Exhibit 10.1
BILLSERV, INC.
SECURITIES PURCHASE AGREEMENT
JULY 25, 2002
TABLE OF CONTENTS
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PAGE
SECURITIES PURCHASE AGREEMENT................................................1
RECITALS.....................................................................1
AGREEMENT....................................................................1
1. AGREEMENT TO SELL AND PURCHASE.........................................1
2. FEES AND WARRANT.......................................................1
3. CLOSING, DELIVERY AND PAYMENT..........................................2
3.1 CLOSING..........................................................2
3.2 DELIVERY.........................................................2
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY..........................2
4.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION....................2
4.2 SUBSIDIARIES.....................................................3
4.3 CAPITALIZATION; VOTING RIGHTS....................................3
4.4 AUTHORIZATION; BINDING OBLIGATIONS...............................4
4.5 LIABILITIES......................................................4
4.6 AGREEMENTS; ACTION...............................................4
4.7 OBLIGATIONS TO RELATED PARTIES...................................5
4.8 CHANGES..........................................................5
4.9 TITLE TO PROPERTIES AND ASSETS; LIENS, ETC.......................6
4.10 INTELLECTUAL PROPERTY............................................7
4.11 COMPLIANCE WITH OTHER INSTRUMENTS................................7
4.12 LITIGATION.......................................................7
4.13 TAX RETURNS AND PAYMENTS.........................................8
4.14 EMPLOYEES........................................................8
4.15 REGISTRATION RIGHTS AND VOTING RIGHTS............................8
4.16 COMPLIANCE WITH LAWS; PERMITS....................................9
4.17 ENVIRONMENTAL AND SAFETY LAWS....................................9
4.18 VALID OFFERING...................................................9
4.19 FULL DISCLOSURE..................................................9
4.20 INSURANCE.......................................................10
4.21 SEC REPORTS.....................................................10
4.22 NO MARKET MANIPULATION..........................................10
4.23 LISTING.........................................................10
4.24 NO INTEGRATED OFFERING..........................................10
4.25 STOP TRANSFER...................................................10
4.26 DILUTION........................................................11
5. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.......................11
5.1 REQUISITE POWER AND AUTHORITY...................................11
5.2 INVESTMENT REPRESENTATIONS......................................11
5.3 PURCHASER BEARS ECONOMIC RISK...................................11
5.4 ACQUISITION FOR OWN ACCOUNT.....................................12
5.5 PURCHASER CAN PROTECT ITS INTEREST..............................12
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5.6 ACCREDITED INVESTOR.............................................12
5.7 LEGENDS.........................................................12
5.8 SALES LIMITATION................................................13
6. COVENANTS OF THE COMPANY..............................................13
6.1 STOP-ORDERS.....................................................13
6.2 LISTING.........................................................13
6.3 MARKET REGULATIONS..............................................14
6.4 REPORTING REQUIREMENTS..........................................14
6.5 USE OF FUNDS....................................................14
6.6 ACCESS TO FACILITIES............................................14
6.7 TAXES...........................................................14
6.8 INSURANCE.......................................................14
6.9 INTELLECTUAL PROPERTY...........................................15
6.10 PROPERTIES......................................................15
6.11 CONFIDENTIALITY.................................................15
6.12 CORPORATE EXISTENCE.............................................15
6.13 REISSUANCE OF SECURITIES........................................15
6.14 OPINION.........................................................15
7. COVENANTS OF THE COMPANY AND PURCHASER REGARDING INDEMNIFICATION......16
7.1 COMPANY INDEMNIFICATION.........................................16
7.2 PURCHASER'S INDEMNIFICATION.....................................16
7.3 PROCEDURES......................................................16
8. CONVERSION OF CONVERTIBLE NOTE........................................16
8.1 MECHANICS OF CONVERSION.........................................16
8.2 MANDATORY REDEMPTION............................................17
8.3 MAXIMUM CONVERSION..............................................18
8.4 OPTIONAL REDEMPTION.............................................18
9. REGISTRATION RIGHTS...................................................19
9.1 REGISTRATION RIGHTS GRANTED.....................................19
9.2 REGISTRATION PROCEDURES.........................................19
9.3 PROVISION OF DOCUMENTS..........................................20
9.4 NON-REGISTRATION EVENTS.........................................20
9.5 EXPENSES........................................................21
9.6 INDEMNIFICATION.................................................21
10. OFFERING RESTRICTIONS..............................................23
11. SECURITY INTEREST..................................................23
12. MISCELLANEOUS......................................................23
12.1 GOVERNING LAW...................................................23
12.2 SURVIVAL........................................................24
12.3 SUCCESSORS AND ASSIGNS..........................................24
12.4 ENTIRE AGREEMENT................................................24
12.5 SEVERABILITY....................................................24
12.6 AMENDMENT AND WAIVER............................................24
12.7 DELAYS OR OMISSIONS.............................................24
12.8 NOTICES.........................................................24
12.9 ATTORNEYS' FEES.................................................25
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12.10 TITLES AND SUBTITLES.........................................25
12.11 FACSIMILE SIGNATURES; COUNTERPARTS...........................25
12.12 BROKER'S FEES................................................25
12.13 CONSTRUCTION.................................................25
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BILLSERV, INC.
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (the "AGREEMENT") is made and entered
into as of July ___, 2002, by and among BILLSERV, Inc., a Nevada corporation
(the "COMPANY"), and Laurus Master Fund, Ltd., a Cayman Islands company (the
"PURCHASER").
RECITALS
WHEREAS, the Company has authorized the sale of a 7% Convertible Note in an
aggregate principal amount of $1,500,000 (the "NOTE"), convertible into shares
of the Company's common stock, $.001 par value per share (the "COMMON STOCK") at
a fixed conversion rate of $.78 per share of Common Stock ("FIXED CONVERSION
RATE");
WHEREAS, the Company wishes to issue a warrant (the "WARRANT") to the
Purchaser to purchase shares of the Company's Common Stock in connection with
Purchaser's purchase of the Note;
WHEREAS, Purchaser desires to purchase the Note and Warrant on the terms
and conditions set forth herein; and
WHEREAS, the Company desires to issue and sell the Note and Warrant to
Purchaser on the terms and conditions set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
promises, representations, warranties and covenants hereinafter set forth and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
1. AGREEMENT TO SELL AND PURCHASE. Pursuant to the terms and conditions
set forth in this Agreement, on the Closing Date (as defined in Section 3), the
Company agrees to sell to the Purchaser, and the Purchaser hereby agrees to
purchase from the Company a Note in the amount of $1,500,000 convertible in
accordance with the terms thereof into shares of the Company's Common Stock in
accordance with the terms of the Note and this Agreement. The Note purchased on
the Closing Date shall be known as the "OFFERING." A form of the Note is annexed
hereto as Exhibit A. The Note will have a Maturity Date (as defined in the Note)
twelve months from the date of issuance. Collectively, the Note and Warrant (as
defined in Section 2) and Common Stock issuable in payment of the Note, upon
conversion of the Note and upon exercise of the Warrant are referred to as the
"SECURITIES."
2. FEES AND WARRANT. On the Closing Date:
(a) The Company will issue and deliver to the Purchaser a
Warrant to purchase 300,000 shares of Common Stock in connection with the
Offering (the "WARRANT") pursuant to Section 1 hereof. The Warrant must be
delivered on the Closing Date. A form of
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Warrant is annexed hereto as Exhibit B. All the representations, covenants,
warranties, undertakings, and indemnification, and other rights made or granted
to or for the benefit of the Purchaser by the Company are hereby also made and
granted in respect of the Warrant and shares of the Company's Common Stock
issuable upon exercise of the Warrant (the "WARRANT SHARES").
(b) The Company shall reimburse the Purchaser for its
reasonable legal fees for services rendered to the Purchaser in preparation of
this Agreement and the Related Agreements, and expenses in connection with the
Purchaser's due diligence review of the Company and relevant matters. Amounts
required to be paid hereunder will be paid at the Closing and shall not exceed
$25,000. The Purchaser shall provide a detail of expenses.
(c) The Company will pay a cash fee in the amount of nine
percent (9%) of the aggregate gross purchase price to be paid to the Company
from the sale of Note in the Offering (the "FUND MANAGEMENT FEE") to Laurus
Capital Management, L.L.C., a Delaware limited liability company. The Fund
Management Fee must be paid on the Closing Date. The aforementioned Fund
Management Fee and legal fees will be payable at the Closing out of funds held
pursuant to a Funds Escrow Agreement to be entered into by the Company,
Purchaser and an Escrow Agent (the "FUNDS ESCROW AGREEMENT").
3. CLOSING, DELIVERY AND PAYMENT.
3.1 CLOSING. Subject to the terms and conditions herein, the closing
of the transactions contemplated hereby (the "CLOSING"), shall take place on the
date hereof, at such time or place as the Company and Purchaser may mutually
agree (such date is hereinafter referred to as the "CLOSING DATE").
3.2 DELIVERY. Pursuant to the Funds Escrow Agreement, at the Closing,
subject to the terms and conditions hereof, the Company will deliver to the
Escrow Agent, among other things, a Note in the form attached as Exhibit A
representing the principal amount of $1,500,000 and a Common Stock Purchase
Warrant in the form attached as Exhibit B in the Purchaser's name representing
300,000 Warrant Shares and the Purchaser will deliver to the Escrow Agent, among
other things, $1,500,000, by certified funds or wire transfer made payable to
the order of the Escrow Agent.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company hereby represents and warrants to the Purchaser as of the
date of this Agreement as set forth below except as disclosed in the Company's
filings under the Securities Exchange Act of 1934 (collectively, the "EXCHANGE
ACT FILINGS"), and except as set forth on the Disclosure Schedule hereto.
4.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Nevada. The Company has the corporate power and authority to own
and operate its properties and assets, to execute and deliver this Agreement,
the Warrant to be issued in connection with this Agreement, the Funds Escrow
Agreement, the Security Agreement and all other agreements
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referred to herein (collectively, the "RELATED AGREEMENTS"), to issue and sell
the Note and the shares of Common Stock issuable upon conversion of the Note
(the "NOTE SHARES"), to issue and sell the Warrant and the Warrant Shares, and
to carry out the provisions of this Agreement and the Related Agreements and to
carry on its business as presently conducted. The Company is duly qualified and
is authorized to do business and is in good standing as a foreign corporation in
all jurisdictions in which the nature of its activities and of its properties
(both owned and leased) makes such qualification necessary, except for those
jurisdictions in which failure to do so would not have a material adverse effect
on the Company or its business.
4.2 SUBSIDIARIES. Except as disclosed on Schedule 4.2, the Company
does not own or control any equity security or other interest of any other
corporation, limited partnership or other business entity.
4.3 CAPITALIZATION; VOTING RIGHTS.
(a) The authorized capital stock of the Company, as of
May 1, 2002, consists of 200,000,000 shares of Common Stock, par value $0.001
per share, 20,581,126 shares of which are issued and outstanding.
(b) Except as disclosed on Schedule 4.3, other than (i) the
shares reserved for issuance under the Company's stock option plans; and (ii)
shares which may be granted pursuant to this Agreement and the Related
Agreements, there are no outstanding options, warrants, rights (including
conversion or preemptive rights and rights of first refusal), proxy or
stockholder agreements, or arrangements or agreements of any kind for the
purchase or acquisition from the Company of any of its securities. Neither the
offer, issuance or sale of any of the Note or Warrant, or the issuance of any of
the Note Shares or Warrant Shares, nor the consummation of any transaction
contemplated hereby will result in a change in the price or number of any
securities of the Company outstanding, under anti-dilution or other similar
provisions contained in or affecting any such securities.
(c) All issued and outstanding shares of the Company's Common
Stock (i) have been duly authorized and validly issued and are fully paid and
nonassessable and (ii) were issued in compliance with all applicable state and
federal laws concerning the issuance of securities.
(d) The rights, preferences, privileges and restrictions of
the shares of the Common Stock are as stated in the Certificate of Incorporation
(the "CHARTER"). The Note Shares and Warrant Shares have been duly and validly
reserved for issuance. When issued in compliance with the provisions of this
Agreement and the Company's Charter, the Securities will be validly issued,
fully paid and nonassessable, and will be free of any liens or encumbrances;
PROVIDED, HOWEVER, that the Securities may be subject to restrictions on
transfer under state and/or federal securities laws as set forth herein or as
otherwise required by such laws at the time a transfer is proposed.
(e) No stock plan, stock purchase, stock option or other
agreement or understanding between the Company and any holder of any equity
securities of the Company or
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rights to purchase equity securities of the Company provides for acceleration or
other changes in the vesting provisions or other terms of such agreement or
understanding as the result of any merger, consolidated sale of stock or assets,
change in control or any other transaction(s) by the Company, including the
transactions contemplated hereunder.
4.4 AUTHORIZATION; BINDING OBLIGATIONS. All corporate action on the
part of the Company, its officers and directors necessary for the authorization
of this Agreement and the Related Agreements to which the Company, the
performance of all obligations of the Company hereunder at the Closing and, the
authorization, sale, issuance and delivery of the Note and Warrant has been
taken or will be taken prior to the Closing. The Agreement and the Related
Agreements, when executed and delivered and to the extent it is a party thereto,
will be valid and binding obligations of the Company enforceable in accordance
with their terms, except (a) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application affecting
enforcement of creditors' rights, and (b) general principles of equity that
restrict the availability of equitable or legal remedies. The sale of the Note
and the subsequent conversion of the Note into Note Shares are not and will not
be subject to any preemptive rights or rights of first refusal that have not
been properly waived or complied with. The issuance of the Warrant and the
subsequent exercise of the Warrant for Warrant Shares are not and will not be
subject to any preemptive rights or rights of first refusal that have not been
properly waived or complied with. The Note and the Warrant, when executed and
delivered in accordance with the terms of this Agreement, will be valid and
binding obligations of the Company, enforceable in accordance with their
respective terms.
4.5 LIABILITIES. The Company has no material liabilities and, to the
best of its knowledge, knows of no material contingent liabilities, except
current liabilities incurred in the ordinary course of business and liabilities
disclosed in any Exchange Act Filings.
4.6 AGREEMENTS; ACTION. Except as set forth on Schedule 4.6:
(a) There are no agreements, understandings, instruments,
contracts, proposed transactions, judgments, orders, writs or decrees to which
the Company is a party or to its knowledge by which it is bound which may
involve (i) obligations (contingent or otherwise) of, or payments to, the
Company in excess of $50,000 (other than obligations of, or payments to, the
Company arising from purchase or sale agreements entered into in the ordinary
course of business), or (ii) the transfer or license of any patent, copyright,
trade secret or other proprietary right to or from the Company (other than
licenses arising from the purchase of "off the shelf" or other standard
products), or (iii)provisions restricting the development, manufacture or
distribution of the Company's products or services, or (iv) indemnification by
the Company with respect to infringements of proprietary rights, except in the
ordinary course of business. The Company has not (i) declared or paid any
dividends, or authorized or made any distribution upon or with respect to any
class or series of its capital stock, (ii) incurred any indebtedness for money
borrowed or any other liabilities individually in excess of $50,000 or, in the
case of indebtedness and/or liabilities individually less than $50,000, in
excess of $100,000 in the aggregate, (iii) made any loans or advances to any
person not in excess, individually or in the aggregate, of $100,000, other than
ordinary advances for travel expenses, or (iv) sold, exchanged or otherwise
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disposed of any of its assets or rights, other than the sale of its inventory in
the ordinary course of business.
(b) For the purposes of subsections (a) and (b) above, all
indebtedness, liabilities, agreements, understandings, instruments, contracts
and proposed transactions involving the same person or entity (including persons
or entities the Company has reason to believe are affiliated therewith) shall be
aggregated for the purpose of meeting the individual minimum dollar amounts of
such subsections.
4.7 OBLIGATIONS TO RELATED PARTIES. There are no obligations of the
Company to officers, directors, stockholders or employees of the Company other
than (a) for payment of salary for services rendered, (b) reimbursement for
reasonable expenses incurred on behalf of the Company, (c) for other standard
employee benefits made generally available to all employees (including stock
option agreements outstanding under any stock option plan approved by the Board
of Directors of the Company) and (d) obligations listed in the Company's
financial statements or disclosed in any of its Exchange Act Filings. Except as
described above or set forth on Schedule 4.7, none of the officers, directors
or, to the best of the Company's knowledge, key employees or stockholders of the
Company or any members of their immediate families, are indebted to the Company,
individually or in the aggregate, in excess of $50,000 or have any direct or
indirect ownership interest in any firm or corporation with which the Company is
affiliated or with which the Company has a business relationship, or any firm or
corporation which competes with the Company, other than passive investments in
publicly traded companies (representing less than 1% of such company) which may
compete with the Company. Except as described above, no officer, director or
stockholder, or any member of their immediate families, is, directly or
indirectly, interested in any material contract with the Company and no
agreements, understandings or proposed transactions are contemplated between the
Company and any such person. Except as set forth on Schedule 4.7, the Company is
not a guarantor or indemnitor of any indebtedness of any other person, firm or
corporation.
4.8 CHANGES. Since March 31, 2002, except as disclosed in any
Schedule to this Agreement or to any of the Related Agreements, there has not
been:
(a) Any change in the assets, liabilities, financial
condition, prospects or operations of the Company, other than changes in the
ordinary course of business, none of which individually or in the aggregate has
had or is reasonably expected to have a material adverse effect on such assets,
liabilities, financial condition, prospects or operations of the Company;
(b) Any resignation or termination of any officer, key
employee or group of employees of the Company;
(c) Any material change, except in the ordinary course of
business, in the contingent obligations of the Company by way of guaranty,
endorsement, indemnity, warranty or otherwise;
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(d) Any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the properties, business or
prospects or financial condition of the Company;
(e) Any waiver by the Company of a valuable right or of a
material debt owed to it;
(f) Any direct or indirect material loans made by the Company
to any stockholder, employee, officer or director of the Company, other than
advances made in the ordinary course of business;
(g) Any material change in any compensation arrangement or
agreement with any employee, officer, director or stockholder;
(h) Any declaration or payment of any dividend or other
distribution of the assets of the Company;
(i) Any labor organization activity related to the Company;
(j) Any debt, obligation or liability incurred, assumed or
guaranteed by the Company, except those for immaterial amounts and for current
liabilities incurred in the ordinary course of business;
(k) Any sale, assignment or transfer of any patents,
trademarks, copyrights, trade secrets or other intangible assets;
(l) Any change in any material agreement to which the Company
is a party or by which it is bound which may materially and adversely affect the
business, assets, liabilities, financial condition, operations or prospects of
the Company;
(m) Any other event or condition of any character that, either
individually or cumulatively, has or may materially and adversely affect the
business, assets, liabilities, financial condition, prospects or operations of
the Company; or
(n) Any arrangement or commitment by the Company to do any of
the acts described in subsection (a) through (m) above.
4.9 TITLE TO PROPERTIES AND ASSETS; LIENS, ETC. The Company has good
and marketable title to its properties and assets, and good title to its
leasehold estates, in each case subject to no mortgage, pledge, lien, lease,
encumbrance or charge, other than (a) those resulting from taxes which have not
yet become delinquent, (b) minor liens and encumbrances which do not materially
detract from the value of the property subject thereto or materially impair the
operations of the Company, and (c) those that have otherwise arisen in the
ordinary course of business. All facilities, machinery, equipment, fixtures,
vehicles and other properties owned, leased or used by the Company are in good
operating condition and repair and are reasonably fit
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and usable for the purposes for which they are being used. The Company is in
compliance with all material terms of each lease to which it is a party or is
otherwise bound.
4.10 INTELLECTUAL PROPERTY.
(a) The Company owns or possesses sufficient legal rights to
all patents, trademarks, service marks, trade names, copyrights, trade secrets,
licenses, information and other proprietary rights and processes necessary for
its business as now conducted and to the Company's knowledge as presently
proposed to be conducted (the "INTELLECTUAL PROPERTY"), without any known
infringement of the rights of others. There are no outstanding options, licenses
or agreements of any kind relating to the foregoing proprietary rights, nor is
the Company bound by or a party to any options, licenses or agreements of any
kind with respect to the patents, trademarks, service marks, trade names,
copyrights, trade secrets, licenses, information and other proprietary rights
and processes of any other person or entity other than such licenses or
agreements arising from the purchase of "off the shelf" or standard products.
(b) Except as set forth on Schedule 4.10(b), the Company has
not received any communications alleging that the Company has violated any of
the patents, trademarks, service marks, trade names, copyrights or trade secrets
or other proprietary rights of any other person or entity, nor is the Company
aware of any basis therefor.
(c) The Company does not believe it is or will be necessary
to utilize any inventions, trade secrets or proprietary information of any of
its employees made prior to their employment by the Company, except for
inventions, trade secrets or proprietary information that have been rightfully
assigned to the Company.
4.11 COMPLIANCE WITH OTHER INSTRUMENTS. The Company is not in
violation or default of any term of its Charter or Bylaws, or of any material
provision of any mortgage, indenture, contract, agreement, instrument or
contract to which it is party or by which it is bound or of any judgment,
decree, order or writ. The execution, delivery and performance of and compliance
with this Agreement and the Related Agreements to which it is a party, and the
issuance and sale of the Note by the Company and the other Securities by the
Company each pursuant hereto, will not, with or without the passage of time or
giving of notice, result in any such material violation, or be in conflict with
or constitute a default under any such term or provision, or result in the
creation of any mortgage, pledge, lien, encumbrance or charge upon any of the
properties or assets of the Company or the suspension, revocation, impairment,
forfeiture or nonrenewal of any permit, license, authorization or approval
applicable to the Company, its business or operations or any of its assets or
properties.
4.12 LITIGATION. There is no action, suit, proceeding or
investigation pending or, to the Company's knowledge, currently threatened
against the Company that prevents the Company to enter into this Agreement or
the Related Agreements, or to consummate the transactions contemplated hereby or
thereby, or which might result, either individually or in the aggregate, in any
material adverse change in the assets, condition, affairs or prospects of the
Company, financially or otherwise, or any change in the current equity ownership
of the Company, nor is the Company aware that there is any basis for any of the
foregoing. The
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Company is not a party or subject to the provisions of any order, writ,
injunction, judgment or decree of any court or government agency or
instrumentality. There is no action, suit, proceeding or investigation by the
Company currently pending or which the Company intends to initiate.
4.13 TAX RETURNS AND PAYMENTS. The Company has timely filed all tax
returns (federal, state and local) required to be filed by it of which the
failure to file would have a material adverse effect. All taxes shown to be due
and payable on such returns, any assessments imposed, and to the Company's
knowledge all other taxes due and payable by the Company on or before the
Closing, have been paid or will be paid prior to the time they become
delinquent. The Company has not been advised (a) that any of its returns,
federal, state or other, have been or are being audited as of the date hereof,
or (b) of any deficiency in assessment or proposed judgment to its federal,
state or other taxes. The Company has no knowledge of any liability of any tax
to be imposed upon its properties or assets as of the date of this Agreement
that is not adequately provided for.
4.14 EMPLOYEES. The Company has no collective bargaining agreements
with any of its employees. There is no labor union organizing activity pending
or, to the Company's knowledge, threatened with respect to the Company. The
Company is not a party to or bound by any currently effective employment
contract, deferred compensation arrangement, bonus plan, incentive plan, profit
sharing plan, retirement agreement or other employee compensation plan or
agreement. To the Company's knowledge, no employee of the Company, nor any
consultant with whom the Company has contracted, is in violation of any term of
any employment contract, proprietary information agreement or any other
agreement relating to the right of any such individual to be employed by, or to
contract with, the Company because of the nature of the business to be conducted
by the Company; and to the Company's knowledge the continued employment by the
Company of its present employees, and the performance of the Company's contracts
with its independent contractors, will not result in any such violation. The
Company is not aware that any of its employees is obligated under any contract
(including licenses, covenants or commitments of any nature) or other agreement,
or subject to any judgment, decree or order of any court or administrative
agency, that would interfere with their duties to the Company. The Company has
not received any notice alleging that any such violation has occurred. Except
for employees who have a current effective employment agreement with the
Company, no employee of the Company has been granted the right to continued
employment by the Company or to any material compensation following termination
of employment with the Company. The Company is not aware that any officer, key
employee or group of employees intends to terminate his, her or their employment
with the Company, nor does the Company have a present intention to terminate the
employment of any officer, key employee or group of employees.
4.15 REGISTRATION RIGHTS AND VOTING RIGHTS. The Company is presently
not under any obligation, and has not granted any rights, to register any of the
Company's presently outstanding securities or any of its securities that may
hereafter be issued. To the Company's knowledge, no stockholder of the Company
has entered into any agreement with respect to the voting of equity securities
of the Company.
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4.16 COMPLIANCE WITH LAWS; PERMITS. To its knowledge, the Company is
not in violation in any material respect of any applicable statute, rule,
regulation, order or restriction of any domestic or foreign government or any
instrumentality or agency thereof in respect of the conduct of its business or
the ownership of its properties which violation would materially and adversely
affect the business, assets, liabilities, financial condition, operations or
prospects of the Company. No governmental orders, permissions, consents,
approvals or authorizations are required to be obtained and no registrations or
declarations are required to be filed in connection with the execution and
delivery of this Agreement and the issuance of any of the Securities, except
such as has been duly and validly obtained or filed, or with respect to any
filings that must be made after the Closing, as will be filed in a timely
manner. The Company has all material franchises, permits, licenses and any
similar authority necessary for the conduct of its business as now being
conducted by it, the lack of which would materially and adversely affect the
business, properties, prospects or financial condition of the Company.
4.17 ENVIRONMENTAL AND SAFETY LAWS. The Company is not in violation
of any applicable statute, law or regulation relating to the environment or
occupational health and safety, and to its knowledge, no material expenditures
are or will be required in order to comply with any such existing statute, law
or regulation. No Hazardous Materials (as defined below) are used or have been
used, stored, or disposed of by the Company or, to the Company's knowledge, by
any other person or entity on any property owned, leased or used by the Company.
For the purposes of the preceding sentence, "HAZARDOUS MATERIALS" shall mean (a)
materials which are listed or otherwise defined as "HAZARDOUS" or "TOXIC" under
any applicable local, state, federal and/or foreign laws and regulations that
govern the existence and/or remedy of contamination on property, the protection
of the environment from contamination, the control of hazardous wastes, or other
activities involving hazardous substances, including building materials, or (b)
any petroleum products or nuclear materials.
4.18 VALID OFFERING. Assuming the accuracy of the representations
and warranties of the Purchaser contained in this Agreement, the offer, sale and
issuance of the Securities will be exempt from the registration requirements of
the Securities Act of 1933, as amended (the "SECURITIES ACT"), and will have
been registered or qualified (or are exempt from registration and qualification)
under the registration, permit or qualification requirements of all applicable
state securities laws.
4.19 FULL DISCLOSURE. The Company has provided the Purchaser with
all information requested by the Purchaser in connection with its decision to
purchase the Note and Warrant, including all information the Company believes is
reasonably necessary to make such investment decision. Neither this Agreement,
the exhibits and schedules hereto, the Related Agreements nor any other document
delivered by the Company to Purchaser or its attorneys or agents in connection
herewith or therewith or with the transactions contemplated hereby or thereby,
contain any untrue statement of a material fact nor omit to state a material
fact necessary in order to make the statements contained herein or therein, in
light of the circumstances in which they are made, not misleading. Any financial
projections and other estimates provided to the Purchaser by the Company were
based on the Company's experience in the industry and on assumptions of fact and
opinion as to future events which the Company, at the date of the issuance of
such projections or estimates, believed to be reasonable. As of the date hereof
no
9
facts have come to the attention of the Company that would, in its opinion,
require the Company to revise or amplify in any material respect the assumptions
underlying such projections and other estimates or the conclusions derived
therefrom.
4.20 INSURANCE. The Company has general commercial, product
liability, fire and casualty insurance policies with coverage customary for
companies similarly situated to the Company in the same or similar business.
4.21 SEC REPORTS. The Company has filed all proxy statements,
reports and other documents required to be filed by it under the Exchange Act.
The Company has furnished the Purchaser with copies of (i) its Annual Report on
Form 10-K for the fiscal year ended December 31, 2001 as amended, (ii) its
Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2002 and
(iii) its Proxy Statement dated April 12, 2002 (collectively, the "SEC
REPORTS"). Each SEC Report was, at the time of its filing, in substantial
compliance with the requirements of its respective form and none of the SEC
Reports, nor the financial statements (and the notes thereto) included in the
SEC Reports, as of their respective filing dates, contained any untrue statement
of a material fact or omitted 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.
4.22 NO MARKET MANIPULATION. The Company has not taken, and will not
take, directly or indirectly, any action designed to, or that might reasonably
be expected to, cause or result in stabilization or manipulation of the price of
the Common Stock of the Company to facilitate the sale or resale of any of the
Securities being offered hereby or affect the price at which any of the
Securities being offered hereby may be issued.
4.23 LISTING. The Company's Common Stock is listed for trading on
the Nasdaq National Market and satisfies all requirements for the continuation
of such listing. The Company has not received any notice that its Common Stock
will be delisted from the Nasdaq National Market or that the Common Stock does
not meet all requirements for the continuation of such listing.
4.24 NO INTEGRATED OFFERING. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offers to
buy any security under circumstances that would cause the offering of the
Securities pursuant to this Agreement to be integrated with prior offerings by
the Company for purposes of the Securities Act which would prevent the Company
from selling the Securities pursuant to Rule 506 under the Securities Act, or
any applicable exchange-related stockholder approval provisions. Nor will the
Company or any of its affiliates or subsidiaries take any action or steps that
would cause the offering of the Securities to be integrated with other
offerings.
4.25 STOP TRANSFER. The Securities are restricted securities as of
the date of this Agreement. The Company will not issue any stop transfer order
or other order impeding the sale and delivery of any of the Securities at such
time as the Securities are registered for public sale or an exemption from
registration is available, except as required by federal securities laws.
10
4.26 DILUTION. The Company understands the nature of the Securities
being sold hereby and recognizes that they may have a potential dilutive effect.
The Company specifically acknowledges that its obligation to issue the shares of
Common Stock upon conversion of the Note and exercise of the Warrant is binding
upon the Company and enforceable regardless of the dilution such issuance may
have on the ownership interests of other shareholders of the Company.
5. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.
The Purchaser hereby represents and warrants to the Company as
follows:
5.1 REQUISITE POWER AND AUTHORITY. Purchaser has all necessary
power and authority under all applicable provisions of law to execute and
deliver this Agreement and the Related Agreements and to carry out their
provisions. All corporate action on Purchaser's part required for the lawful
execution and delivery of this Agreement and the Related Agreements have been or
will be effectively taken prior to the Closing. Upon their execution and
delivery, this Agreement and the Related Agreements will be valid and binding
obligations of Purchaser, enforceable in accordance with their terms, except (a)
as limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other laws of general application affecting enforcement of creditors' rights,
and (b) as limited by general principles of equity that restrict the
availability of equitable and legal remedies.
5.2 INVESTMENT REPRESENTATIONS. Purchaser understands that the
Securities are being offered and sold pursuant to an exemption from registration
contained in the Securities Act based in part upon Purchaser's representations
contained in the Agreement, including, without limitation, that the Purchaser is
an "accredited investor" within the meaning of Regulation D under the Securities
Act. The Purchaser has received or has had full access to all the information it
considers necessary or appropriate to make an informed investment decision with
respect to the Note and the Warrant to be purchased by it under this Agreement
and the Note Shares and the Warrant Shares acquired by it upon the conversion of
the Note and the exercise of the Warrant, respectively. The Purchaser further
has had an opportunity to ask questions and receive answers from the Company
regarding the Company's business, management and financial affairs and the terms
and conditions of the Offering, the Note, the Warrant and the Securities and to
obtain additional information (to the extent the Company possessed such
information or could acquire it without unreasonable effort or expense)
necessary to verify any information furnished to the Purchaser or to which the
Purchaser had access.
5.3 PURCHASER BEARS ECONOMIC RISK. Purchaser has substantial
experience in evaluating and investing in private placement transactions of
securities in companies similar to the Company so that it is capable of
evaluating the merits and risks of its investment in the Company and has the
capacity to protect its own interests. Purchaser must bear the economic risk of
this investment until the Securities are sold pursuant to (i) an effective
registration statement under the Securities Act, or (ii) an exemption from
registration is available.
11
5.4 ACQUISITION FOR OWN ACCOUNT. Purchaser is acquiring the Note
and Warrant and the Note Shares and the Warrant Shares for Purchaser's own
account for investment only, and not as a nominee or agent and not with a view
towards or for resale in connection with their distribution.
5.5 PURCHASER CAN PROTECT ITS INTEREST. Purchaser represents that
by reason of its, or of its management's, business and financial experience,
Purchaser has the capacity to evaluate the merits and risks of its investment in
the Note, the Warrant and the Securities and to protect its own interests in
connection with the transactions contemplated in this Agreement, and the Related
Agreements. Further, Purchaser is aware of no publication of any advertisement
in connection with the transactions contemplated in the Agreement or the Related
Agreements.
5.6 ACCREDITED INVESTOR. Purchaser represents that it is an
accredited investor within the meaning of Regulation D under the Securities Act.
5.7 LEGENDS.
(a) The Note shall bear substantially the following legend:
"THIS NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR, IF APPLICABLE, STATE SECURITIES LAWS. THIS NOTE AND THE COMMON
STOCK ISSUABLE UPON CONVERSION OF THIS NOTE MAY NOT BE SOLD, OFFERED
FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT AS TO THIS NOTE OR SUCH SHARES UNDER SAID ACT
AND APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO BILLSERV, INC. THAT SUCH REGISTRATION IS
NOT REQUIRED."
(b) The Note Shares and the Warrant Shares, if not issued by
DWAC system (as hereinafter defined), shall bear a legend which shall be in
substantially the following form until such shares are covered by an effective
registration statement filed with the SEC:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR IF APPLICABLE, STATE
SECURITIES LAWS. THESE SHARES MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH SECURITIES ACT AND APPLICABLE STATE LAWS OR AN
OPINION OF COUNSEL
12
REASONABLY SATISFACTORY TO BILLSERV, INC. THAT SUCH REGISTRATION IS
NOT REQUIRED."
(c) The Warrant shall bear substantially the following
legend:
"THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THIS WARRANT AND THE
COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT AS TO THIS WARRANT OR THE UNDERLYING
SHARES OF COMMON STOCK UNDER SAID ACT AND APPLICABLE STATE SECURITIES
LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO BILLSERV,
INC. THAT SUCH REGISTRATION IS NOT REQUIRED."
5.8 SALES LIMITATION. The Purchaser will not engage in short sales
of the Company's Common Stock at any time, nor has it engaged in short sales of
the Company's Common Stock prior to the execution of this Agreement. The
Purchaser will not cause, advise, ask or assist others in shorting the Company's
Common Stock. Additionally, upon conversion of the Note, the Purchaser will use
its best efforts to facilitate the sale of the Note Shares in the market in a
commercially reasonable manner.
6. COVENANTS OF THE COMPANY. The Company covenants and agrees with the
Purchaser as follows:
6.1 STOP-ORDERS. The Company will advise the Purchaser, promptly
after it receives notice of issuance by the Securities and Exchange Commission
(the "SEC"), any state securities commission or any other regulatory authority
of any stop order or of any order preventing or suspending any offering of any
securities of the Company, or of the suspension of the qualification of the
Common Stock of the Company for offering or sale in any jurisdiction, or the
initiation of any proceeding for any such purpose.
6.2 LISTING. The Company shall promptly secure the listing of the
shares of Common Stock issuable upon conversion of the Note and upon the
exercise of the Warrant on the Pink Sheets, the NASD OTC Bulletin Board, NASDAQ
SmallCap Market, NASDAQ National Market, American Stock Exchange or New York
Stock Exchange (the "PRINCIPAL MARKET") upon which shares of Common Stock are
then listed (subject to official notice of issuance) and shall maintain such
listing so long as any other shares of Common Stock shall be so listed. The
Company will maintain the listing of its Common Stock on a Principal Market, and
will comply in all material respects with the Company's reporting, filing and
other obligations under the bylaws or rules of the National Association of
Securities Dealers
13
("NASD") and such exchanges, as applicable. The Company will provide the
Purchaser copies of all notices it receives notifying the Company of the
threatened and actual delisting of the Common Stock from any Principal Market.
6.3 MARKET REGULATIONS. The Company shall notify the SEC, NASD and
applicable state authorities, in accordance with their requirements, of the
transactions contemplated by this Agreement, and shall take all other necessary
action and proceedings as may be required and permitted by applicable law, rule
and regulation, for the legal and valid issuance of the Securities to Purchaser
and promptly provide copies thereof to Purchaser.
6.4 REPORTING REQUIREMENTS. The Company will timely file with the
SEC all reports required to be filed pursuant to the Exchange Act and refrain
from terminating 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.
6.5 USE OF FUNDS. The Company agrees that it will use the proceeds
of the sale of the Note and Warrant for general corporate purposes only.
6.6 ACCESS TO FACILITIES. The Company will permit any
representatives designated by the Purchaser (or any transferee of the
Purchaser), upon reasonable notice and during normal business hours, at such
person's expense and accompanied by a representative of the Company, to (a)
visit and inspect any of the properties of the Company, (b) examine the
corporate and financial records of the Company (unless such examination is not
permitted by federal, state or local law or by contract) and make copies thereof
or extracts therefrom and (c) discuss the affairs, finances and accounts of any
such corporations with the directors, officers and independent accountants of
the Company. Notwithstanding the foregoing, the Company will not provide any
material, non-public information to the Purchaser unless the Purchaser signs a
confidentiality agreement and otherwise complies with Regulation FD, under the
federal securities laws.
6.7 TAXES. The Company will promptly pay and discharge, or cause to
be paid and discharged, when due and payable, all lawful taxes, assessments and
governmental charges or levies imposed upon the income, profits, property or
business of the Company; provided, however, that any such tax, assessment,
charge or levy need not be paid if the validity thereof shall currently be
contested in good faith by appropriate proceedings and if the Company shall have
set aside on its books adequate reserves with respect thereto, and provided,
further, that the Company will pay all such taxes, assessments, charges or
levies forthwith upon the commencement of proceedings to foreclose any lien
which may have attached as security therefor.
6.8 INSURANCE. The Company will keep its assets which are of an
insurable character insured by financially sound and reputable insurers against
loss or damage by fire, explosion and other risks customarily insured against by
companies in similar business similarly situated as the Company; and the Company
will maintain, with financially sound and reputable insurers, insurance against
other hazards and risks and liability to persons and property to the
14
extent and in the manner customary for companies in similar business similarly
situated as the Company and to the extent available on commercially reasonable
terms.
6.9 INTELLECTUAL PROPERTY. The Company shall maintain in full force
and effect its corporate existence, rights and franchises and all licenses and
other rights to use Intellectual Property owned or possessed by it and
reasonably deemed to be necessary to the conduct of its business.
6.10 PROPERTIES. The Company will keep its properties in good
repair, working order and condition, reasonable wear and tear excepted, and from
time to time make all needful and proper repairs, renewals, replacements,
additions and improvements thereto; and the Company will at all times comply
with each provision of all leases to which it is a party or under which it
occupies property if the breach of such provision could reasonably be expected
to have a material adverse effect.
6.11 CONFIDENTIALITY. The Company agrees that it will not disclose,
and will not include in any public announcement, the name of the Purchaser,
unless expressly agreed to by the Purchaser or unless and until such disclosure
is required by law or applicable regulation, and then only to the extent of such
requirement.
6.12 CORPORATE EXISTENCE. The Company shall maintain its corporate
existence, and will not liquidate, dissolve or effect a recapitalization,
reclassification or reorganization in any form of transaction. In addition, the
Company shall not sell all or substantially all of the Company's assets, except
in the event of a merger or consolidation or sale or transfer of all or
substantially all of the Company's assets, where the surviving or successor
entity in such transaction (i) assumes the Company's obligations hereunder and
the Related Agreements and (ii) if the surviving entity is not a publicly traded
company whose common stock is quoted or listed on a Principal Market, such
entity has paid in full the amounts outstanding under the Note.
6.13 REISSUANCE OF SECURITIES. The Company agrees to reissue
certificates representing the Securities without the legends set forth in
Section 5.7 above at such time as (a) the holder thereof is permitted to dispose
of such Securities pursuant to Rule 144(k) under the Securities Act, or (b) upon
resale subject to an effective registration statement after such Securities are
registered under the Securities Act. The Company agrees to cooperate with the
Purchaser in connection with all resales pursuant to Rule 144(d) and Rule 144(k)
and provide legal opinions necessary to allow such resales provided the Company
and its counsel receive reasonably requested representations from the selling
Purchaser and broker, if any.
6.14 OPINION. On the Closing Date, the Company will deliver to the
Purchaser an opinion acceptable to the Purchaser from the Company's legal
counsel in the form annexed hereto as Exhibit C. The Company will provide, at
the Company's expense, such other legal opinions in the future as are reasonably
necessary for the conversion of the Note and exercise of the Warrant.
15
7. COVENANTS OF THE COMPANY AND PURCHASER REGARDING INDEMNIFICATION.
7.1 COMPANY INDEMNIFICATION. The Company agrees to indemnify, hold
harmless, reimburse and defend Purchaser, each of Purchaser's officers,
directors, agents, affiliates, control persons, and shareholders, against any
claim, cost, expense, liability, obligation, loss or damage (including
reasonable legal fees) of any nature, incurred by or imposed upon the Purchaser
which results, arises out of or is based upon (i) any misrepresentation by
Company or breach of any warranty by Company in this Agreement or in any
exhibits or schedules attached hereto or any Related Agreement, or (ii) any
breach or default in performance by Company of any covenant or undertaking to be
performed by Company hereunder, or any other agreement entered into by the
Company and Purchaser relating hereto.
7.2 PURCHASER'S INDEMNIFICATION. Purchaser agrees to indemnify,
hold harmless, reimburse and defend the Company and each of the Company's
officers, directors, agents, affiliates, control persons and shareholders, at
all times against any claim, cost, expense, liability, obligation, loss or
damage (including reasonable legal fees) of any nature, incurred by or imposed
upon the Company which results, arises out of or is based upon (i) any
misrepresentation by Purchaser or breach of any warranty by Purchaser in this
Agreement or in any exhibits or schedules attached hereto or any Related
Agreement; or (ii) any breach or default in performance by Purchaser of any
covenant or undertaking to be performed by Purchaser hereunder, or any other
agreement entered into by the Company and Purchaser relating hereto.
7.3 PROCEDURES. The procedures and limitations set forth in Section
9.6 shall apply to the indemnifications set forth in Sections 7.1 and 7.2 above.
8. CONVERSION OF CONVERTIBLE NOTE.
8.1 MECHANICS OF CONVERSION.
(a) Provided the Purchaser has notified the Company of the
Purchaser's intention to sell the Note Shares and the Note Shares are included
in an effective registration statement or are otherwise exempt from registration
when sold: (i) Upon the conversion of the Note or part thereof, the Company
shall, at its own cost and expense, take all necessary action (including the
issuance of an opinion of counsel) to assure that the Company's transfer agent
shall issue shares of the Company's Common Stock in the name of the Purchaser
(or its nominee) or such other persons as designated by the Purchaser in
accordance with Section 8.1(b) hereof and in such denominations to be specified
representing the number of Note Shares issuable upon such conversion; and (ii)
The Company warrants that no instructions other than these instructions have
been or will be given to the transfer agent of the Company's Common Stock and
that after the Effective Date (as hereinafter defined) the Note Shares issued
will be freely transferable subject to the prospectus delivery requirements of
the Securities Act and the provisions of this Agreement, and will not contain a
legend restricting the resale or transferability of the Note Shares.
(b) Purchaser will give notice of its decision to exercise
its right to convert the Note or part thereof by telecopying or otherwise
delivering an executed and
16
completed notice of the number of shares to be converted to the Company (the
"NOTICE OF CONVERSION"). The Purchaser will not be required to surrender the
Note until the Purchaser receives a credit to the account of the Purchaser's
prime broker through the DWAC system (as defined below), representing the Note
Shares or until the Note has been fully satisfied. Each date on which a Notice
of Conversion is telecopied or delivered to the Company in accordance with the
provisions hereof shall be deemed a "CONVERSION DATE." The Company will cause
the transfer agent to transmit the shares of the Company's Common Stock issuable
upon conversion of the Note (and a certificate representing the balance of the
Note not so converted, if requested by Purchaser) to the Purchaser by crediting
the account of the Purchaser's prime broker with the Depository Trust Company
("DTC") through its Deposit Withdrawal Agent Commission ("DWAC") system within
four (4) business days after receipt by the Company of the Notice of Conversion
(the "DELIVERY DATE").
(c) The Company understands that a delay in the delivery of
the Note Shares in the form required pursuant to Section 8 hereof beyond the
Delivery Date could result in economic loss to the Purchaser. In the event that
the Company fails to direct its transfer agent to deliver the Note Shares to the
Purchaser via the DWAC system within the time frame set forth in Section 8.1(b)
above and the Note Shares are not delivered to the Purchaser by the Delivery
Date, as compensation to the Purchaser for such loss, the Company agrees to pay
late payments to the Purchaser for late issuance of the Note Shares in the form
required pursuant to Section 8 hereof upon conversion of the Note in the amount
equal to the greater of (i) $500 per business day after the Delivery Date or
(ii) the Purchaser's actual damages from such delayed delivery. Notwithstanding
the foregoing, the Company will not owe the Purchaser any late payments if the
delay in the delivery of the Note Shares beyond the Delivery Date is solely out
of the control of the Company and the Company is actively trying to cure the
cause of the delay or if there is a bona fide dispute as to the obligation of
the Company to deliver the Note Shares. The Company shall pay any payments
incurred under this Section in immediately available funds upon demand and, in
the case of actual damages, accompanied by reasonable documentation of the
amount of such damages. Such documentation shall show the number of shares of
Common Stock the Purchaser is forced to purchase (in an open market transaction)
which the Purchaser anticipated receiving upon such conversion, and shall be
calculated as the amount by which (A) the Purchaser's total purchase price
(including customary brokerage commissions, if any) for the shares of Common
Stock so purchased exceeds (B) the aggregate principal and/or interest amount of
the Note, for which such Conversion Notice was not timely honored.
(d) Nothing contained herein or in any document referred to
herein or delivered in connection herewith shall be deemed to establish or
require the payment of a rate of interest or other charges in excess of the
maximum permitted by applicable law. In the event that the rate of interest or
dividends required to be paid or other charges hereunder exceed the maximum
amount permitted by such law, any payments in excess of such maximum shall be
credited against amounts owed by the Company to a Purchaser and thus refunded to
the Company.
8.2 MANDATORY REDEMPTION. If after receiving a valid Notice of
Conversion, the Company is unable to issue Note Shares within five (5) business
days of a Delivery Date, for any reason, then at the Purchaser's election, the
Company must pay to the Purchaser five (5)
17
business days after request by the Purchaser or on the Delivery Date (if
requested by the Purchaser) a sum of money equal to 120% of the principal of the
Note required to be converted and not so converted (or otherwise not
convertible, as applicable) ("MANDATORY REDEMPTION PAYMENT AMOUNT"). The
Mandatory Redemption Payment Amount must be received by the Purchaser on the
same date as the Note Shares are otherwise deliverable or within five (5)
business days after request, whichever is sooner ("MANDATORY REDEMPTION PAYMENT
DATE"). Upon receipt of the Mandatory Redemption Payment Amount, the
corresponding Note principal and interest will be deemed paid and no longer
outstanding. Notwithstanding the foregoing, the Company will not owe the
Purchaser any late payments if the delay in the delivery of the Note Shares
beyond the Delivery Date is solely out of the control of the Company and the
Company is actively trying to cure the cause of the delay or if there is a bona
fide dispute as to the obligation of the Company to deliver the Note Shares.
8.3 MAXIMUM CONVERSION. The Purchaser shall not be entitled to
convert on a Conversion Date that amount of a Note in connection with that
number of shares of Common Stock which would be in excess of the sum of (i) the
number of shares of Common Stock beneficially owned by the Purchaser on a
Conversion Date, and (ii) the number of shares of Common Stock issuable upon the
conversion of the Note with respect to which the determination of this proviso
is being made on a Conversion Date, which would result in beneficial ownership
by the Purchaser of more than 4.9% of the outstanding shares of Common Stock of
the Company on such Conversion Date. For the purposes of the immediately
preceding sentence, beneficial ownership shall be determined in accordance with
Section 13(d) of the Exchange Act and Regulation 13d-3 thereunder. Subject to
the foregoing, a Purchaser shall not be limited to aggregate conversions of only
4.9%. Upon an Event of Default under the Note, the conversion limitation in this
Section 8.3 shall automatically become null and void. In the event of an
Optional Redemption or a Mandatory Redemption Payment, the Purchaser will be
permitted to raise the limit set forth in this Section 8.3.
8.4 OPTIONAL REDEMPTION. The Company will have the option of
redeeming the outstanding principal amount of the Note ("OPTIONAL REDEMPTION"),
subject to the other payment provisions herein, by paying to the Purchaser 120%
of such principal amount together with accrued but unpaid interest thereon and
any and all other sums due, accrued or payable to the Purchaser arising under
this Agreement, Note or any other document delivered herewith ("REDEMPTION
AMOUNT") outstanding on the day notice of redemption ("NOTICE OF REDEMPTION") is
delivered to a Purchaser ("REDEMPTION DATE"). A Notice of Redemption may not be
given in connection with any portion of Note for which a Notice of Conversion
has been given by the Purchaser at any time before receipt of a Notice of
Redemption or given pursuant to the following sentence. The Purchaser may elect
within five (5) business days after receipt of a Notice of Redemption to give
the Company a Notice of Conversion in connection with some or all of the Note
principal and interest which was the subject of the Notice of Redemption. The
Redemption Amount must be paid in good funds to the Purchaser no later than the
seventh (7th) business day after the Redemption Date ("OPTIONAL REDEMPTION
PAYMENT DATE"). In the event the Company fails to pay the Redemption Amount by
the Optional Redemption Payment Date, then the Redemption Notice will be null
and void. A Notice of Redemption may be given by the Company, provided (i) no
Event of Default as described in the Note shall have occurred or be continuing;
and (ii) the Note Shares issuable upon conversion of the full outstanding Note
18
principal are included for unrestricted resale in a registration statement
effective as of the Redemption Date.
9. REGISTRATION RIGHTS.
9.1 REGISTRATION RIGHTS GRANTED. The Company hereby grants the
following registration rights to the Purchaser.
(a) The Company shall use its reasonable commercial efforts
to file a Form SB-2 registration statement (or such other form that it is
eligible to use) in order to register the Registrable Securities for resale and
distribution under the Securities Act with the SEC within 30 days of the Closing
Date (the "FILING DATE"), and use its reasonable commercial efforts to cause
such registration statement to be declared effective within 120 days of the
Closing Date (the "EFFECTIVE DATE"). The Company will register not less than a
number of shares of Common Stock in the aforedescribed registration statement
that is equal to the Warrant Shares and 200% (or such lower amount as permitted
or required by the SEC) of the Note Shares issuable at the Conversion and
Purchase Prices set forth in the Note and Warrant, respectively, that would be
in effect on the Closing Date or the date of filing of such registration
statement (employing the price which would result in the greater number of
Shares), assuming the conversion of 100% of the principal amount of the Note
which is then outstanding, and at least one share of Common Stock for each
common share issuable upon exercise of the Warrant ("REGISTRABLE SECURITIES").
Such registration statement will be promptly amended or additional registration
statements will be promptly filed by the Company as necessary to register
additional Company Shares to allow the public resale of all Common Stock
included in and issuable by virtue of the Registrable Securities. No securities
of the Company other than the Registrable Securities will be included in the
registration statement described in this Section 9.1(a).
9.2 REGISTRATION PROCEDURES. If and whenever the Company is
required by the provisions hereof to effect the registration of the Registrable
Securities under the Act, the Company will, as expeditiously as possible:
(a) prepare and file with the SEC a registration statement
with respect to such securities and use its best efforts to cause such
registration statement to become and remain effective for the period of the
distribution contemplated thereby (determined as herein provided), and promptly
provide to the Purchaser copies of all filings and SEC letters of comment;
(b) prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective
until the earlier of: (i) six months after the latest exercise period of the
Warrant; (ii) four years after the Closing Date, or (iii) the date on which the
Purchaser has disposed of all of the Registrable Securities covered by such
registration statement in accordance with the Purchaser's intended method of
disposition set forth in such registration statement for such period;
(c) furnish to the Purchaser such number of copies of the
registration statement and the prospectus included therein (including each
preliminary prospectus) as the
19
Purchaser reasonably may request to facilitate the public sale or disposition of
the securities covered by such registration statement;
(d) use its commercially reasonable efforts to register or
qualify the Purchaser's Registrable Securities covered by such registration
statement under the securities or "blue sky" laws of such jurisdictions as the
Purchaser, provided, however, that the Company shall not for any such purpose be
required to qualify generally to transact business as a foreign corporation in
any jurisdiction where it is not so qualified or to consent to general service
of process in any such jurisdiction;
(e) list the Registrable Securities covered by such
registration statement with any securities exchange on which the Common Stock of
the Company is then listed;
(f) promptly notify the Purchaser at any time of the
happening of any event of which the Company has knowledge as a result of which
the prospectus contained in such registration statement, as then in effect,
includes an untrue statement of a 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
(g) make available for inspection by the Purchaser and any
attorney, accountant or other agent retained by the Purchaser, all publicly
available, non-confidential financial and other records, pertinent corporate
documents and properties of the Company, and cause the Company's officers,
directors and employees to supply all publicly available, non-confidential
information reasonably requested by the attorney, accountant or agent of the
Purchaser.
9.3 PROVISION OF DOCUMENTS.
(a) In connection with each registration hereunder, the
Purchaser will furnish to the Company in writing such information and
representation letters with respect to itself and the proposed distribution by
it as reasonably shall be necessary in order to assure compliance with federal
and applicable state securities laws.
9.4 NON-REGISTRATION EVENTS. (a) If (i) the Registration Statement
described in Section 9.1(a) is not filed on or before the Filing Date or not
declared effective on or before the sooner of the Effective Date, or within
three business days of receipt by the Company of a communication from the SEC
that the registration statement described in Section 9.1(a) will not be
reviewed, or (ii) if the registration statement described in Section 9.1(a) is
filed and declared effective but shall thereafter cease to be effective (without
being succeeded immediately by an additional registration statement filed and
declared effective) for a period of time which shall exceed 30 days in the
aggregate per year but not more than 20 consecutive calendar days (defined as a
period of 365 days commencing on the date the Registration Statement is declared
effective) (each such event referred to in this Section 9.4 is referred to
herein as a "NON-REGISTRATION EVENT"), then, for so long as such
Non-Registration Event shall continue, the Company shall pay in cash as
Liquidated Damages to each holder of any Registrable Securities
20
an amount equal to the Mandatory Redemption Payment Amount. Payments to be made
pursuant to this Section shall be due and payable immediately upon demand in
immediately available funds. It shall be deemed a Non-Registration Event to the
extent that all the Common Stock included in the Registrable Securities and
underlying the Securities is not included in an effective registration statement
as of and after the Effective Date at the conversion prices in effect from and
after the Effective Date.
9.5 EXPENSES. All expenses incurred by the Company in complying
with Section 9, including, without limitation, all registration and filing fees,
printing expenses, fees and disbursements of counsel and independent public
accountants for the Company, fees and expenses (including reasonable counsel
fees) incurred in connection with complying with state securities or "blue sky"
laws, fees of the NASD, transfer taxes, fees of transfer agents and registrars,
fees of, and disbursements incurred by, one counsel for the Purchaser, and costs
of insurance are called "REGISTRATION EXPENSES". All underwriting discounts and
selling commissions applicable to the sale of Registrable Securities, including
any fees and disbursements of any special counsel to the Purchaser beyond those
included in Registration Expenses, are called "SELLING EXPENSES."
The Company will pay all Registration Expenses. All Selling
Expenses in connection with each registration statement under Section 9 shall be
borne by the Purchaser.
9.6 INDEMNIFICATION.
(a) In the event of a registration of any Registrable
Securities under the Securities Act pursuant to Section 9, the Company will
indemnify and hold harmless the Purchaser, and its officers, directors and each
other person, if any, who controls the Purchaser within the meaning of the
Securities Act, against any losses, claims, damages or liabilities, joint or
several, to which the Purchaser, or such persons may become subject under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
any registration statement under which such Registrable Securities were
registered under the Securities Act pursuant to Section 9, any preliminary
prospectus or final prospectus contained therein, or any amendment or supplement
thereof, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, and will reimburse the Purchaser, and
each such person for any reasonable legal or other expenses incurred by them in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company will not be liable in
any such case if and to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission so made in conformity with information
furnished by the Purchaser or any such person in writing specifically for use in
any such document.
(b) In the event of a registration of the Registrable
Securities under the Securities Act pursuant to Section 9, the Purchaser will
indemnify and hold harmless the Company, and its officers, directors and each
other person, if any, who controls the Company
21
within the meaning of the Securities Act, against all losses, claims, damages or
liabilities, joint or several, to which the Company or such persons may become
subject under the Securities Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in the registration statement under which such Registrable Securities
were registered under the Securities Act pursuant to Section 9, any preliminary
prospectus or final prospectus contained therein, or any amendment or supplement
thereof, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, and will reimburse the Company and each
such person for any reasonable legal or other expenses incurred by them in
connection with investigating or defending any such loss, claim, damage,
liability or action, provided, however, that the Purchaser will be liable in any
such case if and only to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission so made in conformity with information
furnished in writing to the Company by the Purchaser specifically for use in any
such document.
(c) Promptly after receipt by an indemnified party hereunder
of notice of the commencement of any action, such indemnified party shall, if a
claim in respect thereof is to be made against the indemnifying party hereunder,
notify the indemnifying party in writing thereof, but the omission so to notify
the indemnifying party shall not relieve it from any liability which it may have
to such indemnified party other than under this Section 9.6(c) and shall only
relieve it from any liability which it may have to such indemnified party under
this Section 9.6(c) if and to the extent the indemnifying party is prejudiced by
such omission. In case any such action shall be brought against any indemnified
party and it shall notify the indemnifying party of the commencement thereof,
the indemnifying party shall be entitled to participate in and, to the extent it
shall wish, to assume and undertake the defense thereof with counsel
satisfactory to such indemnified party, and, after notice from the indemnifying
party to such indemnified party of its election so to assume and undertake the
defense thereof, the indemnifying party shall not be liable to such indemnified
party under this Section 9.6(c) for any legal expenses subsequently incurred by
such indemnified party in connection with the defense thereof; if the
indemnified party retains its own counsel, then the indemnified party shall pay
all fees, costs and expenses of such counsel, provided, however, that, if the
defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that there may be reasonable defenses available to it which are different from
or additional to those available to the indemnifying party or if the interests
of the indemnified party reasonably may be deemed to conflict with the interests
of the indemnifying party, the indemnified parties shall have the right to
select one separate counsel and to assume such legal defenses and otherwise to
participate in the defense of such action, with the reasonable expenses and fees
of such separate counsel and other expenses related to such participation to be
reimbursed by the indemnifying party as incurred.
(d) In community housing development organization order to
provide for just and equitable contribution in the event of joint liability
under the Securities Act in any case in which either (i) the Purchaser, or any
controlling person of the Purchaser, makes a claim for indemnification pursuant
to this Section 9.6 but it is judicially determined (by the entry of a
22
final judgment or decree by a court of competent jurisdiction and the expiration
of time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
this Section 9.6 provides for indemnification in such case, or (ii) contribution
under the Securities Act may be required on the part of the Purchaser or
controlling person of the Purchaser in circumstances for which indemnification
is provided under this Section 9.6; then, and in each such case, the Company and
the Purchaser will contribute to the aggregate losses, claims, damages or
liabilities to which they may be subject (after contribution from others) in
such proportion so that the Purchaser is responsible only for the portion
represented by the percentage that the public offering price of its securities
offered by the registration statement bears to the public offering price of all
securities offered by such registration statement, provided, however, that, in
any such case, (A) the Purchaser will not be required to contribute any amount
in excess of the public offering price of all such securities offered by it
pursuant to such registration statement; and (B) no person or entity guilty of
fraudulent misrepresentation (within the meaning of Section 10(f) of the Act)
will be entitled to contribution from any person or entity who was not guilty of
such fraudulent misrepresentation.
10. OFFERING RESTRICTIONS. Except as previously disclosed in the SEC
Reports or in the Exchange Act Filings, or stock or stock options granted to
employees or directors of the Company; or equity or debt issued in connection
with an acquisition of a business or assets by the Company; or the issuance by
the Company of stock in connection with the establishment of a joint venture
partnership or licensing arrangement (these exceptions hereinafter referred to
as the "EXCEPTED ISSUANCES"), the Company will not issue, without the prior
written consent of the Purchaser, which such consent shall not be unreasonably
withheld, any securities with a variable/floating conversion feature which are
or could be (by conversion or registration) free-trading securities (i.e. common
stock subject to a registration statement) prior to the full repayment or
conversion of the Note (the "EXCLUSION PERIOD").
11. SECURITY INTEREST. As a condition of Closing, the Company will grant
to the Purchaser a security interest in its assets pursuant to a Security
Agreement. The Company will also execute all such documents reasonably necessary
to memorialize and further protect the security interest described above.
12. MISCELLANEOUS.
12.1 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, without regard
to principles of conflicts of laws. Any action brought by either party against
the other concerning the transactions contemplated by this Agreement shall be
brought only in the state courts of New York or in the federal courts located in
the state of New York; provided, however that the Purchaser may choose to waive
this provision and bring an action outside the state of New York. Both parties
and the individuals executing this Agreement and other agreements on behalf of
the Company agree to submit to the jurisdiction of such courts. In the event
that any provision of this Agreement or any other agreement delivered in
connection herewith is invalid or unenforceable under any applicable statute or
rule of law, then such provision shall be deemed inoperative to the extent that
it may conflict therewith and shall be deemed modified to conform with such
23
statute or rule of law. Any such provision which may prove invalid or
unenforceable under any law shall not affect the validity or enforceability of
any other provision of any agreement.
12.2 SURVIVAL. The representations, warranties, covenants and
agreements made herein shall survive any investigation made by the Purchaser and
the closing of the transactions contemplated hereby to the extent provided
therein. All statements as to factual matters contained in any certificate or
other instrument delivered by or on behalf of the Company pursuant hereto in
connection with the transactions contemplated hereby shall be deemed to be
representations and warranties by the Company hereunder solely as of the date of
such certificate or instrument.
12.3 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto and shall inure to the benefit of and be enforceable by each
person who shall be a holder of the Securities from time to time.
12.4 ENTIRE AGREEMENT. This Agreement, the exhibits and schedules
hereto, the Related Agreements and the other documents delivered pursuant hereto
constitute the full and entire understanding and agreement between the parties
with regard to the subjects hereof and no party shall be liable or bound to any
other in any manner by any representations, warranties, covenants and agreements
except as specifically set forth herein and therein.
12.5 SEVERABILITY. In case any provision of the Agreement shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
12.6 AMENDMENT AND WAIVER.
(a) This Agreement may be amended or modified only upon the
written consent of the Company and the Purchaser.
(b) The obligations of the Company and the rights of the
Purchaser under this Agreement may be waived only with the written consent of
the Purchaser.
12.7 DELAYS OR OMISSIONS. It is agreed that no delay or omission to
exercise any right, power or remedy accruing to any party, upon any breach,
default or noncompliance by another party under this Agreement or the Related
Agreements, shall impair any such right, power or remedy, nor shall it be
construed to be a waiver of any such breach, default or noncompliance, or any
acquiescence therein, or of or in any similar breach, default or noncompliance
thereafter occurring. All remedies, either under this Agreement, the Note or the
Related Agreements, by law or otherwise afforded to any party, shall be
cumulative and not alternative.
12.8 NOTICES. All notices required or permitted hereunder shall be
in writing and shall be deemed effectively given: (a) upon personal delivery to
the party to be notified, (b) when sent by confirmed facsimile if sent during
normal business hours of the recipient, if not,
24
then on the next business day, (c) five days after having been sent by
registered or certified mail, return receipt requested, postage prepaid, or (d)
one day after deposit with a nationally recognized overnight courier, specifying
next day delivery, with written verification of receipt. All communications
shall be sent to the Company at the address as set forth on the signature page
hereof, to the attention of Xxxxx Xxxxxx and Xxxxxxxx Xxxxxxx, facsimile number
000-000-0000, and to the Purchaser at the address set forth on the signature
page hereto for such Purchaser, with a copy in the case of the Purchaser to
Xxxxxx X. Xxxxxx, Esq., 000 Xxxx 00xx Xxxxxx, 0xx Xxxxx, Xxx Xxxx, XX 00000,
facsimile number (000) 000-0000, or at such other address as the Company or the
Purchaser may designate by ten days advance written notice to the other parties
hereto.
12.9 ATTORNEYS' FEES. In the event that any suit or action is
instituted to enforce any provision in this Agreement, the prevailing party in
such dispute shall be entitled to recover from the losing party all fees, costs
and expenses of enforcing any right of such prevailing party under or with
respect to this Agreement, including, without limitation, such reasonable fees
and expenses of attorneys and accountants, which shall include, without
limitation, all fees, costs and expenses of appeals.
12.10 TITLES AND SUBTITLES. The titles of the sections and
subsections of the Agreement are for convenience of reference only and are not
to be considered in construing this Agreement.
12.11 FACSIMILE SIGNATURES; COUNTERPARTS. This Agreement may be
executed by facsimile signatures and in any number of counterparts, each of
which shall be an original, but all of which together shall constitute one
instrument.
12.12 BROKER'S FEES. Each party hereto represents and warrants that,
except as each party may have notified the other in writing on or prior to the
date hereof, no agent, broker, investment banker, person or firm acting on
behalf of or under the authority of such party hereto is or will be entitled to
any broker's or finder's fee or any other commission directly or indirectly in
connection with the transactions contemplated herein. Each party hereto further
agrees to indemnify each other party for any claims, losses or expenses incurred
by such other party as a result of the representation in this Section 12.12
being untrue.
12.13 CONSTRUCTION. Each party acknowledges that its legal counsel
participated in the preparation of this Agreement and, therefore, stipulates
that the rule of construction that ambiguities are to be resolved against the
drafting party shall not be applied in the interpretation of this Agreement to
favor any party against the other.
IN WITNESS WHEREOF, the parties hereto have executed the SECURITIES PURCHASE
AGREEMENT as of the date set forth in the first paragraph hereof.
25
COMPANY: PURCHASER:
BILLSERV, INC. LAURUS MASTER FUND, LTD.
By: By:
------------------------------- ---------------------------------
Name: Name:
Title: Address: c/o Ironshore Corporate Services Ltd.
Address: X.X. Xxx 0000 G.T., Xxxxxxxxxx Xxxxx
000 Xxxxx Xxxx 1604 East, Suite 000 Xxxxx Xxxxxx Xxxxxx
Xxx Xxxxxxx, Xxxxx 00000 Grand Cayman, Cayman Islands
26
THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS
NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF
THIS NOTE MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED
IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS
NOTE UNDER SAID ACT OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY
TO BILLSERV, INC., THAT SUCH REGISTRATION IS NOT REQUIRED.
CONVERTIBLE NOTE
FOR VALUE RECEIVED, BILLSERV, INC., a Nevada corporation
(hereinafter called the "BORROWER"), hereby promises to pay to LAURUS MASTER
FUND, LTD., c/o Ironshore Corporate Services Ltd., X.X. Xxx 0000 G.T.,
Queensgate House, South Church Street, Grand Cayman, Cayman Islands, Fax:
000-000-0000 (the "HOLDER") or its registered assigns or successors in interest,
on order, without demand, the sum of One Million Five Hundred Thousand Dollars
($1,500,000), with any accrued and unpaid interest on July ___, 2003 (the
"Maturity Date"). Capitalized terms used herein without definition shall have
the meanings ascribed to such terms in the Purchase Agreement (as defined in
Section 3.1(a) below).
The following terms shall apply to this Note:
ARTICLE I
INTEREST
1.1. INTEREST RATE. Interest payable on this Note shall accrue at
the annual rate of seven percent (7%) and be payable in arrears commencing one
month from the date hereof and on the first business day of each consecutive
calendar month thereafter, and on the Maturity Date, accelerated or otherwise,
due and payable as described below.
1.2. PAYMENT GRACE PERIOD. The Borrower shall have a seven (7) day
grace period to pay any monetary amounts due under this Note, after which grace
period a default interest rate of five percent (5%) per annum above the then
applicable interest rate hereunder shall apply to the amounts owed hereunder.
27
ARTICLE II
AMORTIZATION
2.1. MONTHLY PAYMENTS. Subject to the terms of this Article II, the
Borrower shall repay one-ninth of the original principal amount of this Note (to
the extent such amount has not been converted pursuant to Article III below),
together with interest accrued to date on such portion of the original principal
amount plus any and all default payments owing under the Purchase Agreement but
not previously paid (collectively the "MONTHLY AMOUNT"), in accordance with
Section 2.2 below, on the first business day of each consecutive calendar month
(each, a "REPAYMENT DATE"), beginning on the first such day which occurs
following ninety (90) days from the date hereof. Notwithstanding the foregoing,
the Holder will have the option to delay the start of the amortization for up to
120 days from the date hereof and the Monthly Amount will then become one-eighth
of the original principal amount of the Note.
2.2. CASH OR COMMON STOCK. Subject to the terms hereof, the
Borrower has the sole option to determine whether to satisfy payment of the
Monthly Amount in full on each Repayment Date either in cash or in shares of
Common Stock, or a combination of both. The Borrower shall deliver to the Holder
a written irrevocable notice in the form of Exhibit B attached hereto electing
to pay such Monthly Amount in full on such Repayment Date in either cash or
Common Stock, or a combination of both ("REPAYMENT ELECTION NOTICE"). Such
Repayment Election Notice shall be delivered to the Holder at least twenty (20)
days prior to the applicable Repayment Date (the date of such notice being
hereinafter referred to as the "NOTICE DATE"). If such Repayment Election Notice
is not delivered within the prescribed period set forth in the preceding
sentence, then the repayment shall be made in either cash or shares of Common
Stock on the same terms hereunder at the Holder's sole option. If the Borrower
elects or is required to repay all or a portion of the Monthly Amount in cash on
a Repayment Date, then on such Repayment Date the Borrower shall pay to the
Holder an amount equal to 105% of the Monthly Amount in satisfaction of such
obligation. If the Borrower repays all or a portion of the Monthly Amount in
shares of Common Stock, the number of such shares to be issued for such
Repayment Date shall be the number determined by dividing (x) the portion of the
Monthly Amount to be paid in shares of Common Stock, by (y) the Conversion Price
(as defined herein) as of such date.
2.3. NO EFFECTIVE REGISTRATION. Notwithstanding anything to the
contrary herein, the Borrower shall be prohibited from exercising its right to
repay the Monthly Amount in shares of Common Stock (and must deliver cash in
respect thereof) on the applicable Repayment Date if at any time from the Notice
Date until the time at which the Holder receive such shares there fails to exist
an effective registration statement or an Event of Default
28
hereunder exists or occurs, unless otherwise waived in writing by the Holder in
whole or in part at the Holder's option.
2.4. DEEMED CONVERSIONS. Any repayment of the Monthly Amount in
shares of Common Stock pursuant to the terms hereof shall constitute and be
deemed a conversion of such portion of the applicable principal amount of this
Note for all purposes under this Note and the Purchase Agreement (except as
otherwise provided herein).
ARTICLE III
CONVERSION RIGHTS
3.1. CONVERSION INTO THE BORROWER'S COMMON STOCK.
(a) Subject to the provisions set forth above, the Holder shall
have the right, but not the obligation, from and after the date hereof, and then
at any time until this Note is fully paid, to convert the principal portion of
this Note and/or interest due and payable into fully paid and nonassessable
shares of common stock of the Borrower as such stock exists on the date of
issuance of this Note, or any shares of capital stock of the Borrower into which
such stock shall hereafter be changed or reclassified (the "COMMON STOCK") at
the fixed conversion price of $.78 subject to adjustment as provided in Section
3.1(c) hereof (the "FIXED CONVERSION PRICE").
Upon delivery to the Borrower of a Notice of Conversion as described
in Section 8 of the Securities Purchase Agreement entered into between the
Borrower and the Holder relating to this Note (the "PURCHASE AGREEMENT") of the
Holder's written request for conversion (the date of giving such notice of
conversion being a "CONVERSION DATE"), the Borrower shall issue and deliver to
the Holder within three business days from the Conversion Date that number of
shares of Common Stock for the portion of the Note converted in accordance with
the foregoing. The number of shares of Common Stock to be issued upon each
conversion of this Note shall be determined by dividing that portion of the
principal of the Note to be converted and interest, if any, by the Fixed
Conversion Price as of the Conversion Date. In the event of any conversions of
outstanding principal amount under this Note in part pursuant to this Article
III, such conversions shall be deemed to constitute conversions of outstanding
principal amount applying to Monthly Amounts for the Repayment Dates in
chronological order. By way of example, if the original principal amount of this
Note is $1,500,000 and the Holder converted $333,333 of such original principal
amount prior to the first Repayment Date, then (1) the principal amount of the
Monthly Amount due on the first Repayment Date would equal $0, (2) the principal
amount of the Monthly Amount due on the second Repayment Date would equal $0 and
(3) the principal amount of the Monthly Amount due on each of the remaining
Repayment Dates would be $166,666.
29
(b) In the event of any payment of the Monthly Amount by the
Borrower in shares of Common Stock, the conversion price (the "CONVERSION
PRICE") shall be equal to the lesser of (i) the Fixed Conversion Price and (ii)
88% of the average of the seven (7) lowest closing prices of the Common Stock on
the Principal Market for the 22 trading day period immediately preceding the
Repayment Date.
The "Principal Market" shall include the NASD OTC Bulletin Board,
NASDAQ SmallCap Market, NASDAQ National Market System, American Stock Exchange,
or New York Stock Exchange (whichever of the foregoing is at the time the
principal trading exchange or market for the Common Stock, or any securities
exchange or other securities market on which the Common Stock is then being
listed or traded.
(c) The Fixed Conversion Price and number and kind of shares or
other securities to be issued upon conversion determined pursuant to Section
3.1(a) and 3.1(b), shall be subject to adjustment from time to time upon the
happening of certain events while this conversion right remains outstanding, as
follows:
A. Merger, Sale of Assets, etc. If the Borrower at any time
shall consolidate with or merge into or sell or convey all or substantially all
its assets to any other corporation, this Note, as to the unpaid principal
portion thereof and accrued interest thereon, shall thereafter be deemed to
evidence the right to purchase such number and kind of shares or other
securities and property as would have been issuable or distributable on account
of such consolidation, merger, sale or conveyance, upon or with respect to the
number of shares of Common Stock the Holder could have acquired immediately
prior to such consolidation, merger, sale or conveyance based on the Fixed
Conversion Price or the Conversion Price, as the case may be, as of the closing
date thereof. The foregoing provision shall similarly apply to successive
transactions of a similar nature by any such successor or purchaser. Without
limiting the generality of the foregoing, the provisions of this Section shall
apply to such securities of such successor or purchaser after any such
consolidation, merger, sale or conveyance.
B. Reclassification, etc. If the Borrower at any time
shall, by reclassification or otherwise, change the Common Stock into the same
or a different number of securities of any class or classes, this Note, as to
the unpaid principal portion thereof and accrued interest thereon, shall
thereafter be deemed to evidence the right to purchase an adjusted number of
such securities and kind of securities as would have been issuable as the result
of such change with respect to the number of shares of Common Stock into which
the Note would have been convertible immediately prior to such reclassification
or other change at the Fixed Conversion Price or the Conversion Price, as the
case may be, as of the effective date for such reclassification or change.
30
C. Stock Splits, Combinations and Dividends. If the shares
of Common Stock are subdivided or combined into a greater or smaller number of
shares of Common Stock, or if a dividend is paid on the Common Stock in shares
of Common Stock, the Fixed Conversion Price or the Conversion Price, as the case
may be, shall be proportionately reduced in case of subdivision of shares or
stock dividend or proportionately increased in the case of combination of
shares, in each such case by the ratio which the total number of shares of
Common Stock outstanding immediately after such event bears to the total number
of shares of Common Stock outstanding immediately prior to such event.
D. Share Issuance. Subject to the provisions of this
Section, if the Borrower at any time shall issue any shares of Common Stock
prior to the conversion of the entire principal amount of the Note (otherwise
than as: (i) provided in Sections 3.1(c)A, 3.1(c)B or 3.1(c)C or this
subparagraph D; or (ii) pursuant to warrants or options that may be granted in
the future under any option plan of the Borrower, or any employment agreement,
joint venture, credit, leasing or other financing agreement or any joint venture
or other strategic arrangement, in each case now or hereinafter entered into by
the Borrower, (iii) pursuant to any agreement entered into by the Company or any
of its subsidiaries for the acquisition of another business (whether by stock
purchase or asset purchase, merger or otherwise; ((i), (ii) and (iii) above, are
hereinafter referred to as the "EXCLUDED ISSUANCES")) for a consideration less
than the Fixed Conversion Price that would be in effect at the time of such
issue, then, the Holder shall have the right to purchase such additional shares
at the same price sold to such third parties. If, and only if, the Holder elects
to purchase such additional shares, then the Fixed Conversion Price shall be
reduced as follows: (i) the number of shares of Common Stock outstanding
immediately prior to such issue shall be multiplied by the Fixed Conversion
Price in effect at the time of such issue and the product shall be added to the
aggregate consideration, if any, received by the Borrower upon such issue of
additional shares of Common Stock; and (ii) the sum so obtained shall be divided
by the number of shares of Common Stock outstanding immediately after such
issue. The resulting quotient shall be the adjusted Fixed Conversion Price. (By
way of example, if the number of shares of Common Stock outstanding immediately
prior to the additional issuance is 20,000,000 shares, the Fixed Conversion
Price is $1.00 and the Company raises $1,000,000 at a price of $.75 per share,
then the Fixed Conversion Price would be reduced to $.98.) Except for the
Excluded Issuances for purposes of this adjustment, the issuance of any security
of the Borrower carrying the right to convert such security into shares of
Common Stock or of any warrant, right or option to purchase Common Stock shall
result in an adjustment to the Fixed Conversion Price upon the issuance of
shares of Common Stock upon exercise of such conversion or purchase rights. If
the Holder does not elect to purchase such additional shares, then the
adjustment in this Subsection shall not be applicable.
31
(d) During the period the conversion right exists, the
Borrower will reserve from its authorized and unissued Common Stock a sufficient
number of shares to provide for the issuance of Common Stock upon the full
conversion of this Note. The Borrower represents that upon issuance, such shares
will be duly and validly issued, fully paid and non-assessable. The Borrower
agrees that its issuance of this Note shall constitute full authority to its
officers, agents, and transfer agents who are charged with the duty of executing
and issuing stock certificates to execute and issue the necessary certificates
for shares of Common Stock upon the conversion of this Note.
3.2 METHOD OF CONVERSION. This Note may be converted by the Holder
in whole or in part as described in Section 3.1(a) hereof and the Purchase
Agreement. Upon partial conversion of this Note, a new Note containing the same
date and provisions of this Note shall, at the request of the Holder, be issued
by the Borrower to the Holder for the principal balance of this Note and
interest which shall not have been converted or paid.
3.3 OVERALL LIMIT ON COMMON STOCK ISSUABLE. The number of shares
of Common Stock issuable by the Borrower and acquirable by the Holder, shall not
exceed 19.9% of the number of shares of Common Stock outstanding on the Closing
Date, subject to appropriate adjustment for stock splits, stock dividends, or
other similar recapitalizations affecting the Common Stock (the "MAXIMUM COMMON
STOCK ISSUANCE"), unless the issuance of shares hereunder in excess of the
Maximum Common Stock Issuance shall first be approved by the Borrower's
shareholders. If at any point in time and from time to time (each, a "TRIGGER
DATE") the number of shares of Common Stock issued pursuant to conversion of the
Note, together with the number of shares of Common Stock that would then be
issuable by the Borrower in the event of the conversion of the entire Note,
would exceed the Maximum Common Stock Issuance but for this Section, then the
Borrower shall, at the Borrower's election, either (a) promptly call a
shareholders meeting to obtain shareholder approval for the issuance of the
shares of Common Stock hereunder in excess of the Maximum Common Stock Issuance,
which such shareholder approval shall be obtained within 60 days of the Trigger
Date, or (b) purchase from the Holder such principal amount of the Note plus
accrued interest which cannot be converted due to such Maximum Common Stock
Issuance limitation at a redemption price equal to the Mandatory Redemption
Payment (as defined in the Purchase Agreement), which redemption price such
payment shall be paid within five (5) business days after a Trigger Date if this
clause (b) is elected, or, if clause (a) is elected, five (5) business days
following the Borrower's failure to so obtain shareholder approval, as the case
may be. The Borrower shall make such election within three (3) business days
following the Trigger Date by giving written notice to the Holder.
32
ARTICLE IV
EVENT OF DEFAULT
The occurrence of any of the following events is an Event of Default
("EVENT OF DEFAULT"):
4.1 FAILURE TO PAY PRINCIPAL, INTEREST OR OTHER FEES. The Borrower
fails to pay any installment of principal, interest or other fees hereon or on
any other promissory note issued pursuant to the Purchase Agreement and this
Note, when due and such failure continues for a period of ten (10) days after
the due date.
4.2 BREACH OF COVENANT. The Borrower breaches any material
covenant or other term or condition of this Note or the Purchase Agreement in
any material respect and such breach, if subject to cure, continues for a period
of ten (10) days after written notice to the Borrower from the Holder.
4.3 BREACH OF REPRESENTATIONS AND WARRANTIES. Any material
representation or warranty of the Borrower made herein, in the Purchase
Agreement, or in any agreement, statement or certificate given in writing
pursuant hereto or in connection therewith shall be false or misleading and
shall not be cured for a period of twenty (20) days after written notice thereof
is received by the Borrower from the Holder.
4.4 RECEIVER OR TRUSTEE. The Borrower shall make an assignment for
the benefit of creditors, or apply for or consent to the appointment of a
receiver or trustee for it or for a substantial part of its property or
business; or such a receiver or trustee shall otherwise be appointed.
4.5 Judgments. Any money judgment, writ or similar final process
shall be entered or filed against the Borrower or any of its property or other
assets for more than $250,000, and shall remain unvacated, unbonded or unstayed
for a period of ninety (90) days.
4.6 Bankruptcy. Bankruptcy, insolvency, reorganization or
liquidation proceedings or other proceedings or relief under any bankruptcy law
or any law for the relief of debtors shall be instituted by or against the
Borrower.
4.7 STOP TRADE. An SEC stop trade order or Principal Market
trading suspension of the Common Stock for 5 consecutive days or 5 days during a
period of 10 consecutive days, excluding in all cases a suspension of all
trading on a Principal Market.
33
If an Event of Default occurs and is continuing, the Holder may make
all sums of principal, interest and other fees then remaining unpaid hereon and
all other amounts payable hereunder due and payable within 30 days of written
notice from Holder to Borrower (each occurrence being a "DEFAULT NOTICE PERIOD")
of an Event of Default (as defined below). In the event of an acceleration, the
amount due and owing to the Holder shall be 120% of the outstanding principal
amount of the Note (plus accrued and unpaid interest and fees, if any), except
for an Event of Default resulting, in whole or in part, from a breach of Section
8.6 of the Purchase Agreement in which case the amount due and owing to the
Holder shall be 100% of the principal amount of the Note (plus accrued and
unpaid interest and fees, if any). If during the Default Notice Period, Borrower
cures the Event of Default (other than a payment default described in section
4.1 above), the Event of Default will no longer exist and any rights Holder had
pertaining to the Event of Default will no longer exist.
If after the Default Notice Period the Borrower has not repaid in
full amount then due hereunder, then, and only then, the conversion price
hereunder shall be reduced and shall be equal to the lower of (i) the Fixed
Conversion Price; or (ii) seventy percent (70%) of the average of the three
lowest closing prices for the Common Stock on the Principal Market, for the
thirty (30) trading days prior to but not including the Conversion Date.
ARTICLE V
MISCELLANEOUS
5.1 FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the
part of the Holder hereof 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. All rights and
remedies existing hereunder are cumulative to, and not exclusive of, any rights
or remedies otherwise available.
5.2 NOTICES. Any notice herein required or permitted to be given
shall be in writing and shall be deemed effectively given: (a) upon personal
delivery to the party notified, (b) when sent by confirmed telex or facsimile if
sent during normal business hours of the recipient, if not, then on the next
business day, (c) five days after having been sent by registered or certified
mail, return receipt requested, postage prepaid, or (d) one day after deposit
with a nationally recognized overnight courier, specifying next day delivery,
with written verification of receipt. All communications shall be sent to the
Borrower at the address as set forth on the signature page to the Purchase
Agreement executed in connection herewith, and to the Holder at the address set
forth on the signature page to the Purchase Agreement for such Holder, with a
copy to Xxxxxx X. Xxxxxx, Esq., 000 Xxxx 00xx Xxxxxx, 0xx Xxxxx, Xxx Xxxx, Xxx
Xxxx 00000, facsimile number (000) 000-0000, or at such other address as the
Borrower or the Holder may designate by ten days advance written notice to the
other parties hereto. A Notice of Conversion shall be deemed given when made to
the Borrower pursuant to the Purchase Agreement.
34
5.3 AMENDMENT PROVISION. The term "Note" and all reference
thereto, as used throughout this instrument, shall mean this instrument as
originally executed, or if later amended or supplemented, then as so amended or
supplemented.
5.4 ASSIGNABILITY. This Note shall be binding upon the Borrower
and its successors and assigns, and shall inure to the benefit of the Holder and
its successors and assigns, and may be assigned by the Holder if approved in
writing by Borrower, which shall not be unreasonably withheld.
5.5 GOVERNING LAW. This Note shall be governed by and construed in
accordance with the laws of the State of New York, without regard to principles
of conflicts of laws. Any action brought by either party against the other
concerning the transactions contemplated by this Agreement shall be brought only
in the state courts of New York or in the federal courts located in the state of
New York; provided, however that the Purchaser may choose to waive this
provision and bring an action outside the state of New York. Both parties and
the individual signing this Note on behalf of the Borrower agree to submit to
the jurisdiction of such courts. The prevailing party shall be entitled to
recover from the other party its reasonable attorney's fees and costs. In the
event that any provision of this Note is invalid or unenforceable under any
applicable statute or rule of law, then such provision shall be deemed
inoperative to the extent that it may conflict therewith and shall be deemed
modified to conform with such statute or rule of law. Any such provision which
may prove invalid or unenforceable under any law shall not affect the validity
or unenforceability of any other provision of this Note.
5.6 Maximum PAYMENTS. Nothing contained herein shall be deemed to
establish or require the payment of a rate of interest or other charges in
excess of the maximum permitted by applicable law. In the event that the rate of
interest required to be paid or other charges hereunder exceed the maximum
permitted by such law, any payments in excess of such maximum shall be credited
against amounts owed by the Borrower to the Holder and thus refunded to the
Borrower.
5.7 SECURITY INTEREST. The holder of this Note has been granted a
security interest in certain assets of the Borrower more fully described in a
Security Agreement.
5.8 CONSTRUCTION. Each party acknowledges that its legal counsel
participated in the preparation of this Note and, therefore, stipulates that the
rule of construction that ambiguities are to be resolved against the drafting
party shall not be applied in the interpretation of this Note to favor any party
against the other.
[THIS SPACE INTENTIONALLY LEFT BLANK]
35
IN WITNESS WHEREOF, each Borrower has caused this Note to be signed
in its name effective as of this ___ day of July, 2002.
BILLSERV, INC.
By:
----------------------------------
WITNESS:
-------------------------------
36
NOTICE OF CONVERSION
(To be executed by the Holder in order to convert the Note)
The undersigned hereby elects to convert $_________ of the principal
and $_________ of the interest due on the Note issued by BILLSERV, INC. on July
___, 2002 into Shares of Common Stock of BILLSERV, INC. (the "Company")
according to the conditions set forth in such Note, as of the date written
below.
Date of Conversion:
--------------------------------------------------------
Conversion Price:
----------------------------------------------------------
Shares To Be Delivered:
-----------------------------------------------------
Signature:
------------------------------------------------------------------
Print Name:
-----------------------------------------------------------------
Address:
-------------------------------------------------------------------
-------------------------------------------------------------------
37
EXHIBIT B
FORM OF REPAYMENT ELECTION NOTICE
To: [HOLDER AT HOLDER'S ADDRESS]
Pursuant to Section 2.2 of the Note of Billserv, Inc. issued on July
__, 2002, we hereby notify you that we are irrevocably electing to repay the
outstanding Monthly Amount (as defined in the Note) due on the Repayment Date
(as defined in the Note) which occurs on ______, 20__ (CHECK ONE):
_____ In full in cash on such Repayment Date.
_____ In full in shares of the Company's Common Stock within three (3)
trading days following such Repayment Date.
_____ In part in cash in the amount of $______ on such Repayment Date,
and in part in shares of the Company's Common Stock (in the amount of ______
shares) within three (3) trading days following such Repayment Date.
Billserv, Inc.
By:_________________________
Name:
Title:
38
THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS WARRANT
AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT AS TO THIS WARRANT UNDER SAID ACT OR AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO BILLSERV, INC. THAT SUCH REGISTRATION IS NOT
REQUIRED.
Right to Purchase 300,000 Shares of Common
Stock of Billserv, Inc. (subject to adjustment
as provided herein)
COMMON STOCK PURCHASE WARRANT
No. 2002-1 Issue Date: July ___, 2002
BILLSERV, INC., a corporation organized under the laws of the State of
Nevada (the "COMPANY"), hereby certifies that, for value received, LAURUS MASTER
FUND, LTD., or assigns (the "HOLDER"), is entitled, subject to the terms set
forth below, to purchase from the Company from and after the Issue Date of this
Warrant and at any time or from time to time before 5:00 p.m., New York time,
through four (4) years after such date (the "EXPIRATION DATE"), up to 300,000
fully paid and nonassessable shares of Common Stock (as hereinafter defined),
$.001 par value per share, of the Company, at the Exercise Price (as defined
below). The number and character of such shares of Common Stock and the Exercise
Price are subject to adjustment as provided herein.
As used herein the following terms, unless the context otherwise requires,
have the following respective meanings:
(a) The term "Company" shall include Billserv, Inc. and any corporation
which shall succeed or assume the obligations of Billserv, Inc. hereunder.
(b) The term "Common Stock" includes (a) the Company's Common Stock,
$.001 par value per share, as authorized on the date of the Securities Purchase
Agreement referred to in Section 9 hereof, and (b) any other securities into
which or for which any of the securities described in (a) may be converted or
exchanged pursuant to a plan of recapitalization, reorganization, merger, sale
of assets or otherwise.
(c) The term "Other Securities" refers to any stock (other than Common
Stock) and other securities of the Company or any other person (corporate or
otherwise) which the holder of the Warrant at any time shall be entitled to
receive, or shall have received, on the exercise of the Warrant, in lieu of or
in addition to Common Stock, or which at any time shall be issuable or shall
have been issued in exchange for or in replacement of Common Stock or Other
Securities
39
pursuant to Section 4 or otherwise.
(d) The term "Exercise Price" shall be as follows:
(i) 150,000 shares at $.936;
(ii) 50,000 shares at $.975;
(iii) 100,000 shares at $1.17.
1. EXERCISE OF WARRANT.
1.1 NUMBER OF SHARES ISSUABLE UPON EXERCISE. From and after the
date hereof through and including the Expiration Date, the holder hereof shall
be entitled to receive, upon exercise of this Warrant in whole in accordance
with the terms of subsection 1.2 or upon exercise of this Warrant in part in
accordance with subsection 1.3, shares of Common Stock of the Company, subject
to adjustment pursuant to Section 4.
1.2 FULL EXERCISE. This Warrant may be exercised in full by the
holder hereof by delivery of an original or fax copy of the exercise notice
attached as Exhibit A hereto (the "EXERCISE NOTICE") duly executed by such
Holder, to the Company at its principal office or at the office of its warrant
agent (as provided hereinafter), accompanied by payment, in cash, wire transfer,
or by certified or official bank check payable to the order of the Company, in
the amount obtained by multiplying the number of shares of Common Stock for
which this Warrant is then exercisable by the Exercise Price (as hereinafter
defined) then in effect.
1.3 PARTIAL EXERCISE. This Warrant may be exercised in part (but
not for a fractional share) by surrender of this Warrant in the manner and at
the place provided in subsection 1.2 except that the amount payable by the
holder on such partial exercise shall be the amount obtained by multiplying (a)
the number of shares of Common Stock designated by the holder in the Exercise
Notice by (b) the Exercise Price then in effect. On any such partial exercise,
the Company, at its expense, will forthwith issue and deliver to or upon the
order of the holder hereof a new Warrant of like tenor, in the name of the
holder hereof or as such holder (upon payment by such holder of any applicable
transfer taxes) may request, the number of shares of Common Stock for which such
Warrant may still be exercised.
1.4 FAIR MARKET VALUE. Fair Market Value of a share of Common
Stock as of a particular date (the "DETERMINATION DATE") shall mean:
(a) If the Company's Common Stock is traded on an exchange
or is quoted on the National Association of Securities Dealers, Inc. Automated
Quotation ("NASDAQ") National Market or the NASDAQ SmallCap Market, then the
closing or last sale price, respectively, reported for the last business day
immediately preceding the Determination Date.
(b) If the Company's Common Stock is not traded on an
exchange or on the NASDAQ National Market or the NASDAQ SmallCap Market but is
traded on the NASD OTC Bulletin Board, then the mean of the average of the
closing bid and asked prices reported
40
for the last business day immediately preceding the Determination Date.
(c) Except as provided in clause (d) below, if the Company's
Common Stock is not publicly traded, then as the Holder and the Company agree or
in the absence of agreement by arbitration in accordance with the rules then
standing of the American Arbitration Association, before a single arbitrator to
be chosen from a panel of persons qualified by education and training to pass on
the matter to be decided.
(d) If the Determination Date is the date of a liquidation,
dissolution or winding up, or any event deemed to be a liquidation, dissolution
or winding up pursuant to the Company's charter, then all amounts to be payable
per share to holders of the Common Stock pursuant to the charter in the event of
such liquidation, dissolution or winding up, plus all other amounts to be
payable per share in respect of the Common Stock in liquidation under the
charter, assuming for the purposes of this clause (d) that all of the shares of
Common Stock then issuable upon exercise of the Warrant are outstanding at the
Determination Date.
1.5 COMPANY ACKNOWLEDGMENT. The Company will, at the time of the
exercise of the Warrant, upon the request of the holder hereof acknowledge in
writing its continuing obligation to afford to such holder any rights to which
such holder shall continue to be entitled after such exercise in accordance with
the provisions of this Warrant. If the holder shall fail to make any such
request, such failure shall not affect the continuing obligation of the Company
to afford to such holder any such rights.
1.6 TRUSTEE FOR WARRANT HOLDERS. In the event that a bank or trust
company shall have been appointed as trustee for the holders of the Warrant
pursuant to Subsection 3.2, such bank or trust company shall have all the powers
and duties of a warrant agent (as hereinafter described) and shall accept, in
its own name for the account of the Company or such successor person as may be
entitled thereto, all amounts otherwise payable to the Company or such
successor, as the case may be, on exercise of this Warrant pursuant to this
Section 1.
1.7 EARLY CALL. If at any time the closing price per share of the
Common Stock as reported on Bloomberg has exceeded 200% of the Exercise Price
then in effect for a period of twenty (20) consecutive trading days (the
"DETERMINATION PERIOD") and (2) a registration statement covering resales of the
Common Stock issuable upon exercise of the Warrant has been effective and
available for use, then the Company may, at its sole option, provide the Holder
irrevocable written notice ("CALL NOTICE") requiring the Holder to fully
exercise the Warrant as of the Call Date (as defined below). If all of the
conditions described herein have been satisfied and continue to be satisfied
through the Call Date, any Warrant not exercised before the close of business on
the Call Date, shall automatically be deemed exercised in accordance with
Section 1.2 as of the close of trading on the Call Date and the Company will
deliver the Warrant Shares to the Holder upon receipt of a completed Exercise
Notice and payment for the Warrant Shares as provided herein. "CALL DATE" shall
mean that trading day that is at least thirty (30) days following the date on
which the Company has given the Call Notice to the Holder.
2.1 DELIVERY OF STOCK CERTIFICATES, ETC. ON EXERCISE. The Company
agrees that the shares of Common Stock purchased upon exercise of this Warrant
shall be deemed to be
41
issued to the holder hereof as the record owner of such shares as of the close
of business on the date on which this Warrant shall have been surrendered and
payment made for such shares as aforesaid. As soon as practicable after the
exercise of this Warrant in full or in part, and in any event within 7 days
thereafter, the Company at its expense (including the payment by it of any
applicable issue taxes) will cause to be issued in the name of and delivered to
the holder hereof, or as such holder (upon payment by such holder of any
applicable transfer taxes) may direct in compliance with applicable Securities
Laws, a certificate or certificates for the number of duly and validly issued,
fully paid and nonassessable shares of Common Stock (or Other Securities) to
which such holder shall be entitled on such exercise, plus, in lieu of any
fractional share to which such holder would otherwise be entitled, cash equal to
such fraction multiplied by the then Fair Market Value of one full share,
together with any other stock or other securities and property (including cash,
where applicable) to which such holder is entitled upon such exercise pursuant
to Section 1 or otherwise.
2.2 EXERCISE.
(a) Payment may be made either in (i) cash or by certified
or official bank check payable to the order of the Company equal to the
applicable aggregate Exercise Price, (ii) by delivery of the Warrant, Common
Stock and/or Common Stock receivable upon exercise of the Warrant in accordance
with Section (b) below, or (iii) by a combination of any of the foregoing
methods, for the number of Common Shares specified in such form (as such
exercise number shall be adjusted to reflect any adjustment in the total number
of shares of Common Stock issuable to the holder per the terms of this Warrant)
and the holder shall thereupon be entitled to receive the number of duly
authorized, validly issued, fully-paid and non-assessable shares of Common Stock
(or Other Securities) determined as provided herein.
(b) If, despite the Company's obligations under the
Securities Purchase Agreement, the Warrant Shares to be issued are not
registered and available for resale pursuant to a registration statement in
accordance with the Securities Purchase Agreement, then the holder of this
Warrant may, at its election exercised in its sole discretion, exercise this
Warrant in whole or in part and, in lieu of making a cash payment otherwise
contemplated to be made to the Company upon such exercise in payment of the
Exercise Price, elect to receive shares equal to the value (as determined below)
of this Warrant (or the portion thereof being cancelled) by surrender of this
Warrant at the principal office of the Company together with the properly
endorsed Exercise Notice in which event the Company shall issue to the holder a
number of shares of Common Stock computed using the following formula:
X=Y (A-B)
---
A
-----------
Where X= the number of shares of Common Stock to be issued to the
holder
Y= the number of shares of Common Stock purchasable under the
Warrant or, if only a portion of the Warrant is being exercised, the portion of
the Warrant being exercised (at the date of such calculation)
42
A= the Fair Market Value of one share of the Company's Common
Stock (at the date of such calculation)
B= Exercise Price (as adjusted to the date of such calculation)
3. ADJUSTMENT FOR REORGANIZATION, CONSOLIDATION, MERGER, ETC.
3.1 REORGANIZATION, CONSOLIDATION, MERGER, ETC. In case at any
time or from time to time, the Company shall (a) effect a reorganization, (b)
consolidate with or merge into any other person, or (c) transfer all or
substantially all of its properties or assets to any other person under any plan
or arrangement contemplating the dissolution of the Company, then, in each such
case, as a condition to the consummation of such a transaction, proper and
adequate provision shall be made by the Company whereby the holder of this
Warrant, on the exercise hereof as provided in Section 1 at any time after the
consummation of such reorganization, consolidation or merger or the effective
date of such dissolution, as the case may be, shall receive, in lieu of the
Common Stock (or Other Securities) issuable on such exercise prior to such
consummation or such effective date, the stock and other securities and property
(including cash) to which such holder would have been entitled upon such
consummation or in connection with such dissolution, as the case may be, if such
holder had so exercised this Warrant, immediately prior thereto, all subject to
further adjustment thereafter as provided in Section 4.
3.2 DISSOLUTION. In the event of any dissolution of the Company
following the transfer of all or substantially all of its properties or assets,
the Company, prior to such dissolution, shall at its expense deliver or cause to
be delivered the stock and other securities and property (including cash, where
applicable) receivable by the holders of the Warrant after the effective date of
such dissolution pursuant to this Section 3 to a bank or trust company having
its principal office in New York, NY, as trustee for the holder or holders of
the Warrant.
3.3 CONTINUATION OF TERMS. Upon any reorganization, consolidation,
merger or transfer (and any dissolution following any transfer) referred to in
this Section 3, this Warrant shall continue in full force and effect and the
terms hereof shall be applicable to the shares of stock and other securities and
property receivable on the exercise of this Warrant after the consummation of
such reorganization, consolidation or merger or the effective date of
dissolution following any such transfer, as the case may be, and shall be
binding upon the issuer of any such stock or other securities, including, in the
case of any such transfer, the person acquiring all or substantially all of the
properties or assets of the Company, whether or not such person shall have
expressly assumed the terms of this Warrant as provided in Section 4. In the
event this Warrant does not continue in full force and effect after the
consummation of the transaction described in this Section 3, then only in such
event will the Company's securities and property (including cash, where
applicable) receivable by the holders of the Warrant be delivered to the Trustee
as contemplated by Section 3.2.
4. EXTRAORDINARY EVENTS REGARDING COMMON STOCK. In the event that the
Company shall (a) issue additional shares of the Common Stock as a dividend or
other distribution on outstanding Common Stock, (b) subdivide its outstanding
shares of Common Stock, or (c) combine its outstanding shares of the Common
Stock into a smaller number of shares of the
43
Common Stock, then, in each such event, the Exercise Price shall, simultaneously
with the happening of such event, be adjusted by multiplying the then Exercise
Price by a fraction, the numerator of which shall be the number of shares of
Common Stock outstanding immediately prior to such event and the denominator of
which shall be the number of shares of Common Stock outstanding immediately
after such event, and the product so obtained shall thereafter be the Exercise
Price then in effect. The Exercise Price, as so adjusted, shall be readjusted in
the same manner upon the happening of any successive event or events described
herein in this Section 4. The number of shares of Common Stock that the holder
of this Warrant shall thereafter, on the exercise hereof as provided in Section
1, be entitled to receive shall be increased to a number determined by
multiplying the number of shares of Common Stock that would otherwise (but for
the provisions of this Section 4) be issuable on such exercise by a fraction of
which (a) the numerator is the Exercise Price that would otherwise (but for the
provisions of this Section 4) be in effect, and (b) the denominator is the
Exercise Price in effect on the date of such exercise.
5. CERTIFICATE AS TO ADJUSTMENTS. In each case of any adjustment or
readjustment in the shares of Common Stock (or Other Securities) issuable on the
exercise of the Warrant, the Company at its expense will promptly cause its
Chief Financial Officer or other appropriate designee to compute such adjustment
or readjustment in accordance with the terms of the Warrant and prepare a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based, including a
statement of (a) the consideration received or receivable by the Company for any
additional shares of Common Stock (or Other Securities) issued or sold or deemed
to have been issued or sold, (b) the number of shares of Common Stock (or Other
Securities) outstanding or deemed to be outstanding, and (c) the Exercise Price
and the number of shares of Common Stock to be received upon exercise of this
Warrant, in effect immediately prior to such adjustment or readjustment and as
adjusted or readjusted as provided in this Warrant. The Company will forthwith
mail a copy of each such certificate to the holder of the Warrant and any
Warrant agent of the Company (appointed pursuant to Section 11 hereof).
6. RESERVATION OF STOCK, ETC. ISSUABLE ON EXERCISE OF WARRANT;
FINANCIAL STATEMENTS. The Company will at all times reserve and keep available,
solely for issuance and delivery on the exercise of the Warrant, all shares of
Common Stock (or Other Securities) from time to time issuable on the exercise of
the Warrant. This Warrant entitles the holder hereof to receive copies of all
financial and other information distributed or required to be distributed to the
holders of the Company's Common Stock.
7. ASSIGNMENT; EXCHANGE OF WARRANT. Subject to compliance with
applicable Securities laws, this Warrant, and the rights evidenced hereby, may
be transferred by any registered holder hereof (a "TRANSFEROR") with respect to
any or all of the Shares. On the surrender for exchange of this Warrant, with
the Transferor's endorsement in the form of Exhibit B attached hereto (the
"TRANSFEROR ENDORSEMENT FORM") and together with evidence reasonably
satisfactory to the Company demonstrating compliance with applicable Securities
Laws, which shall include, without limitation, a legal opinion fro the
Transferor's counsel that such transfer is exempt from the registration
requirements of federal securities laws, the Company at its expense but with
payment by the Transferor of any applicable transfer taxes) will
44
issue and deliver to or on the order of the Transferor thereof a new Warrant of
like tenor, in the name of the Transferor and/or the transferee(s) specified in
such Transferor Endorsement Form (each a "TRANSFEREE"), calling in the aggregate
on the face or faces thereof for the number of shares of Common Stock called for
on the face or faces of the Warrant so surrendered by the Transferor.
8. REPLACEMENT OF WARRANT. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of any such loss, theft or destruction of this
Warrant, on delivery of an indemnity agreement or security reasonably
satisfactory in form and amount to the Company or, in the case of any such
mutilation, on surrender and cancellation of this Warrant, the Company at its
expense will execute and deliver, in lieu thereof, a new Warrant of like tenor.
9. REGISTRATION RIGHTS. The Holder of this Warrant has been granted
certain registration rights by the Company. These registration rights are set
forth in a Securities Purchase Agreement entered into by the Company and
Purchaser of the Company's Convertible Notes (the "NOTES") at or prior to the
issue date of this Warrant. The terms of the Securities Purchase Agreement are
incorporated herein by reference. Upon the occurrence of a Non-Registration
Event as described in the Securities Purchase Agreement, in the event the
Company is unable to issue Common Stock upon exercise of this Warrant that has
been registered in the Registration Statement described in Section 9.1(a) of the
Securities Purchase Agreement, within the time periods described in the
Securities Purchase Agreement, which Registration Statement must be effective
throughout the exercise period of this Warrant, then upon written demand made by
the Holder, the Company will pay to the Holder of this Warrant, in lieu of
delivering Common Stock, a sum equal to the closing ask price of the Company's
Common Stock on the Principal Market (as defined in the Securities Purchase
Agreement) or such other principal trading market for the Company's Common Stock
on the trading date immediately preceding the date notice is given by the
Holder, less the Exercise Price, for each share of Common Stock designated in
such notice from the Holder. The provisions of this Section 9, however, shall
not apply if (a) this Warrant is out-of-the-money at the time of such
Non-Registration Event, or (b) the Holder had not delivered a Exercise Notice to
the Company at or immediately prior to the Non-Registration Event.
10. MAXIMUM EXERCISE. The Holder shall not be entitled to exercise this
Warrant on an exercise date, in connection with that number of shares of Common
Stock which would be in excess of the sum of (i) the number of shares of Common
Stock beneficially owned by the Holder and its affiliates on an exercise date,
and (ii) the number of shares of Common Stock issuable upon the exercise of this
Warrant with respect to which the determination of this proviso is being made on
an exercise date, which would result in beneficial ownership by the Holder and
its affiliates of more than 4.9% of the outstanding shares of Common Stock of
the Company on such date. For the purposes of the proviso to the immediately
preceding sentence, beneficial ownership shall be determined in accordance with
Section 13(d) of the Securities Exchange Act of 1934, as amended, and Regulation
13d-3 thereunder. Subject to the foregoing, the Holder shall not be limited to
aggregate exercises which would result in the issuance of more than 4.9%. The
restriction described in this paragraph may be revoked upon 75 days prior notice
from the Holder to the Company and is automatically null and void upon an Event
of Default under the Note.
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11. WARRANT AGENT. The Company may, by written notice to the each holder
of the Warrant, appoint an agent for the purpose of issuing Common Stock (or
Other Securities) on the exercise of this Warrant pursuant to Section 1,
exchanging this Warrant pursuant to Section 7, and replacing this Warrant
pursuant to Section 8, or any of the foregoing, and thereafter any such
issuance, exchange or replacement, as the case may be, shall be made at such
office by such agent.
12. TRANSFER ON THE COMPANY'S BOOKS. Until this Warrant is transferred
on the books of the Company, the Company may treat the registered holder hereof
as the absolute owner hereof for all purposes, notwithstanding any notice to the
contrary.
13. NOTICES, ETC. All notices and other communications from the Company
to the holder of this Warrant shall be mailed by first class registered or
certified mail, postage prepaid, at such address as may have been furnished to
the Company in writing by such holder or, until any such holder furnishes to the
Company an address, then to, and at the address of, the last holder of this
Warrant who has so furnished an address to the Company.
14. VOLUNTARY ADJUSTMENT BY THE COMPANY. The Company may at any time
during the term of this Warrant reduce the then current Exercise Price to any
amount and for any period of time deemed appropriate by the Board of Directors
of the Company.
15. MISCELLANEOUS. This Warrant and any term hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by the
party against which enforcement of such change, waiver, discharge or termination
is sought. This Warrant shall be governed by and construed in accordance with
the laws of State of New York without regard to principles of conflicts of laws.
Any action brought concerning the transactions contemplated by this Warrant
shall be brought only in the state courts of New York or in the federal courts
located in the state of New York; provided, however, that the Purchaser may
choose to waive this provision and bring an action outside the state of New
York. The individuals executing this Warrant on behalf of the Company agree to
submit to the jurisdiction of such courts and waive trial by jury. The
prevailing party shall be entitled to recover from the other party its
reasonable attorney's fees and costs. In the event that any provision of this
Warrant is invalid or unenforceable under any applicable statute or rule of law,
then such provision shall be deemed inoperative to the extent that it may
conflict therewith and shall be deemed modified to conform with such statute or
rule of law. Any such provision which may prove invalid or unenforceable under
any law shall not affect the validity or enforceability of any other provision
of this Warrant. The headings in this Warrant are for purposes of reference
only, and shall not limit or otherwise affect any of the terms hereof. The
invalidity or unenforceability of any provision hereof shall in no way affect
the validity or enforceability of any other provision. The Company acknowledges
that legal counsel participated in the preparation of this Warrant and,
therefore, stipulates that the rule of construction that ambiguities are to be
resolved against the drafting party shall not be applied in the interpretation
of this Warrant to favor any party against the other party.
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IN WITNESS WHEREOF, the Company has executed this Warrant under seal as of
the date first written above.
BILLSERV, INC.
By:
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Witness:
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