Exhibit 10.5
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of December
31, 1999, by and between XXXX INTERACTIVE SERVICES, INC., a Colorado corporation
(the "Company"), and each of the entities whose names appear on the signature
pages hereof. Such entities are each referred to herein as a "Purchaser" and,
collectively, as the "Purchasers".
The Company wishes to sell to each Purchaser, and each Purchaser wishes
to buy, on the terms and subject to the conditions set forth in this Agreement,
shares (the "Preferred Shares") of the Company's Series B Convertible Preferred
Stock, no par value (the "Preferred Stock"), and related Warrants in the form
attached hereto as Exhibit A (the "Warrants"). The Preferred Shares are
convertible pursuant to the terms of the Articles of Amendment relating to the
Preferred Stock, the form of which is attached hereto as Exhibit B (the
"Articles of Amendment") into shares (the "Conversion Shares") of the Company's
common stock, no par value (the "Common Stock"). The Warrants are exercisable
into shares of Common Stock (the "Warrant Shares") in accordance with their
terms. The Preferred Shares, the Conversion Shares, the Warrants and the Warrant
Shares are collectively referred to herein as the "Securities". Any capitalized
term used herein that is not otherwise defined shall have the meaning specified
therefor in the Articles of Amendment.
The sale of the Preferred Shares and the Warrants by the Company
hereunder will be effected in reliance upon the exemption from securities
registration afforded by the provisions of Regulation D ("Regulation D") as
promulgated by the Securities and Exchange Commission (the "Commission") under
the Securities Act of 1933, as amended (the "Securities Act"). The Company has
agreed to effect the registration of the Conversion Shares and the Warrant
Shares under the Securities Act pursuant to a Registration Rights Agreement of
even date herewith by and between the Company and each Purchaser, the form of
which is attached hereto as Exhibit C (the "Registration Rights Agreement").
The Company and each Purchaser hereby agree as follows:
1. PURCHASE AND SALE OF THE PREFERRED STOCK AND WARRANTS.
1.1 Agreement to Purchase and Sell. Upon the terms and subject to the
satisfaction or waiver of the conditions set forth herein, the Company agrees to
sell and each Purchaser agrees to purchase (A) the number of Preferred Shares
set forth below such Purchaser's name on the signature pages hereof and (B) a
Warrant exercisable for five (5) years from the Closing Date (as defined below)
into a number of Warrant Shares equal to (i) the aggregate Stated Value of such
Preferred Shares divided by (ii) the Initial Conversion Price (as defined in the
Articles of Amendment) times fifty five percent (55%). The Warrants shall have
an initial exercise price equal to 101% of the Initial Conversion Price,
subject to adjustment from time to time as set forth in the Warrants. The date
on which the closing (the "Closing") of the purchase and sale of the Preferred
Shares and Warrants occurs is hereinafter referred to as the "Closing Date". The
purchase price for the Preferred Shares and Warrants being purchased by a
Purchaser (the "Purchase Price") shall be equal to the Stated Value of the
Preferred Shares being purchased by such Purchaser. Subject to the satisfaction
or waiver of the conditions set forth herein, the Closing will be deemed to
occur when the Company and each Purchaser execute and deliver this Agreement and
the other Transaction Documents (as defined below), which delivery may be
effected by facsimile transmission, and full payment of each Purchaser's
Purchase Price has been made by wire transfer of immediately available funds
against physical delivery by the Company of duly executed certificates
representing the Preferred Shares and Warrants being purchased by such
Purchaser.
1.2 Certain Definitions. When used herein, the following terms shall
have the respective meanings indicated:
"Business Day" shall mean any day on which the New York Stock
Exchange (the "NYSE") and commercial banks in the city of New York are
open for business.
"Closing Bid Price" shall mean, with respect to the Common
Stock, the closing bid price for the Common Stock occurring on a given
Trading Day on the principal securities exchange or trading market
where such security is listed or traded as reported by Bloomberg
Financial Markets or, if Bloomberg Financial Markets is not then
reporting such prices, by a comparable reporting service of national
reputation selected by the Company and reasonably acceptable to the
Purchasers (collectively, "Bloomberg") or if the foregoing does not
apply, the last reported bid price of such security in the
over-the-counter market on the electronic bulletin board for such
security as reported by Bloomberg, or, if no bid price is reported for
such security by Bloomberg, the average of the bid prices of all market
makers for such security as reported in the "pink sheets" by the
National Quotation Bureau, Inc.. If the Closing Bid Price cannot be
calculated for such security on any of the foregoing bases, the Closing
Bid Price of such security shall be the fair market value as reasonably
determined by an independent investment banking firm selected by the
Purchasers, and reasonably acceptable to the Company, with the costs of
such appraisal to be borne by the Company.
"Closing Trade Price" shall mean, with respect to the Common
Stock, the last sale price reported for the Common Stock on a given
Trading Day on the principal securities exchange or trading market
where such security is listed or traded as reported by the Bloomberg
or, if no sale price was reported on such Trading Day by Bloomberg, the
last sale price reported by Bloomberg on the Trading Day on which such
prices were last reported.
"Trading Day" shall mean any day on which the Common Stock is
purchased and sold on the principal securities exchange or market on
which the Common Stock is then listed or traded.
2. REPRESENTATIONS, WARRANTIES AND COVENANTS OF EACH PURCHASER.
Each Purchaser hereby represents and warrants to the Company and agrees
with the Company that, as of the date of this Agreement and as of the Closing
Date:
2.1 Authorization; Enforceability. Such Purchaser is duly and validly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization with full power and authority
to purchase the Securities and to execute and deliver this Agreement. This
Agreement and the Registration Rights Agreement each constitutes such
Purchaser's valid and legally binding obligation, enforceable in accordance with
its terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency or other laws affecting creditors' rights generally and
to general principles of equity (regardless of whether enforcement is sought in
a proceeding at law or in equity) or public policy.
2.2 Accredited Investor; Purchase as Principal. Such Purchaser is an
accredited investor as that term is defined in Rule 501 of Regulation D, and is
acquiring the Securities solely for its own account as a principal and not with
a present view to the public resale or distribution of all or any part thereof,
except pursuant to sales that are exempt from the registration requirements of
the Securities Act and/or sales registered under the Securities Act; provided,
however that in making such representation, such Purchaser does not agree to
hold any Securities for any minimum or specific term and reserves the right to
sell, transfer or otherwise dispose of the Securities at any time in accordance
with the provisions of this Agreement and with Federal and state securities laws
applicable to such sale, transfer or disposition.
2.3 Information. The Company has provided such Purchaser with
information regarding the business, operations and financial condition of the
Company, and has granted to such Purchaser the opportunity to ask questions of
and receive answers from representatives of the Company, its officers,
directors, employees and agents concerning the Company and materials relating to
the terms and conditions of the purchase and sale of the Securities. Neither
such information nor any other investigation conducted by such Purchaser or any
of its representatives shall modify, amend or otherwise affect such Purchaser's
right to rely on the Company's representations and warranties contained in this
Agreement.
2.4 Limitations on Disposition. Such Purchaser acknowledges that,
except as provided in the Registration Rights Agreement, the Securities have not
been and are not being registered under the Securities Act and may not be
transferred or resold without registration under the Securities Act or unless
pursuant to an exemption therefrom.
2.5 Legend. Such Purchaser understands that the certificates
representing the Securities may bear at issuance a restrictive legend in
substantially the following form:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended (the
"Securities Act"), or the securities laws of any state, and
may not be offered or sold unless a registration statement
under the Securities Act and applicable state securities laws
shall have become effective with regard thereto, or an
exemption from registration under such laws is available in
connection with such offer or sale."
Notwithstanding the foregoing, it is agreed that, as long as (A) the
resale or transfer (including without limitation a pledge) of such Securities is
registered pursuant to an effective registration statement and such Purchaser
represents in writing to the Company that such Securities have been or are being
sold pursuant to such registration statement, (B) such Securities have been
publicly sold pursuant to Rule 144 ("Rule 144") and such Purchaser has delivered
to the Company customary Rule 144 broker's and seller's representation letters,
or (C) such Securities can be publicly sold pursuant to Rule 144(k) under the
Securities Act, such Securities shall be issued without any legend or other
restrictive language and, with respect to Securities upon which such legend is
stamped, the Company shall issue new certificates without such legend to the
holder promptly upon request.
2.6 No Conflict. The execution, delivery and performance by such
Purchaser of this Agreement and the other Transaction Documents to which it is a
party (A) have been approved by all necessary action (corporate or other) on the
part of such Purchaser and (B) will not result in (i) any material violation of
any provisions of its charter, bylaws or any other governing document in effect
on the date hereof, (ii) any material violation of any instrument or contract to
which it is a party or by which it is bound, or (iii) the creation of any
material lien, charge or encumbrance upon any of its assets.
3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY.
The Company hereby represents and warrants to each Purchaser and agrees
with such Purchaser that, as of the date of this Agreement and as of the Closing
Date:
3.1 Organization, Good Standing and Qualification. Each of the Company
and its subsidiaries is duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation or organization and has
all requisite corporate power and authority to carry on its business as now
conducted. Each of the Company and its subsidiaries is duly qualified to
transact business and is in good standing in each jurisdiction in which the
failure so to qualify would have a material adverse effect on the consolidated
business or financial condition of the Company and its subsidiaries taken as a
whole. For purposes of this Agreement, the term "subsidiary" or "subsidiaries"
shall mean any entity or entities in which the Company beneficially owns 20% or
more of the voting equity thereof.
3.2 Authorization; Consents. The Company has the requisite corporate
power and authority to enter into and perform its obligations under (i) this
Agreement, (ii) the Registration Rights Agreement (iii) the Warrants and (iv)
all other agreements, documents or other instruments executed and delivered by
or on behalf of the Company at the Closing (the instruments described in (i),
(ii), (iii) and (iv) being collectively referred to herein as the "Transaction
Documents"), to execute and file, and perform its obligations under the Articles
of Amendment, to issue and sell Preferred Shares and a Warrant to each Purchaser
in accordance with the terms hereof and to issue and deliver Conversion Shares
in accordance with the terms of the Articles of Amendment and Warrant Shares in
accordance with the terms of the Warrants. All corporate action on the part of
the Company by its officers, directors and stockholders necessary for (i) the
authorization, execution and delivery of, and the performance by the Company of
its obligations under, the Transaction Documents and (ii) the authorization,
execution and filing of, and the performance by the Company of its obligations
under, the Articles of Amendment has been taken, and no further consent or
authorization of the Company, its Board of Directors, its stockholders, any
governmental agency or organization (other than such approval as may be required
under the Securities Act and applicable state securities laws in respect of the
Registration Rights Agreement), or any other person or entity is required
(pursuant to any rule of the Nasdaq SmallCap Market, other than such market's
continued listing criteria governing issuances of common stock below the current
market price thereof, or otherwise).
3.3 Enforcement. Each of the Transaction Documents constitutes a valid
and legally binding obligation of the Company, enforceable in accordance with
its terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency or other laws affecting creditors' rights generally and
to general principles of equity (regardless of whether enforcement is sought in
a proceeding at law or in equity) or public policy.
3.4 Disclosure Documents; Agreements; Financial Statements; Other
Information. The Company has filed with the Commission: (i) the Company's Annual
Report on Form 10-KSB for the year ended December 31, 1998, (ii) Quarterly
Reports on Form 10-QSB for the quarters ended March 31, 1999, June 30, 1999 and
September 30, 1999, (iii) all Current Reports on Form 8-K, if any, and any other
reports, required to be filed with the Commission since December 31, 1998 and
prior to the date hereof and (iv) the Company's definitive Proxy Statement for
its 1999 Annual Meeting of Stockholders (collectively, the "Disclosure
Documents"). Except as set forth on Schedule 3.4 hereto, the Company is not
aware of any event occurring on or prior to the Closing Date (other than the
transactions effected hereby) that would require the filing of, or with respect
to which the Company intends to file, a Form 8-K after such date. Each
Disclosure Document, as of the date of the filing thereof with the Commission,
conformed in all material respects to the requirements of the Securities
Exchange Act of 1934, as amended, and the rules and regulations thereunder (the
"Exchange Act") and, as of the date of such filing, such Disclosure Document did
not contain an untrue statement of material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading. All
material agreements required to be filed as exhibits to the Disclosure Documents
have been filed or incorporated by reference as required by the applicable
provisions of the Exchange Act. Neither the Company nor any of its subsidiaries
is in breach of any agreement to which it is a party or by which it is bound
where such breach could have a material adverse effect on (i) the consolidated
business, operations, properties, financial condition, prospects or results of
operations of the Company and its subsidiaries taken as a whole, (ii) the
transactions contemplated hereby, by the other Transaction Documents or by the
Articles of Amendment, (iii) the Securities or (iv) the ability of the Company
to perform its obligations under this Agreement, the other Transaction Documents
or the Articles of Amendment (collectively, a "Material Adverse Effect"). Except
as set forth in the Disclosure Documents, the Company has no liabilities,
contingent or otherwise, other than liabilities incurred in the ordinary course
of business which, under generally accepted accounting principles, are not
required to be reflected in such financial statements (including the footnotes
to such financial statements) and which, individually or in the aggregate, are
not material to the consolidated business or financial condition of the Company
and its subsidiaries taken as a whole. As of their respective dates, the
financial statements of the Company included in the Disclosure Documents have
been prepared in accordance with generally accepted accounting principles
consistently applied at the times and during the periods involved (except (i) as
may be otherwise indicated in such financial statements or the notes thereto, or
(ii) in the case of unaudited interim statements, to the extent they may exclude
footnotes or may be condensed or summary statements) and fairly present in all
material respects the financial position of the Company as of the dates thereof
and the results of its operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end adjustments).
The written information described in paragraph 2.3 does not contain an untrue
statement of material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
3.5 Capitalization. The capitalization of the Company, including its
authorized capital stock, the number of shares issued and outstanding, the
number of shares issuable and reserved for issuance pursuant to the Company's
stock option plans, the number of shares issuable and reserved for issuance
pursuant to securities (other than the Preferred Stock and Warrants) exercisable
for, or convertible into or exchangeable for any shares of Common Stock and the
number of shares initially to be reserved for issuance upon conversion and
exercise of the Preferred Stock and Warrants is set forth on Schedule 3.5
hereto. All of such outstanding shares of capital stock have been, or upon
issuance will be, validly issued, fully paid and non-assessable. Except as set
forth on Schedule 3.5, no shares of the capital stock of the Company are subject
to preemptive rights or any other similar rights of the stockholders of the
Company or any liens or encumbrances created by or through the Company. Except
as disclosed on Schedule 3.5, or as contemplated herein, there are no
outstanding options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into or exercisable or exchangeable for, any shares of capital stock
of the Company or any of its subsidiaries, or arrangements by which the Company
or any of its subsidiaries is or may become bound to issue additional shares of
capital stock of the Company or any of its subsidiaries.
3.6 Valid Issuance. The Preferred Shares are duly authorized and, when
issued, sold and delivered in accordance with the terms hereof, (i) will be duly
and validly issued, fully paid and nonassessable, free and clear of any taxes,
liens, claims, preemptive or similar rights or encumbrances imposed by or
through the Company (collectively, "Encumbrances"), (ii) based in part upon the
representations of each Purchaser in this Agreement, will be issued, sold and
delivered in compliance with all applicable Federal and state securities laws
and (iii) will be entitled to all of the rights, preferences and privileges set
forth in the Articles of Amendment. The Warrants are duly authorized and, when
issued, sold and delivered in accordance with the terms hereof, (i) will be duly
and validly issued, fully paid and nonassessable, free and clear of any
Encumbrances and (ii) based in part upon the representations of each Purchaser
in this Agreement, will be issued, sold and delivered in compliance with all
applicable Federal and state securities laws. The Conversion Shares are duly
authorized and reserved for issuance and, when issued upon conversion of the
Preferred Shares in accordance with the terms of the Articles of Amendment, will
be duly and validly issued, fully paid and nonassessable, free and clear of any
Encumbrances. The Warrant Shares are duly authorized and, upon the issuance
thereof in accordance with the terms of the Warrant, will be duly and validly
issued, fully paid and nonassessable, free and clear of any Encumbrances. The
Company's Board of Directors (i) has unanimously determined that the issuance
and sale of the Preferred Shares and Warrants hereunder, and the consummation of
the transactions contemplated hereby, by the other Transaction Documents and by
the Articles of Amendment (including without limitation the issuance of the
Conversion Shares upon exercise of the Preferred Shares and the Warrant Shares
upon exercise of the Warrants), are in the best interests of the Company and
(ii) has unanimously approved the issuance of Conversion Shares upon exercise of
the Preferred Shares and the issuance of Warrant Shares upon exercise of the
Warrants.
3.7 No Conflict with Other Instruments. Neither the Company nor any of
its subsidiaries is in violation of any provisions of its charter, bylaws or any
other governing document as amended and in effect on and as of the date hereof
or in default (and no event has occurred which, with notice or lapse of time or
both, would constitute a default) under any provision of any instrument or
contract to which it is a party or by which it is bound, or of any provision of
any Federal, state or foreign judgment, writ, decree, order, statute, rule or
governmental regulation applicable to the Company, which violation or default
could reasonably be expected to have a Material Adverse Effect. The (i)
execution, delivery and performance of this Agreement and the other Transaction
Documents, (ii) execution and filing of the Articles of Amendment and (iii)
consummation of the transactions contemplated hereby and thereby (including
without limitation, the issuance of the Preferred Shares and the Warrants and
the reservation for issuance and issuance of the Conversion Shares and the
Warrant Shares) will not, in any such case, result in any such violation or be
in conflict with or constitute, with or without the passage of time and giving
of notice, either a default under any such provision, instrument or contract or
an event which results in the creation of any lien, charge or encumbrance upon
any assets of the Company or of any of its subsidiaries or the triggering of any
preemptive or anti-dilution rights or rights of first refusal or first offer, or
any similar rights (whether pursuant to a "poison pill" provision or otherwise),
on the part of holders of the Company's securities.
3.8 Financial Condition; Taxes; Litigation.
3.8.1 The Company's financial condition is, in all material
respects, as described in the Disclosure Documents, except for changes
in the ordinary course of business and normal year-end adjustments that
are not, in the aggregate, materially adverse to the consolidated
business or financial condition of the Company and its subsidiaries
taken as a whole. There has been no material adverse change to the
Company's business, operations, properties, financial condition,
prospects or results of operations since the date of the Company's most
recent audited financial statements contained in the Disclosure
Documents.
3.8.2 The Company has filed all tax returns required to be
filed by it and paid all taxes which are due, except for taxes which it
reasonably disputes or which could not have a Material Adverse Effect.
3.8.3 Neither the Company nor any of its subsidiaries is the
subject of any pending or, to the Company's knowledge, threatened
inquiry, investigation or administrative or legal proceeding by the
Internal Revenue Service, the taxing authorities of any state or local
jurisdiction, the Commission or any state securities commission or
other governmental or regulatory entity which could have a Material
Adverse Effect.
3.8.4 Except as described in the Disclosure Documents, there
is no claim, litigation or administrative proceeding pending, or, to
the Company's knowledge, threatened or contemplated, against the
Company or any of its subsidiaries, or against any officer, director or
employee of the Company or any such subsidiary in connection with such
person's employment therewith that, individually or in the aggregate,
could have a Material Adverse Effect. Neither the Company nor any of
its subsidiaries is a party to or subject to the provisions of, any
order, writ, injunction, judgment or decree of any court or government
agency or instrumentality which could have a Material Adverse Effect.
3.9 Reporting Company; Form S-3. The Company is subject to the
reporting requirements of the Exchange Act, has a class of securities registered
under Section 12 of the Exchange Act, and has filed all reports required
thereby. The Company is eligible to register for resale, in a secondary sale by
a selling stockholder, shares of its Common Stock on a registration statement on
Form S-3 under the Securities Act. To the Company's knowledge, there exist no
facts or circumstances (including without limitation any required approvals or
waivers of any circumstances that may delay or prevent the obtaining of
accountant's consents) that would prohibit or delay the preparation and filing
of a registration statement on Form S-3 with respect to the Registrable
Securities (as defined in the Registration Rights Agreement).
3.10 Acknowledgement of Dilution. The Company acknowledges that the
issuance of Conversion Shares or Warrant Shares may result in dilution of the
outstanding shares of Common Stock, which dilution may be substantial under
certain market conditions. The Company further acknowledges that its obligation
to issue Conversion Shares in accordance with the terms of the Articles of
Amendment and Warrant Shares in accordance with the terms of the Warrants, is
unconditional and absolute regardless of the effect of any such dilution.
3.11 Intellectual Property. The Company and its subsidiaries each has
the right to use adequate trademarks, trade names and other rights to
inventions, know-how, patents, copyrights, confidential information and other
intellectual property rights necessary to conduct the business now operated by
it, and is not aware of any infringement by a third party with respect to such
rights or of any infringement by it or conflict with asserted rights of others
that, in any such case, if determined adversely to the Company or any of its
subsidiaries, could individually or in the aggregate have a Material Adverse
Effect.
3.12 Registration Rights; Rights of Participation. Except as described
on Schedule 3.12 hereto, (A) the Company has not granted or agreed to grant to
any person or entity any rights (including "piggy-back" registration rights) to
have any securities of the Company registered with the Commission or any other
governmental authority and (B) no person or entity, including, but not limited
to, current or former stockholders of the Company, underwriters, brokers, agents
or other third parties, has any right of first refusal, preemptive right, right
of participation, anti-dilutive right or any similar right to participate in, or
to receive securities of the Company or other consideration as a result of, the
transactions contemplated by this Agreement or the other Transaction Documents
which has not been waived or will not be waived or otherwise satisfied as of the
Closing Date.
3.13 Listing on Nasdaq. The Common Stock is listed on the Nasdaq
SmallCap Market, and trading in the Common Stock on such market has not been
suspended. The Company is, to its knowledge, in full compliance with the
continued listing criteria of the Nasdaq SmallCap Market, and does not
reasonably anticipate that the Common Stock will lose its listing on the Nasdaq
SmallCap Market, whether by reason of the transactions contemplated by this
Agreement or the other Transaction Documents, or otherwise and is not aware of
any inquiry by or received any notice from the Nasdaq SmallCap Market regarding
any failure or alleged failure by the Company to comply with such criteria.
3.14 Solicitation; Other Issuances of Securities. Neither the Company
nor any of its subsidiaries or affiliates, nor any person acting on its or their
behalf, (i) has engaged in any form of general solicitation or general
advertising (within the meaning of Regulation D) in connection with the offer or
sale of the Securities, (ii) has, directly or indirectly, made any offers or
sales of any security or solicited any offers to buy any security, under any
circumstances that would require registration of the Securities under the
Securities Act or (iii) has issued any shares of Common Stock or shares of any
series of preferred stock or other securities or instruments convertible into,
exchangeable for or otherwise entitling the holder thereof to acquire shares of
Common Stock which would be integrated with the sale of the Securities to such
Purchaser or the issuance of the Conversion Shares for purposes of the
Securities Act or of any applicable stockholder approval provisions, including,
without limitation, under the rules and regulations of any exchange or automated
quotation system on which any of the securities of the Company are listed or
designated. In order to prevent the possible integration of the offer and sale
of the Securities with any offering effected subsequent to the Closing Date,
neither the Company nor any of its subsidiaries or affiliates will offer or sell
any securities during the six (6) month period following the Closing Date;
provided, however, that such limitation shall not apply to any securities that
are offered or sold (i) pursuant to an employee benefit plan or program duly
adopted by the Company and in effect on the date hereof, (ii) pursuant to stock
options, warrants or convertible securities outstanding on the date hereof,
(iii) any firm-commitment underwritten public offering or (iv) in connection
with (a) a strategic investment or (b) a merger or acquisition with an
unaffiliated third party which is not effected for the primary purpose of
raising equity capital.
3.15 Fees. Except as described on Schedule 3.15 hereto, the Company is
not obligated to pay any compensation or other fee, cost or related expenditure
to any underwriter, broker, agent or other representative or entity in
connection with the transactions contemplated hereby. The Company will indemnify
and hold harmless such Purchaser from and against any claim by any person or
entity alleging that such Purchaser is obligated to pay any such compensation,
fee, cost or related expenditure in connection with the transactions
contemplated hereby.
3.16 Regulatory Permits. Each of the Company and its subsidiaries
possesses all certificates, authorizations and permits issued by the appropriate
federal, state or foreign regulatory authorities necessary to conduct its
business, except where the failure to so possess such certificates,
authorizations or permits could not have a Material Adverse
Effect, and neither the Company nor any such subsidiary has received any notice
of proceedings relating to the revocation or modification of any such
certificate, authorization or permit which revocation or modification could have
a Material Adverse Effect.
3.17 Key Employees. Each person whose name is set forth on Schedule
3.17 (each, a "Key Employee") is currently serving in the capacity indicated on
such schedule on a full-time basis (except as otherwise noted in such Schedule).
The Company has no knowledge of any fact or circumstance (including without
limitation (i) the terms of any agreement to which such person is a party or any
litigation in which such person is or may become involved and (ii) any illness
or medical condition that could reasonably be expected to result in the
disability or incapacity of such person) that would limit or prevent any such
person from serving in such capacity on a full-time basis in the foreseeable
future, or of any intention on the part of any such person to limit or terminate
his or her employment with the Company. Except as described on Schedule 3.17, no
Key Employee has borrowed money pursuant to a currently outstanding loan that is
secured by Common Stock or any right or option to receive Common Stock.
3.18 Year 2000. To the Company's knowledge: (i) all hardware and
software products used by the Company and its subsidiaries in the administration
and the business operations of the Company and such subsidiaries will be able to
process date data (including, but not limited to, calculating, comparing and
sequencing) in a consistent manner from, into and between the twentieth century
(through 1999), the year 2000 and the twenty-first century, including leap year
calculations, when used in accordance with the product documentation
accompanying such hardware and software products; and (ii) all software
developed and currently sold by the Company and any of its subsidiaries (other
than third party software) will be able to process date data (including, but not
limited to, calculating, comparing and sequencing) in a consistent manner from,
into and between the twentieth century (through 1999), the year 2000 and the
twenty-first century, including leap year calculations, when used in accordance
with the product documentation accompanying such software.
3.19 Environment. Except as disclosed in the Disclosure Documents (i)
there is no environmental liability, nor factors likely to give rise to any
environmental liability, affecting any of the properties of the Company or any
of its subsidiaries that, individually or in the aggregate, would have a
Material Adverse Effect and (ii) neither the Company nor any of the subsidiaries
has violated any environmental laws applicable to it now or previously in effect
("Environmental Laws"), other than such violations or infringements that,
individually or in the aggregate, have not had and will not have a Material
Adverse Effect.
4. COVENANTS OF THE COMPANY.
4.1 Corporate Existence. The Company shall, so long as any Purchaser or
any affiliate of any Purchaser beneficially owns any Securities, maintain its
corporate existence in good standing under the jurisdiction of its incorporation
and shall pay all taxes owed by it when due except for taxes which the Company
reasonably disputes.
4.2 Provision of Information. The Company shall, so long as any
Purchaser or any affiliate of any Purchaser beneficially owns any Securities,
provide any such Purchaser with copies of all materials sent to stockholders, in
each such case at the same time that it mails such materials to its
stockholders.
4.3 Form D; Blue-Sky Qualification. To the extent that the Company is
relying on Regulation D under the Securities Act in selling the Securities to
each Purchaser hereunder, the Company agrees to file a Form D with respect to
the Securities as required under Regulation D and to provide a copy thereof to
each Purchaser promptly after such filing. The Company shall take such action as
is necessary to qualify the Preferred Shares and Warrants for sale under
applicable state or "blue-sky" laws or obtain an exemption therefrom, and shall
provide evidence of any such action to each Purchaser at such Purchaser's
request.
4.4 Reporting Status. As long as any Purchaser or any affiliate of any
Purchaser beneficially owns any Securities and until the date on which any of
the foregoing may be sold to the public pursuant to Rule 144(k) (or any
successor rule or regulation), (i) the Company shall timely file with the
Commission all reports required to be so filed pursuant to the Exchange Act and
(ii) the Company shall not terminate its status as an issuer required by the
Exchange Act to file reports thereunder even if the Exchange Act or the rules or
regulations thereunder would permit such termination. The Company agrees to
issue a press release describing the transactions contemplated by this Agreement
and the other Transaction Documents and to file with the Commission a Form 8-K
in the form required by the Exchange Act describing the terms of the
transactions contemplated by this Agreement and the other Transaction Documents,
with this Agreement and all schedules and exhibits attached to such Form 8-K as
an exhibit thereto, in each on or before the third (3rd) Business Day following
the date of this Agreement.
4.5 Reservation of Common Stock. The Company shall at all times
following the Closing Date have authorized and reserved for issuance to the
Purchasers pursuant to the Preferred Shares and the Warrants, free from any
preemptive rights, a number of shares of Common Stock equal to the maximum
number of Conversion Shares issuable upon conversion of the Preferred Shares and
exercise of the Warrants (the "Reserved Amount")(in each case assuming (i)
application of the minimum Conversion Price that may occur under the Articles of
Amendment and the Warrants and (ii) that none of the limitations set forth
herein, in the Articles of Amendment or in the Warrant on such conversion or
exercise exist). The Company shall not reduce the Reserved Amount without each
Purchaser's prior written consent. Each Purchaser shall be allocated a portion
of the
Reserved Amount in the same ratio that the Preferred Shares purchased by such
Purchaser hereunder bears to the Preferred Shares purchased by all of the
Purchasers hereunder.
4.6 Use of Proceeds. The Company shall use the proceeds from the sale
of the Preferred Shares and Warrants for general corporate purposes only, in the
ordinary course of its business and consistent with past practice and, without
limiting the generality of the foregoing, shall not use such proceeds to make a
loan to any employee, officer, director or stockholder of the Company, to repay
any loan or other obligation of the Company to any such person or to repurchase
or pay a dividend on shares of Common Stock or other securities of the Company,
other than any such payment explicitly required or permitted by the terms of
this Agreement, the Articles of Amendment or the other Transaction Documents;
provided, however, that the Company may redeem all or any part of its 10%
Convertible Redeemable Preferred Stock in accordance with the terms thereof as
long as, (i) during the period of ten (10) Trading Days immediately prior to the
date on which the Company gives notice of such redemption to the holders of the
10% Convertible Redeemable Preferred Stock (at which time the Company will also
give such written notice to the Holders) (the "Redemption Notice Date"), the
Market Price for the Common Stock is equal to or greater than fifteen dollars
($15) (subject to adjustment for the events specified in Section 6 of the
Articles of Amendment) and (ii) at all times during the period beginning on the
Redemption Notice Date and ending on the effective date of such redemption, the
Registration Statement is effective and available for the resale of the maximum
number of Conversion Shares and Warrant Shares issuable pursuant to the
Preferred Shares and the Warrants, respectively (without regard to any
limitations on the conversion or exercise thereof).
4.7 Quotation on Nasdaq. The Company shall (i) promptly following the
Closing, take such action as may be necessary to include all of the Conversion
Shares and Warrant Shares that may be issued by the Company under the Preferred
Shares and Warrants on the Nasdaq SmallCap Market, and (ii) use its reasonable
commercial efforts to maintain the designation and quotation, or listing, of the
Common Stock on the Nasdaq SmallCap Market, Nasdaq National Market or the New
York Stock Exchange for a minimum of five (5) years following the Closing Date.
4.8 Use of Purchaser Name. Except as may be required by applicable law,
the Company shall not use, directly or indirectly, any Purchaser's name or the
name of any of its affiliates in any advertisement, announcement, press release
or other similar communication unless it has received the prior written consent
of such Purchaser for the specific use contemplated (which consent will not be
unreasonably withheld) or as otherwise required by applicable law or regulation.
4.9 Right of First Offer. Prior to any offer or sale by the Company of
any Equity Securities (as defined below) during the period beginning on the
Closing Date and ending on the twelve (12) month anniversary of the Closing
Date, the Company must first deliver to each Purchaser written notice describing
the proposed issuance, including the terms and conditions thereof, and provide
each Purchaser with an option during the ten (10) Trading
Day period following delivery of such notice to purchase all or any part of such
Purchaser's Allocable Portion (as defined below) of the Equity Securities being
offered on the same terms as contemplated by such issuance (the "Right of First
Offer"). In the event that a Purchaser either does not give notice within such
ten Trading Day period that it intends to exercise the foregoing option or
informs the Company in writing that it does not intend to participate in all or
any part of such issuance, the Company may offer to a third party the option to
purchase up to, in the aggregate, the amount of Equity Securities which were
declined by such Purchaser, on the same terms as were offered to such Purchaser.
For purposes hereof, (A) "Equity Security" shall mean Common Stock or any other
equity security of the Company, or any security convertible into, or exercisable
or exchangeable for, Common Stock or any such equity security and (B) a
Purchaser's "Allocable Portion" of Equity Securities as of a particular date
shall be determined by dividing the number of Preferred Shares purchased by such
Purchaser hereunder by the aggregate number of Preferred Shares purchased by all
of the Purchasers hereunder, and multiplying the resulting quotient by the
aggregate amount of Equity Securities being issued. The Right of First Offer
will not apply to the issuance of Equity Securities pursuant to (i) an employee
benefit plan or program duly adopted by the Company and in effect on the date
hereof, (ii) any options, warrant or convertible securities outstanding on the
date hereof, (iii) any firm-commitment underwritten public offerings of Equity
Securities or (iv) any issuance of Equity Securities in connection with (a) a
strategic investment or (b) a merger or acquisition with an unaffiliated third
party which is not effected for the primary purpose of raising equity capital.
4.10 Key Employee and Director Transfers. If any Key Employee or
director (in each case, or any member of his/her family or any trust or other
entity for the benefit of any member of his/her family), during the period
beginning on the Closing Date and ending on the later to occur of (i) the
Determination Date (as defined in the Articles of Amendment), without regard to
any extension or delay thereof pursuant to paragraph 4(g) of the Articles of
Amendment and (ii) the date that is six months after the registration statement
required pursuant to the Registration Rights Agreement is declared effective,
and while such person is a Key Employee or director, directly or indirectly,
offers, sells, transfers, assigns, pledges, or otherwise disposes (except by
gift to family members or charitable organizations) of any shares of Common
Stock, or any securities directly or indirectly convertible into or exercisable
or exchangeable for, or warrants, options or rights to purchase or acquire
shares of Common Stock (all such securities, "Options") or enter into any
agreement, contract, arrangement or understanding with respect to any such
offer, sale, transfer, assignment, pledge or other disposition of any Common
Stock or Options or provides or files any public notice, including pursuant to
Rule 144 of the Securities Act, of a bona fide intent to dispose of a specified
amount of Common Stock or Options (an "Executive Transfer"), then the Conversion
Price (as defined in the Articles of Amendment) applicable to all conversions
thereafter shall be reduced by thirty (30) percent of that amount calculated
pursuant to the terms of the Articles of Amendment; provided, however, that
following the effective date of such registration statement and prior to the
later to occur of (x) the end of the 6-month period following such effective
date and (y) the Determination Date (as defined in the Articles of Amendment),
without
regard to any extension or delay thereof pursuant to paragraph 4(g) of the
Articles of Amendment, a Key Employee or director (and all such entities for the
benefit of any member of his/her family, collectively) may sell, assign, pledge
or otherwise dispose of up to the greater of (i) ten percent (10%) of his or her
total holdings as of the Closing Date determined in accordance with Section
13(d) of the Exchange Act or (ii) 25,000 shares of Common Stock without
triggering the adjustments contained herein.
4.11 Stockholder Approval. The Company agrees that it will (i) call and
hold a meeting of its stockholders for the purpose of approving issuances of
Conversion Shares and Warrant Shares in excess of the Cap Amount (as defined in
the Articles of Amendment), such meeting to be held on or before June 1, 2000
and (ii) recommend approval of such issuances to its stockholders at such
meeting.
4.12 Environmental Laws. The Company will take all action necessary in
order to comply with applicable Environmental Laws and agrees to indemnify each
Purchaser from and against any loss, claim, damage or expense arising from or in
connection with any failure or alleged failure of the Company, or any of its
subsidiaries or affiliates, to comply with such laws.
4.13 No Adverse Action. The Company and its subsidiaries shall refrain,
while any Preferred Shares are outstanding, from taking any action or entering
into any arrangement which in any way adversely affects (i) the rights,
privileges or benefits available to a holder of Preferred Stock pursuant to the
terms of the Articles of Amendment or (ii) the rights, privileges or benefits
available to a holder of a Warrant.
5. CONDITIONS TO CLOSING.
5.1 Conditions to Purchaser's Obligations at Closing. Each Purchaser's
obligations at the Closing, including without limitation its obligation to
purchase the Preferred Shares and Warrant being purchased by such Purchaser, are
conditioned upon the satisfaction by the Company (or waiver by such Purchaser)
of each of the following events as of the Closing Date:
5.1.1 the representations and warranties of the Company set
forth in this Agreement shall be true and correct in
all material respects as of such date as if made on
such date;
5.1.2 the Company shall have complied with or performed in
all material respects all of the agreements,
obligations and conditions set forth in this
Agreement that are required to be complied with or
performed by the Company on or before the Closing;
5.1.3 the Closing Date shall occur, and all closing
conditions set forth in this paragraph 5.1 shall have
been satisfied or waived, on a date that is not later
than February 1, 2000;
5.1.4 the Company shall have delivered to such Purchaser a
certificate, signed by an officer of the Company,
certifying that the conditions specified in this
paragraph 5.1 have been fulfilled as of the Closing,
it being understood that such Purchaser may rely on
such certificate as though it were a representation
and warranty of the Company made herein;
5.1.5 the Company shall have delivered to such Purchaser an
opinion of counsel for the Company, dated as of such
date, in substantially the form set forth on Exhibit
5.1.5 hereto, and covering such additional matters as
may reasonably be requested by such Purchaser;
5.1.6 the Company shall have delivered to such Purchaser
duly executed certificates representing the Preferred
Shares and Warrant being purchased by such Purchaser;
5.1.7 the Company shall have executed and delivered the
Registration Rights Agreement;
5.1.8 the Common Stock shall be listed for trading on the
Nasdaq SmallCap Market and no suspension of trading
in the Common Stock on such market shall have
occurred and be continuing as of the Closing Date;
5.1.9 the Company shall have authorized and reserved for
issuance the number of shares of Common Stock
required to be reserved under paragraph 4.5 hereof,
and shall have provided such Purchaser with
reasonable evidence thereof;
5.1.10 each other Purchaser shall have tendered payment of
the Purchase Price for the number of Preferred Shares
set forth on such other Purchaser's signature page
hereto so that the aggregate amount tendered by all
of the Purchasers hereunder is no less than ten
million dollars ($10,000,000);
5.1.11 the registration statement referred to in the
Registration Rights Agreement, dated August 25, 1999,
between the Company and the Initial Purchaser named
therein shall have been declared effective by the
Commission and no stop order
relating to such registration statement shall have
been issued; and
5.1.12 since the date of this Agreement, there shall not
have occurred, in the reasonable judgment of such
Purchaser, a material adverse change in the business,
operations, financial condition, properties,
prospects or results of operation of the Company.
5.2 Conditions to Company's Obligations at the Closing. The Company's
obligations at the Closing are conditioned upon the satisfaction (or waiver by
the Company) of each of the following events as of the Closing Date:
5.2.1 the representations and warranties of each Purchaser
shall be true and correct in all material respects as
of such date as if made on such date; and
5.2.2 each Purchaser shall have complied with or performed
in all material respects all of the agreements,
obligations and conditions set forth in this
Agreement that are required to be complied with or
performed by such Purchaser on or before the Closing.
6. MISCELLANEOUS.
6.1 Survival. The representations and warranties made by the parties
herein shall survive the Closing notwithstanding any due diligence investigation
made by or on behalf of the party seeking to rely thereon. In the event that any
provision of this Agreement becomes or is declared by a court of competent
jurisdiction to be illegal, unenforceable or void, this Agreement shall continue
in full force and effect without said provision; provided that in such case the
parties shall negotiate in good faith to replace such provision with a new
provision which is not illegal, unenforceable or void, as long as such new
provision does not materially change the economic benefits of this Agreement to
the parties. The Company agrees that it will indemnify and hold harmless each
Purchaser for any loss, claim, liability, damage or expense, as incurred by such
Purchaser, arising out of or in connection with (a) a breach by the Company of
any representation, warranty or agreement made herein or in any other
Transaction Document, (b) any cause of action, suit or claim brought or made
against such indemnitee (other than directly by the Company solely for breach of
this Agreement, the Warrants or the Registration Rights Agreement by the
indemnitee or by governmental or regulatory authorities), and arising out of or
resulting from (whether in whole or in part) the execution, delivery,
performance or
enforcement of this Agreement, any other Transaction Document or the Articles of
Amendment), any transaction financed or to be financed in whole or in part,
directly or indirectly, with the proceeds of the issuance of the Securities or
the status of the Purchaser as an investor in the Company, except to the extent
that such actual loss or damage results from a breach by such indemnitee of this
Agreement, the Warrants or the Registration Rights Agreement or from a
Purchaser's violation of law, or (c) any characterization concerning any
Transaction Document or the Articles of Amendment other than as expressly
provided herein or therein, as the case may be, including, without limitation,
any characterization that the exercise of Purchaser rights and remedies under
any of the Transaction Documents or the Articles of Amendment (or through a
combination) results in a Purchaser acting (or agreeing to act) other than
independently and on its own behalf. The right to indemnification shall include
the right to advancement of expenses as they are incurred.
6.2 Successors and Assigns. The terms and conditions of this Agreement
shall inure to the benefit of and be binding upon the respective successors and
permitted assigns of the parties. Nothing in this Agreement, express or implied,
is intended to confer upon any party other than the parties hereto or their
respective successors and permitted assigns any rights, remedies, obligations or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement. Each Purchaser may assign its rights and obligations
hereunder, in connection with any private sale or transfer of Securities
pursuant to Section 2.4, as long as, as a condition precedent to such transfer,
the transferee executes an acknowledgment agreeing to be bound by the applicable
provisions of this Agreement, in which case the term "Purchaser" shall be deemed
to refer to such transferee as though such transferee were an original signatory
hereto; provided, however, that such transferee shall not be deemed a
"Purchaser" for purposes of paragraph 4.9 hereof. The Company may not assign it
rights or obligations under this Agreement except as may be specifically
provided by this Agreement or the other Transaction Documents.
6.3 No Reliance. Each party acknowledges that (i) it has such knowledge
in business and financial matters as to be fully capable of evaluating this
Agreement, the other Transaction Documents and the transactions contemplated
hereby and thereby, (ii) it is not relying on any advice or representation of
the other party in connection with entering into this Agreement, the other
Transaction Documents or such transactions (other than the representations made
in this Agreement or the other Transaction Documents), (iii) it has not received
from such party any assurance or guarantee as to the merits (whether legal,
regulatory, tax, financial or otherwise) of entering into this Agreement or the
other Transaction Documents or the performance of its obligations hereunder and
thereunder, and (iv) it has consulted with its own legal, regulatory, tax,
business, investment, financial and accounting advisors to the extent that it
has deemed necessary, and has entered into this Agreement and the other
Transaction Documents based on its own independent judgment and on the advice of
its advisors as it has deemed necessary, and not on any view (whether written or
oral) expressed by such party.
6.4 Injunctive Relief. The Company acknowledges that a breach by it of
its obligations hereunder will cause irreparable harm to each Purchaser and that
the remedy or remedies at law for any such breach will be inadequate and agrees,
in the event of any such breach, in addition to all other available remedies, to
an injunction restraining any breach and requiring immediate and specific
performance of such obligations without the necessity of showing economic loss.
6.5 Governing Law; Jurisdiction. This Agreement shall be governed by
and construed under the laws of the State of New York without regard to the
conflict of laws provisions thereof. Each party hereby irrevocably submits to
the non-exclusive jurisdiction of the state and federal courts sitting in the
borough of Manhattan, City of New York, for the adjudication of any dispute
hereunder or under any Transaction Document or the Articles of Amendment or in
connection herewith or therewith or with any transaction contemplated hereby or
thereby or discussed herein or therein, and hereby irrevocably waives, and
agrees not to assert in any suit, action or proceeding, any claim that it is not
personally subject to the jurisdiction of any such court, that such suit, action
or proceeding is brought in an inconvenient forum or that the venue of such
suit, action or proceeding is improper. Each party hereby irrevocably waives
personal service of process and consents to process being served in any such
suit, action or proceeding by mailing a copy thereof (certified or registered
mail, return receipt requested) to such party at the address in effect for
notices to it under this Agreement and agrees that such service shall constitute
good and sufficient service of process and notice thereof. Nothing contained
herein shall be deemed to limit in any way any right to serve process in any
manner permitted by law.
6.6 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
6.7 Headings; Drafting. The headings used in this Agreement are used
for convenience only and are not to be considered in construing or interpreting
this Agreement. The parties shall be deemed to have participated jointly in the
drafting of this Agreement and the other Transaction Documents, and no provision
hereof or thereof shall be construed against any party as the drafter thereof.
6.8 Notices. Any notice, demand or request required or permitted to be
given by any party to any other party pursuant to the terms of this Agreement
shall be in writing and shall be deemed given (i) when delivered personally or
by verifiable facsimile transmission (with an original to follow) on or before
5:00 p.m., eastern time, on a Business Day or, if such day is not a Business
Day, on the next succeeding Business Day, (ii) on the next Business Day after
timely delivery to a nationally-recognized overnight courier and (iii) on the
Business Day actually received if deposited in the U.S. mail (certified or
registered mail, return receipt requested, postage prepaid), addressed to the
parties as follows:
If to the Company:
XXXX Interactive Services, Inc.
0000 Xxxxxxx Xxxxx, Xxxxx 000
Xxxxxx, Xxxxxxxx 00000
Tel: 000-000-0000
Fax: (000) 000-0000
Attention: Xxxxxxx Xxxxxx
with a copy to:
Xxxx, Plant, Xxxxx, Xxxxx & Xxxxxxx, P.A.
3400 City Center
00 Xxxxx Xxxxx Xxxxxx
Xxxxxxxxxxx, XX 00000-0000
Telecopy: (000) 000-0000
Attention: Xxxxxxx X. Xxxxxxx, Esq.
and if to a Purchaser, to such address as shall be designated by such Purchaser
in writing to the Company.
6.9 Expenses. The Company and each Purchaser each shall pay all costs
and expenses that it incurs in connection with the negotiation, execution,
delivery and performance of this Agreement; provided, however, that the Company
shall reimburse Xxxxxxxx Capital Management, Inc. at the Closing for all
out-of-pocket expenses (including without limitation reasonable legal fees and
expenses) incurred by it in connection its due diligence investigation of the
Company and the negotiation, preparation, execution, delivery and performance of
this Agreement and the other Transaction Documents in an amount not to exceed
forty thousand dollars ($40,000).
6.10 Entire Agreement; Amendments; Waiver. This Agreement and the other
Transaction Documents constitute the entire agreement between the parties with
regard to the subject matter hereof and thereof, superseding all prior
agreements or understandings, whether written or oral, between or among the
parties. Except as expressly provided herein, neither this Agreement nor any
term hereof may be amended except pursuant to a written instrument executed by
the Company and each Purchaser.
[Remainder of Page Intentionally Left Blank]
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first-above written.
XXXX INTERACTIVE SERVICES, INC.
By: __________________________
Name:
Title:
XXXXXXXX CAPITAL MANAGEMENT, INC.
By: __________________________
Xxxxx Xxxxx, President
Number of Preferred Shares: ________________
XXXX INTERACTIVE SERVICES, INC.
By: __________________________
Name:
Title:
CASTLE CREEK TECHNOLOGY PARTNERS LLC
By: Castle Creek Partners, L.L.C.
Its: Investment Manager
_______________________
By: Xxxx Xxxxxxx
Its: Member
Number of Preferred Shares: ________________
EXHIBIT A TO SECURITIES
-----------------------
PURCHASE AGREEMENT
------------------
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAW, AND MAY NOT BE OFFERED FOR SALE, SOLD OR
TRANSFERRED UNLESS A REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE
SECURITIES LAWS SHALL BE EFFECTIVE WITH RESPECT THERETO, OR AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS IS
AVAILABLE IN CONNECTION WITH SUCH OFFER, SALE OR TRANSFER.
Warrant to Purchase Issue Date: January [ ], 2000
Shares
------------------
WARRANT TO PURCHASE COMMON STOCK
of
XXXX INTERACTIVE SERVICES, INC.
THIS CERTIFIES that ______ or any subsequent holder hereof (the
"Holder"), has the right to purchase from XXXX INTERACTIVE SERVICES, INC., a
Colorado corporation (the "Company"), up to ______ fully paid and nonassessable
shares of the Company's Common Stock, no par value (the "Common Stock"), subject
to adjustment as provided herein, at a price equal to the Exercise Price (as
defined below), at any time beginning on the date on which this Warrant is
issued (the "Issue Date") and ending at 5:00 p.m., eastern time, on the date
that is the fifth (5th) anniversary of the Issue Date (the "Expiration Date").
This Warrant is issued, and all rights hereunder shall be, subject to all of the
conditions, limitations and provisions set forth herein and in the related
Securities Purchase Agreement by and among the Company and the Purchasers named
therein (the "Securities Purchase Agreement"). Capitalized terms used herein and
not otherwise defined shall have the respective meanings set forth in the
Securities Purchase
Agreement or the Articles of Amendment to the Company's Articles of
Incorporation relating to the Series B Convertible Preferred Stock ("Articles of
Amendment").
1. Exercise.
(a) Right to Exercise; Exercise Price. The Holder shall have
the right to exercise this Warrant at any time and from time to time
during the period beginning on the Issue Date and ending on the
Expiration Date as to all or any part of the shares of Common Stock
covered hereby (the "Warrant Shares"). The "Exercise Price" payable by
the Holder in connection with the exercise of this Warrant shall be
determined, subject to adjustment for the events specified in Section 6
below, as follows: (A) beginning on the Issue Date, the Exercise Price
shall be equal to one hundred and one percent (101%) of the Initial
Conversion Price (as defined in the Articles of Amendment), and
thereafter shall be subject to adjustment as specified in clause (B);
(B) if, on the last day of each ninety (90) day period following the
Issue Date, the Market Price (as defined below) is lower than the
Exercise Price then in effect, the Exercise Price shall be equal to
such Market Price for all exercises of this Warrant occurring
thereafter unless and until the Exercise Price is reset pursuant to
this clause (B); provided, however, that no further resets of the
Exercise Price shall occur after the third anniversary of the Issue
Date and the Exercise Price for all exercises of this Warrant effected
after such third anniversary shall be equal to the Exercise Price in
effect on such third anniversary. "Market Price" means the average
Closing Bid Price for the Common Stock occurring during the period of
ten (10) consecutive Trading Days immediately preceding (but not
including) the date of determination (but in no event greater than the
Closing Bid Price on the Trading Day immediately preceding such date of
determination); provided that if the Market Price cannot be calculated
as aforesaid, such Market Price shall be the fair market value as
reasonably determined by an investment banking firm selected by the
Company and reasonably acceptable to the Holder.
(b) Exercise Notice. In order to exercise this Warrant, the
Holder shall send by facsimile transmission, at any time prior to 7:00
p.m., eastern time, on the Business Day (as defined below) on which the
Holder wishes to effect such exercise (the "Exercise Date"), to the
Company a copy of the notice of exercise in the form attached hereto as
Exhibit A (the "Exercise Notice") stating the number of Warrant Shares
as to which such exercise applies and the calculation therefor. As used
herein, "Business Day" shall mean any day on which the New York Stock
Exchange (the "NYSE") and commercial banks in the city of New York are
open for business. The Holder shall thereafter deliver to the Company
the original Exercise Notice, the original Warrant and (unless a
cashless exercise is intended) the Exercise Price. In the case of a
dispute as to the calculation of the Exercise Price or the number of
Warrant Shares issuable hereunder (including without limitation the
calculation of any adjustment to the Exercise Price pursuant to Section
6 below), the Company shall promptly issue to the Holder the number of
Warrant Shares that are not disputed and shall submit the disputed
calculations to the Company's independent accountant within two (2)
Business Days following the Exercise Date. The Company shall cause such
accountant to calculate the Exercise Price and/or the number of Warrant
Shares issuable hereunder and to notify the Company and the Holder of
the results in writing no later than two Business Days
following the day on which such accountant received the disputed
calculations. Such accountant's calculation shall be deemed conclusive
absent manifest error. The fees of any such accountant shall be borne
by the party whose calculations were most at variance with those of
such accountant.
(c) Early Expiration. In the event that either (A) following
the one-year anniversary of the Issue Date, the Market Price (as
defined in the Articles of Amendment) of the Common Stock during any
period of twenty (20) consecutive Trading Days is greater than 2.02
times the Initial Conversion Price (subject to adjustment as provided
herein), or (B) following the date on which the Company completes a
firm-commitment underwritten public offering of its Common Stock, the
Market Price (as defined in the Articles of Amendment) of the Common
Stock during any period of twenty (20) consecutive Trading Days is
equal to or greater than 2.02 times the Initial Conversion Price
(subject to adjustment as provided herein)(either of (A) or (B) being
referred to herein as an "Expiration Trigger Event"), the Company may
deliver to the Holder, within five (5) business days following the
occurrence of an Expiration Trigger Event, and as long as each of the
Resale Conditions (as defined below) have been satisfied, a written
notice to such effect (a "Expiration Notice") and this Warrant shall
expire on the date (the "Early Expiration Date") which is fifteen (15)
Trading Days following the business day on which such Expiration Notice
is delivered to the Holder. The "Resale Conditions" are as follows: (I)
either (A) the Registration Statement (as defined in the Registration
Rights Agreement between the Company and the Holder) relating to the
resale of the Warrant Shares has been declared effective and, during
the period of thirty five (35) Trading Days immediately preceding the
Early Expiration Date (the "Early Expiration Period"), has been
available for the resale of (i) all of the Warrant Shares into which
this Warrant is exercisable and (ii) all of the Conversion Shares
issuable upon conversion of the Preferred Shares (each as defined in
the Articles of Amendment)(assuming the minimum applicable Conversion
Price and Exercise Price and that no conditions to or limitations on
the conversion of the Preferred Shares or exercise of the Warrants then
exist) or (B) on each Trading Day of the Early Expiration Period, such
Warrant Shares may be sold pursuant to Rule 144(k) under the Securities
Act of 1933, as amended and (II) no Mandatory Redemption Event (or an
event or circumstance that with the passage of time would constitute a
Mandatory Redemption Event) has occurred and is continuing at any time
during the Early Expiration Period.
(d) Cancellation of Warrant. This Warrant shall be canceled
upon its exercise and, if this Warrant is exercised in part, the
Company shall, at the time that it delivers Warrant Shares to the
Holder pursuant to such exercise as provided herein, issue a new
warrant, and deliver to the Holder a certificate representing such new
warrant, with terms identical in all respects to this Warrant (except
that such new warrant shall be exercisable into the number of shares of
Common Stock with respect to which this Warrant shall remain
unexercised); provided, however, that the Holder shall be entitled to
exercise all or any portion of such new warrant at any time following
the time at which this Warrant is exercised, regardless of whether the
Company has actually issued such new warrant or delivered to the Holder
a certificate therefor.
2. Delivery of Warrant Shares Upon Exercise. Upon receipt of a Exercise
Notice pursuant to paragraph 1 above, the Company shall, (A) in the case of a
Cashless Exercise (as defined below), no later than the close of business on the
third (3rd) Business Day following the Exercise Date set forth in such Exercise
Notice, (B) in the case of a Cash Exercise (as defined below) no later than the
close of business on the later to occur of (i) the third (3rd) Business Day
following the Exercise Date set forth in such Exercise Notice and (ii) such
later date on which the Company shall have received payment of the Exercise
Price, and (C) with respect to Warrant Shares which are disputed as described in
paragraph 1(b) above, and required to be delivered by the Company pursuant to
the accountant's calculations described therein, the close of business on the
third (3rd) Business Day following the determination made pursuant to paragraph
1(b) (the "Delivery Date"), issue and deliver or caused to be delivered to the
Holder the number of Warrant Shares as shall be determined as provided herein.
The Company shall effect delivery of Warrant Shares to the Holder by, as long as
the Company's designated transfer agent for the Common Stock (the "Transfer
Agent") participates in the Depository Trust Company ("DTC") Fast Automated
Securities Transfer program ("FAST"), crediting the account of the Holder or its
nominee at DTC (as specified in the applicable Exercise Notice) with the number
of Warrant Shares required to be delivered, no later than the close of business
on such Delivery Date. In the event that the Transfer Agent is not a participant
in FAST, or if Warrant Shares are not otherwise eligible for delivery through
FAST, or if the Holder so specifies in an Exercise Notice or otherwise in
writing on or before the Exercise Date, the Company shall effect delivery of
Warrant Shares by delivering to the Holder or its nominee physical certificates
representing such Warrant Shares, no later than the close of business on such
Delivery Date. Warrant Shares delivered to the Holder shall not contain any
restrictive legend as long as the resale of such Warrant Shares is covered by an
effective Registration Statement (as defined in the Registration Rights
Agreement) and such Holder represents in writing to the Company that such
Warrant Shares (i) have been or are being sold pursuant to such registration
statement or pursuant to Rule 144 under the Securities Act of 1933, as amended,
or (ii) may be made pursuant to Rule 144(k) under the Securities Act of 1933, as
amended, or any successor rule or provision.
3. Failure to Deliver Warrant Shares.
(a) Exercise Default. In the event that, as a result of any
action or failure to act on the part of the Company (including without
limitation a failure by the Company to have a sufficient number of
shares of Common Stock authorized and reserved for issuance pursuant to
exercise of the Warrants), the Company does not deliver to a Holder
certificates representing the number of Warrant Shares specified in the
applicable Exercise Notice on or before the Delivery Date therefor and
such failure continues for ten (10) Business Days (an "Exercise
Default"), the Company shall pay to the Holder payments ("Exercise
Default Payments") in the amount of (i) (N/365) multiplied by (ii) the
aggregate Exercise Price for the Warrant Shares which are the subject
of such Exercise Default multiplied by (iii) the lower of twenty four
percent (24%) and the maximum rate permitted by applicable law, where
"N" equals the number of days elapsed between the original Delivery
Date for such Warrant Shares and the date on which all of
such Warrant Shares are issued and delivered to the Holder. Amounts
payable under this subparagraph 3(a) shall be paid to the Holder in
immediately available funds on or before the fifth (5th) Business Day
of the calendar month immediately following the calendar month in which
such amount has accrued.
(b) Buy-in. Nothing herein shall limit a Holder's right to
pursue actual damages for the Company's failure to issue and deliver
Warrant Shares in connection with an exercise on the applicable
Delivery Date (including, without limitation, damages relating to any
purchase of shares of Common Stock by the Holder to make delivery on a
sale effected in anticipation of receiving Warrant Shares upon
exercise, such damages to be in an amount equal to (A) the aggregate
amount paid by the Holder for the shares of Common Stock so purchased
minus (B) the aggregate amount of net proceeds, if any, received by the
Holder from the sale of the Warrant Shares issued by the Company
pursuant to such exercise), and the Holder shall have the right to
pursue all remedies available to it at law or in equity (including,
without limitation, a decree of specific performance and/or injunctive
relief).
(c) Reduction of Exercise Price. In the event that, as a
result of any action or failure to act on the part of the Company
(including without limitation a failure by the Company to have a
sufficient number of shares of Common Stock authorized and reserved for
issuance pursuant to exercise of the Warrants), a Holder has not
received certificates representing the Warrant Shares by the tenth
(10th) Business Day following an Exercise Default, the Holder may, upon
written notice to the Company, regain on such Business Day the rights
of a Holder of this Warrant, or part thereof, with respect to the
Warrant Shares that are the subject of such Exercise Default, and the
Exercise Price for such Warrant Shares shall be reduced by one percent
(1%) for each day beyond such 10th Business Day in which the Exercise
Default continues. In such event, the Holder shall retain all of the
Holder's rights and remedies with respect to the Company's failure to
deliver such Warrant Shares (including without limitation the right to
receive the cash payments specified in subparagraph 3(a) above).
(d) Holder of Record. Each Holder shall, for all purposes, be
deemed to have become the holder of record of Warrant Shares on the
Exercise Date of this Warrant, irrespective of the date of delivery of
such Warrant Shares. Nothing in this Warrant shall be construed as
conferring upon the Holder hereof any rights as a stockholder of the
Company prior to the Exercise Date.
4. Exercise Limitations.
In no event shall a Holder be permitted to exercise this Warrant, or
part thereof, with respect to Warrant Shares in excess of the number of such
shares, upon the issuance of which, (x) the number of shares of Common Stock
beneficially owned by the Holder plus (y) the number of shares of Common Stock
issuable upon such exercise, would be equal to or exceed (z) 4.99% of the number
of shares of Common Stock then issued and outstanding. To the extent that the
limitation contained in this paragraph 4 applies, the submission of a
Conversion Notice by the Holder shall be deemed to be the Holder's
representation that this Warrant is exercisable pursuant to the terms hereof and
the Company shall be entitled to rely on such representation without making any
further inquiry. Nothing contained herein shall be deemed to restrict the right
of a Holder to exercise this Warrant, or part thereof, at such time as such
exercise will not violate the provisions of this Section 4. The provisions of
this Section 4 may not be amended without the approval of the holders of a
majority of the Common Stock then outstanding.
5. Payment of the Exercise Price. The Holder may pay the Exercise Price
in either of the following forms or, at the election of Holder, a combination
thereof:
(a) Cash Exercise: by delivery of immediately available funds.
(b) Cashless Exercise: by surrender of this Warrant to the
Company together with a notice of cashless exercise, in which event the
Company shall issue to the Holder the number of Warrant Shares
determined as follows:
X = Y x (A-B)/A
where: X = the number of Warrant Shares to be issued to the Holder.
Y = the number of Warrant Shares with respect to which
this Warrant is being exercised.
A = the average of the Closing Bid Prices of the Common
Stock for the five (5) Trading Days immediately prior to
(but not including) the Exercise Date.
B = the Exercise Price;
provided, however, that the Holder may exercise this Warrant pursuant to a
Cashless Exercise only if, on the Exercise Date, the resale of Warrant Shares is
not covered by an effective Registration Statement (as defined in the
Registration Rights Agreement) that is available to the Holder on such date.
For purposes of Rule 144 under the Securities Act of 1933, as amended, it is
intended, understood and acknowledged that the Warrant Shares issued in a
cashless exercise transaction shall be deemed to have been acquired by the
Holder, and the holding period for the Warrant Shares shall be deemed to have
been commenced, on the Issue Date.
6. Anti-Dilution Adjustments; Distributions; Other Events. The Exercise
Price and the number of Warrant Shares issuable hereunder shall be subject to
adjustment from time to time as provided in this Section 6. In the event that
any adjustment of the Exercise Price or number of Warrant Shares as required
herein results in a fraction of a cent or
fraction of a share, as applicable, such exercise Price or number of Warrant
Shares shall be rounded upon or down to the nearest cent or share, as
applicable.
(a) Adjustment of Exercise Price and Number of Shares upon
Issuance of Common Stock. Except as otherwise provided in Section 6(c)
and 6(e) hereof, if and whenever after the initial issuance of this
Warrant, the Company issues or sells, or in accordance with Section
6(b) hereof is deemed to have issued or sold, any shares of Common
Stock for no consideration (other than a stock split or stock dividend)
or for a consideration per share less than Exercise Price (as then in
effect)(other than issuances of Common Stock (i) pursuant to an
employee stock purchase plan or upon the exercise of options issued
under a stock option plan duly adopted by the Company, (ii) in
connection with a merger, acquisition or strategic investment which, in
any such case, is not effected for the primary purpose of raising
equity capital or (iii) in connection with a firm-commitment
underwritten secondary offering) (a "Dilutive Issuance"), then
effective immediately upon the Dilutive Issuance, the Exercise Price
will be adjusted in accordance with the following formula:
E' = (E)(O+P/E)
----------
(CSDO)
where:
E' = the adjusted Exercise Price
E = the then current Exercise Price;
O = the number of shares of Common Stock outstanding immediately
prior to the Dilutive Issuance;
P = the aggregate consideration, calculated as set forth in
Section 6(b) hereof, received by the Company upon such
Dilutive Issuance; and
CSDO = the total number of shares of Common Stock Deemed Outstanding
(as herein defined) immediately after the Dilutive Issuance.
(b) Effect on Exercise Price of Certain Events. For purposes
of determining the adjusted Exercise Price under Section 6(a) hereof,
the following will apply:
(i) Issuance of Rights or Options. If, after the date
hereof, the Company in any manner issues or grants any
warrants, rights or options, whether or not immediately
exercisable, to subscribe for or to purchase Common Stock or
other securities exercisable, convertible into or exchangeable
for Common Stock ("Convertible Securities")(such warrants,
rights and options to purchase Common Stock or Convertible
Securities are hereinafter referred to as "Options"), and the
price per share for which Common Stock is purchasable or
issuable upon the exercise of such Options is less than the
Exercise Price (as then in effect) on the date of issuance of
such Option or direct stock grant ("Below Market Options"),
then the maximum total number of shares of Common Stock
issuable upon the exercise of all such Below Market Options
(assuming full exercise, conversion or exchange of Convertible
Securities, if applicable) will, as of the date of the
issuance or grant of such Below Market Options, be deemed to
be outstanding and to have been issued and sold by the Company
for such price per share. For purposes of the preceding
sentence, the price per share for which Common Stock is
issuable upon the exercise of such Below Market Options is
determined by dividing (i) the total amount, if any, received
or receivable by the Company as consideration for the issuance
or sale of all such Below Market Options, plus the minimum
aggregate amount of additional consideration, if any, payable
to the Company upon the exercise of all such below Market
Options, plus, in the case of Convertible Securities issuable
upon the exercise of such Below Market Options, the minimum
aggregate amount of additional consideration payable upon the
exercise, conversion or exchange thereof at the time such
Convertible Securities first become exercisable, convertible
or exchangeable, by (ii) the maximum total number of shares of
Common Stock issuable upon the exercise of all such Below
Market Options (assuming full conversion of Convertible
Securities, if applicable). No further adjustment to the
Exercise Price will be made upon the exercise of such Below
Market Options or upon the exercise, conversion or exchange of
Convertible Securities issuable upon exercise of such Below
Market Options.
(ii) Issuance of Convertible Securities.
(A) If the Company in any manner issues or
sells any Convertible Securities, whether or not
immediately convertible (other than where the same
are issuable upon the exercise of Options) and the
price per share for which Common Stock is issuable
upon such exercise, conversion or exchange (as
determined pursuant to Section 6(b)(ii)(B) if
applicable) is less than the Exercise Price (as then
in effect) on the date of issuance of such
Convertible Security, then the maximum total number
of shares of Common Stock issuable upon the exercise,
conversion or exchange of all such Convertible
Securities will, as of the date of the issuance of
such Convertible Securities, be deemed to be
outstanding and to have been issued and sold by the
Company for such price per share. For the purposes of
the preceding sentence, the price per share for which
Common Stock is issuable upon such exercise,
conversion or exchange is determined by dividing (i)
the total amount, if any, received or receivable by
the Company as consideration for the issuance or sale
of all such Convertible Securities, plus the minimum
aggregate amount of additional consideration, if any,
payable to the Company upon the exercise, conversion
or exchange thereof at the time such Convertible
Securities first become exercisable, convertible or
exchangeable, by (ii) the maximum total number of
shares of Common Stock issuable upon the exercise,
conversion or exchange of all such Convertible
Securities. No further adjustment to the Exercise
Price will be made upon the actual issuances of such
Common Stock upon exercise, conversion or exchange of
such Convertible Securities.
(B) If the Company in any manner issues or
sells any Convertible Securities with a fluctuating
or re-setting conversion or exercise price or
exchange ratio (a "Variable Rate Convertible
Security"), then the price per share for which Common
Stock is issuable upon such exercise, conversion or
exchange for purposes of the
calculation contemplated by Section 6(b)(ii)(A) shall
be deemed to be the lowest price per share which
would be applicable assuming that (1) all holding
period and other conditions to any discounts
contained in such Convertible Security have been
satisfied, and (2) the Market Price on the date of
exercise, conversion or exchange of such Convertible
Security was 80% of the Market Price on the date of
issuance of such Convertible Security (the "Assumed
Variable Market Price").
(iii) Change in Option Price or Conversion Rate. If
there is a change at any time in (i) the amount of additional
consideration payable to the Company upon the exercise of any
Options; (ii) the amount of additional consideration, if any,
payable to the Company upon the exercise, conversion or
exchange of any Convertible Securities; or (iii) the rate at
which any Convertible Securities are convertible into or
exchangeable for Common Stock (other than under or by reason
of provisions designed to protect against dilution), the
Exercise Price in effect at such time shall be adjusted to the
Exercise Price which would have been in effect had such
Options or Convertible Securities still outstanding provided
for such changed additional consideration or changed
conversion rate, as the case may be, at the time initially
granted, issued or sold.
(iv) Treatment of Expired Options and Unexercised
Convertible Securities. If, in any case, the total number of
shares of Common Stock issuable upon exercise of any Options
or upon exercise, conversion or exchange of any Convertible
Securities is not, in fact, issued and the rights to exercise
such Option or to exercise, convert or exchange such
Convertible Securities shall have expired or terminated, the
Exercise Price then in effect will be readjusted to the
Exercise Price which would have been in effect at the time of
such expiration or termination had such Options or Convertible
Securities, to the extent outstanding immediately prior to
such expiration or termination (other than in respect of the
actual number of shares of Common Stock issued upon exercise
or conversion thereof), never been issued.
(v) Calculation of Consideration Received. If any
Common Stock, Options or Convertible Securities are issued,
granted or sold for cash, the consideration received therefor
for purposes of this Warrant will be the amount received by
the Company therefor, before deduction of reasonable
commissions, underwriting discounts or allowances or other
reasonable expenses paid or incurred by the Company in
connection with such issuance, grant or sale. In case any
Common Stock, Options or Convertible Securities are issued or
sold for a consideration part or all of which shall be other
than cash, the amount of the consideration other than cash
received by the Company will be the fair market value of such
consideration except where such consideration consists of
freely-tradable securities, in which case the amount of
consideration received by the Company will be the Market Price
thereof as of the date of receipt. The fair market value of
any consideration other than cash or securities will be
determined in the good faith reasonable business judgment of
the Board of Directors.
(vi) Exceptions to Adjustment of Exercise Price. No
adjustment to the Exercise Price will be made (i) upon the
exercise or conversion of any warrants, options or convertible
securities issued and outstanding on the date hereof in
accordance with the terms of such securities as of such date;
(ii) upon the grant or exercise of any stock or options which
may hereafter be granted or exercised under any employee,
consultant or director benefit plan of the Company now
existing or to be implemented in the future, so long as the
issuance of such stock or options is approved by a majority of
the non-employee members of the Board of Directors of the
Company or a majority of the members of a committee of
non-employee directors established for such purpose; (iii)
upon the issuance of the Conversion Shares (as defined in the
Securities Purchase Agreement) in accordance with terms of the
Articles of Amendment relating to the Company's Series B
Preferred Stock (the "Preferred Stock"); or (iv) upon the
exercise of the Warrants.
(c) Subdivision or Combination of Common Stock. If the
Company, at any time after the initial issuance of this Warrant,
subdivides (by any stock split, stock dividend, recapitalization,
reorganization, reclassification or otherwise) its shares of Common
Stock into a greater number of shares, then after the date of record
for effecting such subdivision, the Exercise Price in effect
immediately prior to such subdivision will be proportionately reduced.
If the Company, at any time after the initial issuance of this Warrant,
combines (by reverse stock split, recapitalization, reorganization,
reclassification or otherwise) its shares of Common Stock into a
smaller number of shares, then, after the date of record for effecting
such combination, the Exercise Price in effect immediately prior to
such combination will be proportionally increased. In the event of any
adjustment to the Exercise Price arising from an event specified in the
subparagraph (c), the number of shares of Common Stock into which this
Warrant is exercisable will be proportionately increased or reduced, as
the case may be.
(d) Distributions. If the Company or any of its subsidiaries
shall at any time distribute to holders of Common Stock (or to a
holder, other than the Company, of the common stock of any such
subsidiary) cash, evidences of indebtedness or other securities or
assets (other than cash dividends or distributions payable out of
earned surplus or net profits for the current or the immediately
preceding year) including any dividend or distribution in shares of
capital stock of a subsidiary of the Company (collectively, a
"Distribution") then, in any such case, the Holder of this Warrant
shall be entitled to receive, at the same time as such assets are
received by a holder of such stock, an amount and type of such
Distribution as though such Holder were a holder on the record date
therefor of a number of shares of Common Stock into which this Warrant
is exercisable as of such record date (such number of shares to be
determined at the Exercise Price then in effect and without regard to
any limitation on exercise of this Warrant that may exist pursuant to
the terms hereof or otherwise).
(e) Major Transactions. If the Company shall consolidate or
merge with any other corporation or entity (other than a consolidation
or merger in which the Company is the surviving or continuing entity
and its capital stock is unchanged and unissued in such
transaction (except for issuances which do not exceed fifty percent
(50%) of the Common Stock)) or there shall occur any share exchange
pursuant to which all of the outstanding shares of Common Stock are
converted into other securities or property or any such other
reclassification or change of the outstanding shares of Common Stock or
the Company shall sell all or substantially all of its assets (each of
the foregoing being a "Major Transaction"), then the holder of this
Warrant may, at its option, either (a) in the event that the Common
Stock remains outstanding or holders of Common Stock receive any common
stock or substantially similar equity interest, in each of the
foregoing cases which is publicly traded, retain this Warrant and this
Warrant shall continue to apply to such Common Stock or shall apply, as
nearly as practicable, to such other common stock or equity interest,
as the case may be, or (b) regardless of whether (a) applies, receive
consideration, in exchange for this Warrant (without payment of any
exercise price hereunder), equal to the greater of, as determined in
the sole discretion of such holder, (i) the number of shares of stock
or securities or property of the Company, or of the entity resulting
from such Major Transaction (the "Major Transaction Consideration"), to
which a holder of the number of shares of Common Stock delivered upon
the exercise of this Warrant (pursuant to the cashless exercise feature
hereof) would have been entitled upon such Major Transaction had such
holder so exercised this Warrant (without regard to any limitations on
exercise herein or elsewhere contained) on the trading date immediately
preceding the public announcement of the transaction resulting in such
Major Transaction and had such Common Stock been issued and outstanding
and had such Holder been the holder of record of such Common Stock at
the time of the consummation of such Major Transaction, and (ii) cash
paid by the Company in immediately available funds in an amount equal
to the Black-Scholes Amount (as defined herein) times the number of
shares of Common Stock for which this Warrant was exercisable (without
regard to any limitations on exercise herein contained and assuming
payment of the exercise payment in cash hereunder) but in no event
shall such amount exceed the Black Scholes value of the Warrant as of
the Closing Date as determined by the Company's Auditors, and the
Company shall make lawful provision for the foregoing as a part of such
Major Transaction and shall cause the issuer of any security in such
transaction to assume all of the Company's obligations under the
Registration Rights Agreement. In the event that the Company shall
consolidate or merge with any other corporation in a transaction in
which common stock of the surviving corporation or the parent thereof
(the "Exchange Securities") is issued to the holders of Common Stock in
such transaction in exchange for all such Common Stock, and (a) the
Exchange Securities are publicly traded, (b) the average daily dollar
trading volume of the Exchange Securities during the one hundred eighty
(180) day period ending on the date on which such transaction is
publicly disclosed is greater than One Million Dollars ($1,000,000.00)
per day as reported by Bloomberg, (c) the historical one hundred (100)
day volatility of the Exchange Securities during the period ending on
the date on which such transaction is publicly disclosed is greater
than fifty percent (50%), and (d) the market capitalization of the
issuer of the Exchange Securities is not less than One hundred Million
Dollars ($100,000,000.00) based on the last sale price of the Exchange
Securities on the date immediately before the date on which such
transaction is publicly disclosed (in each case, with respect to the
foregoing clauses (a) through (d), as reported by Bloomberg), then the
provisions of
clause (b) of the preceding sentence shall not apply. In the event that
the Company shall, in a Major Transaction, consolidate or merge with
any other corporation in a transaction in which the Company is the
survivor (a "Company Transaction"), the provisions of clause (ii) of
the second preceding sentence shall not apply to the extent that each
of the following conditions remain true for the thirty (30) business
days commencing as of the date of the consummation of such transaction
(the "Measurement Period"): (a) the Common Stock remains publicly
traded during the period, (b) the average daily dollar trading volume
of the Common Stock is greater than One Million Dollars
($1,000,000.00), (c) the historical thirty (30) day volatility of the
Company's Common Stock is greater than fifty percent (50%), and (d) the
market capitalization of the Company is not less than One Hundred
Million Dollars ($100,000,000.00) on the last day of the period (in
each case, with respect to the foregoing clauses (a) through (d), as
reported by Bloomberg. No sooner than ten (10) business days nor later
than five (5) business days prior to the consummation of the Major
Transaction, but not prior to the public announcement of such Major
Transaction, the Company shall deliver written notice ("Notice of Major
Transaction") to each holder of a Warrant, which Notice of Major
Transaction shall be deemed to have been delivered one (1) business day
after the Company's sending such notice by telecopy (provided that the
Company sends a confirming copy of such notice on the same day by
overnight courier) of such Notice of Major Transaction. Such Notice of
Major Transaction shall indicate the amount and type of the Major
Transaction consideration which such holder of a Warrant would receive
under this Section. If the Major Transaction Consideration is cash and
does not consist entirely of United States currency, such holder may
elect to receive United States currency in an amount equal to the value
of the Major Transaction Consideration in lieu of the Major Transaction
Consideration by delivering notice of such election to the Company
within five (5) business days of such holder's receipt of the Notice of
Major Transaction.
The "Black-Scholes Amount" shall be the amount determined by
calculating the "Black-Scholes" value of an option to purchase one share of
Common Stock on the applicable page on the Bloomberg online page, using the
following variable values: (i) the current market price of the Common Stock
equal to the closing trade price on the last trading day before the date of the
Notice of the Major Transaction; (ii) volatility of the Common Stock equal to
the volatility of the common Stock during the 100 trading day period preceding
the date of the Notice of the Major Transaction; (iii) a risk free rate equal to
the interest rate on the United States treasury xxxx or treasury note with a
maturity corresponding to the remaining term of this Warrant on the date of the
Notice of the Major Transaction; and (iv) an exercise price equal to the
Exercise Price on the date of the Notice of the Major Transaction. In the event
such calculation function is no longer available utilizing the Bloomberg online
page, the Holder shall calculate such amount in its sole discretion using the
closest available alternative mechanism and variable values to those available
utilizing the Bloomberg online page for such calculation function.
(f) Adjustments; Additional Shares, Securities or Assets. In
the event that at any time, as a result of an adjustment made pursuant
to this paragraph 6, the Holder of this Warrant shall, upon exercise of
this Warrant, become entitled to receive securities or assets (other
than Common Stock) then, wherever appropriate, all references herein to
shares of Common Stock shall be deemed to refer to and include such
shares and/or other securities or assets; and thereafter the number of
such shares and/or other securities or assets shall be subject to
adjustment from time to time in a manner and upon terms as nearly
equivalent as practicable to the provisions of this paragraph 6.
7. Fractional Interests.
No fractional shares or scrip representing fractional shares shall be
issuable upon the exercise of this Warrant, but on exercise of this Warrant, the
Holder hereof may purchase only a whole number of shares of Common Stock. If, on
exercise of this Warrant, the Holder hereof would be entitled to a fractional
share of Common Stock or a right to acquire a fractional share of Common Stock,
such fractional share shall be disregarded and the number of shares of Common
Stock issuable upon exercise shall be rounded up or down to the nearest whole
number of shares of Common Stock.
8. Transfer of this Warrant. The Holder may sell, transfer, assign,
pledge or otherwise dispose of this Warrant, in whole or in part, as long as
such sale or other disposition is made pursuant to an effective registration
statement or an exemption to the registration requirements of the Securities Act
of 1933, as amended, and applicable state laws. Upon such transfer or other
disposition, the Holder shall deliver a written notice to Company, substantially
in the form of the Transfer Notice attached hereto as Exhibit B (the "Transfer
Notice"), indicating the person or persons to whom this Warrant shall be
transferred and, if less than all of this Warrant is transferred or this Warrant
is transferred in parts, the number of Warrant Shares to be covered by the part
of this Warrant to be transferred to each such person. Within three (3) Business
Days of receiving a Transfer Notice and the original of this Warrant, the
Company shall deliver to the each transferee designated by the Holder a Warrant
or Warrants of like tenor and terms for the appropriate number of Warrant
Shares. Notwithstanding the foregoing, no Holder may knowingly and voluntarily
sell this Warrant (or any portion thereof) to an entity that is a competitor of
the Company.
9. Benefits of this Warrant.
Nothing in this Warrant shall be construed to confer upon any person
other than the Holder of this Warrant any legal or equitable right, remedy or
claim under this Warrant and this Warrant shall be for the sole and exclusive
benefit of the Holder of this Warrant.
10. Loss, theft, destruction or mutilation of Warrant.
Upon receipt by the Company of evidence of the loss, theft, destruction
or mutilation of this Warrant, and (in the case of loss, theft or destruction)
of indemnity or security reasonably satisfactory to the Company, and upon
surrender of this Warrant, if mutilated, the Company shall execute and deliver a
new Warrant of like tenor and date.
11. Notice or Demands.
Except as otherwise provided herein, any notice, demand or request
required or permitted to be given pursuant to the terms of this Warrant shall be
in writing and shall be deemed given (i) when delivered personally or by
verifiable facsimile transmission (with an original to follow) on or before 5:00
p.m., eastern time, on a Business Day or, if such day is not a Business Day, on
the next succeeding Business Day, (ii) on the next Business Day after timely
delivery to a nationally-recognized overnight courier and (iii) on the Business
Day actually received if deposited in the U.S. mail (certified or registered
mail, return receipt requested, postage prepaid), addressed as follows:
If to the Company:
XXXX Interactive Services, Inc.
0000 Xxxxxxx Xxxxx, Xxxxx 000
Xxxxxx, Xxxxxxxx 00000
Tel: 000-000-0000
Fax: 303-
with a copy to:
and if to the Holder, to such address as shall be designated by the Holder in
writing to the Company.
12. Applicable Law.
This Warrant is issued under and shall for all purposes be governed by
and construed in accordance with the laws of the state of New York, without
giving effect to conflict of law provisions thereof.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the undersigned has executed this Warrant as of the
[ ] day of December, 1999.
XXXX INTERACTIVE SERVICES, INC.
By: ________________________________
Name:
Title:
EXHIBIT A to WARRANT
--------------------
EXERCISE NOTICE
---------------
The undersigned Holder hereby irrevocably exercises the right to
purchase ___ of the shares of Common Stock ("Warrant Shares") of XXXX
INTERACTIVE SERVICES, INC. evidenced by the attached Warrant (the "Warrant").
Capitalized terms used herein and not otherwise defined shall have the
respective meanings set forth in the Warrant. Unless otherwise specified in
writing to the Company, the undersigned represents to the Company that the
shares of Common Stock covered by this notice have been or will be sold pursuant
to the terms of an effective registration statement.
1. Form of Exercise Price. The Holder intends that payment of the
Exercise Price shall be made as:
______ a Cash Exercise with respect to _________________ Warrant
Shares; and/or
______ a Cashless Exercise with respect to _________________ Warrant
Shares.
2. Payment of Exercise Price. In the event that the Holder has elected
a Cash Exercise with respect to some or all of the Warrant Shares to be issued
pursuant hereto, the Holder shall pay the sum of $________________ to the
Company in accordance with the terms of the Warrant.
3. Delivery of Warrant Shares. The Company shall deliver to the Holder
_____________ Warrant Shares in accordance with the terms of the Warrant.
Date: ______________________
____________________________________
Name of Registered Holder
By: _______________________________
Name:
Title:
EXHIBIT B to WARRANT
--------------------
TRANSFER NOTICE
---------------
FOR VALUE RECEIVED, the undersigned Holder of the attached Warrant hereby sells,
assigns and transfers unto the person or persons named below the right to
purchase ______ shares of the Common Stock of XXXX INTERACTIVE SERVICES, INC.
evidenced by the attached Warrant.
Date: ______________________
____________________________________
Name of Registered Holder
By: _______________________________
Name:
Title:
Transferee Name and Address:
____________________________________
____________________________________
____________________________________
Exhibit B to Securities Purchase Agreement
ARTICLES OF AMENDMENT
to the
ARTICLES OF INCORPORATION
of
XXXX INTERACTIVE SERVICES, INC.
Pursuant to Section 0-000-000
of the Colorado Business Corporation Act
XXXX INTERACTIVE SERVICES, INC., a Colorado corporation (the
"Corporation"), hereby amends its Articles of Incorporation by adopting these
Articles of Amendment ("Articles of Amendment") pursuant to Section 0-000-000 of
the Colorado Business Corporation Act to authorize a series of the Corporation's
previously authorized Preferred Stock, no par value (the "Preferred Stock"), as
follows:
1. The name of the Corporation is XXXX INTERACTIVE SERVICES, INC.
2. The Corporation's Board of Directors duly adopted these Articles of
Amendment on January [ ], 2000.
3. These Articles of Amendment hereby amend Article [ ] of the
Corporation's Articles of Incorporation by adding the following language at the
end of such Article as follows:
[ ]. SERIES B CONVERTIBLE PREFERRED STOCK
1. DESIGNATION AND AMOUNT.
The designation of this series, which consists of ten thousand (10,000)
shares of Preferred Stock, is the "Series B Convertible Preferred Stock" (the
"Series B Preferred Stock") and the face amount of each share of Series B
Preferred Stock (each, a "Preferred Share" and collectively, the "Preferred
Shares") shall be One Thousand Dollars ($1,000) per Preferred Share (the "Stated
Value"). The date on which the Preferred Shares are issued and sold, together
with the related warrants (the "Warrants"), pursuant to the Securities Purchase
Agreement, dated December 31, 1999, between the Corporation and the Purchasers
named therein (the "Securities Purchase Agreement") is referred to herein as the
"Issue Date". The Corporation has agreed to register the
shares of Corporation's Common Stock, no par value (the "Common Stock"),
pursuant to a Registration Rights Agreement (the "Registration Rights
Agreement"). The holders of Preferred Shares are each referred to as a "Holder"
and, collectively, as the "Holders".
2. DIVIDENDS.
The Series B Preferred Stock will not bear dividends.
3. PRIORITY.
(a) Payment upon Dissolution.
(i) Upon the occurrence of (x) any insolvency or bankruptcy
proceedings, or any receivership, liquidation, reorganization or other
similar proceedings in connection therewith, commenced by the
Corporation or by its creditors, as such, or relating to its assets or
(y) the dissolution or other winding up of the Corporation whether
total or partial, whether voluntary or involuntary and whether or not
involving insolvency or bankruptcy proceedings, or (z) any assignment
for the benefit of creditors or any marshalling of the material assets
or material liabilities of the Corporation (each, a "Liquidation
Event"), no distribution shall be made to the holders of any shares of
Junior Securities (as defined below) unless, following the payment of
preferential amounts on all Senior Securities (as defined below), each
Holder shall have received the Liquidation Preference (as defined
below) with respect to each Preferred Share then held by such Holder.
In the event that upon the occurrence of a Liquidation Event, and
following the payment of preferential amounts on all Senior Securities
(as defined below), the assets available for distribution to the
Holders and the holders of Pari Passu Securities are insufficient to
pay the Liquidation Preference with respect to all of the outstanding
Preferred Shares and the preferential amounts payable to such holders,
the entire assets of the Corporation shall be distributed ratably among
the Preferred Shares and the shares of Pari Passu Securities in
proportion to the ratio that the preferential amount payable on each
such share (which shall be the Liquidation Preference in the case of a
Preferred Share) bears to the aggregate preferential amount payable on
all such shares.
(ii) The "Liquidation Preference" with respect to a Preferred
Share shall mean an amount equal to the Stated Value of such Preferred
Share. "Junior Securities" shall mean the Common Stock and all other
capital stock of the Corporation that are not Pari Passu Securities or
Senior Securities. "Pari Passu Securities" shall mean any securities
ranking by their terms pari passu with the Series B Preferred Stock in
respect of redemption or distribution upon liquidation. "Senior
Securities" shall mean (i) any debt issued or assumed by the
Corporation and (ii) any securities of the Corporation which by their
terms have a preference over the Series B Preferred Stock in respect of
redemption or distribution upon liquidation.
4. CONVERSION.
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(a) Right to Convert. Each Holder shall have the right to convert, at
any time and from time to time after the Issue Date, all or any part of the
Preferred Shares held by such Holder into such number of fully paid and
non-assessable shares ("Conversion Shares") of the Common Stock as is determined
in accordance with the terms hereof (a "Conversion").
(b) Conversion Notice. In order to convert Preferred Shares, a Holder
shall send to the Corporation by facsimile transmission, at any time prior to
11:59 p.m., eastern time, on the date on which such Holder wishes to effect such
Conversion (the "Conversion Date"), (i) a notice of conversion in substantially
the form of Exhibit A hereto (a "Conversion Notice") stating the number of
Preferred Shares to be converted, the applicable Conversion Price (as defined
below) and a calculation of the number of shares of Common Stock issuable upon
such Conversion and (ii) a copy of the certificate or certificates representing
the Preferred Shares being converted. The Holder shall thereafter send the
original of the Conversion Notice and of such certificate or certificates to the
Corporation. The Corporation shall issue a new certificate for Preferred Shares
in the event that less than all of the Preferred Shares represented by a
certificate delivered to the Corporation in connection with a Conversion are
converted. Except as otherwise provided herein, upon delivery of a Conversion
Notice by a Holder in accordance with the terms hereof, such Holder shall, as of
the applicable Conversion Date, be deemed for all purposes to be record owner of
the Common Stock to which such Conversion Notice relates. In the case of a
dispute between the Corporation and a Holder as to the calculation of the
Conversion Price or the number of Conversion Shares issuable upon a Conversion
(including without limitation the calculation of any adjustment to the
Conversion Price pursuant to Section 6 below), the Corporation shall issue to
such Holder the number of Conversion Shares that are not disputed within the
time periods specified in paragraph 4(e) below and shall submit the disputed
calculations to its independent accountant within two (2) Business Days of
receipt of such Holder's Conversion Notice. The Corporation shall cause such
accountant to calculate the Conversion Price as provided herein and to notify
the Corporation and such Holder of the results in writing no later than three
(3) Business Days following the Corporation's receipt of such Holder's
Conversion Notice (such 3rd Business Day being referred to herein as the
"Disputed Share Calculation Date"). Such accountant's calculation shall be
deemed conclusive absent manifest error. The fees of any such accountant shall
be borne by the party whose calculations were most at variance with those of
such accountant.
(c) Number of Conversion Shares; Conversion Price.
(A) The number of Conversion Shares to be delivered by the
Corporation pursuant to a Conversion shall be determined by dividing
(i) the aggregate Stated Value of the Preferred Shares to be converted
by (ii) the Conversion Price (as defined below) in effect on the
applicable Conversion Date.
(B) "Conversion Price" shall be determined, subject to
adjustment for the events specified in Section 6 below, as follows: (A)
during the period beginning on the Issue Date and ending on the Trading
Day (as defined below) occurring immediately prior to the Effective
Date (as
-20-
defined below), the Conversion Price shall be equal to the lower of (i)
$20.00 (subject to adjustment for the events specified in Section 6
hereof) and (ii) the Market Price (as defined below) on the Issue Date
(such lower price being referred to herein as the "Initial Conversion
Price"), (B) on and after the Effective Date (and subject to further
adjustment as specified in clause (C) below), the Conversion Price
shall be equal to the lower of (i) the Initial Conversion Price and
(ii) the Market Price on the Effective Date and (C) on and after the
later to occur of (x) the ninetieth (90th) day following the Effective
Date and (y) the two hundred and seventieth (270th) day following the
Issue Date (the later to occur of (x) and (y) being referred to as the
"Determination Date"), the Conversion Price shall be equal to the
lowest of (i) the Initial Conversion Price, (ii) the Conversion Price
determined pursuant to clause (B) above, and (iii) the Market Price on
the Determination Date; provided, however, that the adjustment to the
Conversion Price effected pursuant to this clause (C) shall not occur
in the event that the Market Price on the Effective Date is at least
130% of the Initial Conversion Price. Notwithstanding the foregoing, in
no event will any Conversion Price calculated pursuant to clauses (A),
(B) or (C) above be lower than $8.00 (subject to adjustment for the
events specified in Section 6 hereof).
(d) Certain Definitions. "Business Day" means any day on which the New
York Stock Exchange and commercial banks located in the City of New York are
open for business. "Closing Bid Price" means, with respect to the Common Stock,
the closing bid price for the Common Stock occurring on a given Trading Day on
the principal securities exchange or trading market where such security is
listed or traded as reported by Bloomberg Financial Markets or, if Bloomberg
Financial Markets is not then reporting such prices, by a comparable reporting
service of national reputation selected by the Corporation and reasonably
acceptable to each Holder of the then outstanding Preferred Shares
(collectively, "Bloomberg") or if the foregoing does not apply, the last
reported bid price of such security in the over-the-counter market on the
electronic bulletin board for such security as reported by Bloomberg, or, if no
bid price is reported for such security by Bloomberg, the average of the bid
prices of all market makers for such security as reported in the "pink sheets"
by the National Quotation Bureau, Inc. (collectively, the "Applicable Reporting
Entity"). If the Closing Bid Price cannot be calculated for such security on any
of the foregoing bases, the Closing Bid Price of such security shall be the fair
market value as reasonably determined by an independent investment banking firm
selected by all of the Holders of Preferred Shares, and reasonably acceptable to
the Corporation, with the costs of such appraisal to be borne by the
Corporation. "Effective Date" means the day on which the Registration Statement
(as defined in the Registration Rights Agreement) is declared effective by the
Securities and Exchange Commission. "Market Price" means the average Closing Bid
Price for the Common Stock occurring during the period of ten (10) consecutive
Trading Days immediately preceding (but not including) the date of determination
(but in no event greater than the Closing Bid Price on the Trading Day
immediately preceding such date of determination); provided that if the Market
Price cannot be calculated as aforesaid, such Market Price shall be the fair
market value as reasonably determined by an investment banking firm selected by
the Corporation and reasonably acceptable to the Holders of a majority of the
Preferred Shares then outstanding, with the costs of such appraisal to be borne
by the
-21-
Corporation. "Trading Day" means any day on which the Common Stock is purchased
and sold on the principal securities exchange or market on which the Common
Stock is then listed or traded.
(e) Delivery of Conversion Shares. Upon receipt of a Conversion Notice
from a Holder, the Corporation shall, on or before the close of business on the
later to occur of (i) the third (3rd) Business Day following the Conversion Date
set forth in such Conversion Notice and (ii) with respect to Conversion Shares
that are the subject of a dispute as described in paragraph 4(b) above, the
Business Day immediately following the Disputed Share Calculation Date (the
applicable such Business Day being referred to herein as a "Delivery Date"),
issue and deliver or cause to be delivered to such Holder the number of
Conversion Shares to which such Holder is entitled to receive as provided
herein. The Corporation shall effect delivery of Conversion Shares to a Holder
by, as long as the transfer agent for the Corporation (the "Transfer Agent")
participates in the Depository Trust Company ("DTC") Fast Automated Securities
Transfer program ("FAST"), crediting the account of such Holder or its nominee
at DTC (as specified in the applicable Conversion Notice or otherwise in
writing) with the number of Conversion Shares required to be delivered, no later
than the close of business on such Delivery Date. In the event that Transfer
Agent is not a participant in FAST, or if Conversion Shares are not otherwise
eligible for delivery through FAST, or if a Holder so specifies in a Conversion
Notice or otherwise in writing on or before the Delivery Date, the Corporation
shall effect delivery of Conversion Shares by delivering to the Holder or its
nominee physical certificates representing such shares, no later than the close
of business on such Delivery Date. If any Conversion would create a fractional
Conversion Share, such fractional share shall be disregarded and the number of
Conversion Shares shall be the rounded to the nearest whole number of shares.
Conversion Shares delivered to a Holder shall not contain any restrictive legend
as long as (A) the resale, transfer, pledge or other disposition of such shares
is covered by an effective registration statement and such Holder represents in
writing to the Corporation that such shares have been or are being sold pursuant
to such registration statement, (B) such shares have been publicly sold pursuant
to Rule 144 ("Rule 144"), or (C) such shares can be sold pursuant to Rule 144(k)
under Securities Act of 1933, as amended (the "Securities Act"), or any
successor rule or provision.
(f) Failure to Deliver Conversion Shares.
(i) In the event that, as a result of any willful action or
failure to act on the part of the Corporation (whether under these
Articles of Amendment, under any other Transaction Document (as defined
in the Securities Purchase Agreement) or otherwise, including without
limitation a failure by the Corporation to have a sufficient number of
shares of Common Stock authorized and reserved for issuance pursuant to
conversions of Preferred Shares), a Holder has not received
certificates (without any restrictive legend in the circumstances
described in clause (A), (B) or (C) of paragraph 4(e) above)
representing the number of Conversion Shares specified in the
applicable Conversion Notice on or before the Delivery Date therefor (a
"Conversion Default"), and such failure to deliver certificates
continues for ten (10) Business Days following the delivery of written
notice thereof from such Holder (such tenth Business Day being referred
to herein as the
-22-
"Conversion Default Date"), the Corporation shall pay to such Holder
payments ("Conversion Default Payments") in the amount of (i) "N"
multiplied by (ii) the aggregate Stated Value of the Preferred Shares
which are the subject of such Conversion Default multiplied by (iii)
one percent (1%), where "N" equals the number of days elapsed between
the Conversion Default Date and the earlier to occur of (i) the date on
which all of the certificates (without any restrictive legend in the
circumstances described in clause (A), (B) or (C) of paragraph 4(e)
above) representing such Conversion Shares are issued and delivered to
such Holder, (ii) the date on which such Preferred Shares are redeemed
pursuant to the terms hereof and (iii) the date on which a Withdrawal
Notice (as defined below) is delivered to the Corporation. Amounts
payable hereunder shall be paid to the Holder in immediately available
funds on or before the fifth (5th) Business Day of the calendar month
immediately following the calendar month in which such amounts have
accrued.
(ii) In the event that a Holder has not received certificates
(without any restrictive legend in the circumstances described in
clause (A), (B) or (C) of paragraph 4(e) above) representing the
Conversion Shares by the tenth (10th) Business Day following a
Conversion Default as a result of any willful action or any failure to
act on the part of the Corporation (whether under these Articles of
Amendment, under any other Transaction Document (as defined in the
Securities Purchase Agreement) or otherwise, including without
limitation a failure by the Corporation to have a sufficient number of
shares of Common Stock authorized and reserved for issuance pursuant to
conversions of Preferred Shares), such Holder may, upon written notice
(a "Withdrawal Notice") delivered to the Corporation on such Business
Day or on any Business Day thereafter (unless, prior to the delivery of
such notice, such Conversion Shares are delivered to such Holder),
withdraw its Conversion Notice with respect to such Conversion Shares
and regain its rights as a Holder of the Preferred Shares that are the
subject of such Conversion Default. In such event, the Conversion Price
in effect when such Preferred Shares are thereafter converted shall be
equal to the lowest Conversion Price or (if lower) Market Price
occurring on or after the date of such Conversion Notice reduced by one
percent (1%) for each day occurring during the period immediately
following such 10th Business Day until the day on which the such Holder
delivers a Withdrawal Notice to the Corporation; provided, however,
that the maximum percentage by which such Conversion Price may be
reduced hereunder shall be fifty percent (50%). (For example, if such
Conversion Default were to continue for five days following such 10th
Business Day, such Conversion Price would be reduced by 5%; if for ten
days, by 10%; and for fifty days or more, 50%, so that the number of
Conversion Shares deliverable upon conversion of such Preferred Shares
would be increased proportionately). Upon delivery by a Holder of a
Withdrawal Notice, such Holder shall retain all of such Holder's rights
and remedies with respect to the Corporation's failure to deliver such
Conversion Shares (including without limitation the right to receive
the cash payments specified in subparagraph 4(f)(i) above).
(iii) In addition to any other remedies provided herein, each
Holder shall have the right to pursue actual damages for the
Corporation's failure to issue and deliver Conversion Shares on the
applicable Delivery Date (including, without limitation, damages
relating to any purchase of shares of Common Stock by such Holder to
make delivery on a sale lawfully effected in anticipation
-23-
of receiving Conversion Shares upon Conversion, such damages to be in
an amount equal to (A) the aggregate amount paid by such Holder for the
shares of Common Stock so purchased minus (B) the aggregate Conversion
Price for such Conversion Shares, and such Holder shall have the right
to pursue all other remedies available to it at law or in equity
(including, without limitation, a decree of specific performance and/or
injunctive relief).
(g) Conversion at Maturity. On the Determination Date, all Preferred
Shares then held by the Holders (and with respect to which a Holder has not
submitted a Notice of Conversion) shall be automatically converted into the
number of shares of Common Stock equal to the Stated Value of such Preferred
Shares divided by the Conversion Price then in effect (a "Conversion at
Maturity"); provided, however, that if, on the Determination Date, (i) the
number of shares of Common Stock authorized, unissued and unreserved for all
other purposes, or held in the Corporation's treasury, is not sufficient to
effect the issuance and delivery of the number of Conversion Shares into which
all outstanding Preferred Shares are then convertible, (ii) the Common Stock is
not actively traded on the Nasdaq SmallCap Market, (iii) a Mandatory Redemption
Event (as defined herein) has occurred and is continuing, (iv) the conversion of
a Holder's Preferred Shares pursuant to the Conversion at Maturity would violate
the provisions of Section 5 below; provided, however, that in such event the
Conversion at Maturity would apply solely to those Preferred Shares the
conversion of which would not violate Section 5 as of the Determination Date and
provided, further, that the determination on the Determination Date of a
Holder's beneficial ownership of Common Stock pursuant to paragraph 5(b) above
shall exclude any shares of Common Stock acquired by such Holder otherwise than
pursuant to the conversion or exercise of securities outstanding on the date
hereof, or (v) the Registration Statement (as defined in the Registration Rights
Agreement) is not effective and available for the resale of all Conversion
Shares and Warrant Shares issuable on the Determination Date upon the conversion
or exercise of all Preferred Shares and Warrants then outstanding (without
regard to any limitations on such conversion or exercise), each Holder shall
have the option, upon written notice to the Corporation, to regain its rights as
a holder of Preferred Shares (which, in the circumstances described in clause
(iv) above, would comprise the Preferred Shares not converted pursuant to the
proviso of clause (iv)), including without limitation, the right to convert such
Preferred Shares in accordance with the terms of paragraphs 4(a) through 4(f)
hereof and, upon delivery of such notice, such Preferred Shares shall not be
subject to a Conversion at Maturity hereunder until the thirtieth (30th) day
following the later of (a) the date on which the event specified (i), (ii),
(iii), (iv), or (v) is no longer continuing and (b) the date on which the
Corporation delivers to each Holder written notice to such effect, and in such
event, such thirtieth day shall be deemed to be the Determination Date for
purposes of these Articles of Amendment. In the event that the Registration
Statement (as defined in the Registration Rights Agreement) has not been
effective and available to each Holder for the resale of the maximum number of
Conversion Shares and Warrant Shares issuable upon conversion or exercise of
such Holder's Preferred Shares and Warrants, respectively (without regard to any
limitations on such conversion or exercise), for any period or periods on or
after the Effective Date and before the Determination Date (collectively, a
"Blackout Period"), the Determination Date (the "Original Determination Date")
shall be delayed
-24-
for a period of days equal to the Blackout Period (the Trading Day immediately
following last day of such period being referred to herein as the "Delayed
Determination Date") and the Delayed Determination Date shall be deemed to be
the Determination Date for the purposes of these Articles of Amendment;
provided, however, that if the Determination Date is delayed because a Blackout
Period has occurred, the Conversion Price in effect on and after the Original
Determination Date (but prior to the Delayed Determination Date) shall be equal
to the lowest of (i) the Initial Conversion Price, (ii) the Conversion Price in
effect on the Trading Day immediately prior to the Original Determination Date,
and (iii) the Market Price on the Original Determination Date and provided,
further, that the Conversion Price in effect on the Delayed Determination Date
shall be equal to the lowest of (i) the Initial Conversion Price, (ii) the
Conversion Price in effect on the Trading Day immediately prior to the Delayed
Determination Date, and (iii) the Market Price on the Delayed Determination
Date. If a Conversion at Maturity occurs, the Corporation and each Holder shall
follow the procedures for Conversion set forth in this Section 4, with the
Determination Date deemed to be the Conversion Date, except that the Holder
shall not be required to send a Conversion Notice as contemplated by paragraph
4(b).
5. CONVERSION LIMITATIONS.
In no event shall a Holder be permitted to convert any Preferred Shares
in excess of the number of such shares, upon the Conversion of which:
(a) the number of Conversion Shares to be issued pursuant to such
Conversion, when added to the number of shares of Common Stock issued pursuant
to all prior Conversions of Preferred Shares and all prior exercises of the
Warrants by the Holders thereof, would exceed the maximum number of shares of
Common Stock issuable by the Corporation without stockholder approval in
compliance with the continued listing requirements of the Nasdaq SmallCap Market
(the "Cap Amount"), except that such limitation shall not apply in the event
that (i) the Corporation obtains the approval of the holders of a majority of
the Corporation's Common Stock for the issuance of Common Stock in excess of the
Cap Amount (it being understood that any Holder whose Cap Allocation Amount (as
defined below) represents one hundred and seventy-five percent (175%) or less of
(A) the number of Conversion Shares and Warrant Shares into which the Preferred
Shares and Warrants then held by such Holder are convertible or exercisable at
the Conversion Price or the Exercise Price, as the case may be, then in effect
(without regard to any restrictions or limitations on such conversion or
exercise) plus (B) the number of Conversion Shares and Warrant Shares into which
such Holder has previously converted Preferred Shares and exercised the
Warrants, respectively, shall have the right to require the Corporation, upon
written notice to such effect, to seek such approval by means of a special
meeting of stockholders to be held as soon as practicable following the
Corporation's receipt of such notice, but in any case within ninety (90) days
following such receipt, and to recommend such approval to its stockholders at
such special meeting) or (ii) the Holders of a majority of the number of
Preferred Shares then outstanding (or, if no Preferred Shares are outstanding,
the holders of Warrants exercisable into majority of the Warrant Shares then
issuable) obtain an opinion of counsel reasonably satisfactory to the
-25-
Corporation that such approval is not required. Until such approval or opinion
is obtained, no purchaser of Preferred Shares pursuant to the Securities
Purchase Agreement (each, a "Purchaser" and together the "Purchasers") shall be
issued, upon Conversion of the Preferred Shares, Conversion Shares in an amount
greater than the product of (A) the Cap Amount times (B) a fraction, the
numerator of which is the number of Preferred Shares issued to such Purchaser
pursuant to the Securities Purchase Agreement and the denominator of which is
the aggregate amount of all of the Preferred Shares issued to the Purchasers
pursuant to the Securities Purchase Agreement (the "Cap Allocation Amount"). In
the event that any Purchaser shall sell or otherwise transfer any of such
Purchaser's Preferred Shares or Warrants, the transferee shall be allocated a
pro rata portion of such Purchaser's Cap Allocation Amount. In the event that
any Holder converts all of such Holder's Preferred Shares and Warrants into a
number of Conversion Shares and Warrant Shares which, in the aggregate, is less
than such Holder's Cap Allocation Amount, then the difference between such
Holder's Cap Allocation Amount and the number of Conversion Shares and Warrant
Shares actually issued to such Holder shall be allocated to the respective Cap
Allocation Amounts of the remaining Holders of Preferred Shares on a pro rata
basis in proportion to the number of Preferred Shares then held by each such
Holder; or
(b) (x) the number of shares of Common Stock beneficially owned by such
Holder (other than shares of Common Stock issuable upon conversion of such
Preferred Shares or which would otherwise be deemed beneficially owned except
for being subject to a limitation on conversion or exercise analogous to the
limitation contained in this paragraph 5(b)) plus (y) the number of shares of
Common Stock issuable upon the Conversion of such Preferred Shares, would be
equal to or exceed (z) 4.99% of the number of shares of Common Stock then issued
and outstanding. As used herein, beneficial ownership shall be determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, and the rules thereunder. To the extent that the limitation contained
in this paragraph applies (and without limiting any rights the Corporation may
otherwise have), the Corporation may rely on the Holder's determination of
whether Preferred Shares are convertible pursuant to the terms hereof, the
Corporation having no obligation whatsoever to verify or confirm the accuracy of
such determination, and the submission of a Conversion Notice by the Holder
shall be deemed to be the Holder's representation that the Preferred Shares
specified therein are convertible pursuant to the terms hereof. This paragraph
may be amended by all of the Holders of Preferred Shares then outstanding only
with the consent of the holders of a majority of the shares of Common Stock then
outstanding. Nothing contained herein shall be deemed to restrict the right of a
Holder to convert Preferred Shares at such time as the Conversion thereof will
not violate the provisions of this paragraph 5(b).
6. ADJUSTMENTS TO CONVERSION PRICE.
(a) Adjustment to Fixed Conversion Price Due to Stock Split, Stock
Dividend, Etc. If, prior to the Conversion of all of the Preferred Shares, (A)
the number of outstanding shares of Common Stock is increased by a stock split,
a stock dividend on the Common Stock, a reclassification of the Common Stock, or
other similar event, the Conversion Price shall be
-26-
proportionately reduced, which reduction shall be effected on the date on which
the Corporation announces such event; or (B) the Corporation issues Common
Stock, whether upon the exercise of rights, warrants, securities convertible or
exercisable into Common Stock or otherwise, at a price (the "Issue Price") that
is less than the current Market Price thereof at the time of such issuance, the
Conversion Price that would otherwise be in effect on a particular date
following such issuance shall be proportionately reduced in order to account for
the difference between the Issue Price and such Market Price; provided, however,
that if the Issue Price is lower than the Conversion Price otherwise in effect
on the date of such issuance, such Conversion Price will be reduced to the lower
of the amount determined by this clause (B) and the amount determined by clause
(D) below; (C) the number of outstanding shares of Common Stock is decreased by
a reverse stock split, combination or reclassification of shares or other
similar event, the Conversion Price shall be proportionately increased, which
increase shall be effected on the date on which the Corporation announces such
event; or (D) the Corporation issues Common Stock, whether upon the exercise of
rights, warrants, securities convertible or exercisable into Common Stock or
otherwise, at a price that is lower than the Conversion Price in effect on any
Conversion Date following the date of such issuance, such Conversion Price shall
be reduced to such lower price.
In no event shall any adjustment pursuant to clause (B) or clause (D)
above result in a Conversion Price that exceeds the Conversion Price that would
otherwise apply in the absence of such adjustment.
(b) Adjustment to Conversion Price During Reference Period. If, prior
to the Conversion of all of the Preferred Shares, the number of outstanding
shares of Common Stock is increased or decreased by a stock split, a stock
dividend on the Common Stock, a combination, a reclassification of the Common
Stock or other similar event, and such event takes place during the reference
period for the determination of the Conversion Price for any Conversion thereof,
the Conversion Price shall be calculated giving appropriate effect to the stock
split, stock dividend, combination, reclassification or other similar event for
all Trading Days occurring during such reference period.
(c) Adjustment Due to Merger, Consolidation, Etc. If, prior to the
Conversion of all of the Preferred Shares, there shall be any merger,
consolidation, business combination, tender offer, exchange of shares,
recapitalization, reorganization, redemption or other similar event, as a result
of which shares of Common Stock shall be changed into the same or a different
number of shares of the same or another class or classes of stock or securities
of the Corporation or another entity (an "Exchange Transaction"), then such
Holder shall (A) upon the consummation of such Exchange Transaction, have the
right to receive, with respect to any shares of Common Stock then held by such
Holder, or which such Holder is then entitled to receive pursuant to a
Conversion Notice previously delivered by such Holder (and without regard to
whether such shares contain a restrictive legend or are freely-tradable), the
same amount and type of consideration (including without limitation, stock,
securities and/or other assets) and on the same terms as a holder of shares of
Common Stock would be entitled to receive in connection with the consummation of
such Exchange Transaction (the "Exchange Consideration"), and (B) upon the
Conversion of Preferred Shares
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occurring subsequent to the consummation of such Exchange Transaction (a
"Subsequent Conversion"), have the right to receive the Exchange Consideration
which such Holder would have been entitled to receive in connection with such
Exchange Transaction had such shares been converted immediately prior to such
Exchange Transaction at the Conversion Price applicable on the Conversion Date
relating to such Subsequent Conversion, and in any such case appropriate
provisions shall be made with respect to the rights and interests of such Holder
to the end that the provisions hereof (including, without limitation, provisions
for the adjustment of the Conversion Price and of the number of shares of Common
Stock issuable upon a Conversion) shall thereafter be applicable as nearly as
may be practicable in relation to any securities thereafter deliverable upon the
Conversion of such Preferred Shares. The Corporation shall not effect any
Exchange Transaction unless (i) it first gives to each Holder twenty (20) days
prior written notice of such Exchange Transaction (an "Exchange Notice"), and
makes a public announcement of such event at the same time that it gives such
notice (it being understood that the filing by the Corporation of a Form 8-K for
the purpose of disclosing the anticipated consummation of the Exchange
Transaction shall constitute an Exchange Notice for purposes of this provision)
and (ii) the resulting successor or acquiring entity (if not the Corporation)
assumes by written instrument the obligations of the Corporation hereunder,
including the terms of this subparagraph 6(c), and under the Securities Purchase
Agreement and the Registration Rights Agreement.
(d) Distribution of Assets. If the Corporation or any of its
subsidiaries shall declare or make any distribution of cash, evidences of
indebtedness or other securities or assets (other than cash dividends or
distributions payable out of earned surplus or net profits for the current or
the immediately preceding year), or any rights to acquire any of the foregoing,
to holders of Common Stock (or to a holder, other than the Corporation, of the
common stock of any such subsidiary) as a partial liquidating dividend, by way
of return of capital or otherwise, including any dividend or distribution in
shares of capital stock of a subsidiary of the Corporation (collectively, a
"Distribution"), then each Holder shall be entitled to receive, at the same time
as such assets are received by a holder of such stock, an amount and type of
such Distribution as though such Holder were a holder on the record date
therefor of a number of shares of Common Stock determined by dividing the
Liquidation Preference of the Preferred Shares held by such Holder on such
record date by the lower of the Market Price and the Conversion Price in effect
on such record date (such number of shares to be determined without regard to
any limitation on conversion of the Preferred Shares that may exist pursuant to
these Articles of Amendment or otherwise).
(e) Adjustment Due to Major Announcement. If the Corporation (i) makes
a public announcement that it intends to enter into a Change of Control
Transaction (as defined below) or (ii) any person, group or entity (including
the Corporation) publicly announces a tender offer, exchange offer or other
transaction to purchase 50% or more of the Common Stock (such announcement being
referred to herein as a "Major Announcement" and the date on which a Major
Announcement is made, the "Announcement Date"), then, in the event that a Holder
seeks to convert Preferred Shares on or following the Announcement Date, the
Conversion Price shall, effective upon the Announcement Date and continuing
through the fifth (5th) Business Day
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following the earlier to occur of the consummation of the proposed transaction
or tender offer, exchange offer or other transaction and the Abandonment Date
(as defined below), be equal to the lowest of (x) the Conversion Price in effect
on the Announcement Date, (y) the Market Price on the Announcement Date and (z)
the Conversion Price that would otherwise be in effect on the Conversion Date
for such Preferred Shares. "Abandonment Date" means with respect to any proposed
transaction or tender offer, exchange offer or other transaction for which a
public announcement as contemplated by this paragraph 6(e) has been made, the
date upon which the Corporation (in the case of clause (i) above) or the person,
group or entity (in the case of clause (ii) above) publicly announces the
termination or abandonment of the proposed transaction or tender offer, exchange
offer or another transaction which caused this paragraph 6(e) to become
operative.
(f) Issuance of Other Securities. If, at any time after the Closing
Date, the Corporation shall issue any securities which are convertible into or
exchangeable for Common ("Convertible Securities") either (i) at a conversion or
exchange rate based on a discount from the Market Price of the Common Stock at
the time of conversion or exercise or (ii) with a fixed conversion or exercise
price less than the Conversion Price, then, at the Holder's option: (x) in the
case of clause (i), the Conversion Price in respect of any conversion of the
Preferred Shares after such issuance shall be calculated utilizing the greatest
discount applicable to any such Convertible Securities; and (y) in the case of
clause (ii), the Conversion Price shall be proportionately reduced. If the
Corporation shall issue any Convertible Securities that are convertible into or
exchangeable for shares of Common Stock on a basis different from that of these
Articles of Amendment, each Holder may elect that the provisions of these
Articles of Amendment be revised to incorporate such different provisions with
respect to conversion or exchange, subject to the limitations of Section 5
hereof; provided, however, Purchaser may not select provisions on a
non-integrated basis which would have an inequitable result on the intent of
this provision.
(g) Adjustment Pursuant to Other Agreements. In addition to and without
limiting in any way the adjustments provided in this Section 6, the Conversion
Price shall be adjusted as may be required by the provisions of the Registration
Rights Agreement and/or by the provisions of the Securities Purchase Agreement.
(h) No Fractional Shares. If any adjustment under this Section would
create a fractional share of Common Stock or a right to acquire a fractional
share of Common Stock, such fractional share shall be disregarded and the number
of shares of Common Stock issuable upon Conversion shall be rounded to the
nearest whole number of shares.
(i) Exceptions to Adjustment of Conversion Price. No adjustment to the
Conversion Price will be made (i) upon the exercise or conversion of any
warrants, options or convertible securities issued and outstanding on the date
hereof in accordance with the terms of such securities as of such date; (ii)
upon the grant or exercise of any stock or options which may hereafter be
granted or exercised under any employee, consultant or director benefit plan of
the Corporation now
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existing or to be implemented in the future, so long as the issuance of such
stock or options is approved by a majority of the non-employee members of the
Board of Directors of the Corporation or a majority of the members of a
committee of non-employee directors established for such purpose; (iii) upon the
issuance of the Conversion Shares; or (iv) upon the exercise of the Warrants.
7. REDEMPTION.
(a) Mandatory Redemption. In the event that a Mandatory Redemption
Event (as defined below) occurs, each Holder shall have the right to require the
Corporation to redeem all or any portion of the Preferred Shares held by such
Holder (a "Mandatory Redemption") at the Mandatory Redemption Price (as defined
herein). In order to exercise its right to effect a Mandatory Redemption, a
Holder must deliver a written notice (a "Mandatory Redemption Notice") to the
Corporation at any time on or before 11:59 p.m. (eastern time) on the third
(3rd) Business Day following the Business Day on which the Mandatory Redemption
Event to which such Mandatory Redemption Notice relates is no longer continuing.
The Mandatory Redemption Notice shall specify the effective date of such
Mandatory Redemption (the "Mandatory Redemption Date") and the number of such
shares to be redeemed.
(b) Mandatory Redemption Event. Each of the following events shall be
deemed a "Mandatory Redemption Event":
(i) the Corporation fails, as a result of (x) not having a
sufficient number of shares of Common Stock authorized and reserved for
issuance, (y) failing to obtain the approval of its stockholders as
required by paragraph 5(a) hereof or by paragraph 4.12 of the
Securities Purchase Agreement, or (z) for any other reason within the
control of the Corporation, to issue shares of Common Stock to a Holder
and deliver certificates representing such shares (without any
restrictive legend under the circumstances described in paragraph 4(e)
hereof) to such Holder as and when required by the provisions hereof
upon conversion of any Preferred Shares, and such failure continues for
ten (10) Business Days;
(ii) the Corporation breaches, in a material respect, any
covenant or other material term or condition of these Articles of
Amendment, the Securities Purchase Agreement, the Registration Rights
Agreement, the Warrants or any other agreement, document, certificate
or other instrument delivered in connection with the transactions
contemplated thereby, and such breach continues for a period of five
(5) Business Days after written notice thereof to the Corporation from
a Holder;
(iii) any material representation or warranty made by the
Corporation in the Securities Purchase Agreement, the Registration
Rights Agreement, the Warrants or any other agreement, document,
certificate or other instrument delivered in connection with the
transactions contemplated hereby or thereby is inaccurate or misleading
in any material respect as of the date such representation or warranty
was made;
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(iv) (x) the sale, conveyance or disposition of all or
substantially all of the assets of the Corporation, the effectuation of
a transaction or series of transactions in which more than 50% of the
voting power of the Corporation is disposed of, or the consolidation,
merger or other business combination of the Corporation with or into
any other entity, immediately following which the prior stockholders of
the Corporation fail to own, directly or indirectly, at least fifty
percent (50%) of the surviving entity or (y) a transaction or series of
transactions in which any person acquires control of the Corporation
(each a "Change of Control Transaction"). For purposes hereof,
"control" shall mean, with respect to the Corporation, the ability to
direct the business, operations or management of the Corporation,
whether through an equity interest therein or otherwise; and
(v) the Common Stock is not quoted on the Nasdaq SmallCap
Market or Nasdaq National Market or listed on the New York Stock
Exchange or the American Stock Exchange, or trading in the Common Stock
on such market or exchange is suspended and such suspension is in
effect for more than five consecutive (5) Trading Days, and such
suspension or failure to be so quoted or listed occurs as a result of
any willful action or failure to act on the part of the Corporation.
(c) Mandatory Redemption Price. The "Mandatory Redemption Price" shall
be equal to the greater of (i) the Liquidation Preference of the Preferred
Shares being redeemed multiplied by one hundred and twenty five percent (125%)
and (ii) an amount determined by dividing the Liquidation Preference of the
Preferred Shares being redeemed by the Conversion Price in effect on the
Mandatory Redemption Date and multiplying the resulting quotient by the average
Closing Trade Price for the Common Stock on the five (5) Trading Days
immediately preceding (but not including) the Mandatory Redemption Date.
(d) Payment of Mandatory Redemption Price.
(i) The Corporation shall pay the Mandatory Redemption Price
to the Holder exercising its right to redemption on the later to occur
of (i) the fifth (5th) Business Day following the Mandatory Redemption
Date and (ii) the date on which the Preferred Shares being redeemed are
delivered by the Purchaser to the Corporation for cancellation (the
"Mandatory Redemption Payment Date").
(ii) If Corporation fails to pay the Mandatory Redemption
Price to the Holder on or before the Mandatory Redemption Date, the
Holder shall be entitled to interest thereon, from and after the
Mandatory Redemption Payment Date until the Mandatory Redemption Price
has been paid in full, at an annual rate equal to the Default Interest
Rate.
(iii) If the Corporation fails to pay the Mandatory Redemption
Price within ten (10) Business Days of the Mandatory Redemption Date,
then the Holder shall have the right to regain its rights as a Holder
of the Series B Preferred Stock and, upon written notice to such effect
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from the Holder, the Corporation shall return to such Holder the
certificates representing the Preferred Shares that were delivered to
the Corporation in connection with such Mandatory Redemption; in such
event, the Conversion Price otherwise applicable to future Conversions
of the Preferred Shares shall be reduced by one percent (1%) for each
day beyond such 10th Business Day in which the failure to pay the
Mandatory Redemption Price continued until the date of such notice;
provided, however, that the maximum percentage by which such Conversion
Price may be reduced hereunder shall be fifty percent (50%).
8. MISCELLANEOUS.
(a) Transfer of Preferred Shares. Upon notice to the Corporation, a
Holder may sell or transfer all or any portion of the Preferred Shares to any
person or entity as long as such sale or transfer is the subject of an effective
registration statement under the Securities Act or is exempt from registration
thereunder and otherwise is made in accordance with the terms of the Securities
Purchase Agreement. Notwithstanding the foregoing, no Holder shall knowingly and
voluntarily sell any Preferred Shares to an entity that is a competitor of the
Corporation. From and after the date of such sale or transfer, the transferee
thereof shall be deemed to be a Holder. Upon any such sale or transfer, the
Corporation shall, promptly following the return of the certificate or
certificates representing the Preferred Shares that are the subject of such sale
or transfer, issue and deliver to such transferee a new certificate in the name
of such transferee.
(b) Notices. Except as otherwise provided herein, any notice, demand or
request required or permitted to be given pursuant to the terms hereof, the form
or delivery of which notice, demand or request is not otherwise specified
herein, shall be in writing and shall be deemed delivered (i) when delivered
personally or by verifiable facsimile transmission on or before 5:00 p.m.,
eastern time, on a Business Day or, if such day is not a Business Day, on the
next succeeding Business Day, (ii) on the next Business Day after timely
delivery to an overnight courier and (iii) on the day actually received if
deposited in the U.S. mail (certified or registered mail, return receipt
requested, postage prepaid), addressed to the parties as follows:
If to the Corporation:
XXXX Interactive Services, Inc.
0000 Xxxxxxx Xxxxx, Xxxxx 000
Xxxxxx, Xxxxxxxx 00000
Tel: 000-000-0000
Fax: 000-(000) 000-0000
Attention: Xxxxxxx Xxxxxx
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with a copy to:
Xxxx, Plant, Xxxxx, Xxxxx & Xxxxxxx, P.A.
3400 City Center
00 Xxxxx Xxxxx Xxxxxx
Xxxxxxxxxxx, XX 00000-0000
Telecopy: (000) 000-0000
Attention: Xxxxxxx X. Xxxxxxx, Esq.
and if to any Holder, to such address for such Holder as shall be designated by
such Holder in writing to the Corporation.
(c) Lost or Stolen Certificate. Upon receipt by the Corporation of
evidence of the loss, theft, destruction or mutilation of a certificate
representing Preferred Shares, and (in the case of loss, theft or destruction)
of indemnity or security reasonably satisfactory to the Corporation and the
Transfer Agent, and upon surrender and cancellation of such certificate if
mutilated, the Corporation shall execute and deliver to the Holder a new
certificate identical in all respects to the original certificate.
(d) No Voting Rights. Except as provided by applicable law and
paragraph 8(g) below, the Holders of the Preferred Shares shall have no voting
rights with respect to the business, management or affairs of the Corporation;
provided that the Corporation shall provide each Holder with prior notification
of each meeting of stockholders (and copies of proxy statements and other
information sent to such stockholders).
(e) Remedies, Characterization, Other Obligations, Breaches and
Injunctive Relief. The remedies provided to a Holder in these Articles of
Amendment shall be cumulative and in addition to all other remedies available to
such Holder under these Articles of Amendment or under any Transaction Document
(as defined in the Securities Purchase Agreement), at law or in equity
(including without limitation a decree of specific performance and/or other
injunctive relief), no remedy contained herein shall be deemed a waiver of
compliance with the provisions giving rise to such remedy and nothing contained
herein shall limit such Holder's right to pursue actual damages for any failure
by the Corporation to comply with the terms of these Articles of Amendment. The
Corporation agrees with each Holder that there shall be no characterization
concerning this instrument other than as specifically provided herein. Amounts
set forth or provided for herein with respect to payments, conversion and the
like (and the computation thereof) shall be the amounts to be received by the
Holder hereof and shall not, except as expressly provided herein, be subject to
any other obligation of the Corporation (or the performance thereof). The
Corporation acknowledges that a material breach by it of its obligations
hereunder will cause irreparable harm to the Holders and that the remedy at law
for any such breach may be inadequate. The Corporation agrees, in the event of
any such breach or threatened breach, each Holder shall be entitled, in addition
to all other
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available remedies, to an injunction restraining any breach, without the
necessity of showing economic loss and without any bond or other security being
required.
(f) Failure or Delay not Waiver. No failure or delay on the part of a
Holder in the exercise of any power, right or privilege hereunder shall operate
as a waiver thereof, nor shall any single or partial exercise of any such power,
right or privilege preclude other or further exercise thereof or of any other
right, power or privilege.
(g) Protective Provisions.
So long as shares of Series B Preferred Stock are outstanding, the
Corporation shall not, without first obtaining the approval of the Holders of at
least two-thirds (2/3) of outstanding shares of Series B Preferred Stock:
(i) alter, change, modify or amend (x) the terms of the Series
B Preferred Stock in any way or (y) the terms of any other capital
stock of the Corporation so as to affect adversely the Series B
Preferred Stock;
(ii) create any new class or series of capital stock having a
preference over or ranking pari passu with the Series B Preferred Stock
as to redemption or distribution of assets upon a Liquidation Event or
any other liquidation, dissolution or winding up of the Corporation;
(iii) increase the authorized number of shares of Series B
Preferred Stock;
(iv) re-issue any shares of Series B Preferred Stock which
have been converted or redeemed in accordance with the terms hereof;
(v) issue any Pari Passu Securities or Senior Securities;
(vi) redeem, or declare, pay or make any provision for any
dividend or distribution with respect to, the Common Stock or any other
capital stock of the Corporation ranking junior to the Series B
Preferred Stock as to the distribution of assets upon liquidation,
dissolution or winding up of the Corporation; or
(vii) issue any Series B Preferred Stock except pursuant to
the terms of the Securities Purchase Agreement.
In the event that the Holders of at least two-thirds of the outstanding
shares of Series B Preferred Stock agrees to allow the Corporation to alter or
change the rights, preferences or privileges of the shares of Series B Preferred
Stock pursuant to the terms hereof, then the Corporation will deliver notice of
such approved change to the holders of the Series B Preferred Stock that did not
agree to such alteration or change (the "Dissenting Holders") and the Dissenting
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Holders shall have the right for a period of thirty (30) days following such
delivery to convert their Preferred Shares pursuant to the terms hereof as they
existed prior to such alteration or change, or to continue to hold such
Preferred Shares. No such change shall be effective to the extent that, by its
terms, it applies to less than all of the Holders of Preferred Shares then
outstanding.
[Remainder of Page Intentionally Left Blank]
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IN WITNESS WHEREOF, the Corporation has duly executed these Articles of
Amendment as of the ___ day of January, 2000.
XXXX INTERACTIVE SERVICES, INC.
By:_________________________________
Name:
Title:
-36-
EXHIBIT A
---------
NOTICE OF CONVERSION
The undersigned hereby elects to convert shares of Series B Convertible
Preferred Stock (the "Preferred Stock"), represented by stock certificate No(s).
_____________ (the "Preferred Stock Certificates"), into shares of common stock
("Common Stock") of XXXX INTERACTIVE SERVICES, INC. according to the terms and
conditions of the Articles of Amendment relating to the Preferred Stock (the
"Articles of Amendment"), as of the date written below. Capitalized terms used
herein and not otherwise defined shall have the respective meanings set forth in
the Articles of Amendment. Unless otherwise specified in writing to the
Corporation, the undersigned represents to the Corporation that the shares of
Common Stock covered by this notice have been or will be sold pursuant to an
effective registration statement.
Date of Conversion:_______________________________________
Number of Shares of
Preferred Stock to be Converted:__________________________
Applicable Conversion Price:______________________________
Number of Shares of
Common Stock to be Issued:________________________________
Name of Holder:___________________________________________
Address: ______________________________________________
______________________________________________
______________________________________________
Signature: ______________________________________________
Name:
Title:
Holder Requests Delivery to be made: (check one)
By Delivery of Physical Certificates to the Above Address
Through Depository Trust Corporation
(Account __________________________)
Exhibit C to Securities Purchase Agreement
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of January
[ ], 2000, by and among XXXX INTERACTIVE SERVICES, INC., a Delaware corporation
(the "Company"), and each of the entities whose names appear on the signature
pages hereof. Such entities are each referred to herein as a "Purchaser" and
collectively as the "Purchasers".
The Company has agreed, on the terms and subject to the conditions set
forth in the Securities Purchase Agreement of even date herewith (the
"Securities Purchase Agreement"), to issue and sell to each Purchaser shares
(the "Preferred Shares") of the Company's Series B Convertible Preferred Stock,
no par value (the "Preferred Stock"), and a Warrant (each, a "Warrant" and, when
taken together with all of the warrants issued pursuant to the Securities
Purchase Agreement, the "Warrants") entitling the holder thereof to purchase
shares (the "Warrant Shares") of Common Stock. The Preferred Shares are
convertible pursuant to Articles of Amendment to the Company's Articles of
Incorporation (the "Articles of Amendment") into shares (the "Conversion
Shares") of the Company's Common Stock, no par value (the "Common Stock").
In order to induce each Purchaser to enter into 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 under
applicable state securities laws. Capitalized terms used herein and not
otherwise defined shall have the respective meanings set forth in the Securities
Purchase Agreement or the Articles of Amendment, as applicable.
In consideration of each Purchaser entering into the Securities
Purchase Agreement, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. DEFINITIONS.
For purposes of this Agreement, the following terms shall have the
meanings specified:
(a) "Business Day" and "Closing Date" shall have the respective
meanings specified in the Securities Purchase Agreement;
(c) "Holder" means any person owning or having the right to acquire,
through conversion of the Preferred Shares or exercise of the Warrants,
Registrable Securities, including initially each Purchaser and
thereafter any permitted assignee thereof;
(d) "Effective Date" means the date on which the Registration Statement
is declared effective by the Securities and Exchange Commission (the
"Commission").
(e) "Filing Deadline" means the twentieth (20th) day following the
Closing Date; provided, however, that if such twentieth day is not a
Business Day, the Filing Deadline shall be the Business Day immediately
following such twentieth day;
(f) "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 ("Rule 415") or any successor rule providing for the
offering of securities on a continuous or delayed basis ("Registration
Statement"), and the declaration or ordering of effectiveness of the
Registration Statement by the Commission;
(g) "Registration Deadline" means the ninetieth (90th) day following
the Closing Date; and
(h) "Registrable Securities" means the Conversion Shares, the Warrant
Shares and any other shares of Common Stock issuable pursuant to the
terms of the Articles of Amendment or Warrants, and any shares of
capital stock issued or issuable from time to time (with any
adjustments) in replacement of, in exchange for or otherwise in respect
of the Conversion Shares or the Warrant Shares.
2. MANDATORY REGISTRATION.
(a) On or before the Filing Deadline, the Company shall prepare and
file with the Commission a Registration Statement on Form S-3 as a "shelf"
registration statement under Rule 415 covering the resale of the number of
shares of Registrable Securities equal to the Reserved Amount (as defined in the
Securities Purchase Agreement). The Registration Statement shall state, to the
extent permitted by Rule 416 under the Securities Act, that it also covers such
indeterminate number of shares of Common Stock as may be required to effect
conversion of the Preferred Shares and Warrants in order to prevent dilution
resulting from stock splits, stock dividends or similar events.
(b) The Company shall use its best efforts to cause the Registration
Statement to become effective as soon as practicable following the filing
thereof, but in no event later than the Registration Deadline. The Company shall
respond promptly to any and all comments made by the staff of the Commission on
the Registration Statement (but in no event later than fifteen (15) Business
Days following the Company's receipt thereof), and shall submit to the
Commission, within three (3) Business Days after the
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Company learns that no review of the Registration Statement will be made by the
staff of the Commission or that the staff of the Commission has no further
comments on the Registration Statement, as the case may be, a request for
acceleration of the effectiveness of the Registration Statement to a time and
date not later than forty eight (48) hours after the submission of such request.
The Company shall maintain the effectiveness of the Registration Statement until
the earlier to occur of (i) the date on which all of the Registrable Securities
have been sold pursuant to the Registration Statement and (ii) the date on which
all of the remaining Registrable Securities (in the reasonable opinion of
counsel to the Holders) may be immediately sold to the public without
registration and without regard to the amount of Registrable Securities which
may be sold by a Holder thereof at a given time (the period beginning on the
Registration Deadline and ending on the earlier of such dates being referred to
herein as the "Registration Period").
(c) If (A) the Registration Statement is not filed on or before the
Filing Deadline or declared effective by the Commission on or before the one
hundred and eightieth (180th) day following the Closing Date (the "Registration
Default Date"), (B) after the Registration Statement has been declared effective
by the Commission, sales of Registrable Securities cannot be made by a Holder
under the Registration Statement for any reason not within the exclusive control
of such Holder (other than with respect to such Registrable Securities as are
then freely saleable pursuant to Rule 144(k) under the Securities Act), or (C)
the Common Stock is not listed and freely tradeable on the Nasdaq National
Market, the Nasdaq SmallCap Market, the American Stock Exchange or the New York
Stock Exchange (each of (A), (B) or (C) being referred to herein as a "Default
Event"), the Company shall pay to each Holder an amount equal to the lesser of
(x) two percent (2%) per thirty calendar day period (prorated for any period of
less than thirty calendar days) and (y) the highest rate permitted by applicable
law, times the Stated Value of the Preferred Shares then held by such Holder,
accruing daily and compounded monthly, from the date on which a Default Event
occurs until the date on which such Default Event and any and all other Default
Events have been cured and are no longer continuing. The amounts paid or payable
by the Company hereunder shall be in addition to any other remedies available to
each Holder at law or in equity or pursuant to the terms hereof or the
Securities Purchase Agreement, or otherwise. Payments of such amounts pursuant
hereto shall be made in immediately available funds within five (5) Business
Days after the end of each period that gives rise to such obligation, provided
that, if any such period extends for more than thirty (30) days, payments shall
be made at the end of each thirty-day period.
(d) In the event that (A) the Registration Statement is not declared
effective by the Registration Default Date, (B) after the Registration Statement
has been declared effective by the Commission, sales of Registrable Securities
cannot be made by a Holder under the Registration Statement for any reason not
within the exclusive control of such Holder (other than such Registrable
Securities as are then freely saleable pursuant to Rule 144(k) under the
Securities Act), (C) the Common Stock is not listed and freely tradeable on the
Nasdaq SmallCap Market, the Nasdaq National Market System or the New York Stock
Exchange, or (D) the Company breaches, in any material respect, any
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material covenant or other material term or condition of the Articles of
Amendment, Securities Purchase Agreement, Registration Rights Agreement or the
Warrants or any other agreement, document, certificate or other instrument
delivered in connection with the transactions contemplated hereby or thereby,
and such breach continues for a period of ten (10) Business Days after written
notice thereof to the Company from a Holder (each event described in clause (A),
(B), (C) or (D) being hereinafter referred to as a "Repricing Event"), in
addition to the amounts which may be payable pursuant to paragraph 2(c) above
(and any other remedies available to the Holders), the Conversion Price for any
conversion of Preferred Shares occurring on a Conversion Date following the
occurrence of such Repricing Event shall be deemed to be equal to the lesser of
(i) the lowest Conversion Price (or if lower, Market Price) occurring during the
period between the date on which a Repricing Event occurs and the date on which
such Repricing Event and any and all other Repricing Events have been cured and
are no longer continuing and (ii) the Conversion Price that would otherwise be
in effect on such Conversion Date
3. PIGGYBACK REGISTRATION.
If at any time prior to the expiration of the Registration Period, (i)
the Company proposes to register shares of Common Stock under the Securities Act
in connection with the public offering of such shares for cash (other than a
registration relating solely to the sale of securities to participants in a
Company stock plan or employee stock award or a registration on Form S-4 under
the Securities Act or any successor or similar form registering stock issuable
upon a reclassification, a business combination involving an exchange of
securities or an exchange offer for securities of the issuer or another entity,
or a registration statement on Form S-3 covering the resale of securities issued
in connection with a corporate acquisition) (a "Proposed Registration") and (ii)
a registration statement covering the sale of all of the Registrable Securities
is not then effective and available for sales thereof by the Holders, the
Company shall, at such time, promptly give each Holder written notice of such
Proposed Registration. Each Holder shall have twenty (20) days from its receipt
of such notice to deliver to the Company a written request specifying the amount
of Registrable Securities that such Holder intends to sell and such Holder's
intended method of distribution. Upon receipt of such request, the Company shall
use its best efforts to cause all Registrable Securities which the Company has
been requested to register to be registered under the Securities Act to the
extent necessary to permit their sale or other disposition in accordance with
the intended methods of distribution specified in the request of such Holder;
provided, however, that the Company shall have the right to postpone or withdraw
any registration effected pursuant to this Section 3 without obligation to the
Holder. If, in connection with any underwritten public offering for the account
of the Company or for shareholders of the Company that have contractual rights
to require the Company to register shares of Common Stock, the managing
underwriter(s) thereof shall impose a limitation on the number of shares of
Common Stock which may be included in the Registration Statement because, in the
judgment of such underwriter(s), marketing or other factors dictate such
limitation is necessary to facilitate such offering, then the Company shall be
obligated to include in such Registration Statement only such limited portion of
the Registrable
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Securities with respect to which each Holder has requested inclusion hereunder
as such underwriter(s) shall permit. Any such exclusion of Registrable
Securities shall be made pro rata among the Holders seeking to include
Registrable Securities in the Registration Statement, in proportion to the
number of Registrable Securities sought to be included by such Holders;
provided, however, that the Company shall not exclude any Registrable Securities
unless the Company has first excluded all outstanding securities, the holders of
which are not entitled to inclusion of such securities in such Registration
Statement or are not entitled to pro rata inclusion with the Registrable
Securities; and provided, further, that, after giving effect to the immediately
preceding proviso, any exclusion of Registrable Securities shall be made pro
rata with holders of other securities having the right to include such
securities in the Registration Statement.
4. OBLIGATIONS OF THE COMPANY.
In addition to performing its obligations hereunder, including without
limitation those pursuant to paragraphs 2(a) and 2(b) above, the Company shall:
(a) promptly prepare and file with the Commission such amendments and
supplements to the Registration Statement and the prospectus used in connection
with the Registration Statement, or file such new Registration Statement or
Statements, as may be necessary (i) to comply with the provisions of the
Securities Act, (ii) in the event that the Company is unable to include in the
Registration Statement filed pursuant to paragraph 2(a) above all of the
Registrable Securities required to be included therein pursuant to paragraph
2(a), to cover any such Registrable Securities not so included, or (iii) to
maintain the effectiveness of the Registration Statement during the Registration
Period, or as may be reasonably requested within a reasonable time prior to any
proposed sale by a Holder in order to incorporate information concerning such
Holder or such Holder's intended method of distribution;
(b) secure the listing of all Registrable Securities on the Nasdaq
SmallCap Market prior to the date on which the Registration Statement relating
to such Registrable Securities becomes effective;
(c) furnish to each Holder such number of copies of the prospectus
included in such Registration Statement, including a preliminary prospectus, if
any, in conformity with the requirements of the Securities Act, and such other
documents as such Holder may reasonably request in order to facilitate the
disposition of such Holder's Registrable Securities;
(d) use all commercially reasonable efforts to register or qualify the
Registrable Securities under the securities or "blue sky" laws of such
jurisdictions within the United States as shall be reasonably requested from
time to time by a Holder, and do any and all other acts or things which may be
necessary or advisable to enable such Holder to consummate the public sale or
other disposition of the Registrable Securities in such jurisdictions; provided
that the Company shall not be required in connection
-5-
therewith or as a condition thereto to qualify to do business or to file a
general consent to service of process in any such jurisdiction;
(e) in the event of an underwritten public offering of the Registrable
Securities, enter into (together with all Holders proposing to distribute
Registrable Securities through such underwriting) and perform its obligations
under an underwriting agreement, in usual and customary form reasonably
acceptable to the Company, with the managing underwriter of such offering;
(f) notify each Holder immediately upon the occurrence of any event as
a result of which the prospectus included in such Registration Statement, as
then in effect, contains an untrue statement of material fact or omits to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances then existing,
and as promptly as practicable, prepare, file and furnish to each Holder a
reasonable number of copies of a supplement or an amendment to such prospectus
as may be necessary so that such prospectus does not contain an untrue statement
of material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein not misleading in light of the
circumstances then existing;
(g) use all commercially reasonable efforts to prevent the issuance of
any stop order or other order suspending the effectiveness of such Registration
Statement and, if such an order is issued, to obtain the withdrawal thereof at
the earliest possible time and to notify each Holder of the issuance of such
order and the resolution thereof;
(h) furnish to each Holder, on the date that such Registration
Statement becomes effective, (x) a letter, dated such date, of outside counsel
representing the Company (and reasonably acceptable to such Holder) addressed to
such Holder, confirming the effectiveness of the Registration Statement and, to
the knowledge of such counsel, the absence of any stop order, and (y) in the
case of an underwriting, (A) an opinion addressed to the underwriters, dated
such date, of such outside counsel, in such form and substance as is required to
be given to such underwriters, and (B) a letter addressed to such underwriters,
dated such date, from the Company's independent certified public accountants, in
such form and substance as is required to be given by the Company's independent
certified public accountants to such underwriters;
(i) provide each Holder and its representatives the opportunity to
conduct a reasonable inquiry of the Company's financial and other records during
normal business hours and make available its officers, directors and employees
for questions regarding information which such Holder may reasonably request in
order to fulfill any due diligence obligation on its part;
(j) permit counsel retained for such purpose by each Holder to review
the Registration Statement and all amendments and supplements thereto, and any
comments made by the staff of the Commission and the Company's responses
thereto,
-6-
within a reasonable period of time prior to the filing thereof with the
Commission (or, in the case of comments made by the staff of the Commission,
within a reasonable period of time following the receipt thereof by the Company)
and amend such materials in accordance with the comments of such counsel; and
(k) refrain during the period of one hundred and eighty (180) days
following the Effective Date from allowing any registration statement covering
the Common Stock (other than the Registration Statement(s) required to be filed
hereunder) to be declared effective by the Commission, other than a registration
statement relating to the issuance or resale of securities pursuant to (i) an
employee benefit plan or program duly adopted by the Company and in effect on
the date hereof, (ii) any options, warrant or convertible securities outstanding
on the date hereof, (iii) any firm-commitment underwritten public offering of
securities or (iv) any issuance of Equity Securities in connection with a
strategic investment or acquisition which, in either such case, is not effected
for the primary purpose of raising equity capital.
5. OBLIGATIONS OF EACH HOLDER.
In connection with the registration of the Registrable Securities
pursuant to the Registration Statement, each Holder shall:
(a) furnish to the Company in writing such information regarding itself
and the intended method of disposition of Registrable Securities as the Company
shall reasonably request in order to effect the registration thereof;
(b) upon receipt of any notice from the Company of the happening of any
event of the kind described in paragraphs 4(f) or 4(g), immediately discontinue
any sale or other disposition of Registrable Securities pursuant to the
Registration Statement until the filing of an amendment or supplement as
described in paragraph 4(f) or withdrawal of the stop order referred to in
paragraph 4(g);
(c) in the event of an underwritten offering of the Registrable
Securities, enter into a customary and reasonable underwriting agreement and
execute such other documents as the managing underwriter for such offering may
reasonably request;
(d) to the extent required by applicable law, deliver a prospectus to
the purchaser of Registrable Securities;
(e) notify the Company when it has sold all of the Registrable
Securities theretofore held by it; and
(f) promptly notify the Company in the event that any information
supplied by such Holder in writing for inclusion in the Registration Statement
or related prospectus is untrue or omits to state a material fact required to be
stated therein or
-7-
necessary to make such information not misleading in light of the circumstances
then existing.
6. INDEMNIFICATION.
In the event that any Registrable Securities are included in a
Registration Statement under this Agreement:
(a) To the extent permitted by law, the Company shall indemnify and
hold harmless each Holder, the officers, directors, employees and agents of such
Holder, and each person, if any, who controls such Holder within the meaning of
the Securities Act or the Securities Exchange Act of 1934, as amended (the "1934
Act"), against any losses, claims, damages, liabilities or reasonable
out-of-pocket expenses (whether joint or several) (collectively, including legal
or other expenses reasonably incurred in connection with investigating or
defending same, "Losses"), insofar as any such Losses arise out of or are based
upon (i) any untrue statement or alleged untrue statement of a material fact
contained in such Registration Statement, including any preliminary prospectus,
if any, or final prospectus contained therein or any amendments or supplements
thereto, or (ii) the omission or alleged omission to state therein a material
fact required to be stated therein, or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading.
Subject to the provisions of paragraph 6(c) below, the Company will reimburse
such Holder, and each such officer, director, employee, agent or controlling
person for any legal or other expenses as reasonably incurred by any such entity
or person in connection with investigating or defending any Loss; provided,
however, that the foregoing indemnity shall not apply to amounts paid in
settlement of any Loss if such settlement is effected without the consent of the
Company (which consent shall not be unreasonably withheld), nor shall the
Company be obligated to indemnify any person for any Loss to the extent that
such Loss arises out of or is based upon and in conformity with written
information furnished by such person expressly for use in such Registration
Statement; and provided, further, that the Company shall not be required to
indemnify any person to the extent that any Loss results from such person
selling Registrable Securities (i) to a person to whom there was not sent or
given, at or prior to the written confirmation of the sale of such shares, a
copy of the prospectus, as most recently amended or supplemented, if the Company
has previously furnished or made available copies thereof or (ii) during any
period following written notice by the Company to such Holder of an event
described in paragraph 4(f) or 4(g).
(b) To the extent permitted by law, each Holder, acting severally and
not jointly, shall indemnify and hold harmless the Company, the officers,
directors, employees, agents and representatives of the Company, and each
person, if any, who controls the Company within the meaning of the Securities
Act or the 1934 Act, against any Losses to the extent (and only to the extent)
that any such Losses arise out of or are based upon and in conformity with
written information furnished by such Holder expressly for use in such
Registration Statement; and such Holder will reimburse any
-8-
legal or other expenses as reasonably incurred by the Company and any such
officer, director, employee, agent, representative, or controlling person, in
connection with investigating or defending any such Loss; provided, however,
that the foregoing indemnity shall not apply to amounts paid in settlement of
any such Loss if such settlement is effected without the consent of such Holder,
which consent shall not be unreasonably withheld; provided, that, in no event
shall any indemnity under this paragraph 6(b) exceed the net proceeds resulting
from the sale of the Registrable Securities sold by such Holder under the
Registration Statement.
(c) Promptly after receipt by an indemnified party under this Section 6
of notice of the commencement of any action (including any governmental action),
such indemnified party will, 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 assume the defense thereof with counsel
mutually satisfactory to the parties; provided, however, that an indemnified
party shall have the right to retain its own counsel, with the reasonably
incurred fees and expenses of one such counsel to be paid by the indemnifying
party, if representation of such indemnified party by the counsel retained by
the indemnifying party would be inappropriate under applicable standards of
professional conduct due to actual or potential conflicting interests between
such indemnified party and any other party represented by such counsel in such
proceeding. The failure to deliver written notice to the indemnifying party
within a reasonable time of the commencement of any such action, to the extent
prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
6 with respect to such action, but the omission so to deliver written notice to
the indemnifying party will not relieve it of any liability that it may have to
any indemnified party otherwise than under this Section 6 or with respect to any
other action unless the indemnifying party is materially prejudiced as a result
of not receiving such notice.
(d) In the event that the indemnity provided in paragraph 6(a) or 6(b)
is unavailable or insufficient to hold harmless an indemnified party for any
reason, the Company and each Holder agree, severally and not jointly, to
contribute to the aggregate Losses to which the Company or such Holder may be
subject in such proportion as is appropriate to reflect the relative fault of
the Company and such Holder in connection with the statements or omissions which
resulted in such Losses; provided, however, that in no case shall such Holder be
responsible for any amount in excess of the proceeds resulting from the sale of
the Registrable Securities sold by it under the Registration Statement. Relative
fault shall be determined by reference to whether any alleged untrue statement
or omission relates to information provided by the Company or by such Holder.
The Company and each Holder agree that it would not be just and equitable if
contribution were determined by pro rata allocation or any other method of
allocation which does not take account of the equitable considerations referred
to above. Notwithstanding the provisions of this paragraph 6(d), no person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be
-9-
entitled to indemnification or contribution from any person who is not guilty of
fraudulent misrepresentation. For purposes of this Section 6, each person who
controls a Holder within the meaning of either the Securities Act or the
Exchange Act and each officer, director, employee or agent of such Holder shall
have the same rights to contribution as such Holder, and each person who
controls the Company within the meaning of either the Securities Act or the
Exchange Act and each officer, director, employee or agent of the Company shall
have the same rights to contribution as the Company, subject in each case to the
applicable terms and conditions of this paragraph 6(d).
(e) The obligations of the Company and each Holder under this Section 6
shall survive the conversion of the Preferred Shares and exercise of the
Warrants in full, the completion of any offering of Registrable Securities
pursuant to a Registration Statement under this Agreement, or otherwise.
7. REPORTS.
With a view to making available to each Holder the benefits of Rule 144
under the Securities Act ("Rule 144") and any other similar rule or regulation
of the Commission that may at any time permit such Holder to sell securities of
the Company to the public without registration, the Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144;
(b) file with the Commission in a timely manner all reports and other
documents required to be filed by the Company under the Securities Act and the
1934 Act; and
(c) furnish to such Holder, so long as such Holder owns any Registrable
Securities, forthwith upon written request (i) a written statement by the
Company, if true, that it has complied with the reporting requirements of Rule
144, and the 1934 Act, (ii) to the extent not publicly available through the
Commission's XXXXX database, a copy of the most recent annual or quarterly
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 in
availing such Holder of any rule or regulation of the Commission which permits
the selling of any such securities without registration.
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8. MISCELLANEOUS.
(a) Expenses of Registration. All expenses, other than underwriting
discounts and commissions and fees and expenses of one counsel to the Holders,
incurred in connection with the registrations, filings or qualifications
described herein, including (without limitation) all registration, filing and
qualification fees, printers' and accounting fees, the fees and disbursements of
counsel for the Company, and the fees and disbursements incurred in connection
with the opinion and letter described in paragraph 4(h) hereof, shall be borne
by the Company.
(b) Amendment; Waiver. Any provision of this Agreement may be amended
only pursuant to a written instrument executed by the Company and each Holder.
Any waiver of the provisions of this Agreement may be made only pursuant to a
written instrument executed by the party against whom enforcement is sought. Any
amendment or waiver effected in accordance with this paragraph shall be binding
upon each Holder, each future Holder, and the Company. The failure of any party
to exercise any right or remedy under this Agreement or otherwise, or the delay
by any party in exercising such right or remedy, shall not operate as a waiver
thereof.
(c) Notices. Any notice, demand or request required or permitted to be
given by any party to any other party pursuant to the terms of this Agreement
shall be in writing and shall be deemed given (i) when delivered personally or
by verifiable facsimile transmission (with an original to follow) on or before
5:00 p.m., eastern time, on a Business Day or, if such day is not a Business
Day, on the next succeeding Business Day, (ii) on the next Business Day after
timely delivery to a nationally-recognized overnight courier and (iii) on the
day actually received after deposit in the U.S. mail (certified or registered
mail, return receipt requested, postage prepaid), addressed to the parties as
follows:
If to the Company:
XXXX Interactive Services, Inc.
0000 Xxxxxxx Xxxxx, Xxxxx 000
Xxxxxx, Xxxxxxxx 00000
Tel: 000-000-0000
Fax: 303-
with a copy to:
and if to any Holder, to such address as shall be designated by such Holder in
writing to the Company.
(d) Termination. This Agreement shall terminate on the earlier to occur
of (a) the end of the Registration Period and (b) the date on which all of the
Registrable Securities have been publicly distributed; but any such termination
shall be without prejudice to (i) the parties' rights and obligations arising
from breaches of this Agreement occurring prior to such termination and (ii) the
indemnification and contribution obligations under this Agreement.
(e) Assignment. Upon the transfer of Preferred Shares, the Warrant or
Registrable Securities by a Holder, the rights of such Holder hereunder with
respect to the securities so transferred shall be assigned automatically to the
transferee thereof as long as: (i) the Company is, within a reasonable period of
time following such transfer, furnished with written notice of the name and
address of such transferee, (ii) the transferee agrees in writing with the
Company to be bound by all of the provisions hereof and (iii) such transfer is
made in accordance with the applicable requirements of the Securities Purchase
Agreement, the Articles of Amendment or the Warrant, as the case may be;
provided, however, that the registration rights granted in this Agreement shall
not be transferred to any person or entity that receives any such security
pursuant to an effective registration statement under the Securities Act or
pursuant to a transaction under Rule 144 or any successor provision thereto.
(f) Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, and all of which
together shall be deemed one and the same instrument. This Agreement, once
executed by a party, may be delivered to any other party hereto by facsimile
transmission.
(g) Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York without regard to the conflict
of laws provisions thereof.
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IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first-above written.
XXXX INTERACTIVE SERVICES, INC.
By: __________________________
Name:
Title:
XXXXXXXX CAPITAL MANAGEMENT, INC.
By: __________________________
Xxxxx Xxxxx, President
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IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date
first-above written.
XXXX INTERACTIVE SERVICES, INC.
By: __________________________
Name:
Title:
[ ]
By: __________________________
Name:
Title:
-14-
