Exhibit 99.1
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT, dated as of January 11, 1999 (this
"Agreement"), is entered into by and between ONLINE SYSTEM SERVICES, INC., a
Colorado corporation, with headquarters located at 0000 Xxxxxxx Xxxxx, 0xx
Xxxxx, Xxxxxx, Xxxxxxxx 00000 (the "Company"), and ARROW INVESTORS II LLC, a
Delaware Limited Liability Company (the "Purchaser").
W I T N E S S E T H:
WHEREAS, the Company and the Purchaser are executing and delivering this
Agreement in reliance upon the exemptions from registration provided by
Regulation D ("Regulation D") promulgated by the United States Securities and
Exchange Commission (the "Commission") under the Securities Act of 1933, as
amended (the "Securities Act"), and/or Section 4(2) of the Securities Act;
WHEREAS, the Purchaser wishes to purchase, and the Company wishes to issue
and sell, upon the terms and subject to the conditions of this Agreement, 3,000
shares (the "Initial Preferred Shares") of Series C Convertible Preferred Stock,
no par value ("Series C Preferred Stock"), having the rights, privileges and
preferences set forth in the Articles of Amendment, the form of which is
attached hereto as Exhibit A (the "Articles of Amendment");
WHEREAS, the Series C Preferred Stock is convertible into shares of the
Company's common stock, no par value (the "Common Stock"), on the terms set
forth in the Articles of Amendment;
WHEREAS, the Purchaser wishes to purchase, and the Company wishes to issue
and sell, upon the terms and subject to the conditions of this Agreement, a
warrant to purchase 2,000 additional shares of Series C Preferred Stock, which
warrant shall be in substantially the form attached as Exhibit B (the "Mandatory
Warrant") and;
WHEREAS, pursuant to the terms of the Articles of Amendment, in connection
with the redemption of the Series C Preferred Stock, the Company may issue to
the Purchaser warrants to acquire shares of Common Stock, which warrants shall
be substantially in the form attached as Exhibit C (the "Warrants").
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. AGREEMENT TO PURCHASE; PURCHASE PRICE
a. Purchase of Initial Preferred Shares. Purchaser hereby agrees to
purchase from the Company the Initial Preferred Shares for a purchase price of
$3,000,000 ($1,000 per share) which shall be payable on the Initial Closing Date
(as defined herein) in next
day funds. The Articles of Amendment shall be filed with the Secretary of State
of the State of Colorado on or prior to the Initial Closing Date.
b. Purchase of Mandatory Preferred Shares. Purchaser hereby agrees
to purchase from the Company the Mandatory Warrant for a purchase price of
$1,000, which shall be payable on the Initial Closing Date in next day funds.
The Mandatory Warrant gives the Purchaser the right to acquire and, subject to
the satisfaction (or waiver) of the conditions set forth in the Mandatory
Warrant, the Company the right to require the Purchaser to purchase from time to
time up to an additional 2,000 shares of Series C Preferred Stock (the
"Mandatory Preferred Shares"), in either case, at any time prior to June 30,
1999, for a purchase price of $2,000,000 ($1,000 per share) which shall be
payable on the Mandatory Closing Date (as defined in the Mandatory Warrant) in
next day funds.
c. Closings. The Initial Preferred Shares and Mandatory Warrant to
be purchased by Purchaser hereunder, in definitive form, and in such
denominations as Purchaser or its representative, if any, may request upon at
least forty-eight hours' prior notice to the Company, shall be delivered by or
on behalf of the Company for the account of Purchaser, against payment by the
Purchaser of the aggregate purchase price of $3,001,000 therefor by wire
transfer to an account of the Company, all at the offices of Xxxxxxxx & Xxxxxxxx
LLP, 0000 Xxxxxx xx xxx Xxxxxxxx, Xxx Xxxx, Xxx Xxxx 00000, New York time on
January 11, 1999, or at such other time and date as Purchaser or its
representative, if any, and the Company may agree upon in writing, such date
being referred to herein as the "Initial Closing Date." The Closing dates for
the purchase of the Mandatory Preferred Shares are as set forth in the Mandatory
Warrant.
2. PURCHASER REPRESENTATIONS AND WARRANTIES; ACCESS TO INFORMATION;
INDEPENDENT INVESTIGATION.
The Purchaser represents and warrants to, and covenants and agrees with,
the Company as follows:
a. The Purchaser is purchasing the Initial Preferred Shares and the
Mandatory Warrant and will, if the Mandatory Warrant is exercised, purchase the
Mandatory Preferred Shares (the Initial Preferred Shares and the Mandatory
Preferred Shares together, the "Preferred Shares") and, if the Preferred Shares
are redeemed, purchase the Warrants, and will acquire shares of Series C
Preferred Stock and Common Stock issued upon conversion of the Preferred Shares
or the exercise of the Warrants (the Preferred Shares, the Mandatory Warrant,
the Warrants and such Common Stock being referred to herein collectively as the
"Securities") for investment purposes only and not with a view towards the
public sale or distribution thereof and not with a view to or for sale in
connection with any distribution thereof;
b. The Purchaser and each of its equity owners is (i) an "accredited
investor," as that term is defined in Rule 501 of the General Rules and
Regulations under the Securities Act by reason of Rule 501(a), (ii) experienced
in making investments of the kind described in this
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Agreement and the related documents, (iii) able, by reason of the business and
financial experience of its officers (if an entity) and professional advisors,
to protect its own interests in connection with the transactions described in
this Agreement and the related documents, and (iv) able to afford the entire
loss of its investment in the Preferred Shares;
c. All subsequent offers and sales of (i) the Preferred Shares
issuable hereunder, and (ii) the Common Stock issuable upon conversion of the
Preferred Shares or in lieu of dividend payments on the Preferred Shares or upon
exercise of the Warrants shall be made pursuant to an effective registration
statement under the Securities Act or pursuant to an applicable exemption from
registration;
d. The Purchaser understands that the Preferred Shares are being
offered and sold to it in reliance upon exemptions from the registration
requirements of the United States federal and state securities laws, and that
the Company is relying upon the truth and accuracy of the Purchaser's
representations and warranties, and the Purchaser's compliance with its
agreements, each as set forth herein, in order to determine the availability of
such exemptions and the eligibility of the Purchaser to acquire the Preferred
Shares;
e. The Purchaser acknowledges that in making its decision to
purchase the Preferred Shares, it has relied upon independent investigations
made by it and its representatives, if any, and the Purchaser and such
representatives, if any, have been provided access and the opportunity to
examine all material, publicly available books and records of the Company, all
material contracts and documents relating to this offering and have had an
opportunity to ask questions of, and to receive answers from the Company or
persons acting on its behalf concerning the terms and conditions of this
offering. The Purchaser and its advisors, if any, have been furnished with
access to all publicly available materials relating to the business, finances
and operations of the Company and materials relating to the offer and sale of
the Preferred Shares which have been requested. The Purchaser and its advisors,
if any, have received answers to any such inquiries which they have deemed to be
satisfactory.
f. This Agreement has been duly and validly authorized, executed and
delivered on behalf of the Purchaser and is a valid and binding agreement of the
Purchaser, enforceable in accordance with its terms, except to the extent that
enforcement of this Agreement may be limited by bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance or other similar laws now or
hereafter in effect relating to creditors' rights generally and to general
principles of equity.
3. REPRESENTATIONS OF THE COMPANY
The Company represents and warrants to Purchaser that, except as set forth
in the Disclosure Schedule attached hereto:
a. Organization. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Colorado.
Each of the Company's subsidiaries is a corporation duly organized, validly
existing and in good standing under the laws of its respective jurisdiction.
Each of the Company and its subsidiaries is duly qualified as a
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foreign corporation in all jurisdictions in which the failure to so qualify
would have a material adverse effect on the Company and its subsidiaries taken
as a whole.
b. Capitalization. On the date hereof, the authorized capital of the
Company shall consist of 20,000,000 shares of Common Stock, no par value, of
which 4,674,320 shares are issued and outstanding and 5,000,000 shares of
Preferred Stock, 500,000 shares of which have been designated as 10% Preferred
Stock, of which 235,000 shares are issued and outstanding, 3,000 shares of which
have been designated 5% Preferred Stock, none of which shares are outstanding
and 1,400 shares of which have been designated as Series A Preferred Stock, all
of which shares are issued and outstanding. Schedule I hereto sets forth the
options, warrants and convertible securities of the Company (the "Derivative
Securities") which are outstanding on the date hereof, including in each case
(i) the name and class of such Derivative Securities, (ii) the issue date of
such Derivative Securities, (iii) the number of shares of Common Stock of the
Company into which such Derivative Securities are convertible as of the date
hereof, (iv) the conversion or exercise price or prices of such Derivative
Securities as of the date hereof, (v) the expiration date of any conversion or
exercise rights held by the owners of such Derivative Securities and (vi) any
registration rights associated with such Derivative Securities.
c. Concerning the Preferred Stock. The Preferred Shares to be issued
to the Purchaser in accordance with the terms of this Agreement upon payment of
the purchase price therefor, shall be duly and validly issued, fully paid and
non-assessable, and will not subject the holder thereof to personal liability by
reason of being such a holder. There are no preemptive rights of any stockholder
of the Company, as such, to acquire the Securities issuable to the Purchaser
hereunder.
d. Concerning the Common Stock. The Common Stock issuable (i) upon
conversion of the Preferred Shares (ii) in lieu of dividend payments on the
Preferred Shares or (iii) upon exercise of the Warrants, when so issued, shall
be duly and validly issued, fully paid and non-assessable, and will not subject
the holder thereof to personal liability by reason of being such a holder. There
are no preemptive rights of any stockholder of the Company, as such, to acquire
the Common Stock issuable to the Purchaser pursuant to the terms of the
Preferred Shares or the Warrants.
e. Reporting Company Status. The Company's Common Stock is
registered under Section 12 of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). The Company has timely filed all materials and documents
required to be filed pursuant to all reporting obligations under either Section
13 (a) or 15 (d) of the Exchange Act for a period of at least twelve (12) months
preceding the offer and sale of the Initial Preferred Shares.
f. Authorized Shares. The Company has legally available a sufficient
number of authorized and unissued shares of Common Stock as may be reasonably
necessary to effect the conversion of the Preferred Shares and the exercise of
the Warrants. The Company understands and acknowledges the potentially dilutive
effect to the Common Stock of the issuance of shares of Common Stock upon
conversion of the Preferred Shares and the exercise of the Warrants. The Company
further acknowledges that its obligation to issue shares of Common
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Stock upon conversion of the Preferred Shares and upon exercise of the Warrants,
if issued, is absolute and unconditional regardless of the dilutive effect that
such issuance may have on the ownership interests of other shareholders of the
Company and notwithstanding the commencement of any case under 11 U.S.C. ss. 101
et seq. (the "Bankruptcy Code"). In the event the Company becomes a debtor under
the Bankruptcy Code, the Company hereby waives to the fullest extent permitted
any rights to relief it may have under 11 U.S.C. ss. 362 in respect of the
conversion of the Preferred Shares and the exercise of the Warrants, if issued.
The Company agrees, without cost or expense to the Purchaser, to take or consent
to any and all action necessary to effectuate relief under 11 U.S.C. ss. 362.
g. Legality. The Company has the requisite corporate power and
authority to enter into this Agreement and to issue and deliver the Preferred
Shares and the Warrants. The issuance of the Preferred Shares and the Warrants
(and the Common Stock issuable upon (i) conversion of the Preferred Shares, (ii)
exercise of the Warrants and (iii) in lieu of dividend payments on the Preferred
Shares) have been duly and validly authorized by all necessary corporate action
by the Company.
h. Transaction Agreements. This Agreement, the Registration Rights
Agreement dated as of the date hereof between the Company and Purchaser in
substantially the form of Exhibit D hereto (the "Registration Rights
Agreement"), the Mandatory Warrant and the Warrants, (the "Primary Documents"),
and the transactions contemplated thereby (including the filing of the
Certificate of Amendment with the Secretary of State of the State of Colorado),
have been duly and validly authorized by the Company; this Agreement has been
duly executed and delivered by the Company and this Agreement is, and the
Primary Documents, when executed and delivered by the Company, will each be, a
valid and binding agreement of the Company, enforceable in accordance with their
respective terms, except to the extent that enforcement of each of the Primary
Documents may be limited by bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance or other similar laws now or hereafter in effect relating
to creditors' rights generally and to general principles of equity.
i. Non-contravention. The execution and delivery of this Agreement,
and each of the other Primary Documents, and the consummation by the Company of
the other transactions contemplated by this Agreement and each of the other
Primary Documents, does not and will not conflict with or result in a breach by
the Company of any of the terms or provisions of, or constitute a default under,
the Articles of Incorporation of the Company, or any indenture, mortgage, deed
of trust or other material agreement or instrument to which the Company or any
of its subsidiaries is a party or by which they or any of their properties or
assets are bound, or any material existing applicable law, rule, or regulation
or any applicable decree, judgment or order of any court, or United States
federal or state regulatory body, administrative agency, or any other
governmental body having jurisdiction over the Company, its subsidiaries, or any
of their properties or assets, except such conflict, breach or default which
would not have a material adverse effect on the transactions contemplated by
this Agreement or by the other Primary Documents. Neither the filing of any
registration statement required to be filed by the Company pursuant to the
Registration Rights Agreement nor the offering or sale of the Preferred Shares
as contemplated by this Agreement gives rise to any rights, other than those
which have been
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waived or satisfied on or prior to the Closing Date, for or relating to the
registration of any shares of the Company's Common Stock.
j. Approvals. No authorization, approval or consent of any court,
governmental body, regulation agency, self-regulatory organization, stock
exchange or market or the shareholders of the Company is required to be obtained
by the Company for the entry into or the performance of this Agreement and the
other Primary Documents, except (i) such authorizations, approvals and consents
that have been obtained, copies of which have been furnished to the Purchaser
and, (ii) authorizations, approvals, consents or orders of the Commission with
respect to the Registration Statements referred to in the Registration Rights
Agreement, which approvals and orders are not required to be obtained as of the
Closing Date and will be timely obtained when required.
k. SEC Filings. None of the reports or documents filed by the
Company with the Commission since January 1, 1996 contained, at the time they
were filed, any untrue statement of a material fact or omitted to state any
material fact required to be stated therein, or necessary to make the statements
made therein, in light of the circumstances under which they were made, not
misleading.
l. Absence of Certain Changes. Since December 31, 1997, except as
disclosed in the Company's reports on Forms l0-QSB or 8-K, there has been no
material adverse change and no material adverse development in the business
properties, operations, financial condition, outstanding securities or results
of operations of the Company.
m. Full Disclosure. There is no fact known to the Company (other
than general economic conditions known to the public generally) that has not
been disclosed to the Purchaser that (i) could reasonably be expected to have a
material adverse effect upon the condition (financial or otherwise) or the
earnings, business affairs, properties or assets of the Company or (ii) could
reasonably be expected to materially and adversely affect the ability of the
Company to perform its obligations pursuant to the Primary Documents.
n. Title to Properties; Liens and Encumbrances. The Company has good
and marketable title to all of its properties and assets, both real and
personal, and has good title to all its leasehold interests, in each case
subject only to mortgages, pledges, liens, security interests, conditional sale
agreements, encumbrances or charges created in the ordinary course of business.
o. Patents and Other Proprietary Rights. The Company has sufficient
title and ownership of all patents, trademarks, service marks, trade names,
copyrights, trade secrets, information, proprietary rights and processes
necessary for the conduct of its business as now conducted, and such business
does not conflict with or constitute an infringement on the rights of others.
p. Permits. The Company has all franchises, permits, licenses and
any similar authority necessary for the conduct of its business as now
conducted, the lack of which would materially and adversely affect the business
or financial condition of the Company. The
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Company is not in default in any material respect under any of such franchises,
permits, licenses or similar authority.
q. Absence of Litigation. Except as set forth in the Company's
annual report on Form 10-KSB for the year ended December 31, 1997, as amended
(the "1997 Annual Report") and in the Company's quarterly reports on Form
10-QSB, there is no action, suit, proceeding, inquiry or investigation before or
by any court, public board or body pending or, to the knowledge of the Company
or any of its subsidiaries, threatened against or affecting the Company or any
of its subsidiaries, in which an unfavorable decision, ruling or finding would
have a material adverse effect on the properties, business, condition (financial
or other) or results of operations of the Company and its subsidiaries, taken as
a whole, or the transactions contemplated by the Primary Documents, or which
would adversely affect the validity or enforceability of, or the authority or
ability of the Company to perform its obligations under, the Primary Documents.
r. No Default. Each of the Company and its subsidiaries is not in
default in the performance or observance of any material obligation, covenant or
condition contained in any material indenture, mortgage, deed of trust or other
instrument or agreement to which it is a party or by which it or its property
may be bound.
s. Transactions with Affiliates. Except as disclosed in the 1997
Annual Report and in the Company's quarterly reports on Form 10-QSB, there are
no agreements, understandings or proposed transactions between the Company and
any of its officers, directors or affiliates that, had they existed on December
31, 1997, would have been required to be disclosed in the 1997 Annual Report.
t. Taxes. All applicable tax returns required to be filed by the
Company and each of its subsidiaries have been filed, or if not yet filed have
been granted extensions of the filing dates which extensions have not expired,
and all taxes, assessments, fees and other governmental charges upon the
Company, its subsidiaries, or upon any of their respective properties, income or
franchises, shown in such returns and on assessments received by the Company or
its subsidiaries to be due and payable have been paid, or adequate reserves
therefor have been set up if any of such taxes are being contested in good
faith; or if any of such tax returns have not been filed or if any such taxes
have not been paid or so reserved for, the failure to so file or to pay would
not in the aggregate have a material adverse effect on the business or financial
condition of the Company and its subsidiaries, taken as a whole.
u. Investment Company Act. The Company is not conducting, and does
not intend to conduct its business in a manner which would cause it to become,
an "investment company" as defined in Section 3(a) of the Investment Company Act
of 1940, as amended.
v. Agent Fees. Except for such payments as may be owed to EBI
Securities Corporation, the Company has not incurred any liability for any
finder's or brokerage fees or agent's commissions in connection with the offer
and sale of the Preferred Shares hereunder.
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w. Private Offering. Subject to the accuracy of the Purchaser's
representations and warranties set forth in Section 2 hereof, the offer, sale
and issuance of the Securities as contemplated by this Agreement are exempt from
the registration requirements of the Securities Act. The Company agrees that
neither the Company nor anyone acting on its behalf will offer any of the
Preferred Shares or the Warrants or any similar securities for issuance or sale,
or solicit and offer to acquire any of the same from anyone so as to render the
issuance and sale of the Securities subject to the registration requirements of
the Securities Act. The Company has not offered or sold the Securities by any
form of general solicitation or general advertising, as such terms are used in
Rule 502(c) under the Securities Act.
x. Full Disclosure. The representations and warranties of the
Company set forth in this Agreement do not contain any untrue statement of a
material fact or omit any material fact necessary to make the statements
contained herein, in light of the circumstances under which they were made, not
misleading.
4. CERTAIN COVENANTS AND ACKNOWLEDGMENTS.
a. Transfer Restrictions. Purchaser acknowledges that (1) neither
the Preferred Shares, Common Stock nor the Warrants have been, and are not
being, registered under the Securities Act and, except as provided in the
Registration Rights Agreement, the Common Stock issuable upon conversion of the
Preferred Shares, in lieu of dividend payments on the Preferred Shares and upon
exercise of the Warrants, have not been and are not being registered under the
Securities Act, and may not be transferred unless (A) subsequently registered
thereunder or (B) the Purchaser shall have delivered to the Company an opinion
of counsel, reasonably satisfactory in form and substance to the Company, to the
effect that the Securities to be sold or transferred may be sold or transferred
pursuant to an exemption from such registration; (2) any sale of the Securities
made in reliance upon Rule 144 under the Securities Act may be made only in
accordance with the terms of said Rule and further, if said Rule is not
applicable, any resale of the Securities under circumstances in which the
seller, or the person through whom the sale is made, may be deemed to be an
underwriter, as that term is used in the Securities Act, may require compliance
with another exemption under the Securities Act and the rules and regulations of
the Commission thereunder; and (3) neither the Company nor any other person is
under any obligation to register the Securities (other than pursuant to the
Registration Rights Agreement) under the Securities Act or to comply with the
terms and conditions of any exemption thereunder. The provisions of Section 4(a)
and 4(b) hereof shall be binding upon any subsequent transferee of the Preferred
Shares or Warrants.
b. Restrictive Legend. Purchaser acknowledges and agrees that the
Preferred Shares or the Warrants, and, until such time as the Common Stock
issuable upon conversion of the Preferred Shares or upon exercise of the
Warrants shall have been registered under the Securities Act as contemplated by
the Registration Rights Agreement and sold in accordance with such Registration
Statement, such securities may be subject to a stop-transfer order placed
against the transfer of such Securities, and such shares shall bear a
restrictive legend in substantially the following form:
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THESE SECURITIES HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED, HYPOTHECATED OR OTHERWISE
TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT AS TO THE SECURITIES
UNDER SAID ACT OR AN OPINION OF COUNSEL OR
OTHER EVIDENCE SATISFACTORY TO THE
CORPORATION THAT SUCH REGISTRATION IS NOT
REQUIRED.
c. Filings. The Company undertakes and agrees to make all necessary
filings in connection with the sale of the Securities to the Purchaser as
required by United States laws and regulations, or by any domestic securities
exchange or trading market, including, if applicable, the filing of a notice on
Form D (at such time and in such manner as required by the Rules and Regulations
of the Commission), and to provide copies thereof to the Purchaser promptly
after such filing or filings.
d. Nasdaq Listing. Prior to the issuance of the shares of Common
Stock (i) upon conversion of the Preferred Shares, (ii) in lieu of dividend
payments on the Preferred Shares or (iii) exercise of the Warrants, the Company
undertakes and agrees to file a listing application with the Nasdaq Stock Market
to cause such shares to become listed on the Nasdaq Stock Market. The Company
agrees that it will not seek to have the trading of its Common Stock through the
Nasdaq Stock Market suspended or terminated, will use its commercially
reasonable best efforts to maintain its eligibility for trading through the
Nasdaq Stock Market and, if the trading of its Common Stock is suspended or
terminated, will use its commercially reasonable best efforts to requalify its
Common Stock or otherwise cause such trading to resume.
e. Reporting Status. So long as the Purchaser beneficially owns any
of the Securities, the Company shall file all reports required to be filed with
the Commission pursuant to Section 13 or 15(d) of the Exchange Act, and, except
in connection with an acquisition transaction in which at least 50% of the
Company's voting equity securities or substantially all of the assets of the
Company are acquired by another entity, the Company shall not terminate its
status as an issuer required to file reports under the Exchange Act even if the
Exchange Act or the rules and regulations thereunder would permit such
termination.
f. State Securities Filings. The Company shall from time to time
promptly take such action as the Purchaser or any of its representatives, if
applicable, may reasonably request to qualify the Securities for offering and
sale under the securities laws (other than United States federal securities
laws) of such jurisdictions in the United States as shall be so identified to
the Company, and to comply with such laws so as to permit the continuance of
sales therein, provided that in connection therewith, the Company shall not be
required to qualify as a foreign corporation or to file a general consent to the
service of process in any jurisdiction.
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g. Use of Proceeds. The Company will use the proceeds from the
issuance of the Preferred Shares (excluding amounts paid by the Company for
legal fees and finder's fees in connection with the sale of the Preferred
Shares) for general corporate purposes and working capital. None of such
proceeds shall be used to purchase or redeem any outstanding shares of the
Company's Series A Preferred Stock.
h. Reservation of Shares. The Company will at all times have
authorized and reserved for the purpose of issuance a sufficient number of
shares of Common Stock to provide for the conversion of the Preferred Shares
and, if applicable, the exercise of the Warrants. The Company will use its best
efforts at all times to maintain a number of shares of Common Stock so reserved
for issuance that is no less than two (2) times the number that is then actually
issuable upon the conversion of the Preferred Shares or the exercise of the
Warrants. The number of shares of Common Stock reserved for issuance by the
Company upon conversion of the Preferred Shares or upon exercise of the Warrants
shall at all times be allocated pro rata among the holders of the Preferred
Shares based upon the aggregate purchase price of the Preferred Shares
purchased, and no holder may at any time convert its Preferred Shares or
exercise Warrants so as to obtain a greater number of shares of Common Stock
than its pro rata allocation of the Company's reserved Common Stock. In the
event that Purchaser shall sell or otherwise transfer, in whole or in part, any
of its Securities (except for Common Stock of the Company subject to an
effective registration statement under the Securities Act or otherwise freely
tradable by Purchaser), each transferee shall, for purposes of determining such
transferee's allocation of the Company's reserved Common Stock, be allocated a
pro rata portion of the initial purchase price paid upon purchase of the
Preferred Shares relating to such Securities.
i. Registrations. From the date hereof until 90 days following the
effective date of the registration contemplated by the Registration Rights
Agreement, the Company shall not permit the registration of any of its
securities under the Securities Act to become effective, other than those
covered by the Registration Rights Agreement, without the prior written approval
of the Purchaser. The foregoing notwithstanding, the Company may permit a
registration statement to become effective during the foregoing period provided
that (i) such registration statement relates to an underwritten public offering
of the Company's securities, (ii) such registration statement is filed pursuant
to registration rights agreements between the Company and the holders of the
Company's 10% Preferred Stock and Series A Preferred Stock, (iii) such
registration statement relates to Common Stock which may be obtained upon
exercise of the Company's warrants which are publicly traded as of the date
hereof or the securities issued to the underwriter in connection with the
Company's initial public offering, (iv) such registration statement relates to
24,000 shares of Common Stock issued to Xxxxxxx Xxxxxx in lieu of cash payments,
or (v) such registration statement is filed in connection with the acquisition
of Xxxxxx Communications, Inc.
j. Right of First Refusal. The Company agrees that during the period
beginning on the date hereof and ending on the date which is six (6) months
after the Initial Closing Date it will not, without the prior written consent of
the Purchaser, sell any shares of its securities convertible into shares of its
Common Stock unless it shall have first delivered to Purchaser written notice
describing the proposed offering, including the terms and conditions
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thereof, and providing Purchaser an option to purchase all, but not less than
all, of such securities on the same terms and conditions set forth in the
notice. The Purchaser can exercise its option to purchase such securities by
delivering written notice thereof to the Company within 72 hours of receipt of
the notice of such offering. In the event that Purchaser fails to elect to fully
participate in the offering within in such 72-hour period, the Company shall
have the right to sell its securities to a third party upon the same terms and
conditions (including the amount thereof) specified in the notice. This right
does not apply to (i) any transaction involving the Company's issuance of
securities (A) as consideration in a merger or consolidation, (B) in connection
with any strategic partnership or joint venture, or (C) as consideration for the
acquisition of a business, product or license or other assets of the Company;
(ii) the issuance of securities upon exercise or conversion of the Company's
options, warrants or other convertible securities outstanding as of the date
hereof; or (iii) the grant of additional options or warrants, or the issuance of
additional securities, under any Company stock option plan, restricted stock
plan or stock purchase plan for the benefit of the Company's employees,
directors or consultants. The Purchaser shall not be required to participate or
exercise its right of first refusal with respect to a particular offering in
order to exercise such right of first refusal with respect to later offerings.
k. Shareholder Approval. In the event that the Company has not
obtained shareholder approval of the transactions contemplated herein and in the
Exhibits hereto prior to the issuance of the Mandatory Preferred Shares, the
Company shall, upon at least thirty (30) days' prior written notice from
Purchaser given at anytime thereafter, include on the agenda for the next
meeting of the Company's shareholders, approval of this Agreement, including the
Exhibits hereto, and the transactions contemplated herein and therein.
5. TRANSFER AGENT INSTRUCTIONS.
a. The Company warrants that no instruction other than the
instructions referred to in this Section 5 and stop transfer instructions to
give effect to Sections 4(a) and 4(b) hereof prior to the registration and sale
under the Securities Act of the Common Stock issuable upon conversion of the
Preferred Shares, or in lieu of dividend payments on the Preferred Shares or
upon exercise of the Warrants, will be given by the Company to the transfer
agent and that such Common Stock shall otherwise be freely transferable on the
books and records of the Company as and to the extent provided in this
Agreement, the Registration Rights Agreement, and applicable law Nothing in this
Section shall affect in any way the Purchaser's obligations and agreement to
comply with all applicable securities laws upon resale of the Securities. If
Purchaser provides the Company with an opinion of counsel reasonably
satisfactory (as to both the identity of such counsel and the content of such
opinion) to the Company in accordance with clause (1 )(B) of Section 4(a) of
this Agreement that registration of a resale by the Purchaser of any of the
Securities is not required under the Securities Act, the Company shall (except
as provided in clause (2) of Section 4(a) of this Agreement) permit the transfer
of the Securities and, in the case of the Common Stock, promptly instruct the
Company's transfer agent to issue one or more certificates for Common Stock
without legend in such names and in such denominations as specified by the
Purchaser.
11
b. The Company will permit Purchaser to exercise its right to
convert the Preferred Shares or to exercise the Warrants by faxing an executed
and completed Notice of Conversion or Form of Election to Purchase, as
applicable, to the Company, and delivering within three (3) business days
thereafter, the original Notice of Conversion (and the related original
Preferred Shares) or Form of Election to Purchase (and the related original
Warrants) to the Company by hand delivery or by express courier, duly endorsed.
Each date on which a Notice of Conversion or Form of Election to Purchase is
faxed to and received in accordance with the provisions hereof shall be deemed a
"Conversion Date." The Company (or its transfer agent) will transmit the
certificates representing the Common Stock issuable upon conversion of the
Preferred Shares or upon exercise of any Warrants (together with the Preferred
Shares not so converted, or the Warrants not so exercised) to Purchaser via
express courier as soon as practicable, but in all events no later than the
later to occur of (the "Delivery Date") (i) three (3) business days after the
Conversion Date and (ii) three (3) business days after receipt by the Company of
the original Notice of Conversion (and the related original Preferred Shares) or
Form of Election to Purchase (and the related original Warrants), as applicable.
For purposes of this Agreement, such conversion of the Preferred Shares or
exercise of the Warrants shall be deemed to have been made immediately prior to
the close of business on the Conversion Date.
c. In lieu of delivering physical certificates representing the
Common Stock issuable upon the conversion of the Preferred Shares or exercise of
the Warrants, provided the Company's transfer agent is participating in the
Depository Trust Company ("DTC") Fast Automated Securities Transfer program, on
the written request of Purchaser if Purchaser shall have previously instructed
its prime broker to confirm such request to the Company's transfer agent, the
Company shall use commercially reasonable efforts to cause its transfer agent to
electronically transmit such Common Stock to the Purchaser by crediting the
account of the Purchaser's prime broker with DTC through its Deposit Withdrawal
Agent Commission ("DWAC") system no later than the applicable Delivery Date.
d. The Company understands that a delay in the issuance of Common
Stock beyond the applicable Delivery Date could result in an economic loss to
Purchaser. As compensation to Purchaser for such loss, the Company agrees to pay
to Purchaser for late issuance of Common Stock upon conversion of the Preferred
Shares or upon exercise of the Warrants the sum of $5,000 per day for each
$100,000 in aggregate principal amount of Preferred Shares that are being
converted, or for each 25,000 shares of Common Stock purchased upon the exercise
of the Warrants.
The Company shall pay any payments incurred under this Section 5 in immediately
available funds upon demand. Nothing herein shall limit Purchaser's right to
pursue actual damages for the Company's failure to issue and deliver shares of
Common Stock to Purchaser. Furthermore, in addition to any other remedies which
may be available to Purchaser, in the event that the Company fails for any
reason to effect delivery of such Common Stock within five (5) business days
after the relevant Delivery Date, Purchaser will be entitled to revoke the
relevant Notice of Conversion or Form of Election to Purchase by delivering a
notice to such effect to the Company, whereupon the Company and Purchaser shall
each be restored to their respective positions immediately prior to delivery of
such Notice of Conversion or Form of Election to
12
Purchase. For purposes of this Section 5, "business day" shall mean any day in
which the financial markets of New York are officially open for the conduct of
business therein.
e. At no time shall Purchaser or any of its assignees (including any
of their affiliates) convert or exercise such amount of the Preferred Shares or
the Warrants as shall result in such person's (including any such affiliate's)
beneficial ownership, after such conversion or exercise, exceeding 9.9% of the
Company's then outstanding Common Stock, and the parties agree that no holder of
the Preferred Shares shall have the right to effect such a conversion or
exercise.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO ISSUE THE SECURITIES.
Purchaser understands that the Company's obligation to issue the
Securities on the Closing Date or the Mandatory Closing Date to Purchaser
pursuant to this Agreement is conditioned upon:
a. The accuracy on the Closing Date of the representations and
warranties of Purchaser contained in this Agreement as if made on such Closing
Date and the performance by Purchaser on or before such Closing Date of all
covenants and agreements of Purchaser required to be performed on or before such
Closing Date;
b. The absence or inapplicability of any and all laws, rules or
regulations prohibiting or restricting the transactions contemplated hereby, or
requiring any consent or approval which shall not have been obtained.
7. CONDITIONS TO THE PURCHASER'S OBLIGATION TO PURCHASE THE SECURITIES.
The Company understands that Purchaser's obligation to purchase the
Securities on the Initial Closing Date or the Mandatory Closing Date is
conditioned upon:
a. The accuracy on the Closing Date of the representations and
warranties of the Company contained in this Agreement as if made on the Closing
Date, and the performance by the Company on or before the Closing Date of all
covenants and agreements of the Company required to be performed on or before
the Closing Date;
b. The Company shall have duly filed the Certificate of Amendment,
in substantially the form attached hereto as Exhibit A, with the offices of the
Secretary of State of the State of Colorado in accordance with the Colorado
Business Corporation Act;
c. On each Closing Date, the Purchaser shall have received an
opinion of counsel for the Company, dated the Closing Date, in form, scope and
substance reasonably satisfactory to Purchaser, to the effect set forth in
Exhibit F attached hereto;
13
d. The Company shall have executed and delivered a signed
counterpart to the Registration Rights Agreement;
e. On each Closing Date, the Purchaser shall have received a
certificate executed by (i) the President or the Chairman of the Company and
(ii) the Chief Financial Officer of the Company, stating that all of the
representations and warranties of the Company set forth in this Agreement are
accurate as of the Closing Date and that the Company has performed all of its
covenants and agreements required to be performed under this Agreement on or
before the Closing Date;
f. On the Closing Date, the Purchaser shall have received from the
Company such other certificates and documents as it or its representative, if
applicable, shall reasonably request, and all proceedings taken by the Company
in connection with the Primary Documents contemplated by this Agreement and the
other Primary Documents and all documents and papers relating to such Primary
Documents shall be satisfactory to the Purchaser;
g. On or prior to the Closing Date, there shall not have occurred
any of the following: (i) a suspension or material limitation in the trading of
securities generally on the New York Stock Exchange or Nasdaq; (ii) a general
moratorium on commercial banking activities in New York declared by the
applicable banking authorities; (iii) the outbreak or escalation of hostilities
involving the United States, or the declaration by the United States of a
national emergency or war; or (iv) a change in international, political,
financial or economic conditions, if the effect of any such event, in the
reasonable judgment of the Purchaser, makes it impracticable or inadvisable to
proceed with the purchase of the Securities on the terms and in the manner
contemplated in this Agreement and in the other Primary Documents.
h. In the case of the Mandatory Closing Date, each of the Closing
Conditions as defined in the Mandatory Warrant shall have been satisfied.
8. EXPENSES.
The Company covenants and agrees with the Purchaser that the Company will
pay or cause to be paid the following: (a) the fees, disbursements and expenses
of the Company's counsel and accountants in connection with the issuance of the
Securities, (b) all expenses in connection with the qualification of the
Securities for offering and sale under state securities laws as provided in
Section 4(f) hereof, and (c) all other costs and expenses incident to the
performance of its obligations hereunder which are not otherwise specifically
provided for in this Section 9, including but not limited to the legal fees of
the Purchaser in the aggregate amount of $20,000. If the Company fails to
satisfy its obligations or to satisfy any condition set forth in this Agreement,
as a result of which the Preferred Shares is not delivered to the Purchaser on
the terms and conditions set forth herein, the Company shall reimburse such
Purchaser for any actual, documented, out-of-pocket expenses reasonably incurred
by such in making preparations for the purchase, sale and delivery of the
Preferred Shares not so delivered.
14
9. GOVERNING LAW; MISCELLANEOUS.
This Agreement shall be governed by and interpreted in accordance with the
laws of the State of New York. Each of the parties consents to the jurisdiction
of the federal courts whose districts encompass any part of the City of New York
or the state courts of the State of New York sitting in the City of New York in
connection with any dispute arising under this Agreement or any of the Primary
Documents, and hereby waives, to the maximum extent permitted by law, any
objection, including any objections based on forum non con veniens, to the
bringing of any such proceeding in such jurisdictions. This Agreement may be
signed in one or more counterparts, each of which shall be deemed an original.
The headings of this Agreement are for convenience of reference only and shall
not form part of, or affect the interpretation of this Agreement. If any
provision of this Agreement shall be invalid or unenforceable in any
jurisdiction, such invalidity or enforceability shall not affect the validity or
enforceability of the remainder of this Agreement or the validity or
enforceability of this Agreement in any other jurisdiction. This Agreement shall
inure to the benefit of, and be binding upon the successors and assigns of each
of the parties hereto, including any transferees of the Securities. This
Agreement may be amended only by an instrument in writing signed by the party to
be charged with enforcement. This Agreement supersedes all prior agreements and
understandings among the parties hereto with respect to the subject matter
hereof
10. NOTICES.
Any notice required or permitted hereunder shall be given in writing
(unless otherwise specified herein) and shall be effective upon personal
delivery, via facsimile (upon receipt of confirmation of error-free
transmission) or two business days following deposit of such notice with an
internationally recognized courier service, with postage prepaid and addressed
to each of the other parties thereunto entitled at the following addresses, or
at such other addresses as a party may designate by ten days advance written
notice to each of the other parties hereto.
COMPANY: ONLINE SYSTEM SERVICES, INC.
0000 Xxxxxxx Xxxxx
0xx Xxxxx
Xxxxxx, Xxxxxxxx 00000
ATT.: R. Xxxxxx Xxxxx, Chairman and Chief Executive Officer
Tel.: (000) 000-0000
Fax: (000) 000-0000
With copies to:
XXXX PLANT XXXXX XXXXX & XXXXXXX, P.A.
3400 City Center
00 Xxxxx Xxxxx Xxxxxx
Xxxxxxxxxxx, Xxxxxxxxx 00000
ATT.: Xxxxxxx Xxxxxxx, Esq.
Tel.: 000-000-0000
Fax: 000-000-0000
15
PURCHASER: At the addresses set forth on the signature page of this Agreement,
as such addresses may be updated from time to time by the Purchaser.
With Copies to:
WEC ASSET MANAGEMENT LLC
Xxx Xxxxx Xxxxx Xxxxxx
Xxxxx 0000
Xxx Xxxx, Xxx Xxxx 00000
ATT.: Xxxxxx Xxxx
Tel.: 000-000-0000
Fax: 000-000-0000
XXXXXXXX & XXXXXXXX LLP
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000
ATT.: Xxx Xxxxxxxxxx, Esq.
Tel.: 000-000-0000
Fax: 000-000-0000
11. SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
The representations and warranties of the Company and the Purchaser shall
survive the execution and delivery of this Agreement and the delivery of the
Preferred Shares.
12. CONFIDENTIALITY.
Each of the Company and the Purchaser agrees to keep confidential, and not
to disclose (except as required pursuant to the Securities Act or the Exchange
Act or the rules promulgated thereunder) to or use for the benefit of any third
party, the terms of this Agreement, any of the other Primary Documents or any
other information which at any time is designated in writing by the other party
as confidential without the prior written approval of the other party; provided,
however, that this provision shall not apply to information which, at the time
of disclosure, is already part of the public domain (except by breach of this
Agreement) and information which is required to be disclosed by law.
16
IN WITNESS WHEREOF, this Agreement has been duly executed by each of the
undersigned.
"COMPANY"
ONLINE SYSTEM SERVICES, INC.
By:
---------------------------
Name: Xxxxxx X. Xxxxxxxx
Title: Chief Financial Officer
IN WITNESS WHEREOF, this Agreement has been duly executed by each of the
undersigned.
"PURCHASER"
--------------------------
By: WEC ASSET MANAGEMENT LLC, Manager
By:
-------------------------------------
Name: Xxxxxx Xxxx
Title: Managing Director
17
Exhibit A
8. Designation of Preferred Stock. The Corporation shall establish and
reserve for issuance from its 5,000,000 authorized shares of Preferred Stock a
class of convertible preferred stock consisting of 5,000 shares to be designated
as the Series C Preferred Stock (the "Series C Preferred Stock"). The Series C
Preferred Stock shall have a stated value of the Liquidation Preference (as
hereinafter defined). Except as otherwise expressly stated in this Section 8,
all shares of the Series C Preferred Stock shall be identical to the shares of
10% Preferred Stock and Series A Preferred Stock, and the holders of Series C
Preferred Stock shall be entitled to the same preferences, limitations and
relative rights as the holders of 10% Preferred Stock and Series A Preferred
Stock.
A. Dividends.
(1) Dividend Rate. Holders of the Series C Preferred Stock
shall be entitled to receive, out of funds legally available
therefor, dividends at a rate equal to 4% (the "Dividend Rate") of
the Liquidation Preference per share per annum (subject to
appropriate adjustments in the event of any stock dividend, stock
split, combination or other similar recapitalization affecting such
shares), and no more, payable in accordance with the provisions of
this Section 8.
(2) Payment of Dividend. At the election of the Corporation,
each dividend on Series C Preferred Stock shall be paid either in
shares of Common Stock or in cash on the Delivery Date (as defined
in Subsection H(2)(a) of this Section 8) with respect to any shares
of Series C Preferred Stock which are the subject of a Notice of
Conversion (as defined in Subsection H(2) of this Section 8).
Dividends paid in shares of Common Stock shall be paid (based on an
assumed value equal to the effective Conversion Price as defined
below) in full shares only, with a cash payment equal to the value
of any fractional shares. Each dividend paid in cash shall be mailed
to the holders of record of the Series C Preferred Stock as their
names and addresses appear on the share register of the Corporation
or at the office of the transfer agent on the corresponding dividend
payment date. Holders of Series C Preferred Stock will receive
written notification from the Corporation or the transfer agent if a
dividend is paid in kind, which notification will specify the number
of shares of Common Stock paid as a dividend and the recipient's
aggregate holdings of Common Stock as of that dividend payment date
and after giving effect to the dividend. All holders of shares of
Common Stock issued as dividends shall be entitled to all of the
rights and benefits relating to shares of Common Stock as set forth
in the Corporation's Articles of Incorporation, as amended, and
By-laws.
(3) Payment of Dividends on Other Capital Stock. Holders of
the Series C Preferred Stock shall be entitled to payment of any
dividends in preference and priority to any payment of any cash
dividend on Common Stock or any other class or series of capital
stock of the Corporation other than any other class or series of
stock ranking senior ("Senior Preferred Stock") to the Series C
Preferred Stock in respect of dividends, when and as declared by the
Board of Directors of the Corporation. The rights of the holders of
Series C Preferred Stock, 10% Preferred Stock and Series A Preferred
Stock to receive any dividends shall be equal in preference and
priority. Dividends on the Series C Preferred Stock shall accrue
with respect to each share of the Series C Preferred Stock from the
date on which such share is issued and outstanding and thereafter
shall be deemed to accrue from day to day whether or not earned or
declared and whether or not there exists profits, surplus or other
funds legally available for the payment of dividends, and shall be
cumulative so that if such dividends on the Series C Preferred Stock
shall not have been paid, or declared and set apart for payment, the
deficiency shall be fully paid or declared and set apart for payment
before any dividend shall be paid or declared or set apart for any
Common Stock or other class or series of capital stock ranking
junior to the Series C Preferred Stock (such stock being
collectively referred to herein as the "Junior Stock") and before
any purchase or acquisition of any Junior Stock is made by the
Corporation, except the repurchase of Junior Stock from employees of
the Corporation upon termination of employment. At the earlier of:
(1) the redemption or conversion of the Series C Preferred Stock or
(2) the liquidation of the Corporation, any accrued but unpaid
dividends (whether or not declared) shall be paid to the holders of
record of outstanding shares of the Series C Preferred Stock in
accordance with the provisions of this Section 8. No accumulation of
dividends on the Series C Preferred Stock shall bear interest.
B. Liquidation, Dissolution or Winding Up.
(1) Priority on Payment. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of the
Corporation, the holders of shares of the Series C Preferred Stock
then outstanding shall be entitled to be paid out of the assets of
the Corporation available for distribution to its stockholders,
after and subject to the payment in full of all amounts required to
be distributed to the holders of any Senior Preferred Stock ranking
on liquidation prior and in preference to the Series C Preferred
Stock, but before any payment shall be made to the holders of Junior
Stock by reason of their ownership thereof, an amount equal to
$1,000 per share of Series C Preferred Stock (the "Liquidation
Preference") plus any accrued but unpaid dividends (whether or not
declared). The rights of the holders of Series C Preferred Stock,
10%
-2-
Preferred Stock and Series A Preferred Stock to receive any such
distributions shall be equal in preference and priority. If upon any
such liquidation, dissolution or winding up of the Corporation the
remaining assets of the Corporation available for distribution to
its shareholders shall be insufficient to pay the holders of shares
of the Series C Preferred Stock the full amount to which they shall
be entitled, the holders of shares of the Series C Preferred Stock
shall share ratably in any distribution of the remaining assets and
funds of the Corporation in proportion to the respective amounts
which would otherwise be payable in respect of the shares held by
them upon such distribution if all amounts payable on or with
respect to such shares were paid in full.
(2) Payments After Preferential Amounts. After the payment of
all preferential amounts required to be paid to the holders of the
Series C Preferred Stock, the 10% Preferred Stock and Series A
Preferred Stock upon the dissolution, liquidation, or winding up of
the Corporation, all of the remaining assets and funds of the
Corporation available for distribution to its shareholders shall be
distributed ratably among the holders of the Series A Preferred
Stock, Series C Preferred Stock and the Junior Stock, with each
share of Series C Preferred Stock being deemed, for such purpose, to
be equal to the number of shares of Common Stock, including
fractions of a share, into which such share of Series C Preferred
Stock are convertible immediately prior to the close of business on
the business day fixed for such distribution.
C. Voting.
(1) Number of Votes; Voting as a Class. Each holder of
outstanding shares of Series C Preferred Stock shall be entitled, at
each meeting of shareholders of the Corporation (and with respect to
written consents of shareholders in lieu of meetings) with respect
to any and all matters presented to the shareholders of the
Corporation for their action or consideration, to the number of
votes equal to the number of whole shares of Common Stock into which
the shares of Series C Preferred Stock held by such holder are
convertible (as adjusted from time to time pursuant to Subsection H
hereof) immediately after the close of business on the record date
fixed for such meeting or the effective date of such written
consent. Except as provided by law, by the provisions of Section J
below, or by the provisions establishing any other series of
preferred stock, holders of Series C Preferred Stock shall vote
together with the holders Common Stock as a single class.
(2) No Cumulative Voting. The holders of the Series C
Preferred Stock shall not be entitled to any rights of cumulative
voting with respect to their shares.
-3-
D. Preemptive Rights. No holder of Series C Preferred Stock shall
have any preemptive or similar right to acquire any additional unissued or
treasury shares of stock or securities of any class or rights, warrants or
options to purchase stock or scrip or securities in any kind, including
shares or securities convertible into shares or carrying stock purchase
warrants or privileges.
E. Other Securities. Subject to any limitations contained in these
Articles of Incorporation, the Board of Directors of the Corporation
reserves the right to establish additional classes and/or series of
capital stock of the Corporation and to designate the preferences,
limitations and relative rights of any such classes and/or series;
provided, however, that no such class and/or series may have preferences,
limitations and relative rights which are superior to or senior to the
preferences, limitations and relative rights granted to the holders of the
Series C Preferred Stock.
F. Capital Reorganization. If the Corporation shall at any time
hereafter subdivide or combine its outstanding shares of Common Stock,
declare a dividend payable in Common Stock, or in case of any capital
reorganization or reclassification of the shares of Common Stock of the
Corporation, the number of shares of the Series C Preferred Stock and the
stated value of the Series C Preferred Stock shall be adjusted
appropriately to allow the holders of the Series C Preferred Stock, as
nearly as reasonably possible, to maintain (i) the aggregate stated value
of the Series C Preferred Stock and (ii) their pro rata interest in the
Corporation and in the Common Stock upon conversion of the Series C
Preferred Stock, that each holder had prior to any such subdivision,
combination, stock dividend, reorganization or reclassification.
G. Redemption.
(1) Redemption at Corporation's Option. At any time, the
Corporation may, at its option, redeem all or any portion of the
shares of Series C Preferred Stock then outstanding upon not less
than thirty (30) days' written notice at a redemption price per
share equal to the following:
(a) Redemption Prior to Effectiveness Deadline. On any
date during the period beginning on the Initial Closing Date
(as defined in the Securities Purchase Agreement between the
Corporation and Arrow Investors II LLC, dated January 11,
1999--the "Securities Purchase Agreement") and ending on the
earlier of (i) the date the Initial Registration Statement (as
defined in the Registration Rights Agreement between the
Corporation and Arrow Investors II LLC, dated January 11,
1999--the "Registration Rights Agreement") is declared
effective by the Securities and Exchange Commission ("SEC"),
and (ii) the Effectiveness Deadline (as defined in the
Registration Rights Agreement) for the
-4-
Initial Registration Statement, the redemption price shall be
equal to 115% of the Liquidation Preference of the Series C
Preferred Stock plus any accrued but unpaid dividends (whether
or not declared), payable in cash, plus the delivery to each
holder of such shares a warrant (substantially in the form
attached to the Securities Purchase Agreement as Exhibit B)
(the "Warrant") to purchase such holder's pro-rata allocation
(based on the number of shares of Series C Preferred Stock
held by such holder in relation to the total authorized shares
of Series C Preferred Stock) of 100,000 shares of Common Stock
(adjusted for any stock splits, stock dividends, stock
combinations or other similar transactions), which Warrant
shall have a term of three years from the delivery by the
Corporation to such holder of such Warrant and a per share
exercise price equal to the applicable Maximum Conversion
Price (as defined below) for the Series C Preferred Stock
being redeemed.
(b) Redemption After Effectiveness Deadline. On any date
after the earlier of (i) the date the Initial Registration
Statement is declared effective by the SEC, and (ii) the
Effectiveness Deadline for the Initial Registration Statement,
the redemption price shall be equal to 120% of the Liquidation
Preference of the Series C Preferred Stock plus any accrued
but unpaid dividends (whether or not declared), payable in
cash, plus the delivery to each holder of such shares a
Warrant to purchase such holder's pro-rata allocation (based
on the number of shares of Series C Preferred Stock held by
such holder in relation to the total authorized shares of
Series C Preferred Stock) of 100,000 shares of Common Stock
(adjusted for any stock splits, stock dividends, stock
combinations or other similar transactions), which Warrant
shall have a term of three years from the delivery by the
Corporation to such holder of such Warrant and a per share
exercise price equal to the applicable Maximum Conversion
Price for the Series C Preferred Stock being redeemed.
Notwithstanding the foregoing, a redemption shall not occur
pursuant to this Subsection G(1) with respect to any Series C
Preferred Stock for which a holder has previously submitted a Notice
of Conversion pursuant to Subsection 8H.
(2) Corporation's Right to Redeem in Lieu of Conversion.
Subject to the terms and conditions of this Subsection 8G(2), at any
time after the Initial Closing Date (as defined in the Securities
Purchase Agreement) the Corporation may elect to redeem Series C
Preferred Stock submitted for conversion in lieu of converting such
preferred shares,
-5-
provided that the Conversion Price for such preferred shares (as
defined below) on the Conversion Date is less than a price (the
"Redemption in Lieu of Conversion Trigger Price") equal to $5.40
(appropriately adjusted for any stock split, stock dividend,
combination or other similar transaction) (a "Corporation Redemption
in Lieu of Conversion"). If the Corporation elects to redeem some,
but not all, of the Series C Preferred Stock submitted for
conversion, the Corporation shall redeem a number of shares of
Series C Preferred Stock from each holder of Series C Preferred
Stock submitted for conversion on the applicable date equal to such
holder's pro-rata amount (based on the number of shares of Series C
Preferred Stock held by such holder relative to the number of Series
C Preferred Stock outstanding) of all shares of Series C Preferred
Stock submitted for conversion which the Corporation elects to
redeem.
(a) Redemption Price of Corporation Redemption in Lieu
of Conversion. The "Redemption Price of Corporation Redemption
in Lieu of Conversion" shall be an amount per share of Series
C Preferred Stock equal to the product of (i) the number of
shares of Common Stock otherwise issuable upon conversion of
such shares of Series C Preferred Stock on the applicable
Conversion Date, and (ii) the Closing Bid Price (as defined
below) of the Common Stock on the Conversion Date.
(b) Mechanics of Corporation Redemption in Lieu of
Conversion. The Corporation shall exercise its right to redeem
by delivering written notice by facsimile and overnight
courier ("Notice of Corporation Redemption in Lieu of
Conversion") to (i) each holder of the Series C Preferred
Stock, and (ii) the Transfer Agent. Such Notice of Corporation
Redemption in Lieu of conversion shall indicate (A) the
maximum, if any, aggregate number of Series C Preferred Stock
which the Corporation will redeem for Corporation Redemption
in Lieu of Conversion, and (B) confirm the time period during
which the Corporation may effect Corporation Redemption in
Lieu of Conversion, which period shall begin on and include
the date which is five (5) trading days after the date of
receipt by all of the holders' of the Notice of Redemption in
Lieu of Conversion and shall end on and include the date which
is thirty (30) calendar days after the fifth (5th) trading day
following the date of receipt by all of the holders of the
Notice of Redemption in Lieu of Conversion (the "Redemption in
Lieu of Conversion Period"). If the Corporation elects to
limit the number of Series C Preferred Stock which it will
redeem during the Redemption in Lieu of Conversion Period, the
Corporation shall allocate for redemption from each holder of
Series C Preferred Stock a number of shares of Series C
Preferred Stock
-6-
equal to such holder's pro-rata amount (based on the number of
shares of Series C Preferred Stock held by such holder on the
date of the Notice of Corporation Redemption in Lieu of
Conversion relative to the total number of shares of Series C
Preferred Stock outstanding on such date). The Corporation may
terminate a Redemption in Lieu of Conversion Period at any
time with respect to Series C Preferred Stock which has not
been submitted for conversion by delivering written notice of
such termination to each holder of Series C Preferred Stock by
facsimile and overnight courier at least five (5) business
days prior to the effective date of such termination.
Notwithstanding anything to the contrary in this Subsection
8G(2), the Corporation shall convert Series C Preferred Stock
pursuant to Subsection 8H if (A) such Series C Preferred Stock
are submitted for conversion (i) before the beginning, or
after the effective date of the termination, of the Redemption
in Lieu of Conversion Period, or (ii) at a Conversion Price
greater than or equal to the Redemption in Lieu of Conversion
Trigger Price or (B) such Series C Preferred Stock is in
excess of such holder's pro-rata allocation of the maximum
number of Series C Preferred Stock the Corporation indicated
that it would redeem in its Notice of Corporation Redemption
in Lieu of Conversion. If the Company fails to timely effect a
Company Redemption in Lieu of Conversion in accordance with
this Subsection 8G(2), the Company shall not be allowed to
submit another Notice of Company Redemption in Lieu of
Conversion without the prior written consent of the holders of
at least two-thirds (2/3) of the Series C Preferred Stock then
outstanding.
(3) Mechanics of Redemption. Upon receipt of a notice given
pursuant to this Subsection 8G, unless such redemption is pursuant
to Subsection 8G(2), each holder of Series C Preferred Stock shall
have thirty (30) days to decide whether to accept its ratable
portion (based on its holdings of Series C Preferred Stock as
compared to the aggregate number of shares of Series C Preferred
Stock then outstanding) of such offer by tendering such holder's
shares to the Corporation for redemption, at an address to be set
forth in such notice, at any time prior to 5:00 p.m. New York time
on the 30th day following the mailing of such notice (the "Series C
Preferred Stock Redemption Date") or to convert all or a portion of
the Series C Preferred Stock. Within three (3) business days after
the Series C Preferred Stock Redemption Date, the Corporation shall
remit the applicable redemption price, calculated pursuant to
Subsection G of this Section 8, by wire transfer to each holder of
the Series C Preferred Stock to the most recent address of each
holder as set forth on the records of the Corporation or its
transfer agent, together with all applicable Warrants.
-7-
(4) Cancellation of Shares. Any shares of Series C Preferred
Stock redeemed pursuant to this Subsection G or otherwise acquired
by the Corporation in any manner whatsoever shall be canceled and
shall not under any circumstances be reissued. The Corporation may
from time to time take such appropriate corporate action as may be
necessary to reduce accordingly the number of authorized shares of
the Corporation's capital stock.
H. Conversion.
(1) Conversion Rights. Subject to Subsection 8G(2), the
holders of the Series C Preferred Stock shall have conversion rights
as follows (the "Series C Preferred Stock Conversion Rights"):
(a) Conversion Price. Each share of Series C Preferred
Stock shall be convertible, at the option of the holder
thereof, at any time and from time to time after February 1,
1999, into such number of fully paid and nonassessable shares
of Common Stock as is determined by dividing $1,000, plus the
amount of any accrued and unpaid dividends (whether or not
declared) the Corporation elects to pay in Common Stock, by
the Conversion Price in effect at the time of conversion. The
Conversion Price at which shares of Common Stock shall be
deliverable upon conversion of Series C Preferred Stock
without the payment of additional consideration by the holder
thereof (the "Conversion Price") shall be the lower of (i)
140% of the Closing Bid Price of the Common Stock at the
Initial Closing Date or Mandatory Closing Date (as defined in
the Securities Purchase Agreement) whichever is the original
issuance date for the Series C Preferred Stock being converted
or, if less and if the Series C Preferred Stock is being
converted 120 days or more after the Initial Closing Date in
the case of the conversion of Initial Preferred Shares (as
defined in the Securities Purchase Agreement) or the Mandatory
Closing Date in the case of the conversion of Mandatory
Preferred Shares (as defined in the Securities Purchase
Agreement), 100% of the Closing Bid Price of the Common Stock
on the trading day closest to the date 120 days after the
Initial Closing Date in the case of the conversion of the
Initial Preferred Shares or the Mandatory Closing Date in the
case of the conversion of the Mandatory Preferred Shares,
whichever is applicable (such price being the "Maximum
Conversion Price"); or (ii) 100% (the "Conversion Percentage")
of the Market Price (as defined below) on the date of the
Notice of Conversion (as defined below). The Market Price
means the average of the five (5) lowest Closing Bid Prices of
the Common
-8-
Stock during the forty-four (44) consecutive trading days
immediately preceding a date of determination.
For purposes of these Articles of Amendment, the term
"Closing Bid Price" means, for any security as of any date,
the closing bid price on the principal securities exchange or
trading market where the Common Stock is listed or traded as
reported by Bloomberg, L.P. ("Bloomberg") or, if applicable,
the closing bid price of the Common Stock in the
over-the-counter market on the electronic bulletin board for
such security as reported by Bloomberg, or, if no closing bid
price is reported for the Common Stock by Bloomberg, then the
average of the bid prices of any market makers for such
security as reported in the "pink sheets" by the National
Quotation Bureau, Inc. If the Closing Bid Price of the Common
Stock can not be calculated on such date on any of the
foregoing bases, the Closing Bid Price of the Common Stock on
such date shall be the fair market value as mutually
determined by the Corporation and the holders of a majority of
the outstanding shares of Series C Preferred Stock being
converted for which the calculation of the Closing Bid Price
is required in order to determine the Conversion Price of such
shares. "Trading day" shall mean any day on which the
Corporation's Common Stock is traded for any period on the
principal securities exchange or other securities market on
which the Common Stock is then being traded.
(b) Mandatory Conversion. If any Series C Preferred
Stock remain outstanding on the Maturity Date (as defined
below), then all such Series C Preferred Stock shall be
converted as of such date in accordance with this Subsection H
as if the holders of such Series C Preferred Stock had given
the Notice of Conversion on the Maturity Date. All holders of
Series C Preferred Stock shall, on the Maturity Date,
surrender all Series C Preferred Stock Certificates, duly
endorsed for conversion, to the Corporation. Notwithstanding
the foregoing, if on the Maturity Date the Common Stock is not
designated for quotation on The Nasdaq SmallCap Market or the
Nasdaq National Market or listed on The New York Stock
Exchange, Inc. or The American Stock Exchange, Inc., then the
Maturity Date shall be extended until the Common Stock is so
designated or listed. "Maturity Date" means the date which is
five (5) years after the Initial Closing Date, or the
Mandatory Closing Date (as those terms are defined in the
Securities Purchase Agreement), whichever is applicable,
subject to extension as described in the immediately preceding
sentence.
-9-
(d) Conversion at the Corporation's Election. On any day
within twenty (20) trading days immediately following any
twenty (20) consecutive trading days during which the Closing
Bid Price of the Common Stock on each trading day during such
twenty (20) consecutive trading days is not less than 200% of
the Maximum Conversion Price applicable to an outstanding
share of Series C Preferred Stock in effect on the first day
of such twenty (20) consecutive trading days, the Corporation
shall have the right, in its sole discretion, to require that
any or all of such outstanding Series C Preferred Stock be
converted ("Conversion at Corporation's Election") at the
Conversion Price; provided that the Conditions to Conversion
at the Corporation's Election (as set forth below) and the
other terms of this Subsection 8H(1)(d) are satisfied. The
Corporation shall exercise its right to Conversion at
Corporation's Election by providing each holder of Series C
Preferred Stock that is then subject to the Conversion at
Corporation's Election written notice ("Notice of Conversion
at Corporation's Election") at least ten (10) trading days
prior to the date selected by the Corporation for such
conversion ("Corporation's Election Conversion Date"). If the
Corporation elects to require conversion of some, but not all,
of such Series C Preferred Stock, the Corporation shall
convert an amount from each holder of such Series C Preferred
Stock equal to such holder's pro-rata amount (based on the
number of such Series C Preferred Stock held by such holder
relative to the total number of such Series C Preferred Stock
outstanding on the date of the Corporation's delivery of the
Notice of Conversion at Corporation's Election) of all such
Series C Preferred Stock the Corporation is requiring to be
converted. The Notice of Conversion at Corporation's Election
shall indicate (x) the number of shares of Series C Preferred
Stock subject to this subsection that the Corporation has
selected for conversion, (y) the Corporation's Election
Conversion Date, which date shall be not less than ten (10) or
more than thirty (30) trading days after each holder's receipt
of such notice, and (z) each holder's pro-rata share of such
outstanding Series C Preferred Stock the Corporation is
requiring to be converted. All Series C Preferred Stock
selected for conversion in accordance with the provision of
this Subsection 8H(1)(d) and which have not been converted
prior to the Corporation's Election Conversion Date shall be
converted as of the Corporation's Election Conversion Date in
accordance with this Subsection 8(H) as if the holders of such
Series C Preferred Stock selected by the Corporation to be
converted had given a Notice of Conversion on the
Corporation's Election Conversion Date. "Conditions to
Conversion at the Corporation's Election" means
-10-
the following conditions: (i) the Registration Statement(s)
relating to the shares of Common Stock issuable upon such
conversion shall be effective and available for the sale of
all such shares (without regard to any limitations on
conversion herein or elsewhere); (ii) on each day during the
period beginning on and including the date which is twenty
(20) trading days prior to the date of the Corporation's
Notice of Conversion at Corporation's Election and ending on
and including the Corporation's Election Conversion Date, the
Common Stock is designated for quotation on The Nasdaq
SmallCap Market or the Nasdaq National Market or listed on The
New York Stock Exchange, Inc. or The American Stock Exchange,
Inc. and is not suspended from trading; and (iii) on each day
during the twenty (20) consecutive trading days immediately
preceding the date of the receipt by the holders of Maximum
Conversion Price of the Notice of Conversion at Corporation's
Election, the Closing Bid Price of the Common Stock is at
least 200% of the Maximum Conversion Price in effect on the
first day of such twenty (20) consecutive trading days.
(e) Common Stock Redemption Event; Required Approvals.
At any time that the number of shares of Common Stock issued
(A) upon conversion of the Series C Preferred Stock and (B) in
lieu of dividend payments on the Series C Preferred Stock,
shall equal 930,000 shares of Common Stock less the number of
shares, if any, subject to Warrants issued pursuant to
Subsection 8G (a "Common Stock Redemption Event"), the
Corporation shall (x) redeem, at a price determined in
accordance with Subsection 8G(1)(b), all of the outstanding
Series C Preferred Stock in accordance with the provisions of
Subsection 8G(2) or (y) call a special meeting of its
shareholders for the purpose of approving the transactions
contemplated by the Securities Purchase Agreement, including
the issuance of the Series C Preferred Stock on the terms set
forth therein, together with any other approvals that shall be
required so as to cause the transactions contemplated by the
Securities Purchase Agreement to remain in compliance with the
Rules and Regulations of The Nasdaq Stock Market (including
Rule 4320 of Nasdaq's Non-Qualitative Designation Criteria in
connection with conversions of Series C Preferred Stock; such
approvals are referred to herein as the "Required Approvals").
The Corporation shall determine within five (5) business days
following the receipt of a Notice of Conversion which of such
actions it shall take, and shall promptly furnish notice to
each of the holders of Series C Preferred Stock as to such
determination, including, if applicable, a notice of
redemption. In no event shall the Corporation issue shares of
Common Stock upon
-11-
conversion of, or in lieu of interest payments on, the Series
C Preferred Stock, after the occurrence of a Common Stock
Redemption Event until the Required Approvals, if any, are
obtained.
(f) Shareholders' Meeting. If the Corporation elects to
call a special meeting of its shareholders pursuant to
Subsection 8H(1)(e) to obtain the Required Approvals, the
Corporation shall use its best efforts to obtain such Required
Approvals within thirty (30) days of the Common Stock
Redemption Event (such thirty (30) day period is referred to
herein as an "Approval Period"). If the Corporation does not
obtain the Required Approvals within the Approval Period and
the Corporation receives a Notice of Conversion after the
termination of the Approval Period, the Corporation must
redeem, in accordance with this Subsection 8H, any shares of
Series C Preferred Stock outstanding after the Corporation has
issued in excess of 930,000 shares of Common Stock less the
number of shares, if any, subject to Warrants issued pursuant
to Subsection 8G in connection with redemptions of the Series
C Preferred Stock.
(g) Redemption Upon Common Stock Redemption Event. If
the Corporation elects, pursuant to this Subsection 8H, to
redeem the Series C Preferred Stock on the occurrence of a
Common Stock Redemption Event, it shall redeem such Series C
Preferred Stock at the price determined in accordance with
Subsection 8G(1)(b). If the Corporation shall have elected,
pursuant to this Subsection 8H(1), to obtain the Required
Approvals but shall not have done so by the later of the
occurrence of the Common Stock Redemption Event or the
expiration of the Approval Period, it shall furnish a
redemption notice to the holders of the Series C Preferred
Stock within three (3) business days after the expiration of
the Approval Period.
(2) Exercise of Conversion Rights. The Series C Preferred
Stock Conversion Rights shall be exercised as follows:
(a) Notice of Conversion; Delivery of Certificates. The
Corporation will permit each holder of Series C Preferred
Stock to exercise its right to convert the Series C Preferred
Stock by faxing an executed and completed notice of conversion
(the "Notice of Conversion") to the Corporation, and
delivering within three (3) business days thereafter, the
original Notice of Conversion (and the certificates
representing the related shares of Series C Preferred Stock)
to the Corporation by hand delivery or by express courier,
-12-
duly endorsed. Each date on which a Notice of Conversion is
faxed to and received in accordance with the provisions hereof
shall be deemed a "Series C Preferred Stock Conversion Date."
The Corporation will transmit the certificates representing
the Common Stock issuable upon conversion of the Series C
Preferred Stock (together with certificates representing the
related shares of Series C Preferred Stock not so converted
and, if applicable, a check representing any fraction of a
share not converted) to such holder via express courier as
soon as practicable, but in all events no later than the later
to occur of (the "Delivery Date") (i) three (3) business days
after the Series C Preferred Stock Conversion Date, or (ii)
three (3) business days after receipt by the Corporation of
the original Notice of Conversion (and the certificates
representing the related shares of Series C Preferred Stock).
For purposes of this Section 8, such conversion of the Series
C Preferred Stock shall be deemed to have been made
immediately prior to the close of business on the Series C
Preferred Stock Conversion Date.
(b) DTC Fast Automated Securities Transfer. In lieu of
delivering physical certificates representing the Common Stock
issuable upon the conversion of the Series C Preferred Stock,
provided that the Corporation's transfer agent is
participating in the Depository Trust Corporation ("DTC") Fast
Automated Securities Transfer program, on the written request
of a holder of Series C Preferred Stock who shall have
previously instructed such holder's prime broker to confirm
such request to the Corporation's transfer agent, the
Corporation shall use commercially reasonable efforts to cause
its transfer agent to electronically transmit such Common
Stock to such holder by crediting the account of the holder's
prime broker with DTC through its Deposit Withdrawal Agent
Commission system no later than the applicable Delivery Date.
(c) Reservation of Shares. The Corporation will at all
times have authorized and reserved for the purpose of issuance
a sufficient number of shares of Common Stock to provide for
the conversion of the Series C Preferred Stock. The
Corporation will use its best efforts at all times to maintain
a number of shares of Common Stock so reserved for issuance
that is no less than one and two (2) times the number that is
then actually issuable upon the conversion of the Series C
Preferred Stock and the exercise of any Warrants issued
pursuant hereto. Before taking any action which would cause an
adjustment reducing the Conversion Price below the established
par value of the shares of Common Stock issuable upon
conversion of the Series C Preferred Stock, the Corporation
will take any corporate action which may, in the
-13-
opinion of its counsel, be necessary in order that the
Corporation may validly and legally issue fully paid and
nonassessable shares of Common Stock at such adjusted
Conversion Price.
(d) Cancellation of Converted Shares. All shares of
Series C Preferred Stock, which shall have been surrendered
for conversion as herein provided shall no longer be deemed to
be outstanding, and all rights with respect to such shares,
including the rights, if any, to receive dividends, notices
and to vote, shall immediately cease and terminate on the
Series C Preferred Stock Conversion Date, except only the
right of the holders thereof to receive shares of Common Stock
in exchange therefor. Any shares of Series C Preferred Stock
so converted shall be retired and canceled and shall not be
reissued, and the Corporation may from time to time take such
appropriate action as may be necessary to reduce the number of
shares of authorized Series C Preferred Stock accordingly.
(3) Cancellation of Conversion Rights on Liquidation. In the
event of a liquidation of the Corporation, the Series C Preferred
Stock Conversion Rights shall terminate at the close of business on
the first full day preceding the date fixed for the payment of any
amounts distributable on liquidation to the holders of the Series C
Preferred Stock.
(4) Conversion With an Underwritten Offering. If the
conversion is in connection with an underwritten offer of securities
registered pursuant to the Securities Act of 1933, as amended, the
conversion may, at the option of any holder tendering Series C
Preferred Stock for conversion, be conditioned upon the closing with
the underwriter of the sale of securities pursuant to such offering,
in which event the person(s) entitled to receive the Common Stock
issuable upon such conversion of the Series C Preferred Stock shall
not be deemed to have converted such Series C Preferred Stock until
immediately prior to the closing of the sale of securities.
(5) Limitation on Conversion Right. At no time shall any
holder (including any of its affiliates) of the Series C Preferred
Stock convert such amount of Series C Preferred Stock as shall
result in such holder's (together with its affiliate's) ownership,
after such conversion, exceeding 9.9% of the Corporation's
outstanding Common Stock.
(6) No Fractional Shares. No fractional shares of Common Stock
shall be issued upon conversion of the Series C Preferred Stock. In
lieu of fractional shares, the Corporation shall pay cash equal to
such fraction multiplied by the then effective and applicable
Conversion Price.
-14-
(7) Maintenance of Rights. The Corporation will not, by
amendment of its Articles of Incorporation or through any
reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary
action, avoid or seek to avoid the observance or performance of any
of the terms to be observed or performed under this Subsection 8H by
the Corporation, but will at all times in good faith assist in the
carrying out of all the provisions of this Subsection 8H and in the
taking of all such action as may be necessary or appropriate in
order to protect the Series C Preferred Stock Conversion Rights of
the holders of the Series C Preferred Stock against impairment.
(8) Notice of Certain Events. In the event (a) that the
Corporation declares a dividend (or any other distribution) on its
Common Stock payable in Common Stock or other securities of the
Corporation, (b) that the Corporation subdivides or combines its
outstanding shares of Common Stock, (c) of any reclassification of
the Common Stock of the Corporation (other than a subdivision or
combination of its outstanding shares of Common Stock or a stock
dividend or stock distribution thereon), (d) of any consolidation or
merger of the Corporation into or with another corporation, (e) of
the sale of all or substantially all of the assets of the
Corporation, or (f) of the involuntary or voluntary dissolution,
liquidation or winding up of the Corporation, then the Corporation
shall cause to be filed at its principal office or at the office of
the transfer agent of the Series C Preferred Stock, and shall cause
to be mailed to each holder of the Series C Preferred Stock at their
last address as shown on the records of the Corporation or such
transfer agent, at least ten (10) days prior to the record date
specified in (i) below or twenty (20) days before the date specified
in (ii) below, a notice stating
(i) the record date of such dividend, distribution,
subdivision or combination, or, if a record is not to be
taken, the date as of which the holders of Common Stock of
record to be entitled to such dividend, distribution,
subdivision or combination are to be determined, or
(ii) the date on which such reclassification,
consolidation, merger, sale, dissolution, liquidation or
winding up is expected to become effective, and the date as of
which it is expected that holders of Common Stock of record
shall be entitled to exchange their shares of Common Stock for
securities or other property deliverable upon such
reclassification, consolidation, merger, sale, dissolution or
winding up.
-15-
I. Sinking Fund. There shall be no sinking fund for the payment of
dividends, or liquidation preferences on the Series C Preferred Stock or
the redemption of any shares thereof.
J. Amendment. This Section 8 constitutes an agreement between the
Corporation and the holders of the Series C Preferred Stock. The
Corporation shall not amend this Section 8 or alter or repeal the
preferences, rights, powers or other terms of the Series C Preferred Stock
so as to affect adversely the Series C Preferred Stock, without the
written consent or affirmative vote of the holders of at least sixty-six
and two-thirds percent (662/3%) of the then outstanding shares of Series C
Preferred Stock, given in writing or by vote at a meeting, consenting or
voting (as the case may be) separately as a class.
-16-
Exhibit B
THE WARRANT REPRESENTED BY THIS CERTIFICATE AND THE SECURITIES ISSUABLE UPON
EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), AND MAY NOT BE OFFERED OR SOLD EXCEPT (i) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, (ii) TO THE EXTENT APPLICABLE,
PURSUANT TO RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT RELATING
TO THE DISPOSITION OF SECURITIES), OR (iii) UPON THE DELIVERY BY THE HOLDER
HEREOF TO THE COMPANY OF AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO
COUNSEL FOR THE COMPANY, STATING THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH
ACT IS THEN AVAILABLE.
ONLINE SYSTEM SERVICES, INC.
WARRANT TO PURCHASE SERIES C PREFERRED STOCK
The Transferability of this Warrant is
Restricted as Provided in Section 2.
Void after June 30, 1999 Right to Purchase 2,000 Shares of Series C
Preferred Stock (subject to adjustment)
No. 1
PREAMBLE
Online System Services, Inc. ("OSSI" or the "Company"), a Colorado
corporation, hereby certifies that, for value received, Arrow Investors II LLC,
whose address is Xxx Xxxxx Xxxxx Xxxxxx, Xxxxx 0000, Xxx Xxxx, Xxx Xxxx 00000,
or its registered assigns (hereinafter, the "Registered Holder"), is, subject to
the terms set forth herein, entitled to purchase from the Company at any time or
from time to time before 5:00 P.M. New York time, on June 30, 1999 (such time,
the "Expiration Time"), up to 2,000 shares of the Company's fully paid and
nonassessable shares of Series C Preferred Stock, stated value $1,000 per share
(the "Series C Preferred Stock"), of the Company, at the purchase price per
share of $1,000 (the "Purchase Price").
Subject to the terms set forth herein, at the election of the Company on
not less than seven (7) business days nor more than twenty (20) business days
prior written notice (such notice being referred to as the "Mandatory Exercise
Notice" and the closing date specified in such notice being referred to as the
"Mandatory Closing Date"), the Registered Holder shall at any time or from time
to time before the Expiration Time be required to exercise this Warrant and
purchase up to 2,000 shares of Series C Preferred Stock (minus any such shares
previously purchased hereunder), at the Purchase Price;
provided, that, the Registered Holder shall not be required to exercise and
purchase any such shares if at any time from and after the delivery to the
Registered Holder of the Mandatory Exercise Notice through the Mandatory Closing
Date (the "Interim Period") any of the Closing Conditions (as defined below)
shall not have been satisfied.
This Warrant is one of the Warrants to Purchase Series C Preferred Stock
(the "Warrants") evidencing the right to purchase Series C Preferred Stock of
the Company, issued pursuant to the Securities Purchase Agreement (the
"Securities Purchase Agreement"), dated January 11, 1999, between the Company
and Arrow Investors II LLC. The Securities Purchase Agreement contains certain
additional terms that are binding upon the Company and each Registered Holder of
the Warrants. A copy of the Securities Purchase Agreement, including the
Exhibits thereto, may be obtained by any Registered Holders of the Warrants from
the Company upon written request. Capitalized terms used but not defined herein
shall have the meanings set forth in the Securities Purchase Agreement,
including the Exhibits thereto.
As used herein the following terms, unless the context otherwise requires,
have the following respective meanings:
(a) The term "Company" includes any corporation which shall succeed to or
assume the obligations of the Company hereunder.
(b) The term "Common Stock" includes all shares of any class or classes
(however designated) of the Company, authorized on or after the date hereof, the
holders of which shall have the right, without limitation as to amount, either
to all or to a share of the balance of current dividends and liquidating
dividends after the payment of dividends and distributions on any shares
entitled to preference, and the holders of which shall ordinarily be entitled to
vote for the election of directors of the Company (even though the right so to
vote has been suspended by the happening of a contingency).
(c) The term "Major Transaction" shall be deemed to have occurred at such
time as any of the following events: (i) the consolidation, merger or other
business combination of the Company with or into another person (other than (A)
pursuant to migratory merger effected solely for the purpose of changing the
jurisdiction of incorporation of the Company, or (B) a consolidation, merger or
other business combination in which the Company is the surviving entity and
holders of the Company's voting power immediately prior to the transaction
continue after the transaction to hold, directly or indirectly, the voting power
necessary to elect a majority of the members of the board of directors of the
Company); (ii) the sale or transfer of all or substantially all of the Company's
assets; or (iii) consummation of a purchase, tender or exchange offer made to
the holders of more than 30% of the outstanding shares of Common Stock.
(d) The term "Material Adverse Change" means any change, event, result or
happening involving, directly or indirectly, the Company or any of its
subsidiaries
2
resulting in a material adverse effect on the business, financial condition or
results of operations of the Company and its subsidiaries, taken as a whole.
(e) The term "Other Securities" refers to any class of shares (other than
Common Stock) and other securities of the Company or any other person (corporate
or otherwise) which the holders of the Warrants at any time shall be entitled to
receive, or shall have received, upon the exercise of the Warrants, in lieu of
or in addition to the Series C Preferred Stock, or which at any time shall be
issuable or shall have been issued in exchange for or in replacement of the
Series C Preferred Stock or Other Securities.
(f) The term "Triggering Event" shall be deemed to have occurred at such
time as any of the following events: (i) the failure of the Initial Registration
Statement to be declared effective by the Securities and Exchange Commission on
or prior to the Initial Effectiveness Deadline except where the failure of the
Registration Statement to be declared effective was the result solely of actions
by the holders of Registrable Securities; (ii) while the Initial Registration
Statement is required to be maintained effective pursuant to the terms of the
Registration Rights Agreement, the effectiveness of the Initial Registration
Statement lapses for any reason (including, without limitation, the issuance of
a stop order) or is unavailable to the holder of the Series C Preferred Stock
for sale of the Registrable Securities (as defined in the Registration Rights
Agreement) in accordance with the terms of the Registration Rights Agreement,
and such lapse or unavailability continues for a period of five consecutive
trading days, provided that the cause of such lapse or unavailability is not due
to factors solely within the control of such holders of Registrable Securities;
(iii) the suspension from listing or the failure of the Common Stock to be
listed on the Nasdaq SmallCap Market, the Nasdaq National Market, The New York
Stock Exchange, Inc. or The American Stock Exchange, Inc. for a period of five
consecutive days; (iv) the Company's notice to any holder of Series C Preferred
Stock or shares of the Series A Convertible Preferred Stock of the Company (the
"Series A Shares"), including by way of public announcement, at any time, of its
intention not to comply with proper requests for conversion of any Series C
Preferred Stock or Series A Shares into shares of Common Stock; (v) if the
Closing Bid Price (as defined in Section 8 of the Company's Articles of
Incorporation) for the Common Stock shall be less than $8.00 per share at any
time during the Interim Period and the Company's stockholders shall not have
authorized and approved the transactions contemplated by the Securities Purchase
Agreement and this Warrant in accordance with applicable law; (vi) a material
breach by the Company of any representation, warranty, covenant or other term or
condition of the Securities Purchase Agreement, the Registration Rights
Agreement, this Warrant or any other agreement, document, certificate or other
instrument delivered in connection with the transactions contemplated thereby or
hereby; or (vii) Xxxxx Xxxxx ceases to hold at least one of the offices of Chief
Executive Officer or Chairman of the Board of the Company prior to the
Expiration Time for any reason other than because of death or disability.
3
1. Registration Rights.
The rights of the holders of Warrants to register Warrants or shares of
Series C Preferred Stock issuable upon exercise of the Warrants (and the shares
of Common Stock issuable upon conversion of such Series C Preferred Stock) shall
be as stated in the Registration Rights Agreement, which agreement is Exhibit D
to the Securities Purchase Agreement.
2. Restricted Stock.
2.1. If, at the time of any transfer or exchange of this Warrant or any
shares of Series C Preferred Stock issuable upon exercise of this Warrant (other
than a transfer or exchange not involving a change in the beneficial ownership
of this Warrant or any such shares of Series C Preferred Stock), such Warrant or
such shares shall not be registered under the Securities Act, the Company's
obligation to transfer such Warrant or such shares shall be subject to the
provisions of Section 5 of the Securities Purchase Agreement.
3. Exercise of Warrant.
3.1. Exercise in Full. The holder of this Warrant may, and shall on the
Mandatory Closing Date provided the Mandatory Exercise Notice is given and the
Closing Conditions are satisfied as required above, exercise this Warrant in
full by surrendering this Warrant, with the form of Election to Purchase at the
end hereof duly executed by such holder, to the Company in the manner set forth
in Section 5 of the Securities Purchase Agreement; provided, that, in no event
shall this Warrant be exercised after the Expiration Time. The surrendered
Warrant shall be accompanied by payment, in cash or by certified or official
bank check payable to the order of the Company, in the amount obtained by
multiplying the number of shares of Series C Preferred Stock called for on the
face of this Warrant (without giving effect to any adjustment therein) by the
Purchase Price.
3.2. Partial Exercise. This Warrant may, and shall on the Mandatory
Closing Date provided the Mandatory Exercise Notice is given and the Closing
Conditions are satisfied as required above, be exercised in part by surrender of
this Warrant in the manner provided in Subsection 3.1, except that the exercise
price shall be calculated by multiplying (a) the number of shares of Series C
Preferred Stock as shall be designated by the holder or the Company, as
applicable, in the subscription at the end hereof by (b) the Purchase Price and,
provided, that, in no event shall this Warrant be exercised after the Expiration
Time. On any such partial exercise, subject to the provisions of Section 2
hereof, the Company, at its expense, will forthwith issue and deliver to or upon
the order of the Registered Holder hereof a new Warrant or Warrants of like
tenor, in the name of the Registered Holder hereof or as such Registered Holder
may request, calling in the aggregate on the face or faces thereof for the
number of shares of Series C Preferred Stock equal to the number of such shares
called for on the face of this Warrant minus the
4
number of such shares designated by the Registered Holder in the applicable
Election to Purchase.
3.3. Company Acknowledgment. The Company will, at the time of the
exercise, exchange or transfer of this Warrant, upon the request of the
Registered Holder hereof, acknowledge in writing its continuing obligation to
afford to such Registered Holder or transferee any rights (including, without
limitation, any right to registration of the Company's shares of Common Stock)
to which such Registered Holder or transferee shall continue to be entitled
after such exercise, exchange or transfer in accordance with the provisions of
this Warrant, provided that if the Registered Holder of this Warrant shall fail
to make any such request, such failure shall not affect the continuing
obligation of the Company to afford to such Registered Holder or transferee any
such rights.
4. Delivery of Share Certificates upon Exercise. Following the exercise of this
Warrant in full or in part, within the time periods and in the manner provided
by Section 5(b) of the Securities Purchase Agreement, the Company, at its
expense (including the payment by it of any applicable issue taxes), will cause
to be issued in the name of and delivered to the Registered Holder hereof, or as
such Registered Holder (upon payment by such Registered Holder of any applicable
transfer taxes) may direct, a certificate or certificates for the number of
fully paid and nonassessable shares of Series C Preferred Stock to which such
Registered Holder shall be entitled on such exercise, plus, in lieu of any
fractional share to which such Registered Holder would otherwise be entitled,
cash equal to such fraction multiplied by the Purchase Price.
5. Closing Conditions. Notwithstanding anything herein to the contrary, the
Company shall not be permitted to deliver a Mandatory Exercise Notice, nor shall
the Registered Holder be required to exercise and purchase on a Mandatory
Closing Date any shares of Series C Preferred Stock, unless in either case each
of the following conditions is satisfied: (i) the Initial Registration Statement
shall have been declared effective and shall remain effective at all times
during the applicable Interim Period; (ii) the Closing Bid Price (as defined in
Section 8 of the Company's Articles of Incorporation) for the Common Stock shall
not be less than $3.50 per share; (iii) during the period beginning on the
original issue date of this Warrant and ending on and including the applicable
Mandatory Closing Date, there shall not have occurred (A) a public announcement
of a Major Corporate Event which has not been abandoned or terminated, (B) a
Triggering Event or (C) a Material Adverse Change; (iv) at all times during the
period beginning on the original issue date of this Warrant and ending on and
including the applicable Mandatory Closing Date, the Common Stock shall have
been designated on the Nasdaq SmallCap Market or National Market System and
shall not have been suspended from trading thereon and the Company shall not
have been notified of any pending or threatened proceeding or other action to
delist or suspend the Common Stock from so trading; (v) the Company's Articles
of Incorporation as amended pursuant to the Articles of Amendment filed pursuant
to the Securities Purchase Agreement shall be in full force and effect and shall
not have been amended since the original issue date of this Warrant; (vi) the
representations and warranties of the Company in the Securities Purchase
5
Agreement shall be true and correct as of the date when made and as of the
applicable Mandatory Closing Date as though made at that time (except for
representations and warranties that speak as of a specific date) and the Company
shall have performed, satisfied and complied with the covenants, agreements and
conditions required by the Primary Documents to be performed, satisfied or
complied with by the Company at or prior to the applicable Mandatory Closing
Date (and the Registered Holder of this Warrant shall have received a
certificate, executed by the Chief Executive Officer of the Company, dated as of
the applicable Mandatory Closing Date, to the foregoing effect and as to such
other matters as may be reasonably requested by such holder); and (vii) as of
the applicable Mandatory Closing Date, the Company shall have reserved out of
its authorized and unissued Common Stock, solely for the purpose of effecting
the conversion of the Series C Preferred Stock, a number of shares of Common
Stock equal to at least 200% of the number of conversion shares issuable upon
conversion of the Series C Preferred Stock outstanding on the applicable
Mandatory Closing Date (after giving effect to the Series C Preferred Stock to
be issued on such Mandatory Closing Date and assuming all such outstanding
shares of Series C Preferred Stock were fully convertible on such date
regardless on any limitation on the timing or amount of such conversions).
6. Intentionally Omitted]
7. No Dilution or Impairment. The Company will not, by amendment of its Articles
of Incorporation or By-laws, or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms of the Warrants, but will at all times in good faith assist in the
carrying out of all such terms and in the taking of all such action as may be
necessary or appropriate in order to protect the rights of the holders of the
Warrants, as specified herein and in the Securities Purchase Agreement, against
dilution or other impairment. Without limiting the generality of the foregoing,
the Company (a) will not increase the par value of any Shares receivable on the
exercise of the Warrants above the amount payable therefor on such exercise, and
(b) will not effect a subdivision or split up of shares or similar transaction
with respect to any class of the Common Stock without effecting an equivalent
transaction with respect to all other classes of Common Stock.
8. [Intentionally Omitted]
9. Notice of Record Date. In case of
(a) any taking by the Company of a record of the holders of any class of
its securities for the purpose of determining the holders thereof who are
entitled to receive any dividend or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, or
6
(b) any capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company or any transfer of all or
substantially all the assets of the Company to or consolidation or merger of the
Company with or any voluntary or involuntary dissolution, liquidation or winding
up of the Company, or
(c) events shall have occurred resulting in the voluntary or involuntary
dissolution, liquidation or winding up of the Company, then and in each such
event the Company will mail or cause to be mailed to each holder of a Warrant a
notice specifying (i) the date on which any record is to be taken for the
purpose of any such dividend, distribution or right, and stating the amount and
character of such dividend, distribution or right, (ii) the date on which any
such reorganization, reclassification, recapitalization, transfer,
consolidation, merger, dissolution, liquidation or winding up is to take place,
and the time, if any is to be fixed, as of which the holders of record of Common
Stock (or Other Securities) shall be entitled to exchange their Common Stock (or
Other Securities) for securities or other property deliverable on such
reorganization, reclassification, recapitalization, transfer, consolidation,
merger, dissolution, liquidation or winding up, and (iii) the amount and
character of any stock or other securities, or rights or options with respect
thereto, proposed to be issued or granted, the date of such proposed issue or
grant and the persons or class of persons to whom such proposed issue or grant
is to be offered or made. Such notice shall be mailed at least thirty (30) days
prior to the date specified in such notice on which any such action is to be
taken.
10. Exchange of Warrants. On surrender for exchange of any Warrant, properly
endorsed, to the Company, the Company, at its expense, will issue and deliver to
or (subject to Section 2) on the order of the holder thereof a new Warrant or
Warrants of like tenor, in the name of such holder or as such holder (on payment
by such holder or any applicable transfer taxes) may direct, calling in the
aggregate on the face or faces thereof for the number of shares of Series C
Preferred Stock called for on the face or faces of the Warrant or Warrants so
surrendered.
11. Replacement of Warrants. On receipt of evidence reasonably satisfactory to
the Company of the loss, theft, destruction or mutilation of any Warrant and, in
the case of any such loss, theft or destruction of any Warrant, on delivery of
an indemnity agreement or security reasonably satisfactory in form and amount to
the Company or, in the case of any such mutilation, on surrender and
cancellation of such Warrant, the Company, at its expense, will execute and
deliver, in lieu thereof, a new Warrant of like tenor.
12. Warrant Agent. The Company may, by written notice to each holder of a
Warrant, appoint an agent having an office in New York, New York, for the
purpose of issuing shares of Series C Preferred Stock on the exercise of the
Warrants pursuant to Section 3, exchanging Warrants pursuant to Section 10, and
replacing Warrants pursuant to Section 11, or any of the foregoing, and
thereafter any such issuance, exchange or replacement, as the case may be, shall
be made at such office by such agent.
7
13. Remedies. The Company stipulates that the remedies at law of the holder of
this Warrant in the event of any default or threatened default by the Company in
the performance of or compliance with any of the terms of this Warrant are not
and will not be adequate, and that such terms may be specifically enforced by a
decree for the specific performance of any agreement contained herein or by an
injunction against a violation of any of the terms hereof or otherwise.
14. Negotiability, Etc. This Warrant is issued upon the following terms, to all
of which each Registered Holder or owner hereof by the taking hereof consents
and agrees:
(a) subject to the terms of Section 4 of the Securities Purchase Agreement,
title to this Warrant may be transferred by endorsement (by the Registered
Holder hereof executing the form of assignment at the end hereof) and delivery
in the same manner as in the case of a negotiable instrument transferable by
endorsement and delivery;
(b) any person in possession of this Warrant properly endorsed is
authorized to represent himself as absolute owner hereof and is empowered to
transfer absolute title hereto by endorsement and delivery hereof to a bona fide
purchaser hereof for value; each prior taker or owner waives and renounces all
of his equities or rights in this Warrant in favor of each such bona fide
purchaser, and each such bona fide purchaser shall acquire absolute title hereto
and to all rights represented hereby; and
(c) until this Warrant is transferred on the books of the Company, the
Company may treat the Registered Holder hereof as the absolute owner hereof for
all purposes, notwithstanding any notice to the contrary.
15. Notices. All notices and other communications from the Company to the
Registered Holder of this Warrant shall be given in writing (unless otherwise
specified herein) and shall be effective upon personal delivery, via facsimile
(upon receipt of confirmation of error-free transmission) or two business days
following deposit of such notice with an internationally recognized courier
service, with postage prepaid and addressed, to such address as may have been
furnished to the Company in writing by such Registered Holder or, until any such
Registered Holder furnishes to the Company an address, then to, and at the
address of, the last Registered Holder of this Warrant who has so furnished an
address to the Company.
[The balance of this page has been intentionally left blank.]
8
16. Miscellaneous. 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 is being delivered in the State of New York and, except for
provisions with respect to internal corporate matters of the Company which shall
be governed by the corporate laws of the State of Colorado, shall be construed
and enforced in accordance with and governed by the laws of the State of New
York, without regard to principles of conflict of laws. The headings in this
Warrant are for purposes of reference only, and shall not limit or otherwise
affect any of the terms hereof. All nouns and pronouns used herein shall be
deemed to refer to the masculine, feminine or neuter, as the identity of the
person or persons to whom reference is made herein may require.
17. Expiration. The right to exercise this Warrant shall expire at 5:00 p.m.,
New York time, on June 30, 1999.
IN WITNESS WHEREOF, the undersigned have executed this Warrant as of
January 11, 1999.
ONLINE SYSTEM SERVICES, INC.
By:
--------------------------------
Name:
Title:
ACKNOWLEDGED AND AGREED:
ARROW INVESTORS II LLC
By: WEC ASSET MANAGEMENT LLC, Manager
By:
----------------------------------
Name:
Title:
9
Annex A
FORM OF ELECTION TO PURCHASE
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant, to purchase _____________ shares of Series C
Preferred Stock and herewith tenders in payment for such securities a certified
or official bank check payable in New York Clearing House Funds to the order of
ONLINE SYSTEM SERVICES, INC., in the amount of $__________, all in accordance
with the terms hereof. The undersigned requests that a certificate for such
shares of Series C Preferred Stock be registered in the name of
_________________________, whose address is _________________________________
and that such Certificate be delivered to ___________________________,whose
address is ______________________
Dated:
Name: ________________________________________
Signature: ___________________________________
(Signature must conform in all respects to the name of the Registered
Holder, as specified on the face of the Warrant.)
___________________________________
(Insert Social Security or Other
Identifying Number of Holder)
A-1
Annex B
FORM OF ASSIGNMENT
(To be executed by the Registered Holder if such Holder desires to transfer the
Warrant.)
FOR VALUE RECEIVED, ____________________________________________________
hereby sells, assigns and transfers unto _____________________________________
(Please print name and address of transferee)
this Warrant, together with all right, title and interest therein, and does so
hereby irrevocably constitute and appoint _____________________ Attorney, to
transfer the within Warrant on the books of the within-named Company, with full
power of substitution.
Dated:
Name: ________________________________________
Signature: ___________________________________
(Signature must conform in all respects to the name of the Registered
Holder, as specified on the face of the Warrant.)
___________________________________
(Insert Social Security or Other
Identifying Number of Assignee)
B-1
Exhibit C
THE WARRANT REPRESENTED BY THIS CERTIFICATE AND THE SECURITIES ISSUABLE UPON
EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), AND MAY NOT BE OFFERED OR SOLD EXCEPT (i) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, (ii) TO THE EXTENT APPLICABLE,
PURSUANT TO RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT RELATING
TO THE DISPOSITION OF SECURITIES), OR (iii) UPON THE DELIVERY OF THE HOLDER TO
THE COMPANY OF AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO COUNSEL FOR THE
COMPANY, STATING THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS
AVAILABLE.
ONLINE SYSTEM SERVICES, INC.
WARRANT TO PURCHASE COMMON STOCK
The Transferability of this Warrant is
Restricted as Provided in Section 2.
Void after _______________ Right to Purchase _______ Shares of Common Stock
(subject to adjustment)
No. 1
PREAMBLE
Online System Services, Inc. ("OSSI" or the "Company"), a Colorado
corporation, hereby certifies that, for value received, Arrow Investors II LLC,
whose address is Xxx Xxxxx Xxxxx Xxxxxx, Xxxxx 0000, Xxx Xxxx, Xxx Xxxx 00000,
or its registered assigns (hereinafter, the "Registered Holder"), is entitled,
subject to the terms set forth below, to purchase from the Company at any time
or from time to time before 5:00 P.M. New York time, on ________________ (such
time, the "Expiration Time"), _______ of the Company's fully paid and
nonassessable shares of common stock, no par value (the "Common Stock"), of the
Company, at the purchase price per share (the "Purchase Price") of $____ (the
"Initial Purchase Price"). The number and character of such Common Stock and the
Purchase Price are subject to adjustment as provided herein.
This Warrant is one of the Warrants to Purchase Common Stock (the
"Warrants"), evidencing the right to purchase Common Stock of the Company,
issued pursuant to the Articles of Amendment (Exhibit A) of the Securities
Purchase Agreement (the "Securities Purchase Agreement"), dated January 11,
1999, between the Company and Arrow Investors II LLC. The Securities Purchase
Agreement contains certain additional terms that are binding upon the Company
and each Registered Holder of the Warrants. A copy of the Securities Purchase
Agreement, including the Exhibits thereto, may be obtained by any Registered
Holders of the Warrants from the Company upon written request. Capitalized terms
used but not defined herein shall have the meanings set forth in the Securities
Purchase Agreement, including the Exhibits thereto.
As used herein the following terms, unless the context otherwise requires,
have the following respective meanings:
(a) The term "Company" includes any corporation which shall succeed to or
assume the obligations of the Company hereunder.
(b) The term "Common Stock" includes all shares of any class or classes
(however designated) of the Company, authorized on or after the date hereof, the
holders of which shall have the right, without limitation as to amount, either
to all or to a share of the balance of current dividends and liquidating
dividends after the payment of dividends and distributions on any shares
entitled to preference, and the holders of which shall ordinarily be entitled to
vote for the election of directors of the Company (even though the right so to
vote has been suspended by the happening of a contingency).
(c) The term "Other Securities" refers to any class of shares (other than
Common Stock) and other securities of the Company or any other person (corporate
or otherwise) which the holders of the Warrants at any time shall be entitled to
receive, or shall have received, upon the exercise of the Warrants, in lieu of
or in addition to Common Stock, or which at any time shall be issuable or shall
have been issued in exchange for or in replacement of Common Stock or Other
Securities pursuant to Section 6 or otherwise.
(d) The term "Shares" means the Common Stock issued or issuable upon
exercise of the Warrants.
1. Registration Rights.
The rights of the holders of Warrants to register Warrants or Shares shall
be as stated in the Registration Rights Agreement, Exhibit D to the Securities
Purchase Agreement.
2. Restricted Stock.
2.1. If, at the time of any transfer or exchange (other than a transfer or
exchange not involving a change in the beneficial ownership of such Warrant or
Shares) of a Warrant or Shares, such Warrant or Shares shall not be registered
under the Securities Act, the Company's obligation to transfer such Warrant or
Shares shall be subject to the provisions of Section 5 of the Securities
Purchase Agreement.
3. Exercise of Warrant.
3.1. Exercise in Full. The holder of this Warrant may exercise it in full
prior to the Expiration Time by surrendering this Warrant, with the form of
Election to Purchase at the end
2
hereof duly executed by such holder, to the Company in the manner set forth in
Section 5 of the Securities Purchase Agreement. The surrendered Warrant shall be
accompanied by payment, in cash or by certified or official bank check payable
to the order of the Company, in the amount obtained by multiplying the number of
Shares of Common Stock called for on the face of this Warrant (without giving
effect to any adjustment therein) by the Initial Purchase Price.
3.2. Partial Exercise. This Warrant may be exercised in part by surrender
of this Warrant in the manner provided in Subsection 3.1, except that the
exercise price shall be calculated by multiplying (a) the number of shares of
Common Stock as shall be designated by the holder in the subscription at the end
hereof by (b) the Initial Purchase Price. On any such partial exercise, subject
to the provisions of Section 2 hereof, the Company, at its expense will
forthwith issue and deliver to or upon the order of the Registered Holder hereof
a new Warrant or Warrants of like tenor, in the name of the Registered Holder
hereof or as such Registered Holder may request, calling in the aggregate on the
face or faces thereof for the number of shares of Common Stock (without giving
effect to any adjustment therein) equal to the number of such shares called for
on the face of this Warrant minus the number of such shares designated by the
Registered Holder in the applicable Election to Purchase.
3.3. Company Acknowledgment. The Company will, at the time of the
exercise, exchange or transfer of this Warrant, upon the request of the
Registered Holder hereof, acknowledge in writing its continuing obligation to
afford to such Registered Holder or transferee any rights (including, without
limitation, any right to registration of the Company's shares of Common Stock)
to which such Registered Holder or transferee shall continue to be entitled
after such exercise, exchange or transfer in accordance with the provisions of
this Warrant, provided that if the Registered Holder of this Warrant shall fail
to make any such request, such failure shall not affect the continuing
obligation of the Company to afford to such Registered Holder or transferee any
such rights.
4. Delivery of Share Certificates upon Exercise. Following the exercise of this
Warrant in full or in part, within the time periods and in the manner provided
by Section 5(b) of the Securities Purchase Agreement, the Company, at its
expense (including the payment by it of any applicable issue taxes), will cause
to be issued in the name of and delivered to the Registered Holder hereof, or as
such Registered Holder (upon payment by such Registered Holder of any applicable
transfer taxes) may direct, a certificate or certificates for the number of
fully paid and nonassessable shares of Common Stock to which such Registered
Holder shall be entitled on such exercise, plus, in lieu of any fractional share
to which such Registered Holder would otherwise be entitled, cash equal to such
fraction multiplied by the then current market value of one full share of Common
Stock (as computed in accordance with Subsection 5.1(d) hereof).
5. Adjustment of Purchase Price and Number of Shares of Common Stock.
5.1. The Purchase Price hereof shall be subject to adjustment from time to
time as follows:
(a) In case the Company shall (i) pay a dividend on its shares of
Common Stock in Common Stock, (ii) subdivide its outstanding shares of Common
Stock or (iii) combine
3
its outstanding shares of Common Stock into a smaller number of shares, then, in
such an event, the Purchase Price in effect immediately prior thereto shall be
adjusted proportionately so that the adjusted Purchase Price will bear the same
relation to the Purchase Price in effect immediately prior to any such event as
the total number of shares of Common Stock outstanding immediately prior any
such event shall bear to the total number of shares of Common Stock outstanding
immediately after to such event. An adjustment made pursuant to this Section
5.1(a) shall, (i) become effective retroactively immediately after the record
date in the case of a dividend and shall (ii) become effective immediately after
the effective date in the case of a subdivision or combination. The Purchase
Price, as so adjusted, shall be readjusted in the same manner upon the happening
of any successive event or events described herein.
(b) In case the Company shall distribute to all holders of its
shares of Common Stock, Other Securities, evidences of its indebtedness or
assets (excluding cash dividends or distributions) or purchase rights, options
or warrants to subscribe for or purchase Other Securities, then in each such
case, the Purchase Price in effect thereafter shall be determined by multiplying
the Purchase Price in effect immediately prior thereto by a fraction, of which
the numerator shall be the total number of outstanding shares of Common Stock
multiplied by the current market price per share of Common Stock (as determined
in accordance with the provisions of subdivision (c) below) on the record date
mentioned below, less the fair market value as determined by the Board of
Directors (whose determination shall be conclusive) of the Other Securities,
assets or evidences of indebtedness so distributed or of such rights or
warrants, and of which the denominator shall be the total number of outstanding
shares of Common Stock multiplied by such current market price per share of
Common Stock. Such adjustment shall be made whenever any such distribution is
made and shall become effective retroactively immediately after the record date
for the determination of shareholders entitled to receive such distribution.
(c) For the purpose of any computation under subdivision (b) above,
the current market price per share of Common Stock shall be deemed to be the
closing price of the Company's shares of Common Stock on the date that the
computation is made.
(d) No adjustment of the Purchase Price shall be made if the amount
of such adjustment shall be less the $.02 per share, but in such case, any
adjustment that would otherwise be required then to be made shall be carried
forward and shall be made at the time of and together with the next subsequent
adjustment, which, together with any adjustment so carried forward, shall amount
to not less than $.02 per share. In case the Company shall at any time issue
shares of Common Stock by way of dividend on any class of stock of the Company
or subdivide or combine the outstanding shares of Common Stock, said amount of
$.02 per share (as theretofore increased or decreased, if the same amount shall
have been adjusted in accordance with the provisions of this subparagraph) shall
forthwith be proportionately increased in the case of a combination or decreased
in the case of such a subdivision or stock dividend so as to appropriately
reflect the same.
5.2. Upon each adjustment of the Purchase Price pursuant to subdivisions
(a) and (b) of Section 5.1, the number of shares of Common Stock purchasable
upon exercise of this
4
Warrant shall be adjusted to the number of shares of Common Stock, calculated to
the nearest one hundredth of a share, obtained by multiplying the number of
shares of Common Stock purchasable immediately prior to such adjustment upon the
exercise of this Warrant Certificate by the Purchase Price in effect prior to
such adjustment and dividing the product so obtained by the new Purchase Price.
5.3. In the event of any capital reorganization of the Company, or of any
reclassification of the shares of Common Stock, this Warrant shall be
exercisable after such capital reorganization or reclassification upon the terms
and conditions specified in this Warrant, for the number of shares of stock or
other securities which the shares of Common Stock issuable (at the time of such
capital reorganization or reclassification) upon exercise of this Warrant would
have been entitled to receive upon such capital reorganization or
reclassification if such exercise had taken place immediately prior to such
action. The subdivision or combination of shares of Common Stock at any time
outstanding into a greater or lesser number of shares of Common Stock shall not
be deemed to be a reclassification of the shares of Common Stock of the Company
for the purposes of this Subsection 5.3.
5.4. Whenever the Purchase Price is adjusted as herein provided, the
Company shall compute the adjusted Purchase Price in accordance with Subsection
5.1 and shall prepare a certificate signed by its Chief Financial Officer and
any other executive officer setting forth the adjusted Purchase Price, and
showing in reasonable detail the method of such adjustment and the fact
requiring the adjustment and upon which such calculation is based, and such
certificate shall forthwith be forwarded to the Registered Holder.
5.5. The form of this Warrant need not be changed because of any change in
the Purchase Price pursuant to this Section 5 and any Warrant issued after such
change may state the same Purchase Price and the same number of shares of Common
Stock as are stated in this Warrant as initially issued.
6. Adjustment for Reorganization, Consolidation, Merger, Etc.
6.1. Merger, Etc. In case at any time or from time to time after the date
of issuance of this Warrant, the Company shall (a) effect a reorganization, (b)
consolidate with or merge into any other person or (c) transfer all or
substantially all of its properties or assets to any other person under any plan
or arrangement contemplating the dissolution of the Company within three (3)
years from the date of such transfer (any such transaction being hereinafter
sometimes referred to as a "Reorganization"), then, in each such case, the
Registered Holder of this Warrant, upon the exercise hereof as provided in
Section 3 at any time after the consummation or effective date of such
Reorganization (the "Effective Date"), shall receive, in lieu of the shares of
Common Stock issuable on such exercise prior to such consummation or such
Effective Date, the stock and other securities and property (including cash) to
which such Registered Holder would have been entitled upon such consummation or
in connection with such dissolution, as the case may be, if such Registered
Holder had so exercised this Warrant, immediately prior thereto (all subject to
further adjustment thereafter as provided in Section 5). The Company shall not
effect a transaction of the type described in clause (b) or (c) above unless
upon or prior to the
5
consummation thereof, the Company's successor corporation, or if the Company
shall be the surviving company in any such Reorganization but is not the issuer
of the shares of stock, securities or other property to be delivered to the
holders of the Company's outstanding shares of Common Stock at the effective
time thereof, then such issuer, shall assume in writing the obligation hereunder
to deliver to the Registered Holder of this Warrant such shares of stock,
securities, cash or other property as such holder shall be entitled to purchase
in accordance with the provisions hereof
6.2. Dissolution. Except as otherwise expressly provided in Subsection
6.1, in the event of any dissolution of the Company following the transfer of
all or substantially all of its properties or assets, the Company, prior to such
dissolution, shall at its expense deliver or cause to be delivered the stock and
other securities and property (including cash, where applicable) receivable by
the holders of the Warrants after the effective date of such dissolution
pursuant to this Section 6 to a bank or trust company having its principal
office in New York City, as trustee for the holder or holders of the Warrants.
6.3. Continuation of Terms. Except as otherwise expressly provided in
Subsection 6.1, upon any reorganization, consolidation, merger or transfer (and
any dissolution following any transfer) referred to in this Section 6, this
Warrant shall continue in full force and effect and the terms hereof shall be
applicable to the shares of stock and other securities and property receivable
on the exercise of this Warrant after the consummation of such reorganization,
consolidation or merger or the effective date of dissolution following any such
transfer, as the case may be, and shall be binding upon the issuer of any such
stock or other securities, including, in the case of any such transfer, the
person acquiring all or substantially all of the properties or assets of the
Company, whether or not such person shall have expressly assumed the terms of
this Warrant.
7. No Dilution or Impairment. The Company will not, by amendment of its
Certificate of Incorporation or By-laws, or through any reorganization, transfer
of assets, consolidation, merger, dissolution, issue or sale of securities or
any other voluntary action, avoid or seek to avoid the observance or performance
of any of the terms of the Warrants, but will at all times in good faith assist
in the carrying out of all such terms and in the taking of all such action as
may be necessary or appropriate in order to protect the rights of the holders of
the Warrants, as specified herein and in the Securities Purchase Agreement,
against dilution (to the extent specifically provided herein) or other
impairment. Without limiting the generality of the foregoing, the Company (a)
will not increase the par value of any shares of stock receivable on the
exercise of the Warrants above the amount payable therefor on such exercise, and
(b) will not effect a subdivision or split up of shares or similar transaction
with respect to any class of the Common Stock without effecting an equivalent
transaction with respect to all other classes of Common Stock.
8. Accountant's Certificate as to Adjustments. In each case of any adjustment or
readjustment in the Common Stock issuable on the exercise of the Warrants, the
Company, at its expense, will promptly cause the independent certified public
accountants of the Company to compute such adjustment or readjustment in
accordance with the terms of the Warrants and
6
prepare a certificate setting forth such adjustment or readjustment and showing
in detail the facts upon which such adjustment or readjustment is based,
including a statement of (a) the consideration received or receivable by the
Company for any additional shares of Common Stock (or Other Securities) issued
or sold or deemed to have been issued or sold, (b) the number of shares of
Common Stock (or Other Securities) outstanding or deemed to be outstanding, and
(c) the Purchase Price in effect and number and type of Shares for which the
Warrants were exercisable immediately prior to such issue or sale and as each is
adjusted and readjusted on account thereof. The Company will forthwith mail a
copy of each such certificate to each holder of a Warrant, and will, on the
written request at any time of any holder of a Warrant, furnish to such holder a
like certificate setting forth the Purchase Price and the number and type of
Shares at the time in effect and showing how it was calculated.
9. Notice of Record Date. In case of
(a) any taking by the Company of a record of the holders of any
class of its securities for the purpose of determining the holders thereof who
are entitled to receive any dividend or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, or
(b) any capital reorganization of the Company, any reclassification
or recapitalization of the capital stock of the Company or any transfer of all
or substantially all the assets of the Company to or consolidation or merger of
the Company with or any voluntary or involuntary dissolution, liquidation or
winding up of the Company, or
(c) events shall have occurred resulting in the voluntary or
involuntary dissolution, liquidation or winding up of the Company, then and in
each such event the Company will mail or cause to be mailed to each holder of a
Warrant a notice specifying (i) the date on which any record is to be taken for
the purpose of any such dividend, distribution or right, and stating the amount
and character of such dividend, distribution or right, (ii) the date on which
any such reorganization, reclassification, recapitalization, transfer,
consolidation, merger, dissolution, liquidation or winding up is to take place,
and the time, if any is to be fixed, as of which the holders of record of Common
Stock (or Other Securities) shall be entitled to exchange their Common Stock (or
Other Securities) for securities or other property deliverable on such
reorganization, reclassification, recapitalization, transfer, consolidation,
merger, dissolution, liquidation or winding up, and (iii) the amount and
character of any stock or other securities, or rights or options with respect
thereto, proposed to be issued or granted, the date of such proposed issue or
grant and the persons or class of persons to whom such proposed issue or grant
is to be offered or made. Such notice shall be mailed at least thirty (30) days
prior to the date specified in such notice on which any such action is to be
taken.
10. Exchange of Warrants. On surrender for exchange of any Warrant, properly
endorsed, to the Company, the Company, at its expense, will issue and deliver to
or (subject to Section 2) on the order of the holder thereof a new Warrant or
Warrants of like tenor, in the name of such holder or as such holder (on payment
by such holder or any applicable transfer taxes) may direct,
7
calling in the aggregate on the face or faces thereof for the number of shares
of Common Stock called for on the face or faces of the Warrant or Warrants so
surrendered.
11. Replacement of Warrants. On receipt of evidence reasonably satisfactory to
the Company of the loss, theft, destruction or mutilation of any Warrant and, in
the case of any such loss, theft or destruction of any Warrant, on delivery of
an indemnity agreement or security reasonably satisfactory in form and amount to
the Company or, in the case of any such mutilation, on surrender and
cancellation of such Warrant, the Company, at its expense, will execute and
deliver, in lieu thereof, a new Warrant of like tenor.
12. Warrant Agent. The Company may, by written notice to each holder of a
Warrant, appoint an agent having an office in New York, New York, for the
purpose of issuing shares of Common Stock on the exercise of the Warrants
pursuant to Section 3, exchanging Warrants pursuant to Section 10, and replacing
Warrants pursuant to Section 11, or any of the foregoing, and thereafter any
such issuance, exchange or replacement, as the case may be, shall be made at
such office by such agent.
13. Remedies. The Company stipulates that the remedies at law of the holder of
this Warrant in the event of any default or threatened default by the Company in
the performance of or compliance with any of the terms of this Warrant are not
and will not be adequate, and that such terms may be specifically enforced by a
decree for the specific performance of any agreement contained herein or by an
injunction against a violation of any of the terms hereof or otherwise.
14. Negotiability, Etc. This Warrant is issued upon the following terms, to all
of which each Registered Holder or owner hereof by the taking hereof consents
and agrees:
(a) subject to the terms of Section 4 of the Securities Purchase
Agreement, title to this Warrant may be transferred by endorsement (by the
Registered Holder hereof executing the form of assignment at the end hereof) and
delivery in the same manner as in the case of a negotiable instrument
transferable by endorsement and delivery;
(b) any person in possession of this Warrant properly endorsed is
authorized to represent himself as absolute owner hereof and is empowered to
transfer absolute title hereto by endorsement and delivery hereof to a bona fide
purchaser hereof for value; each prior taker or owner waives and renounces all
of his equities or rights in this Warrant in favor of each such bona fide
purchaser, and each such bona fide purchaser shall acquire absolute title hereto
and to all rights represented hereby; and
(c) until this Warrant is transferred on the books of the Company,
the Company may treat the Registered Holder hereof as the absolute owner hereof
for all purposes, notwithstanding any notice to the contrary.
15. Notices. All notices and other communications from the Company to the
Registered Holder of this Warrant shall be given in writing (unless otherwise
specified herein) and shall be effective upon personal delivery, via facsimile
(upon receipt of confirmation of error-free transmission) or two business days
following deposit of such notice with an internationally
8
recognized courier service, with postage prepaid and addressed, to such address
as may have been furnished to the Company in writing by such Registered Holder
or, until any such Registered Holder furnishes to the Company an address, then
to, and at the address of, the last Registered Holder of this Warrant who has so
furnished an address to the Company.
16. Miscellaneous. 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 is being delivered in the State of New York and, except for
provisions with respect to internal corporate matters of the Company which shall
be governed by the corporate laws of the State of Colorado, shall be construed
and enforced in accordance with and governed by the laws of the State of New
York, without regard to principles of conflict of laws. The headings in this
Warrant are for purposes of reference only, and shall not limit or otherwise
affect any of the terms hereof. All nouns and pronouns used herein shall be
deemed to refer to the masculine, feminine or neuter, as the identity of the
person or persons to whom reference is made herein may require.
17. Expiration. The right to exercise this Warrant shall expire at 5:00 p.m.,
New York time, on __________, 200__.
IN WITNESS WHEREOF, the undersigned has executed this Warrant as of
________________.
ONLINE SYSTEM SERVICES, INC.
By:
-----------------------------------
Name:
Title:
Attest:
By:
-------------------------------
Name:
Title:
9
Annex A
FORM OF ELECTION TO PURCHASE
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant, to purchase _____________ shares of Common Stock
and herewith tenders in payment for such securities a certified or official bank
check payable in New York Clearing House Funds to the order of ONLINE SYSTEM
SERVICES, INC., in the amount of $__________, all in accordance with the terms
hereof. The undersigned requests that a certificate for such shares of Common
Stock be registered in the name of _________________________, whose address is
_________________________________ and that such Certificate be delivered to
___________________________,whose address is ______________________
Dated:
Name: ________________________________________
Signature: ___________________________________
(Signature must conform in all respects to the name of the Registered
Holder, as specified on the face of the Warrant.)
___________________________________
(Insert Social Security or Other
Identifying Number of Holder)
A-1
Annex B
FORM OF ASSIGNMENT
(To be executed by the Registered Holder if such Holder desires to transfer the
Warrant.)
FOR VALUE RECEIVED, ____________________
hereby sells, assigns and transfers unto
______________________________________________
(Please print name and address of transferee)
this Warrant, together with all right, title and interest therein, and does so
hereby irrevocably constitute and appoint _____________________ Attorney, to
transfer the within Warrant on the books of the within-named Company, with full
power of substitution.
Dated:
Name: ________________________________________
Signature: ___________________________________
(Signature must conform in all respects to the name of the Registered
Holder, as specified on the face of the Warrant.)
___________________________________
(Insert Social Security or Other
Identifying Number of Assignee)
B-1
Exhibit D
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of January 11, 1999 (this
"Agreement"), is made by and between ONLINE SYSTEM SERVICES, INC., a Colorado
corporation, with headquarters located at 0000 Xxxxxxx Xxxxx, 0xx Xxxxx, Xxxxxx,
Xxxxxxxx 00000 (the "Company") and Arrow Investors II LLC, a Delaware limited
liability company (the "Purchaser").
W I T N E S S E T H:
WHEREAS, pursuant to a Securities Purchase Agreement, dated as of January
11, 1999, among the Purchaser and the Company (the "Securities Purchase
Agreement"), the Company has agreed to issue and sell to the Purchaser, up to
3,000 shares of the Company's Series C Convertible Preferred Stock, no par value
(the "Series C Preferred Stock"), a warrant to purchase up to 2,000 additional
shares of Series C Preferred Stock (the "Mandatory Warrant") and up to 100,000
three-year warrants (the "Warrants");
WHEREAS, pursuant to the terms of the Series C Preferred Stock and the
Warrants, (i) upon the conversion of the Series C Preferred Stock, (ii) in lieu
of dividend payments on the Series C Preferred Stock and (iii) upon exercise of
the Warrants, the Company will issue to the Purchaser shares of Common Stock
(such shares are referred to herein as the "Shares"); and
WHEREAS, to induce the Purchasers to execute and deliver the Securities
Purchase Agreement, the Company has agreed to provide certain registration
rights under the Securities Act of 1933, as amended (the "Securities Act"), and
applicable state securities laws.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and the Purchaser
hereby agree as follows:
1. Definitions.
(a) As used in this Agreement, the following terms shall have the
following meanings:
(i) "Register," "Registered," and "Registration" refer to a
registration effected by preparing and filing a Registration Statement
or Statements in compliance with the Securities Act and pursuant to
Rule 415 under the Securities Act or any successor rule providing for
offering securities on a continuous basis ("Rule 415"), and the
declaration or ordering of effectiveness of such Registration
Statement by the United States Securities and Exchange Commission (the
"Commission").
(ii) "Registrable Securities" means the Shares and the Warrants.
(iii) "Initial Registration Statement" means a registration
statement or registration statements of the Company filed under the
Securities Act covering Registrable Securities relating to the Initial
Preferred Shares and the Mandatory Preferred Shares.
(iv) "Warrant Registration Statement" means a registration
statement or registration statements of the Company filed under the
Securities Act covering Registrable Securities relating to the
Warrants.
(v) "Registration Statement" means the Initial Registration
Statement and the Warrant Registration Statement.
(vi) "Filing Deadline" means the Initial Filing Deadline and the
Warrant Filing Deadline, as applicable.
(vii) "Effectiveness Deadline" means the Initial Effectiveness
Deadline and the Warrant Effectiveness Deadline, as applicable.
Capitalized terms used herein and not otherwise defined herein shall have
the meanings set-forth in the Securities Purchase Agreement.
2. Registration.
a. Mandatory Registrations.
(i) Initial Registration Statement. The Company shall
prepare, and, as soon as practicable but in no event later than
20 days after the Initial Closing Date (as defined in the
Securities Purchase Agreement) (the "Initial Filing Deadline"),
file with the Commission an Initial Registration Statement or
Initial Registration Statements (as necessary) on Form S-3
covering the resale of all of the Registrable Securities relating
to the Initial Preferred Shares and the Mandatory Preferred
Shares (the "Initial Registrable Securities"). In the event that
Form S-3 is unavailable for such a registration, the Company
shall use such other form as is available for such a
registration. Any initial Registration Statement prepared
pursuant hereto shall register for resale at least that number of
shares of Common Stock equal to the product of (x) 2.0 and (y)
the number of Initial Registrable Securities as of the date
immediately preceding the date the Registration Statement is
initially filed with the Commission. The Company shall use its
best efforts to have the Initial Registration Statement declared
effective within the earliest to occur of (i) April 30, 1999 (ii)
if the Commission elects not to conduct a review of the Initial
Registration Statement, the date which is three (3) business days
after the date upon which either the Company or its counsel is so
notified, whether orally or in writing; or (iii) if the Initial
Registration Statement is reviewed by the Commission, the date
which is three (3) business days after the date upon which the
Company or its counsel is notified by the Commission, whether
orally or in writing, that the Commission has no further comments
with respect to the Initial Registration Statement or that the
Initial Registration Statement may be declared effective. The
earliest of such dates is referred to herein as the "Initial
Effectiveness Deadline."
2
(ii) Warrant Registration Statement. The Company shall
prepare, and, as soon as practicable but in no event later than
45 days after each date the Company issues any Warrants pursuant
to the Securities Purchase Agreement and Exhibit A thereto (the
"Warrant Filing Deadline"), file with the Commission a Warrant
Registration Statement or Warrant Registration Statements (as
necessary) on Form S-3 covering the resale of all of the
Registrable Securities relating to such Warrants (the "Warrant
Registrable Securities"). In the event that Form S-3 is
unavailable for such a registration, the Company shall use such
other form as is available for such a registration. Any Warrant
Registration Statement prepared pursuant hereto shall register
for resale at least that number of shares of Common Stock equal
to the number of Warrant Registrable Securities relating to such
Warrants as of the date immediately preceding the date the
Registration Statement is initially filed with the Commission.
The Company shall use its best efforts to have the Warrant
Registration Statement declared effective by the Commission
within the earliest to occur of (i) 90 days (120 days if the
Warrant Filing Deadline is within 75 days of the end of the
Company's fiscal year) after the date of issuance of such
Warrants; (ii) if the Commission elects not to conduct a review
of the Warrant Registration Statement, the date which is three
(3) business days after the date upon which either the Company or
its counsel is so notified, whether orally or in writing; or
(iii) if the Warrant Registration Statement is reviewed by the
Commission, the date which is three (3) business days after the
date upon which the Company or its counsel is notified by the
Commission, whether orally or in writing, that the Commission has
no further comments with respect to the Warant Registration
Statement or that the Warrant Registration Statement may be
declared effective. The earliest of such dates is referred to
herein as the "Warrant Effectiveness Deadline".
(iii) The Company shall keep each Registration Statement
effective pursuant to Rule 415 at all times until such date as is
the earlier of (i) the date on which all of the Registrable
Securities have been sold and (ii) the date on which the
Registrable Securities (in the opinion of counsel to the
Purchaser) may be immediately sold without restriction (including
without limitation as to volume by each holder thereof) without
registration under the Securities Act (the "Registration
Period").
(b) Payments by the Company.
(i) If the Registration Statement covering the Registrable
Securities is not filed in proper form with the Commission on or prior
to the Filing Deadline, if the Registration Statement covering the
Registrable Securities is not effective on or prior to the
Effectiveness Deadline, or under the circumstances described in
Section 3(f) below, the Company will make payments to the Purchaser in
such amounts and at such times as shall be determined pursuant to this
Section 2(b).
(ii) The amount (the "Periodic Amount") to be paid by the Company
to the Purchaser shall be determined as of each Computation Date (as
defined below) and such amount, calculated on a monthly basis, shall
be equal to (A) two percent (2.0%) of the purchase price paid by the
Purchaser (the "Purchase Price") for all of the Series C Preferred
Stock multiplied by the fraction the numerator of which shall be the
number of days from the date following the Filing Deadline, the
Effectiveness Deadline, or the date that the provisions of
3
Section 3(e) or 3(f) become applicable, as the case may be, to the
first relevant Computation Date and the denominator of which shall be
thirty (30), and (B) two percent (2%) of the Purchase Price multiplied
by the fraction the numerator of which shall be the number of days
from the first (or most recent, as applicable) Computation Date to the
next succeeding Computation Date and the denominator of which shall be
thirty (30).
(iii) Each Periodic Amount shall be payable by the Company in
cash or other immediately available funds to the Purchaser monthly,
without demand therefor by the Purchaser.
(iv) The parties acknowledge that the damages which may be
incurred by the Purchaser if the Registration Statement is not filed
by the Filing Deadline, if the Registration Statement has not been
declared effective by the Effectiveness Deadline, or if the provisions
of Section 3(e) or 3(f) become applicable, may be difficult to
ascertain. The parties agree that the Periodic Amount represents a
reasonable estimate on the part of the parties, as of the date of this
Agreement, of the amount of such damages.
(v) "Computation Date" means (i) the date which is the earlier of
(A) thirty (30) days after the Filing Deadline, the Effectiveness
Deadline or the date that the provisions of Section 3(e) or 3(f)
become applicable, as the case may be, or (B) the date after the
Filing Deadline or the Effectiveness Deadline on which the
Registration Statement is filed, the Registration Statement is
declared effective, or the Company's obligations in Section 3(e) or
3(f) shall have been satisfied, as the case may be, and (ii) each date
which is the earlier of (A) thirty (30) days after the previous
Computation Date or (B) the date after the previous Computation Date
on which the Registration Statement is filed, the Registration
Statement is declared effective, or the Company's obligations in
Section 3(e) or 3(f) shall have been satisfied, as the case may be.
(c) Piggyback Registration. (i) If at any time or from time to time,
the Company shall determine to register any of its securities, for its own
account or the account of any of its shareholders, other than a
Registration relating solely to employee share option plans or pursuant to
an acquisition transaction on Form S-4, the Company will:
A) provide to the Purchaser written notice thereof as soon as practicable prior
to filing the Registration Statement; and
(B) include in such Registration Statement and in any underwriting involved
therein, all of the Registrable Securities specified in a written request by the
Purchaser made within fifteen (15) days after receipt of such written notice
from the Company.
(ii) If the Registration is for a registered public offering involving an
underwriting, the Company shall so advise the Purchaser as a part of
the written notice given pursuant to this Section. In such event, the
rights of the Purchaser hereunder shall include participation in such
underwriting and the inclusion of the Registrable Securities in the
underwriting to the extent provided herein. To the extent that the
Purchaser proposes to distribute its securities through such
underwriting, the
4
Purchaser shall (together with the Company and any other security
holders of the Company distributing their securities through such
underwriting) enter into an underwriting agreement in customary form
with the underwriter or underwriters selected for such underwriting by
the Company. Notwithstanding any other provision of this Section, if
the managing underwriter of such underwriting determines that
marketing factors require a limitation of the number of shares to be
offered in connection with such underwriting, the managing underwriter
may limit the number of Registrable Securities to be included in the
Registration and underwriting (provided, however, -------- ------- (a)
the Registrable Securities shall not be excluded from such
underwritten offering prior to any securities held by officers and
directors of the Company or their affiliates, (b)the Registrable
Securities shall be entitled to at least the same priority in an
underwritten offering as any of the Company's existing security
holders, and (c) the Company shall not enter into any agreement that
would provide any security holder with priority in connection with an
underwritten offering greater than the priority granted to the
Purchaser hereunder). The Company shall so advise any of its other
security holders who are distributing their securities through such
underwriting pursuant to their respective piggyback registration
rights, and the number of shares of Registrable Securities and other
securities that may be included in the registration and underwriting
shall be allocated among the Purchaser and all other security holders
of the Company in proportion, as nearly as practicable, to the
respective amounts of Registrable Securities held by the Purchaser and
such other security holders at the time of the filing of the
registration statement. If the Purchaser disapproves of the terms of
any such underwriting, it may elect to withdraw therefrom by written
notice to the Company. Any Registrable Securities so excluded or
withdrawn from such underwriting shall be withdrawn from such
Registration.
(d) Eligibility for Form S-3. The Company represents and warrants that
it meets all of the requirements for the use of Form S-3 for the
Registration of the sale by the Purchaser and any transferee who purchases
the Registrable Securities, and the Company shall file all reports required
to be filed by the Company with the Commission in a timely manner, and
shall take such other actions as may be necessary to maintain such
eligibility for the use of Form S-3.
(e) Priority in filing. From the date hereof until 90 days following
the effective date of the Initial Registration Statement pursuant to
Section 2(a) of this Agreement, the Company shall not permit the
registration of any of its securities under the Securities Act to become
effective, other than those covered by this Agreement, without the prior
written approval of the Purchaser. The foregoing notwithstanding, the
Company may permit a registration statement to become effective during the
foregoing period provided that (i) such registration statement relates to
an underwritten offering of the Company's securities, (ii) such
registration statement is filed pursuant to the registration rights
agreements between the Company and the holders of the 10% Preferred Stock
and Series A Preferred Stock, (iii) such registration statement relates to
Common Stock which may be obtained upon exercise of the Company's warrants
which are publicly traded as of the date hereof or the securities issued to
the underwriter in
5
connection with the initial public offering, (iv) such registration
statement relates to 24,000 shares of Common Stock issued to Xxxxxxx Xxxxxx
in lieu of cash payments or (v) such registration statement is filed in
connection with the acquisition of Xxxxxx Communications, Inc.
3. Obligations of the Company. In connection with the registration of the
Registrable Securities and the Warrants, the Company shall do each of the
following:
(a) Prepare and file with the Commission the registration statements
required by Section 2 of this Agreement and such amendments (including
post-effective amendments) and supplements to the Registration Statement
and the prospectuses used in connection with the Registration Statement,
each in such form as to which the Purchaser and its counsel shall not have
objected, as may be necessary to keep the Registration effective at all
times during the Registration Period, and, during the Registration Period,
comply with the provisions of the Securities Act with respect to the
disposition of all of the Registrable Securities and all of the Warrants of
the Company covered by the Registration Statement until such time as all of
such Registrable Securities and all of such Warrants have been disposed of
in accordance with the intended methods of disposition by the seller or
sellers thereof as set forth in the Registration Statement;
(b) Furnish to the Purchaser, if the Registrable Securities of the
Purchaser are included in the Registration Statement, and its legal counsel
identified to the Company, promptly after the same is prepared and publicly
distributed, filed with the Commission, or received by the Company, a copy
of the Registration Statement, each preliminary prospectus, each final
prospectus, and all amendments and supplements thereto and such other
documents, as the Purchaser may reasonably request in order to facilitate
the disposition of its Registrable Securities and Warrants;
(c) Furnish to the Purchaser and its counsel copies of any
correspondence between the Company and the Commission with respect to any
registration statement or amendment or supplement thereto filed pursuant to
this Agreement;
(d) Use all reasonable efforts to (i) register and qualify the
Registrable Securities covered by the Registration Statement under such
other securities or blue sky laws of such jurisdictions as the Purchaser
may reasonably request, (ii) prepare and file in those jurisdictions such
amendments (including post-effective amendments) and supplements to such
registrations and qualifications as may be necessary to maintain the
effectiveness thereof at all times during the Registration Period, (iii)
take such other actions as may be necessary to maintain such registrations
and qualifications in effect at all times during the Registration Period
and (iv) take all other actions reasonably necessary or advisable to
qualify the Registrable Securities for sale in such jurisdictions, provided
that in connection therewith, the Company shall not be required to qualify
as a foreign corporation or to file a general consent to the service of
process in any jurisdiction;
(e) As promptly as practicable after becoming aware of such event,
notify each Purchaser of the occurrence of any event of which the Company
has knowledge, as a result of which the prospectus included in the
Registration Statement, as then in effect, includes an
6
untrue statement of a material fact or omits to state a material fact
required to be stated therein in order to make the statements therein, in
light of the circumstances under which they were made, not misleading, and
to use its best efforts to promptly prepare a supplement or amendment to
the Registration Statement or other appropriate filing with the Commission
to correct such untrue statement of omission, and to deliver a number of
copies of such supplement or amendment to the Purchaser as the Purchaser
may reasonably request;
(f) As promptly as practicable after becoming aware of such event,
notify the Purchaser who holds Warrants or Registrable Securities being
sold (or, in the event of an underwritten offering, the underwriters) of
the issuance by the Commission or any stop order or other suspension of the
effectiveness of the Registration Statement at the earliest possible time,
and to use its best efforts to promptly obtain the withdrawal of such stop
order or other suspension of effectiveness;
(g) During the period commencing upon (i) the Purchaser's receipt of a
notification pursuant to Section 3(e) above, or (ii) the entry of a stop
order or other suspension of effectiveness of the Registration Statement
described in Section 2(a) above, and ending at such time as (y) the Company
shall have completed the applicable filings (and if applicable, such
filings shall have been declared effective) and shall have delivered to the
Purchaser the documents required pursuant to Section 3(e) above, or (z),
such stop order or other suspension of the effectiveness of the
Registration Statement shall have been removed, the Company shall be liable
to remit the payments required to be paid pursuant to Section 2(b) above;
(h) If the offering is underwritten, at the request of a Purchaser, to
furnish on the date that Registrable Securities are delivered to the
underwriters for sale pursuant to such registration: (i) an opinion dated
such date of counsel representing the Company for the purposes of such
registration, addressed to the underwriters and to any Purchaser selling
Registrable Securities in connection with such underwriting, stating that
such registration statement has become effective under the Securities Act
and that (A) to the best knowledge of such counsel, no stop order
suspending the effectiveness thereof has been issued and no proceedings for
that purpose have been instituted or are pending or contemplated under the
Securities Act and (B) the registration statement, the related prospectus
and each amendment or supplement thereof comply as to form in all material
respects with the requirements of the Securities Act (except that such
counsel need not express any opinion as to financial statements or other
financial data contained therein) and (ii) a letter dated such date from
the Company's independent public accountants addressed to the underwriters
and to such Purchasers, stating that they are independent public
accountants within the meaning of the Securities Act and that, in the
opinion of such accountants, the financial statements of the Company
included in the registration statement or the prospectus, or any amendment
or supplement thereof, comply as to form in all material respects with the
applicable accounting requirements of the Securities Act, and such letter
shall additionally cover such other financial matters (including
information as to the period ending no more than five (5) business days
prior to the date of such letter) with respect to such registration as such
underwriters may reasonably request; and
7
(i) Cooperate with the Purchaser to facilitate the timely preparation
and delivery of certificates for the Registrable Securities to be offered
pursuant to the Registration Statement and to enable such certificates for
the Registrable Securities to be in such denominations or amounts, as the
case may be, as the Purchaser may reasonably request, and registered in
such names as the Purchaser may request; and, within three (3) business
days after a Registration Statement which includes Registrable Securities
is ordered effective by the Commission, the Company shall deliver, and
shall cause legal counsel selected by the Company to deliver, to the
transfer agent for the Registrable Securities (with copies to the
Purchaser) an appropriate instruction and opinion of such counsel.
4. Obligations of the Purchaser. In connection with the registration of
the Registrable Securities, the Purchaser shall have the following obligations:
(a) Take all other reasonable actions necessary to expedite and
facilitate the disposition by the Purchaser of the Warrants and the
Registrable Securities pursuant to the Registration Statement.
(b) It shall be a condition precedent to the obligations of the
Company to complete the registration pursuant to this Agreement of the
Warrants and the Registrable Securities of the Purchaser that the Purchaser
shall furnish to the Company such information regarding itself, the
Warrants and Registrable Securities held by it, and the intended method of
disposition of the Warrants and the Registrable Securities held by it, as
shall be reasonably required to effect the registration of such Warrants
and such Registrable Securities, and the Purchaser shall execute such
documents in connection with such registration as the Company may
reasonably request. At least five (5) days prior to the first anticipated
filing date of the Registration Statement, the Company shall notify the
Purchaser of the information the Company included in the Registration
Statement.
(c) The Purchaser, by its acceptance of the Warrants or Registrable
Securities, agrees to cooperate with the Company as reasonably requested by
the Company in connection with the preparation and filing of any
Registration Statement hereunder, unless the Purchaser has notified the
Company in writing of its election to exclude all of the Purchaser's
Registrable Securities from such Registration Statement.
(d) The Purchaser agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 3(e)
or 3(f) above, it will immediately discontinue disposition of its Warrants
or Registrable Securities pursuant to the Registration Statement covering
such Registrable Securities until such copies of the supplemented or
amended prospectus contemplated by Section 3(e) or 3(f) shall be furnished
to the Purchaser.
5. Expenses of Registration. All expenses, other than underwriting
discounts and commissions and other fees and expenses of investment bankers and
other than brokerage commissions, incurred in connection with registrations,
filings or qualifications pursuant to Section 3, but including, without
limitation, all registration, listing, and qualification fees, printing and
accounting fees, and the fees and disbursements of counsel for the Company, and
8
the fees of one counsel to the Purchaser not exceeding U.S. $2,500 with respect
to each Registration Statement filed pursuant hereto, shall be borne by the
Company.
6. Indemnification. In the event any Registrable Securities are included
in a Registration Statement under this Agreement:
(a) To the extent permitted by law, the Company will indemnify and
hold harmless the Purchaser, the directors, if any, of the Purchaser, the
officers, if any, of Purchaser, each person, if any, who controls the
Purchaser within the meaning of the Securities Act or the Exchange Act
(each, an "Indemnified Person"), against any losses, claims, damages,
liabilities or expenses (joint or several) incurred (collectively,
"Claims") to which any of them may become subject under the Securities Act,
the Exchange Act or otherwise, insofar as such Claims (or actions or
proceedings, whether commenced or threatened, in respect thereof) arise out
of or are based upon: (i) any untrue statement or alleged untrue statement
of a material fact contained in the Registration Statement or any
post-effective amendment thereof or the omission or alleged omission to
state therein a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances in
which they were made, not misleading, (ii) any untrue statement or alleged
untrue statement of a material fact contained in any preliminary prospectus
if used prior to the effective date of such Registration Statement, or
contained in the final prospectus (as amended or supplemented, if the
Company files any amendment thereof or supplement thereto with the
Commission) or the omission to state therein any material fact necessary in
order to make the statements made therein, in light of the circumstances
under which they were made, not misleading, or (iii) any violation or
alleged violation by the Company of the Securities Act, the Exchange Act,
any state or foreign securities law or any rule or regulation under the
Securities Act, the Exchange Act or any state or foreign securities law
(the matters in foregoing clauses (i) through (iii) being, collectively,
"Violations"). The Company shall, subject to the provisions of Section 6(b)
below, reimburse the Purchaser, promptly as such expenses are incurred and
are due and payable, for any legal and other costs, expenses and
disbursements in giving testimony or furnishing documents in response to a
subpoena or otherwise, including without limitation, the costs, expenses
and disbursements, as and when incurred, of investigating, preparing or
defending any such action, suit, proceeding or investigation (whether or
not in connection with litigation in which the Purchaser is a party),
incurred by it in connection with the investigation or defense of any such
Claim. Notwithstanding anything to the contrary contained herein, the
indemnification agreement contained in this Section 6(a) shall not (i)
apply to any Claim arising out of or based upon a modification which occurs
in reliance upon and in conformity with information furnished in writing to
the Company by or on behalf of any Indemnified Person expressly for use in
connection with the preparation of the Registration Statement or any such
amendment thereof or supplement thereto; (ii) with respect to any
preliminary prospectus, inure to the benefit of any such person from whom
the person asserting any such Claim purchased the Registrable Securities
that are the subject thereof (or to the benefit of any person controlling
such person) if the untrue statement or omission of material fact contained
in the preliminary prospectus was corrected in the final prospectus, as
then amended or supplemented, if such final prospectus was timely made
available by the Company pursuant to Section 3(b) hereof; (iii) be
available to the extent that such Claim is based upon a failure of the
Purchaser to deliver or to cause to be
9
delivered the prospectus made available by the Company, if such prospectus
was timely made available by the Company pursuant to Section 3(b) hereof;
or (iv) apply to amounts paid in settlement of any Claim if such settlement
is effected without the prior written consent of the Company, which consent
shall not be unreasonably withheld. Such indemnity shall remain in full
force and effect regardless of any investigation made by or on behalf of
the Indemnified Person and shall survive the transfer of the Registrable
Securities by the Purchaser pursuant to Section 9. Each Purchaser will
indemnify the Company and its officers and directors against any Claims
arising out of or based upon a Violation which occurs in reliance upon and
in conformity with information furnished in writing to the Company, by or
on behalf of the Purchaser, expressly for use in connection with the
preparation of the Registration Statement, subject to such limitations and
conditions as are applicable to the Indemnification provided by the Company
in this Section 6.
(b) Promptly after receipt by an Indemnified Person under this Section
6 of notice of the commencement of any action (including any governmental
action), such Indemnified Person shall, if a Claim in respect thereof is to
be made against any indemnifying party under this Section 6, deliver to the
indemnifying party a written notice of the commencement thereof, and the
indemnifying party shall have the right to participate in, and to the
extent that the indemnifying party so desires, jointly with any other
indemnifying party similarly notified, to assume control of the defense
thereof with counsel mutually satisfactory to the indemnifying party and
the Indemnified Person, provided, however, that an Indemnified Person shall
have the right to retain its own counsel with the reasonable fees and
expenses to be paid by the indemnifying party, if, in the reasonable
opinion of counsel retained by the indemnifying party, the representation
by such counsel of the Indemnified Person and the indemnifying party would
be inappropriate due to actual or potential differing interests between
such Indemnified Person and any other party represented by such counsel in
such proceeding. In such event, the Company shall pay for only one separate
legal counsel for the Purchaser, and such legal counsel shall be selected
by the Purchaser. The failure to deliver written notice to an indemnifying
party within a reasonable time after the commencement of any such action
shall not relieve such indemnifying party of any liability to the
Indemnified Person under this Section 6, except to the extent that the
indemnifying party is materially prejudiced in its ability to such action.
The indemnification required by this Section 6 shall be made by periodic
payments of the amount thereof during the course of the investigation or
defense, as such expense, loss, damage or liability is incurred and is due
and payable.
(c) No indemnifying party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party,
consent to entry of any judgment or enter into any settlement which does
not include as an unconditional term thereof the giving by the claimant or
plaintiff to such Indemnified Person of an unconditional and irrevocable
release from all liability in respect of such claim or litigation.
(d) Notwithstanding the foregoing, to the extent that any provisions
relating to indemnification or contribution contained in the underwriting
agreements entered into among the Company, the underwriters and the
Purchaser in connection with the underwritten public offering are in
conflict with the foregoing provisions, the provisions in such underwriting
agreements
10
shall be controlling as to the Registrable Securities included in the
public offering; provided, however, that if, as a result of this Section
6(d), the Purchaser, its officers, directors, partners or any person
controlling the Purchaser is or are held liable with respect to any Claim
for which they would be entitled to indemnification hereunder but for this
Section 6(d) in an amount which exceeds the aggregate proceeds received by
the Purchaser from the sale of Registrable Securities included in a
registration pursuant to such underwriting agreement (the "Excess
Liability"), the Company shall reimburse the Purchaser for such Excess
Liability.
7. Contribution. To the extent any indemnification by an indemnifying party
is prohibited or limited under applicable law, the indemnifying party agrees to
contribute to the amount paid or payable by such indemnified party as a result
of such loss, claim, damage, liability or expense in such proportion as is
appropriate to reflect the relative fault of the indemnifying party on the one
hand and the Indemnified Person on the other hand in connection with the
statements or omissions which resulted in such Claim, as well as any other
relevant equitable considerations. The relative fault of the indemnifying party
and the Indemnified Person shall be determined by reference to, among other
things, whether the untrue statement of a material fact or the omission to state
a material fact on which such Claim is based relates to information supplied by
the indemnifying party or by the Indemnified Person, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. Notwithstanding the forgoing, (a) no contribution
shall be made under circumstances where the payor would not have been liable for
indemnification under the fault standards set forth in Section 6, (b) no seller
of Registrable Securities guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any seller of Registrable Securities who was not guilty of
such fraudulent misrepresentation and (c) contribution by any seller of
Registrable Securities shall be limited in amount to the net proceeds received
by such seller from the sale of such Registrable Securities. The Company and the
Purchaser agree that it would not be just and equitable if contribution pursuant
to this Section 7 were determined by pro-rata allocation (even if the Purchaser
and any other party were treated as one entity for such purpose) or by any other
method of allocation that does not take account of the equitable considerations
referred to in this Section.
8. Reports Under Exchange Act.
(a) With a view to making available to the Purchaser the benefits of
Rule 144 promulgated under the Securities Act or any other similar rule or
regulation of the Commission that may at any time permit the Purchaser to
sell securities of the Company to the public without registration ("Rule
144"), the Company agrees to:
(i) make and keep public information available, as those terms
are understood and defined in Rule 144;
(ii) file with the Commission in a timely manner all reports and
other documents required of the Company under the Securities Act and
the Exchange Act; and
(iii) furnish to the Purchaser so long as the Purchaser owns
Registrable Securities, promptly upon request, (i) a written statement
by the Company that it has complied
11
with the reporting requirements of the Securities Act and the Exchange
Act, (ii) a copy of the most recent annual or periodic report of the
Company and such other reports and documents so filed by the Company
and (iii) such other information as may be reasonably requested to
permit the Purchaser to sell such securities pursuant to Rule 144
without registration.
(b) Notwithstanding the forgoing, the Company will not be deemed to
have breached this Agreement pursuant to paragraph (a) above at any time at
which the Purchaser may effect resales of all of the Registrable Securities
pursuant to one or more Registration Statements filed pursuant to this
Agreement.
9. Assignment of the Registration Rights. The rights to have the Company
register Warrants or Registrable Securities pursuant to this Agreement shall be
automatically assigned by Purchaser to any transferee (other than entities that
are specifically identified as the Company's competitors under the caption
"Competition" in the Company's 1997 Annual Report) of all or any portion of the
shares of Series C Preferred Stock (including Common Stock issued upon
conversion of the Series C Preferred Stock or in lieu of dividend payments on
the Series C Preferred Stock), the Warrants, if any, or the underlying Common
Stock held by Purchaser if: (a) Purchaser agrees in writing with the transferee
or assignee to assign such rights, and a copy of such agreement is furnished to
the Company within a reasonable time after such assignment; (b) the Company is,
within a reasonable time after such transfer or assignment, furnished with
written notice of (i) the name and address of such transferee or assignee and
(ii) the Securities with respect to which such registration rights are being
transferred or assigned; (c) at or before the time the Company receives the
written notice contemplated by clause (b) of this sentence, the transferee or
assignee agrees in writing with the Company to be bound by all of the provisions
contained herein; and (d) the transfer of the relevant Securities complies with
the restrictions set forth in Section 4 of the Securities Purchase Agreement. In
the event of any delay in filing the Registration Statement as a result of such
assignment, the Company shall not be liable for any damages arising from such
delay.
10. Amendment of Registration Rights. Any provision of this Agreement may
be amended and the observance thereof may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with the
written consent of the Company and the Purchaser. Any amendment or waiver
effected in accordance with this Section 10 shall be binding upon Purchaser and
the Company.
11. Miscellaneous.
(a) A person or entity is deemed to be a holder of Warrants or
Registrable Securities whenever such person or entity owns of record such
Warrants or Registrable Securities. If the Company receives conflicting
instructions, notices or elections from two or more persons or entities
with respect to the same Warrants or Registrable Securities, the Company
shall act upon the basis of the instructions, notice or election received
from the registered owner of such Warrants or Registrable Securities.
(b) Any notice required or permitted hereunder shall be given in
writing (unless otherwise specified herein) and shall be effective upon
personal delivery, via facsimile
12
(upon receipt of confirmation of error-free transmission) or two business
days following deposit of such notice with an internationally recognized
courier service, with postage prepaid and addressed to each of the other
parties thereunto entitled at the following addresses, or at such other
addresses as a party may designate by ten (10) days advance written notice
to each of the other parties hereto.
COMPANY: ONLINE SYSTEM SERVICES, INC.
0000 Xxxxxxx Xxxxx
0xx Xxxxx
Xxxxxx, Xxxxxxxx 00000
ATTN.: R. Xxxxxx Xxxxx, Chairman and Chief Executive
Officer
Tel.: (000) 000-0000
Fax: (000) 000-0000
With copies to:
XXXX, PLANT, XXXXX, XXXXX & XXXXXXX, P.A.
3400 City Center
00 Xxxxx Xxxxx Xxxxxx
Xxxxxxxxxxx, Xxxxxxxxx 00000
ATTN.: Xxxxxxx Xxxxxxx, Esq.
Tel.: 000-000-0000
Fax: 000-000-0000
PURCHASER: At the address set forth on the signature page of this Agreement,
as such address may be updated from time to time by the Purchaser.
With Copies to:
WEC ASSET MANAGEMENT LLC
Xxx Xxxxx Xxxxx Xxxxxx
Xxxxx 0000
Xxx Xxxx, Xxx Xxxx 00000
ATTN.: Xxxxxx Xxxx
Tel.: 000-000-0000
Fax: 000-000-0000
XXXXXXXX & XXXXXXXX LLP
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000
ATTN.: Xxx Xxxxxxxxxx, Esq.
Tel.: 000-000-0000
Fax: 000-000-0000
13
(c) Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or
remedy, shall not operate as a waiver thereof.
(d) This Agreement shall be governed by and interpreted in accordance
with the laws of the State of New York, except for provisions with respect
to internal corporate matters of the Company which shall be governed by the
corporate laws of the State of Colorado. Each of the parties consents to
the jurisdiction of the federal courts whose districts encompass any part
of the City of New York or the state courts of the State of New York
sitting in the City of New York in connection with any dispute arising
under this Agreement and hereby waives, to the maximum extent permitted by
law, any objection, including any objection based on forum non conveniens,
to the bringing of any such proceeding in such jurisdictions. This
Agreement may be signed in one or more counterparts, each of which shall be
deemed an original. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such validity or unenforceability shall
not affect the validity or enforceability of the remainder of this
Agreement or the validity or enforceability of this Agreement in any other
jurisdiction. Subject to the provisions of Section 10 hereof, this
Agreement may be amended only by an instrument in writing signed by the
party to be charged with enforcement. This Agreement supersedes all prior
agreements and understandings among the parties hereto with respect to the
subject matter hereof.
(e) This Agreement constitutes the entire agreement among the parties
hereto with respect to the subject matter hereof. There are no
restrictions, promises, warranties or undertakings, other than those set
forth, or referred to herein and in the other Primary Documents. This
Agreement supersedes all prior agreements and understandings among the
parties hereto with respect to the subject matter hereof.
(f) Subject to the requirements of Section 9 hereof, this Agreement
shall inure for the benefit of and be binding upon the successors and
assigns of each of the parties hereto.
(g) All pronouns and any variations thereof refer to the masculine,
feminine or neuter, singular or plural, as the context may require.
(h) The Company acknowledges that any failure by the Company to
perform its obligations under Section 2(a), or any delay in such
performance could result in direct damages to the Purchaser, and the
Company agrees that, in addition to any other liability the Company may
have by reason of any such failure or delay, the Company shall be liable
for all direct damages caused by any such failure or delay, unless same is
the result of force majeure. Nothing herein shall limit the Purchaser's
right to pursue any claim seeking such direct damages. Neither party shall
be liable for consequential damages.
14
IN WITNESS WHEREOF, this Agreement has been duly executed by the
undersigned.
"COMPANY"
ONLINE SYSTEM SERVICES, INC.
By:
------------------------------------
Name:
Title:
IN WITNESS WHEREOF, this Agreement has been duly executed by the
undersigned.
"PURCHASER"
---------------------------------------
By: WEC ASSET MANAGEMENT LLC, Manager
By:
------------------------------------
Name: Xxxxxx Xxxx
Title: Managing Director
15
