Document:

ex10-1.htm

Exhibit 10.1

 

SUBSCRIPTION AGREEMENT

 

THIS SUBSCRIPTION AGREEMENT (this “Agreement”), dated as of October ___, 2013, by and among ISC8 Inc., a Delaware corporation (the “Company”), and the subscriber identified on the signature page hereto (“Subscriber”).

 

WHEREAS, the Company is offering shares of its Series D Convertible Preferred Stock (the “Preferred Shares”) to certain subscribers who are “Accredited Investors,” as such term is defined hereinafter, subsequent to the issuance to those subscribers of certain of the Company’s subordinated secured convertible promissory notes pursuant to that certain term sheet executed by the Company and those parties including Subscriber and effective as of August 8, 2013 (the “Term Sheet”);

 

WHEREAS as additional consideration for the purchase of Preferred Shares, the Company shall issue to subscribers a warrant to purchase up to 59,523.81 shares of Common Stock of the Company for each Preferred Share purchased, exercisable at a price per share equal to $.084, which shall expire on the first anniversary from the date hereof (the “Warrants”, each a “Warrant”);

 

WHEREAS, the Company and the Subscriber are executing and delivering this Agreement in reliance upon an exemption from securities registration afforded by the provisions of Section 4(2) and/or Regulation D (“Regulation D”) as promulgated by the United States Securities and Exchange Commission (the “Commission”) under the Securities Act of 1933, as amended (the “1933 Act”), and similar exemptions under applicable state securities laws; and

 

WHEREAS, the parties desire that, upon the terms and subject to the conditions contained herein, the Company shall issue and sell to the Subscriber, as provided herein, and the Subscriber shall purchase the number of Preferred Shares set forth on the signature page hereto, and a Warrant to purchase that number of shares of common stock also set forth on the signature page hereto, pursuant to the terms and conditions of this Agreement, such Preferred Shares and Warrant collectively referred to herein as the “Securities”.

 

NOW, THEREFORE, in consideration of the mutual covenants and other agreements contained in this Agreement the Company and the Subscriber hereby agree as follows:

 

1.           (a)           Subscription for Shares of Series D Preferred Stock.  The Subscriber, intending to be legally bound, hereby irrevocably subscribes for and agrees to purchase the number of Preferred Shares set forth on the signature page hereto and to pay the purchase price therefor in immediately available funds contemporaneously with the execution and delivery of this Subscription Agreement.  The execution and delivery of this Agreement by the Subscriber will not constitute an agreement between the Subscriber and the Company until this Agreement has been accepted by the Company as evidenced by receipt by Griffin Partners, LLC as placement agent (the “Placement Agent”) of an acceptance page of this Agreement signed by the Company, and then subject to the terms and conditions of this Agreement.  The Subscriber understands that acceptance or rejection, in whole or in part, by the Company of the subscription and agreement of the Subscriber to purchase the Preferred Shares and the Warrant is within the sole and absolute discretion of the Company, and the Company may reject any subscription in whole or in part, for any reason or without any reason.  Likewise, the Subscriber understands acknowledges and agrees that acceptance by the Company of any subscription of a Subscriber, in whole or in part, is predicated upon the representations and warranties of the Subscriber as set forth hereinafter and that SUBSCRIPTIONS, ONCE RECEIVED BY THE COMPANY AND/OR THE PLACEMENT AGENT, ARE IRREVOCABLE BY THE SUBSCRIBER, AND, THEREFORE, MAY NOT BE WITHDRAWN.

 

           (b)           Closing Date.  The closing of the purchase and sale of the Preferred Shares hereunder and under other Subscription Agreements (the “Closing”) shall be held at the offices of the Placement Agent, 555 Montgomery Street, Suite 650, San Francisco, CA 94111 after subscriptions have been accepted by the Company.  The Company in its discretion may have multiple Closings.  The date of the Closing of the Preferred Shares being purchased hereunder is referred to herein as the “Closing Date.”  Subscriptions will not be refunded unless the Company rejects Subscriber’s subscription, in whole or in part, in which case, the refund shall be without interest.

  

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(c)           Deliveries. The Subscriber shall deliver at the Closing the Omnibus Signature Page to this Agreement which the Company shall be authorized, upon satisfaction of the conditions set forth in Section 7 hereof, to attach to an execution version of this Agreement, with such minor modifications thereto, if any, as the Company deems are necessary and appropriate.

 

(d)           Authority of Placement Agent.  The Subscriber agrees that the Placement Agent, shall have the authority to act on behalf of the Subscriber in connection with this subscription and all matters related to collection of and delivery to the Company of the Omnibus Signature Page to this Agreement, collection and disbursement of the purchase price for the Preferred Shares, and collection of and delivery to the Subscriber of the certificates evidencing the Preferred Shares being purchased hereby and the fully executed counterpart of the Warrant being purchased hereby.

 

(e)           Piggyback Registration Rights.  If at any time that the Preferred Shares or any shares of the Common Stock issuable or issued upon conversion or exercise of the Preferred Shares (the “Registrable Securities”) are not eligible for resale pursuant to Rule 144 promulgated under the 1933 Act, the Company shall determine to prepare and file with the SEC a registration statement relating to an offering for its own account or the account of others under the 1933 Act of any of its equity securities, other than on Form S-4 or any similar form for the registration of Common Stock to be issued in connection with business combination transactions or similar transactions or Form S-8 or any similar form for the registration of equity securities to be issued pursuant to benefit or incentive plans or arrangements, or successor forms, and the registration form to be used may be used for the registration of the Registrable Securities, then the Company shall within twenty (20) days of such determination deliver to the Subscriber a written notice of such determination and, if within twenty (20) days after the date of the delivery of such notice, the Subscriber shall so request in writing, the Company shall include in such registration statement all or any part of such Registrable Securities such Subscriber requests to be registered; provided, however, that the foregoing piggy-back registration rights shall be subject to customary pro rata cut-back provisions in the event that such piggy-back registration is in connection with an underwritten offering, if the managing underwriters so determines that such pro-rata cut backs are advisable.

 

2.           Warrant.  As additional consideration for the purchase of Preferred Shares, the Company shall issue to the Subscriber a Warrant to purchase up to that number of shares of Common Stock of the Company stated opposite the Subscriber’s name on the Omnibus Signature Page hereto, at a price per share equal to two times the purchase price per Share of the Preferred Shares, which expires on the first anniversary from the date hereof.

 

3.           Subscriber's Representations and Warranties.   The Subscriber hereby represents and warrants to and agrees with the Company that:

 

(a)           Information on Company.  The Subscriber has had access at the EDGAR Website of the Commission to the Company’s Annual Report on Form 10-K for the year ended September 30, 2012, and all periodic and current reports filed with the Commission thereafter (hereinafter referred to as the “Reports”).  The Subscriber has had the opportunity to review information regarding the Company, its business, operations, financial condition and the terms and conditions of the Securities, and considered all factors Subscriber deems material in deciding on the advisability of investing in the Securities.  The offer to sell the Securities to the Subscriber was communicated to the Subscriber by the Company and/or Placement Agent in such a manner that the Subscriber was able to ask questions of and received answers from the Company or a person acting on the Company’s behalf concerning the terms and conditions of this transaction as well as to obtain any information requested by the Subscriber.  Any questions raised by the Subscriber or its representatives concerning the transactions contemplated by this Agreement have been answered to the satisfaction of the Subscriber and its representatives.  The Subscriber can fend for itself, can bear the economic risk of its investment and has such knowledge and experience in financial or business matters that it is capable of evaluating the merits and risks of the investment in the Securities.  Except as set forth in this Agreement, no representations or warranties have been made to the Subscriber by the Company or any agent, employee or affiliate of the Company and in entering into this Agreement, the Subscriber is not relying on any information, other than that which is contained in this Agreement and the results of any independent investigation by the Subscriber.

  

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(b)           Information on Subscriber.  The Subscriber is, and will be at the time of issuance of the Securities, an “accredited investor”, as such term is defined in Regulation D promulgated by the Commission under the 1933 Act, is experienced in investments and business matters, has made investments of a speculative nature and has purchased securities of United States publicly-owned companies in private placements in the past and has such knowledge and experience in financial, tax and other business matters as to enable the Subscriber to utilize the information made available by the Company to evaluate the merits and risks of and to make an informed investment decision with respect to the proposed purchase, which represents a speculative investment.  The Subscriber is not a broker-dealer under Section 15 of the Exchange Act or an officer, director or affiliate of the Company.  The Subscriber has or had a relationship with the Company and/or Placement Agent prior to receipt of this Agreement. The Subscriber has the authority and is duly and legally qualified to purchase and own the Securities.  The Subscriber is able to bear the risk of such investment for an indefinite period and to afford a complete loss thereof.  The information set forth on the signature page hereto regarding the Subscriber is accurate. The information set forth in Schedule 1 hereto is correct in all respects.

 

(c)           Purchase of Securities.  The Subscriber is acquiring the Securities in the ordinary course of its business as principal for its own account, and not as nominee, for investment only and not with a view toward, or for resale in connection with, the public sale or any distribution thereof.  The Subscriber does not have any contract, undertaking, agreement, understanding or arrangement, directly or indirectly, with any Person to distribute, sell, transfer or pledge to such Person, or anyone else, all or any part of the Securities, and the Subscriber has no present plan to enter into any such contract, undertaking, agreement, understanding or arrangement.  The Subscriber further agrees to execute and deliver any further investment certificates as counsel to the Company deems necessary or advisable to comply with state or federal securities laws.

 

(d)           Compliance with Securities Act.  The Subscriber understands and agrees that the Securities have not been registered under the 1933 Act or any applicable state securities laws, by reason of their issuance in a transaction that does not require registration under the 1933 Act (based on the accuracy of the representations and warranties of the Subscriber contained herein), and that such Securities may not be sold, assigned or transferred and must be held indefinitely in the absence of (i) an effective registration statement under the Act and applicable state securities laws with respect thereto or (ii) an opinion of counsel satisfactory to the Company that such registration is not required.  The Subscriber understands that the Company is under no obligation to register the Securities, except as set forth in Section 12 of this Agreement, and does not intend to do so.  Furthermore, the Subscriber has read and acknowledges the potential issues regarding the registration of the shares of Common Stock underlying the Securities which may affect the future liquidity of such securities.

 

(e) Stock Legend.  The stock certificates for the Preferred Shares and any securities issuable upon conversion or exercise of the Warrant shall bear the following or similar legend (in addition to such other restrictive legends as are required or deemed advisable under any applicable law or any other agreement to which the Company is a party):

 

“THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”) OR ANY STATE SECURITIES LAWS, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS (A) THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, AND APPLICABLE STATE SECURITIES LAWS, COVERING ANY SUCH TRANSACTION INVOLVING SAID SECURITIES OR (B) THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY STATING THAT SUCH TRANSACTION IS EXEMPT FROM REGISTRATION.”

 

(f)           Tax Advisors.  The Subscriber has had the opportunity to review with such Subscriber’s own tax advisors the federal, state and local tax consequences of this investment, where applicable, and the transactions contemplated by this Agreement.  The Subscriber is relying solely on the Subscriber’s own determination as to tax consequences or the advice of such tax advisors and not on any statements or representations of the Company or any of its agents and understands that such Subscriber (and not the Company) shall be responsible for such Subscriber’s own tax liability that may arise as a result of this investment or the transactions contemplated by this Agreement.

  

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(g)           Communication of Offer.  The offer to sell the Securities was directly communicated to the Subscriber by the Company and/or Placement Agent.  At no time was the Subscriber presented with or solicited by any leaflet, advertisement, article, notice or other communication published in any newspaper, magazine, or similar media or broadcast over television or radio, or any other form of general advertising, or solicited or invited to attend a promotional meeting or any seminar or meeting by any general solicitation or general advertising.

 

(h)           Authority; Enforceability.  If the Subscriber is an entity, it is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization with the requisite corporate, limited liability company or partnership power and authority to enter into and to consummate the transactions contemplated by this Agreement and otherwise to carry out its obligations hereunder.  This Agreement, and other agreements delivered together with this Agreement or in connection herewith have been duly authorized, executed and delivered by the Subscriber and are valid and binding agreements enforceable in accordance with their terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors’ rights generally and to general principles of equity; and Subscriber has full corporate power and authority necessary to enter into this Agreement and such other agreements and to perform its obligations hereunder, thereunder and under all other agreements entered into by the Subscriber relating hereto and thereto.

 

(i)           No Governmental Review.  The Subscriber understands that no United States federal or state agency or any other governmental or state agency has passed on or made recommendations or endorsement of the Securities or the fairness or suitability of the investment in the Securities, nor have such authorities passed upon or endorsed the merits of the offering of the Securities.  The Subscriber understands that neither legal counsel to the Company, the Placement Agent, nor its counsel has independently verified the information concerning the Company included herein, all of which has been provided by the Company, nor has such legal counsel passed upon the adequacy or accuracy such information.  No independent third party, such as an investment banking firm, the Placement Agent, or other expert in evaluating businesses or securities, has made an evaluation of the economic potential of the Company.

 

(j)           Certain Trading Activities.  The Subscriber has not directly or indirectly, nor has any Person acting at the direction of the Subscriber, engaged in any transactions in the securities of the Company (including, without limitation, any short sales involving the Company’s securities) since the earlier to occur of (i) the time the Subscriber was first contacted by the Company or any other Person regarding the investment in the Company and (ii) the 30th day prior to the date of this Agreement.  The Subscriber covenants that neither it nor any Person acting at the direction of the Subscriber will engage in any transactions in the securities of the Company (including short sales) after the date hereof and prior to the date that the transactions contemplated by this Agreement are publicly disclosed.

 

(k)           Correctness of Representations.  The Subscriber represents as to the Subscriber that the foregoing representations and warranties are true and correct as of the date hereof and, unless the Subscriber otherwise notifies the Company prior to the Closing Date, shall be true and correct as of the Closing Date and as of the issuances of the Preferred Shares and as of the issuance of any securities upon conversion or exercise of the Securities.

 

4.           Company Representations and Warranties.  The Company represents and warrants to and agrees with the Subscriber that:

 

(a)           Due Incorporation.  The Company is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware and has the requisite corporate power to own its properties and to carry on its business as disclosed in the Reports.  The Company is duly qualified as a foreign corporation to do business and is in good standing in California.

  

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(b)           Outstanding Stock.  Immediately after the final Closing, (i) the authorized and outstanding capital stock of the Company (including all rights to acquire same) shall be owned or held as set forth on Exhibit A to this Agreement and (ii) all of such outstanding capital stock or rights to acquire same shall have been duly authorized and validly issued, shall be fully paid and non-assessable shall be owned of record and beneficially by those persons and entities set forth on such Exhibit A to this Agreement.  Except as set forth on Exhibit A, immediately after the final Closing, there will no outstanding subscriptions, warrants, options, calls, commitments or other rights to purchase or acquire, or securities convertible into or exchangeable for, any capital stock or equity interests in the Company, or any obligation of the Company to issue any thereof.  The issuance and sale of the Company’s capital stock under this Agreement shall not be in violation of any preemptive rights existing in favor of any third party.

 

(c)           Authority; Enforceability.  This Agreement, the Preferred Shares, the Warrant, and any other agreements delivered together with this Agreement or in connection herewith (collectively “Transaction Documents”) have been duly authorized, executed and delivered by the Company and are valid and binding agreements enforceable in accordance with their terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights generally and to general principles of equity.  The Company has full corporate power and authority necessary to enter into and deliver the Transaction Documents and to perform its obligations thereunder.

 

(d)           Consents.  No consent, approval, authorization or order of any court, governmental agency or body or arbitrator having jurisdiction over the Company is required for the execution by the Company of the Transaction Documents and compliance and performance by the Company of its obligations under the Transaction Documents, including, without limitation, the issuance and sale of the Securities, other than (i) the filing by the Company of a Notice of Sale of Securities on Form D with the Commission under Regulation D of the Securities Act; (ii) applicable Blue Sky filings; (iii) the authorization of the Commission to provide a proxy or information statement to the Company’s shareholders required in connection with the increase in the authorized capital of the Company necessary to permit the issuance of the shares of Common Stock upon exercise of the Warrants or conversion of the Preferred Shares (“Shareholder Approval”); or (iv) otherwise as may be required by law or regulation.  The Transaction Documents and the Company’s performance of its obligations thereunder have been approved by the Company’s board of directors.

 

(e)           No Violation or Conflict.  Neither the issuance and sale of the Securities nor the performance of the Company’s obligations under this Agreement and all other agreements entered into by the Company relating thereto by the Company will violate, conflict with, result in a breach of, or constitute a default under (A) the certificate of incorporation or bylaws of the Company, (B) to the Company's knowledge, any decree, judgment, order, law, treaty or regulation applicable to the Company of any court, governmental agency or body, or arbitrator having jurisdiction over the Company, or (C) the terms of any material bond, debenture, note or other evidence of indebtedness, agreement, stock option or other similar plan, indenture, lease, mortgage, deed of trust or other instrument to which the Company is a party or by which it is bound, except the violation, conflict, breach, or default of which would not have a Material Adverse Effect on the Company.  For purpose of this Agreement, a “Material Adverse Effect” shall mean a material adverse effect on the financial condition, results of operations, properties or business of the Company and its Subsidiaries taken as a whole.  For purposes of this Agreement, “Subsidiary” means, with respect to any entity at any date, any corporation, limited or general partnership, limited liability company, trust, estate, association, joint venture or other business entity) of which more than 50% of (i) the outstanding capital stock having (in the absence of contingencies) ordinary voting power to elect a majority of the board of directors or other managing body of such entity, (ii) in the case of a partnership or limited liability company, the interest in the capital or profits of such partnership or limited liability company or (iii) in the case of a trust, estate, association, joint venture or other entity, the beneficial interest in such trust, estate, association or other entity business is, at the time of determination, owned or controlled directly or indirectly through one or more intermediaries, by such entity.

 

(f)           The Preferred Shares.  The Preferred Shares upon issuance (and any shares of Common Stock issuable upon conversion of the Preferred Shares or exercise of the Warrant):

  

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(i)           will be, free and clear of any security interests, liens, claims or other encumbrances, subject to restrictions upon transfer set forth herein, under the 1933 Act and any applicable state securities laws;

 

 (ii)           have been, or will be, duly and validly authorized and on the date of issuance, will be duly and validly issued, fully paid and nonassessable, subject to the  requirement of Shareholder Approval in the case of the shares of Common Stock issuable upon conversion of the Preferred Shares or exercise of the Warrant;

 

(iii)           will not have been issued or sold in violation of any preemptive or other similar rights of the holders of any securities of the Company;

 

(iv)           will not subject the holders thereof to personal liability by reason of being such holders; and

 

(v)           will have been issued in reliance upon an exemption from the registration requirements of and will not result in a violation of Section 5 under the 1933 Act.

 

(g)           Reporting Company.  The Company is a publicly-held company subject to reporting obligations pursuant to Section 13 of the Securities Exchange Act of 1934, as amended (the "1934 Act") and has a class of common shares registered pursuant to Section 12(g) of the 1934 Act.  Pursuant to the provisions of the 1934 Act, the Company has timely filed all reports and other materials required to be filed thereunder with the Commission during the preceding twelve months.

 

(h)           No General Solicitation.  Neither the Company, nor any of its Affiliates, nor to its knowledge, any person acting on its or their behalf, has engaged in any form of general solicitation or general advertising (within the meaning of Regulation D under the 1933 Act) in connection with the offer or sale of the Securities.

 

(i)           Correctness of Representations.  The Company represents that the foregoing representations and warranties are true and correct as of the date hereof in all material respects, and, unless the Company otherwise notifies the Subscribers prior to the Closing Date, shall be true and correct in all material respects as of the Closing Date.

 

(j)           No Material Adverse Effect.  No Material Adverse Effect has occurred since the date the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2013 was filed with the Commission.

 

5.           Escrow and Use of Purchase Price.  The subscription payments made pursuant hereto prior to the Closing of the Offering will be deposited by the Placement Agent in an escrow account at a commercial bank or trust company of the Placement Agent’s choosing and agreeable to the Company.  No interest will be earned by the Subscriber on subscription payments held in any escrow account.  If for any reason the Closing of the purchase and sale of the Preferred Shares does not take place, the subscription payment will be returned to the Subscriber without interest and without deduction.  Upon receipt of the Agreement and the subscription payment, and upon acceptance of the subscription by the Company, the subscription payments shall belong to the Company.  If the subscription is not accepted by the Company then this Agreement will be null and void and the subscription payment will be returned to the Subscriber without interest and without deduction.

 

6.           Securities Law Disclosures.  The Company may in its sole discretion, following the Closing Date, (i) issue a press release and/or file a Current Report on Form 8-K disclosing the transactions contemplated hereby and (ii) make such other disclosures, filings and notices in the manner and time required by the Commission or any state securities commission.

  

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7.           Conditions to Subscriber’s Obligations.  The obligations of the Subscriber under Section 1(b) of this Agreement are subject to the fulfillment at or before the Closing of each of the following conditions, any of which may be waived in writing by the Subscriber:

 

(a)           Representations and Warranties.  The representations and warranties of the Company contained in Section 4 shall be true and correct in all material respects on and as of the Closing with the same effect as if made on and as of the Closing.

 

(b)           Performance.  The Company shall have performed or fulfilled in all material respects all agreements, obligations and conditions contained herein required to be performed or fulfilled by the Company at or prior to the Closing.

 

(c)           Regulatory Matters.  None of the issuance and sale of the Securities pursuant to this Agreement or any of the transactions contemplated by any of the other Transaction Documents shall be enjoined (temporarily or permanently) and no restraining order or other injunctive order shall have been issued in respect thereof.  There shall not have been any legal action, order, decree or other administrative proceeding instituted against the Company or against the Subscriber relating to the issuance of the Securities or the Subscriber’s activities in connection therewith or any other transactions contemplated by this Agreement or the other Transaction Documents.

 

(d)           Consents.  The Company shall have obtained any and all consents, permits and waivers necessary or appropriate for consummation of the transactions contemplated by the Transaction Documents.

 

(e)           Secretary’s Certificate.  The Company shall have furnished to the Placement Agent a corporate secretary’s certificate certifying, among other things, (i) copies of resolutions or written consents duly adopted by the Company’s board of directors evidencing the taking of all corporate action necessary to authorize the Offering, the issuance of the Preferred Shares, and the execution and delivery of the transaction documents and the transactions contemplated thereby, (ii) the accuracy of the Company’s certificate of incorporation and bylaws, (iii) the good standing of the Company in the State of Delaware, and (iv) the number of authorized, outstanding and reserved shares of the Company’s Common Stock, all in such reasonable detail as Placement Agent and its counsel shall request.

 

(f)           Officer’s Certificate.  The Chief Financial Officer or the Chief Executive Officer of the Company shall deliver a certificate to the Subscriber, certifying, among other things, that the representations and warranties of the Company set forth in Section 4 of this Agreement are true and correct in all material respects as of the Closing Date, that all covenants and obligations required by this Agreement to be so performed or complied with by the Company at or before the Closing have been complied with and the Company’s business, financial condition or assets has not suffered a Material Adverse Effect since the date the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2013 was filed with the Commission..

 

8.           Conditions to the Company’s Obligations.  The obligations of the Company under Section 1(b) of this Agreement are subject to the fulfillment at or before the Closing of each of the following conditions, any of which may be waived in writing by the Company:

 

(a)           Representations and Warranties.  The representations and warranties of the Subscriber contained in Section 3 shall be true and correct in all material respects on and as of the Closing with the same effect as if made on and as of the Closing.

 

(b)           Performance.  The Subscriber shall have performed or fulfilled in all material respects all agreements, obligations and conditions contained herein required to be performed or fulfilled by the Subscriber at or prior to the Closing.

 

(c)           Subscription Payments.  The Subscriber shall have delivered the aggregate subscription payment for the Note in the amount specified for the Subscriber on the signature page hereto.

  

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(d)           Regulatory Matters.  None of the issuance and sale of the Securities pursuant to this Agreement or any of the transactions contemplated by any of the other Transaction Documents shall be enjoined (temporarily or permanently) and no restraining order or other injunctive order shall have been issued in respect thereof.  There shall not have been any legal action, order, decree or other administrative proceeding instituted against the Company or against the Subscriber relating to the issuance of the Securities or the Subscriber’s activities in connection therewith or any other transactions contemplated by this Agreement or the other Transaction Documents.

 

(e)           Consents.  The Company shall have obtained any and all consents, permits and waivers necessary or appropriate for consummation of the transactions contemplated by the Transaction Documents.

9.           Covenants of Subscriber Not to Short Stock.  The Subscriber and its Affiliates and assigns agree not to make any short sale of, or grant any option for the purchase of or enter into any hedging or similar transaction with the same economic effect as a short sale, of Common Stock until one-hundred eighty (180) days following the issuance of any shares of Common Stock.

10.           Miscellaneous.

 

(a)           Notices.  All notices, demands, requests, consents, approvals, and other communications required or permitted hereunder shall be in writing and, unless otherwise specified herein, shall be (i) personally served, (ii) deposited in the mail, registered or certified, return receipt requested, postage prepaid, (iii) delivered by reputable overnight courier service with charges prepaid, or (iv) transmitted by hand delivery, electronic mail, or facsimile, addressed as set forth below or to such other address as such party shall have specified most recently by written notice.  Any notice or other communication required or permitted to be given hereunder shall be deemed effective (a) upon hand delivery or delivery by electronic mail or facsimile, with accurate confirmation generated by the transmitting facsimile machine, at the address or number designated below (if delivered on a business day during normal business hours where such notice is to be received), (b) the first business day following such delivery (if delivered other than on a business day during normal business hours where such notice is to be received) or (c) on the second business day following the date of mailing by express courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur.  The addresses for such communications shall be: (i) if to the Company, to: ISC8 Inc., 840 F Avenue, Plano, TX 75093, Attn: Chief Financial Officer, telecopier: (714) 444-8773, and (ii) if to the Subscriber, to: the address and telecopier number indicated on the signature pages hereto.

 

(b)           Entire Agreement; Assignment.  This Agreement and other documents delivered in connection herewith represent the entire agreement between the parties hereto with respect to the subject matter hereof and may be amended only by a writing executed by both parties.  Neither the Company nor the Subscriber have relied on any representations not contained or referred to in this Agreement and the documents delivered herewith.  No right or obligation of the Company shall be assigned without prior notice to and the written consent of the Subscriber.

 

(c)           Counterparts/Execution.  This Agreement may be executed in any number of counterparts and by the different signatories hereto on separate counterparts, each of which, when so executed, shall be deemed an original, but all such counterparts shall constitute but one and the same instrument.  This Agreement may be executed by facsimile or electronic mail signature and delivered by facsimile transmission or electronic mail.

 

(d)           Law Governing this Agreement.  This Agreement shall be governed by and construed in accordance with the laws of the State of New York without regard to principles of conflicts of laws.  Any action brought by either party against the other concerning the transactions contemplated by this Agreement shall be brought only in the state courts of California or in the federal courts located in the state of California.  The parties and the individuals executing this Agreement and other agreements referred to herein or delivered in connection herewith on behalf of the Company agree to submit to the jurisdiction of such courts.  The prevailing party shall be entitled to recover from the other party its reasonable attorney's fees and costs.  In the event that any provision of this Agreement or any other agreement delivered in connection herewith is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law.  Any such provision which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision of any agreement.

  

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(e)           Specific Enforcement, Consent to Jurisdiction.  The Company and the Subscriber acknowledge and agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached.  It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent or cure breaches of the provisions of this Agreement and to enforce specifically the terms and provisions hereof, this being in addition to any other remedy to which any of them may be entitled by law or equity.  Subject to Section 9(d) hereof, each of the Company, the Subscriber and any signatory hereto in his personal capacity hereby waives, and agrees not to assert in any such suit, action or proceeding, any claim that it is not personally subject to the jurisdiction in New York of such court, that the suit, action or proceeding is brought in an inconvenient forum or that the venue of the suit, action or proceeding is improper.  Nothing in this Section shall affect or limit any right to serve process in any other manner permitted by law.

 

(f)           Independent Nature of Subscribers.  The Company acknowledges that the obligations of the Subscriber under the Transaction Documents are several and not joint with the obligations of any other Subscriber who is also purchasing Securities in the transaction (collectively, with the Subscriber, referred to as the “Subscribers”), and none of the Subscribers shall be responsible in any way for the performance of the obligations of any of the other Subscribers under the Transaction Documents.  The Company acknowledges that the decision of each of the Subscribers to purchase Securities has been made by each of such Subscribers independently of any of the other Subscribers and independently of any information, materials, statements or opinions as to the business, affairs, operations, assets, properties, liabilities, results of operations, condition (financial or otherwise) or prospects of the Company which may have been made or given by any of the other Subscribers or by any agent or employee of any of the other Subscribers, and none of the Subscribers or any of its agents or employees shall have any liability to any of the Subscribers (or any other person) relating to or arising from any such information, materials, statements or opinions.  The Company acknowledges that nothing contained in any Transaction Document, and no action taken by any of the Subscribers pursuant hereto or thereto shall be deemed to constitute the Subscribers as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Subscribers are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by the Transaction Documents.  The Company acknowledges that each of the Subscribers shall be entitled to independently protect and enforce its rights, including without limitation, the rights arising out of the Transaction Documents, and it shall not be necessary for any of the other Subscribers to be joined as an additional party in any proceeding for such purpose.  The Company acknowledges that it has elected to provide all of the Subscribers with the same terms and Transaction Documents for the convenience of the Company and not because Company was required or requested to do so by the Subscribers.  The Company acknowledges that such procedure with respect to the Transaction Documents in no way creates a presumption that the Subscribers are in any way acting in concert or as a group with respect to the Transaction Documents or the transactions contemplated thereby.

 

 (h)           Omnibus Signature Page.  This Agreement is intended to be read and construed in conjunction with the senior subordinated secured promissory note pertaining to the issuance by the Company of the Securities.  Accordingly, pursuant to the terms and conditions of this Agreement it is hereby agreed that the execution by the Subscriber of this Agreement, in the place set forth herein shall constitute agreement to be bound by the terms and conditions of the senior subordinated secured promissory note, with the same effect as if such separate, but related agreement, was separately signed.

 

           11.           Payment.  Payment should be made via wire transfer to the following account:

	
Bank name:

	
U.S. Bank

	
Bank Address:

	
4100 Newport Place, Newport Beach, CA  92660

	
Checking account number:

	
1 638 00540060

	
ABA routing number:

	
122235821

	
Swift Number:

	
USBKUS44IMT

	
Bank contact person:

	
Robin Woods

	
Email:

	
Robin.Woods@us.bank.com

	
Bank phone number:

	
949 863-2462

	
Bank Fax:

	
949 863-2336

 

[THIS SPACE INTENTIONALLY LEFT BLANK]

  

-9-

  

 

OMNIBUS SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT

 

           IN WITNESS WHEREOF, the Subscriber hereby represents and warrants that the Subscriber has read this entire Agreement and hereby executes and delivers this Agreement and the senior subordinated secured promissory note as of the ___ day of ___________, 2013.

 

	
SUBSCRIBER

	
NUMBER OF PREFERRED SHARES, NUMBER OF WARRANT SHARES, and SUBSCRIPTION AMOUNT

	
Name:

Address:

 

Fax:

 

_____________________________________

(Signature)

Title:

	
Preferred Shares:_________________

 

Warrants:________________

 

Subscription Amount:

_______________________

 

ACCEPTANCE

 

IN WITNESS WHEREOF, the Company has duly executed and delivered this Agreement as of the ___ day of ________, 2013.

 

ISC8 INC.

a Delaware corporation

 

By:_________________________________

 

Name:

Title:

  

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Schedule 1 to Subscription Agreement

 

Name: ___________________________

INVESTOR QUESTIONNAIRE

 

 

Purpose of this Questionnaire

The shares of Series D Preferred Stock, the warrant to purchase shares of common stock and the shares issuable upon exercise of such warrant (collectively, the “Securities”) of ISC8 Inc., a Delaware corporation (the “Company”), will be offered without registration under the Securities Act of 1933, as amended (the “Act”), or the securities laws of any state, in reliance on the exemptions contained in Section 4(2) of the Act and Regulation D promulgated thereunder and on similar exemptions under applicable state laws.  Under Section 4(2) of the Act and/or certain state securities laws, the Company may be required to determine that an individual, or an individual together with a “purchaser representative,” or each individual equity owner of an investing entity meets certain suitability requirements before offering to sell the Securities to such individual or entity.  THE COMPANY MAY, IN ITS DISCRETION, EXCLUDE ANY INDIVIDUAL FROM THE OFFERING TO THE EXTENT NECESSARY TO COMPLY WITH APPLICABLE FEDERAL AND STATE SECURITIES LAWS.  This Investor Questionnaire does not constitute an offer to sell or a solicitation of an offer to buy the Securities or any other security.

Instructions. Please complete this questionnaire by filling in the information called for, checking the appropriate boxes, and signing below.  Please fax and mail the completed questionnaire to Griffin Partners, LLC.

Representations

 

The undersigned hereby represents to the Company as follows:

 

1.           Accredited Investor Status.  The undersigned has read the definition of “accredited investor” as defined in Rule 501 of Regulation D attached hereto as Attachment 1, and certifies that either (check one):

[  ]           The undersigned is an “accredited investor;” or

[  ]           The undersigned is not an “accredited investor.”

 

2.           Domicile/State of Organization.  The undersigned’s state of domicile/organization is: _______________.

 

The foregoing representations are true and accurate as of the date hereof.  The undersigned undertakes to notify the Company regarding any material change in the information set forth above prior to the purchase by the undersigned of any securities of the Company.

 

 

Dated:                      

 

__________________________                                                                    Address:_________________________

Signature of Investor(s)                                                                      Telephone:_______________________

Facsimile:________________________

Email:__________________________

 

__________________________

Print Name of Investor(s)

 

__________________________

Print Title (if applicable)

  

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ATTACHMENT 1

 

Rule 501.  Definitions and Terms Used in Regulation D under the Act.

 

As used in Regulation D, the term “accredited investor” shall mean any person who comes within any of the following categories, or who the issuer reasonably believes comes within any of the following categories, at the time of the sale of the securities to that person:

 

(1) Any bank as defined in section 3(a)(2) of the Act, or any savings and loan association or other institution as defined in section 3(a)(5)(A) of the Act whether acting in its individual or fiduciary capacity; any broker or dealer registered pursuant to section 15 of the Exchange Act, any insurance company as defined in section 2(13) of the Act; any investment company registered under the Investment Company Act of 1940 or a business development company as defined in section 2(a)(48) of that Act; any Small Business Investment Company licensed by the U.S. Small Business Administration under section 301(c) or (d) of the Small Business Investment Act of 1958; any plan established and maintained by a state, its political subdivisions, or any agency or instrumentality of a state or its political subdivisions, for the benefit of its employees, if such plan has total assets in excess of $5,000,000; any employee benefit plan within the meaning of the Employee Retirement Income Security Act of 1974 if the investment decision is made by a plan fiduciary, as defined in section 3(21) of such act, which is either a bank, savings and loan association, insurance company, or registered investment adviser, or if the employee benefit plan has total assets in excess of $5,000,000 or, if a self-directed plan, with investment decisions made solely by persons that are accredited investors;

 

(2) Any private business development company as defined in section 202(a)(22) of the Investment Advisers Act of 1940;

 

(3) Any organization described in section 501(c)(3) of the Internal Revenue Code, corporation, Massachusetts or similar business trust, or partnership, not formed for the specific purpose of acquiring the securities offered, with total assets in excess of $5,000,000;

 

(4) Any director, executive officer, or general partner of the Company;

 

(5) Any natural person whose individual net worth, or joint net worth with that person's spouse, exceeds $1,000,000.

 

(i) For purposes of calculating net worth under this paragraph (5):

 

(A) The person's primary residence shall not be included as an asset;

 

(B) Indebtedness that is secured by the person's primary residence, up to the estimated fair market value of the primary residence at the time of the sale of securities, shall not be included as a liability (except that if the amount of such indebtedness outstanding at the time of sale of securities exceeds the amount outstanding 60 days before such time, other than as a result of the acquisition of the primary residence, the amount of such excess shall be included as a liability); and

 

(C) Indebtedness that is secured by the person's primary residence in excess of the estimated fair market value of the primary residence at the time of the sale of securities shall be included as a liability;

 

(6) Any natural person who had an individual income in excess of $200,000 in each of the two most recent years or joint income with that person's spouse in excess of $300,000 in each of those years and has a reasonable expectation of reaching the same income level in the current year;

 

(7) Any trust, with total assets in excess of $5,000,000, not formed for the specific purpose of acquiring the securities offered, whose purchase is directed by a sophisticated person as described in Rule 506(b)(2)(ii) under the Act; and

 

(8) Any entity in which all of the equity owners are accredited investors.

 

For purposes of this definition, the term “net worth” means the excess of total assets over total liabilities, subject to the provisions of paragraph 5 above. In determining income, an investor should add to his or her adjusted gross income any amounts attributable to tax-exempt income received, losses claimed as a limited partner in any limited partnership, deductions claimed for depreciation, contributions to an IRA or Keogh retirement plan, alimony payments and any amount by which income from long-term capital gains has been reduced in arriving at adjusted gross income.ex10-2.htm

Exhibit 10.2

 

WARRANT

THIS WARRANT ("WARRANT") AND THE SECURITIES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AS AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED FOR SALE PLEDGED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.

	
Company:

	
ISC8 INC., a Delaware corporation (OTC: ISCI, the “Company”)

Shares of Warrant Stock:      [=25% of preferred shares purchased in deal]

Class of Shares:                      Common Stock, $0.01 par value per share

Exchange Price:                       $0.084 per share

Issue Date:                               ____, 2013

Expiration Date:                       [1 year from date of deal close]

 

    THIS WARRANT CERTIFIES THAT for value received in connection with its purchase of that certain preferred stock of the Company in a transaction closing October, ___, 2013, [Investor Name] or its registered assigns (hereinafter called the “Holder”) is entitled to purchase from ISC8 Inc., the above referenced number of fully paid and non-assessable shares (the “Warrant Stock”) of common stock of the Company (the “Common Stock”), at the Exchange Price per Share referenced above; the Number of Shares of Warrant Stock referenced above, which are purchasable upon exercise of this Warrant are subject to proportional adjustment from time to time as described herein.

Section 1.  Term, Price, Exercise and Exchange of Warrant.

 

1.1           Term of Warrant.  This Warrant shall be exercisable or exchangeable from the Issue Date until the Expiration Date.

 

1.2           Exchange Price.  The price per share at which the Warrant Stock is issuable upon Exercise or Exchange of this Warrant shall be $0.084, subject to Section 1.3 (a) hereof and subject to adjustment from time to time as set forth herein (the “Exchange Price”).

 

1.3           Exercise of Warrant; Exchange of Warrant.

 

(a)           This Warrant may be Exercised (as defined below) in whole or in part, upon surrender to the Company at its then principal offices in the United States of this Warrant, together with the form of election to Exchange or Exercise attached hereto as Exhibit A (the “Election”) duly completed and executed, and upon payment to the Company of the Exchange Price for the number of shares of Warrant Stock in respect of which this Warrant is then being exercised (an “Exercise”).  In whole or in part in lieu of an Exercise, Holder may exchange this Warrant by indicating so in the Election and proceeding in accordance with the remainder of this Section 1.3 (an “Exchange”).

 

(b)           Upon an Exchange, the Holder shall receive Warrant Stock such that, without the payment of any funds, the Holder shall surrender this Warrant in exchange for the number of shares of Warrant Stock equal to “X” (as defined below), computed using the following formula:

Y * (A-B)

X   =   _______________

A

  

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Where

X    =      the number of shares of Warrant Stock to be issued to Holder

Y    =       the number of shares of Warrant Stock to be exchanged under this Warrant

A   =       the Fair Market Value of one share of Warrant Stock

B    =       the Exchange Price (as adjusted to the date of such calculations)

*     =       multiplied by

 

        (c)           For purposes of this Warrant, the “Fair Market Value” of one share of Warrant Stock shall be (i) if the Common Stock is or becomes listed on a national stock exchange or is quoted on the Nasdaq Global Select Market or Nasdaq Global Market, the average closing sale price reported on such exchange or market during the five consecutive trading days prior to the date on which Holder delivers its Election to the Company, or (ii) if the Common Stock is traded over-the-counter, the highest closing bid price reported for the Common Stock during the trading day on which Holder delivers its Election to the Company, and if there has been no such reported bid price for such day, the next prior day(s) until the first such reported bid price.  If the Common Stock is not traded as contemplated in clauses (i) or (ii), above, the Fair Market Value of the Warrant Stock shall be the price per share which the Company could obtain from a willing buyer for shares of Common Stock sold by the Company from its authorized but unissued shares, as the Board of Directors of the Company (“Board”) shall determine in its reasonable good faith judgment, but in no event less than the price at which qualified employee stock options issued at such time are exercisable. In the event that Holder elects to convert the Warrant Stock through Exchange in connection with a transaction in which the Warrant Stock is converted into or exchanged for another security, Holder may effect a Exchange directly into such other security.

 

(d)           Upon surrender of this Warrant, and the duly completed and executed Election, and payment of the Exchange Price or conversion of this Warrant through Exchange, the Company shall issue and deliver within 3 business days to the Holder or such other person as the Holder may designate in writing a certificate or certificates for the number of shares of Warrant Stock issuable pursuant to the terms of this Warrant upon Exercise or Exchange.  Such certificate or certificates shall be deemed to have been issued and any person so designated to be named therein shall be deemed to have become a holder of record of such Warrant Stock as of the date of the surrender of this Warrant, and the duly completed and executed Election, and payment of the Exchange Price in the case of an Exercise or conversion of this Warrant through Exchange; provided, that if the date of surrender of this Warrant and payment of the Exchange Price is not a business day, the certificates for the Warrant Stock shall be deemed to have been issued as of the next business day (whether before or after the Expiration Date).  If this Warrant is exchanged or exercised in part, a new warrant of the same tenor and for the number of shares of Warrant Stock not exchanged or exercised shall be executed by the Company and delivered to Holder.

 

1.4           Fractional Interests.  The Company shall not be required to issue fractions of shares of Warrant Stock upon the Exercise or Exchange of this Warrant.  If any fraction of a share of Warrant Stock would be issuable upon the exchange of this Warrant (or any portion thereof), the Company shall purchase such fraction for an amount in cash equal to the Fair Market Value of the Warrant Stock.

 

1.5           Automatic Conversion on Expiration Date.  In the event that, on the Expiration Date, the Fair Market Value of one share of Common Stock (or other security issuable upon the Exercise or Exchange hereof) as determined in accordance with Section 1.3(c) is greater than the Exchange Price in effect on such date, then this Warrant shall automatically be deemed on and as of such date to be converted pursuant to Section 1.3 as to all Warrant Stock (or such other securities) for which it shall not previously have been Exercised or Exchanged, and the Company shall promptly deliver a certificate representing the Warrant Stock (or such other securities) issued upon such conversion to the Holder.

 

1.6           Treatment of Warrant Upon Acquisition of Company.

 

(a)           “Acquisition”.  For the purpose of this Warrant, “Acquisition” means any sale or other disposition of all or substantially all of the assets of the Company in whatever form, or any reorganization, consolidation, or merger of the Company (whether in a single transaction or multiple related transactions) 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(s).

  

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(b)           Treatment of Warrant at Acquisition.  Upon the closing of any Acquisition, the successor entity (if applicable in such Acquisition) shall, as condition to such Acquisition, either: (i) assume the obligations of this Warrant, and this Warrant shall be exercisable for the same securities as would be payable for the Warrant Stock issuable upon exchange of the unexchanged portion of this Warrant as if such Warrant Stock were outstanding on the record date for the Acquisition (and the Warrant Price and/or number of shares of Warrant Stock shall be adjusted accordingly) or (ii) purchase this Warrant at its “Fair Value” (as described in clause (c) below, the “Purchase Price”).

 

(c)           Purchase at Fair Value.

 

For purposes of this Warrant, “Fair Value” shall mean that value determined by the parties using a European Black-Scholes Option-Pricing Model (the “Black-Scholes Calculation”) with the following assumptions: (A) a risk-free interest rate equal to the risk-free interest rate at the time of the closing of the Acquisition (or as close thereto as practicable), (B) a contractual life of the Warrant equal to the remaining term of this Warrant as of the date of the announcement of the Acquisition, (C) an annual dividend yield equal to dividends declared on the underlying Warrant Stock (including securities into which the Warrant Stock may be convertible) during the term of this Warrant (calculated on an annual basis), and (D) a volatility factor of the expected market price of the Company’s Common Stock comprised of: (1) if the Company is publicly traded on a national securities exchange or is quoted on the Nasdaq Global Select Market or Nasdaq Global Market, its volatility over the one year period ending on the day prior to the announcement of the Acquisition, (2) if the Common Stock is traded over-the-counter, its volatility over the one year period ending on the day prior to the announcement of the Acquisition, or (3) if the Company is a non-public company, the volatility, over the one year period prior to the Acquisition, of an average of publicly-traded companies in the same or similar industry to the Company with such companies having similar revenues.  The Purchase Price determined in accordance with the above shall be paid upon the initial closing of the Acquisition and shall not be subject to any post-Acquisition closing contingencies or adjustments; provided, however, the parties may take such post-Acquisition closing contingencies or adjustments into account in determining the Purchase Price, and if the parties take any post-Acquisition closing contingencies or adjustments into account, then upon the partial or complete removal of those post-Acquisition closing contingencies or adjustments, a new Black-Scholes Calculation would be made using all of the same inputs except for the value of the Company’s Common Stock (as determined under subclause (D)), and any increase in Fair Value (and, correspondingly, Purchase Price), including, without limitation, as a result of any earn-out or escrowed consideration, would be paid in full to Holder immediately after those post-Acquisition closing contingencies or adjustments can be determined or achieved.

 

Section 2.  Exchange and Transfer of Warrant.

 

(a)           This Warrant may be transferred, in whole or in part, without restriction, subject to (i) Holder’s compliance with applicable securities laws and delivery of an opinion of competent counsel as to the same, if so requested by the Company, and (ii) the transferee holder of the new Warrant assuming in writing the obligations of the Holder set forth in this Warrant. Notwithstanding and without the necessity of delivering an opinion of counsel, Holder may at any time transfer this Warrant in whole or in part to any affiliate.  By its acceptance of this Warrant, each such affiliate transferee will be deemed to have made to the Company each of the representations and warranties set forth in Section 7 hereof and agrees to be bound by all of the terms and conditions of this Warrant as if the original Holder hereof.  A transfer may be registered with the Company by submission to it of this Warrant, together with the Assignment Form attached hereto as Exhibit B duly completed and executed.  After the Company’s receipt of this Warrant and the Assignment Form so completed and executed, the Company will issue and deliver to the transferee a new warrant (representing the portion of this Warrant so transferred) at the same Exchange Price per share and otherwise having the same terms and provisions as this Warrant, which the Company will register in the new holder’s name.  In the event of a partial transfer of this Warrant, the Company shall concurrently issue and deliver to the transferring holder a new warrant that entitles the transferring holder to purchase the balance of this Warrant not so transferred and that otherwise is upon the same terms and conditions as this Warrant.  Upon the due delivery of this Warrant for transfer, the transferee holder shall be deemed for all purposes to have become the holder of the new warrant issued for the portion of this Warrant so transferred, effective immediately prior to the close of business on the date of such delivery, irrespective of the date of actual delivery of the new warrant representing the portion of this Warrant so transferred.

  

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(b)           In the event of the loss, theft or destruction of this Warrant, the Company shall execute and deliver an identical new warrant to the Holder in substitution therefor upon the Company’s receipt of (i) evidence reasonably satisfactory to the Company of such event and (ii) if requested by the Company, an indemnity agreement reasonably satisfactory in form and substance to the Company.  In the event of the mutilation of or other damage to the Warrant, the Company shall execute and deliver an identical new warrant to the Holder in substitution therefor upon the Company’s receipt of the mutilated or damaged warrant.

 

(c)           The Company shall pay all reasonable costs and expenses incurred in connection with the Exchange, Exercise, transfer or replacement of this Warrant, including, without limitation, the costs of preparation, execution and delivery of a new warrant and of share certificates representing all Warrant Stock.

 

Section 3.  Certain Covenants.

 

               (a)           The Company shall at all times reserve for issuance and keep available out of its authorized and unissued Common Stock, solely for the purpose of providing for the exchange of this Warrant, such number of shares of Common Stock as shall from time to time be sufficient therefor.

 

(b)           The Company will not, by amendment or restatement of its Certificate of Incorporation or Bylaws or through reorganization, consolidation, merger, amalgamation, sale of assets or otherwise, avoid or seek to avoid the observance or performance of any of the terms of this Warrant.  Without limiting the foregoing, the Company will not increase the par value of any Warrant Stock receivable upon the exchange of this Warrant above the amount payable therefor upon such exchange.

 

(c)           So long as Holder holds this Warrant, the Company shall deliver to Holder such reports as it provides to its stockholders generally, as and when delivered to such stockholders. Notwithstanding the foregoing, the Company shall provide Holder quarterly and annual financial statements upon request, if such statements are not publicly available.  The parties shall not treat the Warrant or the Warrant Stock as being granted or issued as property transferred in connection with the performance of services or otherwise as compensation for services rendered.

 

	
Section 4.

	
Adjustments to Exchange Price and Number of Shares of Warrant Stock.

4.1           Adjustments.  The Exchange Price shall be subject to adjustment from time to time in accordance with this Section 4.  Upon each adjustment of the Exchange Price pursuant to this Section 4, the Holder shall thereafter be entitled to acquire upon exchange, at the Exchange Price resulting from such adjustment, the number of shares of Warrant Stock obtainable by multiplying the Exchange Price in effect immediately prior to such adjustment by the number of shares of Warrant Stock acquirable immediately prior to such adjustment and dividing the product thereof by the new Exchange Price resulting from such adjustment.

 

4.2           Subdivisions, Combinations and Stock Dividends.  If the Company shall at any time subdivide by split-up or otherwise, its outstanding Common Stock into a greater number of shares, or issue additional Common Stock as a dividend or otherwise with respect to any Common Stock, the Exchange Price in effect immediately prior to such subdivision or share dividend shall be proportionately reduced and the number of shares acquirable upon Exercise or Exchange hereunder shall be proportionately increased. Conversely, in case the outstanding Common Stock of the Company shall be combined into a smaller number of shares, the Exchange Price in effect immediately prior to such combination shall be proportionately increased.

4.3           Reclassification, Exchange, Substitutions, Etc. Upon any reclassification, exchange, substitution, or other event that results in a change of the number and/or class of the securities issuable upon exchange or exercise of this Warrant, Holder shall be entitled to receive and the Company shall promptly issue an amended warrant for the number and kind of securities and property that Holder would have received for the Warrant Stock if this Warrant had been Exercised or Exchanged immediately before such reclassification, exchange, substitution, or other event.  The amendment to this Warrant shall provide for adjustments (as determined in good faith by the Board) which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 4.3, without limitation, adjustments to the Warrant Price and to the number of securities or property issuable upon Exercise or Exchange of the new Warrant.  The provisions of this Section 4.3 shall similarly apply to successive reclassifications, exchanges, substitutions, or other similar events.

  

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4.4.           Notices of Record Date, Etc.  In the event that the Company shall:

(1) declare or propose to declare any dividend upon its Common Stock, whether payable in cash, property, stock or other securities and whether or not a regular cash dividend, or

(2)  offer for sale any additional shares of any class or series of the Company’s stock or securities exchangeable for or convertible into such stock in any transaction that would give rise (regardless of waivers thereof) to pre-emptive rights of any class or series of stockholders, or

(3)  effect or approve (by stockholder vote or otherwise) any reclassification, exchange, substitution or recapitalization of the capital stock of the Company, including any subdivision or combination of its outstanding capital stock, or consolidation or merger of the Company with, or sale of all or substantially all of its assets to, another corporation, or to liquidate, dissolve or wind up (including an assignment for the benefit of creditors), or

(4)  offer holders of registration rights the opportunity to participate in any public offering of the Company’s securities,

then, in connection with such event, the Company shall give to Holder:

                 (i) at least ten (10) days prior written notice of the date on which the books of the Company shall close or a record shall be taken for such a dividend or offer in respect of the matters referred to in (1) or (2) above;

                (ii) in the case of the matters referred to in (3) above, at least ten (10) days prior written notice of the date when the same shall take place; and

(iii)  in the case of the matter referred to in (4) above, the same notice as is given or required to be given to the holders of such registration rights.  If, within thirty (30) days after the Company has given any such notice to Holder, the Company receives a written request from Holder to register any of its Warrant Stock (a “Registration Request”), the Company shall use its best efforts to cause such Warrant Stock to be included in the securities to be covered by the registration statement proposed to be filed by the Company.  A Registration Request shall include the intended method of disposition of the Warrant Stock and the Warrant Stock shall be included in the proposed registration statement to the extent required to permit the sale or other disposition by Holder in accordance with the Registration Request. Notwithstanding the foregoing, the Company shall not have any obligation to register any Warrant Stock under this Section 4.4(4)(iii) if doing so would conflict with the Priority Registration Rights (as defined below).  The registration rights granted herein shall terminate at such time as all of the Warrant Stock held by Holder may be sold pursuant to Rule 144 under the Securities Act during any ninety (90) day period.  Holder hereby acknowledges that its registration rights herein are junior and subordinated in all respects to the Priority Registration Rights.  “Priority Registration Rights” means the rights and obligations of the parties under Section 3 of that certain Stockholders Agreement dated December 23, 2010 among the Company, Costa Brava Partnership III, LP and The Griffin Fund, LP.

Such notice in accordance with the foregoing clause (1) shall also specify, in the case of any such dividend, the date on which the holders of capital stock shall be entitled thereto and the terms of such dividend, and such notice in accordance with clause (2) shall also specify the date on which the holders of capital stock shall be entitled to exchange their capital stock for securities or other property deliverable upon such reorganization, reclassification, exchange, substitution, consolidation, merger or sale, as the case may be, and the terms of such exchange. Each such written notice shall be given by first class mail, postage prepaid, addressed to the holder of this Warrant at the address of Holder.

4.5           Adjustment by Board.  If any event occurs as to which, in the opinion of the Board, the provisions of this Section 4 are not strictly applicable or if strictly applicable would not fairly protect the rights of the Holder in accordance with the essential intent and principles of such provisions, then the Board shall make an adjustment in the application of such provisions, in accordance with such essential intent and principles, so as to protect such rights, but in no event shall any adjustment have the effect of increasing the Exchange Price as otherwise determined pursuant to any of the provisions of this Section 4, except in the case of a combination of shares of a type contemplated in Section 4.2 and then in no event to an amount larger than the Exchange Price as adjusted pursuant to Section 4.2.

  

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4.6           Officers’ Statement as to Adjustments.  Whenever the Exchange Price and/or number of shares of Warrant Stock subject to the Warrant is required to be adjusted as provided in this Section 4, the Company shall forthwith file at its principal office with a copy to the Holder notice parties set forth in Section 9 hereof a statement, signed by the Chief Executive Officer or Chief Financial Officer of the Company, showing in reasonable detail the facts requiring such adjustment, the Exchange Price and number of issuable shares that will be effective after such adjustment; provided, however, such statement shall not be required to the extent the information otherwise required by this Section 4.6 is available through the Company’s current reports filed with the Securities and Exchange Commission.

4.7           Issue of Securities other than Common Stock.  In the event that at any time, as a result of any adjustment made pursuant to this Section 4, Holder thereafter shall become entitled to receive any securities of the Company, other than Common Stock, the number of such other shares so receivable upon Exercise or Exchange of this Warrant shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Common Stock contained in this Section 4.

Section 5.  Rights and Obligations of the Warrant Holder.

Except as otherwise specified in this Warrant, this Warrant shall not entitle the Holder to any rights of a holder of Common Stock in the Company until such time as this Warrant is exchanged or exercised.

Section 6.  Representations, Warranties and Covenants of the Company.  The Company represents and warrants to, and covenants with, Holder that:

6.1           Corporate Power; Authorization.  The Company has all requisite corporate power and has taken all requisite corporate action to execute and deliver this Warrant, to sell and issue the Warrant and Warrant Stock and to carry out and perform all of its obligations hereunder. This Warrant has been duly authorized, executed and delivered on behalf of the Company by the person executing this Warrant and constitutes the valid and binding agreement of the Company, enforceable in accordance with its terms, except (i) as limited by applicable bankruptcy, insolvency, reorganization or similar laws relating to or affecting the enforcement of creditors' rights generally and (ii) as limited by equitable principles generally.

6.2           Validity of Securities.  The issuance and delivery of the Warrant is not subject to preemptive or any similar rights of the stockholders of the Company (which have not been duly waived) or any liens or encumbrances except for restrictions on transfer provided for herein or under applicable federal and state securities laws; and when the Warrant Stock is issued upon Exercise or Exchange in accordance with the terms hereof, and this Warrant is converted into Warrant Stock, such securities will be, at each such issuance, validly issued, fully paid and nonassessable, in compliance with all applicable securities laws and free of any liens or encumbrances except for restrictions on transfer provided for herein or under applicable federal and state securities laws.

6.3           No Conflict. The execution and delivery of this Warrant do not, and the consummation of the transactions contemplated hereby will not, conflict with, or result in any violation of, or default (with or without notice or lapse of time, or both), or give rise to a right of termination, cancellation or acceleration of any obligation or to a loss of a material benefit, under, any provision of the Certificate of Incorporation or Bylaws of the Company or any mortgage, indenture, lease or other agreement or instrument, permit, concession, franchise, license, judgment, order, decree, statute, law, ordinance, rule or regulation applicable to the Company, its properties or assets, in each case, the effect of which would have a material adverse effect on the Company or materially impair or restrict its power to perform its obligations as contemplated hereby.

6.4           Governmental and other Consents. No consent, approval, order or authorization of, or registration, qualification, designation, declaration or filing with, any governmental authority or other person or entity is required on the part of the Company in connection with the issuance, sale and delivery of the Warrant and the Warrant Stock, except such filings as shall have been made prior to and shall be effective on and as of the date hereof. All stockholder consents required in connection with issuance of the Warrant and Warrant Stock have either been obtained by Borrower or no such consents are required.

  

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6.5           Exempt from Registration. Assuming the accuracy of the representations and warranties of Holder in Section 7 hereof, the offer, sale and issuance of the Warrant and the Warrant Stock will be exempt from the registration requirements of the Securities Act pursuant to 506 of Regulation D under the Securities Act and from the registration and qualification requirements of applicable state securities laws.  Neither the Company nor any agent on its behalf has solicited or will solicit any offers to sell or has offered to sell or will offer to sell all or any part of Securities to any person or persons so as to bring the sale of such shares of Warrant Stock by the Company within the registration provisions of the Securities Act.

6.6           Reporting Obligations. Borrower is and will remain subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act and (i) has filed and will file all required reports under Section 13 or 15(d) of the Exchange Act, as applicable,  other than Form 8-K reports. Without limiting the foregoing, if the Company ceases to timely file periodic reports under the Exchange Act, the Company shall from time to time promptly provide a copy of its most recent annual, quarterly and other interim reports to Holder.

6.7           Non-Public Information. To the extent the Company provides any material nonpublic information to Holder, the Company shall cease doing so during any period requested by Holder. To the extent required, the Company will publicly disclose the terms of this Agreement on Form 8-K under the Exchange Act (including it as an exhibit thereto if it deems it required under applicable law) promptly following the date hereof.

6.8           Legends.  The Company shall remove any restrictive securities legends on Warrant Stock resulting from Exercise or Exchange of the Warrant as soon as permitted by applicable law.

Section 7.  Representations and Warranties of Holder.  Holder hereby represents and warrants to the Company as of the Closing Date as follows:

7.1           Investment Experience.  Holder is an “accredited investor” within the meaning of Rule 501 under the Securities Act, and was not organized for the specific purpose of acquiring the Securities.  Holder is aware of the Company's business affairs and financial condition and has acquired sufficient information about the Company to reach an informed and knowledgeable decision to acquire the Securities.  Holder has such business and financial experience as is required to give it the capacity to protect its own interests in connection with the purchase of the Securities.

7.2           Investment Intent.  Holder is purchasing the Warrant for investment for its own account only and not with a view to, or for resale in connection with, any “distribution” thereof within the meaning of the Securities Act.  Holder understands that the Warrant has not been registered under the Securities Act or registered or qualified under any state securities law in reliance on specific exemptions therefrom, which exemptions may depend upon, among other things, the bona fide nature of Holder's investment intent as expressed herein.

7.3           Authorization.  Holder has all requisite power and has taken all requisite action required of it to carry out and perform all of its obligations hereunder.  The execution and delivery of this Warrant has been duly authorized, executed and delivered on behalf of Holder and constitutes the valid and binding agreement of Holder, enforceable in accordance with its terms, except (i) as limited by applicable bankruptcy, insolvency, reorganization or similar laws relating to or affecting the enforcement of creditors' rights generally and (ii) as limited by equitable principles generally. The consummation of the transactions contemplated herein and the fulfillment of the terms herein will not result in a breach of any of the terms or provisions of Holder's constitutional documents or instruments.

Section 8.  Restricted Stock Legend.

This Warrant and the Warrant Stock have not been registered under any securities laws.  Accordingly, any share certificates issued pursuant to the Exercise or Exchange of this Warrant shall (until receipt of an opinion of counsel in customary form that such legend is no longer necessary) bear the following legend:

  

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THIS WARRANT AND THE WARRANT STOCK ISSUABLE UPON EXERCISE OR EXCHANGE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE “ACT”), AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF.  NO SUCH SALE OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL IN CUSTOMARY FORM THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE ACT.

Section 9.  Notices.

Any notice or other communication required or permitted to be given here shall be in writing and shall be effective (a) upon hand delivery or delivery by e-mail or facsimile at the address or number designated below (if delivered on a business day during normal business hours where such notice is to be received) or the first business day following such delivery (if delivered other than on a business day during normal business hours where such notice is to be received), or (b) on the third business day following the date of mailing by express courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur. The addresses for such communication shall be:

if to Holder, at

__[contact address of purchaser]__________

____________________________________

____________________________________

Attention:   _________________________

Email: ______________________________

with a copy (not constituting notice) to

______________________

______________________

______________________

Attention: _______________

Email: __________________

 

If to the Company:

ISC8, Inc.

840 F Avenue

Plano, TX 75093  

Attn:  Marcus A. Williams

email: mwilliams@isc8.com

with a copy to:

Disclosure Law Group

One America Plaza

600 West Broadway

Suite 700

San Diego, CA 92101

T: 619.795.1134

F: 619.330.2101

Attention: Daniel W. Rumsey

  

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Each party hereto may from time to time change its address for notices under this Section 9 by giving at least 10 calendar days’ notice of such changes address to the other party hereto.

Section 10.  Amendments and Waivers.

 

    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. This Warrant may only be amended by an instrument in writing signed by both parties.

Section 11.  Applicable Law; Severability.

 

    This Warrant shall be governed by and construed and enforced in accordance with the laws of the State of California.  If any one or more of the provisions contained in this Warrant, or any application of any provision thereof, shall be invalid, illegal, or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein and all other applications of any provision thereof shall not in any way be affected or impaired thereby.

Section 12.  Construction; Headings.

 

    The terms “Exercise” and “Exchange” may be used interchangeably from time to time in this Warrant, the only substantive difference being that the exercise of rights under this Warrant by Exercise will require payment of cash consideration per share equal to the Exchange Price. The headings used in this Warrant are for the convenience of the parties only and shall not be used in construing the provisions hereof.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

  

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    IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed on the day and year first above written.

	
COMPANY:

 

ISC8 INC

 

 

By: ____________________________

       Bill Joll

       President

	
ACKNOWLEDGED AND AGREED:

 

HOLDER:

 

 

By: _____________________.

[title]

 

  

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Exhibit A

To:     

                              ELECTION TO EXCHANGE OR EXERCISE

1.  The undersigned hereby exercises its right to Exchange its Warrant for _________________ fully paid, validly issued and nonassessable shares of Warrant Stock in accordance with the terms thereof.

2.  The undersigned hereby elects to Exercise the attached Warrant for fully paid, validly issued and nonassessable shares of Warrant Stock by payment of $__________ as specified in the attached Warrant.  This right is exercised with respect to ___________ shares.

         [Strike the paragraph above that does not apply.]

The undersigned requests that certificates for such shares be issued in the name of, and delivered to:

                       ______________________

                       ______________________

                       ______________________

3.  By its execution below and for the benefit of the Company, the undersigned hereby restates each of the representations and warranties in Section 7 of the Warrant as of the date hereof.

Date: _____________________      [Holder]

                                                          By _________________________

                                                                Name:

                                                                Title:

  

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Exhibit B

ASSIGNMENT FORM

To:     

        The undersigned hereby assigns and transfers this Warrant to

__________________________________________________

 (Insert assignee’s social security or tax identification number)

____________________________________________________________________

(Print or type assignee’s name, address and postal code)

____________________________________________________________________

____________________________________________________________________

and irrevocably appoints _______________________________________ to transfer this Warrant on the books of the Company.

Date: __________________   ____________________

By __________________________

Name: _______________________

Title: _________________________

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