not continuing.

     

    (c)           Board
Materials.  Borrower shall give Lender copies of all notices,
minutes, consents and other materials that Borrower provides to its directors in
connection with such meetings at the same time and in the same manner as it
gives to its directors.

     

    5.           Events of
Default.  Prior to Full Repayment, any one or more of the
following shall constitute an Event of Default under this
Agreement:

     

    (a)           Borrower
shall fail to pay any principal of or interest on any Advances or any other
monetary Obligations within ten (10) days of when due; or

     

    (b)   Borrower
shall fail to comply with any other provision of this Agreement, which failure
is not cured within ten (10) days after the sooner of (i) the date that Borrower
has knowledge of
that failure or (ii) Borrower’s receipt of notice from Lender; or

     

     

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    (c)   Any
warranty, representation, statement, report or certificate made or delivered to
Lender by Borrower or on Borrower’s behalf shall be untrue or misleading in a
material respect as of the date given or made, or shall become untrue or
misleading in a material respect after the date hereof which cannot be corrected
after notice to the satisfaction of Lender, acting reasonably; or

     

    (d)   A default
or event of default shall occur under any agreement to which Borrower is a party
or by which it is bound (i) resulting in a right by the other party or parties,
whether or not exercised, to accelerate the maturity of any indebtedness or (ii)
that could have a Material Adverse Effect, as defined below; or

     

    (e)   Dissolution,
termination of existence of Borrower; the occurrence of a Dissolution Event; or
appointment of a receiver, trustee or custodian, for all or any material part of
the property of, assignment for the benefit of creditors by, or the commencement
of any proceeding by or against Borrower under any reorganization, bankruptcy,
insolvency, arrangement, readjustment of debt, dissolution or liquidation law or
statute of any jurisdiction, now or in the future in effect (except that, in the
case of a proceeding commenced against Borrower, Borrower shall have sixty
(60) days after the date such proceeding was commenced to have it
dismissed, provided Lender shall have no obligation to make any Advances during
such period); or

     

    (f)   The
occurrence of a “Material Adverse Effect”, which shall mean (i) a material
adverse change in the business, prospects, operations, results of operations,
assets, liabilities or financial or other condition of Borrower, (ii) the
impairment of Borrower’s ability to perform its Obligations or of Lender’s
ability to enforce the Obligations or realize upon the Collateral, or
(iii) a material adverse change in the value of the
Collateral.

     

    6.   Remedies.

     

    (a)   Remedies.  Upon the
occurrence and during the continuance of any Event of Default (after giving
effect to the right to cure, if any, provided in Section 5), Lender, at its
option, may do any one or more of the following:  (a) Accelerate
and declare the Obligations to be immediately due, payable, and performable;
(b) Take possession of any or all of the Collateral wherever it may be
found, and for that purpose Borrower hereby authorizes Lender to enter
Borrower’s premises without interference to search for, take possession of,
keep, store, or remove any of the Collateral, and remain on the premises or
cause a custodian to remain on the premises in exclusive control thereof,
without charge by Borrower for so long as Lender reasonably deems it necessary
in order to complete the enforcement of its rights under this Agreement or any
other agreement; provided, however, that should Lender seek to take possession
of any of the Collateral by Court process, Borrower hereby
waives:  (i) any bond and any surety or security relating
thereto; (ii) any demand for possession prior to the commencement of any
suit or action to recover possession thereof; and (iii) any requirement
that Lender retain possession of, and not dispose of, any such Collateral until
after trial or final judgment; (c) Require Borrower to assemble any or all
of the Collateral and make it available to Lender at places designated by
Lender; (d) Complete the processing of any Collateral prior to a
disposition thereof and, for such purpose and for the purpose of removal, Lender
shall have the right to use Borrower’s premises, equipment and all other
property without charge by Borrower; (e) Collect and dispose of and realize
upon any investment property, including withdrawal of any and all funds from any
deposit or securities accounts; (f) Dispose of any of the Collateral, at
one or more public or private sales, in lots or in bulk, for cash, exchange or
other property, or on credit, and to adjourn any such sale from time to time
without notice other than oral announcement at the time scheduled for sale; and
(g) Demand payment of, and collect any accounts, general intangibles or
other Collateral and, in connection therewith, Borrower irrevocably authorizes
Lender to endorse or sign Borrower’s name on all collections, receipts,
instruments and other documents, and, in Lender’s good faith business judgment,
to grant extensions of time to pay, compromise claims and settle accounts,
general intangibles and the like for less than face value; Borrower grants
Lender a license, exercisable from and after an Event of Default has occurred,
to use and copy any trademarks, service marks and other intellectual property in
which Borrower has an interest to effect any of the foregoing
remedies.  All reasonable attorneys’ fees, expenses, costs,
liabilities and obligations incurred by Lender with respect to the foregoing
shall be added to and become part of the Obligations, and shall be due on
demand.

     

     

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    (b)   Application of
Proceeds.  All proceeds realized as the result of any sale or
other disposition of the Collateral shall be applied by Lender first to the
reasonable costs, expenses, liabilities, obligations and attorneys’ fees
incurred by Lender in the exercise of its rights under this Agreement, second to
any fees and Obligations other than interest and principal, third to the
interest due upon any of the Obligations, and fourth to the principal of the
Obligations, in such order as Lender shall determine in its sole
discretion.  Any surplus shall be paid to Borrower or other persons
legally entitled thereto; Borrower shall remain liable to Lender for any
deficiency.

     

    (c)   Remedies
Cumulative.  In addition to the rights and remedies set forth
in this Agreement, Lender shall have all the other rights and remedies accorded
a secured party under the California Uniform Commercial Code and under all other
applicable laws, and under any other instrument or agreement now or in the
future entered into between Lender and Borrower, and all of such rights and
remedies are cumulative and none is exclusive.  Exercise or partial
exercise by Lender of one or more of its rights or remedies shall not be deemed
an election, nor bar Lender from subsequent exercise or partial exercise of any
other rights or remedies.  The failure or delay of Lender to exercise
any rights or remedies shall not operate as a waiver thereof, but all rights and
remedies shall continue in full force and effect until all of the Obligations
have been fully paid and performed.

     

    (d)   Power of
Attorney.  After the occurrence and during the continuance of
an Event of Default (after giving effect to the right to cure, if any, provided
in Section 5), Borrower irrevocably appoints Lender (and any of Lender’s
designated employees or agents) as Borrower’s true and lawful attorney in fact
to:  endorse Borrower’s name on any checks or other forms of payment;
make, settle and adjust all claims under and decisions with respect to
Borrower’s policies of insurance; settle and adjust disputes and claims
respecting accounts, general intangibles and other Collateral; execute and
deliver all notices, instruments and agreements in connection with the
perfection of the security interest granted in this Agreement; sell, lease or
otherwise dispose of all or any part of the Collateral; and take any other
action or sign any other documents required to be taken or signed by Borrower,
or reasonably necessary to enforce Lender’s rights or remedies or otherwise
carry out the purposes of this Agreement.  The appointment of Lender
as Borrower’s attorney in fact, and each of Lender’s rights and powers, being
coupled with an interest, are irrevocable until all Obligations owing to Lender
have been paid and performed in full.

     

     

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    (e)           Loan Default.  In
the event of a default, the interest rate will increase to 18% until the default
is cured, and a default fee of $4,000 will be charged per month up to a
cumulative total of 25% of any amounts due.

     

    7.   Triggering
Event.  Prior to Full Repayment (defined below), the occurrence
of any one or more of the following shall constitute a “Triggering
Event”:  (i) the sale, lease, license, exchange or similar
transaction involving all or substantially all of the assets of Borrower in one
or more transactions, (ii) the closing of a recapitalization,
reorganization, merger, consolidation or other transaction or transactions of
Borrower, (iii) any action (voluntary or involuntary) to liquidate,
dissolve and/or wind down the business of Borrower, (iv) the sale of any
division or business unit of Borrower in one or more transactions in which the
gross proceeds are at least $500,000 (or to the extent Borrower receives
consideration other than cash, any such transaction in which Borrower is deemed
to have received value in the form of cash, marketable securities, assets or
other consideration or any combination thereof of at least $500,000) and (v) the
incurrence of any debt other than debt of up to $1,000,000 subordinated on terms
reasonably acceptable to Lender.

     

    If a
Triggering Event (or any part or element thereof) shall occur before all amounts
owing Lender under this Agreement have been indefeasibly paid in full (“Full
Repayment”), upon the occurrence, and as part of the consummation, of such
Triggering Event, Lender shall be entitled to one hundred percent (100%) of the
proceeds of the sale of assets in an orderly liquidation of Borrower’s
assets  until such time as all amounts owing to Lender have been
repaid in full (including, without limitation, all accrued interest due thereon,
fees and other costs payable to Lender).  If the consideration payable
to Borrower in connection with such transaction(s) is other than cash in an
amount sufficient to satisfy the Full Repayment, Lender shall be entitled to
receive, in addition to such cash (or, upon mutual agreement, unrestricted,
publicly tradable marketable securities, provided such securities are traded on
a major public exchange and in regular daily volume sufficient to allow the
immediate liquidated thereof without negatively impacting the value of such
securities), the cash proceeds received by Borrower upon the sale of such
non-cash consideration until Full Repayment.  If Lender elects to
receive such unrestricted, publicly tradable marketable securities, Lender shall
credit the then outstanding balance hereunder with the fair market value of such
securities (based upon the average closing price per share for the five (5)
trading day period immediately preceding the date Lender receives such
unrestricted marketable securities).  If Borrower receives non-cash
consideration in connection with such transaction, Borrower shall sell, as soon
as reasonably practical, such non-cash consideration in a commercially
reasonable manner in order to maximize the proceeds of such sale.

     

    8.   Waivers.  The
failure of Lender at any time or times to require Borrower to strictly comply
with any of the provisions of this Agreement or any other present or future
agreement between Borrower and Lender shall not waive or diminish any right of
Lender later to demand and receive strict compliance therewith.  Any
waiver of any default shall not waive or affect any other default, whether prior
or subsequent, and whether or not similar.  None of the provisions of
this Agreement or any other agreement shall be deemed to have been waived except
by a specific written waiver signed by an authorized officer of
Lender.  Borrower waives demand, protest, notice of protest and notice
of default or dishonor, notice of payment and nonpayment, release, compromise,
settlement, extension or renewal of any commercial paper, instrument, account,
general intangible, document or guaranty at any time held by Lender on which
Borrower is or may in any way be liable, and notice of any action taken by
Lender, unless expressly required by this Agreement.

     

     

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    9.   Governing Law; Jurisdiction;
Venue.  This Agreement and all acts and transactions hereunder
and all rights and obligations of Lender and Borrower shall be governed by the
internal laws (and not the conflict of laws rules) of the State of
California.  As a material part of the consideration to Lender to
enter into this Agreement, Borrower agrees that all actions and proceedings
relating directly or indirectly to this Agreement shall be litigated in courts
located within California, and that the exclusive venue therefor shall be San
Diego County.

     

    10.   MUTUAL
WAIVER OF JURY TRIAL.  BORROWER AND LENDER EACH WAIVE THE RIGHT TO
TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF, OR IN ANY
WAY RELATING TO, THIS AGREEMENT OR ANY OTHER PRESENT OR FUTURE INSTRUMENT OR
AGREEMENT BETWEEN LENDER AND BORROWER, OR ANY CONDUCT, ACTS OR OMISSIONS OF
LENDER OR BORROWER OR ANY OF THEIR DIRECTORS, OFFICERS, EMPLOYEES, AGENTS,
ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH LENDER OR BORROWER, IN ALL OF THE
FOREGOING CASES, WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE. IF THIS JURY
WAIVER IS FOR ANY REASON UNENFORCEABLE, THE PARTIES AGREE TO RESOLVE ALL CLAIMS,
CAUSES AND DISPUTES THROUGH FINAL AND BINDING ARBITRATION TO BE HELD IN SAN
DIEGO COUNTY IN ACCORDANCE WITH THEN-CURRENT COMMERCIAL ARBITRATION RULES OF THE
AMERICAN ARBITRATION ASSOCIATION.  JUDGMENT UPON ANY AWARD RESULTING
FROM ARBITRATION MAY BE ENTERED INTO AND ENFORCED BY ANY STATE OR FEDERAL COURT
HAVING JURISDICTION THEREOF.

     

    11.   General.  This
Agreement and such other written agreements, documents and instruments as may be
executed in connection herewith are the final, entire and complete agreement
between Borrower and Lender and supersede all prior and contemporaneous
negotiations and oral representations and agreements, all of which are merged
and integrated in this Agreement.  There are no oral understandings,
representations or agreements between the parties which are not set forth in
this Agreement or in other written agreements signed by the parties in
connection herewith.  The terms and provisions of this Agreement may
not be waived or amended, except in a writing executed by Borrower and a duly
authorized officer of Lender.  Lender may assign all or any part of
its interest in this Agreement and the Obligations to any person or entity, or
grant a participation in, or security interest in, any interest in this
Agreement, with notice to, but without consent of, Borrower.  Borrower
may not assign any rights under or interest in this Agreement without Lender’s
prior written consent.  This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which shall
constitute one agreement.

     

     

     

     

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    
      	
              JAMES
      SIMPSON FOUNDATION, A CALIFORNIA NON PROFIT CORPORATION

            	
              PEPPERBALL
      TECHNOLOGIES, INC.

            
	
              By:  /s/ James A. Simpson

            	
              By:  /s/ Christin Lewis

            
	
              Title:  Manager

            	
              Title:  Asst. Secretary

            
	 
      	 
      
	
              Address
      for notices:

            	
              Address
      for notices:

            
	
              James
      Simpson Foundation, a California Non Profit Corporation

              P.O.
      Box 2227

              Rancho
      Santa Fe, CA   92067

            	
              PepperBall
      Technologies, Inc.

              6142
      Nancy Ridge Dr., Suite 101

              San
      Diego, CA  92121

              Attn:  John
      C. Stiska, Chief Executive Officer

              Fax:  858-638-0781pbal_ex10x3.htm

    EXHIBIT
10.3

    

    THIS
WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE
TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF OR IN ACCORDANCE WITH
APPLICABLE LAW.

     

    WARRANT
TO PURCHASE STOCK

     

    
      	Corporation:  	PEPPERBALL
      TECHNOLOGIES, INC.
	Number of
      Shares: 	$150,000/Warrant
      Price
	Class of
      Stock:	Common
	Initial Exercise
      Price:  	See
  below
	Issue
Date:	January 15,
      2010
	Expiration
      Date:	December 10,
      2016

    

     

    THIS
WARRANT CERTIFIES THAT, in consideration of the payment of $1.00 and for other
good and valuable consideration, J.A.& G.L. SIMPSON TRUST, DTD MAY 18, 1988,
A CALIFORNIA TRUST or registered assignee (“Holder”) is entitled to purchase the
number of fully paid and nonassessable shares (the “Shares”) of Common Stock of
PEPPERBALL TECHNOLOGIES, INC. (the “Company”), in the number, at the price, and
for the term specified above.  The exercise price per share (the
“Warrant Price”) is equal to the lowest of (i) $0.10 or (ii) the price at which
the Company sells or issues its Common Stock after the Issue Date in a
transaction or series of transactions in which the Company or any of its
subsidiaries receives at least $500,000.  This Warrant and the Warrant
Shares shall not be subject to any agreements entered into between the Company
and any person or entity that has the effect of reducing the number of Shares
that Holder may acquire hereunder.

     

    ARTICLE
1. 
EXERCISE

     

    1.1  Method of
Exercise.  Holder may exercise this Warrant by delivering this
Warrant and a duly executed Notice of Exercise in substantially the form
attached as Appendix 1 to the principal office of the
Company.  Unless Holder is exercising the conversion right set forth
in Section 1.2, Holder shall also deliver to the Company a check for the
aggregate Warrant Price for the Shares being purchased.

     

    1.2  Conversion
Right.  In lieu of exercising this Warrant as specified in
Section 1.1, Holder may from time to time convert this Warrant, in whole or
in part, into a number of Shares determined by dividing (a) the aggregate
fair market value of the Shares or other securities otherwise issuable upon
exercise of this Warrant minus the aggregate Warrant Price of such Shares by
(b) the fair market value of one Share.  The fair market value of
the Shares shall be determined pursuant to Section 1.3.

     

    1.3  Fair Market
Value.  If the Shares are traded regularly in a public market,
the fair market value of the Shares shall be the average closing price of the
Shares (or the closing price of the Company’s stock into which the Shares are
convertible) reported for the ten (10) business day immediately before Holder
delivers its Notice of Exercise to the Company.  If the Shares are not
regularly traded in a public market, the Board of Directors of the Company shall
determine fair market value in its reasonable good faith
judgment.  The foregoing notwithstanding, if Holder advises the Board
of Directors in writing that Holder disagrees with such determination, then the
Company and Holder shall promptly agree upon a reputable investment banking firm
to undertake such valuation.  If the valuation of such investment
banking firm is greater than that determined by the Board of Directors, then all
fees and expenses of such investment banking firm shall be paid by the
Company.  In all other circumstances, such fees and expenses shall be
paid by Holder.

     

    1.4  Delivery of Certificate and
New Warrant.  Promptly after Holder exercises or converts this
Warrant, the Company shall deliver to Holder certificates for the Shares
acquired and, if this Warrant has not been fully exercised or converted and has
not expired, a new Warrant representing the Shares not so acquired.

     

    1.5  Replacement of
Warrants.  On receipt of evidence reasonably satisfactory to
the Company of the loss, theft, destruction or mutilation of this Warrant and,
in the case of loss, theft or destruction, on delivery of an indemnity agreement
reasonably satisfactory in form and amount to the Company or, in the case of
mutilation, or surrender and cancellation of this Warrant, the Company at its
expense shall execute and deliver, in lieu of this Warrant, a new warrant of
like tenor.

     

     

    1

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    ARTICLE
2. 
ADJUSTMENTS TO THE
SHARES.

     

    2.1  Stock Dividends, Splits,
Etc.  If the Company declares or pays a dividend on its common
stock payable in common stock, or other securities, subdivides the outstanding
common stock into a greater amount of common stock, then upon exercise of this
Warrant, for each Share acquired, Holder shall receive, without cost to Holder,
the total number and kind of securities to which Holder would have been entitled
had Holder owned the Shares of record as of the date the dividend or subdivision
occurred.

     

    2.2  Reclassification, Exchange
or Substitution.  Upon any reclassification, exchange,
substitution, or other event that results in a change of the number and/or class
of the securities issuable upon exercise or conversion of this Warrant, Holder
shall be entitled to receive, upon exercise or conversion of this Warrant, the
number and kind of securities and property that Holder would have received for
the Shares if this Warrant had been exercised immediately before such
reclassification, exchange, substitution, or other event.  Such an
event shall include any automatic conversion of the outstanding or issuable
securities of the Company of the same class or series as the Shares to common
stock pursuant to the terms of the Company’s Certificate of Incorporation upon
the closing of a registered public offering of the Company’s common
stock.  Upon the closing of any sale, license, or other disposition of
all or substantially all of the assets (including intellectual property) of the
Company, or any reorganization, consolidation, or merger of the Company where
the holders of the Company’s securities before the transaction beneficially own
less than 50% of the outstanding voting securities of the surviving entity after
the transaction, the successor entity shall assume the obligations of this
Warrant, and this Warrant thereafter shall be exercisable for the same
securities, cash, and property as would be payable for the Shares issuable upon
exercise of the unexercised portion of this Warrant as if such Shares were
outstanding on the record date for the Acquisition and subsequent
closing.  The Warrant Price shall be adjusted
accordingly.  The Company or its successor shall promptly issue to
Holder a new Warrant for such new securities or other property.  The
new Warrant shall provide for adjustments which shall be as nearly equivalent as
may be practicable to the adjustments provided for in this Article 2
including, without limitation, adjustments to the Warrant Price and to the
number of securities or property issuable upon exercise of the new
Warrant.  The provisions of this Section 2.2 shall similarly
apply to successive reclassifications, exchanges, substitutions, or other
events.

     

    2.3  Adjustments for
Combinations, Etc.  If the outstanding Shares are combined or
consolidated, by reclassification or otherwise, into a lesser number of shares,
the Warrant Price shall be proportionately increased.

     

    2.4  Weighted Average
Adjustment.  If the Company issues additional common shares
(including shares of common stock ultimately issuable upon conversion of a
security convertible into common stock) after the date of the Warrant and the
consideration per additional common share is less than the Warrant Price in
effect immediately before such issue shall be reduced, concurrently with such
Issue, to a price determined by multiplying the Warrant Price by a
fraction:

     

    (a)  the
numerator of which is the amount of common stock outstanding immediately before
such Issue plus the amount of common stock that the aggregate consideration
received by the Company for the additional common shares would purchase at the
Warrant Price in effect immediately before such Issue, and

     

    (b)  the
denominator of which is the amount of common stock outstanding immediately
before such issue plus the number of such additional common shares.

     

    Upon each
adjustment of the Warrant Price, the number of Shares issuable upon exercise of
the Warrant shall be increased to equal the quotient obtained by dividing
(a) the product resulting from multiplying (i) the number of Shares
issuable upon exercise of the Warrant and (ii) the Warrant Price, in each
case as in effect immediately before such adjustment, by (b) the adjusted
Warrant Price.

     

    2.5  No
Impairment.  The Company shall not, by amendment of its
Certificate of Incorporation or through a reorganization, transfer of assets,
consolidation, merger, dissolution, issue, or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed under this Warrant by the Company, but
shall at all times in good faith assist in carrying out all the provisions of
this Article 2 and in taking all such action as may be necessary or
appropriate to protect Holder’s rights under this Article against
impairment.  If the Company takes any action affecting the Shares or
its common stock other than as described above that adversely affects Holder’s
rights under this Warrant, the Warrant Price shall be adjusted downward and the
number of Shares issuable upon exercise of this Warrant shall be adjusted upward
in such a manner that the aggregate Warrant Price of this Warrant is
unchanged.

     

    2

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    2.6  Certificate as to
Adjustments.  Upon each adjustment of the Warrant Price, the
Company at its expense shall promptly compute such adjustment, and furnish
Holder with a certificate of its Chief Financial Officer setting forth such
adjustment and the facts upon which such adjustment is based.  The
Company shall, upon written request, furnish Holder a certificate setting forth
the Warrant Price in effect upon the date thereof and the series of adjustments
leading to such Warrant Price.

     

    2.7      Event of Default
Adjustments.  Upon the occurrence of an Event of Default under
the Loan Agreement, Lender may acquire an additional 50,000 Shares of Borrower
for the first 30 day period the Default remains uncured and an additional 75,000
Shares of Borrower for each subsequent 30 day period the Default remains
uncured.

     

    ARTICLE
3. 
REPRESENTATIONS AND
COVENANTS OF THE COMPANY.

     

    3.1  Representations and
Warranties.  The Company hereby represents and warrants to the
Holder as follows:

     

    (a)  The
initial Warrant Price referenced on the first page of this Warrant is not
greater than the fair market value of the Shares as of the date of this
Warrant.

     

    (b)  All
Shares that may be issued upon the exercise of the purchase right represented by
this Warrant, shall, upon issuance, be duly authorized, validly issued, fully
paid and nonassessable, and free of any liens and encumbrances except for
restrictions on transfer provided for herein or under applicable federal and
state securities laws.

     

    (c)  The
capitalization table attached hereto correctly sets forth the authorized, issued
and outstanding shares of capital stock of the Company and all options to
acquire any such shares.

     

    3.2  Notice of Certain
Events.  If the Company proposes at any time (a) to
declare any dividend or distribution upon its common stock, whether in cash,
property, stock, or other securities and whether or not a regular cash dividend;
(b) to offer for subscription pro rata to the holders of any class or
series of its stock any additional shares of stock of any class or series or
other rights; (c) to effect any reclassification or recapitalization of
common stock; (d) to merge or consolidate with or into any other
corporation, or sell, lease, license, or convey all or substantially all of its
assets, or to liquidate, dissolve or wind up; or (e) offer holders of
registration rights the opportunity to participate in an underwritten public
offering of the company’s securities for cash, then, in connection with each
such event, the Company shall give Holder (1) at least 20 days prior
written notice of the date on which a record will be taken for such dividend,
distribution, or subscription rights (and specifying the date on which the
holders of common stock will be entitled thereto) or for determining rights to
vote, if any, in respect of the matters referred to in (a) and (b) above;
(2) in the case of the matters referred to in (c) and (d) above at least
20 days prior written notice of the date when the same will take place (and
specifying the date on which the holders of common stock will be entitled to
exchange their common stock for securities or other property deliverable upon
the occurrence of such event); and (3) in the case of the matter referred
to in (e) above, the same notice as is given to the holders of such registration
rights.

     

    ARTICLE
4. 
MISCELLANEOUS.

     

    4.1  Term.  This
Warrant is exercisable, in whole or in part, at any time and from time to time
on or before the Expiration Date set forth above.

     

     

     

     

    3

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    4.2  Legends.  This
Warrant and the Shares (and the securities issuable, directly or indirectly,
upon conversion of the Shares, if any) shall be imprinted with a legend in
substantially the following form:

     

    THIS
SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE
REGISTRATION THEREOF UNDER SUCH ACT OR IN ACCORDANCE WITH APPLICABLE
LAW.

     

    4.3  Compliance with Securities
Laws on Transfer.  This Warrant and the Shares issuable upon
exercise this Warrant (and the securities issuable, directly or indirectly, upon
conversion of the Shares, if any) may not be transferred or assigned in whole or
in part without compliance with applicable federal and state securities laws by
the transferor and the transferee.

     

    4.4  Transfer
Procedure.  Subject to the provisions of Section 4.3,
Holder may transfer all or part of this Warrant or the Shares issuable upon
exercise of this Warrant (or the securities issuable, directly or indirectly,
upon conversion of the Shares, if any) by giving the Company notice of the
portion of the Warrant being transferred setting forth the name, address and
taxpayer identification number of the transferee and surrendering this Warrant
to the Company for reissuance to the transferee(s) (and Holder, if applicable),
provided that no such notice shall be required for a transfer to an affiliate of
Holder.

     

    4.5  Notices.  All
notices and other communications from the Company to the Holder, or vice versa,
shall be deemed delivered and effective when given personally or mailed by
first-class registered or certified mail, postage prepaid, at such address as
may have been furnished to the Company or the Holder, as the case may be, in
writing by the Company or such Holder from time to time.

     

    4.6  Waiver.  This
Warrant and any term hereof may be changed, waived, discharged or terminated
only by an instrument in writing signed by the party against which enforcement
of such change, waiver, discharge or termination is sought.

     

    4.7  Attorneys’
Fees.  In the event of any dispute between the parties
concerning the terms and provisions of this Warrant, the party prevailing in
such dispute shall be entitled to collect from the other party all costs
incurred in such dispute, including reasonable attorneys’ fees.

     

    4.8  Governing
Law.  This Warrant shall be governed by and construed in
accordance with the laws of the State of California, without giving effect to
its principles regarding conflicts of law.

     

    
      	 
      	 
      	
              PEPPERBALL
      TECHNOLOGIES, INC.

            
	 
      	 
      	 
      
	 
      	 
      	 
      
	 
      	 
      	
              By:
      /s/ Christin Lewis

            
	 
      	 
      	 
      
	 
      	 
      	
              Name:
      Christin Lewis

            
	 
      	 
      	 
      
	 
      	 
      	
              Title:
      Asst. Secretary

            
	 
      	 
      	 
      

    

    

     

     

    4

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    APPENDIX
1

     

    NOTICE OF
EXERCISE

     

    1.           The
undersigned hereby elects to purchase ______________ shares of the Common Stock
of PEPPERBALL TECHNOLOGIES, INC. pursuant to the terms of
the attached Warrant, and tenders herewith payment of the purchase price of such
shares in full.

     

    1.           The
undersigned hereby elects to convert the attached Warrant into Shares in the
manner specified in the Warrant.  This conversion is exercised with
respect to ______________ of the Shares covered by the Warrant.

     

    [Strike
paragraph that does not apply.]

     

    2.           Please
issue a certificate or certificates representing said shares in the name of the
undersigned or in such other name as is specified below:

     

    J.A.&
G.L. Simpson Trust, dtd May 18, 1988, a California Trust

    ____________________

    ____________________

    Or
Registered Assignee

     

    3.           The
undersigned represents it is acquiring the shares solely for its own account and
not as a nominee for any other party and not with a view toward the resale or
distribution thereof except in compliance with applicable securities
laws.

     

    
      	
              J.A.&
      G.L. SIMPSON TRUST, DTD MAY 18, 1988, A CALIFORNIA TRUST or Registered
      Assignee

            	 
      	 
      
	 
      	 
      	 
      
	 
      	 
      	 
      
	 
      	 
      	 
      
	
              (Signature)

            	 
      	 
      
	 
      	 
      	 
      
	 
      	 
      	 
      
	 
      	 
      	 
      
	
              (Date)

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00167-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00167-of-00352.parquet"}]]