THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), OR ANY STATE SECURITIES LAW, AND MAY NOT BE SOLD, TRANSFERRED,
PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF OR EXERCISED UNLESS (i) A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND APPLICABLE STATE
SECURITIES LAWS SHALL HAVE BECOME EFFECTIVE WITH REGARD THERETO, OR (ii) AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT AND APPLICABLE STATE
SECURITIES LAWS IS AVAILABLE IN CONNECTION WITH SUCH OFFER, SALE OR TRANSFER.
AN INVESTMENT IN THESE SECURITIES INVOLVES A HIGH DEGREE OF RISK. HOLDERS
MUST RELY ON THEIR OWN ANALYSIS OF THE INVESTMENT AND ASSESSMENT OF THE RISKS
INVOLVED. SEE THE RISK FACTORS SET FORTH UNDER THAT CERTAIN INVESTMENT
AGREEMENT BY AND BETWEEN THE COMPANY AND HOLDER REFERENCED THEREIN AS EXHIBIT
J.
Warrant to Purchase
"N" shares Warrant Number ____
Warrant to Purchase Common Stock
of
LMKI Inc.
THIS CERTIFIES that Swartz Private Equity, LLC or any subsequent holder
hereof ("Holder"), has the right to purchase from LMKI, a Nevada corporation
(the "Company"), up to "N" fully paid and nonassessable shares, wherein "N"
is defined below, of the Company's common stock, $.001 par value per share
("Common Stock"), subject to adjustment as provided herein, at a price equal
to the Exercise Price as defined in Section 3 below, at any time beginning on
the Date of Issuance (defined below) and ending at 5:00 p.m., New York, New
York time the date that is five (5) years after the Date of Issuance (the
"Exercise Period"); provided, that, with respect to each "Put," as that term
is defined in that certain Investment Agreement (the "Investment Agreement")
by and between the initial Holder and Company, dated on or about October ,
1999, "N" shall equal ten percent (10%) of the number of shares of Common
Stock purchased by the Holder in that Put.
Holder agrees with the Company that this Warrant to Purchase Common
Stock of the Company (this "Warrant") is issued and all rights hereunder
shall be held subject to all of the conditions, limitations and provisions
set forth herein.
1. Date of Issuance and Term.
This Warrant shall be deemed to be issued on October___, 1999 ("Date of
Issuance"). The term of this Warrant is five (5) years from the Date of
Issuance.
2. Exercise.
(a) Manner of Exercise. During the Exercise Period, this Warrant may
be exercised as to all or any lesser number of full shares of Common Stock
covered hereby
Exhibit D
(the "Warrant Shares") upon surrender of this Warrant, with the Exercise Form
attached
hereto as Exhibit A (the "Exercise Form") duly completed and executed,
together with the full Exercise Price (as defined below) for each share of
Common Stock as to which this Warrant is exercised, at the office of the
Company, Attention: William Kettle, CEO,1720 East Garry Avenue, Suite 201,
Santa Ana, CA 92705; Telephone: (949) 475-4500, Facsimile: (949) 475-4511, or
at such other office or agency as the Company may designate in writing, by
overnight mail, with an advance copy of the Exercise Form sent to the Company
and its Transfer Agent by facsimile (such surrender and payment of the
Exercise Price hereinafter called the "Exercise of this Warrant").
(b) Date of Exercise. The "Date of Exercise" of the Warrant shall be
defined as the date that the advance copy of the completed and executed
Exercise Form is sent by facsimile to the Company, provided that the original
Warrant and Exercise Form are received by the Company as soon as practicable
thereafter. Alternatively, the Date of Exercise shall be defined as the date
the original Exercise Form is received by the Company, if Holder has not sent
advance notice by facsimile. The Company shall not be required to deliver
the shares of Common Stock to the Holder until the requirements of Section
2(a) above are satisfied.
(c) Cancellation of Warrant. This Warrant shall be canceled upon the
Exercise of this Warrant, and, as soon as practical after the Date of
Exercise, Holder shall be entitled to receive Common Stock for the number of
shares purchased upon such Exercise of this Warrant, and if this Warrant is
not exercised in full, Holder shall be entitled to receive a new Warrant
(containing terms identical to this Warrant) representing any unexercised
portion of this Warrant in addition to such Common Stock.
(d) Holder of Record. Each person in whose name any Warrant for shares
of Common Stock is issued shall, for all purposes, be deemed to be the Holder
of record of such shares on the Date of Exercise of this Warrant,
irrespective of the date of delivery of the Common Stock purchased upon the
Exercise of this Warrant. Nothing in this Warrant shall be construed as
conferring upon Holder any rights as a stockholder of the Company.
3. Payment of Warrant Exercise Price.
The Exercise Price ("Exercise Price"), shall initially equal $Y per
share ("Initial Exercise Price"), where "Y" shall equal 110% of the Market
Price ending on the Purchase Period End Date (as both are defined in the
Investment Agreement) for the applicable Put or, if the Date of Exercise is
more than six (6) months after the Date of Issuance, the lesser of (i) the
Initial Exercise Price or (ii) the "Lowest Reset Price," as that term is
defined below. The Company shall calculate a "Reset Price" on each six-month
anniversary date of the Date of Issuance which shall equal one hundred and
ten percent (110%) of the Market Price ending on such six-month anniversary
date of the Date of Issuance. The "Lowest Reset Price" shall equal the
lowest Reset Price determined on any six-month anniversary date of the Date
of Issuance preceding the Date of Exercise, taking into account, as
appropriate, any adjustments made pursuant to Section 5 hereof.
Payment of the Exercise Price may be made by either of the following,
or a combination thereof, at the election of Holder:
(i) Cash Exercise: cash, bank or cashiers check or wire transfer; or
(ii) Cashless Exercise: subject to the last sentence of this Section
3, surrender of this Warrant at the principal office of the Company together
with notice of cashless election, in which event the Company shall issue
Holder a number of shares of Common
Stock computed using the following formula:
X = Y (A-B)/A
where: X = the number of shares of Common Stock to be issued to Holder.
Y = the number of shares of Common Stock for which this Warrant is
being exercised.
A = the Market Price of one (1) share of Common Stock (for purposes of this
Section 3(ii), the "Market Price" shall be defined as the average Closing Bid
Price of the Common Stock for the five (5) trading days prior to the Date of
Exercise of this Warrant (the "Average Closing Price"), as reported by the
O.T.C. Bulletin Board, National Association of Securities Dealers Automated
Quotation System ("Nasdaq") Small Cap Market, or if the Common Stock is not
traded on the Nasdaq Small Cap Market, the Average Closing Price in any other
over-the-counter market; provided, however, that if the Common Stock is
listed on a stock exchange, the Market Price shall be the Average Closing
Price on such exchange for the five (5) trading days prior to the date of
exercise of the Warrants. If the Common Stock is/was not traded during the
five (5) trading days prior to the Date of Exercise, then the closing price
for the last publicly traded day shall be deemed to be the closing price for
any and all (if applicable) days during such five (5) trading day period.
B = the Exercise Price.
For purposes hereof, the term "Closing Bid Price" shall mean the
closing bid price on the O.T.C. Bulletin Board, the National Market System
("NMS"), the New York Stock Exchange, the Nasdaq Small Cap Market, or if no
longer traded on the O.T.C. Bulletin Board, the NMS, the New York Stock
Exchange, the Nasdaq Small Cap Market, the "Closing Bid Price" shall equal
the closing price on the principal national securities exchange or the over-
the-counter system on which the Common Stock is so traded and, if not
available, the mean of the high and low prices on the principal national
securities exchange on which the Common Stock is so traded.
For purposes of Rule 144 and sub-section (d)(3)(ii) thereof, it is
intended, understood and acknowledged that the Common Stock issuable upon
exercise of this Warrant in a cashless exercise transaction shall be deemed
to have been acquired at the time this Warrant was issued. Moreover, it is
intended, understood and acknowledged that the holding period for the Common
Stock issuable upon exercise of this Warrant in a cashless exercise
transaction shall be deemed to have commenced on the date this Warrant was
issued.
Notwithstanding anything to the contrary contained herein, this Warrant
may not be exercised in a cashless exercise transaction if, on the Date of
Exercise, the shares of Common Stock to be issued upon exercise of this
Warrant would upon such issuance be then registered pursuant to an effective
registration statement filed pursuant to that certain Registration Rights
Agreement dated on or about October , 1999 by and among the Company and
certain investors, or otherwise be registered under the Securities Act of
1933, as amended.
4. Transfer and Registration.
(a) Transfer Rights. Subject to the provisions of Section 8 of this
Warrant, this Warrant may be transferred on the books of the Company, in
whole or in part, in person or by attorney, upon surrender of this Warrant
properly completed and endorsed. This Warrant shall be canceled upon such
surrender and, as soon as practicable thereafter, the person to whom such
transfer is made shall be entitled to receive a new Warrant or Warrants as to
the portion of this Warrant transferred, and Holder shall be entitled to
receive a new Warrant as to the portion hereof retained.
(b) Registrable Securities. The Common Stock issuable upon the
exercise of this Warrant constitutes "Registrable Securities" under that
certain Registration Rights Agreement dated on or about October___, 1999
between the Company and certain investors and, accordingly, has the benefit
of the registration rights pursuant to that agreement.
5. Anti-Dilution Adjustments.
(a) Stock Dividend. If the Company shall at any time declare a
dividend payable in shares of Common Stock, then Holder, upon Exercise of
this Warrant after the record date for the determination of holders of Common
Stock entitled to receive such dividend, shall be entitled to receive upon
Exercise of this Warrant, in addition to the number of shares of Common Stock
as to which this Warrant is exercised, such additional shares of Common Stock
as such Holder would have received had this Warrant been exercised
immediately prior to such record date and the Exercise Price will be
proportionately adjusted.
(b) Recapitalization or Reclassification. If the Company shall at
any time effect a recapitalization, reclassification or other similar
transaction of such character that the shares of Common Stock shall be
changed into or become exchangeable for a larger or smaller number of shares,
then upon the effective date thereof, the number of shares of Common Stock
which Holder shall be entitled to purchase upon Exercise of this Warrant
shall be increased or decreased, as the case may be, in direct proportion to
the increase or decrease in the number of shares of Common Stock by reason of
such recapitalization, reclassification or similar transaction, and the
Exercise Price shall be, in the case of an increase in the number of shares,
proportionally decreased and, in the case of decrease in the number of
shares, proportionally increased. The Company shall give Holder the same
notice it provides to holders of Common Stock of any transaction described in
this Section 5(b).
(c) Distributions. If the Company shall at any time distribute for
no consideration to holders of Common Stock cash, evidences of indebtedness
or other securities or assets (other than cash dividends or distributions
payable out of earned surplus or net profits for the current or preceding
years) then, in any such case, Holder shall be entitled to receive, upon
Exercise of this Warrant, with respect to each share of Common Stock issuable
upon such exercise, the amount of cash or evidences of indebtedness or other
securities or assets which Holder would have been entitled to receive with
respect to each such share of Common Stock as a result of the happening of
such event had this Warrant been exercised immediately prior to the record
date or other date fixing shareholders to be affected by such event (the
"Determination Date") or, in lieu thereof, if the Board of Directors of the
Company should so determine at the time of such distribution, a reduced
Exercise Price determined by multiplying the Exercise Price on the
Determination Date by a fraction, the numerator of which is the result of
such Exercise Price reduced by the value of such distribution applicable to
one share of Common Stock (such value to be determined by the Board of
Directors of the Company in its discretion) and the denominator of which is
such Exercise Price.
(d) Notice of Consolidation or Merger. In the event of a merger,
consolidation, exchange of shares, recapitalization, reorganization, or other
similar event, as a result of which shares of Common Stock shall be changed
into the same or a different number of shares of the same or another class or
classes of stock or securities or other assets of the Company or another
entity or there is a sale of all or substantially all the Company's assets (a
"Corporate Change"), then this Warrant shall be exerciseable into such class
and type of securities or other assets as Holder would have received had
Holder exercised this Warrant immediately prior to such Corporate Change;
provided, however, that Company may not affect any Corporate Change unless it
first shall have given thirty (30) days notice to Holder hereof of any
Corporate Change.
(e) Exercise Price Adjusted. As used in this Warrant, the term
"Exercise Price" shall mean the purchase price per share specified in Section
3 of this Warrant, until the occurrence of an event stated in subsection (a),
(b) or (c) of this Section 5, and thereafter shall mean said price as
adjusted from time to time in accordance with the provisions of said
subsection. No such adjustment under this Section 5 shall be made unless
such adjustment would change the Exercise Price at the time by $.01 or more;
provided, however, that all adjustments not so made shall be deferred and
made when the aggregate thereof would change the Exercise Price at the time
by $.01 or more. No adjustment made pursuant to any provision of this Section
5 shall have the net effect of increasing the Exercise Price in relation to
the split adjusted and distribution adjusted price of the Common Stock. The
number of shares of Common Stock subject hereto shall increase
proportionately with each decrease in the Exercise Price.
(f) Adjustments: Additional Shares, Securities or Assets. In the
event that at any time, as a result of an adjustment made pursuant to this
Section 5, Holder shall, upon Exercise of this Warrant, become entitled to
receive shares and/or other securities or assets (other than Common Stock)
then, wherever appropriate, all references herein to shares of Common Stock
shall be deemed to refer to and include such shares and/or other securities
or assets; and thereafter the number of such shares and/or other securities
or assets shall be subject to adjustment from time to time in a manner and
upon terms as nearly equivalent as practicable to the provisions of this
Section 5.
6. Fractional Interests.
No fractional shares or scrip representing fractional shares
shall be issuable upon the Exercise of this Warrant, but on Exercise of this
Warrant, Holder may purchase only a whole number of shares of Common Stock.
If, on Exercise of this Warrant, Holder would be entitled to a fractional
share of Common Stock or a right to acquire a fractional share of Common
Stock, such fractional share shall be disregarded and the number of shares of
Common Stock issuable upon exercise shall be the next higher number of
shares.
7. Reservation of Shares.
The Company shall at all times reserve for issuance such number
of authorized and unissued shares of Common Stock (or other securities
substituted therefor as herein above provided) as shall be sufficient for the
Exercise of this Warrant and payment of the Exercise Price. The Company
covenants and agrees that upon the Exercise of this Warrant, all shares of
Common Stock issuable upon such exercise shall be duly and validly issued,
fully paid, nonassessable and not subject to preemptive rights, rights of
first refusal or similar rights of any person or entity.
8. Restrictions on Transfer.
(a) Registration or Exemption Required. This Warrant has been
issued in a transaction exempt from the registration requirements of the Act
by virtue of Regulation D and exempt from state registration under applicable
state laws. The Warrant and the Common Stock issuable upon the Exercise of
this Warrant may not be pledged, transferred, sold or assigned except
pursuant to an effective registration statement or an exemption to the
registration requirements of the Act and applicable state laws.
(b) Assignment. If Holder can provide the Company with
reasonably satisfactory evidence that the conditions of (a) above regarding
registration or exemption have been satisfied, Holder may sell, transfer,
assign, pledge or otherwise dispose of this Warrant, in whole or in part.
Holder shall deliver a written notice to Company, substantially in the form
of the Assignment attached hereto as Exhibit B, indicating the person or
persons to whom the Warrant shall be assigned and the respective number of
warrants to be assigned to each assignee. The Company shall effect the
assignment within ten (10) days, and shall deliver to the assignee(s)
designated by Holder a Warrant or Warrants of like tenor and terms for the
appropriate number of shares.
9. Benefits of this Warrant.
Nothing in this Warrant shall be construed to confer upon any
person other than the Company and Holder any legal or equitable right, remedy
or claim under this Warrant and this Warrant shall be for the sole and
exclusive benefit of the Company and Holder.
10. Applicable Law.
This Warrant is issued under and shall for all purposes be
governed by and construed in accordance with the laws of the state of Nevada,
without giving effect to conflict of law provisions thereof.
11. Loss of Warrant.
Upon receipt by the Company of evidence of the loss, theft,
destruction or mutilation of this Warrant, and (in the case of loss, theft or
destruction) of indemnity or security reasonably satisfactory to the Company,
and upon surrender and cancellation of this Warrant, if mutilated, the
Company shall execute and deliver a new Warrant of like tenor and date.
12. Notice or Demands.
Notices or demands pursuant to this Warrant to be given or made by Holder to
or on the Company shall be sufficiently given or made if sent by certified or
registered mail, return receipt requested, postage prepaid, and addressed,
until another address is designated in writing by the Company, to the
Attention: William Kettle, CEO, 1720 East Garry Avenue, Suite 201, Santa Ana,
CA 92705; Telephone: (949) 475-4500, Facsimile: (949) 475-4511. Notices or
demands pursuant to this Warrant to be given or made by the Company to or on
Holder shall be sufficiently given or made if sent by certified or registered
mail, return receipt requested, postage prepaid, and addressed, to the
address of Holder set forth in the Company's records, until another address
is designated in writing by Holder.
IN WITNESS WHEREOF, the undersigned has executed this Warrant as of the
______ day of October 1999.
__________________________
LMKI INC.
By: William Kettle, CEO
EXHIBIT A
EXERCISE FORM FOR WARRANT
TO: LMKI, Inc.
The undersigned hereby irrevocably exercises the right to purchase
____________ of the shares of Common Stock (the "Common Stock") of LMKI,
Inc., a Nevada corporation (the "Company"), evidenced by the attached warrant
(the "Warrant"), and herewith makes payment of the exercise price with
respect to such shares in full, all in accordance with the conditions and
provisions of said Warrant.
1. The undersigned agrees not to offer, sell, transfer or otherwise dispose
of any of the Common Stock obtained on exercise of the Warrant, except in
accordance with the provisions of Section 8(a) of the Warrant.
2. The undersigned requests that stock certificates for such shares be
issued free of any restrictive legend, if appropriate, and a warrant
representing any unexercised portion hereof be issued, pursuant to the
Warrant in the name of the undersigned and delivered to the undersigned at
the address set forth below:
Dated:
________________________________________________________________________
Signature
_______________________________________________________________________
Print Name
________________________________________________________________________
Address
_______________________________________________________________________
NOTICE
The signature to the foregoing Exercise Form must correspond to the name as
written upon the face of the attached Warrant in every particular, without
alteration or enlargement or any change whatsoever.
________________________________________________________________________
EXHIBIT B
ASSIGNMENT
(To be executed by the registered holder
desiring to transfer the Warrant)
FOR VALUE RECEIVED, the undersigned holder of the attached warrant (the
"Warrant") hereby sells, assigns and transfers unto the person or persons
below named the right to purchase _______ shares of the Common Stock of LMKI,
INC., evidenced by the attached Warrant and does hereby irrevocably
constitute and appoint _______________________ attorney to transfer the said
Warrant on the books of the Company, with full power of substitution in the
premises.
Dated: ______________________________
Signature
Fill in for new registration of Warrant:
___________________________________
Name
___________________________________
Address
___________________________________
Please print name and address of assignee
(including zip code number)
_______________________________________________________________________
NOTICE
The signature to the foregoing Assignment must correspond to the name as
written upon the face of the attached Warrant in every particular, without
alteration or enlargement or any change whatsoever.
________________________________________________________________________