EXHIBIT 10.1
SECURITIES PURCHASE AGREEMENT
This SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of February
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28, 2001, by and between XXXX INTERACTIVE SERVICES, INC., a Colorado corporation
(the "Company"), with headquarters located at 0000 Xxxxxxx, Xxxxx 000, Xxxxxx,
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Xxxxxxxx 00000, and Castle Creek Technology Partners LLC (the "Purchaser").
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The Company wishes to sell to the Purchaser, and the Purchaser wishes to
buy from the Company, on the terms and subject to the conditions set forth in
this Agreement, shares of the Company's Series C-1 Convertible Preferred Stock,
no par value ("Series C-1 Preferred Stock") and related Series C-1 Warrant in
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the form attached hereto as Exhibit A-1 ("Series C-1 Warrant"), and the
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Company's Series C-2 Convertible Preferred Stock, no par value ("Series C-2
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Preferred Stock" and together with the Series C-1 Preferred Stock, the
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"Preferred Stock") and related Series C-2 Warrant in the form attached hereto as
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Exhibit A-2 ("Series C-2 Warrant" and together with the Series C-1 Warrant, the
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"Warrants"). The shares of the Series C-1 Preferred Stock and the Series C-2
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Preferred Stock (the "Preferred Shares") are or will be, respectively,
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convertible pursuant to the terms of their respective Articles of Amendment
relating to such Preferred Stock, the forms of which are attached hereto as
Exhibit B-1 (the "Series C-1 Preferred Stock Articles of Amendment") and Exhibit
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B-2 (the "Series C-2 Preferred Stock Articles of Amendment"), into shares (the
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"Conversion Shares") of the Company's common stock, no par value (the "Common
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Stock"). The Warrants are exercisable into shares of Common Stock (the "Warrant
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Shares") in accordance with their respective terms. The Preferred Shares, the
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Conversion Shares, the Warrants and the Warrant Shares are collectively referred
to herein as the "Securities". Any capitalized term used herein that is not
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otherwise defined shall have the meaning specified therefor in the Series C-1
Preferred Stock Articles of Amendment.
The sale of the Securities 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
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Exchange Commission (the "Commission") under the Securities Act of 1933, as
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amended (the "Securities Act"). The Company has agreed to effect the
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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 the Purchaser, the form of which is attached
hereto as Exhibit C (the "Registration Rights Agreement").
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The Company and the Purchaser hereby agree as follows:
1. PURCHASE AND SALE OF THE PREFERRED SHARES AND WARRANTS.
1.1 Agreement to Purchase and Sell. Subject to the terms and the
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satisfaction or waiver of the conditions set forth in this Agreement, the
issuance, sale and purchase of
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the Preferred Shares and Warrants shall be consummated in two (2) separate
closings. The first closing is hereinafter referred to as the "First Closing,"
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and the second closing (if any) is hereinafter referred to as the "Second
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Closing (each of the First Closing and the Second Closing is sometimes referred
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to herein as a "Closing"), and the date on which a Closing occurs is herein
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after referred to as the "Closing Date".
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a. Subject to the satisfaction or waiver of the conditions set forth
in Section 5.1 and Section 5.3 hereof, the First Closing will be deemed to occur
when the Company and the 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 the Purchaser's purchase price
for the First Closing 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 Warrant being purchased by the Purchaser
at the First Closing.
b. Subject to the satisfaction or waiver of the conditions set forth
in Section 5.2 and Section 5.4 hereof, the Company and the Purchaser shall
consummate the Second Closing (if any) on the first (1st) Business Day (the
"Scheduled Second Closing Date") after the Registration Statement contemplated
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by Section 2(a) of the Registration Rights Agreement (the "Registration
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Statement") has been continuously effective for fifteen (15) consecutive
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calendar days following its being declared effective by the SEC; provided,
however, that if as of such Scheduled Second Closing Date the Company has
satisfied all Second Closing conditions set forth in Section 5.2 except for the
market capitalization requirement of Section 5.2.11, then the Company and the
Purchaser shall, provided that the other conditions set forth in Section 5.2
continue to be satisfied through out the period, consummate the Second Closing
(if any) on the first day (the "Delayed Second Closing Date") during the thirty
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(30) calendar day period immediately following such Scheduled Second Closing
Date when the average market capitalization of the Company for the period
starting on the Scheduled Second Closing Date and ending on the date immediately
prior to the Delayed Second Closing Date is within the range set forth in
Section 5.2.11. The Company shall deliver a notice (the "Second Closing
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Notice") to the Purchaser prior to the Second Closing (if any), in which the
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Company shall represent to the Purchaser that (i) the Registration Statement has
been continuously effective for at least fifteen (15) consecutive calendar days
and (ii) the conditions set forth in Section 5.2 hereof have been satisfied or
will be satisfied upon the Second Closing.
c. On the date of the First Closing, subject to the satisfaction or
waiver of the conditions set forth in Section 5 hereof, the Company shall issue
and sell to the Purchaser, and the Purchaser shall purchase from the Company (i)
2,500 shares of the Company's Series C-1 Preferred Stock and (ii) a Series C-1
Warrant entitling the holder thereof to purchase that number of Warrant Shares
as is equal to (A) the aggregate stated value of the Series C-1 Preferred Stock
divided by (B) the initial Conversion Price Shares (as defined in the Series C-1
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Preferred Stock Articles of Amendment ) of the Series C-1 Preferred Stock
multiplied by (C) fifty percent (50%). The initial Conversion Price of the
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Series C-1 Preferred Stock shall be two and half dollars ($2.50) and the
aggregate
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purchase price for the Securities purchased at the First Closing shall be two
and half million dollars ($2,500,000).
d. On the date of the Second Closing (if any), subject to the
satisfaction or waiver of the conditions set forth in Section 5 hereof, the
Company shall issue and sell to the Purchaser and the Purchaser shall purchase
from the Company 2,500 shares of the Company's Series C-2 Preferred Stock and a
Series C-2 Warrant entitling the holder thereof to purchase that number of
Warrant Shares as is equal to (A) the aggregate stated value of such Series C-2
Preferred Stock divided by (B) the initial Conversion Price of the Series C-2
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Preferred Stock multiplied by (C) twenty percent (20%). The initial Conversion
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Price for the Series C-2 Preferred Stock shall be equal to the least of (A)
eighty percent (80%) of the average Closing Bid Price (as defined below) for the
three (3) Trading Days (as defined below) immediately preceding, but not
including, the day on which shares of the Series C-2 Preferred Stock are issued,
(B) eighty percent (80%) of the Closing Bid Price on the Trading Day immediately
preceding such issuance date and (C) seven and one half dollars ($7.50) (subject
to equitable adjustment for any stock splits, combinations, stock dividends,
reclassifications or similar events). The Exercise Price to be inserted in
Section 1(a) of the Series C-2 Warrant shall be the greater of (A) one hundred
fifty percent (150%) of the initial Conversion Price of the Series C-2 Preferred
Stock and (B) the Closing Bid Price on the Trading Day immediately preceding the
day on which such Series C-2 Warrant is issued and the price to be inserted in
Section 1(c) of the Series C-2 Warrant shall be the greater of (A) seven and one
half dollars ($7.50) (subject to equitable adjustment for any stock splits,
combinations, stock dividends, reclassifications or similar events) and (B) two
hundred percent (200%) of such Exercise Price. The aggregate purchase price for
the Securities purchased at the Second Closing shall be two and half million
dollars ($2,500,000).
1.2 Form of Payment. At each Closing, the Purchaser shall pay the
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aggregate purchase price for the Preferred Shares and Warrant purchased by the
Purchaser hereunder at such Closing by wire transfer to the Company, in
accordance with the Company's written wiring instructions, against delivery of
duly executed Preferred Stock certificates and a certificate representing the
Warrant purchased by the Purchaser at such Closing, and the Company shall
deliver such Preferred Stock certificates and the certificate representing the
Warrant purchased by the Purchaser at such Closing against delivery of such
aggregate purchase price for such Closing.
1.3 Certain Definitions. When used herein, the following terms shall have
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the respective meanings indicated:
A. "Business Day" shall mean any day on which the New York Stock Exchange
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(the "NYSE") and commercial banks in the city of New York are open for business.
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B. "Closing Bid Price" shall mean, with respect to the Common Stock, the
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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
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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 Purchaser
(collectively, "Bloomberg") or if the foregoing does not apply, the last
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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 Purchaser, and
reasonably acceptable to the Company, with the costs of such appraisal to be
borne by the Company.
C. "Closing Trade Price" shall mean, with respect to the Common Stock,
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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.
D. "Trading Day" shall mean any day on which the Common Stock is
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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 THE PURCHASER.
The Purchaser hereby represents and warrants to the Company and agrees with
the Company that, as of the date of this Agreement, as of the First Closing and
as of the Second Closing:
2.1 Authorization; Enforceability. The Purchaser is duly and validly
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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 the 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. The Purchaser is an
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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
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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 the Purchaser with information
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regarding the business, operations and financial condition of the Company, and
has granted to the 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 the Purchaser or any of its
representatives shall modify, amend or otherwise affect the Purchaser's right to
rely on the Company's representations and warranties contained in this
Agreement.
2.4 Limitations on Disposition. The Purchaser acknowledges that, except as
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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. The Purchaser understands that the certificates representing
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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 the 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 the Purchaser has delivered
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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.
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2.6 No Conflict. The execution, delivery and performance by the Purchaser
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of this Agreement and the other Transaction Documents (as defined herein) to
which it is a party (A) have been approved by all necessary action (corporate or
other) on the part of the 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 the Purchaser and agrees with
the Purchaser that, as of the date of this Agreement, as of the First Closing
and as of the Second Closing:
3.1 Organization, Good Standing and Qualification. Each of the Company and
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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"
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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
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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 each Closing (the instruments described in (i),
(ii), (iii) and (iv) being collectively referred to herein as the "Transaction
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Documents"), to execute and file, and perform its obligations under the Articles
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of Amendment, to issue and sell Preferred Shares and Warrants to the 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 National Market, including, without
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limitation, 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
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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
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Information. The Company has filed with the Commission: (i) the Company's Annual
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Report on Form 10-KSB for the year ended December 31, 1999, (ii) Quarterly
Reports on Form 10-QSB for the quarters ended March 31, 2000, June 30, 2000 and
September 30, 2000, (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 2000 Annual Meeting of Stockholders] (collectively, the "Disclosure
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Documents"). Except as set forth on Schedule 3.4 hereto, the Company is not
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aware of any event occurring on or prior to each Closing (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
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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
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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
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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).
3.5 Disclosure. All information relating to or concerning the Company set
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forth in this Agreement or provided to the Purchaser pursuant to paragraph 2.3
hereof and otherwise in connection with the transactions contemplated hereby is
true and correct in all material respects and the Company has not omitted to
state any material fact necessary in order to make the statements made herein or
therein, in light of the circumstances under which they were made, not
misleading.
3.6 Capitalization. The capitalization of the Company, including its
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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 3.6
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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 3.6, no shares of the capital stock of the Company are subject
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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 3.6, or as contemplated herein, there are no
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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.
3.7 Valid Issuance. The Preferred Shares are duly authorized and, when
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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
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representations of the 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 the 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
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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, by unanimous vote
of the directors in attendance at the meeting at which such matters are
considered, which directors constitute a quorum, (i) has 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 approved the issuance of Conversion Shares upon exercise of
the Preferred Shares and the issuance of Warrant Shares upon exercise of the
Warrants.
3.8 No Conflict with Other Instruments. Neither the Company nor any of its
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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.
3.9 Financial Condition; Taxes; Litigation.
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3.9.1 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.
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3.9.2 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.
3.9.3 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.
3.9.4 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.
3.10 Reporting Company; Form S-3. The Company is subject to the reporting
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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).
3.11 Acknowledgement of Dilution. The Company acknowledges that the
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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.
3.12 Intellectual Property. The Company and its subsidiaries each has the
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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.
-10-
3.13 Registration Rights; Rights of Participation. Except as described on
------------------- -----------------------
Schedule 3.13 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
respective Closing Date.
3.14 Listing on Nasdaq. The Common Stock is listed on the Nasdaq National
-----------------
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 National Market, and does not reasonably anticipate that
the Common Stock will lose its listing on the Nasdaq National 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 National Market regarding any failure or
alleged failure by the Company to comply with such criteria.
3.15 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 respective
Closing Date, the Company will not offer or sell any securities during the six
(6) month period following the respective 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, (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 or (v) if such offer
and sale would not adversely affect the exemption provided for the offer and
sale of the Securities
-11-
by Regulation D or adversely affect the registration of the Securities in
accordance with the provisions of the Registration Rights Agreement.
3.16 Fees. Except as described on Schedule 3.16 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.
3.17 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.
3.18 Key Employees. Each person whose name is set forth on Schedule 3.18
------------- -------------
(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 3.18, 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.
3.19 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 the Purchaser or any
-------------------
affiliate of the Purchaser beneficially owns any Securities, maintain its
corporate
-12-
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 the Purchaser
------------------------
or any affiliate of the Purchaser beneficially owns any Securities, provide any
the 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
the 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 the
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 the Purchaser at such Purchaser's request.
4.4 Reporting Status. As long as the Purchaser or any affiliate of the
----------------
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 case on or before the first (1st) Business Day
following the date of this Agreement.
4.5 Reservation of Common Stock. The Company shall at all times following
---------------------------
the each Closing Date have authorized and reserved for issuance to the Purchaser
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 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 the Purchaser's prior written consent.
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
13
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.
4.7 Quotation on Nasdaq. The Company shall use its reasonable commercial
-------------------
efforts to maintain the designation and quotation, or listing, of the Common
Stock on the Nasdaq National Market or the New York Stock Exchange for a minimum
of five (5) years following the First Closing. The Company shall file a listing
application for the Conversion Shares and Warrant Shares with the Nasdaq
National Market on or before the second (2nd) Business Day following the date of
this Agreement and shall use its best efforts to cause the Conversion Shares and
Warrant Shares to be listed for trading on the Nasdaq National Market as soon as
possible.
4.8 Use of Purchaser Name. Except as may be required by applicable law,
---------------------
the Company shall not use, directly or indirectly, the 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 the Purchaser for the specific use contemplated (which consent will not be
unreasonably withheld) or as otherwise required by applicable law or regulation.
4.9 Issuance of Restricted Securities.
----------------------------------
(a) During the period beginning on the First Closing and ending on the
date which is twelve (12) months following the First Closing (such period, the A
Financing Restriction Period"), the Company shall not issue or agree to issue
----------------------------
or solicit any offer or inquiry with regard to (except issuance pursuant to (i)
the Second Closing (if any), (ii) an employee benefit plan or program duly
adopted by the Company and in effect on the date hereof, (iii) any options,
warrant or convertible securities outstanding on the date hereof, (iv) any firm-
commitment underwritten public offerings or (v) any issuance in connection with
(x) a strategic investment or (y) a merger or acquisition, which, in the case of
(x) or (y), is by, with or of an unaffiliated third party and is not effected
for the primary purpose of raising equity capital) any equity-like or equity-
linked securities of the Company or any security convertible into or exercisable
or exchangeable, directly or indirectly, for equity, equity-like or equity-
linked securities of the Company (any such securities, "Restricted Securities")
---------------------
unless the Company has satisfied all of the following requirements with respect
to such issuance:
(i) The Company shall have delivered a notice to the Purchaser (the
"Transfer Notice"), which notice shall include (A) the terms and number of units
---------------
of the Restricted Securities and the consideration per unit which the Company
desires to receive for the Restricted Securities (which, in the case where the
Company shall have received an offer to purchase such securities other than from
the Purchaser (a "Third Party Offer"), shall be the consideration set forth in
-----------------
such offer) and (B) all of the material terms and conditions, including the
terms and conditions of payment, upon which the Company
14
proposes to transfer said Restricted Securities (which, in the case of a Third
Party Offer, shall be the terms and conditions set forth in the Third Party
Offer);
(ii) Upon the delivery of the Transfer Notice, the Purchaser shall
have an option to purchase all or any part of the Restricted Securities
described therein on the terms and conditions described therein (the "Right of
--------
First Offer"). Such option shall be exercisable by the Purchaser by service of
-----------
written notice upon the Company within five (5) Business Days of receipt of the
Transfer Notice;
(iii) If the options created in clause (ii) hereof are not exercised
by the Purchaser within five (5) Business Days of service of the Transfer
Notice, or if such options are exercised only in part, then, within a period of
thirty (30) Business Days beginning on the day following the date of expiration
of the option period, the Company may issue some or all of the Restricted
Securities sought to be issued as to which such options were not exercised, at a
price which is not less than one hundred percent (100%) of the price specified
in the Transfer Notice and on terms and conditions not less favorable to the
Company than those specified in the Transfer Notice.
(iv) Notwithstanding the foregoing, the Company shall, at least five
(5) Business Days prior to the issuance of the Restricted Securities pursuant to
clause (iii), deliver a notice to the Purchaser (the "Issuance Notice"), which
---------------
notice shall include (A) the terms and number of units of the Restricted
Securities to be issued and the consideration per unit which the Company will
receive for the issuance and (B) all of the material terms and conditions,
including the terms and conditions of payment, upon which the Restricted
Securities will be issued. In addition, such Issuance Notice shall also include
as exhibits the current drafts of all the transaction documents contemplated in
the issuance under clause (iii) and the Company shall provide the Purchaser
copies of all subsequent drafts of all the transaction documents.
(v) Upon the delivery of the Issuance Notice, the Purchaser shall
have an option to exchange with the Company all or any portion of the Preferred
Shares for securities identical to the Restricted Securities sought to be sold
pursuant to clause (iii) on the same terms and conditions as are to be issued to
any third party under clause (iii) as if such party were paying a purchase price
for such Restricted Securities equal to the aggregate Stated Value of the
Preferred Shares being exchanged (the "Exchange Right"). Notwithstanding the
--------------
foregoing, any securities (other than Common Stock) so exchanged for and issued
to the Purchaser under this clause (v) shall contain a limitation equivalent to
the one contained in Section 5(b) of the Series C-1 Preferred Stock Articles of
Amendment with respect to the exercise or conversion of such securities. Such
option shall be exercisable by the Purchaser by service of written notice upon
the Company within five (5) Business Days of receipt of the Issuance Notice.
(b) To the extent that the Restricted Securities sought to be sold
pursuant to clause (iii) consist of shares of Common Stock, then, in addition to
any rights the Purchaser may otherwise be entitled to pursuant to paragraph (a)
of this Section 4.9, the
15
Conversion Prices of the Preferred Shares shall be subject to adjustments in
accordance with Section 6(a) of the respective Articles of Amendment.
(c) Without implication that the contrary would otherwise be true, the
Company shall not indirectly accomplish any action which the preceding
paragraphs of this Section 4.9 would have otherwise prohibited from being
effected directly (e.g., by an asset drop-down to a subsidiary followed by the
offering of securities of such subsidiary).
4.10 Key Employee and Director Transfers. If any Key Employee or director
-----------------------------------
(in each case, or any member of his/her immediate family or any trust or other
entity for the benefit of any member of his/her immediate family or to whom a
Key Employee has transferred by gift shares of Common Stock), during the period
beginning on the First Closing and ending on 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 such 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 end of the 6-month period following such
effective date, 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 First Closing 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 Intentionally Omitted.
---------------------
4.12 Environmental Laws. The Company will take all action necessary in
------------------
order to comply with applicable Environmental Laws and agrees to indemnify the
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
16
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.
4.14 Outstanding Securities.
----------------------
4.14.1 The Company acknowledges and agrees that the sale and issuance of
the Securities by the Company to Purchaser requires adjustments to the
conversion prices and exercise prices of the Company's 10% Convertible
Promissory Notes, its Series B-2 Convertible Preferred Stock and all warrants
issued by the Company and held by the Purchaser (collectively, the "Outstanding
-----------
Securities") to the amounts set forth on Schedule 4.14.1 hereto and such
----------
adjustments are effected as of the date hereof or in case of the adjustments
due to the Series C-2 Preferred Stock and the Series C-2 Warrant, will be
effected as of the Second Closing Date, absent the requirement to make other,
unrelated adjustments.
4.14.2 The Company and the Purchaser hereby agree that if the Company
issues or sells after the First Closing any Restricted Securities (other than
the Series C-2 Preferred Stock, the Series C-2 Warrant and any Conversion
Shares or the Warrant Shares) to the Purchaser at a price effectively equal to
or above $2.00 per share of Common Stock (subject to equitable adjustment for
any stock splits, combinations, stock dividends, reclassifications or similar
events), the conversion prices and exercises of the Outstanding Securities will
not be adjusted to account for such issuances or sales even if the Purchaser
would otherwise be entitled to such adjustments pursuant to the anti-dilution
adjustment provisions of the documents evidencing such securities or pursuant to
which such securities were issued.
4.14.3 The Purchaser, as the holder of the Company's Series B-2
Convertible Preferred Stock, no par value, hereby consents to the issuance and
sale of the Securities by the Company in accordance with the terms of this
Agreement.
4.15 Intentional Acts or Omissions. The Company shall not intentionally
-----------------------------
perform any act which if performed, or intentionally omit to perform any act
which, if omitted to be performed, would prevent or excuse the performance of
this Agreement or any of the transactions contemplated hereby.
5. CONDITIONS TO CLOSING.
5.1 Conditions to Purchaser's Obligations at the First Closing. The
----------------------------------------------------------
Purchaser's obligations at the First Closing, including without limitation its
obligation to purchase the Series C-1 Preferred Stock and Series C-1 Warrant
being purchased by the Purchaser, are conditioned upon the satisfaction by the
Company (or waiver by the Purchaser) of each of the following events as of the
First 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;
17
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 First Closing;
5.1.3 the Company shall have delivered to the 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 First Closing, it
being understood that the Purchaser may rely on such certificate as though it
were a representation and warranty of the Company made herein;
5.1.4 the Company shall have delivered to the Purchaser an opinion
of counsel for the Company, dated as of such date, in substantially the form set
forth on Exhibit D hereto, and covering such additional matters as may
reasonably be requested by the Purchaser;
5.1.5 the Company shall have delivered to the Purchaser duly
executed certificates representing the Preferred Shares and Warrant being
purchased by the Purchaser;
5.1.6 the Company shall have executed and delivered the
Registration Rights Agreement;
5.1.7 the Common Stock shall be listed for trading on the Nasdaq
National Market and no suspension of trading in the Common Stock on such market
shall have occurred and be continuing as of the First Closing;
5.1.8 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;
5.1.9 the Company shall have duly filed the Series C-1 Articles of
Amendment with the Secretary of State of the State of Colorado and a copy
thereof certified by the Secretary of State of the State of Colorado shall have
been delivered to the Purchaser and the Series C-1 Articles of Amendment shall
not have been amended, modified or rescinded;
5.1.10 the Company shall have made the adjustments to the conversion
prices and exercise prices of the Company's Outstanding Securities called for by
the terms of the documents evidencing such Outstanding Securities or pursuant to
which such securities were issued in connection with and as a result of the
transactions contemplated hereby; and
5.1.11 since the date of this Agreement, there shall not have
occurred, in the reasonable judgment of the Purchaser, any material adverse
change in the business,
18
operations, financial condition, properties, prospects or results of operation
of the Company.
5.2 Conditions to Purchaser's Obligations at the Second Closing. The
-----------------------------------------------------------
Purchaser's obligations at the Second Closing, including without limitation its
obligation to purchase the Series C-2 Preferred Stock and the Series C-2 Warrant
to be purchased by the Purchaser, are conditioned upon the satisfaction by the
Company (or waiver by the Purchaser) of each of the following events as of the
Second Closing:
5.2.1 the First Closing shall have been consummated;
5.2.2 the representations and warranties of the Company set forth in
this Agreement shall be true and correct in all material respects as of the
Second Closing as if made on the Second Closing;
5.2.3 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 Second Closing;
5.2.4 the Company shall have delivered to the Purchaser a
certificate, signed by an officer of the Company, certifying that the conditions
specified in this paragraph 5.2 have been fulfilled as of the Second Closing, it
being understood that the Purchaser may rely on such certificate as though it
were a representation and warranty of the Company made herein;
5.2.5 the Company shall have delivered to the Purchaser an opinion of
counsel for the Company, dated as of the Second Closing, in substantially the
form set forth on Exhibit D hereto, and covering such additional matters as may
reasonably be requested by the Purchaser;
5.2.6 the Company shall have delivered to the Purchaser duly executed
certificates representing the Series C-2 Preferred Stock and Warrant to be
purchased by the Purchaser at the Second Closing;
5.2.7 the Registration Statement shall have been declared effective
by the SEC and remain continuously effective for fifteen (15) calendar days, and
shall be available for use by the Purchaser for the resale of all of the
Registrable Securities (as defined in the Registration Rights Agreement),
including, without limitation, the Conversion Shares and Warrant Shares issuable
upon conversion or exercise of all the Securities purchased at the First
Closing, the Conversion Shares and Warrant Shares issuable upon conversion or
exercise of all the Securities to be purchased by the Purchaser at the Second
Closing, the shares of Common Stock issuable upon the conversion or exercise of
the Company's Outstanding Securities, and any other shares of capital stock of
the Company issued or issuable from time to time (with any adjustments) in
replacement of, in exchange for or otherwise in respect of the foregoing;
19
5.2.8 the Common Stock including all the Conversion Shares and
Warrant Shares shall be listed for trading on the Nasdaq National Market and no
suspension of trading in the Common Stock on such market shall have occurred and
be continuing as of the Second Closing;
5.2.9 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;
5.2.10 No Bankruptcy Event (as defined in the Articles of Amendment)
shall have occurred;
5.2.11 the average market capitalization of the Company during the
three (3) Trading Days immediately preceding the Second Closing shall be no less
than $32,300,000 (proportionately adjusted to the extent of any increase or
decrease in the number of shares of Common Stock outstanding from the number of
shares of Common Stock outstanding on the date hereof and all other changes in
the Company's capitalization);
5.2.12 the Company shall have duly filed the Series C-2 Articles of
Amendment with the Secretary of State of the State of Colorado and a copy
thereof certified by the Secretary of State of the State of Colorado shall have
been delivered to the Purchaser and the Series C-2 Articles of Amendment shall
not have been amended, modified or rescinded; and
5.2.13 since the date of this Agreement, there shall not have
occurred, in the reasonable judgment of the Purchaser, any material adverse
change in the business, operations, financial condition, properties, prospects
or results of operation of the Company.
5.3 Conditions to Company's Obligations at the First Closing. The
---------------------------------------------------------
Company's obligations at the First Closing are conditioned upon the satisfaction
(or waiver by the Company) of each of the following events as of the First
Closing:
5.3.1 the representations and warranties of the Purchaser shall be
true and correct in all material respects as of such date as if made on such
date; and
5.3.2 the 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 the
Purchaser on or before the First Closing.
5.4 Conditions to Company's Obligations at the Second Closing. The
----------------------------------------------------------
Company's obligations at the Second Closing are conditioned upon the
satisfaction (or waiver by the Company) of each of the following events as of
the Second Closing:
20
5.4.1 the representations and warranties of the Purchaser shall be
true and correct in all material respects as of such date as if made on such
date;
5.4.2 the 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 the
Purchaser on or before the Second Closing; and
5.4.3 the average market capitalization of the Company during the
three (3) Trading Days immediately preceding the Second Closing shall be no less
than $32,300,000 (proportionately adjusted to the extent of any increase or
decrease in the number of shares of Common Stock outstanding from the number of
shares of Common Stock outstanding on the date hereof and all other changes in
the Company's capitalization);
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 the
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)
21
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. The 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 the 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 Illinois 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 City of
Chicago, for the adjudication of any dispute hereunder or under any Transaction
Document or the Articles
22
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 000
Xxxxxx, Xxxxxxxx 00000
Telecopy: (000) 000-0000
Attention: Xxxxxxx Xxxxxx
with a copy to:
Xxxx, Plant, Xxxxx, Xxxxx & Xxxxxxx, P.A.
3400 City Center
23
00 Xxxxx Xxxxx Xxxxxx
Xxxxxxxxxxx, XX 00000-0000
Telecopy: (000) 000-0000
Attention: Xxxxxxx X. Xxxxxxx, Esq.
and if to the Purchaser:
Castle Creek Technology Partners LLC
00 X. Xxxxxx Xxxxx, Xxxxx 0000
Xxxxxxx, XX 00000
Telecopy: (000)000-0000
Attention: Xxx Xxxx
with a copy to:
Altheimer & Xxxx
00 Xxxxx Xxxxxx Xxxxx Xxxxx 0000
Xxxxxxx, XX 00000
Telecopy: (000)000-0000
Attention: Xxxx X. Xxxx, Esq.
6.9 Expenses. The Company and the 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 the Purchaser at the Closing for all out-of-pocket expenses (including
without limitation reasonable legal fees and expenses) incurred by it in
connection with 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 fifty thousand
dollars ($50,000).
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 the Purchaser.
* * * * *
24
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date
first-above written.
XXXX INTERACTIVE SERVICES, INC.
By: /s/ X.X. Xxxxxx
-----------------------------
Name: X.X. Xxxxxx
Title: CFO
CASTLE CREEK TECHNOLOGY PARTNERS LLC
By: Castle Creek Partners, L.L.C.
Its: Investment Manager
By: /s/ Xxx Xxxx
-----------------------------
Name: Xxx Xxxx
Its: Managing Director
25
Schedule 3.4
Disclosure Documents; Agreements; Financial Statements; Other Information
NO EXCEPTIONS
Schedule 3.6
Capitalization
Series B-2
Common Convertible
Stock Preferred Stock
-------------------------------------------------------------------------------------------------------------------
Shares outstanding, February 28, 2001 10,354,473 $ 978,000
Total common shares issuable upon exercise or conversion of derivative securities 4,811,990
---------------------------
Total shares outstanding and subject to derivative securities 15,166,463 $ 978,000
===========================
DERIVATIVE SECURITIES Number of
---------------------
Common Shares
Issuable Upon
Issue Exercise or
Holder Reason of Issuance Date Conversion
------------------------------------------------------------------------------------------------------------------------
Castle Creek Technology Partners LLC *** Series B-2 convertible preferred stock 09/27/00 95,844*
Castle Creek Technology Partners LLC*** 10% convertible note payable 08/25/99 248,262*
Warrants and Options-
Castle Creek Technology Partners LLC *** Series B preferred stock 02/18/00 171,875
Castle Creek Technology Partners LLC *** Series B preferred stock 12/18/99 136,519**
Xxxxxxxx Capital *** Series B preferred stock 02/18/00 171,875
EBI Securities *** IPO underwriter common stock options 05/30/96 1,530
Switchboard, Inc. *** Customer acquisition 08/16/99 150,000
Bresnan Communications Company LP Customer acquisition 12/16/98 70,162
Xxxxxx Xxxxxx *** DCI merger replacement warrant 06/30/99 4,192
Xxxxxx Xxxxxx *** DCI merger replacement warrant 06/30/99 4,189
Xxxx Xxxxxxxx *** DCI merger replacement warrant 06/30/99 119
Xxxx Xxxxxxxx *** DCI merger replacement warrant 06/30/99 1,117
Xxxx Xxxxxxxx *** DCI merger replacement warrant 06/30/99 836
1995 and 2000 Company stock option plans Various 3,755,470
--------------
Total common shares issuable upon exercise or conversion 4,811,990
==============
DERIVATIVE SECURITIES
---------------------
Per Share
Conversion Expiration
Holder Price Date
-------------------------------------------------------------------------------------------------
Castle Creek Technology Partners LLC *** $10.20408 -
Castle Creek Technology Partners LLC*** 10.07 08/2502
Warrants and Options-
Castle Creek Technology Partners LLC *** 3.875* 02/18/05
Castle Creek Technology Partners LLC *** 10.264* 08/25/04
Xxxxxxxx Capital *** 3.875* 02/18/05
EBI Securities *** 8.10 05/30/01
Switchboard, Inc. *** 9.19 06/30/02
Bresnan Communications Company LP 8.77 12/16/02
Xxxxxx Xxxxxx *** 8.94 12/08/02
Xxxxxx Xxxxxx *** 8.94 06/05/03
Xxxx Xxxxxxxx *** 8.94 12/08/02
Xxxx Xxxxxxxx *** 8.94 06/05/03
Xxxx Xxxxxxxx *** 8.94 06/05/03
1995 and 2000 Company stock option plans 11.43 (weighted ave.) Various
Total common shares issuable upon exercise or conversion
Schedule 3.6
Capitalization (Continued)
Xxxxxx.xxx Convertible Securities-
Series A preferred stock 06/09/00 8,800,000 1 for 1
Warrant issued to VA Linux **** 10/23/00 Up to 100,000 Priced at first funding 06/05/03
Diamond Technology Partners **** Common stock for $690,000 .075 and 1.50 Various
2000 Jabber stock option plan Various 2,358,773 For services
Common stock Various 912,500
_______________
* Based on current conversion price. Conversion price and warrant exercise
price are subject to reset provisions under certain circumstances.
** The number of shares is subject to change under certain circumstances.
*** Securities have registration rights for the underlying shares of common
stock issuable upon conversion or exercise of the derivative securities.
All securities subject to registration rights have been registered except
for Switchboard, Inc.
**** To be issued at time of first external financing.
Subsidiaries
Incorporated
Jabber,com. Inc. DE
AccelX BV Netherlands
Xxxxxx Communications, Inc. (Dormant) CA
(Compu-Learning Systems, Inc. is a subsidiary of DCI)
SkyConncet Acquisition Corporation (Dormant) CO
NeIgnite, Inc. (Dormant) CO
Schedule 3.9.1
Financial Condition
NO EXCEPTIONS
Schedule 3.9.2
Tax Returns
NO EXCEPTIONS
Schedule 3.9.3
Internal Revenue Service
NO EXCEPTIONS
Schedule 3.9.4
Litigation
Xxxx Interactive is currently the defendant in two legal actions initiated by
vendors for collection claims against the Company totalling less than $70,000 in
the aggregate. The Company is disputing these claims.
Schedule 3.13
Registration Rights; Rights of Participation
As indicated on Schedule 3.6, Switchboard, Inc. has registration rights
associated with a warrant to purchase 150,000 shares of Xxxx common stock. All
other securities as indicated on Schedule 3.6 have been registered.
Schedule 3.16
Fees
NONE
Schedule 3.18
Key Employees
Xxxxx Xxxxx, President and Chief Executive Officer
Xxxxxxx X. Xxxxxx, Senior Vice President and Chief Financial Officer (1)
Xxxxxx X. Xxxxxxx, Senior Vice President and General Counsel
Xxxxxxx Xxxxx, Senior Vice President, International General Manager and
Corporate Development
Xxxx Xxxxxx, Senior Vice President and General Manager AccelX Solutions
Xxxxx Xxxxxx, Senior Vice President Engineering and Operations - AccelX
Xxx Xxxxxxx, President and Chief Executive Officer, Xxxxxx.xxx
(1) Xxxx Interactive has loaned Xx. Xxxxxx $165,827. The note is unsecured and
specifies an annual interest rate of 8%
Schedule 4.14.1
Capitalization Post Financing
Conversion or Shares/Face Expiration Conversion or
Exercise Price Value Date Shares Exercise Price Shares
------------------------------------------------------------------------------------------------------------------------------------
Common shares outstanding February 28, 2001 10,354,473 10,354,473
Pro forma issuance of stock- Feb-01 $ 2.50 2,500,000 1,000,000 $ 2.50 1,000,000
Derivative securities-
10% convertible note payable (1) $ 10.07 2,654,110 263,566 $ 2.50 1,061,644
Series B-2 preferred stock (1) $10.20408 978,000 95,844 $ 2.50 391,200
Warrants and Options-
20% warrant coverage on private placement-Feb 01$ 3.75 500,000 500,000 $ 3.75 500,000
Castle Creek (2) $ 3.875 171,875 02/18/05 171,875 $3.75374 171,875
Castle Creek (1) $ 10.264 136,519 08/25/04 136,519 $ 9.3343 150,116
Mashall Capital (2) $ 3.875 171,875 02/18/05 171,875 $3.75374 171,875
Switchboard $ 9.19 150,000 06/30/02 150,000 $ 9.19 150,000
Bresnan common stock warrant $ 8.77 70,162 12/16/02 70,162 $ 8.77 70,162
Xxxxxx Xxxxxx $ 8.94 4,192 12/08/02 4,192 $ 8.94 4,192
Xxxxxx Xxxxxx $ 8.94 4,189 06/05/03 4,189 $ 8.94 4,189
IPO underwriter common stock options $ 8.10 1,530 05/30/01 1,530 $ 8.10 1,530
Xxxx Xxxxxxxx $ 8.94 1,117 06/05/03 1,117 $ 8.94 1,117
Xxxx Xxxxxxxx $ 8.94 836 06/05/03 836 $ 8.94 836
Xxxx Xxxxxxxx $ 8.94 119 12/08/02 119 $ 8.94 119
1995 and 2000 Company stock option plans $ 11.43(WA) 3,755,470 Various 3,755,470 $ 11.43(WA) 3,755,470
Total common share outstanding after private placement, fully diluted 16,681,767 17,788,798
(1) Per share price is reset to per share price of private placement.
(2) Exercise price is reset to market every 90 days.
EXHIBIT A-1
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: February____, 2001
500,000 Shares
-------
XXXX INTERACTIVE SERVICES, INC.
WARRANT TO PURCHASE COMMON STOCK
THIS CERTIFIES that Castle Creek Technology Partners LLC or any subsequent
holder hereof (the "Holder"), has the right to purchase from XXXX INTERACTIVE
------
SERVICES, INC., a Colorado corporation (the "Company"), up to 500,000 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 third (3rd) 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 between the Company and
the Holder (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 C-1 Preferred Stock ("Series C-
--------
1 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
-1-
the Holder in connection with the exercise of this Warrant shall initially be
$3.75 per share, subject to adjustment for the events specified in Section 6
below.
(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 following the one hundred
----------------
eightieth-day anniversary of the Issue Date, the Closing Bid Price (as defined
in the Securities Purchase Agreement) of the Common Stock during any period of
ten (10) consecutive Trading Days is equal to or greater than $7.50 (subject to
adjustment as provided herein) (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 thirty (30) Trading Days following the business day
---------------
on which such Expiration Notice is delivered to the Holder, provided, however,
that if the Holder is prevented from exercising all or any part of this Warrant
during such thirty (30) Trading Days as a result of the limitations set forth
in Section 4 hereof, then with respect to the portion of the Warrant that can
not be so exercised, the Early Expiration Date shall be extended until twenty
(20) Business Days after such portion of the Warrant can be exercised in its
entirety. 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
-2-
the Preferred Shares (each as defined in the Series C-1 Preferred Stock 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 (as defined in the Series C-1 Preferred Stock Articles of
Amendment) (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. Notwithstanding the foregoing, the
Holder may exercise all or any part of this Warrant at the then effective
Exercise Price by delivering an Exercise Notice to the Company at any time prior
to the Early Expiration Date.
(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 an 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
-3-
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
-4-
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.
Notwithstanding anything to the contrary contained herein, this Warrant
shall not be exercisable by the Holder to the extent (but only to the extent)
that, if exercisable by the Holder, the Holder would be the beneficial owner of
more than 4.99% of the shares of Common Stock. For the purposes of this Section
4, beneficial ownership and all determinations and calculations shall be
determined in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended, and all applicable rules and regulations thereunder. For
clarification, it is expressly a term of this security that the limitations
contained in this Section 4 shall apply to each successive Holder. The
restriction contained in this Section 4 may not be altered, amended, deleted or
changed in any manner whatsoever unless the holders of a majority of the
outstanding shares of Common Stock and the Holder hereof approve such
alteration, amendment, deletion or change.
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:
Y x (A -- B)
X = ----------------
A
where: X = the number of Warrant Shares to be issued to the Holder.
-5-
Y = the number of Warrant Shares with respect to which this Warrant is
being exercised.
A = the average of the Closing Trade Prices (as defined in the
Securities Purchase Agreement) of the Common Stock five (5)
Trading Days immediately prior Exercise Date. for the to (but not
including) the
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 up or down to the nearest cent or share, as applicable.
(a) Intentionally Omitted.
(b) Intentionally Omitted.
(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 this
-6-
paragraph (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
-7-
in cash hereunder) but in no event shall such amount exceed the Black Scholes
value of the Warrant as of the Issue 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.
-8-
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) Additional Shares, Securities or Assets. In the event that at any
----------------- --------------------
time, as a result of an adjustment made pursuant to this Section 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 Section 6.
(g) Special Adjustment and Notice of Adjustment. Upon the occurrence of
-------------------------------------------
any event which requires any adjustment of the Exercise Price, then, and in each
such case, the Company shall give notice thereof to the Holder, which notice
shall state the Exercise Price resulting from such adjustment and the increase
or decrease in the number of Warrant Shares purchasable at such price upon
exercise, setting forth in reasonable detail the method of calculation and the
facts upon which such calculation is based. Such calculation shall be certified
by the chief financial officer of the Company. If the Company takes any actions
(including under or by virtue of this Section 6) which would have a dilutive
effect on the Holder or which would materially and adversely affect the Holder
with respect to its investment in the Warrant, and if the provisions of this
Section 6, are not strictly applicable to such actions or, if applicable to such
actions, would not operate to equitably protect the Holder against such actions,
then the Company shall promptly upon notice from Holder appoint its independent
certified public accountants to determine as promptly as practicable an
appropriate adjustment to the terms hereof, including without limitation
adjustments to the Exercise Price, or another appropriate action to so equitably
protect such Holder and prevent any such dilution and any such material adverse
effect, as the case may be. Following such determination, the Company shall
forthwith make the adjustments or take the other actions described therein.
(h) Other Notices. In case at any time:
-------------
-9-
(i) the Company shall declare any dividend upon the Common Stock
payable in shares of stock of any class or make any other distribution to the
holders of the Common Stock;
(ii) the Company shall offer for subscription pro rata to the holders
of the Common Stock any additional shares of stock of any class or other rights;
(iii) there shall be any capital reorganization of the Company, or
reclassification of the Common Stock, or consolidation or merger of the Company
with or into, or sale of all or substantially all of its assets to, another
corporation or entity; or
(iv) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Company;
then, in each such case, the Company shall give to the Holder (a) notice of the
date on which the books of the Company shall close or a record shall be taken
for determining the holders of Common Stock entitled to receive any such
dividend, distribution, or subscription rights or for determining the holders of
Common Stock entitled to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up and (b) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding-up, notice of
the date (or, if not then known, a reasonable approximation thereof by the
Company) when the same shall take place. Such notice shall also specify the
date on which the holders of Common Stock shall be entitled to receive such
dividend, distribution, or subscription rights or to exchange their Common Stock
for stock or other securities or property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation, or
winding-up, as the case may be. Such notice shall be given at least thirty (30)
days prior to the record date or the date on which the Company's books are
closed in respect thereto, but in no event earlier than public announcement of
such proposed transaction or event. Failure to give any such notice or any
defect therein shall not affect the validity of the proceedings referred to in
clauses (i), (ii), (iii) and (iv) above.
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.
-10-
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 000
Xxxxxx, Xxxxxxxx 00000
Telecopy: (000)000-0000
-11-
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 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 Illinois, without giving
effect to conflict of law provisions thereof.
IN WITNESS WHEREOF, the undersigned has executed this Warrant as of the
[ ] day of February, 2001.
XXXX INTERACTIVE SERVICES, INC.
By: ________________________________
Name:
Title:
-12-
EXHIBIT A
---------
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:
-13-
EXHIBIT B
----------
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:
____________________________________
____________________________________
____________________________________
-00-
XXXXXXX X-0
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: _____ ____, 2001
________________Shares
XXXX INTERACTIVE SERVICES, INC.
WARRANT TO PURCHASE COMMON STOCK
THIS CERTIFIES that Castle Creek Technology Partners LLC 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 third (3rd) 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 between the Company and
the Holder (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 C-2 Preferred Stock ("Series C-
--------
2 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
-1-
the Holder in connection with the exercise of this Warrant shall initially be
$_____ per share, subject to adjustment for the events specified in Section 6
below.
(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 following the one hundred
----------------
eightieth-day anniversary of the Issue Date, the Closing Bid Price (as defined
in the Securities Purchase Agreement) of the Common Stock during any period of
ten (10) consecutive Trading Days is equal to or greater than $_________
(subject to adjustment as provided herein) (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 thirty (30) Trading Days following the
---------------------
business day on which such Expiration Notice is delivered to the Holder,
provided, however, that if the Holder is prevented from exercising all or any
part of this Warrant during such thirty (30) Trading Days as a result of the
limitations set forth in Section 4 hereof, then with respect to the portion of
the Warrant that can not be so exercised, the Early Expiration Date shall be
extended until twenty (20) Business Days after such portion of the Warrant can
be exercised in its entirety. 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
-2-
the Preferred Shares (each as defined in the Series C-2 Preferred Stock 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 (as defined in the Series C-2 Preferred Stock Articles of
Amendment) (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. Notwithstanding the foregoing, the
Holder may exercise all or any part of this Warrant at the then effective
Exercise Price by delivering an Exercise Notice to the Company at any time prior
to the Early Expiration Date.
(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 an 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
-3-
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
-4-
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.
Notwithstanding anything to the contrary contained herein, this Warrant
shall not be exercisable by the Holder to the extent (but only to the extent)
that, if exercisable by the Holder, the Holder would be the beneficial owner of
more than 4.99% of the shares of Common Stock. For the purposes of this Section
4, beneficial ownership and all determinations and calculations shall be
determined in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended, and all applicable rules and regulations thereunder. For
clarification, it is expressly a term of this security that the limitations
contained in this Section 4 shall apply to each successive Holder. The
restriction contained in this Section 4 may not be altered, amended, deleted or
changed in any manner whatsoever unless the holders of a majority of the
outstanding shares of Common Stock and the Holder hereof approve such
alteration, amendment, deletion or change.
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:
Y x (A -- B)
X = ----------------
A
where: X = the number of Warrant Shares to be issued to the Holder.
-5-
Y = the number of Warrant Shares with respect to which this
Warrant is being exercised.
A = the average of the Closing Trade Prices (as defined in the
Securities Purchase Agreement) of the Common Stock for the to
five (5) Trading Days immediately prior (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 up or down to the nearest cent or share, as applicable.
(a) Intentionally Omitted.
(b) Intentionally Omitted.
(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 this
-6-
paragraph (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
-7-
in cash hereunder) but in no event shall such amount exceed the Black Scholes
value of the Warrant as of the Issue 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.
-8-
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) Additional Shares, Securities or Assets. In the event that at any
----------------- --------------------
time, as a result of an adjustment made pursuant to this Section 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 Section 6.
(g) Special Adjustment and Notice of Adjustment. Upon the occurrence of
-------------------------------------------
any event which requires any adjustment of the Exercise Price, then, and in each
such case, the Company shall give notice thereof to the Holder, which notice
shall state the Exercise Price resulting from such adjustment and the increase
or decrease in the number of Warrant Shares purchasable at such price upon
exercise, setting forth in reasonable detail the method of calculation and the
facts upon which such calculation is based. Such calculation shall be certified
by the chief financial officer of the Company. If the Company takes any actions
(including under or by virtue of this Section 6) which would have a dilutive
effect on the Holder or which would materially and adversely affect the Holder
with respect to its investment in the Warrant, and if the provisions of this
Section 6, are not strictly applicable to such actions or, if applicable to such
actions, would not operate to equitably protect the Holder against such actions,
then the Company shall promptly upon notice from Holder appoint its independent
certified public accountants to determine as promptly as practicable an
appropriate adjustment to the terms hereof, including without limitation
adjustments to the Exercise Price, or another appropriate action to so equitably
protect such Holder and prevent any such dilution and any such material adverse
effect, as the case may be. Following such determination, the Company shall
forthwith make the adjustments or take the other actions described therein.
(h) Other Notices. In case at any time:
-------------
-9-
(i) the Company shall declare any dividend upon the Common Stock
payable in shares of stock of any class or make any other distribution to the
holders of the Common Stock;
(ii) the Company shall offer for subscription pro rata to the holders
of the Common Stock any additional shares of stock of any class or other rights;
(iii) there shall be any capital reorganization of the Company, or
reclassification of the Common Stock, or consolidation or merger of the Company
with or into, or sale of all or substantially all of its assets to, another
corporation or entity; or
(iv) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Company;
then, in each such case, the Company shall give to the Holder (a) notice of the
date on which the books of the Company shall close or a record shall be taken
for determining the holders of Common Stock entitled to receive any such
dividend, distribution, or subscription rights or for determining the holders of
Common Stock entitled to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up and (b) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding-up, notice of
the date (or, if not then known, a reasonable approximation thereof by the
Company) when the same shall take place. Such notice shall also specify the
date on which the holders of Common Stock shall be entitled to receive such
dividend, distribution, or subscription rights or to exchange their Common Stock
for stock or other securities or property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation, or
winding-up, as the case may be. Such notice shall be given at least thirty (30)
days prior to the record date or the date on which the Company's books are
closed in respect thereto, but in no event earlier than public announcement of
such proposed transaction or event. Failure to give any such notice or any
defect therein shall not affect the validity of the proceedings referred to in
clauses (i), (ii), (iii) and (iv) above.
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.
-10-
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 000
Xxxxxx, Xxxxxxxx 00000
Telecopy: (000)000-0000
-11-
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 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 Illinois, without giving
effect to conflict of law provisions thereof.
IN WITNESS WHEREOF, the undersigned has executed this Warrant as of the
[ ] day of _______, 2001.
XXXX INTERACTIVE SERVICES, INC.
By: ________________________________
Name:
Title:
-12-
EXHIBIT A
---------
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:
-13-
EXHIBIT B
---------
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:
____________________________________
____________________________________
____________________________________
-14-
EXHIBIT B-1
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 February 22, 2001.
3. These Articles of Amendment hereby amend Article [ IV] of the
Corporation's Articles of Incorporation by adding the following language at the
end of such Article as follows:
[11]. SERIES C-1 CONVERTIBLE PREFERRED STOCK
1. DESIGNATION AND AMOUNT
The designation of this series, which consists of Two Thousand Five Hundred
(2,500) shares of Preferred Stock, is the "Series C-1 Convertible Preferred
Stock" (the "Series C-1 Preferred Stock") and the face amount of each share of
--------------------------
Series C-1 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 Series C-1 Warrant (the
-1-
"Warrant"), pursuant to the Securities Purchase Agreement, dated February __,
-------
2001, between the Corporation and Castle Creek Technology Partners LLC (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") issuable upon the conversion of the Preferred
------------
Shares, 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 C-1 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 C-1 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 C-1 Preferred Stock in respect of redemption
or distribution upon liquidation.
-2-
4. CONVERSION.
(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 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 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
-3-
of the Preferred Shares to be converted by (ii) the Conversion Price (as defined
below) in effect on the Conversion Date.
(B) "Conversion Price" with respect to the Preferred Shares shall
----------------
initially be two and half dollars ($2.50). The Conversion Price shall be subject
to adjustment for any stock splits, combinations, stock dividends,
reclassifications or other events as provided in Section 6 hereof and as
otherwise provided in these Articles of Amendment.
(d) Certain Definitions.
-------------------
(i) "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.
(ii) "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 a majority in Stated Value of Preferred Shares, and reasonably
acceptable to the Corporation, with the costs of such appraisal to be borne by
the Corporation.
(iii) "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.
(iv) "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
Corporation.
-4-
(v) "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 (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
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 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
-5-
"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 Delivery Date (including, without
limitation, damages relating
-6-
to any purchase of shares of Common Stock by such Holder to make delivery on a
sale lawfully effected in anticipation 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 second anniversary of the Issue Date
----------------------
(the "Maturity 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 Maturity
----------------------
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 National 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
Maturity Date and provided, further, that the determination on the Maturity 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 owned by such Holder
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 Maturity 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 Maturity
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
-7-
and before the Maturity Date (collectively, a "Blackout Period"), the Maturity
---------------
Date shall be delayed for a period of days equal to the Blackout Period. 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 Maturity 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.
(a) 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, 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, to the extent the
issuance of the Warrants is deemed to constitute issuance of a security
exchangeable for the Common Stock at a price less than the greater of book or
market value for purposes of Nasdaq Marketplace Rule 4350, by the Holders
thereof, would exceed the maximum number of shares of Common Stock issuable by
the Corporation without Stockholder Approval (as defined below) in compliance
with the continued listing requirements of the Nasdaq National Market to the
extent such requirements are applicable to the Corporation (the "Cap Amount");
----------
provided, however, if and whenever any Holder's Cap Allocation Amount (as
defined below) represents less than one hundred and seventy-five percent (175%)
of (A) the number of Conversion Shares into which the Preferred Shares then held
by such Holder are convertible or exercisable at the Conversion Price then in
effect (without regard to any restrictions or limitations on such conversion)
plus (B) the number of Conversion Shares into which such Holder has previously
----
converted Preferred Shares or such Holder's ability to convert all or any
portion of the Preferred Shares owned by such Holder is otherwise limited as a
result of such Cap Amount, the Corporation shall seek such Stockholder Approval
by means of a special meeting of stockholders to be held as soon as practicable
following the first (1st) Business Day upon which such Holder's ability to
convert all or any portion of the Preferred Shares is so limited, but in any
case within ninety (90) days following such first Business Day, and the
Corporation shall recommend such approval to its stockholders at such special
meeting. To the extent any Holder's ability to convert all or any portion of the
Preferred Shares is limited by such requirements of Nasdaq National Market and
until the Stockholder Approval is obtained, no Holder 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 held by the Holder and the denominator of
which is the aggregate amount of all of the Preferred Shares with respect to
which the Cap Amount applies (the "Cap Allocation Amount"). In the event that
---------------------
any Holder shall sell or otherwise transfer any of its Preferred Shares, the
transferee shall be allocated a pro rata portion of such Holder's Cap Allocation
Amount. In the event that any Holder converts all of such Holder's Preferred
Shares into a number of Conversion 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 actually issued to
such Holder shall be allocated to the respective Cap
-8-
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. For purposes of these Articles of Amendments, "Stockholder Approval"
--------------------
means authorization by the stockholders of the Corporation of the issuance of
shares of Common Stock upon conversion of the Preferred Shares pursuant to the
terms hereof in the aggregate in excess of twenty percent (20%) of the
outstanding shares of Common Stock and, if necessary, the elimination of any
prohibitions under the rules or regulations of any stock exchange, interdealer
quotation system or other self-regulatory organization with jurisdiction over
the Corporation or any of its securities on the Corporation's ability to issue
shares of Common Stock in excess of the Cap Amount and for all other purposes.
(b) Notwithstanding anything to the contrary contained herein, each
Preferred Share shall not be convertible into Common Stock by the Holder to the
extent (but only to the extent) that, if convertible by the Holder, the Holder
would be the beneficial owner of more than 4.99% of the shares of Common Stock.
For the purposes of this Section 5(b), beneficial ownership and all
determinations and calculations shall be determined in accordance with Section
13(d) of the Securities Exchange Act of 1934, as amended, and all applicable
rules and regulations thereunder. For clarification, it is expressly a term of
the Preferred Shares that the limitations contained in this Section 5(b) shall
apply to each successive Holder. The restriction contained in this Section 5(b)
may not be altered, amended, deleted or changed in any manner whatsoever unless
the holders of a majority of the outstanding shares of Common Stock and the
Holders of a majority of the outstanding Preferred Shares approve such
alteration, amendment, deletion or change.
6. ADJUSTMENTS TO CONVERSION PRICE
(a) Adjustment to Conversion Price upon Issuance of Common Stock.
------------------------------------------------------------
(i) Dilutive Issuance If and whenever after the Issue Date of the
Preferred Shares but prior to the Conversion of all of the Preferred Shares, the
Corporation 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 (the
"Issue Price") less than the current Market Price thereof at the time of such
-----------
issuance (a "Dilutive Issuance"), then effective immediately upon such Dilutive
-----------------
Issuance, the Conversion Price will be adjusted (lower only) in accordance with
the following formula:
O + P/C
C' = C x -----------
CSDO
where:
C' = the adjusted Conversion Price
C = the Conversion Price in effect prior to Issuance; the
Dilutive
-9-
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.
"Common Stock Deemed Outstanding" shall mean the number of shares of
-------------------------------
Common Stock actually outstanding (not including shares of Common Stock held in
the treasury of the Company), plus (x) in case of any adjustment required by
----
Section 6(b)(i) resulting from the issuance of any Options, the maximum total
number of shares of Common Stock issuable upon the exercise of the Options for
which the adjustment is required (including any Common Stock issuable upon the
conversion of Convertible Securities issuable upon the exercise of such
Options), and (y) in the case of any adjustment required by Section 6(b)(ii)
resulting from the issuance of any Convertible Securities, the maximum total
number of shares of Common Stock issuable upon the exercise, conversion or
exchange of the Convertible Securities for which the adjustment is required, as
of the date of issuance of such Convertible Securities, if any.
(ii) Issuance of Common Stock at Less Than Conversion Price
Notwithstanding paragraph (i) of this Section 6(a), if and whenever after the
Issue Date of the Preferred Shares but prior to the Conversion of all of the
Preferred Shares, the Corporation issues or sells any shares of Common Stock for
no consideration (other than a stock split or stock dividend) or at an Issue
Price per share less than the current Conversion Price otherwise in effect on
the date of such issuance, then effective immediately upon such issuance, the
Conversion Price shall be reduced to the lower of (x) the amount determined in
accordance with paragraph (i) above and (y) such Issue Price.
Notwithstanding the foregoing, in no event shall any adjustment pursuant to this
Section 6(a) result in a Conversion Price that exceeds the Conversion Price
that would otherwise apply in the absence of such adjustment.
(b) Effect on Conversion Price of Certain Events. For purposes of
--------------------------------------------
determining the adjusted Conversion Price under Section 6(a) hereof, the
following will apply:
(i) Issuance of Rights or Options. If, after the date hereof, the
Corporation 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
-10-
the Conversion 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 Corporation 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 Corporation 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 Corporation
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 Conversion 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 Corporation 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
applicable Conversion 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 Corporation
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 Corporation 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 Corporation 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 Conversion Price will
be made upon the actual issuances of such Common Stock upon exercise, conversion
or exchange of such Convertible Securities.
(B) If the Corporation in any manner issues or sells any Convertible
Securities with a fluctuating or re-setting conversion or exercise price or
exchange ratio
-11-
(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
Corporation upon the exercise of any Options; (ii) the amount of additional
consideration, if any, payable to the Corporation 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 Conversion Price in effect at such time shall be adjusted to the
Conversion 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 Conversion Price then in effect will be
readjusted to the Conversion 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 these Articles of Amendment will
be the amount received by the Corporation therefor, before deduction of
reasonable commissions, underwriting discounts or allowances or other reasonable
expenses paid or incurred by the Corporation 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
Corporation 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 Corporation 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.
-12-
(vi) Dilutive Issuance through Subsidiaries. If and whenever after the
Issue Date, Xxxxxx.xxx, Inc., a subsidiary of the Corporation, issues or sells,
or takes any action whereby if it were the Corporation would be deemed in
accordance with Section 6(b) hereof to have issued or sold, any equity
securities of it in connection with an equity investment therein and the
Closing Trading Price (as defined in the Securities Purchase Agreement) of the
Corporation on the date of such issuance or sale is equal to or less than two
dollars ($2.00) (subject to equitable adjustment for any stock splits,
combinations, stock dividends, reclassifications or similar events) and the
Corporation has less than five million dollars ($5,000,000) in cash and cash
equivalents (except in the case of (x) any issuance in connection with a
strategic investment, (y) any issuance in connection with a merger or
acquisition, which, in the case of (x) or (y), is by, with or of an unaffiliated
third party and is not effected for the primary purpose of raising equity
capital, or (z) sale of such equity securities to venture capital investors),
then immediately thereafter the Conversion Price of the Preferred Shares then in
effect shall be adjusted (lower only) to be equal to such Closing Trading Price.
Notwithstanding the foregoing, if pursuant to other provisions of these Articles
of Amendment the Conversion Price of the Preferred Shares would be a lower price
than calculated pursuant to this paragraph (vi), then the provisions of this
paragraph (vi) shall not apply.
(c) Subdivision or Combination of Common Stock. If the Corporation, at any
------------------------------------------
time after the Issue Date of the Preferred Shares, 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 Conversion Price in
effect immediately prior to such subdivision will be proportionately reduced. If
the Corporation, at any time after the Issue Date of the Preferred Shares,
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
Conversion Price in effect immediately prior to such combination will be
proportionally increased.
(d) 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 occurring subsequent to the consummation of such
Exchange Transaction (a "Subsequent Conversion"), have
---------------------
-13-
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.
(e) 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).
(f) 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 following the
-14-
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.
(g) Special Adjustment and Notice of Adjustment. Upon the occurrence of
-------------------------------------------
any event which requires any adjustment of the Conversion Price, then, and in
each such case, the Corporation shall give notice thereof to the Holder, which
notice shall state the Conversion Price resulting from such adjustment and the
increase or decrease in the number of Conversion Shares issuable upon
conversion, setting forth in reasonable detail the method of calculation and the
facts upon which such calculation is based. Such calculation shall be certified
by the chief financial officer of the Corporation. If the Corporation takes any
actions (including under or by virtue of this Section 6) which would have a
dilutive effect on the Holder or which would materially and adversely affect the
Holder with respect to its investment in the Preferred Stock, and if the
provisions of this Section 6, are not strictly applicable to such actions or,
if applicable to such actions, would not operate to equitably protect the Holder
against such actions, then the Corporation shall promptly upon notice from
Holder appoint its independent certified public accountants to determine as
promptly as practicable an appropriate adjustment to the terms hereof, including
without limitation adjustments to the Conversion Price, or another appropriate
action to so equitably protect such Holder and prevent any such dilution and any
such material adverse effect, as the case may be. Following such determination,
the Corporation shall forthwith make the adjustments or take the other actions
described therein.
(h) Other Notices. In case at any time:
-------------
(i) the Corporation shall declare any dividend upon the Common Stock
payable in shares of stock of any class or make any other distribution to the
holders of the Common Stock;
(ii) the Corporation shall offer for subscription pro rata to the
holders of the Common Stock any additional shares of stock of any class or other
rights;
(iii) there shall be any capital reorganization of the Corporation, or
reclassification of the Common Stock, or consolidation or merger of the
Corporation with or into, or sale of all or substantially all of its assets to,
another corporation or entity; or
-15-
(iv) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Corporation;
then, in each such case, the Corporation shall give to the Holder (a) notice of
the date on which the books of the Corporation shall close or a record shall be
taken for determining the holders of Common Stock entitled to receive any such
dividend, distribution, or subscription rights or for determining the holders of
Common Stock entitled to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up and (b) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding-up, notice of
the date (or, if not then known, a reasonable approximation thereof by the
Company) when the same shall take place. Such notice shall also specify the
date on which the holders of Common Stock shall be entitled to receive such
dividend, distribution, or subscription rights or to exchange their Common Stock
for stock or other securities or property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation, or
winding-up, as the case may be. Such notice shall be given at least thirty (30)
days prior to the record date or the date on which the Corporation's books are
closed in respect thereto, but in no event earlier than public announcement of
such proposed transaction or event. Failure to give any such notice or any
defect therein shall not affect the validity of the proceedings referred to in
clauses (i), (ii), (iii) and (iv) above.
(i) 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.
(j) 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.
(k) 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 as of the
Issue Date 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 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 Warrant Shares (as defined in the Securities
Purchase Agreement) in accordance with terms of the Warrants issued under the
Securities Purchase Agreement; (iv) upon the Conversion of the Preferred Stock;
or (v) upon the issuance or sale after the Issue Date of any securities by the
Corporation to Castle Creek Technology Partners LLC at a price effectively equal
to or above $2.00 per
-16-
share of Common Stock (subject to equitable adjustment for any stock splits,
combinations, stock dividends, reclassifications or similar events).
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
or (y) 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;
(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
-17-
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;
(v) the Common Stock is not quoted on the Nasdaq National Market or
listed on the New York 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; and
(vi) the Corporation fails to obtain the Stockholder Approval as
required by paragraph 5(a) hereof.
(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 lower of twenty-four percent (24%) or the highest interest
rate permitted by applicable law.
(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 C-1
Preferred Stock and, upon written notice to such effect 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
-18-
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 000
Xxxxxx, Xxxxxxxx 00000
Telecopy: (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.
-19-
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 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.
---------------------
-20-
So long as shares of Series C-1 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 C-1 Preferred Stock:
(i) alter, change, modify or amend (x) the terms of the Series C-1
Preferred Stock in any way or (y) the terms of any other capital stock of the
Corporation so as to affect adversely the Series C-1 Preferred Stock;
(ii) create any new class or series of capital stock having a
preference over or ranking pari passu with the Series C-1 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 C-1 Preferred
Stock;
(iv) re-issue any shares of Series C-1 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 C-1 Preferred Stock as to the
distribution of assets upon liquidation, dissolution or winding up of the
Corporation; or
(vii) issue any Series C-1 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 C-1 Preferred Stock agrees to allow the Corporation to alter or
change the rights, preferences or privileges of the shares of Series C-1
Preferred Stock pursuant to the terms hereof, then the Corporation will deliver
notice of such approved change to the holders of the Series C-1 Preferred Stock
that did not agree to such alteration or change (the "Dissenting Holders") and
------------------
the Dissenting 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.
-21-
IN WITNESS WHEREOF, the Corporation has duly executed these Articles of
Amendment as of the ___ day of February, 2001.
XXXX INTERACTIVE SERVICES, INC.
By:_________________________________
Name:
Title:
-22-
EXHIBIT A
---------
NOTICE OF CONVERSION
The undersigned hereby elects to convert shares of Series C-1 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 # ________________)
-23-
EXHIBIT B-2
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 ___ _____, 2001.
3. These Articles of Amendment hereby amend Article [ IV] of the
Corporation's Articles of Incorporation by adding the following language at the
end of such Article as follows:
[12]. SERIES C-2 CONVERTIBLE PREFERRED STOCK
1. DESIGNATION AND AMOUNT
The designation of this series, which consists of Two Thousand Five Hundred
(2,500) shares of Preferred Stock, is the "Series C-2 Convertible Preferred
Stock" (the "Series C-2 Preferred Stock") and the face amount of each share of
--------------------------
Series C-2 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 Series C-2 Warrant (the
-1-
"Warrant"), pursuant to the Securities Purchase Agreement, dated February __,
-------
2001, between the Corporation and Castle Creek Technology Partners LLC (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") issuable upon the conversion of the Preferred
------------
Shares, 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 C-2 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 C-2 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 C-2 Preferred Stock in respect of redemption
or distribution upon liquidation.
-2-
4. CONVERSION.
(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 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 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 Conversion Date.
-3-
(B) "Conversion Price" with respect to the Preferred Shares shall
----------------
initially be __________dollars ($______). The Conversion Price shall be subject
to adjustment for any stock splits, combinations, stock dividends,
reclassifications or other events as provided in Section 6 hereof and as
otherwise provided in these Articles of Amendment.
(d) Certain Definitions.
-------------------
(i) "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.
(ii) "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 a majority in Stated Value of Preferred Shares, and reasonably
acceptable to the Corporation, with the costs of such appraisal to be borne by
the Corporation.
(iii) "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.
(iv) "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
Corporation.
(v) "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.
-4-
(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 (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 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 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 "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
-5-
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 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 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
-6-
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 second anniversary of the Issue Date
----------------------
(the "Maturity 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 Maturity
----------------------
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 National 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
Maturity Date and provided, further, that the determination on the Maturity 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 owned by such Holder
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 Maturity 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 Maturity
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 Maturity Date (collectively, a "Blackout
--------
Period"), the Maturity Date shall be delayed for a period of days equal to the
------
Blackout Period. 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 Maturity Date deemed to be the Conversion Date, except
-7-
that the Holder shall not be required to send a Conversion Notice as
contemplated by paragraph 4(b).
5. CONVERSION LIMITATIONS.
(a) 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, 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, to the extent the
issuance of the Warrants is deemed to constitute issuance of a security
exchangeable for the Common Stock at a price less than the greater of book or
market value for purposes of Nasdaq Marketplace Rule 4350, by the Holders
thereof, would exceed the maximum number of shares of Common Stock issuable by
the Corporation without Stockholder Approval (as defined below) in compliance
with the continued listing requirements of the Nasdaq National Market to the
extent such requirements are applicable to the Corporation (the "Cap Amount");
----------
provided, however, if and whenever any Holder's Cap Allocation Amount (as
defined below) represents less than one hundred and seventy-five percent (175%)
of (A) the number of Conversion Shares into which the Preferred Shares then held
by such Holder are convertible or exercisable at the Conversion Price then in
effect (without regard to any restrictions or limitations on such conversion)
plus (B) the number of Conversion Shares into which such Holder has previously
----
converted Preferred Shares or such Holder's ability to convert all or any
portion of the Preferred Shares owned by such Holder is otherwise limited as a
result of such Cap Amount, the Corporation shall seek such Stockholder Approval
by means of a special meeting of stockholders to be held as soon as practicable
following the first (1st) Business Day upon which such Holder's ability to
convert all or any portion of the Preferred Shares is so limited, but in any
case within ninety (90) days following such first Business Day, and the
Corporation shall recommend such approval to its stockholders at such special
meeting. To the extent any Holder's ability to convert all or any portion of the
Preferred Shares is limited by such requirements of Nasdaq National Market and
until the Stockholder Approval is obtained, no Holder 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 held by the Holder and the denominator of
which is the aggregate amount of all of the Preferred Shares with respect to
which the Cap Amount applies (the "Cap Allocation Amount"). In the event that
---------------------
any Holder shall sell or otherwise transfer any of its Preferred Shares, the
transferee shall be allocated a pro rata portion of such Holder's Cap Allocation
Amount. In the event that any Holder converts all of such Holder's Preferred
Shares into a number of Conversion 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 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. For purposes of these
Articles of Amendments, "Stockholder Approval" means authorization by the
--------------------
stockholders of the Corporation of the issuance of shares of Common Stock upon
-8-
conversion of the Preferred Shares pursuant to the terms hereof in the aggregate
in excess of twenty percent (20%) of the outstanding shares of Common Stock and,
if necessary, the elimination of any prohibitions under the rules or
regulations of any stock exchange, interdealer quotation system or other self-
regulatory organization with jurisdiction over the Corporation or any of its
securities on the Corporation's ability to issue shares of Common Stock in
excess of the Cap Amount and for all other purposes.
(b) Notwithstanding anything to the contrary contained herein, each
Preferred Share shall not be convertible into Common Stock by the Holder to the
extent (but only to the extent) that, if convertible by the Holder, the Holder
would be the beneficial owner of more than 4.99% of the shares of Common Stock.
For the purposes of this Section 5(b), beneficial ownership and all
determinations and calculations shall be determined in accordance with Section
13(d) of the Securities Exchange Act of 1934, as amended, and all applicable
rules and regulations thereunder. For clarification, it is expressly a term of
the Preferred Shares that the limitations contained in this Section 5(b) shall
apply to each successive Holder. The restriction contained in this Section 5(b)
may not be altered, amended, deleted or changed in any manner whatsoever unless
the holders of a majority of the outstanding shares of Common Stock and the
Holders of a majority of the outstanding Preferred Shares approve such
alteration, amendment, deletion or change.
6. ADJUSTMENTS TO CONVERSION PRICE
(a) Adjustment to Conversion Price upon Issuance of Common Stock.
------------------------------------------------------------
(i) Dilutive Issuance If and whenever after the Issue Date of
the Preferred Shares but prior to the Conversion of all of the Preferred Shares,
the Corporation 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
(the "Issue Price") less than the current Market Price thereof at the time of
-----------
such issuance (a "Dilutive Issuance"), then effective immediately upon such
-----------------
Dilutive Issuance, the Conversion Price will be adjusted (lower only) in
accordance with the following formula:
O + P/C
C' = C x ----------
CSDO
where:
C' = the adjusted Conversion Price
C = the Conversion Price in effect prior to Issuance; the Dilutive
O = the number of shares of Common Stock outstanding immediately
prior to the Dilutive Issuance;
-9-
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.
"Common Stock Deemed Outstanding" shall mean the number of shares of
-------------------------------
Common Stock actually outstanding (not including shares of Common Stock held in
the treasury of the Company), plus (x) in case of any adjustment required by
----
Section 6(b)(i) resulting from the issuance of any Options, the maximum total
number of shares of Common Stock issuable upon the exercise of the Options for
which the adjustment is required (including any Common Stock issuable upon the
conversion of Convertible Securities issuable upon the exercise of such
Options), and (y) in the case of any adjustment required by Section 6(b)(ii)
resulting from the issuance of any Convertible Securities, the maximum total
number of shares of Common Stock issuable upon the exercise, conversion or
exchange of the Convertible Securities for which the adjustment is required, as
of the date of issuance of such Convertible Securities, if any.
(ii) Issuance of Common Stock at Less Than Conversion Price
Notwithstanding paragraph (i) of this Section 6(a), if and whenever after the
Issue Date of the Preferred Shares but prior to the Conversion of all of the
Preferred Shares, the Corporation issues or sells any shares of Common Stock for
no consideration (other than a stock split or stock dividend) or at an Issue
Price per share less than the current Conversion Price otherwise in effect on
the date of such issuance, then effective immediately upon such issuance, the
Conversion Price shall be reduced to the lower of (x) the amount determined in
accordance with paragraph (i) above and (y) such Issue Price.
Notwithstanding the foregoing, in no event shall any adjustment pursuant to this
Section 6(a) result in a Conversion Price that exceeds the Conversion Price
that would otherwise apply in the absence of such adjustment.
(b) Effect on Conversion Price of Certain Events. For purposes of
--------------------------------------------
determining the adjusted Conversion Price under Section 6(a) hereof, the
following will apply:
(i) Issuance of Rights or Options. If, after the date hereof, the
Corporation 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 Conversion 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
--------------------
-10-
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
Corporation 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 Corporation 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 Corporation 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 Conversion 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 Corporation 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
applicable Conversion 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 Corporation
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 Corporation 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 Corporation 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 Conversion Price will
be made upon the actual issuances of such Common Stock upon exercise, conversion
or exchange of such Convertible Securities.
(B) If the Corporation 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
-11-
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
Corporation upon the exercise of any Options; (ii) the amount of additional
consideration, if any, payable to the Corporation 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 Conversion Price in effect at such time shall be adjusted to the
Conversion 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 Conversion Price then in effect will be
readjusted to the Conversion 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 these Articles of Amendment will
be the amount received by the Corporation therefor, before deduction of
reasonable commissions, underwriting discounts or allowances or other reasonable
expenses paid or incurred by the Corporation 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
Corporation 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 Corporation 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) Dilutive Issuance through Subsidiaries. If and whenever after
the Issue Date, Xxxxxx.xxx, Inc., a subsidiary of the Corporation, issues or
sells, or takes any
-12-
action whereby if it were the Corporation would be deemed in accordance with
Section 6(b) hereof to have issued or sold, any equity securities of it in
connection with an equity investment therein and the Closing Trading Price (as
defined in the Securities Purchase Agreement) of the Corporation on the date of
such issuance or sale is equal to or less than two dollars ($2.00) (subject to
equitable adjustment for any stock splits, combinations, stock dividends,
reclassifications or similar events) and the Corporation has less than five
million dollars ($5,000,000) in cash and cash equivalents (except in the case of
(x) any issuance in connection with a strategic investment, (y) any issuance in
connection with a merger or acquisition, which, in the case of (x) or (y), is
by, with or of an unaffiliated third party and is not effected for the primary
purpose of raising equity capital, or (z) sale of such equity securities to
venture capital investors), then immediately thereafter the Conversion Price of
the Preferred Shares then in effect shall be adjusted (lower only) to be equal
to such Closing Trading Price. Notwithstanding the foregoing, if pursuant to
other provisions of these Articles of Amendment the Conversion Price of the
Preferred Shares would be a lower price than calculated pursuant to this
paragraph (vi), then the provisions of this paragraph (vi) shall not apply.
(c) Subdivision or Combination of Common Stock. If the Corporation, at any
------------------------------------------
time after the Issue Date of the Preferred Shares, 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 Conversion Price in
effect immediately prior to such subdivision will be proportionately reduced. If
the Corporation, at any time after the Issue Date of the Preferred Shares,
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
Conversion Price in effect immediately prior to such combination will be
proportionally increased.
(d) 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 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
-13-
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.
(e) 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).
(f) 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 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
-14-
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.
(g) Special Adjustment and Notice of Adjustment. Upon the occurrence of
-------------------------------------------
any event which requires any adjustment of the Conversion Price, then, and in
each such case, the Corporation shall give notice thereof to the Holder, which
notice shall state the Conversion Price resulting from such adjustment and the
increase or decrease in the number of Conversion Shares issuable upon
conversion, setting forth in reasonable detail the method of calculation and the
facts upon which such calculation is based. Such calculation shall be certified
by the chief financial officer of the Corporation. If the Corporation takes any
actions (including under or by virtue of this Section 6) which would have a
dilutive effect on the Holder or which would materially and adversely affect the
Holder with respect to its investment in the Preferred Stock, and if the
provisions of this Section 6, are not strictly applicable to such actions or,
if applicable to such actions, would not operate to equitably protect the Holder
against such actions, then the Corporation shall promptly upon notice from
Holder appoint its independent certified public accountants to determine as
promptly as practicable an appropriate adjustment to the terms hereof, including
without limitation adjustments to the Conversion Price, or another appropriate
action to so equitably protect such Holder and prevent any such dilution and any
such material adverse effect, as the case may be. Following such determination,
the Corporation shall forthwith make the adjustments or take the other actions
described therein.
(h) Other Notices. In case at any time:
-------------
(i) the Corporation shall declare any dividend upon the Common
Stock payable in shares of stock of any class or make any other distribution to
the holders of the Common Stock;
(ii) the Corporation shall offer for subscription pro rata to the
holders of the Common Stock any additional shares of stock of any class or other
rights;
(iii) there shall be any capital reorganization of the Corporation,
or reclassification of the Common Stock, or consolidation or merger of the
Corporation with or into, or sale of all or substantially all of its assets to,
another corporation or entity; or
(iv) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Corporation;
-15-
then, in each such case, the Corporation shall give to the Holder (a) notice of
the date on which the books of the Corporation shall close or a record shall be
taken for determining the holders of Common Stock entitled to receive any such
dividend, distribution, or subscription rights or for determining the holders of
Common Stock entitled to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up and (b) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding-up, notice of
the date (or, if not then known, a reasonable approximation thereof by the
Company) when the same shall take place. Such notice shall also specify the
date on which the holders of Common Stock shall be entitled to receive such
dividend, distribution, or subscription rights or to exchange their Common Stock
for stock or other securities or property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation, or
winding-up, as the case may be. Such notice shall be given at least thirty (30)
days prior to the record date or the date on which the Corporation's books are
closed in respect thereto, but in no event earlier than public announcement of
such proposed transaction or event. Failure to give any such notice or any
defect therein shall not affect the validity of the proceedings referred to in
clauses (i), (ii), (iii) and (iv) above.
(i) 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.
(j) 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.
(k) 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 as of the
Issue Date 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 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 Warrant Shares (as defined in the Securities
Purchase Agreement) in accordance with terms of the Warrants issued under the
Securities Purchase Agreement; (iv) upon the Conversion of the Preferred Stock;
or (v) upon the issuance or sale after the Issue Date of any securities by the
Corporation to Castle Creek Technology Partners LLC at a price effectively equal
to or above $2.00 per share of Common Stock (subject to equitable adjustment for
any stock splits, combinations, stock dividends, reclassifications or similar
events).
-16-
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
or (y) 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;
(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"
-------
-17-
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;
(v) the Common Stock is not quoted on the Nasdaq National Market or
listed on the New York 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; and
(vi) the Corporation fails to obtain the Stockholder Approval as
required by paragraph 5(a) hereof.
(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 lower of twenty-four percent (24%) or the highest interest
rate permitted by applicable law.
(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 C-2
Preferred Stock and, upon written notice to such effect 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,
-18-
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 000
Xxxxxx, Xxxxxxxx 00000
Telecopy: (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 any Holder, to such address for such Holder as shall be designated by
such Holder in writing to the Corporation.
-19-
(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 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 C-2 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 C-2 Preferred Stock:
-20-
(i) alter, change, modify or amend (x) the terms of the Series C-2
Preferred Stock in any way or (y) the terms of any other capital stock of the
Corporation so as to affect adversely the Series C-2 Preferred Stock;
(ii) create any new class or series of capital stock having a
preference over or ranking pari passu with the Series C-2 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 C-2
Preferred Stock;
(iv) re-issue any shares of Series C-2 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 C-2 Preferred Stock as to the
distribution of assets upon liquidation, dissolution or winding up of the
Corporation; or
(vii) issue any Series C-2 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 C-2 Preferred Stock agrees to allow the Corporation to alter or
change the rights, preferences or privileges of the shares of Series C-2
Preferred Stock pursuant to the terms hereof, then the Corporation will deliver
notice of such approved change to the holders of the Series C-2 Preferred Stock
that did not agree to such alteration or change (the "Dissenting Holders") and
------------------
the Dissenting 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.
IN WITNESS WHEREOF, the Corporation has duly executed these Articles of
Amendment as of the ___ day of ______, 2001.
XXXX INTERACTIVE SERVICES, INC.
By:_________________________________
Name:
Title:
-21-
EXHIBIT A
---------
NOTICE OF CONVERSION
The undersigned hereby elects to convert shares of Series C-2 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 # ________________)
-22-
EXHIBIT C
to Securities Purchase Agreement
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of February
---------
28, 2001, by and among XXXX INTERACTIVE SERVICES, INC., a Delaware corporation
(the "Company"), and CASTLE CREEK TECHNOLOGY PARTNERS LLC. (the "Purchaser").
------- ---------
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 the Purchaser shares of
-----------------------------
the Company's Series C-1 Convertible Preferred Stock, no par value (the "Series
------
C-1 Preferred Stock") and a related warrant (the "Series C-1 Warrant"), and
------------------- ------------------
shares of the Company's Series C-2 Convertible Preferred Stock, no par value
(the "Series C-2 Preferred Stock", and together with the Series C-1 Preferred
--------------------------
Stock, the "Preferred Stock") and a related warrant (the "Series C-2 Warrants",
--------------- -------------------
and together with the Series C-1 Warrant, the "Warrants"). The Warrants entitle
--------
the holder thereof to purchase shares (the "Warrant Shares") of the Company's
--------------
common stock, no par value (the "Common Stock"). Shares of the Series C-1
------------
Preferred Stock are convertible pursuant to the Series C-1 Preferred Stock
Articles of Amendment to the Company's Articles of Incorporation (the "Series C-
--------
1 Articles of Amendment"), and shares of the Series C-2 Preferred Stock are
-----------------------
convertible pursuant to the Series C-2 Preferred Stock Articles of Amendment to
the Company's Articles of Incorporation (the "Series C-2 Articles of Amendment")
--------------------------------
to be filed at or prior to the Second Closing, in each case into shares (the
"Conversion Shares") of the Company's Common Stock.
-----------------
In addition, the Company has previously issued and sold to the Purchaser
the Company's 10% Convertible Promissory Notes and related warrant (the "Notes"
-----
and the "Note Warrant"), and its Series B-2 Convertible Preferred Stock and
------------
related warrant (the "B-2 Preferred Stock" and the "B-2 Warrant", and together
------------------- -----------
with the Notes and the Note Warrant, collectively, the "Outstanding Securities")
----------------------
and in connection with such issuances and sales the Company has agreed to
registered the shares of Common Stock receivable by the Holder upon the
conversion or exercise of such Outstanding Securities, including, without
limitation, an indeterminate number of shares of Common Stock that may be
required to effect conversion or exercise of such Outstanding Securities in
order to prevent dilution resulting from stock splits, stock dividends, below
market issuance or similar events.
In order to induce the 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.
-1-
In consideration of the 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 "First Closing" shall have the respective meanings
------------ -------------
specified in the Securities Purchase Agreement;
(b) "Holder" means any person owning or having the right to acquire,
------
through conversion of the shares of the Preferred Stock or exercise of the
Warrants, Registrable Securities, including initially the Purchaser and
thereafter any permitted assignee thereof;
(c) "Effective Date" means the date on which the Registration Statement is
--------------
declared effective by the Securities and Exchange Commission (the "Commission").
----------
(d) "Filing Deadline" means the twentieth (20th) day following the First
---------------
Closing; 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;
(e) "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;
(f) "Registration Deadline" means the ninetieth (90th) day following the
---------------------
First Closing;
(g) "Registrable Securities" means the Conversion Shares, the Warrant
----------------------
Shares, shares issuable upon the conversion or exercise of the Outstanding
Securities and any other shares of Common Stock issuable pursuant to the terms
of the Articles of Amendment, Warrants and the Outstanding Securities, 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, the Warrant Shares or the conversion shares or warrant
shares with respect to the Outstanding Securities.
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
-2-
under Rule 415 covering the resale of 1,000,000 Conversion Shares with respect
to the Series C-1 Preferred Stock, 500,000 Warrant Shares with respect to the
Series C-1 Warrant, 1,000,000 Conversion Share with respect to the Series C-2
Preferred Stock, 200,000 Warrant Shares with respect to the Series C-2 Warrant
and all of the conversion shares with respect to the Notes outstanding, the
warrant shares with respect to the Note Warrant, the conversion shares with
respect to the B-2 Preferred Stock outstanding, the warrant shares with respect
to the B-2 Warrant and the shares of Common Stock currently outstanding and held
by the Purchaser. 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 Stock 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 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 Registration
Deadline (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 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 Stock 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
-3-
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) If for any reason from time to time there are Registrable Securities
which are not included or which are not allowed to be included by the SEC in a
Registration Statement filed pursuant hereto, the Company shall file additional
Registration Statements as soon as practicable following a request by any Holder
to effect a registration of all of such Registrable Securities, which
Registration Statement shall be subject to all terms of this Agreement and shall
use its best efforts to cause such Registration Statement to become effective as
soon as practicable after such filing. The Company shall maintain the
effectiveness of each 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.
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
-4-
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 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), 2(b) and 2(d) above, the Company
shall:
(a) promptly prepare and file with the Commission such amendments and
supplements to each Registration Statement and each prospectus used in
connection with the Registration Statement as may be necessary (i) to comply
with the provisions of the Securities Act or (ii) to maintain the effectiveness
of each Registration Statement during the applicable 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. The Company shall cause such
amendments and supplements to become effective as soon as practicable following
the filing thereof.
(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
-5-
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 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;
-6-
(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, 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
-7-
prospectus is untrue or omits to state a material fact required to be stated
therein or 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 legal or other
expenses as reasonably incurred by the Company and any such officer,
-8-
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 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
-9-
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 Stock 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.
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.
-10-
(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 000
Xxxxxx, Xxxxxxxx 00000
Telecopy: (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 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.
-11-
(e) Assignment. Upon the transfer of Preferred Stock, 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 Illinois without regard to the conflict
of laws provisions thereof.
* * * * *
-12-
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date
first-above written.
XXXX INTERACTIVE SERVICES, INC.
By: __________________________
Name:
Title:
CASTLE CREEK TECHNOLOGY PARTNERS LLC
By: Castle Creek Partners, L.L.C.
Its: Investment Manager
By: __________________________
Name: Xxx Xxxx
Its: Managing Director
-13-
EXHIBIT D
TO SECURITIES PURCHASE AGREEMENT
Xxxxxxx X. Xxxxxxx
000 000-0000
Xxxxxxx.Xxxxxxx@xxxxxx.xxx
February 28, 2001
To: Castle Creek Technology Partners LLC
00 Xxxx Xxxxxx Xxxxx, Xxxxx 0000
Xxxxxxx, Xxxxxxxx 00000
Re: Xxxx Interactive Services, Inc.
Sale of Series C-1 Preferred Stock and Series C-1Warrant
Ladies and Gentlemen:
Reference is made to the Securities Purchase Agreement, dated as of
February 28, 2001, with all listed schedules and exhibits thereto (the
"Securities Purchase Agreement"), by and between Xxxx Interactive Services,
Inc., a Colorado corporation (the "Company"), and Castle Creek Technology
Partners LLC ("Purchaser"). This opinion is rendered to you pursuant to Section
5.1.4 of the Securities Purchase Agreement. Unless the context otherwise
requires, terms used herein have the respective meanings set forth in the
Securities Purchase Agreement.
We have acted as counsel for the Company in connection with the
negotiation, execution and delivery by the Company of the Securities Purchase
Agreement, the Articles of Amendment, the Registration Rights Agreement and the
issuance of the Series C-1 Preferred Stock and the Series C-1 Warrant to the
Purchaser. As such counsel, we have made such legal and factual examinations and
inquiries, as we have deemed advisable or necessary for the purpose of rendering
this opinion. In addition, we have examined originals, certified copies or
copies otherwise identified to us as being true copies of the following (herein
sometimes collectively referred to as the "Offering Documents"):
(a) the Articles of Incorporation of the Company as amended and in
effect on the date hereof (the "Articles of Incorporation"), as
amended by the Articles of Amendment;
(b) the Bylaws of the Company, as in effect on the date hereof (the
"Bylaws");
(c) resolutions of the Board of Directors relating to the transactions
contemplated by the Securities Purchase Agreement, the Articles of
Amendment and the Registration Rights Agreement;
(d) the Securities Purchase Agreement, the Registration Rights
Agreement, the Series C-1 Warrant and the other documents delivered
by the Company in connection with the Closing and
(e) Such other instruments, corporate records, certificates, and other
documents as we have deemed necessary as a basis for the opinions
hereinafter expressed.
We have investigated questions of law, examined the Offering
Documents, other documents pertaining to the Company and certificates of
governmental authorities; and received information from officers of the Company,
as we have deemed necessary or appropriate for purposes of providing this
letter. In reaching the opinions and statements set forth below, we have assumed
without independent verification by us, and to our knowledge there are no facts
inconsistent with, the following:
(i) The accuracy of the representations made in the Securities Purchase
Agreement;
(ii) that Purchaser has duly and validly executed each document and
instrument to which such party is a signatory, and such party's
obligations set forth therein are its legal, valid, and binding
obligations, enforceable against Purchaser in accordance with the
respective terms of such document or instrument;
(iii) that each person executing any such document or instrument on
behalf of the Purchaser is duly authorized to do so;
(iv) that each natural person executing any such document or instrument
is legally competent to do so;
(v) that all documents, instruments, and certificates submitted to us
as originals are authentic; that all documents, instruments and
certificates submitted to us as copies conform to the originals;
and that the signatures on all such documents, instruments and
certificates are genuine; and
(vi) we may rely upon the representations and warranties contained in
the Offering Documents.
Opinion
-------
Based upon and subject to the matters, assumptions, exceptions,
qualifications and limitations set forth above and herein under the heading
"Scope" we are of the opinion that:
1. 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 could have a Material Adverse Effect.
2. The Company has the requisite corporate power and authority to enter
into and perform its obligations under (i) the Securities Purchase
Agreement, (ii) the Articles of Amendment, (iii) the Series C-1
Warrant, (iv) the Registration Rights Agreement and (v) all other
agreements, documents, certificates or other instruments executed and
delivered by the Company at the Closing (the instruments described in
(i), (ii), (iii), (iv) and (v) being collectively referred to herein
as the "Transaction Documents"), to issue and sell Series C-1
Preferred Stock and Series C-1 Warrant to Purchaser in accordance
with the terms of the Securities Purchase Agreement, to issue
Conversion Shares in accordance with the terms of the Articles of
Amendment and to issue Warrant Shares upon exercise of the Series C-1
Warrant.
3. All corporate action on the part of the Company by its officers,
directors and stockholders necessary for the authorization, execution
and delivery of, and the performance by the Company of its
obligations under, the Transaction Documents has been taken.
4. The authorized capital stock of the Company is as stated in Schedule
3.6 of the Securities Purchase Agreement. All of the outstanding
shares of the Company's capital stock have been duly issued and fully
paid and are nonassessable.
5. Except as set forth on Schedule 3.6 of the Securities Purchase
Agreement, no shares of the Company's capital stock are subject to
preemptive rights or any other similar rights of the stockholders of
the Company and there are no outstanding options, warrants, scrip,
rights to subscribe for, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into, any
shares of capital stock of the Company or any of its subsidiaries, or
contracts, commitments, understandings, 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. The Company has no share purchase agreements, rights
plans or agreements containing similar provisions. In aqddition, the
Company has no subsidiaries, except as provided on such Schedule 3.6.
6. The Transaction Documents constitute valid and legally binding
obligations of the Company, enforceable in accordance with their
respective terms. The Articles of Amendment have been duly filed with
the Colorado Secretary of State and upon issuance, the Series C-1
Preferred Stock will be entitled to the rights, privileges and
benefits thereunder.
7. No consent, approval, authorization of, or order, designation,
declaration, or filing with, any governmental authority on the part
of the Company is required in connection with the valid execution and
delivery of the Securities Purchase
Agreement, the offer, sale, or issuance of the Series C-1 Preferred
Stock or the Series C-1 Warrant, the issuance of Conversion Shares or
Warrant Shares or the performance of the Company's obligations under
the Securities Purchase Agreement, the Articles of Amendment, the
Series C-1 Warrant or the Registration Rights Agreement, except (i)
qualification (or taking such actions as may be necessary to secure
an exemption for qualification, if available) under applicable blue
sky laws of the offer and sale of the Series C-1 Preferred Stock and
the Series C-1 Warrant and (ii) the filing of a Current Report on
Form 8-K within the time period prescribed by such Form.
8. Neither the Company nor any of its subsidiaries is in violation of
any provisions of its Articles of Incorporation, Bylaws or any other
governing document as amended and in effect on and as of the date
hereof or in default or breach (and no event has occurred which, with
notice or lapse of time or both, would constitute a default or
breach) under any provision of any instrument or contract known to us
to which it is a party or by which it is bound, or in violation of
any provision of any Federal or state judgment, writ, decree, order,
statute, rule or governmental regulation applicable to the Company,
which, individually or in the aggregate, could have a Material
Adverse Effect. The execution, delivery and performance of the
Securities Purchase Agreement and the other Transaction Documents,
the adoption of the Articles of Amendment and the consummation of the
transactions contemplated thereby (including without limitation, the
issuance of the Series C-1 Preferred Stock and Series C-1 Warrant 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 or breach
under any such provision, instrument or contract or any 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, except as disclosed in the
Transacion Documents, anti-dilution rights or rights of first refusal
or first offer on the part of holders of the Company's securities.
9. The Company has validly reserved 1,500,000 shares of Common Stock for
issuance pursuant to the terms of the Articles of Amendment and the
Series C-1 Warrant. When issued to a Purchaser against payment
therefor in accordance with the terms of the Securities Purchase
Agreement, each shares of Series C-1 Preferred Stock and each Series
C-1 Warrant will be duly authorized and validly issued, fully paid,
and nonassessable and will be free and clear of any security
interest, taxes, liens, claims, encumbrances, or preemptive or
similar rights. The Conversion Shares are duly authorized and
reserved for issuance and, when issued in accordance with the terms
of the Articles of Amendment, will be validly issued, fully paid and
nonassessable, free and clear of any security interest, taxes, liens,
claims, encumbrances, or preemptive or similar rights The Warrant
Shares are duly authorized and reserved for issuance and, when issued
in accordance with the terms of the Series C-1 Warrant, will be
validly issued, fully paid and nonassessable, free and clear of any
security interest, taxes, liens, claims, encumbrances, or preemptive
or similar rights.
10. The Company's Common Stock is currently listed for trading on the
Nasdaq National Market and we are aware of no fact or circumstance
which could result in the Common Stock being delisted or suspended
from trading on such market.
11. Except as set forth on Schedule 3.9.4 of the Securities Purchase
Agreement, to our knowledge, there are no actions, suits,
proceedings, investigations or inquiries pending against the Company,
any of its subsidiaries, or any of their respective directors or
officers in their capacities as such, in any court or governmental or
self-regulatory agency which could have a Material Adverse Effect or
which would adversely affect the validity or enforceability of, or
the authority or ability of the Company to perform its obligations
under the Transaction Documents..
12. The offer, sale and issuance of the Series C-1 Preferred Stock and
Series C-1 Warrant in accordance with the Securities Purchase
Agreement, the issuance of the Conversion Shares in accordance with
the Articles of Amendment and the issuance of Warrant Shares in
accordance with the Series C-1 Warrant are exempt from the
registration requirements of Section 5 of the Securities Act of 1933,
as amended.
13. In the process of our review of the Company's Annual Report on Form
10-KSB for the year ended December 31, 1999 and any other reports
filed by the Company pursuant to Sections 13 or 15(d) of the
Securities Exchange Act of 1934, as amended, since the date of the
filing of such Form 10-KSB, nothing has come to our attention that
would lead us to believe that any such report contains any untrue
statement of a material fact or omitted or omits to state a material
fact necessary in order to make the statements therein, in the light
of circumstances under which they were made, not misleading as of its
filing date.
Scope
-----
The foregoing opinion and statements of confirmation are subject to the
following limitations and qualifications:
(i) Whenever our opinions or statements expressed herein are qualified
by or use the phrases "to our knowledge," "known to us," "based on
our knowledge" or words of like import, it indicates that during
the course of our representation of the Company and after inquiry
limited as described in this letter with respect to the subject
matter of any such opinion or statement, no information has come to
our attention, which would give us knowledge of the existence or
nonexistence of relevant facts. No inference as to our knowledge of
the existence or nonexistence of any facts should or may be drawn
merely from the fact that we represent the Company. Except as
otherwise expressly stated, no independent investigation or
verification of such matters has been undertaken and we have not
reviewed any court or other public records.
(ii) Our attorneys are admitted to practice only in the State of
Minnesota. The foregoing opinions assume that for the purpose of
those opinions that are based on the laws of the State of Colorado
(other than the Colorado Business Corporation Act (the "CBCA")) or
the State of Illinois, that such laws are the same as the State of
Minnesota. We are not members of the Bar of the State of Colorado
or Illinois and we have not consulted with Colorado or Illinois
counsel, or otherwise made any inquiry regarding, or review of,
Colorado or Illinois law (other than the CBCA) in connection with
the opinions expressed above. We render no opinion as to the
enforceability of any choice of law provision.
(iii) The foregoing opinions including, without limitation, any opinion
as to enforceability of the Securities Purchase Agreement or any
other agreement is limited by (A) the effect of bankruptcy,
insolvency, reorganization, arrangement, moratorium, fraudulent
conveyance, transfer or other similar laws affecting or relating to
the rights of creditors or secured creditors generally, (B) general
principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law), (C) judicial
limitations on the right of specific performance and other
equitable remedies and (D) the enforceability of indemnification or
contribution provisions thereof which may be limited by federal or
state securities laws or by public policy.
This letter contains our opinions and statements of confirmation only and
we express no opinion as to the truth or accuracy of any representation,
warranty or statement made by any person or entity in the Offering Documents.
The opinions and statements of confirmation expressed in this letter are limited
to the matters expressly set forth above, and no opinion or statement is to be
inferred or may be implied beyond that expressly so stated.
The opinions and statements expressed above are rendered solely to the
Purchaser and may be relied upon by the Purchaser solely in connection with the
transactions identified in the first paragraph hereof. The opinions and
statements expressed in this letter are not to be used, circulated, reproduced,
quoted or otherwise relied upon by third parties without our prior written
consent.
This letter is limited to the specific issues addressed and is limited in
all respects to laws and facts existing on the date of this letter or earlier
date stated herein, and we expressly disclaim any responsibility for notifying
you of any changes which may occur after the date hereof which would or may
affect this letter.
Very truly yours,
