Exhibit 10.2
EXECUTION COPY
EXCHANGE AGREEMENT
EXCHANGE AGREEMENT (this "Agreement"), dated as of January 17, 2002, by
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by and between XXXX INTERACTIVE SERVICES, INC., a Colorado corporation (the
"Company"), and CASTLE CREEK TECHNOLOGY PARTNERS LLC ("CC").
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CC currently holds a 10% Convertible Promissory Note in principal amount of
$2,500,000 dated August 25, 1999 made by the Company to CC (the "1999 Note"),
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2,500 shares of the Company's Series C-1 Convertible Preferred Stock (the
"Series C-1 Preferred Stock"), a stock purchase warrant dated August 25, 1999
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entitling CC to purchase 150,116 shares of common stock, no par value ("Common
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Stock") of the Company at an exercise price of $9.3343 per share (the "A
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Warrant"), a stock purchase warrant dated December 31, 1999 entitling CC to
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purchase 171,875 shares of Common Stock at an exercise price of $0.766 per share
(the "B Warrant") and a stock purchase warrant dated February 28, 2001 entitling
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CC to purchase 500,000 shares of Common Stock at an exercise price of $3.75 per
share (the "C Warrant" and along with the 1999 Note, the Series C-1 Preferred,
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the A Warrant and the B Warrant, the "Outstanding Securities").
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Up to 1,000,000 shares of Common Stock issuable upon the conversion of the
Series C-1 Preferred Stock, 500,000 shares of Common Stock issuable upon the
exercise of the C Warrant and 150,116 shares of Common Stock issuable upon the
exercise of the A Warrant are registered for resale by CC under the Registration
Statement numbered 333-57442 declared effective on December 4, 2001.
Pursuant to a securities purchase agreement in the form attached hereto as
Exhibit A-1 (the "Jona SPA"), the Company intends to issue to Jona, Inc. up to
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7,500,000 shares of Common Stock and a warrant in the form attached hereto as
Exhibit A-2 (the "Jona Warrant") entitling Jona, Inc. to purchase an aggregate
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of additional 7,500,000 shares of Common Stock. In connection therewith, the
Company intends to xxxxx Xxxx, Inc. certain registration rights pursuant to a
registration rights agreement in the form attached here to as Exhibit A-3 (the
"Jona RRA").
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In connection with such proposed issuances to Jona, Inc., the Company has
delivered to CC an Issuance Notice under Section 4.9 of that certain Securities
Purchase Agreement dated February 28, 2001 by and between the Company and CC,
pursuant to which CC has the option to exchange its shares of Series C-1
Preferred Stock for shares of Common Stock and warrants on the same terms as the
proposed issuances to Jona, Inc. In addition, pursuant to the terms of the
Outstanding Securities, CC is entitled to a reduction of the conversion and
exercise prices of the Outstanding Securities and an adjustment in the numbers
of shares of Common Stock issuable upon the conversion or exercise of the
Outstanding Securities in connection with the proposed issuances to Jona, Inc..
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The Company and CC wish to exchange up to 2,500 shares of Series C-1
Preferred Stock for a number of shares of Series D Junior Convertible Preferred
Stock (the "Series D Junior Preferred Stock") issued pursuant to Articles of
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Amendment in the form attached hereto as Exhibit B (the "Series D Articles of
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Amendment") with an aggregate stated value equal to the aggregate stated value
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of the shares of Series C-1 Preferred Stock being exchanged and a warrant
entitling CC to purchase up to 750,000 shares of Common Stock at an initial
exercise price of $1.00 per share on the same terms as the warrants issued to
Jona, Inc. (the "Preferred Exchange Warrant"), and amend the A Warrant and C
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Warrant to reduce the respective initial exercise price to $1.00 per share. The
terms of the Preferred Exchange Warrant are identical to those of the Jona
Warrant except that Section 4 of such Preferred Exchange Warrant shall consist
of a paragraph in the form attached hereto as Exhibit C in place of the
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paragraph contained in Section 4 of the Jona Warrant. The Preferred Exchange
Warrant is in the form attached hereto as Exhibit D. The amended A Warrant is in
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the form attached hereto as Exhibit E (the "Amended A Warrant") and the amended
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C Warrant is in the form attached hereto as Exhibit F (the "Amended C Warrant"
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and together with the Preferred Exchange Warrant the Amended A Warrant, the
"Warrants").
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Further, the Company and CC wish to exchange $1,212,192 in principle amount
of the 1999 Note for 1,984 shares of Series D Junior Preferred Stock.
The Series D Junior Preferred Stock is convertible pursuant to the terms of
the Series D Articles of Amendment, and the Warrants are exercisable pursuant to
their respective terms, into shares (the "Conversion Shares") of the Company's
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Common Stock. For purposes of clarification, such Conversion Shares shall
include shares of Common Stock issuable pursuant to the so-call "anti-dilution"
provisions under the Series D Articles of Amendment and Warrants. The Series D
Junior Preferred Stock, the Warrants and the Conversion Shares are collectively
referred to herein as the "Securities". Any capitalized term used herein that is
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not otherwise defined shall have the meaning specified therefor in the Series D
Articles of Amendment and Warrants, as applicable.
The Company has agreed to effect the registration of the Conversion Shares
issuable upon the conversion of the Series D Junior Preferred Stock and issuable
upon the exercise of the Preferred Exchange Warrant under the Securities Act of
1933, as amended (the "Securities Act") pursuant to a Registration Rights
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Agreement of even date herewith by and between the Company and CC, the form of
which is attached hereto as Exhibit G (the "Registration Rights Agreement").
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The exchange of the Series C-1 Preferred Stock and $1,212,192 in principal
amount of the 1999 Note for the Series D Junior Preferred Stock and the
Preferred Exchange Warrant contemplated hereby will be effected in reliance upon
the exemption from securities registration afforded by the provisions Section
3(a)(9) of the Securities Act.
The Company and CC hereby agree as follows:
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1. EXCHANGE.
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Upon the terms and subject to the satisfaction or waiver of the applicable
conditions set forth in Section 5, the Company and CC agree to: (i) on January
31, 2002, exchange (the "First Exchange")1,500 shares of the Company's Series C-
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1 Convertible Preferred Stock for 1,500 shares of Series D Junior Preferred
Stock and the Preferred Exchange Warrant and amend the A Warrant and C Warrant
as set forth in the Amended A Warrant and Amended C Warrant, (ii) upon a
registration statement becoming available for the resale by CC of the Conversion
Shares with respect to the Series D Junior Preferred Stock to be exchanged for
the 1,000 shares of Series C-1 Preferred Stock not included in the First
Exchange, exchange (the "Second Exchange") such shares of Series C-1 Preferred
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Stock which have not been previously converted or exchanged for a number of
shares of Series D Junior Preferred Stock with an aggregate stated value equal
to the aggregate stated value of the shares of the Series C-1 Preferred Stock
being exchanged, and (iii) upon the consummation of a transaction or a series of
transactions on or after January 18, 2002 in which the Company raises not less
than $2,720,000 in equity financing (including the amount raised in the First
Closing as contemplated under the Jona SPA) and the payment by the Company of
$720,000 in principal amount of the 1999 Note and all accrued and unpaid
interest, exchange (the "Third Exchange") $1,212,192 in principal amount of the
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1999 Note for 1,984 shares of Series D Junior Preferred Stock. Subject to the
satisfaction or waiver of the respective conditions set forth herein, an
Exchange will be deemed to occur when, (i) with respect to the First Exchange,
CC delivers to the Company, on the terms and subject to the conditions set forth
herein, 1,500 shares of the Series C-1 Preferred Stock, the A Warrant and the C
Warrant held by CC in exchange for 1,500 Series D Junior Preferred Stock, the
Amended A Warrant, the Preferred Exchange Warrant and the Amended C Warrant;
(ii) with respect to the Second Exchange, CC delivers to the Company the Series
C-1 Preferred Stock then held by CC in exchange for an equal number of shares of
Series D Junior Preferred Stock, and (iii) with respect to the Third Exchange,
CC delivers to the Company $1,212,192 in principal amount of the 1999 Note in
exchange for 1,984 shares of Series D Junior Preferred Stock.
2. REPRESENTATIONS, WARRANTIES AND COVENANTS OF CC.
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CC hereby represents and warrants to the Company and agrees with the
Company that, as of the date of this Agreement and as of the date of the each
Exchange:
2.1 Authorization; Enforceability. CC is duly and validly organized,
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validly existing and in good standing under the laws of the jurisdiction of its
incorporation or organization with full power and authority to effect the
Exchange and to execute and deliver this Agreement. This Agreement constitutes
CC's valid and legally binding obligation, enforceable in accordance with its
terms, except as such enforceability may be limited by applicable bankruptcy,
insolvency or other laws affecting creditors' rights generally and to general
principles of equity (regardless of whether enforcement is sought in a
proceeding at law or in equity) or public policy.
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2.2 Information. The Company has provided CC with information regarding
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the business, operations and financial condition of the Company, and has granted
to CC the opportunity to ask questions of and receive answers from
representatives of the Company, its officers, directors, employees and agents
concerning the Company and materials relating to the terms and conditions of the
purchase and sale of the Securities. Neither such information nor any other
investigation conducted by CC or any of its representatives shall modify, amend
or otherwise affect CC's right to rely on the Company's representations and
warranties contained in this Agreement.
2.3 Limitations on Disposition. CC acknowledges that, except as provided
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in this Agreement and the registration rights agreements between the Company and
CC, the Securities have not been and are not being registered under the
Securities Act and may not be transferred or resold without registration under
the Securities Act or unless pursuant to an exemption therefrom.
2.4 Legend. CC understands that the certificates representing the
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Securities may bear at issuance a restrictive legend in substantially the
following form:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended (the
"Securities Act"), or the securities laws of any state, and may not be
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offered or sold unless a registration statement under the Securities
Act and applicable state securities laws shall have become effective
with regard thereto, or an exemption from registration under such laws
is available in connection with such offer or sale."
Notwithstanding the foregoing, it is agreed that, as long as (A) the resale
or transfer (including without limitation a pledge) of such Securities is
registered pursuant to an effective registration statement and CC represents in
writing to the Company that such Securities have been or are being sold pursuant
to such registration statement, (B) such Securities have been publicly sold
pursuant to Rule 144 ("Rule 144") and CC has delivered to the Company customary
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Rule 144 broker's and seller's representation letters, or (C) such Securities
can be publicly sold pursuant to Rule 144(k) under the Securities Act, such
Securities shall be issued without any legend or other restrictive language and,
with respect to Securities upon which such legend is stamped, the Company shall
issue new certificates without such legend to the holder promptly upon request.
Without limiting the generality of the foregoing, all of the 1,984,000
Conversion Shares to be issued upon the conversion of the Series D Junior
Preferred Stock issued in exchange for the 1999 Note shall be issued without any
legend or other restrictive language
2.5 No Conflict. The execution, delivery and performance by CC of this
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Agreement has (A) have been approved by all necessary action (corporate or
other) on the part of CC and (B) will not result in (i) any material violation
of any provisions of its charter, bylaws or any other governing document in
effect on the date hereof, (ii) any material violation of any instrument or
contract to which it is a party or by which it is bound, or (iii) the creation
of any material lien, charge or encumbrance upon any of its assets.
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3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY.
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The Company hereby represents and warrants to CC and agrees with CC that,
as of the date of this Agreement and as of the date of each Exchange:
3.1 Organization, Good Standing and Qualification. Each of the Company
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and each of its subsidiaries is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or organization
and has all requisite corporate power and authority to carry on its business as
now conducted. Each of the Company and each of its subsidiaries is duly
qualified to transact business and is in good standing in each jurisdiction in
which the failure so to qualify would have a material adverse effect on the
consolidated business or financial condition of the Company and its subsidiaries
taken as a whole. For purposes of this Agreement, the term "subsidiary" or
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"subsidiaries" shall mean any entity or entities in which the Company
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beneficially owns 20% or more of the voting equity thereof.
3.2 Authorization; Consents. The Company has the requisite corporate
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power and authority to enter into and perform its obligations under (i) this
Exchange Agreement, (ii) the Series D Articles of Amendment and (iii) Warrants
(together, the "Transaction Documents"), to execute and file, and perform its
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obligations under the Series D Articles of Amendment, to make the prepayment of
$720,000 under the 1999 Note, to issue Series D Junior Preferred Stock and to
amend the A Warrant and C Warrant and to issue the Warrants to CC in accordance
with the terms hereof and to issue and deliver Conversion Shares in accordance
with the terms of the Series D Articles of Amendment and the Warrants. All
corporate action on the part of the Company by its officers, directors and
stockholders necessary for (i) the authorization, execution and delivery of, and
the performance by the Company of its obligations under, the Transaction
Documents and (ii) the authorization, execution and filing of, and the
performance by the Company of its obligations under, the Series D Articles of
Amendment and the Warrants has been taken, and no further consent or
authorization of the Company, its Board of Directors, its stockholders, any
governmental agency or organization (other than such approval as may be required
under the Securities Act and applicable state securities laws in respect of the
registration of Conversion Shares), or any other person or entity is required
(pursuant to any rule of the Nasdaq National Market, or otherwise).
3.3 Enforcement. Each of the Transaction Documents constitutes a valid
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and legally binding obligation of the Company, enforceable in accordance with
its terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency or other laws affecting creditors' rights generally and
to general principles of equity (regardless of whether enforcement is sought in
a proceeding at law or in equity) or public policy.
3.4 Disclosure Documents; Agreements; Financial Statements; Other
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Information. The Company has filed with the Securities and Exchange Commission
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(the "Commission"): (i) the Company's Annual Report on Form 10-KSB, as amended,
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for the year ended December 31, 2000, (ii) Quarterly Reports on Form 10-QSB for
the quarters
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ended March 31, 2001, June 30, 2001 and September 30, 2001, as amended where
appropriate, (iii) all Current Reports on Form 8-K, if any, and any other
reports, required to be filed with the Commission since December 31, 2000 and
prior to the date hereof and (iv) the Company's definitive Proxy Statement for
its 2001 Annual Meeting of Stockholders (collectively, the "Disclosure
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Documents"). The Company is not aware of any event occurring on or prior to the
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Exchange Date (other than the transactions effected hereby and those being
effected pursuant to the Jona SPA) that would require the filing of a Form 8-K,
or with respect to which the Company intends to file, a Form 8-K after such
date. Each Disclosure Document, as of the date of the filing thereof with the
Commission, conformed in all material respects to the requirements of the
Securities Exchange Act of 1934, as amended, and the rules and regulations
thereunder (the "Exchange Act") and, as of the date of such filing, such
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Disclosure Document did not contain an untrue statement of material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. All agreements required to be filed as exhibits to the
Disclosure Documents have been filed or incorporated by reference as required by
the applicable provisions of the Exchange Act. Neither the Company nor any of
its subsidiaries is in breach of any agreement to which it is a party or by
which it is bound where such breach could have a material adverse effect on (i)
the consolidated business, operations, properties, financial condition,
prospects or results of operations of the Company and its subsidiaries taken as
a whole, (ii) the transactions contemplated by the Transaction Documents, (iii)
the Securities or (iv) the ability of the Company to perform its obligations
under the Transaction Documents (collectively, a "Material Adverse Effect").
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Except as set forth in the Disclosure Documents, neither the Company nor Jabber
has any liabilities, contingent or otherwise, other than liabilities incurred in
the ordinary course of business which, under generally accepted accounting
principles, are not required to be reflected in such financial statements
(including the footnotes to such financial statements) and which, individually
or in the aggregate, are not material to the consolidated business or financial
condition of the Company and its subsidiaries taken as a whole. As of their
respective dates, the financial statements of the Company included in the
Disclosure Documents have been prepared in accordance with generally accepted
accounting principles consistently applied at the times and during the periods
involved (except (i) as may be otherwise indicated in such financial statements
or the notes thereto, or (ii) in the case of unaudited interim statements, to
the extent they may exclude footnotes or may be condensed or summary statements)
and fairly present in all material respects the financial position of the
Company as of the dates thereof and the results of its operations and cash flows
for the periods then ended (subject, in the case of unaudited statements, to
normal year-end adjustments).
3.5 Disclosure. All information relating to or concerning the Company set
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forth in this Agreement or provided to CC pursuant to paragraph 2.2 hereof and
otherwise in connection with the transactions contemplated hereby is true and
correct in all material respects and the Company has not omitted to state any
material fact necessary in order to make the statements made herein or therein,
in light of the circumstances under which they were made, not misleading.
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3.6 Capitalization. The capitalization of the Company, including its
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authorized capital stock, the number of shares issued and outstanding, the
number of shares issuable and reserved for issuance pursuant to the Company's
stock option plans, the number of shares issuable and reserved for issuance
pursuant to securities exercisable for, or convertible into or exchangeable for
any shares of Common Stock and the number of shares initially to be reserved for
issuance upon conversion and exercise of each of the Series D Junior Preferred
Stock and the Warrants is set forth on Schedule 3.6 hereto. All of such
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outstanding shares of capital stock have been, or upon issuance will be, validly
issued, fully paid and non-assessable. Except as set forth on Schedule 3.6, no
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shares of the capital stock of the Company are subject to preemptive rights or
any other similar rights of the stockholders of the Company or any liens or
encumbrances created by or through the Company. The capitalization of Jabber,
including its authorized capital stock, the number of shares issued and
outstanding, the number of shares issuable and reserved for issuance pursuant to
Jabber's stock option plans, and the number of shares issuable and reserved for
issuance pursuant to securities exercisable for, or convertible into or
exchangeable for any shares of capital stock of Jabber are set for on Schedule
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3.6 hereto. All of such outstanding shares of capital stock of Jabber have
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been, validly issued, and are fully paid and non-assessable. Except as set
forth on Schedule 3.6, no shares of the capital stock of Jabber are subject to
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preemptive rights or any other similar rights of the stockholders of Jabber or
any liens or encumbrances created by or through Jabber or the Company. Except
as disclosed on Schedule 3.6, or as contemplated herein, there are no
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outstanding options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into or exercisable or exchangeable for, any shares of capital stock
of the Company or any of its subsidiaries, or arrangements by which the Company
or any of its subsidiaries is or may become bound to issue additional shares of
capital stock of the Company or any of its subsidiaries.
3.7 Valid Issuance. The Series D Junior Preferred Stock is duly authorized
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and, when issued, sold and delivered in accordance with the terms hereof, (i)
will be duly and validly issued, fully paid and nonassessable, free and clear of
any taxes, liens, claims, preemptive or similar rights or encumbrances imposed
by or through the Company (collectively, "Encumbrances"), (ii) based in part
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upon the representations of CC in this Agreement, will be issued, sold and
delivered in compliance with all applicable Federal and state securities laws
and (iii) will be entitled to all of the rights, preferences and privileges set
forth in the Series D Articles of Amendment. The Conversion Shares are duly
authorized and reserved for issuance and, when issued in accordance with the
terms of the Series D Articles of Amendment and the Warrants, will be duly and
validly issued, fully paid and nonassessable, free and clear of any
Encumbrances. The Company's Board of Directors (i) has unanimously determined
that the Exchange and the consummation of the transactions contemplated by the
Transaction Documents (including without limitation, the prepayment of $720,000
under the 1999 Note and the issuance of the Conversion Shares upon conversion
of the Series D Junior Preferred Stock and the exercise of the Warrants), are in
the best interests of the Company and (ii) unanimously has approved the issuance
of Conversion Shares upon conversion of the Series D Junior Preferred Stock and
the exercise of the Warrants.
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3.8 No Conflict with Other Instruments. Neither the Company nor any of
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its subsidiaries is in violation of any provisions of its charter, bylaws or any
other governing document as amended and in effect on and as of the date hereof
or in default or breach (including, without limitation, the provisions of the
Company's Articles of Incorporation that set forth the terms of the Series C-1
Preferred Stock) (and no event has occurred which, with notice or lapse of time
or both, would constitute a default or breach) under any provision of any
instrument or contract to which it is a party or by which it is bound
(including, without limitation, any agreement between the Company and CC), or of
any provision of any Federal, state or foreign judgment, writ, decree, order,
statute, rule or governmental regulation applicable to the Company, which
violation, default or breach could reasonably be expected to have a Material
Adverse Effect. The (i) execution, delivery and performance of the Transaction
Documents, (ii) execution and filing of the Series D Articles of Amendment and
(iii) consummation of the transactions contemplated hereby and thereby
(including without limitation, the issuance of the Series D Junior Preferred
Stock and the reservation for issuance and issuance of the Conversion Shares)
will not, in any such case, result in any such violation or be in conflict with
or constitute, with or without the passage of time and giving of notice, either
a default or breach under any such provision, instrument or contract or an event
which results in the creation of any lien, charge or encumbrance upon any assets
of the Company or of any of its subsidiaries or the triggering of any preemptive
or anti-dilution rights or rights of first refusal or first offer, or any
similar rights (whether pursuant to a "poison pill" provision or otherwise), on
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the part of holders of the Company's or any of its subsidiaries' securities.
3.9 Financial Condition; Taxes; Litigation.
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3.9.1 The Company's financial condition is, in all material respects,
as described in the Disclosure Documents, except for changes in the ordinary
course of business and normal year-end adjustments that are not, in the
aggregate, materially adverse to the consolidated business or financial
condition of the Company and its subsidiaries taken as a whole. There has been
no material adverse change to the Company's business, operations, properties,
financial condition, prospects or results of operations since the date of the
Company's most recent audited financial statements contained in the Disclosure
Documents.
3.9.2 The Company has filed all tax returns required to be filed by it
and paid all taxes which are due, except for taxes which it reasonably disputes
or which could not have a Material Adverse Effect.
3.9.3 Neither the Company nor any of its subsidiaries is the subject
of any pending or, to the Company's knowledge, threatened inquiry, investigation
or administrative or legal proceeding by the Internal Revenue Service, the
taxing authorities of any state or local jurisdiction, the Commission or any
state securities commission or other governmental or regulatory entity which
could have a Material Adverse Effect.
3.9.4 Except as described in the Disclosure Documents, there is no
claim, litigation or administrative proceeding pending, or, to the Company's
knowledge, threatened
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or contemplated, against the Company or any of its subsidiaries, or against any
officer, director or employee of the Company or any such subsidiary in
connection with such person's employment therewith that, individually or in the
aggregate, could have a Material Adverse Effect. Neither the Company nor any of
its subsidiaries is a party to or subject to the provisions of, any order, writ,
injunction, judgment or decree of any court or government agency or
instrumentality which could have a Material Adverse Effect.
3.10 Reporting Company; Form S-3. The Company is subject to the reporting
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requirements of the Exchange Act, has a class of securities registered under
Section 12 of the Exchange Act, and has timely filed all reports required
thereby. The Company is eligible to register for resale, in a secondary sale by
a selling stockholder, shares of its Common Stock on a registration statement on
Form S-3 under the Securities Act. To the Company's knowledge, there exist no
facts or circumstances (including without limitation any required approvals or
waivers of any circumstances that may delay or prevent the obtaining of
accountant's consents) that would prohibit or delay the preparation and filing
of a registration statement on Form S-3 with respect to the Registrable
Securities (as defined in the Registration Rights Agreement dated as of February
28, 2001).
3.11 Intellectual Property. The Company and each of its subsidiaries each
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has the right to use adequate trademarks, trade names and other rights to
inventions, know-how, patents, copyrights, confidential information and other
intellectual property rights necessary to conduct the businesses now operated by
it, and none of them are aware of any infringement by a third party with respect
to such rights or of any infringement by any of them or conflict with asserted
rights of others that, in any such case, if determined adversely to the Company
or any of its subsidiaries, could individually or in the aggregate have a
Material Adverse Effect.
3.12 Registration Rights; Rights of Participation. Except as described on
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Schedule 3.12 hereto, (A) the Company has not granted or agreed to grant to any
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person or entity any rights (including "piggy-back" registration rights) to have
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any securities of the Company registered with the Commission or any other
governmental authority and (B) no person or entity, including, but not limited
to, current or former stockholders of the Company, underwriters, brokers, agents
or other third parties, has any right of first refusal, preemptive right, right
of participation, anti-dilutive right or any similar right to participate in, or
to receive securities of the Company or other consideration as a result of, the
transactions contemplated by the Transaction Documents which has not been waived
or will not be waived or otherwise satisfied as of the date of the Exchange.
3.13 Fees. The Company is not obligated to pay any compensation or other
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fee, cost or related expenditure to any underwriter, broker, agent or other
representative or entity in connection with the transactions contemplated
hereby. The Company will indemnify and hold harmless CC from and against any
claim by any person or entity alleging that CC is obligated to pay any such
compensation, fee, cost or related expenditure in connection with the
transactions contemplated hereby.
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3.14 Solicitation; Other Issuances of Securities. Neither the Company nor
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any of its subsidiaries or affiliates, nor any person acting on its or their
behalf, (i) has engaged in any form of general solicitation or general
advertising (within the meaning of Regulation D) in connection with the offer or
sale of the Securities, (ii) has, directly or indirectly, made any offers or
sales of any security or solicited any offers to buy any security, under any
circumstances that would require registration of the Securities under the
Securities Act or (iii) has issued any shares of Common Stock or shares of any
series of preferred stock or other securities or instruments convertible into,
exchangeable for or otherwise entitling the holder thereof to acquire shares of
Common Stock which would be integrated with the sale of the Securities to CC.
3.15 Regulatory Permits. The Company and each of its subsidiaries
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possesses all certificates, authorizations and permits issued by the appropriate
federal, state or foreign regulatory authorities necessary to conduct its
business, except where the failure to so possess such certificates,
authorizations or permits could not have a Material Adverse Effect, and neither
the Company nor any such subsidiary has received any notice of proceedings
relating to the revocation or modification of any such certificate,
authorization or permit which revocation or modification could have a Material
Adverse Effect.
3.16 Intentionally Omitted.
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3.17 Environment. Except as disclosed in the Disclosure Documents (i)
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there is no environmental liability, nor factors likely to give rise to any
environmental liability, affecting any of the properties of the Company or any
of its subsidiaries that, individually or in the aggregate, would have a
Material Adverse Effect and (ii) neither the Company nor any of the subsidiaries
has violated any environmental laws applicable to it now or previously in effect
("Environmental Laws"), other than such violations or infringements that,
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individually or in the aggregate, have not had and will not have a Material
Adverse Effect.
3.18 Solvency. The Company and each of its subsidiaries (i) is able to
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realize upon its assets and pay its debts and other liabilities, contingent
obligations and other commitments as they mature in the normal course of
business, (ii) does not intend to, and does not believe that it will, incur
debts or liabilities beyond its ability to pay as such debts and liabilities
mature in their ordinary course, (iii) is not engaged in a business or a
transaction, and is not about to engage in a business or a transaction, for
which its assets would constitute unreasonably small capital after giving due
consideration to the prevailing practice in the industry in which it is engaged
or is to engage. In the case of the Company and each of its subsidiaries, (i)
the fair value of its assets is greater than the total amount of liabilities,
including, without limitation, its contingent liabilities, and (ii) the present
fair salable value of its assets is not less than the amount that will be
required to pay its probable liabilities on its debts as they become absolute
and matured. In computing the amount of contingent liabilities at any time, it
is intended that such liabilities will be computed at the amount which, in light
of all the facts and circumstances existing at such time, represents the amount
that can reasonably be expected to become an actual or matured liability.
61
4. COVENANTS OF THE COMPANY.
------------------------
4.1 Corporate Existence. The Company shall, so long as CC or any
-------------------
affiliate of CC beneficially owns any Securities, maintain its corporate
existence in good standing under the jurisdiction of its incorporation and shall
pay all taxes owed by it when due except for taxes which the Company reasonably
disputes.
4.2 Provision of Information. The Company shall, so long as CC or any
------------------------
affiliate of CC beneficially owns any Securities, provide CC with copies of all
materials sent to stockholders, in each such case at the same time that it mails
such materials to its stockholders.
4.3 Reporting Status. As long as CC or any affiliate of CC beneficially
----------------
owns any Securities and until the date on which any of the foregoing may be sold
to the public pursuant to Rule 144(k) (or any successor rule or regulation), (i)
the Company shall timely file with the Commission all reports required to be so
filed pursuant to the Exchange Act and (ii) the Company shall not terminate its
status as an issuer required by the Exchange Act to file reports thereunder even
if the Exchange Act or the rules or regulations thereunder would permit such
termination. The Company agrees to issue a press release describing the
transactions contemplated by the Transaction Documents and the Jona SPA and to
file a Form 8-K containing such description on or prior to January 22, 2002 and
to file with the Commission a Form 8-K in the form required by the Exchange Act
and sufficient to permit CC to make sales under the Registration Statement
numbered 333-57442 declared effective December 4, 2001 and under Rule 144,
describing the terms of the transactions contemplated by the Transaction
Documents and the Jona SPA, with this Agreement and all schedules and exhibits
attached to such Form 8-K as an exhibit thereto, on or before January 29, 2002.
4.4 Reservation of Common Stock. The Company shall at all times
---------------------------
following the date of Exchange have authorized and reserved for issuance to CC
pursuant to the Series D Junior Preferred Stock and the Warrants, free from any
preemptive rights, a number of shares of Common Stock equal to the number of
Conversion Shares issuable upon conversion of the Series D Junior Preferred
Stock and the exercise of the Warrants (the "Reserved Amount").
---------------
4.5 Quotation on Nasdaq. The Company shall use its best efforts to
-------------------
maintain the designation and quotation, or listing, of the Common Stock on the
Nasdaq National Market or the New York Stock Exchange for a minimum of five (5)
years following the date of the Exchange.
4.6 Registration of Conversion Shares.
---------------------------------
4.6.1 Registrable Shares. Without any implication that the contrary
------------------
would otherwise be the case, the Company and CC hereby acknowledge that all
shares of Common Stock issuable under the Series D Junior Preferred Stock and
the Warrants shall constitute "Conversion Shares" and "Registrable Securities"
----------------- ----------------------
for all purposes of the
62
Registration Rights Agreement and the Securities Purchase Agreement, each dated
February 28, 2001, and CC shall be deemed a Purchaser and Holder of such
Conversion Shares for purposes of and as that term is used in that Registration
Rights Agreement.
4.6.2 Sales under Registration Statement No. 333-57442. The Company
-------------------------------------------------
hereby agrees and covenants that it will promptly take whatever actions that are
necessary, if any, to permit CC to sell up to 1,000,000 of the Conversion Shares
with respect to the Series C-1 Preferred Stock, up to 500,000 Conversion Shares
with respect to the Amended C Warrant and up to 150,116 Conversion Shares with
respect to the Amended A Warrant under the Registration Statement numbered 333-
57442 declared effective December 4, 2001.
4.6.3 Registration Statements. (i) The Company hereby agrees and
-----------------------
covenants to include not less than 4,484,000 Conversion Shares with respect to
the Series D Junior Preferred Stock (such that all such Conversion Shares which
can not be sold under Registration Statement No. 333-57442 can be sold under the
Registration Statement contemplated by this Section 4.6.3), and 750,000
Conversion Shares with respect to the Preferred Exchange Warrant as "Registrable
Securities" under the Registration Rights Agreement and register such
Conversion Shares under a registration statement filed pursuant to Section 2 of
the Registration Rights Agreement (the "Registration Statement").
----------------------
4.6.4 Tacking. The Company further acknowledges that for purpose of
--------
Rule 144 CC will be deemed to have purchased the Series D Junior Preferred Stock
and the Preferred Exchange Warrant, the Amended A Warrant and the Amended C
Warrant on the dates of CC's purchase of the Series C-1 Preferred Stock, the A
Warrant, the C Warrant and the 1999 Note, respectively.
4.7 Prepayment and Exchange of the 1999 Note. The Company shall, to the
----------------------------------------
extent it raises more than $2,000,000 in the proposed issuance to Jona, Inc. or
otherwise, first use all such proceeds in excess of $2,000,000 to prepay up to
$720,000 in principal amount of the 1999 Note and to pay interest accrued and
not otherwise paid prior to the Third Exchange, and upon such prepayment of
$720,000 in principal amount of the 1999 Note, the Company will exchange 1,984
shares of Series D Junior Preferred Stock for the $1,212,192 principal balance
of the 1999 Note.
4.8 No Indebtedness. So long as any amount remains due under or with
---------------
respect to the 1999 Note, the Company shall not incur any Indebtedness other
than the $1,200,000 indebtedness to Jona, Inc. "Indebtedness" means, (a) all
------------
obligations of the Company for borrowed money and all obligations of the Company
evidenced by bonds, debentures, notes or other similar instruments (b) all
obligations, contingent or otherwise, relative to the face amount of all letters
of credit (other than letters of credit supporting trade payables in the
ordinary course of business), whether or not drawn, and banker's acceptances
issued for the account of the Company (c) all obligations of the Company as
lessee under leases which have been or should be, in accordance with generally
accepted accounting principles ("GAAP"), recorded as capitalized lease
----
liabilities; (d) net
63
liabilities of the Company under all swap contracts; (e) whether or not so
included as liabilities in accordance with GAAP, all obligations of the Company
to pay the deferred purchase price of property or services (other than
obligations under employment contracts, restrictive covenants or similar
arrangements or trade payables in the ordinary course of business), and
indebtedness (excluding prepaid interest thereon) secured by a Lien on property
owned or being purchased by the Company (including indebtedness arising under
conditional sales or other title retention agreements) whether or not such
indebtedness shall have been assumed by the Company or is limited in recourse,
(f) liabilities in accordance with GAAP of the Company with respect to lease
paper sold by the Company or any other persons or entities, and (g) all
contingent obligations of the Company in respect of any of the foregoing whether
the Company or another person or entity is the principal obligor in respect
thereof.
4.9 Intentionally Omitted.
---------------------
4.10 Adjustment in Number of Shares of Series D Junior Preferred Stock. In
-----------------------------------------------------------------
the event that the terms of any funding by the Company during the period
beginning on the date hereof and ending on the date of the earliest to occur of
(i) the second anniversary of the First Exchange, (ii) the raising by the
Company after January 21, 2002 of proceeds of equity financing aggregating at
least an additional $7.5 million in addition to the proceeds of the financings
contemplated by (A) the Jona SPA (other than the proceeds of exercise of
warrants issued to Jona, Inc. to the extent such proceeds constitute "additional
proceeds" under item (ii) of Section 4.12 of the Jona SPA and (B) the Exchange
Agreement or (iii) the Closing Bid Price (as defined in the Series D Articles
of Amendment) has exceeded $3.00 for thirty (30) consecutive Trading Days
following the effective date of the registration statement filed pursuant to
Section 4.6.3 hereof is at an effective offering price ("Effective Price") of
---------------
less than $1.00 per share of Common Stock, in addition to the Conversion Price
adjustment as to shares of Series D Junior Preferred Stock then outstanding
pursuant to Section 6(a) of the Series D Articles of Amendment, the Company
shall issue to CC such number of additional shares of the Company's Series D
Junior Preferred Stock as is necessary to cause the value of the total number of
shares of the Company's Series D Junior Preferred Stock previously converted,
including such additional shares of Series D Junior Preferred Stock, delivered
to CC in connection with the Exchange contemplated hereunder and to be delivered
in connection with such issuance to be equal to the aggregate Stated Value of
the Series D Junior Preferred Stock previously converted, less the amount (if
any) received by CC in connection with the sale or other transfer of the Series
D Junior Preferred Stock or Common Stock issued upon conversion of the Series D
Junior Preferred Stock at a price in excess of $1.00 per share, the value per
share of the Series D Junior Preferred Stock being deemed to be the Effective
Price. If the securities sold in such offering are securities of the Company
which are convertible into the Company's Common Stock and no other securities
are sold with such convertible securities and the convertible securities do not
provide for the payment of interest or dividends, other than dividends payable
equally to all of the Company's securities holders, the conversion price for the
convertible securities shall be deemed to be the Effective Price. If the
funding includes securities other than the Company's Common Stock or securities
convertible into the
64
Company's Common Stock, which convertible securities do not entitle the holders
thereof to any interest or dividend payments other than those available to all
of the Company's securities holders, the Company and CC shall negotiate in good
faith to determine the Effective Price. If the parties cannot agree on the
Effective Price within thirty (30) days of the closing of the funding, the
Company and CC shall each indicate in writing what they believe to be the
Effective Price and shall submit the determination of the effective Price to
arbitration in Denver, Colorado in accordance with the rules of the American
Arbitration Association. The determination of the Effective Price pursuant to
such arbitration shall be binding on the parties. The party whose stated
Effective Price is furthest from the price established in arbitration shall pay
the cost of such arbitration. If the difference between the stated Effective
Price for each of the parties is equal, the cost of the arbitration shall be
borne equally by the parties.
4.11 MFN Treatment. The Company hereby covenants that, to the extent the
-------------
Jona SPA and the exhibits thereto contain terms more favorable than those under
this Agreement and its exhibits, including, without limitation, terms governing
anti-dilution adjustments under the various instruments issued under the Jona
SPA, the Company shall promptly cause this Agreement and its exhibits modified
so as to provide for equally favorable rights for CC, as applicable.
4.12 Outstanding Securities. In consideration of the Exchanges and
----------------------
amendments contemplated hereunder and the Company's undertakings and agreements
contained herein, CC acknowledges and the parties agree that as a result of the
issuance of the Common Stock and Jona Warrant to Jona, Inc., the conversion
price of the Series C-1 Preferred Stock and the conversion price of the 1999
Note have been adjusted to One Dollar ($1.00).
5. CONDITIONS TO EXCHANGE.
----------------------
5.1 Conditions to CC's Obligations at the First Exchange. CC's
-----------------------------------------------------
obligations at the First Exchange, including without limitation its obligation
to exchange the 1,500 Series C-1 Preferred Stock, the A Warrant and the C
Warrant for the 1,500 Series D Junior Preferred Stock, the Amended A Warrant,
the Preferred Exchange Warrant and the Amended C Warrants are conditioned upon
the satisfaction by the Company (or waiver by CC) on or prior to January 31,
2002 of each of the following events as of the date of the First Exchange:
5.1.1 the First Closing contemplated under the Jona SPA shall have
been consummated;
5.1.2 the representations and warranties of the Company set forth
in this Agreement shall be true and correct in all material
respects as of such date as if made on such date;
5.1.3 the Company shall have complied with or performed in all
material respects all of the agreements, obligations and
conditions set forth in this Agreement that are required to
be
65
complied with or performed by the Company on or before such
date;
5.1.4 Registration Statement No. 333-57442 declared effective
December 4, 2001 shall be available for use by CC to resell
up to 1,000,000 Conversion Shares with respect to the Series
C-1 Preferred Stock, 150,115 Conversion Shares with respect
to the Amended A Warrant and 500,000 Conversion Shares with
respect to the Amended C Warrant and all other Conversion
Shares covered by that Registration Statement;
5.1.5 the Company shall have delivered to CC a certificate, signed
by an officer of the Company, certifying that the conditions
specified in this paragraph 5.1 have been fulfilled as of the
date of the First Exchange, it being understood that CC may
rely on such certificate as though it were a representation
and warranty of the Company made herein;
5.1.6 the Company shall have delivered to CC duly executed
certificates representing 1,500 shares of Series D Junior
Preferred Stock being exchanged for 1,500 shares of Series C-
1 Preferred Stock;
5.1.7 the Company shall have delivered to CC duly executed Amended
A Warrant and duly executed Amended C Warrant;
5.1.8 the Company shall have delivered to CC an opinion of counsel
to the Company, dated as of such date, in substantially the
form attached hereto as Exhibit H, and covering such
---------
additional matters as may be reasonably requested by CC;
5.1.9 Intentionally Omitted;
5.1.10 the Company shall have authorized and reserved for issuance
the number of shares of Common Stock required to be reserved
with respect to 1,500 shares of Series D Junior Preferred
Stock, the Amended A Warrant and the Amended C Warrant under
paragraph 4.4 hereof, and shall have provided CC with
reasonable evidence thereof;
5.1.11 the Company shall have duly filed the Series D Articles of
Amendment with the Secretary of State of the State of
Colorado and copies thereof certified by the Secretary of
State of the State of Colorado shall have been delivered to
CC
66
and the Series D Articles of Amendment shall not have been
amended, modified or rescinded;
5.1.12 the Company shall have delivered to CC a Certificate by the
Secretary of the Company, certifying copies of the Articles
of Incorporation, Bylaws, resolutions authorizing the
Transaction Documents and the Transaction Documents and the
transactions contemplated thereby and incumbency in a form
reasonably satisfactory to CC; and
5.1.13 since the date of this Agreement, there shall not have
occurred, in the reasonable judgment of CC, a material
adverse change in the business, operations, financial
condition, properties, prospects or results of operation of
the Company.
5.1.14 the Company shall have executed and delivered the
Registration Rights Agreement.
5.2 Conditions to CC's Obligations at the Second Exchange. CC's
------------------------------------------------------
obligations at the Second Exchange, including without limitation its obligation
to exchange up to 1,000 shares of Series C-1 Preferred Stock to the extent they
haven't been converted prior to the Second Exchange, are conditioned upon the
satisfaction by the Company (or waiver by CC) each of the following events as of
the date of the Second Exchange:
5.2.1 the First Exchange shall have been consummated;
5.2.2 the Registration Statement to be filed pursuant to Section
4.6.3 hereof shall have been declared effective by the SEC,
and it and Registration Statement No. 333-57442 shall be
available for use by CC for the resale of all of the
Registrable Securities (as defined in the Registration Rights
Agreement dated February 28, 2001) and all the Conversion
Shares issuable with respect to the Securities issued in the
First Exchange and a registration statement shall be
available for use by CC to resell the Conversion Shares with
respect to the shares of Series D Junior Preferred Stock to
be issued in exchange for the Series C-1 Preferred Stock at
the Second Exchange;
5.2.3 the representations and warranties of the Company set forth
in this Agreement shall be true and correct in all material
respects as of such date as if made on such date;
5.2.4 the Company shall have complied with or performed in all
material respects all of the agreements, obligations and
67
conditions set forth in this Agreement that are required to
be complied with or performed by the Company on or before the
Second Exchange;
5.2.5 the Company shall have delivered to CC a certificate, signed
by an officer of the Company, certifying that the conditions
specified in this paragraph 5.2 have been fulfilled as of the
Second Exchange, it being understood that CC may rely on such
certificate as though it were a representation and warranty
of the Company made herein;
5.2.6 the Company shall have delivered to CC duly executed
certificates representing a number of shares of Series D
Junior Preferred Stock equal to the number of shares of
Series C-1 Preferred Stock being exchanged therefor;
5.2.7 Intentionally Omitted;
5.2.8 the Company shall have delivered to CC an opinion of counsel
to the Company, dated as of such date, in substantially the
form attached hereto as Exhibit H, and covering such
---------
additional matters as may be reasonably requested by CC;
5.2.9 Intentionally Omitted;
5.2.10 the Company shall have authorized and reserved for issuance
the number of shares of Common Stock required to be reserved
under paragraph 4.4 hereof, and shall have provided CC with
reasonable evidence thereof;
5.2.11 the Company shall have delivered to CC a Certificate by the
Secretary of the Company, certifying copies of the Articles
of Incorporation, Bylaws, resolutions authorizing the
Transaction Documents and the Transaction Documents and the
transactions contemplated thereby and incumbency in a form
reasonably satisfactory to CC; and
5.2.12 since the date of this Agreement, there shall not have
occurred, in the reasonable judgment of CC, a material
adverse change in the business, operations, financial
condition, properties, prospects or results of operation of
the Company.
5.3 Conditions to CC's Obligations at the Third Exchange. CC's
-----------------------------------------------------
obligations at the Third Exchange, including without limitation its obligation
to exchange $1,212,192 in
68
principal amount of the 1999 Note for 1,984 shares of Series D Junior Preferred
Stock are conditioned upon the satisfaction by the Company (or waiver by CC) on
or prior to March 31, 2002 of each of the following events as of the date of the
Third Exchange:
5.3.1 the Company shall have raised on or after January 18, 2002
not less than $2,720,000 in equity financing in connection
with the issuances to Jona, Inc. pursuant to the Jona SPA or
otherwise;
5.3.2 the Company shall have prepaid $720,000 in principal amount
of the 1999 Note after the date of this Agreement and have
paid all interest accrued and not otherwise paid prior to the
Third Exchange;
5.3.3 the representations and warranties of the Company set forth
in this Agreement shall be true and correct in all material
respects as of such date as if made on such date;
5.3.4 the Company shall have complied with or performed in all
material respects all of the agreements, obligations and
conditions set forth in this Agreement that are required to
be complied with or performed by the Company on or before the
Third Exchange;
5.3.5 the Company shall have delivered to CC a certificate, signed
by an officer of the Company, certifying that the conditions
specified in this paragraph 5.3 have been fulfilled as of the
Third Exchange, it being understood that CC may rely on such
certificate as though it were a representation and warranty
of the Company made herein;
5.3.6 the Company shall have delivered to CC duly executed
certificates representing 1,984 shares of Series D Junior
Preferred Stock issued in exchange for $1,212,192 in
principal amount of the 1999 Note;
5.3.7 the Company shall have executed and delivered to the transfer
agent it instruction letter in the form attached hereto as
Exhibit I;
---------
5.3.8 the Company shall have delivered to CC an opinion of counsel
to the Company, dated as of such date, in substantially the
form attached hereto as Exhibit H, and covering such
---------
additional matters as may be reasonably requested by CC;
69
5.3.9 Intentionally Omitted;
5.3.10 the Company shall have authorized and reserved for issuance
the number of shares of Common Stock required to be reserved
under paragraph 4.4 hereof, and shall have provided CC with
reasonable evidence thereof;
5.3.11 the Company shall have delivered to CC a Certificate by the
Secretary of the Company, certifying copies of the Articles
of Incorporation, Bylaws, resolutions authorizing the
Transaction Documents and the Transaction Documents and the
transactions contemplated thereby and incumbency in a form
reasonably satisfactory to CC;
5.3.12 since the date of this Agreement, there shall not have
occurred, in the reasonable judgment of CC, a material
adverse change in the business, operations, financial
condition, properties, prospects or results of operation of
the Company; and
5.3.13 CC shall be permitted to resell the Conversion Shares
issuable upon the conversion of the Series D Junior Preferred
Stock issued in exchange for the 1999 Note without limitation
as to volume or manner of sale under Rule 144(k).
Notwithstanding anything to the contrary contained herein, if the
conditions to the Third Exchange are satisfied prior to the consummation of the
Second Exchange, the Third Exchange will occur prior to the Second Exchange.
5.4 Conditions to Company's Obligations at the Closing. The Company's
---------------------------------------------------
obligations at the First Exchange, the Second Exchange and the Third Exchange
are conditioned upon the satisfaction (or waiver by the Company) of each of the
following events as of the date of the applicable Exchange:
5.4.1 the representations and warranties of CC shall be true and
correct in all material respects as of such date as if made
on such date; and
5.4.2 CC shall have complied with or performed in all material
respects all of the agreements, obligations and conditions
set forth in this Agreement that are required to be complied
with or performed by CC on or before the date of such
Exchange.
70
6. MISCELLANEOUS.
-------------
6.1 Survival. The representations and warranties made by the parties
--------
herein shall survive each Exchange notwithstanding any due diligence
investigation made by or on behalf of the party seeking to rely thereon. In the
event that any provision of this Agreement becomes or is declared by a court of
competent jurisdiction to be illegal, unenforceable or void, this Agreement
shall continue in full force and effect without said provision; provided that in
such case the parties shall negotiate in good faith to replace such provision
with a new provision which is not illegal, unenforceable or void, as long as
such new provision does not materially change the economic benefits of this
Agreement to the parties. The Company agrees that it will indemnify and hold
harmless CC for any loss, claim, liability, damage or expense, as incurred by
CC, arising out of or in connection with (a) a breach by the Company of any
representation, warranty or agreement made in any Transaction Document, (b) any
cause of action, suit or claim brought or made against such indemnitee (other
than directly by the Company solely for breach of this Agreement by the
indemnitee) and arising out of or resulting from (whether in whole or in part)
the execution, delivery, performance or enforcement of any Transaction
Document), any transaction financed or to be financed in whole or in part,
directly or indirectly, with the proceeds of the issuance of the Securities or
the status of the CC as an investor in the Company, except to the extent that
such actual loss or damage results from a breach by such indemnitee of this
Agreement or the Registration Agreement or from a CC's violation of law, or (c)
any characterization concerning any Transaction Document other than as expressly
provided herein or therein, as the case may be, including, without limitation,
any characterization that the exercise of CC rights and remedies under any of
the Transaction Documents (or through a combination) results in a CC acting (or
agreeing to act) other than independently and on its own behalf. The right to
indemnification shall include the right to advancement of expenses as they are
incurred.
6.2 Successors and Assigns. The terms and conditions of this
----------------------
Agreement shall inure to the benefit of and be binding upon the respective
successors and permitted assigns of the parties. Nothing in this Agreement,
express or implied, is intended to confer upon any party other than the parties
hereto or their respective successors and permitted assigns any rights,
remedies, obligations or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement. The Company may not assign it
rights or obligations under this Agreement except as may be specifically
provided by the Transaction Documents.
6.3 No Reliance. Each party acknowledges that (i) it has such
-----------
knowledge in business and financial matters as to be fully capable of evaluating
the Transaction Documents and the transactions contemplated hereby and thereby,
(ii) it is not relying on any advice or representation of the other party in
connection with entering into the Transaction Documents or such transactions
(other than the representations made in the Transaction Documents), (iii) it has
not received from such party any assurance or guarantee as to the merits
(whether legal, regulatory, tax, financial or otherwise) of entering into the
Transaction Documents or the performance of its obligations hereunder and
thereunder, and (iv) it has consulted with its own legal, regulatory, tax,
business, investment, financial and
71
accounting advisors to the extent that it has deemed necessary, and has entered
into the Transaction Documents based on its own independent judgment and on the
advice of its advisors as it has deemed necessary, and not on any view (whether
written or oral) expressed by such party.
6.4 Injunctive Relief. The Company acknowledges that a breach by it
-----------------
of its obligations hereunder will cause irreparable harm to CC and that the
remedy or remedies at law for any such breach will be inadequate and agrees, in
the event of any such breach, in addition to all other available remedies, to an
injunction restraining any breach and requiring immediate and specific
performance of such obligations without the necessity of showing economic loss.
6.5 Governing Law; Jurisdiction. This Agreement shall be governed by
---------------------------
and construed under the laws of the State of Illinois without regard to the
conflict of laws provisions thereof. Each party hereby irrevocably submits to
the non-exclusive jurisdiction of the state and federal courts sitting in City
of Chicago, for the adjudication of any dispute hereunder or under any
Transaction Document or in connection herewith or therewith or with any
transaction contemplated hereby or thereby or discussed herein or therein, and
hereby irrevocably waives, and agrees not to assert in any suit, action or
proceeding, any claim that it is not personally subject to the jurisdiction of
any such court, that such suit, action or proceeding is brought in an
inconvenient forum or that the venue of such suit, action or proceeding is
improper. Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof (certified or registered mail, return receipt requested)
to such party at the address in effect for notices to it under this Agreement
and agrees that such service shall constitute good and sufficient service of
process and notice thereof. Nothing contained herein shall be deemed to limit
in any way any right to serve process in any manner permitted by law.
6.6 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
6.7 Headings; Drafting. The headings used in this Agreement are used
------------------
for convenience only and are not to be considered in construing or interpreting
this Agreement. The parties shall be deemed to have participated jointly in the
drafting of the Transaction Documents, and no provision hereof or thereof shall
be construed against any party as the drafter thereof.
6.8 Notices. Any notice, demand or request required or permitted to
-------
be given by any party to any other party pursuant to the terms of this Agreement
shall be in writing and shall be deemed given (i) when delivered personally or
by verifiable facsimile transmission (with an original to follow) on or before
5:00 p.m., eastern time, on a Business Day or, if such day is not a Business
Day, on the next succeeding Business Day, (ii) on the next Business Day after
timely delivery to a nationally-recognized overnight courier and (iii)
72
on the Business Day actually received if deposited in the U.S. mail (certified
or registered mail, return receipt requested, postage prepaid), addressed to the
parties as follows:
If to the Company:
XXXX Interactive Services, Inc.
0000 Xxxxxxx, Xxxxx 000
Xxxxxx, Xxxxxxxx 00000
Tel: 000-000-0000
Fax: 000-000-0000
Attn: Xxxxxxx Xxxxxx
with a copy to:
Xxxx, Plant, Xxxxx, Xxxxx & Xxxxxx, P.A.
3400 City Center
00 Xxxxx Xxxxx Xxxxxx
Xxxxxxxxxxx, XX 00000-0000
Tel: 000-000-0000
Fax: 000-000-0000
Attn: Xxxxxxx X. Xxxxxxx, Esq.
If to CC:
Castle Creek Technology Partners LLC
000 Xxxx Xxxxxxx Xxxx.
Xxxxx 0000
Xxxxxxx, XX 00000
Tel: 000.000.0000
Fax: 000.000.0000
Attn: Xxxxxx X. Xxxx
Managing Director
with a copy to:
Altheimer & Xxxx
00 Xxxxx Xxxxxx Xxxxx
Xxxxx 0000
Xxxxxxx, XX 00000-0000
Tel: 000.000.0000
Fax: 000.000.0000
Attn: Xxxx X. Xxxx, Esq.
73
6.9 Expenses. The Company and CC shall each pay its own costs and
--------
expenses that it incurs in connection with the negotiation, execution, delivery
and performance of the Transaction Documents.
6.10 Prior Agreements; Amendments. Except to the extent amended
----------------------------
hereby, the prior written agreements between the parties, including, without
limitation, the Securities Purchase Agreement and Registration Rights Agreement,
each dated as of February 28, 2001, shall remain in full force and effect.
Except as expressly provided herein, neither this Agreement nor any term hereof
may be amended except pursuant to a written instrument executed by the Company
and CC.
7. Termination. This Agreement may be terminated by CC, in which
-----------
case it shall be of no further force or effect, if the First Exchange shall not
have occurred on or prior to January 31, 2002.
[Remainder of Page Intentionally Left Blank]
74
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first-above written.
XXXX INTERACTIVE SERVICES, INC.
By: /s/ Xxxxxxx X. Xxxxxxx
--------------------------------------
Name: Xxxxxxx X. Xxxxxxx
Title: Vice President/General Counsel
CASTLE CREEK TECHNOLOGY PARTNERS LLC
By: CASTLE CREEK PARTNERS, L.L.C.
Its: Investment Manager
By: /s/ Xxxxxx X. Xxxx
---------------------------------
Xxxxxx X. Xxxx, Managing Director
75
EXHIBIT A
TO EXCHANGE AGREEMENT
See Exhibit 10.1 to Form 8-K as amended.
76
EXHIBIT B
TO EXCHANGE AGREEMENT
ARTICLES OF AMENDMENT
to the
ARTICLES OF INCORPORATION
of
XXXX INTERACTIVE SERVICES, INC.
Pursuant to Section 0-000-000
of the Colorado Business Corporation Act
XXXX INTERACTIVE SERVICES, INC., a Colorado corporation (the
"Corporation"), hereby amends its Articles of Incorporation by adopting these
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Articles of Amendment ("Articles of Amendment") pursuant to Section 0-000-000 of
---------------------
the Colorado Business Corporation Act to authorize a series of the Corporation's
previously authorized Preferred Stock, no par value (the "Preferred Stock"), as
---------------
follows:
1. The name of the Corporation is XXXX INTERACTIVE SERVICES, INC.
2. The Corporation's Board of Directors duly adopted these Articles of
Amendment on January ___, 2002.
3. These Articles of Amendment hereby amend Article [ IV] of the
Corporation's Articles of Incorporation by adding the following language at the
end of such Article as follows:
[12]. SERIES D JUNIOR CONVERTIBLE PREFERRED STOCK
1. DESIGNATION AND AMOUNT
The designation of this series, which consists of Four Thousand Four
Hundred Eighty Four (4,484) shares of Preferred Stock, is the "Series D Junior
Convertible Preferred Stock" (the "Series D Junior Preferred Stock") and the
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face amount of each share of Series D Junior Preferred Stock (each, a "Preferred
---------
Share" and collectively, the
-----
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"Preferred Shares") shall be One Thousand Dollars ($1,000.00) per Preferred
----------------
Share (the "Stated Value"). The date on which the Preferred Shares are issued
------------
pursuant to the Exchange Agreement, dated as of January 17, 2002, between the
Corporation and Castle Creek Technology Partners LLC (the "Exchange Agreement")
------------------
is referred to herein as the "Issue Date". The holders of Preferred Shares are
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each referred to as a "Holder" and, collectively, as the "Holders". Any
------ -------
capitalized term used herein that is not otherwise defined shall have the
meaning specified therefor in the Exchange Agreement.
2. DIVIDENDS.
In the event that any dividend or other distribution is declared, paid or
made to holders of Common Stock, the Corporation shall declare, pay and make an
identical dividend or distribution to the Holders of Preferred Stock in the
same amount per share as is paid or made to holders of Common Stock. In the
absence of such dividends or distributions to holders of Common Stock, the
Series D Junior Preferred Stock will not bear dividends.
3. PRIORITY
(a) Payment upon Dissolution.
------------------------
(i) Upon the occurrence of (x) any insolvency or bankruptcy
proceedings, or any receivership, liquidation, reorganization or other similar
proceedings in connection therewith, commenced by the Corporation or by its
creditors, as such, or relating to its assets or (y) the dissolution or other
winding up of the Corporation whether total or partial, whether voluntary or
involuntary and whether or not involving insolvency or bankruptcy proceedings,
or (z) any assignment for the benefit of creditors or any marshalling of the
material assets or material liabilities of the Corporation (each, a "Liquidation
-----------
Event"), no distribution shall be made to the holders of any shares of Junior
-----
Securities (as defined below) unless, following the payment of preferential
amounts on all Senior Securities (as defined below), each Holder shall have
received the Liquidation Preference (as defined below) with respect to each
Preferred Share then held by such Holder. In the event that upon the occurrence
of a Liquidation Event, and following the payment of preferential amounts on all
Senior Securities (as defined below), the assets available for distribution to
the Holders and the holders of Pari Passu Securities are insufficient to pay the
Liquidation Preference with respect to all of the outstanding Preferred Shares
and the preferential amounts payable to such holders, the entire assets of the
Corporation shall be distributed ratably among the Preferred Shares and the
shares of Pari Passu Securities in proportion to the ratio that the preferential
amount payable on each such share (which shall be the Liquidation Preference in
the case of a Preferred Share) bears to the aggregate preferential amount
payable on all such shares.
(ii) The "Liquidation Preference" with respect to a Preferred Share
----------------------
shall mean an amount equal to the Stated Value of such Preferred Share. "Junior
------
Securities" shall mean the Common Stock and all other capital stock of the
----------
Corporation that are not Pari Passu Securities or Senior Securities. "Pari Passu
----------
Securities" shall mean any
----------
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securities ranking by their terms pari passu with the Series D Junior Preferred
Stock in respect of redemption or distribution upon liquidation. "Senior
------
Securities" shall mean (i) any debt issued or assumed by the Corporation and
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(ii) any securities of the Corporation which by their terms have a preference
over the Series D Junior Preferred Stock in respect of redemption or
distribution upon liquidation.
4. CONVERSION.
(a) Right to Convert. Each Holder shall have the right to convert, at any
----------------
time and from time to time after the Issue Date, all or any part of the
Preferred Shares held by such Holder into such number of fully paid and non-
assessable shares ("Conversion Shares") of the Common Stock as is determined in
-----------------
accordance with the terms hereof (a "Conversion").
----------
(b) Conversion Notice. In order to convert Preferred Shares, a Holder
-----------------
shall send to the Corporation by facsimile transmission, at any time prior to
11:59 p.m., eastern time, on the date on which such Holder wishes to effect such
Conversion (the "Conversion Date"), (i) a notice of conversion in substantially
---------------
the form of Exhibit A hereto (a "Conversion Notice") stating the number of
-----------------
Preferred Shares to be converted, the Conversion Price (as defined below) and a
calculation of the number of shares of Common Stock issuable upon such
Conversion and (ii) a copy of the certificate or certificates representing the
Preferred Shares being converted. The Holder shall thereafter send the original
of the Conversion Notice and of such certificate or certificates to the
Corporation. The Corporation shall issue a new certificate for Preferred Shares
in the event that less than all of the Preferred Shares represented by a
certificate delivered to the Corporation in connection with a Conversion are
converted. Except as otherwise provided herein, upon delivery of a Conversion
Notice by a Holder in accordance with the terms hereof, such Holder shall, as of
the Conversion Date, be deemed for all purposes to be record owner of the Common
Stock to which such Conversion Notice relates. In the case of a dispute between
the Corporation and a Holder as to the calculation of the Conversion Price or
the number of Conversion Shares issuable upon a Conversion (including without
limitation the calculation of any adjustment to the Conversion Price pursuant to
Section 6 below), the Corporation shall issue to such Holder the number of
Conversion Shares that are not disputed within the time periods specified in
paragraph 4(e) below and shall submit the disputed calculations to its
independent accountant within two (2) Business Days of receipt of such Holder's
Conversion Notice. The Corporation shall cause such accountant to calculate the
Conversion Price as provided herein and to notify the Corporation and such
Holder of the results in writing no later than three (3) Business Days following
the Corporation's receipt of such Holder's Conversion Notice (such 3rd Business
Day being referred to herein as the "Disputed Share Calculation Date"). Such
-------------------------------
accountant's calculation shall be deemed conclusive absent manifest error. The
fees of any such accountant shall be borne by the party whose calculations were
most at variance with those of such accountant.
(c) Number of Conversion Shares; Conversion Price.
--------------------------- ----------------
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(A) The number of Conversion Shares to be delivered by the Corporation
pursuant to a Conversion shall be determined by dividing (i) the aggregate
Stated Value of the Preferred Shares to be converted by (ii) the Conversion
Price (as defined below) in effect on the Conversion Date.
(B) "Conversion Price" with respect to the Preferred Shares shall
----------------
initially be One Dollar ($1.00). The Conversion Price shall be subject to
adjustment for any stock splits, combinations, stock dividends,
reclassifications or other events as provided in Section 6 hereof and as
otherwise provided in these Articles of Amendment.
(d) Certain Definitions.
-------------------
(i) "Business Day" means any day on which the New York Stock Exchange
------------
and commercial banks located in the City of New York are open for business.
(ii) "Closing Bid Price" means, with respect to the Common Stock, the
-----------------
closing bid price for the Common Stock occurring on a given Trading Day on the
principal securities exchange or trading market where such security is listed or
traded as reported by Bloomberg Financial Markets or, if Bloomberg Financial
Markets is not then reporting such prices, by a comparable reporting service of
national reputation selected by the Corporation and reasonably acceptable to
each Holder of the then outstanding Preferred Shares (collectively, "Bloomberg")
---------
or if the foregoing does not apply, the last reported bid price of such security
in the over-the-counter market on the electronic bulletin board for such
security as reported by Bloomberg, or, if no bid price is reported for such
security by Bloomberg, the average of the bid prices of all market makers for
such security as reported in the "pink sheets" by the National Quotation Bureau,
Inc. (collectively, the "Applicable Reporting Entity"). If the Closing Bid Price
---------------------------
cannot be calculated for such security on any of the foregoing bases, the
Closing Bid Price of such security shall be the fair market value as reasonably
determined by an independent investment banking firm selected by a majority in
Stated Value of Preferred Shares, and reasonably acceptable to the Corporation,
with the costs of such appraisal to be borne by the Corporation.
(iii) "Effective Date" means December 4, 2001.
--------------
(iv) "Market Price" means the average Closing Bid Price for the
------------
Common Stock occurring during the period of ten (10) consecutive Trading Days
immediately preceding (but not including) the date of determination (but in no
event greater than the Closing Bid Price on the Trading Day immediately
preceding such date of determination); provided that if the Market Price cannot
be calculated as aforesaid, such Market Price shall be the fair market value as
reasonably determined by an investment banking firm selected by the Corporation
and reasonably acceptable to the Holders of a majority of the Preferred Shares
then outstanding, with the costs of such appraisal to be borne by the
Corporation.
80
(v) "Trading Day" means any day on which the Common Stock is purchased
-----------
and sold on the principal securities exchange or market on which the Common
Stock is then listed or traded.
(e) Delivery of Conversion Shares. Upon receipt of a Conversion Notice
-----------------------------
from a Holder, the Corporation shall, on or before the close of business on the
later to occur of (i) the third (3rd) Business Day following the Conversion Date
set forth in such Conversion Notice and (ii) with respect to Conversion Shares
that are the subject of a dispute as described in paragraph 4(b) above, the
Business Day immediately following the Disputed Share Calculation Date (such
Business Day being referred to herein as a "Delivery Date"), issue and deliver
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or cause to be delivered to such Holder the number of Conversion Shares to which
such Holder is entitled to receive as provided herein. The Corporation shall
effect delivery of Conversion Shares to a Holder by, as long as the transfer
agent for the Corporation (the "Transfer Agent") participates in the Depository
--------------
Trust Company ("DTC") Fast Automated Securities Transfer program ("FAST"),
--- ----
crediting the account of such Holder or its nominee at DTC (as specified in
Conversion Notice or otherwise in writing) with the number of Conversion Shares
required to be delivered, no later than the close of business on such Delivery
Date. In the event that Transfer Agent is not a participant in FAST, or if
Conversion Shares are not otherwise eligible for delivery through FAST, or if a
Holder so specifies in a Conversion Notice or otherwise in writing on or before
the Delivery Date, the Corporation shall effect delivery of Conversion Shares by
delivering to the Holder or its nominee physical certificates representing such
shares, no later than the close of business on such Delivery Date. If any
Conversion would create a fractional Conversion Share, such fractional share
shall be disregarded and the number of Conversion Shares shall be the rounded to
the nearest whole number of shares. Conversion Shares delivered to a Holder
shall not contain any restrictive legend as long as (A) the resale, transfer,
pledge or other disposition of such shares is covered by an effective
registration statement and such Holder represents in writing to the Corporation
that such shares have been or are being sold pursuant to such registration
statement, (B) such shares have been publicly sold pursuant to Rule 144 ("Rule
----
144"), or (C) such shares can be sold pursuant to Rule 144(k) under Securities
---
Act of 1933, as amended (the "Securities Act"), or any successor rule or
--------------
provision.
(f) Failure to Deliver Conversion Shares.
------------------------------------
(i) In the event that, as a result of any willful action or failure to
act on the part of the Corporation (whether under these Articles of Amendment,
under any other Transaction Document (as defined in the Exchange Agreement) or
otherwise, including without limitation a failure by the Corporation to have a
sufficient number of shares of Common Stock authorized and reserved for issuance
pursuant to conversions of Preferred Shares), a Holder has not received
certificates (without any restrictive legend in the circumstances described in
clause (A), (B) or (C) of paragraph 4(e) above) representing the number of
Conversion Shares specified in the Conversion Notice on or before the Delivery
Date therefor (a "Conversion Default"), and such failure to deliver certificates
------------------
continues for ten (10) Business Days following the delivery of written notice
thereof from such Holder (such tenth Business Day being referred to herein as
the "Conversion
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Default Date"), the Corporation shall pay to such Holder payments ("Conversion
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Default Payments") in the amount of (i) "N" multiplied by (ii) the aggregate
---------------- ----------
Stated Value of the Preferred Shares which are the subject of such Conversion
Default multiplied by (iii) one percent (1%), where "N" equals the number of
----------
days elapsed between the Conversion Default Date and the earlier to occur of (i)
the date on which all of the certificates (without any restrictive legend in the
circumstances described in clause (A), (B) or (C) of paragraph 4(e) above)
representing such Conversion Shares are issued and delivered to such Holder,
(ii) the date on which such Preferred Shares are redeemed pursuant to the terms
hereof and (iii) the date on which a Withdrawal Notice (as defined below) is
delivered to the Corporation. Amounts payable hereunder shall be paid to the
Holder in immediately available funds on or before the fifth (5th) Business Day
of the calendar month immediately following the calendar month in which such
amounts have accrued.
(ii) In the event that a Holder has not received certificates
(without any restrictive legend in the circumstances described in clause (A),
(B) or (C) of paragraph 4(e) above) representing the Conversion Shares by the
tenth (10th) Business Day following a Conversion Default as a result of any
willful action or any failure to act on the part of the Corporation (whether
under these Articles of Amendment, under any other Transaction Document (as
defined in the Securities Purchase Agreement) or otherwise, including without
limitation a failure by the Corporation to have a sufficient number of shares of
Common Stock authorized and reserved for issuance pursuant to conversions of
Preferred Shares), such Holder may, upon written notice (a "Withdrawal Notice")
-----------------
delivered to the Corporation on such Business Day or on any Business Day
thereafter (unless, prior to the delivery of such notice, such Conversion Shares
are delivered to such Holder), withdraw its Conversion Notice with respect to
such Conversion Shares and regain its rights as a Holder of the Preferred Shares
that are the subject of such Conversion Default. In such event, the Conversion
Price in effect when such Preferred Shares are thereafter converted shall be
equal to the lowest Conversion Price or (if lower) Market Price occurring on or
after the date of such Conversion Notice reduced by one percent (1%) for each
day occurring during the period immediately following such 10th Business Day
until the day on which the such Holder delivers a Withdrawal Notice to the
Corporation; provided, however, that the maximum percentage by which such
Conversion Price may be reduced hereunder shall be fifty percent (50%). (For
example, if such Conversion Default were to continue for five days following
such 10th Business Day, such Conversion Price would be reduced by 5%; if for ten
days, by 10%; and for fifty days or more, 50%, so that the number of Conversion
Shares deliverable upon conversion of such Preferred Shares would be increased
proportionately). Upon delivery by a Holder of a Withdrawal Notice, such Holder
shall retain all of such Holder's rights and remedies with respect to the
Corporation's failure to deliver such Conversion Shares (including without
limitation the right to receive the cash payments specified in subparagraph
4(f)(i) above).
(iii) In addition to any other remedies provided herein, each Holder
shall have the right to pursue actual damages for the Corporation's failure to
issue and deliver Conversion Shares on the Delivery Date (including, without
limitation, damages relating to any purchase of shares of Common Stock by such
Holder to make delivery on a sale
82
lawfully effected in anticipation of receiving Conversion Shares upon
Conversion, such damages to be in an amount equal to (A) the aggregate amount
paid by such Holder for the shares of Common Stock so purchased minus (B) the
aggregate Conversion Price for such Conversion Shares, and such Holder shall
have the right to pursue all other remedies available to it at law or in equity
(including, without limitation, a decree of specific performance and/or
injunctive relief).
(g) Intentionally Omitted.
5. CONVERSION LIMITATIONS.
(a) Intentionally Omitted.
(b) Notwithstanding anything to the contrary contained herein, each
Preferred Share shall not be convertible into Common Stock by the Holder to the
extent (but only to the extent) that, if convertible by the Holder, the Holder
would be the beneficial owner of more than 4.99% of the shares of Common Stock.
For the purposes of this Section 5(b), beneficial ownership and all
determinations and calculations shall be determined in accordance with Section
13(d) of the Securities Exchange Act of 1934, as amended, and all applicable
rules and regulations thereunder. For clarification, it is expressly a term of
the Preferred Shares that the limitations contained in this Section 5(b) shall
apply to each successive Holder. The restriction contained in this Section 5(b)
may not be altered, amended, deleted or changed in any manner whatsoever unless
the holders of a majority of the outstanding shares of Common Stock and the
Holders of a majority of the outstanding Preferred Shares approve such
alteration, amendment, deletion or change.
6. ADJUSTMENT IN NUMBER OF CONVERSION SHARES
(a) Adjustment in Conversion Price. In the event that the terms of any
------------------------------
funding by the Corporation during the period beginning on the date hereof and
ending on the date of the earliest to occur of (i) the second anniversary of the
First Exchange, (ii) the raising by the Corporation after January 21, 2002 of
proceeds of equity financing aggregating at least an additional $7.5 million in
addition to the proceeds of the financings contemplated by (A) the Jona SPA
(other than the proceeds of exercise of warrants issued to Jona, Inc. to the
extent such proceeds constitute "additional proceeds" under item (ii) of Section
4.12 of the Jona SPA) and (B) the Exchange Agreement, or (iii) the Closing Bid
Price has exceeded $3.00 for thirty (30) consecutive Trading Days following the
effective date of the registration statement filed pursuant to Section 4.6.3 of
the Exchange Agreement is at an effective offering price ("Effective Price") of
---------------
less than $1.00 per share of Common Stock, then effective immediately upon such
issuance, the Conversion Price shall be reduced to the Effective Price. If the
securities sold in such offering are securities of the Corporation which are
convertible into the Corporation's Common Stock and no other securities are sold
with such convertible securities and the convertible securities do not provide
for the payment of interest or dividends, other than dividends payable equally
to all of the Corporation's securities holders, the conversion
83
price for the convertible securities shall be deemed to be the Effective Price.
If the funding includes securities other than the Corporation's Common Stock or
securities convertible into the Corporation's Common Stock, which convertible
securities do not entitle the holders thereof to any interest or dividend
payments other than those available to all of the Corporation's securities
holders, the Corporation and the Holders shall negotiate in good faith to
determine the Effective Price. If the parties cannot agree on the Effective
Price within thirty (30) days of the closing of the funding, the Corporation and
the Holders shall each indicate in writing what they believe to be the Effective
Price and shall submit the determination of the effective Price to arbitration
in Denver, Colorado in accordance with the rules of the American Arbitration
Association. The determination of the Effective Price pursuant to such
arbitration shall be binding on the parties. The party whose stated Effective
Price is furthest from the price established in arbitration shall pay the cost
of such arbitration. If the difference between the stated Effective Price for
each of the parties is equal, the cost of the arbitration shall be borne equally
by the parties.
(b) Subdivision or Combination of Common Stock. If the Corporation, at any
------------------------------------------
time after the Issue Date of the Preferred Shares, subdivides (by any stock
split, stock dividend, recapitalization, reorganization, reclassification or
otherwise) its shares of Common Stock into a greater number of shares, then
after the date of record for effecting such subdivision, the Conversion Price in
effect immediately prior to such subdivision will be proportionately reduced. If
the Corporation, at any time after the Issue Date of the Preferred Shares,
combines (by reverse stock split, recapitalization, reorganization,
reclassification or otherwise) its shares of Common Stock into a smaller number
of shares, then, after the date of record for effecting such combination, the
Conversion Price in effect immediately prior to such combination will be
proportionally increased.
(c) Adjustment Due to Merger, Consolidation, Etc. If, prior to the
--------------------------------------------
Conversion of all of the Preferred Shares, there shall be any merger,
consolidation, business combination, tender offer, exchange of shares,
recapitalization, reorganization, redemption or other similar event, as a result
of which shares of Common Stock shall be changed into the same or a different
number of shares of the same or another class or classes of stock or securities
of the Corporation or another entity (an "Exchange Transaction"), then such
--------------------
Holder shall (A) upon the consummation of such Exchange Transaction, have the
right to receive, with respect to any shares of Common Stock then held by such
Holder, or which such Holder is then entitled to receive pursuant to a
Conversion Notice previously delivered by such Holder (and without regard to
whether such shares contain a restrictive legend or are freely-tradable), the
same amount and type of consideration (including without limitation, stock,
securities and/or other assets) and on the same terms as a holder of shares of
Common Stock would be entitled to receive in connection with the consummation of
such Exchange Transaction (the "Exchange Consideration"), and (B) upon the
----------------------
Conversion of Preferred Shares occurring subsequent to the consummation of such
Exchange Transaction (a "Subsequent Conversion"), have the right to receive the
---------------------
Exchange Consideration which such Holder would have been entitled to receive in
connection with such Exchange Transaction had such shares been converted
immediately prior to such Exchange Transaction at the Conversion Price
applicable on the Conversion Date relating to such Subsequent Conversion, and in
any
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such case appropriate provisions shall be made with respect to the rights and
interests of such Holder to the end that the provisions hereof (including,
without limitation, provisions for the adjustment of the Conversion Price and of
the number of shares of Common Stock issuable upon a Conversion) shall
thereafter be applicable as nearly as may be practicable in relation to any
securities thereafter deliverable upon the Conversion of such Preferred Shares.
The Corporation shall not effect any Exchange Transaction unless (i) it first
gives to each Holder twenty (20) days prior written notice of such Exchange
Transaction (an "Exchange Notice"), and makes a public announcement of such
---------------
event at the same time that it gives such notice (it being understood that the
filing by the Corporation of a Form 8-K for the purpose of disclosing the
anticipated consummation of the Exchange Transaction shall constitute an
Exchange Notice for purposes of this provision) and (ii) the resulting successor
or acquiring entity (if not the Corporation) assumes by written instrument the
obligations of the Corporation hereunder, including the terms of this
subparagraph 6(c), and under the Securities Purchase Agreement and the
Registration Rights Agreement.
(d) Distribution of Assets. If the Corporation or any of its subsidiaries
----------------------
shall declare or make any distribution of cash, evidences of indebtedness or
other securities or assets (other than cash dividends or distributions payable
out of earned surplus or net profits for the current or the immediately
preceding year), or any rights to acquire any of the foregoing, to holders of
Common Stock (or to a holder, other than the Corporation, of the common stock of
any such subsidiary) as a partial liquidating dividend, by way of return of
capital or otherwise, including any dividend or distribution in shares of
capital stock of a subsidiary of the Corporation (collectively, a
"Distribution"), then each Holder shall be entitled to receive, at the same time
------------
as such assets are received by a holder of such stock, an amount and type of
such Distribution as though such Holder were a holder on the record date
therefor of a number of shares of Common Stock determined by dividing the
Liquidation Preference of the Preferred Shares held by such Holder on such
record date by the lower of the Market Price and the Conversion Price in effect
on such record date (such number of shares to be determined without regard to
any limitation on conversion of the Preferred Shares that may exist pursuant to
these Articles of Amendment or otherwise).
(f) Intentionally Omitted.
---------------------
(g) Special Adjustment and Notice of Adjustment. Upon the occurrence of
-------------------------------------------
any event which requires any adjustment of the Conversion Price, then, and in
each such case, the Corporation shall give notice thereof to the Holder, which
notice shall state the Conversion Price resulting from such adjustment and the
increase or decrease in the number of Conversion Shares issuable upon
conversion, setting forth in reasonable detail the method of calculation and the
facts upon which such calculation is based. Such calculation shall be certified
by the chief financial officer of the Corporation. If the Corporation takes any
actions (including under or by virtue of this Section 6) which would have a
dilutive effect on the Holder or which would materially and adversely affect the
Holder with respect to its investment in the Preferred Stock, and if the
provisions of this Section 6, are not strictly applicable to such actions or, if
applicable to
85
such actions, would not operate to equitably protect the Holder against such
actions, then the Corporation shall promptly upon notice from Holder appoint its
independent certified public accountants to determine as promptly as practicable
an appropriate adjustment to the terms hereof, including without limitation
adjustments to the Conversion Price, or another appropriate action to so
equitably protect such Holder and prevent any such dilution and any such
material adverse effect, as the case may be. Following such determination, the
Corporation shall forthwith make the adjustments or take the other actions
described therein.
(h) Other Notices. In case at any time:
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(i) the Corporation shall declare any dividend upon the Common
Stock payable in shares of stock of any class or make any other distribution to
the holders of the Common Stock;
(ii) the Corporation shall offer for subscription pro rata to the
holders of the Common Stock any additional shares of stock of any class or other
rights;
(iii) there shall be any capital reorganization of the Corporation,
or reclassification of the Common Stock, or consolidation or merger of the
Corporation with or into, or sale of all or substantially all of its assets to,
another corporation or entity; or
(iv) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Corporation;
then, in each such case, the Corporation shall give to the Holder (a) notice of
the date on which the books of the Corporation shall close or a record shall be
taken for determining the holders of Common Stock entitled to receive any such
dividend, distribution, or subscription rights or for determining the holders of
Common Stock entitled to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up and (b) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding-up, notice of
the date (or, if not then known, a reasonable approximation thereof by the
Corporation) when the same shall take place. Such notice shall also specify the
date on which the holders of Common Stock shall be entitled to receive such
dividend, distribution, or subscription rights or to exchange their Common Stock
for stock or other securities or property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation, or
winding-up, as the case may be. Such notice shall be given at least thirty (30)
days prior to the record date or the date on which the Corporation's books are
closed in respect thereto, but in no event earlier than public announcement of
such proposed transaction or event. Failure to give any such notice or any
defect therein shall not affect the validity of the proceedings referred to in
clauses (i), (ii), (iii) and (iv) above.
(i) No Fractional Shares. If any adjustment under this Section would
--------------------
create a fractional share of Common Stock or a right to acquire a fractional
share of Common
86
Stock, such fractional share shall be disregarded and the number of shares of
Common Stock issuable upon Conversion shall be rounded to the nearest whole
number of shares.
7. INTENTIONALLY OMITTED.
8. MISCELLANEOUS.
(a) Transfer of Preferred Shares. Upon notice to the Corporation, a Holder
----------------------------
may sell or transfer all or any portion of the Preferred Shares to any person or
entity as long as such sale or transfer is the subject of an effective
registration statement under the Securities Act or is exempt from registration
thereunder and otherwise is made in accordance with the terms of the Securities
Purchase Agreement. Notwithstanding the foregoing, no Holder shall knowingly and
voluntarily sell any Preferred Shares to an entity that is a competitor of the
Corporation. From and after the date of such sale or transfer, the transferee
thereof shall be deemed to be a Holder. Upon any such sale or transfer, the
Corporation shall, promptly following the return of the certificate or
certificates representing the Preferred Shares that are the subject of such sale
or transfer, issue and deliver to such transferee a new certificate in the name
of such transferee.
(b) Notices. Except as otherwise provided herein, any notice, demand or
-------
request required or permitted to be given pursuant to the terms hereof, the form
or delivery of which notice, demand or request is not otherwise specified
herein, shall be in writing and shall be deemed delivered (i) when delivered
personally or by verifiable facsimile transmission on or before 5:00 p.m.,
eastern time, on a Business Day or, if such day is not a Business Day, on the
next succeeding Business Day, (ii) on the next Business Day after timely
delivery to an overnight courier and (iii) on the day actually received if
deposited in the U.S. mail (certified or registered mail, return receipt
requested, postage prepaid), addressed to the parties as follows:
If to the Corporation:
XXXX Interactive Services, Inc.
0000 Xxxxxxx, Xxxxx 000
Xxxxxx, Xxxxxxxx 00000
Telecopy: (000) 000-0000
Attention: Xxxxxxx Xxxxxx
with a copy to:
Xxxx, Plant, Xxxxx, Xxxxx & Xxxxxxx, P.A.
3400 City Center
00 Xxxxx Xxxxx Xxxxxx
Xxxxxxxxxxx, XX 00000-0000
Telecopy: (000) 000-0000
Attention: Xxxxxxx X. Xxxxxxx, Esq.
87
and if to any Holder, to such address for such Holder as shall be designated by
such Holder in writing to the Corporation.
(c) Lost or Stolen Certificate. Upon receipt by the Corporation of evidence
--------------------------
of the loss, theft, destruction or mutilation of a certificate representing
Preferred Shares, and (in the case of loss, theft or destruction) of indemnity
or security reasonably satisfactory to the Corporation and the Transfer Agent,
and upon surrender and cancellation of such certificate if mutilated, the
Corporation shall execute and deliver to the Holder a new certificate identical
in all respects to the original certificate.
(d) No Voting Rights. Except as provided by applicable law and paragraph
----------------
8(g) below, the Holders of the Preferred Shares shall have no voting rights with
respect to the business, management or affairs of the Corporation; provided that
the Corporation shall provide each Holder with prior notification of each
meeting of stockholders (and copies of proxy statements and other information
sent to such stockholders).
(e) Remedies, Characterization, Other Obligations, Breaches and Injunctive
-------- ---------------- ----------------- -----------------------
Relief. The remedies provided to a Holder in these Articles of Amendment shall
------
be cumulative and in addition to all other remedies available to such Holder
under these Articles of Amendment or under any Transaction Document (as defined
in the Securities Purchase Agreement), at law or in equity (including without
limitation a decree of specific performance and/or other injunctive relief), no
remedy contained herein shall be deemed a waiver of compliance with the
provisions giving rise to such remedy and nothing contained herein shall limit
such Holder's right to pursue actual damages for any failure by the Corporation
to comply with the terms of these Articles of Amendment. The Corporation agrees
with each Holder that there shall be no characterization concerning this
instrument other than as specifically provided herein. Amounts set forth or
provided for herein with respect to payments, conversion and the like (and the
computation thereof) shall be the amounts to be received by the Holder hereof
and shall not, except as expressly provided herein, be subject to any other
obligation of the Corporation (or the performance thereof). The Corporation
acknowledges that a material breach by it of its obligations hereunder will
cause irreparable harm to the Holders and that the remedy at law for any such
breach may be inadequate. The Corporation agrees, in the event of any such
breach or threatened breach, each Holder shall be entitled, in addition to all
other available remedies, to an injunction restraining any breach, without the
necessity of showing economic loss and without any bond or other security being
required.
(f) Failure or Delay not Waiver. No failure or delay on the part of a
--------------------------
Holder in the exercise of any power, right or privilege hereunder shall operate
as a waiver thereof, nor shall any single or partial exercise of any such power,
right or privilege preclude other or further exercise thereof or of any other
right, power or privilege.
(g) Intentionally Omitted.
---------------------
88
IN WITNESS WHEREOF, the Corporation has duly executed these Articles of
Amendment as of the __th day of January, 2002.
XXXX INTERACTIVE SERVICES, INC.
By:_________________________________
Name:
Title:
89
EXHIBIT A
---------
NOTICE OF CONVERSION
The undersigned hereby elects to convert shares of Series D Junior
Convertible Preferred Stock (the "Preferred Stock"), represented by stock
---------------
certificate No(s). _____________ (the "Preferred Stock Certificates"), into
----------------------------
shares of common stock ("Common Stock") of XXXX INTERACTIVE SERVICES, INC.
------------
according to the terms and conditions of the Articles of Amendment relating to
the Preferred Stock (the "Articles of Amendment"), as of the date written below.
---------------------
Capitalized terms used herein and not otherwise defined shall have the
respective meanings set forth in the Articles of Amendment. Unless otherwise
specified in writing to the Corporation, the undersigned represents to the
Corporation that the shares of Common Stock covered by this notice have been or
will be sold pursuant to an effective registration statement.
Date of Conversion:________________________________________
Number of Shares of Preferred Stock to be Converted:_______
Applicable Conversion Price:_______________________________
Number of Shares of Common Stock to be Issued:_____________
Name of Holder:____________________________________________
Address: _______________________________________________
_______________________________________________
_______________________________________________
Signature: _______________________________________________
Name:
Title:
Holder Requests Delivery to be made: (check one)
[_] By Delivery of Physical Certificates to the Above Address
[_] Through Depository Trust Corporation (Account # ________________)
90
EXHIBIT C
TO EXCHANGE AGREEMENT
Paragraph to inserted into the form Jona Warrant as Section 4 of the Preferred
Exchange Warrant:
"Notwithstanding anything to the contrary contained herein, this
Warrant shall not be exercisable by the Holder to the extent (but only to the
extent) that, if exercisable by the Holder, the Holder would be the beneficial
owner of more than 4.99% of the shares of Common Stock. For the purposes of
this Section 4, beneficial ownership and all determinations and calculations
shall be determined in accordance with Section 13(d) of the Securities Exchange
Act of 1934, as amended, and all applicable rules and regulations thereunder.
For clarification, it is expressly a term of this security that the limitations
contained in this Section 4 shall apply to each successive Holder. The
restriction contained in this Section 4 may not be altered, amended, deleted or
changed in any manner whatsoever unless the holders of a majority of the
outstanding shares of Common Stock and the Holder hereof approve such
alteration, amendment, deletion or change".
91
EXHIBIT D
TO EXCHANGE AGREEMENT
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAW, AND MAY NOT BE OFFERED FOR SALE, SOLD OR
TRANSFERRED UNLESS A REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE
SECURITIES LAWS SHALL BE EFFECTIVE WITH RESPECT THERETO, OR AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS IS
AVAILABLE IN CONNECTION WITH SUCH OFFER, SALE OR TRANSFER.
Warrant to Purchase Issue Date: January 31, 2002
750,000 Shares
-------
XXXX INTERACTIVE SERVICES, INC.
WARRANT TO PURCHASE COMMON STOCK
THIS CERTIFIES that CASTLE CREEK TECHNOLOGY PARTNERS LLC or any subsequent
holder hereof (the "Holder"), has the right to purchase from XXXX INTERACTIVE
------
SERVICES, INC., a Colorado corporation (the "Company"), up to 750,000 (the
-------
"Initial Shares") fully paid and non-assessable shares of the Company's common
stock, no par value (the "Common Stock"), subject to adjustment as provided
------------
herein, at a price equal to the Exercise Price (as defined below), at any time
beginning on the date on which this Warrant is issued (the "Issue Date") and
----------
ending at 5:00 p.m., Central Standard Time, on the date that is the fifth
(5/th/) anniversary of the Issue Date (the "Expiration Date"). This Warrant is
---------------
issued, and all rights hereunder shall be, subject to all of the conditions,
limitations and provisions set forth herein and in the related Exchange
Agreement dated as of January 17, 2002 by and between the Company and the Holder
(the "Exchange Agreement"). Capitalized terms used herein and not otherwise
------------------
defined shall have the respective meanings set forth in the Exchange Agreement,
including the exhibits thereto.
1. Exercise.
(a) Right to Exercise; Exercise Price. The Holder shall have the
----------------- --------------
right to exercise this Warrant at any time and from time to time during the
period beginning on the Issue Date and ending on the Expiration Date as to all
or any part of the shares of Common Stock covered hereby (the "Warrant Shares").
--------------
The "Exercise Price" payable by the Holder in connection with the exercise of
this Warrant shall initially be $1.00 per share, subject to adjustment for the
events specified in Section 6 below.
92
(b) Exercise Notice. In order to exercise this Warrant, the Holder
---------------
shall send by facsimile transmission, at any time prior to 5:00 p.m., Central
Standard Time, on the Business Day (as defined below) on which the Holder wishes
to effect such exercise (the "Exercise Date"), to the Company a copy of the
-------------
notice of exercise in the form attached hereto as Exhibit A (the "Exercise
--------
Notice") stating the number of Warrant Shares as to which such exercise applies
------
and the calculation therefor. As used herein, "Business Day" shall mean any day
------------
on which the New York Stock Exchange (the "NYSE") and commercial banks in the
----
city of New York are open for business. The Holder shall thereafter deliver to
the Company the original Exercise Notice, the original Warrant and (unless a
cashless exercise is intended) the Exercise Price. In the case of a dispute as
to the calculation of the Exercise Price or the number of Warrant Shares
issuable hereunder (including without limitation the calculation of any
adjustment to the Exercise Price pursuant to Section 6 below), the Company shall
promptly issue to the Holder the number of Warrant Shares that are not disputed
and shall submit the disputed calculations to the Company's independent
accountant within two (2) Business Days following the Exercise Date. The Company
shall cause such accountant to calculate the Exercise Price and/or the number of
Warrant Shares issuable hereunder and to notify the Company and the Holder of
the results in writing no later than two (2) Business Days following the day on
which such accountant received the disputed calculations. Such accountant's
calculation shall be deemed conclusive absent manifest error. The fees of any
such accountant shall be borne by the party whose calculations were most at
variance with those of such accountant.
(c) Early Expiration. In the event that following the Effective Date
----------------
of the Registration Statement filed pursuant to Section 4.6.3 of the Exchange
Agreement, the Closing Bid Price (as defined herein) of the Common Stock during
any period of five (5) consecutive Trading Days is equal to or greater than
$2.00 (subject to adjustment as provided herein) (the "First Expiration Trigger
------------------------
Event") or is equal to or greater than $3.00 (subject to adjustment as provided
-----
herein) (the "Second Expiration Trigger Event"), the Company may deliver to the
-------------------------------
Holder at any time that the Closing Bid Price equals or exceeds $2.00 in the
case of the First Expiration Trigger Event or $3.00 in the case of the Second
Expiration Trigger Event, written notice (the "Early Expiration Notice") that
-----------------------
the Warrant shall expire for up to an aggregate of one-third (1/3 rd) of the
Initial Shares for each of the First Expiration Trigger Event and Second
Expiration Trigger Event. In the event that the Company delivers to the Holder
an Early Expiration Notice in accordance with the foregoing, this Warrant shall
expire with respect to the number of shares indicated in the Early Expiration
Notice on the date (the "Early Expiration Date") which is thirty (30) Business
---------------------
Days following the Business Day on which such Early Expiration Notice is
delivered to the Holder. The Company may give more than one Early Expiration
Notice with respect to each of the First Expiration Trigger Event and Second
Expiration Trigger Event so long as the aggregate number of shares subject to
all such notices for each of the First and Second Expiration Trigger Events does
not exceed one-third (1/3 rd) of the Initial Shares. The "Closing Bid Price"
-----------------
shall mean, with respect to the Common Stock, the Closing Bid Price for the
Common Stock occurring on a given Trading Day on the principal securities
exchange or trading
93
market where such security is listed or traded as reported by Bloomberg
Financial Markets ("Bloomberg") or, if Bloomberg is not then reporting such
prices, by a comparable reporting service of national reputation selected by the
Company or if the foregoing does not apply, the last reported bid price of such
security in the over-the-counter market on the electronic bulletin board for
such security as reported by Bloomberg or, if no bid price is reported for such
security by Bloomberg, the average of the bid prices of all market makers for
such security as reported in the "pink sheets" by the National Quotation Bureau,
Inc.
(d) Cancellation of Warrant. This Warrant shall be canceled upon its
-----------------------
exercise and, if this Warrant is exercised in part, the Company shall, at the
time that it delivers Warrant Shares to the Holder pursuant to such exercise as
provided herein, issue a new warrant, and deliver to the Holder a certificate
representing such new warrant, with terms identical in all respects to this
Warrant (except that such new warrant shall be exercisable into the number of
shares of Common Stock with respect to which this Warrant shall remain
unexercised); provided, however, that the Holder shall be entitled to exercise
all or any portion of such new warrant at any time following the time at which
this Warrant is exercised, regardless of whether the Company has actually issued
such new warrant or delivered to the Holder a certificate therefor.
2. Delivery of Warrant Shares Upon Exercise.
Upon receipt of an Exercise Notice pursuant to paragraph 1 above, the
Company shall, (A) in the case of a Cashless Exercise (as defined below), no
later than the close of business on the third (3rd) Business Day following the
Exercise Date set forth in such Exercise Notice, (B) in the case of a Cash
Exercise (as defined below) no later than the close of business on the later to
occur of (i) the third (3rd) Business Day following the Exercise Date set forth
in such Exercise Notice and (ii) such later date on which the Company shall have
received payment of the Exercise Price, and (C) with respect to Warrant Shares
which are disputed as described in paragraph 1(b) above, and required to be
delivered by the Company pursuant to the accountant's calculations described
therein, the close of business on the third (3rd) Business Day following the
determination made pursuant to paragraph 1(b) (the "Delivery Date"), issue and
-------------
deliver or caused to be delivered to the Holder the number of Warrant Shares as
shall be determined as provided herein. The Company shall effect delivery of
Warrant Shares to the Holder by, as long as the Company's designated transfer
agent for the Common Stock (the "Transfer Agent") participates in the Depository
--------------
Trust Company ("DTC") Fast Automated Securities Transfer program ("FAST"),
--- ----
crediting the account of the Holder or its nominee at DTC (as specified in the
applicable Exercise Notice) with the number of Warrant Shares required to be
delivered, no later than the close of business on such Delivery Date. In the
event that the Transfer Agent is not a participant in FAST, or if Warrant Shares
are not otherwise eligible for delivery through FAST, or if the Holder so
specifies in an Exercise Notice or otherwise in writing on or before the
Exercise Date, the Company shall effect delivery of Warrant Shares by delivering
to the Holder or its nominee physical certificates representing such Warrant
Shares, no later than the close of business on such Delivery Date. Warrant
Shares delivered to the Holder shall not contain any restrictive
94
legend as long as the resale of such Warrant Shares is covered by an effective
Registration Statement filed pursuant to Section 4.6.3 of the Exchange Agreement
and such Holder represents in writing to the Company that such Warrant Shares
(i) have been or are being sold pursuant to such registration statement or
pursuant to Rule 144 under the Securities Act of 1933, as amended, or (ii) may
be made pursuant to Rule 144(k) under the Securities Act of 1933, as amended, or
any successor rule or provision.
3. Failure to Deliver Warrant Shares.
(a) Exercise Default. In the event that, as a result of any action or
----------------
failure to act on the part of the Company (including without limitation a
failure by the Company to have a sufficient number of shares of Common Stock
authorized and reserved for issuance pursuant to exercise of the Warrants), the
Company does not deliver to a Holder certificates representing the number of
Warrant Shares specified in the applicable Exercise Notice on or before the
Delivery Date therefor and such failure continues for ten (10) Business Days (an
"Exercise Default"), the Company shall pay to the Holder payments ("Exercise
---------------- --------
Default Payments") in the amount of (i) (N/365) multiplied by (ii) the aggregate
---------------- ----------
Exercise Price for the Warrant Shares which are the subject of such Exercise
Default multiplied by (iii) the lower of twenty four percent (24%) and the
----------
maximum rate permitted by applicable law, where "N" equals the number of days
elapsed between the original Delivery Date for such Warrant Shares and the date
on which all of such Warrant Shares are issued and delivered to the Holder.
Amounts payable under this subparagraph 3(a) shall be paid to the Holder in
immediately available funds on or before the fifth (5th) Business Day of the
calendar month immediately following the calendar month in which such amount has
accrued.
(b) Buy-in. Nothing herein shall limit a Holder's right to pursue actual
------
damages for the Company's failure to issue and deliver Warrant Shares in
connection with an exercise on the applicable Delivery Date (including, without
limitation, damages relating to any purchase of shares of Common Stock by the
Holder to make delivery on a sale effected in anticipation of receiving Warrant
Shares upon exercise, such damages to be in an amount equal to (A) the aggregate
amount paid by the Holder for the shares of Common Stock so purchased minus (B)
-----
the aggregate amount of net proceeds, if any, received by the Holder from the
sale of the Warrant Shares issued by the Company pursuant to such exercise), and
the Holder shall have the right to pursue all remedies available to it at law or
in equity (including, without limitation, a decree of specific performance
and/or injunctive relief).
(c) Reduction of Exercise Price. In the event that, as a result of any
---------------------------
action or failure to act on the part of the Company (including without
limitation a failure by the Company to have a sufficient number of shares of
Common Stock authorized and reserved for issuance pursuant to exercise of the
Warrants), a Holder has not received certificates representing the Warrant
Shares by the tenth (10th) Business Day following an Exercise Default, the
Holder may, upon written notice to the Company, regain on such Business Day the
rights of a Holder of this Warrant, or part thereof, with respect to the Warrant
Shares that are the subject of such Exercise Default, and the Exercise Price for
95
such Warrant Shares shall be reduced by one percent (1%) for each day beyond
such 10th Business Day in which the Exercise Default continues. In such event,
the Holder shall retain all of the Holder's rights and remedies with respect to
the Company's failure to deliver such Warrant Shares (including without
limitation the right to receive the cash payments specified in subparagraph 3(a)
above).
(d) Holder of Record. Each Holder shall, for all purposes, be deemed to
----------------
have become the holder of record of Warrant Shares on the Exercise Date of this
Warrant, irrespective of the date of delivery of such Warrant Shares. Nothing in
this Warrant shall be construed as conferring upon the Holder hereof any rights
as a stockholder of the Company prior to the Exercise Date.
4. Exercise Limitations.
Notwithstanding anything to the contrary contained herein, this Warrant
shall not be exercisable by the Holder to the extent (but only to the extent)
that, if exercisable by the Holder, the Holder would be the beneficial owner of
more than 4.99% of the shares of Common Stock. For the purposes of this Section
4, beneficial ownership and all determinations and calculations shall be
determined in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended, and all applicable rules and regulations thereunder. For
clarification, it is expressly a term of this security that the limitations
contained in this Section 4 shall apply to each successive Holder. The
restriction contained in this Section 4 may not be altered, amended, deleted or
changed in any manner whatsoever unless the holders of a majority of the
outstanding shares of Common Stock and the Holder hereof approve such
alteration, amendment, deletion or change.
96
5. Payment of the Exercise Price.
The Holder may pay the Exercise Price in either of the following forms or,
at the election of Holder, a combination thereof:
(a) Cash Exercise: by delivery of immediately available funds.
(b) Cashless Exercise: by surrender of this Warrant to the
Company together with a notice of cashless exercise, in which event the Company
shall issue to the Holder the number of Warrant Shares determined as follows:
Y x (A -- B)
X = --------------
A
where: X = the number of Warrant Shares to be issued to the Holder.
Y = the number of Warrant Shares with respect to which this
Warrant is being exercised.
A = the average of the Closing Bid Prices of the Common Stock
for the five (5) Trading Days immediately prior to (but not
including) the Exercise Date.
B = the Exercise Price;
provided, however, that the Holder may exercise this Warrant pursuant to a
Cashless Exercise only if, on the Exercise Date, the resale of Warrant Shares is
not covered by an effective Registration Statement filed pursuant to Section
4.6.3 of the Exchange Agreement that is available to the Holder on such date.
For purposes of Rule 144 under the Securities Act of 1933, as amended, it
is intended, understood and acknowledged that the Warrant Shares issued in a
cashless exercise transaction shall be deemed to have been acquired by the
Holder, and the holding period for the Warrant Shares shall be deemed to have
been commenced, on the Issue Date.
6. Anti-Dilution Adjustments; Distributions; Other Events.
The Exercise Price and the number of Warrant Shares issuable hereunder
shall be subject to adjustment from time to time as provided in this Section 6.
In the event that any adjustment of the Exercise Price or number of Warrant
Shares as required herein results in a fraction of a cent or fraction of a
share, as applicable, such Exercise Price or number of Warrant Shares shall be
rounded up or down to the nearest cent or share, as applicable.
97
(a) Adjustment of Exercise Price and Number of Shares upon Issuance of
------------------------------------------------------------------
Common Stock. Except as otherwise provided in Section 6(c) hereof, if and
------------
whenever after the Issue Date, the Company issues or sells, or in accordance
with Section 6(b) hereof is deemed to have issued or sold, any shares of Common
Stock for no consideration (other than a stock split or stock dividend) or for a
consideration per share less than the Exercise Price (as then in effect)(other
than issuances of Common Stock (i) pursuant to an employee stock purchase plan
or upon the exercise of options issued under a stock option plan duly adopted by
the Company, (ii) in connection with a merger, acquisition or strategic
investment which, in any such case, is not effected for the primary purpose of
raising equity capital,, (iii) pursuant to securities outstanding on the Issue
Date and issued pursuant to the terms of the Exchange Agreement or (iv) in
connection with a firm-commitment underwritten secondary offering) (a "Dilutive
Issuance"), then effective immediately upon the Dilutive Issuance, the Exercise
Price will be adjusted in accordance with the following formula:
E' = (E)(O+P/E)
----------
(CSDO)
where:
E' = the adjusted Exercise Price;
E = the then current Exercise Price;
O = the number of shares of Common Stock outstanding immediately
prior to the Dilutive Issuance;
P = the aggregate consideration, calculated as set forth in Section
6(b) hereof, received by the Company upon such Dilutive Issuance; and
CSDO = the total number of shares of Common Stock Deemed Outstanding (as
herein defined) immediately after the Dilutive Issuance.
(b) Effect on Exercise Price of Certain Events. For purposes of
------------------------------------------
determining the adjusted Exercise Price under Section 6(a) hereof, the following
will apply:
(i) Issuance of Rights or Options. If, after the date hereof, the
-----------------------------
Company in any manner issues or grants any warrants, rights or options, whether
or not immediately exercisable, to subscribe for or to purchase Common Stock or
other securities exercisable, convertible into or exchangeable for Common Stock
("Convertible Securities")(such warrants, rights and options to purchase Common
Stock or Convertible Securities are hereinafter referred to as "Options"), and
the price per share for which Common Stock is purchasable or issuable upon the
exercise of such Options is less than the Exercise Price (as then in effect) on
the date of issuance of such Option or direct stock grant ("Below Market
Options"), then the maximum total number of shares of Common Stock issuable upon
the exercise of all such Below Market Options (assuming full exercise,
conversion or exchange of Convertible Securities, if applicable) will, as of the
date of the
98
issuance or grant of such Below Market Options, be deemed to be outstanding and
to have been issued and sold by the Company for such price per share. For
purposes of the preceding sentence, the price per share for which Common Stock
is issuable upon the exercise of such Below Market Options is determined by
dividing (i) the total amount, if any, received or receivable by the Company as
consideration for the issuance or sale of all such Below Market Options, plus
the minimum aggregate amount of additional consideration, if any, payable to the
Company upon the exercise of all such Below Market Options, plus, in the case of
Convertible Securities issuable upon the exercise of such Below Market Options,
the minimum aggregate amount of additional consideration payable upon the
exercise, conversion or exchange thereof at the time such Convertible Securities
first become exercisable, convertible or exchangeable, by (ii) the maximum total
number of shares of Common Stock issuable upon the exercise of all such Below
Market Options (assuming full conversion of Convertible Securities, if
applicable). No further adjustment to the Exercise Price will be made upon the
exercise of such Below Market Options or upon the exercise, conversion or
exchange of Convertible Securities issuable upon exercise of such Below Market
Options.
(ii) Issuance of Convertible Securities.
----------------------------------
(A) If the Company in any manner issues or sells any
Convertible Securities, whether or not immediately convertible (other than where
the same are issuable upon the exercise of Options) and the price per share for
which Common Stock is issuable upon such exercise, conversion or exchange (as
determined pursuant to Section 6(b)(ii)(B) if applicable) is less than the
Exercise Price (as then in effect) on the date of issuance of such Convertible
Security, then the maximum total number of shares of Common Stock issuable upon
the exercise, conversion or exchange of all such Convertible Securities will, as
of the date of the issuance of such Convertible Securities, be deemed to be
outstanding and to have been issued and sold by the Company for such price per
share. For the purposes of the preceding sentence, the price per share for which
Common Stock is issuable upon such exercise, conversion or exchange is
determined by dividing (i) the total amount, if any, received or receivable by
the Company as consideration for the issuance or sale of all such Convertible
Securities, plus the minimum aggregate amount of additional consideration, if
any, payable to the Company upon the exercise, conversion or exchange thereof at
the time such Convertible Securities first become exercisable, convertible or
exchangeable, by (ii) the maximum total number of shares of Common Stock
issuable upon the exercise, conversion or exchange of all such Convertible
Securities. No further adjustment to the Exercise Price will be made upon the
actual issuances of such Common Stock upon exercise, conversion or exchange of
such Convertible Securities.
(B) If the Company in any manner issues or sells any
Convertible Securities with a fluctuating or re-setting conversion or exercise
price or exchange ratio (a "Variable Rate Convertible Security"), then the price
per share for which Common Stock is issuable upon such exercise, conversion or
exchange for purposes of the calculation contemplated by Section 6(b)(ii)(A)
shall be deemed to be the lowest price per share which would be applicable
assuming that (1) all holding period and other conditions to any discounts
contained in such Convertible Security have been satisfied, and (2) the
99
conversion or exercise price on the date of exercise, conversion or exchange of
such Convertible Security was 80% of the Closing Bid Price on the date of
issuance of such Convertible Security (the "Assumed Variable Market Price").
(iii) Change in Option Price or Conversion Rate. If there is a
-----------------------------------------
change at any time in (i) the amount of additional consideration payable to the
Company upon the exercise of any Options; (ii) the amount of additional
consideration, if any, payable to the Company upon the exercise, conversion or
exchange of any Convertible Securities; or (iii) the rate at which any
Convertible Securities are convertible into or exchangeable for Common Stock
(other than under or by reason of provisions designed to protect against
dilution), the Exercise Price in effect at such time shall be adjusted to the
Exercise Price which would have been in effect had such Options or Convertible
Securities still outstanding provided for such changed additional consideration
or changed conversion rate, as the case may be, at the time initially granted,
issued or sold.
(iv) Treatment of Expired Options and Unexercised Convertible
--------------------------------------------------------
Securities. If, in any case, the total number of shares of Common Stock
-----------
issuable upon exercise of any Options or upon exercise, conversion or exchange
of any Convertible Securities is not, in fact, issued and the rights to exercise
such Option or to exercise, convert or exchange such Convertible Securities
shall have expired or terminated, the Exercise Price then in effect will be
readjusted to the Exercise Price which would have been in effect at the time of
such expiration or termination had such Options or Convertible Securities, to
the extent outstanding immediately prior to such expiration or termination
(other than in respect of the actual number of shares of Common Stock issued
upon exercise or conversion thereof), never been issued.
(v) Calculation of Consideration Received. If any Common Stock,
-------------------------------------
Options or Convertible Securities are issued, granted or sold for cash, the
consideration received therefor for purposes of this Warrant will be the amount
received by the Company therefor, before deduction of reasonable commissions,
underwriting discounts or allowances or other reasonable expenses paid or
incurred by the Company in connection with such issuance, grant or sale. In case
any Common Stock, Options or Convertible Securities are issued or sold for a
consideration part or all of which shall be other than cash, the amount of the
consideration other than cash received by the Company will be the fair market
value of such consideration except where such consideration consists of freely-
tradable securities, in which case the amount of consideration received by the
Company will be the Market Price thereof as of the date of receipt. The fair
market value of any consideration other than cash or securities will be
determined in the good faith reasonable business judgment of the Board of
Directors.
100
(vi) Exceptions to Adjustment of Exercise Price. No adjustment to the
------------------------------------------
Exercise Price will be made (i) upon the exercise or conversion of any warrants,
options or convertible securities issued and outstanding on the date hereof in
accordance with the terms of such securities as of such date; (ii) upon the
grant or exercise of any stock or options which may hereafter be granted or
exercised under any employee, consultant or director benefit plan of the Company
now existing or to be implemented in the future, so long as the issuance of such
stock or options is approved by a majority of the non-employee members of the
Board of Directors of the Company or a majority of the members of a committee of
non-employee directors established for such purpose; or (iii) upon the
conversion of the Company's Series D Junior Preferred Stock or the exercise of
the Warrants.
(c) Subdivision or Combination of Common Stock. If the Company, at any
------------------------------------------
time after the initial issuance of this Warrant, subdivides (by any stock split,
stock dividend, recapitalization, reorganization, reclassification or otherwise)
its shares of Common Stock into a greater number of shares, then after the date
of record for effecting such subdivision, the Exercise Price in effect
immediately prior to such subdivision will be proportionately reduced. If the
Company, at any time after the initial issuance of this Warrant, combines (by
reverse stock split, recapitalization, reorganization, reclassification or
otherwise) its shares of Common Stock into a smaller number of shares, then,
after the date of record for effecting such combination, the Exercise Price in
effect immediately prior to such combination will be proportionally increased.
In the event of any adjustment to the Exercise Price arising from an event
specified in this paragraph (c), the number of shares of Common Stock into which
this Warrant is exercisable will be proportionately increased or reduced, as the
case may be.
(d) Distributions. If the Company or any of its subsidiaries shall at any
-------------
time distribute to holders of Common Stock (or to a holder, other than the
Company, of the common stock of any such subsidiary) cash, evidences of
indebtedness or other securities or assets (other than cash dividends or
distributions payable out of earned surplus or net profits for the current or
the immediately preceding year) including any dividend or distribution in shares
of capital stock of a subsidiary of the Company (collectively, a "Distribution")
------------
then, in any such case, the Holder of this Warrant shall be entitled to receive,
at the same time as such assets are received by a holder of such stock, an
amount and type of such Distribution as though such Holder were a holder on the
record date therefor of a number of shares of Common Stock into which this
Warrant is exercisable as of such record date (such number of shares to be
determined at the Exercise Price then in effect and without regard to any
limitation on exercise of this Warrant that may exist pursuant to the terms
hereof or otherwise).
(e) Additional Shares, Securities or Assets. In the event that at any
----------------- --------------------
time, as a result of an adjustment made pursuant to this Section 6, the Holder
of this Warrant shall, upon exercise of this Warrant, become entitled to receive
securities or assets (other than Common Stock) then, wherever appropriate, all
references herein to shares of Common Stock shall be deemed to refer to and
include such shares and/or other securities or assets; and thereafter the number
of such shares and/or other securities or assets shall be subject
101
to adjustment from time to time in a manner and upon terms as nearly equivalent
as practicable to the provisions of this Section 6.
(f) Special Adjustment and Notice of Adjustment. Upon the occurrence of
-------------------------------------------
any event which requires any adjustment of the Exercise Price, then, and in each
such case, the Company shall give notice thereof to the Holder, which notice
shall state the Exercise Price resulting from such adjustment and the increase
or decrease in the number of Warrant Shares purchasable at such price upon
exercise, setting forth in reasonable detail the method of calculation and the
facts upon which such calculation is based. Such calculation shall be certified
by the chief financial officer of the Company. If the Company takes any actions
(including under or by virtue of this Section 6) which would have a dilutive
effect on the Holder or which would materially and adversely affect the Holder
with respect to its investment in the Warrant, and if the provisions of this
Section 6, are not strictly applicable to such actions or, if applicable to such
actions, would not operate to equitably protect the Holder against such actions,
then the Company shall promptly upon notice from Holder appoint its independent
certified public accountants to determine as promptly as practicable an
appropriate adjustment to the terms hereof, including without limitation
adjustments to the Exercise Price, or another appropriate action to so equitably
protect such Holder and prevent any such dilution and any such material adverse
effect, as the case may be. Following such determination, the Company shall
forthwith make the adjustments or take the other actions described therein.
(g) Other Notices. In case at any time:
-------------
(i) the Company shall declare any dividend upon the Common Stock
payable in shares of stock of any class or make any other distribution to the
holders of the Common Stock;
(ii) the Company shall offer for subscription pro rata to the holders
of the Common Stock any additional shares of stock of any class or other rights;
(iii) there shall be any capital reorganization of the Company, or
reclassification of the Common Stock, or consolidation or merger of the Company
with or into, or sale of all or substantially all of its assets to, another
corporation or entity; or
(iv) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Company;
then, in each such case, the Company shall give to the Holder (a) notice of the
date on which the books of the Company shall close or a record shall be taken
for determining the holders of Common Stock entitled to receive any such
dividend, distribution, or subscription rights or for determining the holders of
Common Stock entitled to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up and (b) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding-up, notice of
the date (or, if not then known, a reasonable approximation thereof by the
Company)
102
when the same shall take place. Such notice shall also specify the date on which
the holders of Common Stock shall be entitled to receive such dividend,
distribution, or subscription rights or to exchange their Common Stock for stock
or other securities or property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation, or
winding-up, as the case may be. Such notice shall be given at least thirty (30)
days prior to the record date or the date on which the Company's books are
closed in respect thereto, but in no event earlier than public announcement of
such proposed transaction or event. Failure to give any such notice or any
defect therein shall not affect the validity of the proceedings referred to in
clauses (i), (ii), (iii) and (iv) above.
7. Fractional Interests.
No fractional shares or scrip representing fractional shares shall be
issuable upon the exercise of this Warrant, but on exercise of this Warrant, the
Holder hereof may purchase only a whole number of shares of Common Stock. If, on
exercise of this Warrant, the Holder hereof would be entitled to a fractional
share of Common Stock or a right to acquire a fractional share of Common Stock,
such fractional share shall be disregarded and the number of shares of Common
Stock issuable upon exercise shall be rounded up or down to the nearest whole
number of shares of Common Stock.
8. Transfer of this Warrant.
The Holder may sell, transfer, assign, pledge or otherwise dispose of this
Warrant, in whole or in part, as long as such sale or other disposition is made
pursuant to an effective registration statement or an exemption to the
registration requirements of the Securities Act of 1933, as amended, and
applicable state laws. Upon such transfer or other disposition, the Holder shall
deliver a written notice to Company, substantially in the form of the Transfer
Notice attached hereto as Exhibit B (the "Transfer Notice"), indicating the
---------------
person or persons to whom this Warrant shall be transferred and, if less than
all of this Warrant is transferred or this Warrant is transferred in parts, the
number of Warrant Shares to be covered by the part of this Warrant to be
transferred to each such person. Within three (3) Business Days of receiving a
Transfer Notice and the original of this Warrant, the Company shall deliver to
the each transferee designated by the Holder a Warrant or Warrants of like tenor
and terms for the appropriate number of Warrant Shares. Notwithstanding the
foregoing, no Holder may knowingly and voluntarily sell this Warrant (or any
portion thereof) to an entity that is a competitor of the Company.
9. Benefits of this Warrant.
Nothing in this Warrant shall be construed to confer upon any person other
than the Holder of this Warrant any legal or equitable right, remedy or claim
under this Warrant and this Warrant shall be for the sole and exclusive benefit
of the Holder of this Warrant.
10. Loss, theft, destruction or mutilation of Warrant.
103
Upon receipt by the Company of evidence of the loss, theft, destruction or
mutilation of this Warrant, and (in the case of loss, theft or destruction) of
indemnity or security reasonably satisfactory to the Company, and upon surrender
of this Warrant, if mutilated, the Company shall execute and deliver a new
Warrant of like tenor and date.
11. Notice or Demands.
Except as otherwise provided herein, any notice, demand or request required
or permitted to be given pursuant to the terms of this Warrant shall be in
writing and shall be deemed given (i) when delivered personally or by verifiable
facsimile transmission (with an original to follow) on or before 5:00 p.m.,
mountain time, on a Business Day or, if such day is not a Business Day, on the
next succeeding Business Day, (ii) on the next Business Day after timely
delivery to a nationally-recognized overnight courier and (iii) on the Business
Day actually received if deposited in the U.S. mail (certified or registered
mail, return receipt requested, postage prepaid), addressed as follows:
If to the Company:
XXXX Interactive Services, Inc.
0000 Xxxxxxx, Xxxxx 000
Xxxxxx, Xxxxxxxx 00000
Telecopy: (000)000-0000
Attention: Xxxxxxx X. Xxxxxx
with a copy to:
Xxxx, Plant, Xxxxx, Xxxxx & Xxxxxxx, P.A.
3400 City Center
00 Xxxxx Xxxxx Xxxxxx
Xxxxxxxxxxx, XX 00000-0000
Telecopy: (000) 000-0000
Attention: Xxxxxxx X. Xxxxxxx, Esq.
and if to the Holder, to such address as shall be designated by the Holder in
writing to the Company.
104
12. Applicable Law.
This Warrant is issued under and shall for all purposes be governed by and
construed in accordance with the laws of the State of Colorado, without giving
effect to conflict of law provisions thereof.
IN WITNESS WHEREOF, the undersigned has executed this Warrant as of the
31st day of January, 2002.
XXXX INTERACTIVE SERVICES, INC.
By:________________________________
Name:
Title:
105
EXHIBIT A
---------
EXERCISE NOTICE
The undersigned Holder hereby irrevocably exercises the right to purchase
___ of the shares of Common Stock ("Warrant Shares") of XXXX INTERACTIVE
--------------
SERVICES, INC. evidenced by the attached Warrant (the "Warrant"). Capitalized
-------
terms used herein and not otherwise defined shall have the respective meanings
set forth in the Warrant. Unless otherwise specified in writing to the Company,
the undersigned represents to the Company that the shares of Common Stock
covered by this notice have been or will be sold pursuant to the terms of an
effective registration statement.
1. Form of Exercise Price. The Holder intends that payment of the
Exercise Price shall be made as:
______ a Cash Exercise with respect to _________________ Warrant
Shares; and/or
______ a Cashless Exercise with respect to _________________ Warrant
Shares.
2. Payment of Exercise Price. In the event that the Holder has elected a
Cash Exercise with respect to some or all of the Warrant Shares to be issued
pursuant hereto, the Holder shall pay the sum of $________________ to the
Company in accordance with the terms of the Warrant.
3. Delivery of Warrant Shares. The Company shall deliver to the Holder
_____________ Warrant Shares in accordance with the terms of the Warrant.
Date: ______________________
____________________________________
Name of Registered Holder
By: _______________________________
Name:
Title:
106
EXHIBIT B
----------
TRANSFER NOTICE
FOR VALUE RECEIVED, the undersigned Holder of the attached Warrant hereby
sells, assigns and transfers unto the person or persons named below the right to
purchase ______ shares of the Common Stock of XXXX INTERACTIVE SERVICES, INC.
evidenced by the attached Warrant.
Date: ______________________
____________________________________
Name of Registered Holder
By: _____________________________
Name:
Title:
Transferee Name and Address:
____________________________________
____________________________________
____________________________________
107
EXHIBIT E
TO EXCHANGE AGREEMENT
VOID AFTER 5:00 P.M., CENTRAL TIME ON AUGUST 25, 2004
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE OF
THE UNITED STATES. THE SECURITIES REPRESENTED HEREBY MAY NOT BE OFFERED OR SOLD
OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
FOR THE SECURITIES UNDER APPLICABLE SECURITIES LAWS, OR UNLESS OFFERED, SOLD OR
TRANSFERRED PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THOSE LAWS.
Right to Purchase 150,116 Shares of
Common Stock, no par value
Date: August 25, 1999, amended December 18, 1999 and further amended January 31,
2002
XXXX INTERACTIVE SERVICES, INC.
STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, Castle Creek Technology Partners
LLC ("Castle Creek"), or its registered assigns, is entitled to purchase from
------------
Xxxx Interactive Services, Inc., a Colorado corporation (the "Company"), at any
-------
time or from time to time during the period specified in Section 2 hereof,
150,116 fully paid and nonassessable shares of the Company's Common Stock, no
par value (the "Common Stock"), at an exercise price of $1.00 per share (the
------------
"Exercise Price"). This Warrant is being issued pursuant to that certain
--------------
Securities Purchase Agreement dated August 25, 1999, as amended on December 18,
1999, by and between the Company and Castle Creek (the "Securities Purchase
-------------------
Agreement"). The number of shares of Common Stock purchasable hereunder (the
---------
"Warrant Shares") and the Exercise Price are subject to adjustment as provided
--------------
in Section 4 hereof.
The term "Closing Bid Price" means, for any security as of any date, the
-----------------
closing bid price of such security on the principal securities exchange or
trading market where such security is listed or traded as reported by Bloomberg
Financial Markets or a comparable reporting service of national reputation
selected by the Company and reasonably acceptable to the holder hereof (the
"Holder") if Bloomberg Financial Markets is not then reporting closing bid
------
prices of such security (collectively, "Bloomberg"), or if the foregoing does
---------
not apply, the last reported sale price of such security in the over-the-
108
counter market on the electronic bulletin board of such security as reported by
Bloomberg, or, if no sale price is reported for such security by Bloomberg, the
average of the bid prices of any market makers for such security as reported in
the "pink sheets" by the National Quotation Bureau, Inc. If the Closing Bid
Price cannot be calculated for such security on such date on any of the
foregoing bases, the Closing Bid Price of such security on such date shall be
the fair market value as reasonably determined by an investment banking firm
selected by the Company and reasonably acceptable to the Holder with the costs
of such appraisal to be borne by the Company.
This Warrant is subject to the following terms, provisions, and conditions:
1. Mechanics of Exercise. Subject to the provisions hereof, including,
---------------------
without limitation, the limitations contained in Section 8(f) hereof, this
Warrant may be exercised as follows:
(a) Manner of Exercise. This Warrant may be exercised by the Holder, in
------------------
whole or in part, by the surrender of this Warrant (or evidence of loss, theft,
destruction or mutilation thereof in accordance with Section 8(c) hereof),
together with a completed exercise agreement in the Form of Exercise Agreement
attached hereto as Exhibit 1 (the "Exercise Agreement"), to the Company at the
------------------
Company's principal executive offices (or such other office or agency of the
Company as it may designate by notice to the Holder), and upon (i) payment to
the Company in cash, by certified or official bank check or by wire transfer for
the account of the Company, of the Exercise Price for the Warrant Shares
specified in the Exercise Agreement or (ii) if the Holder elects to effect a
Cashless Exercise (as defined in Section 12(c) below), delivery to the Company
of a written notice of an election to effect a Cashless Exercise for the Warrant
Shares specified in the Exercise Agreement. The Warrant Shares so purchased
shall be deemed to be issued to the Holder or Holder's designees, as the record
owner of such shares, as of the date on which this Warrant shall have been
surrendered, the completed Exercise Agreement shall have been delivered, and
payment (or notice of an election to effect a Cashless Exercise) shall have been
made for such shares as set forth above.
(b) Issuance of Certificates. Subject to Section 1(c), certificates for the
------------------------
Warrant Shares so purchased, representing the aggregate number of shares
specified in the Exercise Agreement, shall be delivered to the Holder within a
reasonable time, not exceeding three (3) business days, after this Warrant shall
have been so exercised (the "Delivery Period"). The certificates so delivered
---------------
shall be in such denominations as may be requested by the Holder and shall be
registered in the name of Holder or such other name as shall be designated by
such Holder. If this Warrant shall have been exercised only in part, then,
unless this Warrant has expired, the Company shall, at its expense, at the time
of delivery of such certificates, deliver to the Holder a new Warrant
representing the number of shares with respect to which this Warrant shall not
then have been exercised.
(c) Exercise Disputes. In the case of any dispute with respect to an
-----------------
exercise, the Company shall promptly issue such number of shares of Common Stock
as are not
109
disputed in accordance with this Section. If such dispute involves the
calculation of the Exercise Price, the Company shall submit the disputed
calculations to a nationally recognized independent accounting firm (selected by
the Company and reasonably acceptable to Holder) via facsimile within three (3)
business days of receipt of the Exercise Agreement. The accounting firm shall
audit the calculations and notify the Company and the converting Holder of the
results no later than two (2) business days from the date it receives the
disputed calculations. The accounting firm's calculation shall be deemed
conclusive, absent manifest error. The Company shall then issue the appropriate
number of shares of Common Stock in accordance with this Section.
(d) Fractional Shares. No fractional shares of Common Stock are to be
-----------------
issued upon the exercise of this Warrant, but the Company shall pay a cash
adjustment in respect of any fractional share which would otherwise be issuable
in an amount equal to the same fraction of the Exercise Price of a share of
Common Stock (as determined for exercise of this Warrant into whole shares of
Common Stock); provided that in the event that sufficient funds are not legally
available for the payment of such cash adjustment any fractional shares of
Common Stock shall be rounded up to the next whole number.
2. Period of Exercise. This Warrant is exercisable at any time and from
------------------
time to time on or after the date hereof and before 5:00 P.M., Central Standard
Time on the fifth (5th) anniversary of the date hereof (the "Exercise Period").
---------------
3. Certain Agreements of the Company. The Company hereby covenants and
---------------------------------
agrees as follows:
(a) Shares to be Fully Paid. All Warrant Shares will, upon issuance in
-----------------------
accordance with the terms of this Warrant, be validly issued, fully paid, and
non-assessable and free from all taxes, liens, claims and encumbrances.
(b) Reservation of Shares. During the Exercise Period, the Company shall at
---------------------
all times have authorized, and reserved for the purpose of issuance upon
exercise of this Warrant, a sufficient number of shares of Common Stock to
provide for the exercise of this Warrant.
(c) Listing. The Company shall promptly secure the listing of the shares of
-------
Common Stock issuable upon exercise of this Warrant upon the Nasdaq Small Cap
Market ("Nasdaq") and use its best efforts to secure the listing of its
securities on the Nasdaq National Market System, or the New York Stock Exchange,
as required by Section 4.9 of the Securities Purchase Agreement and upon each
such national securities exchange or automated quotation system, if any, upon
which shares of Common Stock are then listed or become listed and shall
maintain, so long as any other shares of Common Stock shall be so listed, such
listing of all shares of Common Stock from time to time issuable upon the
exercise of this Warrant; and the Company shall so list on each national
securities exchange or automated quotation system, as the case may be, and shall
maintain such listing of any other shares of capital stock of the Company
issuable upon
110
the exercise of this Warrant so long as any shares of the same class shall be
listed on such national securities exchange or automated quotation system.
(d) Certain Actions Prohibited. The Company will not, by amendment of its
--------------------------
charter or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities, or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed by it hereunder, but will at all times in good faith
assist in the carrying out of all the provisions of this Warrant and in the
taking of all such actions as may reasonably be requested by the Holder of this
Warrant in order to protect the exercise privilege of the Holder of this
Warrant, consistent with the tenor and purpose of this Warrant. Without limiting
the generality of the foregoing, the Company (i) will not increase the par value
of any shares of Common Stock receivable upon the exercise of this Warrant above
the Exercise Price then in effect, and (ii) will take all such actions as may be
necessary or appropriate in order that the Company may at all times validly and
legally issue fully paid and nonassessable shares of Common Stock upon the
exercise of this Warrant.
4. Antidilution Provisions. During the Exercise Period, the Exercise Price
-----------------------
and the number of Warrant Shares shall be subject to adjustment from time to
time as provided in this Section 4. In the event that any adjustment of the
Exercise Price as required herein results in a fraction of a cent, such Exercise
Price shall be rounded up or down to the nearest cent.
(a) Adjustment of Exercise Price and Number of Shares upon Issuance of
------------------------------------------------------------------
Common Stock. Except as otherwise provided in Section 4(c) and 4(e) hereof, if
------------
and whenever after the initial issuance of this Warrant, the Company issues or
sells, or in accordance with Section 4(b) hereof is deemed to have issued or
sold, any shares of Common Stock for no consideration or for a consideration per
share less than the greater of the then current Market Price (as herein defined)
and the then current Exercise Price on the date of issuance (a "Dilutive
--------
Issuance"), then effective immediately upon the Dilutive Issuance, the Exercise
--------
Price will be adjusted in accordance with the following formula:
E' = (E) (O + P/M)/(CSDO)
where:
E' = the adjusted Exercise Price;
E = the then current Exercise Price;
M = the greater of the then current Market Price and the then current
Exercise Price;
O = the number of shares of Common Stock outstanding immediately prior to
the Dilutive Issuance;
111
P = the aggregate consideration, calculated as set forth in Section 4(b)
hereof, received by the Company upon such Dilutive Issuance; and
CSDO = the total number of shares of Common Stock Deemed Outstanding (as
herein defined) immediately after the Dilutive Issuance.
(b) Effect on Exercise Price of Certain Events. For purposes of
------------------------------------------
determining the adjusted Exercise Price under Section 4(a) hereof, the following
will be applicable:
(i) Issuance of Rights or Options. If the Company in any manner
-----------------------------
issues or grants any warrants, rights or options, whether or not
immediately exercisable, to subscribe for or to purchase Common Stock or
other securities exercisable, convertible into or exchangeable for Common
Stock ("Convertible Securities"), but not to include the grant or exercise
----------------------
of any stock or options which may hereafter be granted or exercised under
any employee or Director benefit plan of the Company now existing or to be
implemented in the future, so long as the issuance of such stock or options
is approved by a majority of the non-employee members of the Board of
Directors of the Company or a majority of the members of a committee of
non-employee directors established for such purpose (such warrants, rights
and options to purchase Common Stock or Convertible Securities are
hereinafter referred to as "Options"), and the price per share for which
-------
Common Stock is issuable upon the exercise of such Options is less than the
greater of the Exercise Price or the Market Price on the date of issuance
("Below Market Options"), then the maximum total number of shares of Common
--------------------
Stock issuable upon the exercise of all such Below Market Options (assuming
full exercise, conversion or exchange of Convertible Securities, if
applicable) will, as of the date of the issuance or grant of such Below
Market Options, be deemed to be outstanding and to have been issued and
sold by the Company for such price per share. For purposes of the preceding
sentence, the price per share for which Common Stock is issuable upon the
exercise of such Below Market Options is determined by dividing (i) the
total amount, if any, received or receivable by the Company as
consideration for the issuance or granting of such Below Market Options,
plus the minimum aggregate amount of additional consideration, if any,
payable to the Company upon the exercise of all such Below Market Options,
plus, in the case of Convertible Securities issuable upon the exercise of
such Below Market Options, the minimum aggregate amount of additional
consideration payable upon the exercise, conversion or exchange thereof at
the time such Convertible Securities first become exercisable, convertible
or exchangeable, by (ii) the maximum total number of shares of Common Stock
issuable upon the exercise of all such Below Market Options (assuming full
conversion of Convertible Securities, if applicable). No further adjustment
to the Exercise Price will be made upon the actual issuance of such Common
Stock upon the exercise of such Below Market Options or upon the exercise,
conversion or exchange of Convertible Securities issuable upon exercise of
such Below Market Options.
112
(ii) Issuance of Convertible Securities.
----------------------------------
(A) If the Company in any manner issues or sells any Convertible
Securities, whether or not immediately convertible (other than where
the same are issuable upon the exercise of Options) and the price per
share for which Common Stock is issuable upon such exercise,
conversion or exchange (as determined pursuant to Section 4(b)(ii)(B)
if applicable) is less than the greater of the Market Price or the
Exercise Price then in effect on the date of issuance, then the
maximum total number of shares of Common Stock issuable upon the
exercise, conversion or exchange of all such Convertible Securities
will, as of the date of the issuance of such Convertible Securities,
be deemed to be outstanding and to have been issued and sold by the
Company for such price per share. For the purposes of the preceding
sentence, the price per share for which Common Stock is issuable upon
such exercise, conversion or exchange is determined by dividing (i)
the total amount, if any, received or receivable by the Company as
consideration for the issuance or sale of all such Convertible
Securities, plus the minimum aggregate amount of additional
consideration, if any, payable to the Company upon the exercise,
conversion or exchange thereof at the time such Convertible
Securities first become exercisable, convertible or exchangeable, by
(ii) the maximum total number of shares of Common Stock issuable upon
the exercise, conversion or exchange of all such Convertible
Securities. No further adjustment to the Exercise Price will be made
upon the actual issuances of such Common Stock upon exercise,
conversion or exchange of such Convertible Securities.
(B) If the Company in any manner issues or sells any Convertible
Securities with a fluctuating conversion or exercise price or
exchange ratio (a "Variable Rate Convertible Security"), then the
----------------------------------
price per share for which Common Stock is issuable upon such
exercise, conversion or exchange for purposes of the calculation
contemplated by Section 4(b)(ii)(A) shall be deemed to be the lowest
price per share which would be applicable assuming that (1) all
holding period and other conditions to any discounts contained in
such Convertible Security have been satisfied, and (2) the Market
Price on the date of issuance of such Convertible Security was 80% of
the Market Price on such date (the "Assumed Variable Market Price").
-----------------------------
(iii) Change in Option Price or Conversion Rate. Except for the grant or
-----------------------------------------
exercise of any stock or options which may hereafter be granted or exercised
under any employee or Director benefit plan of the Company now existing or to be
implemented in the future, so long as the issuance of such stock or options is
approved by a majority of the non-employee members of the Board of Directors of
the Company or a majority of the members of a committee of non-employee
directors established for such purpose, if there is a change at any time in (i)
the amount of additional consideration payable to the
113
Company upon the exercise of any Options; (ii) the amount of additional
consideration, if any, payable to the Company upon the exercise, conversion or
exchange or any Convertible Securities; or (iii) the rate at which any
Convertible Securities are convertible into or exchangeable for Common Stock
(other than under or by reason of provisions designed to protect against
dilution), the Exercise Price in effect at the time of such change will be
readjusted to the Exercise Price which would have been in effect at such time
had such Options or Convertible Securities still outstanding provided for such
changed additional consideration or changed conversion rate, as the case may be,
at the time initially granted, issued or sold.
(iv) Treatment of Expired Options and Unexercised Convertible Securities.
-------------------------------------------------------------------
If, in any case, the total number of shares of Common Stock issuable upon
exercise of any Options or upon exercise, conversion or exchange of any
Convertible Securities is not, in fact, issued and the rights to exercise such
option or to exercise, convert or exchange such Convertible Securities shall
have expired or terminated, the Exercise Price then in effect will be readjusted
to the Exercise Price which would have been in effect at the time of such
expiration or termination had such Options or Convertible Securities, to the
extent outstanding immediately prior to such expiration or termination (other
than in respect of the actual number of shares of Common Stock issued upon
exercise or conversion thereof), never been issued.
(v) Calculation of Consideration Received. If any Common Stock, Options
-------------------------------------
or Convertible Securities are issued, granted or sold for cash, the
consideration received therefor for purposes of this Warrant will be the amount
received by the Company therefor, before deduction of reasonable commissions,
underwriting discounts or allowances or other reasonable expenses paid or
incurred by the Company in connection with such issuance, grant or sale. In case
any Common Stock, Options or Convertible Securities are issued or sold for a
consideration part or all of which shall be other than cash, the amount of the
consideration other than cash received by the Company will be the fair market
value of such consideration except where such consideration consists of freely-
tradeable securities, in which case the amount of consideration received by the
Company will be the Market Price thereof as of the date of receipt. In case any
Common Stock, Options or Convertible Securities are issued in connection with
any merger or consolidation in which the Company is the surviving corporation,
the amount of consideration therefor will be deemed to be the fair market value
of such portion of the net assets and business of the non-surviving corporation
as is attributable to such Common Stock, Options or Convertible Securities, as
the case may be. The fair market value of any consideration other than cash or
securities will be determined in the good faith reasonable business judgment of
the Board of Directors.
(vi) Exceptions to Adjustment of Exercise Price. No adjustment to the
------------------------------------------
Exercise Price will be made (i) upon the exercise of any warrants, options or
convertible securities issued and outstanding on the date hereof in accordance
with the terms of such securities as of such date; (ii) upon the grant or
exercise of any stock or options which may hereafter be granted or exercised
under any employee or Director benefit plan of the Company now existing or to be
implemented in the future, so long as the issuance of such
114
stock or options is approved by a majority of the non-employee members of the
Board of Directors of the Company or a majority of the members of a committee of
non-employee directors established for such purpose; (iii) upon the issuance of
the Conversion Shares (as defined in the Securities Purchase Agreement) or the
Warrant in accordance with terms of the Securities Purchase Agreement; or (iv)
upon the exercise of the Warrant.
(c) Subdivision or Combination of Common Stock. If the Company, at any
------------------------------------------
time after the initial issuance of this Warrant, subdivides (by any stock split,
stock dividend, recapitalization, reorganization, reclassification or otherwise)
its shares of Common Stock into a greater number of shares, then, after the date
of record for effecting such subdivision, the Exercise Price in effect
immediately prior to such subdivision will be proportionately reduced. If the
Company, at any time after the initial issuance of this Warrant, combines (by
reverse stock split, recapitalization, reorganization, reclassification or
otherwise) its shares of Common Stock into a smaller number of shares, then,
after the date of record for effecting such combination, the Exercise Price in
effect immediately prior to such combination will be proportionately increased.
(d) Adjustment in Number of Shares. Upon each adjustment of the Exercise
------------------------------
Price pursuant to the provisions of this Section 4, the number of shares of
Common Stock issuable upon exercise of this Warrant shall be adjusted by
multiplying a number equal to the Exercise Price in effect immediately prior to
such adjustment by the number of shares of Common Stock issuable upon exercise
of this Warrant immediately prior to such adjustment and dividing the product so
obtained by the adjusted Exercise Price.
(e) Major Transactions. If the Company shall consolidate or merge with
------------------
any other corporation or entity (other than a consolidation or merger in which
the Company is the surviving or continuing entity and its capital stock is
unchanged and unissued in such transaction (except for issuances which do not
exceed fifty percent (50%) of the Common Stock)) or there shall occur any share
exchange pursuant to which all of the outstanding shares of Common Stock are
converted into other securities or property or any such other reclassification
or change of the outstanding shares of Common Stock or the Company shall sell
all or substantially all of its assets (each of the foregoing being a "Major
-----
Transaction"), then the holder of this Warrant may, at its option, either (a) in
-----------
the event that the Common Stock remains outstanding or holders of Common Stock
receive any common stock or substantially similar equity interest, in each of
the foregoing cases which is publicly traded, retain this Warrant and this
Warrant shall continue to apply to such Common Stock or shall apply, as nearly
as practicable, to such other common stock or equity interest, as the case may
be, or (b) regardless of whether (a) applies, receive consideration, in exchange
for this Warrant (without payment of any exercise price hereunder), equal to the
greater of, as determined in the sole discretion of such holder, (i) the number
of shares of stock or securities or property of the Company, or of the entity
resulting from such Major Transaction (the "Major Transaction Consideration"),
-------------------------------
to which a holder of the number of shares of Common Stock delivered upon the
exercise of this Warrant (pursuant to the cashless exercise feature hereof)
would have been entitled upon such Major Transaction had such holder so
exercised this Warrant (without regard to any limitations on exercise herein or
elsewhere contained) on the trading date immediately
115
preceding the public announcement of the transaction resulting in such Major
Transaction and had such Common Stock been issued and outstanding and had such
Holder been the holder of record of such Common Stock at the time of the
consummation of such Major Transaction, and (ii) cash paid by the Company in
immediately available funds in an amount equal to the Black-Scholes Amount (as
defined herein) times the number of shares of Common Stock for which this
Warrant was exercisable (without regard to any limitations on exercise herein
contained and assuming payment of the exercise payment in cash hereunder) but in
no event shall such amount exceed the Black Scholes value of the Warrant as of
the Closing Date as determined by the Company's Auditors, and the Company shall
make lawful provision for the foregoing as a part of such Major Transaction and
shall cause the issuer of any security in such transaction which constitutes
Registrable Securities under that certain Registration Rights Agreement dated
August 25, 1999 by and between the Company and Castle Creek (the "Registration
------------
Rights Agreement") to assume all of the Company's obligations under the
----------------
Registration Rights Agreement. In the event that the Company shall consolidate
or merge with any other corporation in a transaction in which common stock of
the surviving corporation or the parent thereof (the "Exchange Securities") is
-------------------
issued to the holders of Common Stock in such transaction in exchange for all
such Common Stock, and (a) the Exchange Securities are publicly traded, (b) the
average daily dollar trading volume of the Exchange Securities during the one
hundred eighty (180) day period ending on the date on which such transaction is
publicly disclosed is greater than One Million Dollars ($1,000,000.00) per day
as reported by Bloomberg, (c) the historical one hundred (100) day volatility of
the Exchange Securities during the period ending on the date on which such
transaction is publicly disclosed is greater than fifty percent (50%), and (d)
the market capitalization of the issuer of the Exchange Securities is not less
than One hundred Million Dollars ($100,000,000.00) based on the last sale price
of the Exchange Securities on the date immediately before the date on which such
transaction is publicly disclosed (in each case, with respect to the foregoing
clauses (a) through (d), as reported by Bloomberg), then the provisions of
clause (b) of the preceding sentence shall not apply. In the event that the
Company shall, in a Major Transaction, consolidate or merge with any other
corporation in a transaction in which the Company is the survivor (a "Company
-------
Transaction"), the provisions of clause (ii) of the second preceding sentence
-----------
shall not apply to the extent that each of the following conditions remain true
for the thirty (30) business days commencing as of the date of the consummation
of such transaction (the Measurement Period"): (a) the Common Stock remains
-------------------
publicly traded during the period, (b) the average daily dollar trading volume
of the Common Stock is greater than One Million Dollars ($1,000,000.00), (c) the
historical thirty (30) day volatility of the Company's Common Stock is greater
than fifty percent (50%), and (d) the market capitalization of the Company is
not less than One Hundred Million Dollars ($100,000,000.00) on the last day of
the period (in each case, with respect to the foregoing clauses (a) through (d),
as reported by Bloomberg. No sooner than ten (10) business days nor later than
five (5) business days prior to the consummation of the Major Transaction, but
not prior to the public announcement of such Major Transaction, the Company
shall deliver written notice ("Notice of Major Transaction") to each holder of a
---------------------------
Warrant, which Notice of Major Transaction shall be deemed to have been
delivered one (1) business day after the Company's sending such notice by
telecopy (provided that
116
the Company sends a confirming copy of such notice on the same day by overnight
courier) of such Notice of Major Transaction. Such Notice of Major Transaction
shall indicate the amount and type of the Major Transaction consideration which
such holder of a Warrant would receive under this Section. If the Major
Transaction Consideration is cash and does not consist entirely of United States
currency, such holder may elect to receive United States currency in an amount
equal to the value of the Major Transaction Consideration in lieu of the Major
Transaction Consideration by delivering notice of such election to the Company
within five (5) business days of such holder's receipt of the Notice of Major
Transaction.
The "Black-Scholes Amount" shall be the amount determined by calculating
the "Black-Scholes" value of an option to purchase one share of Common Stock on
the applicable page on the Bloomberg online page, using the following variable
values: (i) the current market price of the Common Stock equal to the closing
trade price on the last trading day before the date of the Notice of the Major
Transaction; (ii) volatility of the Common Stock equal to the volatility of the
common Stock during the 100 trading day period preceding the date of the Notice
of the Major Transaction; (iii) a risk free rate equal to the interest rate on
the United States treasury xxxx or treasury note with a maturity corresponding
to the remaining term of this Warrant on the date of the Notice of the Major
Transaction; and (iv) an exercise price equal to the Exercise Price on the date
of the Notice of the Major Transaction. In the event such calculation function
is no longer available utilizing the Bloomberg online page, the Holder shall
calculate such amount in its sole discretion using the closest available
alternative mechanism and variable values to those available utilizing the
Bloomberg online page for such calculation function.
(f) Distribution of Assets. In case the Company shall declare or make any
----------------------
distribution of its assets (or rights to acquire its assets) to holders of
Common Stock as a partial liquidating dividend, by way of return of capital or
otherwise (including any dividend or distribution to the Company's shareholders
of cash or shares (or rights to acquire shares) of capital stock of a
subsidiary) (a "Distribution"), at any time after the initial issuance of this
Warrant, then the Holder shall be entitled upon exercise of this Warrant for the
purchase of any or all of the shares of Common Stock subject hereto, to receive
the amount of such assets (or rights) which would have been payable to the
Holder had such Holder been the holder of such shares of Common Stock on the
record date for the determination of shareholders entitled to such Distribution.
(g) Special Adjustment and Notices of Adjustment. Upon the occurrence of
--------------------------------------------
any event which requires any adjustment of the Exercise Price, then, and in each
such case, the Company shall give notice thereof to the Holder, which notice
shall state the Exercise Price resulting from such adjustment and the increase
or decrease in the number of Warrant Shares purchasable at such price upon
exercise, setting forth in reasonable detail the method of calculation and the
facts upon which such calculation is based. Such calculation shall be certified
by the chief financial officer of the Company. If the Company takes any actions
(including under or by virtue of Section 4 of the Warrant) which would have a
dilutive effect on the Holder or which would materially and adversely affect the
Holder with respect to its investment in the Warrant, and if the
117
provisions of Section 4 of the Warrant, are not strictly applicable to such
actions or, if applicable to such actions, would not operate to equitably
protect the Holder against such actions, then the Company shall promptly upon
notice from Holder appoint its independent certified public accountants to
determine as promptly as practicable an appropriate adjustment to the terms
hereof, including without limitation adjustments to the Exercise Price, or
another appropriate action to so equitably protect such Holder and prevent any
such dilution and any such material adverse effect, as the case may be.
Following such determination, the Company shall forthwith make the adjustments
or take the other actions described therein.
(h) Minimum Adjustment of Exercise Price. No adjustment of the Exercise
------------------------------------
Price shall be made in an amount of less than 1% of the Exercise Price in effect
at the time such adjustment is otherwise required to be made, but any such
lesser adjustment shall be carried forward and shall be made at the time and
together with the next subsequent adjustment which, together with any
adjustments so carried forward, shall amount to not less than 1% of such
Exercise Price.
(i) [Intentionally Omitted]
(j) Other Notices. In case at any time:
-------------
(i) the Company shall declare any dividend upon the Common Stock
payable in shares of stock of any class or make any other distribution to
the holders of the Common Stock;
(ii) the Company shall offer for subscription pro rata to the holders
of the Common Stock any additional shares of stock of any class or other
rights;
(iii) there shall be any capital reorganization of the Company, or
reclassification of the Common Stock, or consolidation or merger of the
Company with or into, or sale of all or substantially all of its assets to,
another corporation or entity; or
(iv) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Company;
then, in each such case, the Company shall give to the Holder (a) notice of the
date on which the books of the Company shall close or a record shall be taken
for determining the holders of Common Stock entitled to receive any such
dividend, distribution, or subscription rights or for determining the holders of
Common Stock entitled to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up and (b) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding-up, notice of
the date (or, if not then known, a reasonable approximation thereof by the
Company) when the same shall take place. Such notice shall also specify the date
on which the
118
holders of Common Stock shall be entitled to receive such dividend,
distribution, or subscription rights or to exchange their Common Stock for stock
or other securities or property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation, or
winding-up, as the case may be. Such notice shall be given at least thirty (30)
days prior to the record date or the date on which the Company's books are
closed in respect thereto, but in no event earlier than public announcement of
such proposed transaction or event. Failure to give any such notice or any
defect therein shall not affect the validity of the proceedings referred to in
clauses (i), (ii), (iii) and (iv) above.
(k) Certain Definitions.
-------------------
(1) "Common Stock Deemed Outstanding" shall mean the number of shares of
-------------------------------
Common Stock actually outstanding (not including shares of Common Stock held in
the treasury of the Company), plus (x) in case of any adjustment required by
Section 4(a) resulting from the issuance of any Options, the maximum total
number of shares of Common Stock issuable upon the exercise of the Options for
which the adjustment is required (including any Common Stock issuable upon the
conversion of Convertible Securities issuable upon the exercise of such
Options), and (y) in the case of any adjustment required by Section 4(a)
resulting from the issuance of any Convertible Securities, the maximum total
number of shares of Common Stock issuable upon the exercise, conversion or
exchange of the Convertible Securities for which the adjustment is required, as
of the date of issuance of such Convertible Securities, if any.
(2) "Market Price," as of any date, (i) means the average of the Closing
------------
Bid Prices for the shares of Common Stock as reported to Nasdaq for the ten (10)
trading days immediately preceding such date, or (ii) if Nasdaq is not the
principal trading market for the Common Stock, the average of the last reported
bid prices on the principal trading market for the Common Stock during the same
period, or, if there is no bid price for such period, the last reported sales
price for such period, or (iii) if market value cannot be calculated as of such
date on any of the foregoing bases, the Market Price shall be the average fair
market value as reasonably determined by an investment banking firm selected by
the Company and reasonably acceptable to the Holders of a majority in interest
of the Warrant, with the costs of the appraisal to be borne by the Company. The
manner of determining the Market Price of the Common Stock set forth in the
foregoing definition shall apply with respect to any other security in respect
of which a determination as to market value must be made hereunder.
(3) "Common Stock," for purposes of this Section 4, includes the Common
------------
Stock and any additional class of stock of the Company having no preference as
to dividends or distributions on liquidation, provided that the shares
purchasable pursuant to this Warrant shall include only Common Stock in respect
of which this Warrant is exercisable, or shares resulting from any subdivision
or combination of such Common Stock, or in the case of any reorganization,
reclassification, consolidation, merger, or sale of the character referred to in
Section 4(e) hereof, the stock or other securities or property provided for in
such Section.
119
(l) Key Officer or Director Transfers. If any Key Officer (as defined
---------------------------------
below) or director (in each case, or any member of his/her family or any trust
or other entity for the benefit of any member of his/her family), during the
period beginning on the Closing Date and ending on the date that is six months
after the registration statement required pursuant to Section 2.1 of the
Registration Rights Agreement is declared effective, and while such person is a
Key Officer or director, directly or indirectly, offers, sells, transfers,
assigns, pledges, or otherwise disposes (except by gift to family members or
charitable organizations) of any shares of Common Stock, or any securities
directly or indirectly convertible into or exercisable or exchangeable for, or
warrants, options or rights to purchase or acquire shares of Common Stock (all
such securities, "Options") or enter into any agreement, contract, arrangement
-------
or understanding with respect to any such offer, sale, transfer, assignment,
pledge or other disposition of any Common Stock or Options or provides or files
any public notice, including pursuant to Rule 144 of the Securities Act, of a
bona fide intent to dispose of a specified amount of Common Stock or Options (an
"Executive Transfer"), then the Exercise Price shall be reduced by twenty (20)
------------------
percent of that Exercise Price calculated pursuant to this Agreement; provided,
however, that Key Officers or directors (and all such entities for the benefit
of any members of his/her family, collectively) may sell, assign, pledge or
otherwise dispose of up to 20,000 shares in the aggregate prior to December 31,
1999 and during the six-month period following the effective date of the
registration statement, a Key Officer or director (and all such entities for the
benefit of any members of his/her family, collectively) may sell, assign, pledge
or otherwise dispose of up to the greater of (i) ten percent (10%) of his or her
total holdings as of the Issue Date determined in accordance with Section 13(d)
of the Securities Exchange Act of 1934, as amended, or (ii) 25,000 shares of
Common Stock without triggering the adjustments of this Section. For purposes of
this Section, Key Officer shall mean R. Xxxxxx Xxxxx, Xxxxxxx X. Xxxxxxx,
Xxxxxxx X. Xxxxxx, Xxxxx Xxxxx, Xxxxx Xxxxxx, Xxxxxxx Xxxxx and Xxxxx Xxxxxxxx
and any person who assumes or performs the duties of any other Key Officer.
5. Intentionally omitted.
6. Issue Tax. The issuance of certificates for Warrant Shares upon the
---------
exercise of this Warrant shall be made without charge to the Holder or such
shares for any issuance tax or other costs in respect thereof, provided that the
Company shall not be required to pay any tax which may be payable in respect of
any transfer involved in the issuance and delivery of any certificate in a name
other than the Holder.
7. No Rights or Liabilities as a Shareholder. This Warrant shall not
-----------------------------------------
entitle the Holder to any voting rights or other rights as a shareholder of the
Company. No provision of this Warrant, in the absence of affirmative action by
the Holder to purchase Warrant Shares, and no mere enumeration herein of the
rights or privileges of the Holder, shall give rise to any liability of the
Holder for the Exercise Price or as a shareholder of the Company, whether such
liability is asserted by the Company or by creditors of the Company.
120
8. Transfer, Exchange, Redemption and Replacement of Warrant.
---------------------------------------------------------
a. Restriction on Transfer. This Warrant and the rights granted to the
-----------------------
Holder are transferable, in whole or in part, upon surrender of this
Warrant, together with a properly executed assignment in the Form of
Assignment attached hereto as Exhibit 2, at the office or agency of the
Company referred to in Section 8(e) below, provided, however, that any
transfer or assignment shall be subject to the provisions of Section 5.1
and 5.2 of the Securities Purchase Agreement. Until due presentment for
registration of transfer on the books of the Company, the Company may treat
the registered holder hereof as the owner and holder hereof for all
purposes, and the Company shall not be affected by any notice to the
contrary. Notwithstanding anything to the contrary contained herein, the
registration rights described in Section 9 hereof are assignable only in
accordance with the provisions of the Registration Rights Agreement.
b. Warrant Exchangeable for Different Denominations. This Warrant is
------------------------------------------------
exchangeable, upon the surrender hereof by the Holder at the office or
agency of the Company referred to in Section 8(e) below, for new Warrants,
in the form hereof, of different denominations representing in the
aggregate the right to purchase the number of shares of Common Stock which
may be purchased hereunder, each of such new Warrants to represent the
right to purchase such number of shares as shall be designated by the
Holder of at the time of such surrender.
c. Replacement of Warrant. Upon receipt of evidence reasonably
-----------------------
satisfactory to the Company of the loss, theft, destruction, or mutilation
of this Warrant or, in the case of any such loss, theft, or destruction,
upon delivery, of an indemnity agreement reasonably satisfactory in form
and amount to the Company, or, in the case of any such mutilation, upon
surrender and cancellation of this Warrant, the Company, at its expense,
will execute and deliver, in lieu thereof, a new Warrant, in the form
hereof, in such denominations as Holder may request.
d. Cancellation; Payment of Expenses. Upon the surrender of this
---------------------------------
Warrant in connection with any transfer, exchange, or replacement as
provided in this Section 8, this Warrant shall be promptly canceled by the
Company. The Company shall pay all issuance taxes (other than securities
transfer taxes) and charges payable in connection with the preparation,
execution, and delivery of Warrants pursuant to this Section 8.
e. Warrant Register. The Company shall maintain, at its principal
----------------
executive offices (or such other office or agency of the Company as it may
designate by notice to the Holder), a register for this Warrant, in which
the Company shall record the name and address of the person in whose name
this Warrant has been issued, as well as the name and address of each
transferee and each prior owner of this Warrant.
121
f. Additional Restriction on Exercise or Transfer. Notwithstanding
----------------------------------------------
anything to the contrary contained herein, the Warrant shall not be
exercisable by the Holder to the extent (but only to the extent) that, if
exercisable by Holder, Holder would beneficially own in excess of 4.99%
(the "Applicable Percentage") of the shares of Common Stock. To the extent
---------------------
the above limitation applies, the determination of whether the Warrant
shall be exercisable (vis-a-vis other securities owned by Holder which
contain similar limitations on conversion) and of which Warrants shall be
exercisable (as among Warrants) shall be made on the basis of the earliest
submission of the Warrants (vis-a-vis other securities owned by the Holder
which contain similar limitations on conversion and vis a vis other
Warrants), in each case subject to such aggregate percentage limitation. No
prior inability to exercise Warrants pursuant to this paragraph shall have
any effect on the applicability of the provisions of this paragraph with
respect to any subsequent determination of exercisability. For the purposes
of this paragraph, beneficial ownership and all determinations and
calculations, including without limitation, with respect to calculations of
percentage ownership, shall be determined in accordance with Section 13(d)
of the Securities Exchange Act of 1934, as amended, and Regulation 13D and
G thereunder. The provisions of this paragraph may be implemented in a
manner otherwise than in strict conformity with the terms of this Section
8(f) with the approval of the Board of Directors of the Company and the
Holder: (i) with respect to any matter to cure any ambiguity herein, to
correct this paragraph (or any portion hereof) which may be defective or
inconsistent with the intended Applicable Percentage beneficial ownership
limitation herein contained or to make changes or supplements necessary or
desirable to properly give effect to such Applicable Percentage limitation;
and (ii) with respect to any other matter, with the further consent of the
holders of a majority of the then outstanding shares of Common Stock. For
clarification, it is expressly a term of this security that the limitations
contained in this Section shall apply to each successor Holder. The holders
of Common Stock of the Company shall be third-party beneficiaries of this
Section 8(f) and the Company may not waive this Section 8(f) without the
consent of holders of a majority of its Common Stock.
9. Registration Rights. The initial holder of this Warrant (and certain
-------------------
assignees thereof) is entitled to the benefit of such registration rights in
respect of the Warrant Shares as are set forth in the Registration Rights
Agreement.
10. Notices. Any notice herein required or permitted to be given shall be
-------
in writing and may be personally served or delivered by courier or by confirmed
telecopy, and shall be deemed delivered at the time and date of receipt (which
shall include telephone line facsimile transmission). The addresses for such
communications shall be:
If to the Company:
Xxxx Interactive Services, Inc.
0000 Xxxxxxx, Xxxxx 000
Xxxxxx, Xxxxxxxx 00000
122
Telecopy: (000) 000-0000
Attention: Xxxxxxx Xxxxxx
with a copy to:
Xxxx, Plant, Xxxxx, Xxxxx & Xxxxxxx, P.A.
3400 City Center
00 Xxxxx Xxxxx Xxxxxx
Xxxxxxxxxxx, XX 00000-0000
Telecopy: (000) 000-0000
Attention: Xxxxxxx X. Xxxxxxx, Esq.
and if to the Holder, at such address as Holder shall have provided in writing
to the Company, or at such other address as each such party furnishes by notice
given in accordance with this Section 10.
11. Governing Law; Jurisdiction. This Warrant shall be governed by and
---------------------------
construed in accordance with the laws of the State of New York applicable to
contracts made and to be performed in the State of New York. The Company
irrevocably consents to the jurisdiction of the United States federal courts
located in the State of New York in any suit or proceeding based on or arising
under this Warrant and irrevocably agrees that all claims in respect of such
suit or proceeding may be determined in such courts. The Company irrevocably
waives the defense of an inconvenient forum to the maintenance of such suit or
proceeding. The Company agrees that a final nonappealable judgment in any such
suit or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on such judgment or in any other lawful manner.
12. Miscellaneous.
-------------
12.1 Amendments. This Warrant and any provision hereof may only
----------
be amended by an instrument in writing signed by the Company and the
Holder.
12.2 Descriptive Headings. The descriptive headings of the
--------------------
several Sections of this Warrant are inserted for purposes of
reference only, and shall not affect the meaning or construction of
any of the provisions hereof.
12.3 Cashless Exercise. Notwithstanding anything to the contrary
-----------------
contained in this Warrant, this Warrant may be exercised by
presentation and surrender of this Warrant to the Company at its
principal executive offices with a written notice of the Holder's
intention to effect a cashless exercise, including a calculation of
the number of shares of Common Stock to be issued upon such exercise
in accordance with the terms hereof (a "Cashless Exercise"). In the
-----------------
event of a Cashless Exercise, in lieu of paying the Exercise Price in
cash, the Holder shall surrender this Warrant for the number of shares
of Common Stock determined by multiplying the number of Warrant Shares
to which it would
123
otherwise be entitled by a fraction, the numerator of which shall be
the difference between the then current Market Price per share of the
Common Stock and the Exercise Price, and the denominator of which
shall be such then current Market Price per share of Common Stock.
Notwithstanding the provisions of this section 12(c), so long as a
Registration Statement is effective and is available for immediate use
pursuant to the Registration Rights Agreement dated even date
herewith, the Holder shall not have the rights provided to it under
this provision.
12.4 Assignability. This Warrant shall be binding upon the
-------------
Company and its successors and assigns and shall inure to the benefit
of Holder and its successors and assigns. The Holder shall notify the
Company upon the assignment of this Warrant.
* * *
124
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its duly
authorized officer.
Xxxx Interactive Services, Inc.
By: ___________________
Name: ___________________
Title: ___________________
125
FORM OF EXERCISE AGREEMENT
(To be Executed by the Holder in order to Exercise the Warrant)
The undersigned hereby irrevocably exercises the right to purchase ____________
of the shares of common stock of Xxxx Interactive Services, Inc., a Colorado
corporation doing business as Xxxx Interactive Services, Inc. (the "Company"),
-------
evidenced by the attached Warrant, and [herewith makes payment of the Exercise
Price with respect to such shares in full/ elects to effect a Cashless Exercise
pursuant to the terms of the Warrant], all in accordance with the conditions and
provisions of said Warrant.
(i) The undersigned agrees not to offer, sell, transfer or otherwise dispose of
any Common Stock obtained on exercise of the Warrant, except under circumstances
that will not result in a violation of the Securities Act of 1933, as amended,
or any state securities laws.
(ii) The undersigned requests that stock certificates for such shares be issued,
and a Warrant representing any unexercised portion hereof be issued, pursuant to
the Warrant in the name of the Holder (or such other person or persons indicated
below) and delivered to the undersigned (or designee(s) at the address (or
addresses) set forth below:
Date:__________________ ________________________________________
Signature of Holder
_______________________
Name of Holder (Print)
Address:
___________________________
___________________________
126
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers
all rights of the undersigned under the within Warrant, with respect to the
number of shares of Common Stock covered thereby set forth hereinbelow, to:
Name of Assignee Address No. of Shares
--------------- ------- -------------
, and hereby irrevocably constitutes and appoints ___________________________ as
agent and attorney-in-fact to transfer said Warrant on the books of the within-
named corporation, with full power of substitution in the premises.
Date: ____________, _____,
In the presence of
Name: _______________________
Signature: __________________
Title of Signing Officer or Agent (if any):
__________________________________
Address:__________________________
__________________________
Note: The above signature should
correspond exactly with the
name on the face of the within
Warrant.
127
EXHIBIT F
TO EXCHANGE AGREEMENT
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAW, AND MAY NOT BE OFFERED FOR SALE, SOLD OR
TRANSFERRED UNLESS A REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE
SECURITIES LAWS SHALL BE EFFECTIVE WITH RESPECT THERETO, OR AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS IS
AVAILABLE IN CONNECTION WITH SUCH OFFER, SALE OR TRANSFER.
Warrant to Purchase Issue Date: February 28, 2001
500,000 Shares Amended January 31, 2002
XXXX INTERACTIVE SERVICES, INC.
WARRANT TO PURCHASE COMMON STOCK
THIS CERTIFIES that Castle Creek Technology Partners LLC or any subsequent
holder hereof (the "Holder"), has the right to purchase from XXXX INTERACTIVE
------
SERVICES, INC., a Colorado corporation (the "Company"), up to 500,000 fully paid
-------
and nonassessable shares of the Company's common stock, no par value (the
"Common Stock"), subject to adjustment as provided herein, at a price equal to
------------
the Exercise Price (as defined below), at any time beginning on the date on
which this Warrant is issued (the "Issue Date") and ending at 5:00 p.m., eastern
----------
time, on the date that is the third (3rd) anniversary of the Issue Date (the
"Expiration Date"). This Warrant is issued, and all rights hereunder shall be,
---------------
subject to all of the conditions, limitations and provisions set forth herein
and in the related Securities Purchase Agreement by and between the Company and
the Holder (the "Securities Purchase Agreement"). Capitalized terms used herein
-----------------------------
and not otherwise defined shall have the respective meanings set forth in the
Securities Purchase Agreement or the Articles of Amendment to the Company's
Articles of Incorporation relating to the Series C-1 Preferred Stock ("Series C-
--------
1 Preferred Stock Articles of Amendment").
---------------------------------------
1. Exercise.
(a) Right to Exercise; Exercise Price. The Holder shall have the
----------------- --------------
right to exercise this Warrant at any time and from time to time during the
period beginning on the Issue Date and ending on the Expiration Date as to all
or any part of the shares of Common Stock covered hereby (the "Warrant Shares").
--------------
The "Exercise Price" payable by
128
the Holder in connection with the exercise of this Warrant shall initially be
$1.00 per share, subject to adjustment for the events specified in Section 6
below.
(b) Exercise Notice. In order to exercise this Warrant, the
---------------
Holder shall send by facsimile transmission, at any time prior to 7:00 p.m.,
eastern time, on the Business Day (as defined below) on which the Holder wishes
to effect such exercise (the "Exercise Date"), to the Company a copy of the
-------------
notice of exercise in the form attached hereto as Exhibit A (the "Exercise
--------
Notice") stating the number of Warrant Shares as to which such exercise applies
------
and the calculation therefor. As used herein, "Business Day" shall mean any day
------------
on which the New York Stock Exchange (the "NYSE") and commercial banks in the
----
city of New York are open for business. The Holder shall thereafter deliver to
the Company the original Exercise Notice, the original Warrant and (unless a
cashless exercise is intended) the Exercise Price. In the case of a dispute as
to the calculation of the Exercise Price or the number of Warrant Shares
issuable hereunder (including without limitation the calculation of any
adjustment to the Exercise Price pursuant to Section 6 below), the Company shall
promptly issue to the Holder the number of Warrant Shares that are not disputed
and shall submit the disputed calculations to the Company's independent
accountant within two (2) Business Days following the Exercise Date. The Company
shall cause such accountant to calculate the Exercise Price and/or the number of
Warrant Shares issuable hereunder and to notify the Company and the Holder of
the results in writing no later than two Business Days following the day on
which such accountant received the disputed calculations. Such accountant's
calculation shall be deemed conclusive absent manifest error. The fees of any
such accountant shall be borne by the party whose calculations were most at
variance with those of such accountant.
(c) Early Expiration. In the event that following the one
----------------
hundred eightieth-day anniversary of the Issue Date, the Closing Bid Price (as
defined in the Securities Purchase Agreement) of the Common Stock during any
period of ten (10) consecutive Trading Days is equal to or greater than $7.50
(subject to adjustment as provided herein) (an "Expiration Trigger Event"), the
------------------------
Company may deliver to the Holder, within five (5) business days following the
occurrence of an Expiration Trigger Event, and as long as each of the Resale
Conditions (as defined below) have been satisfied, a written notice to such
effect (a "Expiration Notice") and this Warrant shall expire on the date (the
-----------------
"Early Expiration Date") which is thirty (30) Trading Days following the
---------------------
business day on which such Expiration Notice is delivered to the Holder,
provided, however, that if the Holder is prevented from exercising all or any
part of this Warrant during such thirty (30) Trading Days as a result of the
limitations set forth in Section 4 hereof, then with respect to the portion of
the Warrant that can not be so exercised, the Early Expiration Date shall be
extended until twenty (20) Business Days after such portion of the Warrant can
be exercised in its entirety. The "Resale Conditions" are as follows: (I) either
-----------------
(A) the Registration Statement (as defined in the Registration Rights Agreement
between the Company and the Holder) relating to the resale of the Warrant Shares
has been declared effective and, during the period of thirty five (35) Trading
Days immediately preceding the Early Expiration Date (the "Early Expiration
----------------
Period"), has been available for the resale of (i) all of the Warrant Shares
------
into which this Warrant is exercisable and (ii) all of the Conversion Shares
issuable upon conversion of
129
the Preferred Shares (each as defined in the Series C-1 Preferred Stock Articles
of Amendment)(assuming the minimum applicable Conversion Price and Exercise
Price and that no conditions to or limitations on the conversion of the
Preferred Shares or exercise of the Warrants then exist) or (B) on each Trading
Day of the Early Expiration Period, such Warrant Shares may be sold pursuant to
Rule 144(k) under the Securities Act of 1933, as amended and (II) no Mandatory
Redemption Event (as defined in the Series C-1 Preferred Stock Articles of
Amendment) (or an event or circumstance that with the passage of time would
constitute a Mandatory Redemption Event) has occurred and is continuing at any
time during the Early Expiration Period. Notwithstanding the foregoing, the
Holder may exercise all or any part of this Warrant at the then effective
Exercise Price by delivering an Exercise Notice to the Company at any time prior
to the Early Expiration Date.
(d) Cancellation of Warrant. This Warrant shall be canceled
-----------------------
upon its exercise and, if this Warrant is exercised in part, the Company shall,
at the time that it delivers Warrant Shares to the Holder pursuant to such
exercise as provided herein, issue a new warrant, and deliver to the Holder a
certificate representing such new warrant, with terms identical in all respects
to this Warrant (except that such new warrant shall be exercisable into the
number of shares of Common Stock with respect to which this Warrant shall remain
unexercised); provided, however, that the Holder shall be entitled to exercise
all or any portion of such new warrant at any time following the time at which
this Warrant is exercised, regardless of whether the Company has actually issued
such new warrant or delivered to the Holder a certificate therefor.
2. Delivery of Warrant Shares Upon Exercise.
Upon receipt of an Exercise Notice pursuant to paragraph 1 above, the
Company shall, (A) in the case of a Cashless Exercise (as defined below), no
later than the close of business on the third (3rd) Business Day following the
Exercise Date set forth in such Exercise Notice, (B) in the case of a Cash
Exercise (as defined below) no later than the close of business on the later to
occur of (i) the third (3rd) Business Day following the Exercise Date set forth
in such Exercise Notice and (ii) such later date on which the Company shall have
received payment of the Exercise Price, and (C) with respect to Warrant Shares
which are disputed as described in paragraph 1(b) above, and required to be
delivered by the Company pursuant to the accountant's calculations described
therein, the close of business on the third (3rd) Business Day following the
determination made pursuant to paragraph 1(b) (the "Delivery Date"), issue and
-------------
deliver or caused to be delivered to the Holder the number of Warrant Shares as
shall be determined as provided herein. The Company shall effect delivery of
Warrant Shares to the Holder by, as long as the Company's designated transfer
agent for the Common Stock (the "Transfer Agent") participates in the Depository
--------------
Trust Company ("DTC") Fast Automated Securities Transfer program ("FAST"),
--- ----
crediting the account of the Holder or its nominee at DTC (as specified in the
applicable Exercise Notice) with the number of Warrant Shares required to be
delivered, no later than the close of business on such Delivery Date. In the
event that the Transfer Agent is not a participant in FAST, or if Warrant Shares
are not otherwise eligible for delivery through FAST, or if the Holder so
specifies in an Exercise
130
Notice or otherwise in writing on or before the Exercise Date, the Company shall
effect delivery of Warrant Shares by delivering to the Holder or its nominee
physical certificates representing such Warrant Shares, no later than the close
of business on such Delivery Date. Warrant Shares delivered to the Holder shall
not contain any restrictive legend as long as the resale of such Warrant Shares
is covered by an effective Registration Statement (as defined in the
Registration Rights Agreement) and such Holder represents in writing to the
Company that such Warrant Shares (i) have been or are being sold pursuant to
such registration statement or pursuant to Rule 144 under the Securities Act of
1933, as amended, or (ii) may be made pursuant to Rule 144(k) under the
Securities Act of 1933, as amended, or any successor rule or provision.
3. Failure to Deliver Warrant Shares.
(a) Exercise Default. In the event that, as a result of any action or
----------------
failure to act on the part of the Company (including without limitation a
failure by the Company to have a sufficient number of shares of Common Stock
authorized and reserved for issuance pursuant to exercise of the Warrants), the
Company does not deliver to a Holder certificates representing the number of
Warrant Shares specified in the applicable Exercise Notice on or before the
Delivery Date therefor and such failure continues for ten (10) Business Days (an
"Exercise Default"), the Company shall pay to the Holder payments ("Exercise
---------------- --------
Default Payments") in the amount of (i) (N/365) multiplied by (ii) the aggregate
---------------- ----------
Exercise Price for the Warrant Shares which are the subject of such Exercise
Default multiplied by (iii) the lower of twenty four percent (24%) and the
----------
maximum rate permitted by applicable law, where "N" equals the number of days
elapsed between the original Delivery Date for such Warrant Shares and the date
on which all of such Warrant Shares are issued and delivered to the Holder.
Amounts payable under this subparagraph 3(a) shall be paid to the Holder in
immediately available funds on or before the fifth (5th) Business Day of the
calendar month immediately following the calendar month in which such amount has
accrued.
(b) Buy-in. Nothing herein shall limit a Holder's right to pursue
------
actual damages for the Company's failure to issue and deliver Warrant Shares in
connection with an exercise on the applicable Delivery Date (including, without
limitation, damages relating to any purchase of shares of Common Stock by the
Holder to make delivery on a sale effected in anticipation of receiving Warrant
Shares upon exercise, such damages to be in an amount equal to (A) the aggregate
amount paid by the Holder for the shares of Common Stock so purchased minus (B)
-----
the aggregate amount of net proceeds, if any, received by the Holder from the
sale of the Warrant Shares issued by the Company pursuant to such exercise), and
the Holder shall have the right to pursue all remedies available to it at law or
in equity (including, without limitation, a decree of specific performance
and/or injunctive relief).
(c) Reduction of Exercise Price. In the event that, as a result of any
---------------------------
action or failure to act on the part of the Company (including without
limitation a failure by the Company to have a sufficient number of shares of
Common Stock authorized and reserved for issuance pursuant to exercise of the
Warrants), a Holder has not received
131
certificates representing the Warrant Shares by the tenth (10th) Business Day
following an Exercise Default, the Holder may, upon written notice to the
Company, regain on such Business Day the rights of a Holder of this Warrant, or
part thereof, with respect to the Warrant Shares that are the subject of such
Exercise Default, and the Exercise Price for such Warrant Shares shall be
reduced by one percent (1%) for each day beyond such 10th Business Day in which
the Exercise Default continues. In such event, the Holder shall retain all of
the Holder's rights and remedies with respect to the Company's failure to
deliver such Warrant Shares (including without limitation the right to receive
the cash payments specified in subparagraph 3(a) above).
(d) Holder of Record. Each Holder shall, for all purposes, be deemed to
----------------
have become the holder of record of Warrant Shares on the Exercise Date of this
Warrant, irrespective of the date of delivery of such Warrant Shares. Nothing in
this Warrant shall be construed as conferring upon the Holder hereof any rights
as a stockholder of the Company prior to the Exercise Date.
4. Exercise Limitations.
Notwithstanding anything to the contrary contained herein, this Warrant
shall not be exercisable by the Holder to the extent (but only to the extent)
that, if exercisable by the Holder, the Holder would be the beneficial owner of
more than 4.99% of the shares of Common Stock. For the purposes of this Section
4, beneficial ownership and all determinations and calculations shall be
determined in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended, and all applicable rules and regulations thereunder. For
clarification, it is expressly a term of this security that the limitations
contained in this Section 4 shall apply to each successive Holder. The
restriction contained in this Section 4 may not be altered, amended, deleted or
changed in any manner whatsoever unless the holders of a majority of the
outstanding shares of Common Stock and the Holder hereof approve such
alteration, amendment, deletion or change.
5. Payment of the Exercise Price.
The Holder may pay the Exercise Price in either of the following forms or,
at the election of Holder, a combination thereof:
(a) Cash Exercise: by delivery of immediately available funds.
(b) Cashless Exercise: by surrender of this Warrant to the Company
together with a notice of cashless exercise, in which event the Company shall
issue to the Holder the number of Warrant Shares determined as follows:
Y x (A -- B)
X = --------------
A
where: X = the number of Warrant Shares to be issued to the Holder.
132
Y = the number of Warrant Shares with respect to which this Warrant is
being exercised.
A = the average of the Closing Trade Prices (as defined in the
Securities Purchase Agreement) of the Common Stock for the five
(5) Trading Days immediately prior to (but not including) the
Exercise Date.
B = the Exercise Price;
provided, however, that the Holder may exercise this Warrant pursuant to a
Cashless Exercise only if, on the Exercise Date, the resale of Warrant Shares is
not covered by an effective Registration Statement (as defined in the
Registration Rights Agreement) that is available to the Holder on such date.
For purposes of Rule 144 under the Securities Act of 1933, as amended, it
is intended, understood and acknowledged that the Warrant Shares issued in a
cashless exercise transaction shall be deemed to have been acquired by the
Holder, and the holding period for the Warrant Shares shall be deemed to have
been commenced, on the Issue Date.
6. Anti-Dilution Adjustments; Distributions; Other Events.
The Exercise Price and the number of Warrant Shares issuable hereunder
shall be subject to adjustment from time to time as provided in this Section 6.
In the event that any adjustment of the Exercise Price or number of Warrant
Shares as required herein results in a fraction of a cent or fraction of a
share, as applicable, such exercise Price or number of Warrant Shares shall be
rounded up or down to the nearest cent or share, as applicable.
(a) Intentionally Omitted.
(b) Intentionally Omitted.
(c) Subdivision or Combination of Common Stock. If the Company, at any
------------------------------------------
time after the initial issuance of this Warrant, subdivides (by any stock split,
stock dividend, recapitalization, reorganization, reclassification or otherwise)
its shares of Common Stock into a greater number of shares, then after the date
of record for effecting such subdivision, the Exercise Price in effect
immediately prior to such subdivision will be proportionately reduced. If the
Company, at any time after the initial issuance of this Warrant, combines (by
reverse stock split, recapitalization, reorganization, reclassification or
otherwise) its shares of Common Stock into a smaller number of shares, then,
after the date of record for effecting such combination, the Exercise Price in
effect immediately prior to such combination will be proportionally increased.
In the event of any adjustment to the Exercise Price arising from an event
specified in this
133
paragraph (c), the number of shares of Common Stock into which this Warrant is
exercisable will be proportionately increased or reduced, as the case may be.
(d) Distributions. If the Company or any of its subsidiaries shall at any
-------------
time distribute to holders of Common Stock (or to a holder, other than the
Company, of the common stock of any such subsidiary) cash, evidences of
indebtedness or other securities or assets (other than cash dividends or
distributions payable out of earned surplus or net profits for the current or
the immediately preceding year) including any dividend or distribution in shares
of capital stock of a subsidiary of the Company (collectively, a "Distribution")
------------
then, in any such case, the Holder of this Warrant shall be entitled to receive,
at the same time as such assets are received by a holder of such stock, an
amount and type of such Distribution as though such Holder were a holder on the
record date therefor of a number of shares of Common Stock into which this
Warrant is exercisable as of such record date (such number of shares to be
determined at the Exercise Price then in effect and without regard to any
limitation on exercise of this Warrant that may exist pursuant to the terms
hereof or otherwise).
(e) Major Transactions. If the Company shall consolidate or merge with any
------------------
other corporation or entity (other than a consolidation or merger in which the
Company is the surviving or continuing entity and its capital stock is unchanged
and unissued in such transaction (except for issuances which do not exceed
fifty percent (50%) of the Common Stock)) or there shall occur any share
exchange pursuant to which all of the outstanding shares of Common Stock are
converted into other securities or property or any such other reclassification
or change of the outstanding shares of Common Stock or the Company shall sell
all or substantially all of its assets (each of the foregoing being a "Major
-----
Transaction"), then the holder of this Warrant may, at its option, either (a) in
-----------
the event that the Common Stock remains outstanding or holders of Common Stock
receive any common stock or substantially similar equity interest, in each of
the foregoing cases which is publicly traded, retain this Warrant and this
Warrant shall continue to apply to such Common Stock or shall apply, as nearly
as practicable, to such other common stock or equity interest, as the case may
be, or (b) regardless of whether (a) applies, receive consideration, in exchange
for this Warrant (without payment of any exercise price hereunder), equal to the
greater of, as determined in the sole discretion of such holder, (i) the number
of shares of stock or securities or property of the Company, or of the entity
resulting from such Major Transaction (the "Major Transaction Consideration"),
-------------------------------
to which a holder of the number of shares of Common Stock delivered upon the
exercise of this Warrant (pursuant to the cashless exercise feature hereof)
would have been entitled upon such Major Transaction had such holder so
exercised this Warrant (without regard to any limitations on exercise herein or
elsewhere contained) on the trading date immediately preceding the public
announcement of the transaction resulting in such Major Transaction and had such
Common Stock been issued and outstanding and had such Holder been the holder of
record of such Common Stock at the time of the consummation of such Major
Transaction, and (ii) cash paid by the Company in immediately available funds in
an amount equal to the Black-Scholes Amount (as defined herein) times the number
of shares of Common Stock for which this Warrant was exercisable (without regard
to any limitations on exercise herein contained and assuming payment of the
exercise payment
134
in cash hereunder) but in no event shall such amount exceed the Black Scholes
value of the Warrant as of the Issue Date as determined by the Company's
Auditors, and the Company shall make lawful provision for the foregoing as a
part of such Major Transaction and shall cause the issuer of any security in
such transaction to assume all of the Company's obligations under the
Registration Rights Agreement. In the event that the Company shall consolidate
or merge with any other corporation in a transaction in which common stock of
the surviving corporation or the parent thereof (the "Exchange Securities") is
-------------------
issued to the holders of Common Stock in such transaction in exchange for all
such Common Stock, and (a) the Exchange Securities are publicly traded, (b) the
average daily dollar trading volume of the Exchange Securities during the one
hundred eighty (180) day period ending on the date on which such transaction is
publicly disclosed is greater than One Million Dollars ($1,000,000.00) per day
as reported by Bloomberg, (c) the historical one hundred (100) day volatility of
the Exchange Securities during the period ending on the date on which such
transaction is publicly disclosed is greater than fifty percent (50%), and (d)
the market capitalization of the issuer of the Exchange Securities is not less
than One hundred Million Dollars ($100,000,000.00) based on the last sale price
of the Exchange Securities on the date immediately before the date on which such
transaction is publicly disclosed (in each case, with respect to the foregoing
clauses (a) through (d), as reported by Bloomberg), then the provisions of
clause (b) of the preceding sentence shall not apply. In the event that the
Company shall, in a Major Transaction, consolidate or merge with any other
corporation in a transaction in which the Company is the survivor (a "Company
-------
Transaction"), the provisions of clause (ii) of the second preceding sentence
-----------
shall not apply to the extent that each of the following conditions remain true
for the thirty (30) business days commencing as of the date of the consummation
of such transaction (the "Measurement Period"): (a) the Common Stock remains
------------------
publicly traded during the period, (b) the average daily dollar trading volume
of the Common Stock is greater than One Million Dollars ($1,000,000.00), (c) the
historical thirty (30) day volatility of the Company's Common Stock is greater
than fifty percent (50%), and (d) the market capitalization of the Company is
not less than One Hundred Million Dollars ($100,000,000.00) on the last day of
the period (in each case, with respect to the foregoing clauses (a) through (d),
as reported by Bloomberg. No sooner than ten (10) business days nor later than
five (5) business days prior to the consummation of the Major Transaction, but
not prior to the public announcement of such Major Transaction, the Company
shall deliver written notice ("Notice of Major Transaction") to each holder of a
---------------------------
Warrant, which Notice of Major Transaction shall be deemed to have been
delivered one (1) business day after the Company's sending such notice by
telecopy (provided that the Company sends a confirming copy of such notice on
the same day by overnight courier) of such Notice of Major Transaction. Such
Notice of Major Transaction shall indicate the amount and type of the Major
Transaction consideration which such holder of a Warrant would receive under
this Section. If the Major Transaction Consideration is cash and does not
consist entirely of United States currency, such holder may elect to receive
United States currency in an amount equal to the value of the Major Transaction
Consideration in lieu of the Major Transaction Consideration by delivering
notice of such election to the Company within five (5) business days of such
holder's receipt of the Notice of Major Transaction.
135
The "Black-Scholes Amount" shall be the amount determined by calculating
the "Black-Scholes" value of an option to purchase one share of Common Stock on
the applicable page on the Bloomberg online page, using the following variable
values: (i) the current market price of the Common Stock equal to the Closing
Trade Price on the last trading day before the date of the Notice of the Major
Transaction; (ii) volatility of the Common Stock equal to the volatility of the
common Stock during the 100 trading day period preceding the date of the Notice
of the Major Transaction; (iii) a risk free rate equal to the interest rate on
the United States treasury xxxx or treasury note with a maturity corresponding
to the remaining term of this Warrant on the date of the Notice of the Major
Transaction; and (iv) an exercise price equal to the Exercise Price on the date
of the Notice of the Major Transaction. In the event such calculation function
is no longer available utilizing the Bloomberg online page, the Holder shall
calculate such amount in its sole discretion using the closest available
alternative mechanism and variable values to those available utilizing the
Bloomberg online page for such calculation function.
(f) Additional Shares, Securities or Assets. In the event that at any
----------------- --------------------
time, as a result of an adjustment made pursuant to this Section 6, the Holder
of this Warrant shall, upon exercise of this Warrant, become entitled to receive
securities or assets (other than Common Stock) then, wherever appropriate, all
references herein to shares of Common Stock shall be deemed to refer to and
include such shares and/or other securities or assets; and thereafter the number
of such shares and/or other securities or assets shall be subject to adjustment
from time to time in a manner and upon terms as nearly equivalent as practicable
to the provisions of this Section 6.
(g) Special Adjustment and Notice of Adjustment. Upon the occurrence of
-------------------------------------------
any event which requires any adjustment of the Exercise Price, then, and in each
such case, the Company shall give notice thereof to the Holder, which notice
shall state the Exercise Price resulting from such adjustment and the increase
or decrease in the number of Warrant Shares purchasable at such price upon
exercise, setting forth in reasonable detail the method of calculation and the
facts upon which such calculation is based. Such calculation shall be certified
by the chief financial officer of the Company. If the Company takes any actions
(including under or by virtue of this Section 6) which would have a dilutive
effect on the Holder or which would materially and adversely affect the Holder
with respect to its investment in the Warrant, and if the provisions of this
Section 6, are not strictly applicable to such actions or, if applicable to such
actions, would not operate to equitably protect the Holder against such actions,
then the Company shall promptly upon notice from Holder appoint its independent
certified public accountants to determine as promptly as practicable an
appropriate adjustment to the terms hereof, including without limitation
adjustments to the Exercise Price, or another appropriate action to so equitably
protect such Holder and prevent any such dilution and any such material adverse
effect, as the case may be. Following such determination, the Company shall
forthwith make the adjustments or take the other actions described therein.
(h) Other Notices. In case at any time:
-------------
136
(i) the Company shall declare any dividend upon the Common Stock
payable in shares of stock of any class or make any other distribution to the
holders of the Common Stock;
(ii) the Company shall offer for subscription pro rata to the holders
of the Common Stock any additional shares of stock of any class or other rights;
(iii) there shall be any capital reorganization of the Company, or
reclassification of the Common Stock, or consolidation or merger of the Company
with or into, or sale of all or substantially all of its assets to, another
corporation or entity; or
(iv) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Company;
then, in each such case, the Company shall give to the Holder (a) notice of the
date on which the books of the Company shall close or a record shall be taken
for determining the holders of Common Stock entitled to receive any such
dividend, distribution, or subscription rights or for determining the holders of
Common Stock entitled to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up and (b) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding-up, notice of
the date (or, if not then known, a reasonable approximation thereof by the
Company) when the same shall take place. Such notice shall also specify the
date on which the holders of Common Stock shall be entitled to receive such
dividend, distribution, or subscription rights or to exchange their Common Stock
for stock or other securities or property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation, or
winding-up, as the case may be. Such notice shall be given at least thirty (30)
days prior to the record date or the date on which the Company's books are
closed in respect thereto, but in no event earlier than public announcement of
such proposed transaction or event. Failure to give any such notice or any
defect therein shall not affect the validity of the proceedings referred to in
clauses (i), (ii), (iii) and (iv) above.
7. Fractional Interests.
No fractional shares or scrip representing fractional shares shall be
issuable upon the exercise of this Warrant, but on exercise of this Warrant, the
Holder hereof may purchase only a whole number of shares of Common Stock. If, on
exercise of this Warrant, the Holder hereof would be entitled to a fractional
share of Common Stock or a right to acquire a fractional share of Common Stock,
such fractional share shall be disregarded and the number of shares of Common
Stock issuable upon exercise shall be rounded up or down to the nearest whole
number of shares of Common Stock.
8. Transfer of this Warrant.
137
The Holder may sell, transfer, assign, pledge or otherwise dispose of this
Warrant, in whole or in part, as long as such sale or other disposition is made
pursuant to an effective registration statement or an exemption to the
registration requirements of the Securities Act of 1933, as amended, and
applicable state laws. Upon such transfer or other disposition, the Holder shall
deliver a written notice to Company, substantially in the form of the Transfer
Notice attached hereto as Exhibit B (the "Transfer Notice"), indicating the
---------------
person or persons to whom this Warrant shall be transferred and, if less than
all of this Warrant is transferred or this Warrant is transferred in parts, the
number of Warrant Shares to be covered by the part of this Warrant to be
transferred to each such person. Within three (3) Business Days of receiving a
Transfer Notice and the original of this Warrant, the Company shall deliver to
the each transferee designated by the Holder a Warrant or Warrants of like tenor
and terms for the appropriate number of Warrant Shares. Notwithstanding the
foregoing, no Holder may knowingly and voluntarily sell this Warrant (or any
portion thereof) to an entity that is a competitor of the Company.
9. Benefits of this Warrant.
Nothing in this Warrant shall be construed to confer upon any person other
than the Holder of this Warrant any legal or equitable right, remedy or claim
under this Warrant and this Warrant shall be for the sole and exclusive benefit
of the Holder of this Warrant.
10. Loss, theft, destruction or mutilation of Warrant.
Upon receipt by the Company of evidence of the loss, theft, destruction or
mutilation of this Warrant, and (in the case of loss, theft or destruction) of
indemnity or security reasonably satisfactory to the Company, and upon surrender
of this Warrant, if mutilated, the Company shall execute and deliver a new
Warrant of like tenor and date.
11. Notice or Demands.
Except as otherwise provided herein, any notice, demand or request required
or permitted to be given pursuant to the terms of this Warrant shall be in
writing and shall be deemed given (i) when delivered personally or by verifiable
facsimile transmission (with an original to follow) on or before 5:00 p.m.,
eastern time, on a Business Day or, if such day is not a Business Day, on the
next succeeding Business Day, (ii) on the next Business Day after timely
delivery to a nationally-recognized overnight courier and (iii) on the Business
Day actually received if deposited in the U.S. mail (certified or registered
mail, return receipt requested, postage prepaid), addressed as follows:
If to the Company:
XXXX Interactive Services, Inc.
0000 Xxxxxxx, Xxxxx 000
Xxxxxx, Xxxxxxxx 00000
Telecopy: (000)000-0000
138
Attention: Xxxxxxx Xxxxxx
with a copy to:
Xxxx, Plant, Xxxxx, Xxxxx & Xxxxxxx, P.A.
3400 City Center
00 Xxxxx Xxxxx Xxxxxx
Xxxxxxxxxxx, XX 00000-0000
Telecopy: (000) 000-0000
Attention: Xxxxxxx X. Xxxxxxx, Esq.
and if to the Holder, to such address as shall be designated by the Holder in
writing to the Company.
12. Applicable Law.
This Warrant is issued under and shall for all purposes be governed by and
construed in accordance with the laws of the state of Illinois, without giving
effect to conflict of law provisions thereof.
IN WITNESS WHEREOF, the undersigned has executed this Warrant as of the
28th day of February, 2001.
XXXX INTERACTIVE SERVICES, INC.
By: ________________________________
Name:
Title:
139
EXHIBIT A
---------
EXERCISE NOTICE
The undersigned Holder hereby irrevocably exercises the right to purchase
______ of the shares of Common Stock ("Warrant Shares") of XXXX INTERACTIVE
--------------
SERVICES, INC. evidenced by the attached Warrant (the "Warrant"). Capitalized
-------
terms used herein and not otherwise defined shall have the respective meanings
set forth in the Warrant. Unless otherwise specified in writing to the Company,
the undersigned represents to the Company that the shares of Common Stock
covered by this notice have been or will be sold pursuant to the terms of an
effective registration statement.
1. Form of Exercise Price. The Holder intends that payment of the
Exercise Price shall be made as:
______ a Cash Exercise with respect to _________________ Warrant
Shares; and/or
______ a Cashless Exercise with respect to _________________ Warrant
Shares.
2. Payment of Exercise Price. In the event that the Holder has elected a
Cash Exercise with respect to some or all of the Warrant Shares to be issued
pursuant hereto, the Holder shall pay the sum of $________________ to the
Company in accordance with the terms of the Warrant.
3. Delivery of Warrant Shares. The Company shall deliver to the Holder
_____________ Warrant Shares in accordance with the terms of the Warrant.
Date: ______________________
____________________________________
Name of Registered Holder
By: _______________________________
Name:
Title:
140
EXHIBIT B
----------
TRANSFER NOTICE
FOR VALUE RECEIVED, the undersigned Holder of the attached Warrant hereby
sells, assigns and transfers unto the person or persons named below the right to
purchase ______ shares of the Common Stock of XXXX INTERACTIVE SERVICES, INC.
evidenced by the attached Warrant.
Date: ______________________
____________________________________
Name of Registered Holder
By: _____________________________
Name:
Title:
Transferee Name and Address:
____________________________________
____________________________________
____________________________________
141
EXHIBIT G
TO EXCHANGE AGREEMENT
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of January
---------
17, 2002, by and among XXXX INTERACTIVE SERVICES, INC., a Delaware corporation
(the "Company"), and CASTLE CREEK TECHNOLOGY PARTNERS LLC ("CC").
-------
The Company has agreed, on the terms and subject to the conditions set
forth in the Exchange Agreement of even date herewith (the "Exchange
--------
Agreement"), to exchange shares of its Series C-1 Preferred Stock and $1,212,192
---------
in principal amount of its 1999 Note currently held by CC for certain number of
shares of its Series D Junior Preferred Stock and a Preferred Exchange Warrant.
In connection with the Exchange, the Company has also agreed to amended the
terms of its stock purchase warrant dated August 25, 1999 and stock purchase
warrant dated February 28, 2001 as set forth in the Amended A Warrant and the
Amended C Warrant. The shares of Series D Junior Preferred Stock are convertible
into shares ("Conversion Shares") of common stock, no par value, of the Company
-----------------
("Common Stock") and the Preferred Exchange Warrant is exercisable into shares
------------
("Warrant Shares") of the Company's Common Stock.
--------------
In order to induce CC to enter into the Exchange Agreement, the Company has
agreed to provide certain registration rights under the Securities Act of 1933,
as amended (the "Securities Act"), and under applicable state securities laws.
--------------
Capitalized terms used herein and not otherwise defined shall have the
respective meanings set forth in the Exchange Agreement, including the exhibits
thereto.
In consideration of CC's entering into the Exchange Agreement, and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
1. DEFINITIONS.
For purposes of this Agreement, the following terms shall have the meanings
specified:
(a) "Business Day" shall mean any day on which the New York Stock Exchange
------------
(the "NYSE") and commercial banks in the city of New York are open for
----
business.;
(b) "Holder" means any person owning or having the right to acquire
------
through conversion of the Series D Junior Preferred Stock and/or exercise of the
Preferred Exchange Warrant, Registrable Securities, including initially CC and
thereafter any permitted assignee thereof;
142
(c) "Effective Date" means the date on which the Registration Statement is
--------------
declared effective by the Securities and Exchange Commission (the "Commission").
----------
(d) "Register", "registered" and "registration" refer to a registration
-------- ---------- ------------
effected by preparing and filing a registration statement or statements in
compliance with the Securities Act and pursuant to Rule 415 under the Securities
Act ("Rule 415") or any successor rule providing for the offering of securities
--------
on a continuous or delayed basis ("Registration Statement"), and the declaration
----------------------
or ordering of effectiveness of the Registration Statement by the Commission;
and
(e) "Registerable Securities" means the Conversion Shares and the Warrant
-----------------------
Shares and any shares of capital stock issued or issuable from time to time
(with any adjustments) in replacement of, in exchange for or otherwise in
respect of the Conversion Shares and the Warrant Shares.
2. MANDATORY REGISTRATION.
(a) The Company shall prepare and file with the Commission as soon as
practicable following the date hereof a Registration Statement on Form S-3 as a
"shelf" registration statement under Rule 415 covering the resale of up to
4,484,000 Conversion Shares and up to 750,000 Warrant Shares. The Registration
Statement shall state, to the extent permitted by Rule 416 under the Securities
Act, that it also covers such indeterminate number of shares of Common Stock as
may be required to effect conversion of the Series D Junior Preferred Stock and
exercise of the Preferred Exchange Warrant in order to prevent dilution
resulting from stock splits, stock dividends or similar events.
(b) The Company shall use its best efforts to cause the Registration
Statement to become effective as soon as practicable following the filing
thereof. The Company shall respond promptly to any and all comments made by the
staff of the Commission on the Registration Statement (but in no event later
than fifteen (15) Business Days following the Company's receipt thereof), and
shall submit to the Commission, within three (3) Business Days after the Company
learns that no review of the Registration Statement will be made by the staff of
the Commission or that the staff of the Commission has no further comments on
the Registration Statement, as the case may be, a request for acceleration of
the effectiveness of the Registration Statement to a time and date not later
than forty eight (48) hours after the submission of such request. The Company
shall maintain the effectiveness of the Registration Statement until the earlier
to occur of (i) the date on which all of the Registrable Securities have been
sold pursuant to the Registration Statement and (ii) the date on which all of
the remaining Registrable Securities (in the reasonable opinion of counsel to
the Holders) may be immediately sold to the public without registration and
without regard to the amount of Registrable Securities which may be sold by a
Holder thereof at a given time.
143
(c) If for any reason from time to time there are Registrable Securities
which are not included or which are not allowed to be included by the Commission
in a Registration Statement filed pursuant hereto, the Company shall file
additional Registration Statements as soon as practicable following a request by
any Holder to effect a registration of all of such Registrable Securities, which
Registration Statement shall be subject to all terms of this Agreement and shall
use its best efforts to cause such Registration Statement to become effective as
soon as practicable after such filing. The Company shall maintain the
effectiveness of each Registration Statement until the earlier to occur of (i)
the date on which all of the Registrable Securities have been sold pursuant to
the Registration Statement and (ii) the date on which all of the remaining
Registrable Securities (in the reasonable opinion of counsel to the Holders) may
be immediately sold to the public without registration and without regard to the
amount of Registrable Securities which may be sold by a Holder thereof at a
given time.
3. PIGGYBACK REGISTRATION
If at any time prior to the earlier to occur of (x) the date on which all
of the Registrable Securities have been sold pursuant to the Registration
Statement and (y) the date on which all of the remaining Registrable Securities
(in the reasonable opinion of counsel to the Holders) may be immediately sold to
the public without registration and without regard to the amount of Registrable
Securities which may be sold by a Holder thereof at a given time, (i) the
Company proposes to register shares of Common Stock under the Securities Act in
connection with the public offering of such shares for cash (other than a
registration relating solely to the sale of securities to participants in a
Company stock plan or employee stock award or a registration on Form S-4 under
the Securities Act or any successor or similar form registering stock issuable
upon a reclassification, a business combination involving an exchange of
securities or an exchange offer for securities of the issuer or another entity,
or a registration statement on Form S-3 covering the resale of securities issued
in connection with a corporate acquisition) (a "Proposed Registration") and (ii)
---------------------
a registration statement covering the sale of all of the Registrable Securities
is not then effective and available for sales thereof by the Holders, the
Company shall, at such time, promptly give each Holder written notice of such
Proposed Registration. Each Holder shall have twenty (20) days from its receipt
of such notice to deliver to the Company a written request specifying the amount
of Registrable Securities that such Holder intends to sell and such Holder's
intended method of distribution. Upon receipt of such request, the Company shall
use its best efforts to cause all Registrable Securities which the Company has
been requested to register to be registered under the Securities Act to the
extent necessary to permit their sale or other disposition in accordance with
the intended methods of distribution specified in the request of such Holder;
provided, however, that the Company shall have the right to postpone or withdraw
any registration effected pursuant to this Section 3 without obligation to the
Holder. If, in connection with any underwritten public offering for the account
of the Company or for shareholders of the Company that have contractual rights
to require the Company to register shares of Common Stock, the managing
underwriter(s) thereof shall impose a limitation on the number of shares of
Common Stock which may be included in the Registration Statement because, in the
judgment of such
144
underwriter(s), marketing or other factors dictate such limitation is necessary
to facilitate such offering, then the Company shall be obligated to include in
such Registration Statement only such limited portion of the Registrable
Securities with respect to which each Holder has requested inclusion hereunder
as such underwriter(s) shall permit. Any such exclusion of Registrable
Securities shall be made pro rata among the Holders seeking to include
Registrable Securities in the Registration Statement, in proportion to the
number of Registrable Securities sought to be included by such Holders;
provided, however, that the Company shall not exclude any Registrable Securities
unless the Company has first excluded all outstanding securities, the holders of
which are not entitled to inclusion of such securities in such Registration
Statement or are not entitled to pro rata inclusion with the Registrable
Securities; and provided, further, that, after giving effect to the immediately
preceding proviso, any exclusion of Registrable Securities shall be made pro
rata with holders of other securities having the right to include such
securities in the Registration Statement.
4. OBLIGATIONS OF THE COMPANY
In addition to performing its obligations hereunder, including without
limitation those pursuant to paragraphs 2(a), 2(b) and 2(c) above, the Company
shall:
(a) promptly prepare and file with the Commission such amendments and
supplements to each Registration Statement and each prospectus used in
connection with the Registration Statement as may be necessary (i) to comply
with the provisions of the Securities Act or (ii) to maintain the effectiveness
of each Registration Statement during the applicable Registration Period, or as
may be reasonably requested within a reasonable time prior to any proposed sale
by a Holder in order to incorporate information concerning such Holder or such
Holder's intended method of distribution. The Company shall cause such
amendments and supplements to become effective as soon as practicable following
the filing thereof.
(b) secure the listing of all Registrable Securities on the Nasdaq
Stock Market prior to the date on which the Registration Statement relating to
such Registrable Securities becomes effective;
(c) furnish to each Holder such number of copies of the prospectus
included in such Registration Statement, including a preliminary prospectus, if
any, in conformity with the requirements of the Securities Act, and such other
documents as such Holder may reasonably request in order to facilitate the
disposition of such Holder's Registrable Securities;
(d) use all commercially reasonable efforts to register or qualify the
Registrable Securities under the securities or "blue sky" laws of such
jurisdictions within the United States as shall be reasonably requested from
time to time by a Holder, and do any and all other acts or things which may be
necessary or advisable to enable such Holder to consummate the public sale or
other disposition of the Registrable Securities in such jurisdictions; provided
that the Company shall not be required in connection
145
therewith or as a condition thereto to qualify to do business or to file a
general consent to service of process in any such jurisdiction;
(e) in the event of an underwritten public offering of the Registrable
Securities, enter into (together with all Holders proposing to distribute
Registrable Securities through such underwriting) and perform its obligations
under an underwriting agreement, in usual and customary form reasonably
acceptable to the Company, with the managing underwriter of such offering;
(f) notify each Holder immediately upon the occurrence of any event as
a result of which the prospectus included in such Registration Statement, as
then in effect, contains an untrue statement of material fact or omits to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances then existing,
and as promptly as practicable, prepare, file and furnish to each Holder a
reasonable number of copies of a supplement or an amendment to such prospectus
as may be necessary so that such prospectus does not contain an untrue statement
of material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein not misleading in light of the
circumstances then existing;
(g) use all commercially reasonable efforts to prevent the issuance of
any stop order or other order suspending the effectiveness of such Registration
Statement and, if such an order is issued, to obtain the withdrawal thereof at
the earliest possible time and to notify each Holder of the issuance of such
order and the resolution thereof;
(h) furnish to each Holder, on the date that such Registration
Statement becomes effective, (x) a letter, dated such date, of outside counsel
representing the Company (and reasonably acceptable to such Holder) addressed to
such Holder, confirming the effectiveness of the Registration Statement and, to
the knowledge of such counsel, the absence of any stop order, and (y) in the
case of an underwriting, (A) an opinion addressed to the underwriters, dated
such date, of such outside counsel, in such form and substance as is required to
be given to such underwriters, and (B) a letter addressed to such underwriters,
dated such date, from the Company's independent certified public accountants, in
such form and substance as is required to be given by the Company's independent
certified public accountants to such underwriters;
(i) provide each Holder and its representatives the opportunity to
conduct a reasonable inquiry of the Company's financial and other records during
normal business hours and make available its officers, directors and employees
for questions regarding information which such Holder may reasonably request in
order to fulfill any due diligence obligation on its part; and
(j) permit counsel retained for such purpose by each Holder to review
the Registration Statement and all amendments and supplements thereto, and any
comments made by the staff of the Commission and the Company's responses
thereto, within a reasonable period of time prior to the filing thereof with the
Commission (or, in the case
146
of comments made by the staff of the Commission, within a reasonable period of
time following the receipt thereof by the Company) and amend such materials in
accordance with the comments of such counsel.
5. OBLIGATIONS OF EACH HOLDER
In connection with the registration of the Registrable Securities pursuant
to the Registration Statement, each Holder shall:
(a) furnish to the Company in writing such information regarding
itself and the intended method of disposition of Registrable Securities as the
Company shall reasonably request in order to effect the registration thereof;
(b) upon receipt of any notice from the Company of the happening of
any event of the kind described in paragraphs 4(f) or 4(g), immediately
discontinue any sale or other disposition of Registrable Securities pursuant to
the Registration Statement until the filing of an amendment or supplement as
described in paragraph 4(f) or withdrawal of the stop order referred to in
paragraph 4(g);
(c) in the event of an underwritten offering of the Registrable
Securities, enter into a customary and reasonable underwriting agreement and
execute such other documents as the managing underwriter for such offering may
reasonably request;
(d) to the extent required by applicable law, deliver a prospectus to
the purchaser of Registrable Securities;
(e) notify the Company when it has sold all of the Registrable
Securities theretofore held by it; and
(f) promptly notify the Company in the event that any information
supplied by such Holder in writing for inclusion in the Registration Statement
or related prospectus is untrue or omits to state a material fact required to be
stated therein or necessary to make such information not misleading in light of
the circumstances then existing.
6. INDEMNIFICATION.
In the event that any Registrable Securities are included in a Registration
Statement under this Agreement:
(a) To the extent permitted by law, the Company shall indemnify and
hold harmless each Holder, the officers, directors, employees and agents of such
Holder, and each person, if any, who controls such Holder within the meaning of
the Securities Act or the Securities Exchange Act of 1934, as amended (the "1934
----
Act"), against any losses, claims, damages, liabilities or reasonable out-of-
---
pocket expenses (whether joint or
147
several) (collectively, including legal or other expenses reasonably incurred in
connection with investigating or defending same, "Losses"), insofar as any such
------
Losses arise out of or are based upon (i) any untrue statement or alleged untrue
statement of a material fact contained in such Registration Statement, including
any preliminary prospectus, if any, or final prospectus contained therein or any
amendments or supplements thereto, or (ii) the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading. Subject to the provisions of paragraph 6(c) below, the
Company will reimburse such Holder, and each such officer, director, employee,
agent or controlling person for any legal or other expenses as reasonably
incurred by any such entity or person in connection with investigating or
defending any Loss; provided, however, that the foregoing indemnity shall not
apply to amounts paid in settlement of any Loss if such settlement is effected
without the consent of the Company (which consent shall not be unreasonably
withheld), nor shall the Company be obligated to indemnify any person for any
Loss to the extent that such Loss arises out of or is based upon and in
conformity with written information furnished by such person expressly for use
in such Registration Statement; and provided, further, that the Company shall
not be required to indemnify any person to the extent that any Loss results from
such person selling Registrable Securities (i) to a person to whom there was not
sent or given, at or prior to the written confirmation of the sale of such
shares, a copy of the prospectus, as most recently amended or supplemented, if
the Company has previously furnished or made available copies thereof or (ii)
during any period following written notice by the Company to such Holder of an
event described in paragraph 4(f) or 4(g).
(b) To the extent permitted by law, each Holder, acting severally and
not jointly, shall indemnify and hold harmless the Company, the officers,
directors, employees, agents and representatives of the Company, and each
person, if any, who controls the Company within the meaning of the Securities
Act or the 1934 Act, against any Losses to the extent (and only to the extent)
that any such Losses arise out of or are based upon and in conformity with
written information furnished by such Holder expressly for use in such
Registration Statement; and such Holder will reimburse any legal or other
expenses as reasonably incurred by the Company and any such officer, director,
employee, agent, representative, or controlling person, in connection with
investigating or defending any such Loss; provided, however, that the foregoing
indemnity shall not apply to amounts paid in settlement of any such Loss if such
settlement is effected without the consent of such Holder, which consent shall
not be unreasonably withheld; provided, that, in no event shall any indemnity
under this paragraph 6(b) exceed the net proceeds resulting from the sale of the
Registrable Securities sold by such Holder under the Registration Statement.
(c) Promptly after receipt by an indemnified party under this Section
6 of notice of the commencement of any action (including any governmental
action), such indemnified party will, if a claim in respect thereof is to be
made against any indemnifying party under this Section 6, deliver to the
indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in and to assume the
defense thereof with counsel mutually satisfactory to the
148
parties; provided, however, that an indemnified party shall have the right to
retain its own counsel, with the reasonably incurred fees and expenses of one
such counsel to be paid by the indemnifying party, if representation of such
indemnified party by the counsel retained by the indemnifying party would be
inappropriate under applicable standards of professional conduct due to actual
or potential conflicting interests between such indemnified party and any other
party represented by such counsel in such proceeding. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action, to the extent prejudicial to its ability to
defend such action, shall relieve such indemnifying party of any liability to
the indemnified party under this Section 6 with respect to such action, but the
omission so to deliver written notice to the indemnifying party will not relieve
it of any liability that it may have to any indemnified party otherwise than
under this Section 6 or with respect to any other action unless the indemnifying
party is materially prejudiced as a result of not receiving such notice.
(d) In the event that the indemnity provided in paragraph 6(a) or 6(b)
is unavailable or insufficient to hold harmless an indemnified party for any
reason, the Company and each Holder agree, severally and not jointly, to
contribute to the aggregate Losses to which the Company or such Holder may be
subject in such proportion as is appropriate to reflect the relative fault of
the Company and such Holder in connection with the statements or omissions which
resulted in such Losses; provided, however, that in no case shall such Holder be
responsible for any amount in excess of the proceeds resulting from the sale of
the Registrable Securities sold by it under the Registration Statement. Relative
fault shall be determined by reference to whether any alleged untrue statement
or omission relates to information provided by the Company or by such Holder.
The Company and each Holder agree that it would not be just and equitable if
contribution were determined by pro rata allocation or any other method of
allocation which does not take account of the equitable considerations referred
to above. Notwithstanding the provisions of this paragraph 6(d), no person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to indemnification or contribution from
any person who is not guilty of fraudulent misrepresentation. For purposes of
this Section 6, each person who controls a Holder within the meaning of either
the Securities Act or the Exchange Act and each officer, director, employee or
agent of such Holder shall have the same rights to contribution as such Holder,
and each person who controls the Company within the meaning of either the
Securities Act or the Exchange Act and each officer, director, employee or agent
of the Company shall have the same rights to contribution as the Company,
subject in each case to the applicable terms and conditions of this paragraph
6(d).
(e) The obligations of the Company and each Holder under this Section
6 shall survive the conversion of the Series D Junior Preferred Stock and
exercise of the Preferred Exchange Warrant in full, the completion of any
offering of Registrable Securities pursuant to a Registration Statement under
this Agreement, or otherwise.
7. REPORTS.
149
With a view to making available to each Holder the benefits of Rule 144
under the Securities Act ("Rule 144") and any other similar rule or regulation
--------
of the Commission that may at any time permit such Holder to sell securities of
the Company to the public without registration, the Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144;
(b) file with the Commission in a timely manner all reports and other
documents required to be filed by the Company under the Securities Act and the
1934 Act; and
(c) furnish to such Holder, so long as such Holder owns any
Registrable Securities, forthwith upon written request (i) a written statement
by the Company, if true, that it has complied with the reporting requirements of
Rule 144, and the 1934 Act, (ii) to the extent not publicly available through
the Commission's XXXXX database, a copy of the most recent annual or quarterly
report of the Company and such other reports and documents so filed by the
Company, and (iii) such other information as may be reasonably requested in
availing such Holder of any rule or regulation of the Commission which permits
the selling of any such securities without registration.
8. MISCELLANEOUS.
(a) Expenses of Registration. All expenses, other than underwriting
------------------------
discounts and commissions and fees and expenses of one counsel to the Holders,
incurred in connection with the registrations, filings or qualifications
described herein, including (without limitation) all registration, filing and
qualification fees, printers' and accounting fees, the fees and disbursements of
counsel for the Company, and the fees and disbursements incurred in connection
with the opinion and letter described in paragraph 4(h) hereof, shall be borne
by the Company.
(b) Amendment; Waiver. Any provision of this Agreement may be amended only
--------- ------
pursuant to a written instrument executed by the Company and each Holder. Any
waiver of the provisions of this Agreement may be made only pursuant to a
written instrument executed by the party against whom enforcement is sought. Any
amendment or waiver effected in accordance with this paragraph shall be binding
upon each Holder, each future Holder, and the Company. The failure of any party
to exercise any right or remedy under this Agreement or otherwise, or the delay
by any party in exercising such right or remedy, shall not operate as a waiver
thereof.
(c) Notices. Any notice, demand or request required or permitted to be
-------
given by any party to any other party pursuant to the terms of this Agreement
shall be in writing and shall be deemed given (i) when delivered personally or
by verifiable facsimile transmission (with an original to follow) on or before
5:00 p.m., mountain time, on a Business Day or, if such day is not a Business
Day, on the next succeeding Business Day,
150
(ii) on the next Business Day after timely delivery to a nationally-recognized
overnight courier and (iii) on the day actually received after deposit in the
U.S. mail (certified or registered mail, return receipt requested, postage
prepaid), addressed to the parties as follows:
If to the Company:
XXXX Interactive Services, Inc.
0000 Xxxxxxx, Xxxxx 000
Xxxxxx, Xxxxxxxx 00000
Telecopy: (000)000-0000
Attention: Xxxxxxx X. Xxxxxx
with a copy to:
Xxxx, Plant, Xxxxx, Xxxxx & Xxxxxxx, P.A.
3400 City Center
00 Xxxxx Xxxxx Xxxxxx
Xxxxxxxxxxx, XX 00000-0000
Telecopy: (000) 000-0000
Attention: Xxxxxxx X. Xxxxxxx, Esq.
and if to any Holder, to such address as shall be designated by such Holder in
writing to the Company.
(d) Termination. This Agreement shall terminate on the earlier to occur of
-----------
(a) the end of the Registration Period and (b) the date on which all of the
Registrable Securities have been publicly distributed; but any such termination
shall be without prejudice to (i) the parties' rights and obligations arising
from breaches of this Agreement occurring prior to such termination and (ii) the
indemnification and contribution obligations under this Agreement.
(e) Assignment. Upon the transfer of the Series D Junior Preferred Stock,
----------
the Preferred Exchange Warrant or Registrable Securities by a Holder, the rights
of such Holder hereunder with respect to the securities so transferred shall be
assigned automatically to the transferee thereof as long as: (i) the Company is,
within a reasonable period of time following such transfer, furnished with
written notice of the name and address of such transferee, (ii) the transferee
agrees in writing with the Company to be bound by all of the provisions hereof
and (iii) such transfer is made in accordance with the applicable requirements
of the Exchange Agreement, the Series D Junior Preferred Stock or the Preferred
Exchange Warrant, as the case may be; provided, however, that the registration
rights granted in this Agreement shall not be transferred to any person or
entity that receives any such security pursuant to an effective registration
statement under the Securities Act or pursuant to a transaction under Rule 144
or any successor provision thereto.
151
(f) Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, and all of which
together shall be deemed one and the same instrument. This Agreement, once
executed by a party, may be delivered to any other party hereto by facsimile
transmission.
(g) Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of Colorado without regard to the conflict
of laws provisions thereof.
* * * * *
152
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date
first-above written.
XXXX INTERACTIVE SERVICES, INC.
By: _________________________________
Name: Xxxxxxx X. Xxxxxx
Title: CEO
CASTLE CREEK TECHNOLOGY PARTNERS LLC
By: CASTLE CREEK PARTNERS, L.L.C.
Its: Investment Manager
By: _________________________________
Xxxxxx X. Xxxx, Managing Director
153
EXHIBIT H
TO EXCHANGE AGREEMENT
Xxxxxxx X. Xxxxxxx
000 000-0000
Xxxxxxx.Xxxxxxx@xxxxxx.xxx
January 31, 0000
Xxxxxx Xxxxx Technology Partners LLC
000 Xxxx Xxxxxxx Xxxx.
Xxxxx 0000
Xxxxxxx, XX 00000
Re: Xxxx Interactive Services, Inc.
Exchange Agreement dated as of January 17, 2002
Ladies and Gentlemen:
Reference is made to the Exchange Agreement, dated as of January 17, 2002,
with all listed schedules and exhibits thereto (the "Exchange Agreement"), by
and between Xxxx Interactive Services, Inc., a Colorado corporation (the
"Company"), and Castle Creek Technology Partners LLC ("Castle Creek"). This
opinion is rendered to you pursuant to Section 5.1.8/5.2.8/5.3.8 of the Exchange
Agreement. Unless the context otherwise requires, terms used herein have the
meaning set forth in the Exchange Agreement.
We have acted as counsel for the Company in connection with the
negotiation, execution and delivery by the Company of the Exchange Agreement,
the Series D Articles of Amendment, the Preferred Exchange Warrant, the Amended
A Warrant and the Amended C Warrant, and the issuance of the Series D Junior
Convertible Preferred Stock to Castle Creek. As such counsel, we have made such
legal and factual examinations and inquiries, as we have deemed advisable or
necessary for the purpose of rendering this opinion. In addition, we have
examined originals, certified copies or copies otherwise identified to us as
being true copies of the following (herein sometimes collectively referred to as
the "Offering Documents"):
(a) the Articles of Incorporation of the Company as amended and in effect
on the date hereof (the "Articles of Incorporation"), as amended by
the Series D Articles of Amendment;
(b) the Bylaws of the Company, as in effect on the date hereof (the
"Bylaws");
(c) resolutions of the Board of Directors relating to the transactions
contemplated by the Exchange Agreement, the Series D Articles of
Amendment, the Preferred Exchange Warrant, the Amended A Warrant and
the Amended C Warrant;
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(d) the Exchange Agreement, between the Company and Castle Creek, the
Series D Articles of Amendment, the Preferred Exchange Warrant, the
Amended A Warrant, the Amended C Warrant, and the other documents
delivered by the Company in connection with the Exchange and
(e) Such other instruments, corporate records, certificates, and other
documents as we have deemed necessary as a basis for the opinions
hereinafter expressed.
We have investigated questions of law, examined the Disclosure Documents,
other documents pertaining to the Company and certificates of governmental
authorities; and received information from officers of the Company, as we have
deemed necessary or appropriate for purposes of providing this letter. In
reaching the opinions and statements set forth below, we have assumed without
independent verification by us, and to our knowledge there are no facts
inconsistent with, the following:
(i) The accuracy of the representations made in the Exchange Agreements;
(ii) that each of the parties thereto (other than the Company) has duly
and validly executed each document and instrument to which such party
is a signatory, and such party's obligations set forth therein are
its legal, valid, and binding obligations, enforceable against such
party (other than the Company) in accordance with the respective
terms of such document or instrument;
(iii) that each person executing any such document or instrument on behalf
of any such party (other than the Company) is duly authorized to do
so;
(iv) that each natural person executing any such document or instrument is
legally competent to do so; and
(v) that all documents, instruments, and certificates submitted to us as
originals are authentic; that all documents, instruments and
certificates submitted to us as copies conform to the originals; and
that the signatures on all such documents, instruments and
certificates are genuine.
Opinion
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Based upon and subject to the matters, assumptions, exceptions,
qualifications and limitations set forth above and herein under the heading
"Scope" we are of the opinion that:
1. Each of the Company and each of its subsidiaries is duly organized,
validly existing and in good standing under the laws of the jurisdiction
of its incorporation or organization and has all requisite corporate
power and authority to carry on its business as now conducted. Each of
the Company and its subsidiaries is duly qualified to transact business
and is in good standing in each jurisdiction in which the failure so to
qualify could have a Material Adverse Effect.
2. The Company has the requisite corporate power and authority to enter
into and perform its obligations under (i) the Exchange Agreement, (ii)
the Series D Articles of Amendment, (iii) the Preferred Exchange
Warrant, (iv) the Amended A
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Warrant, (v) the Amended C Warrant, and (vi) all other agreements,
documents, certificates or other instruments executed and delivered by
the Company at the Exchange (the instruments described in (i), (ii),
(iii), (iv), (v) and (vi) being collectively referred to herein as the
"Transaction Documents"), to issue and exchange shares of Series D
---------------------
Junior Preferred Stock for Series C-1 Preferred Stock in accordance with
the terms of the Exchange Agreement, to issue Conversion Shares in
accordance with the terms of Series D Junior Preferred Stock and the
Warrants.
3. All corporate action on the part of the Company by its officers,
directors and stockholders necessary for the authorization, execution
and delivery of, and the performance by the Company of its obligations
under, the Transaction Documents has been taken.
4. The authorized capital stock of the Company and Jabber is as stated in
Schedule 3.6 of the Exchange Agreement. All of the outstanding shares of
the Company's and Jabber's capital stock have been duly issued and fully
paid and are non-assessable.
5. The Transaction Documents constitute valid and legally binding
obligations of the Company, enforceable in accordance with their
respective terms. The Series D Articles of Amendment have been duly
filed with the Colorado Secretary of State and upon issuance, the Series
D Junior Preferred Stock will be entitled to the rights, privileges and
benefits thereunder.
6. No consent, approval, authorization of, or order, designation,
declaration, or filing with, any governmental authority on the part of
the Company is required in connection with the valid execution and
delivery of the Exchange Agreement, the offer, sale, or issuance of the
Series D Preferred Stock, the Warrants or the issuance of Conversion
Shares or the performance of the Company's obligations under the
Exchange Agreement, the Series D Articles of Amendment and the Warrants
except (i) qualification (or taking such actions as may be necessary to
secure an exemption for qualification, if available) under applicable
blue sky laws of the offer and sale of the Series D Preferred Stock and
(ii) the filing of a Current Report on Form 8-K within the time period
prescribed by such Form.
7. Neither the Company nor any of its subsidiaries is in violation of any
provisions of its Articles of Incorporation, Bylaws or any other
governing document as amended and in effect on and as of the date hereof
or in default or breach (and no event has occurred which, with notice or
lapse of time or both, would constitute a default or breach) under any
provision of any instrument or contract known to us to which it is a
party or by which it is bound, or in violation of any provision of any
Federal, state or foreign judgment, writ, decree, order, statute, rule
or governmental regulation applicable to the Company, which,
individually or in the aggregate, could have a Material Adverse Effect.
The execution, delivery and performance of the Exchange Agreement and
the other Transaction Documents, the adoption of the Series D Articles
of Amendment and the consummation of the transactions contemplated
thereby (including without limitation, the issuance of the Series D
Preferred Stock and the Warrants and the reservation for issuance and
issuance of the Conversion Shares will not in any such case result in
any such violation or be in conflict with or constitute, with or without
the passage of time and giving of notice, either a default or breach
under any such provision, instrument or contract or any event which
results in the creation of any lien, charge or encumbrance upon any
assets of the Company or
156
of any of its subsidiaries or the triggering of any preemptive or anti-
dilution rights or rights of first refusal, or first offer on the part
of holders of the Company's or any of its subsidiaries' securities or
give to any others any rights of termination, amendment, acceleration
or cancellation of any agreement, indenture or instrument to which the
Company or any of its subsidiaries is a party.
8. Except as set forth on Schedule 3.6 of the Exchange Agreement, no
shares of the Company's or Jabber's stock are subject to preemptive
rights or any other similar rights of the stockholders of the Company
or Jabber, and there are no outstanding options, warrants, scrip,
rights to subscribe for, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into, any
shares of capital stock of the Company or Jabber or any of their
subsidiaries, or contracts, commitments, understandings, or
arrangements by which the Company or Jabber or any of their
subsidiaries is or may become bound to issue additional shares of
capital stock of the Company or Jabber or any of their subsidiaries.
Neither the Company nor Jabber has any share purchase agreements,
rights plans or agreements containing similar provisions or any
agreements containing anti-dilution provisions. In addition, the
Company and Jabber have no subsidiaries, except as provided on such
Schedule 3.6.
9. The Registration Statement numbered 333-57442 declared effective
December 4, 2001 is available for the resale by Castle Creek of
1,000,000 Conversion Shares issuable upon the conversion of the shares
of Series C-1 Preferred Stock, 150,116 Conversion Shares issuable upon
the exercise of the Amended A Warrant and 500,000 Conversion Shares
issuable upon the exercise of the Amended C Warrant. [For the opinion
to be delivered at the Second Exchange, add "A registration statement
is available for the resale by Castle Creek of up to 1,000,000
Conversion Shares with respect to the Series D Junior Preferred Stock
to be issued in exchange for shares of Series C-1 Preferred Stock at
the Second Exchange.]
10. For purposes of Rule 144 under the Securities Act of 1933, as amended
(the "Securities Act"), Castle Creek will be deemed to have held the
Conversion Shares issuable upon the conversion of shares of Series D
Junior Preferred Stock issued in exchange for shares of Series C-1
Preferred Stock from the date of the purchase of the shares of Series
C-1 Preferred Stock, to have held the Conversion Shares issuable upon
any cashless exercise of the Amended A Warrant from the date of
purchase of A Warrant, to have held the Conversion Shares issuable upon
any cashless exercise of the Amended C Warrant from the date of
purchase of the C Warrant and to have held the Conversion Shares
issuable upon the conversion of the Series D Junior Preferred Stock
issued in exchange for the 1999 Note from the date of purchase of the
1999 Note. [In Third Exchange opinion, add "Any Conversion Shares
issuable upon the conversion of the Series D Junior Preferred Stock
issued in exchange for the 1999 Note upon issuanace can be resold by
Castle Creek without limitations as to volume or manner of sale and
without any requirement to deliver a prospectus in connection with such
resale.]
11. The Company has validly reserved _________ shares of Common Stock for
issuance pursuant to the terms of the Series D Articles of Amendment.
When issued to Castle Creek therefor in accordance with the terms of
the Exchange Agreement, each share of Series D Preferred Stock will be
duly authorized and validly issued, fully paid, and nonassessable and
will be free and clear of any security interest, taxes, liens, claims,
157
encumbrances, or preemptive or similar rights. The Conversion Shares
are duly authorized and reserved for issuance and, when issued in
accordance with the terms of the Series D Articles of Amendment and the
Warrants will be validly issued, fully paid and nonassessable, free and
clear of any security interest, taxes, liens, claims, encumbrances, or
preemptive or similar rights.
12. The Company's Common Stock is currently listed for trading on the
Nasdaq National Market and we are aware of no fact or circumstance
which could result in the Common Stock being delisted or suspended from
trading on such market that has not been publicly disclosed. The
Company has made all necessary filings and notifications with, and has
obtained all necessary approvals from, Nasdaq (and all appropriate time
periods with respect to any such filings, notifications and approvals
have been complied and expired with prior to the date hereof or a
written waiver with respect thereto has been obtained) with respect to
the transactions contemplated by the Transaction Documents, including,
without limitation, the issuance of the Securities and the listing of
the Conversion Shares on Nasdaq.
13. To our knowledge, there are no actions, suits, proceedings,
investigations or inquiries pending against the Company, any of its
subsidiaries or any of their respective directors or officers in their
capacities as such, before any court or governmental or self-regulatory
agency which could have a Material Adverse Effect.
14. The Exchanges in accordance with the Exchange Agreement and the
issuance of the Conversion Shares in accordance with the Series D
Articles of Amendment and Warrants are exempt from the registration
requirements of Section 5 of the Securities Act of 1933, as amended.
15. The instructions from the Company to its transfer agent, a copy of
which are delivered to you under Section 5.3.7 of the Exchange
Agreement are valid and enforceable.
16. To our knowledge, the conditions expressed in Section 5.1/5.2/5.3 of
the Exchange Agreement have been satisfied.
17. In the process of our review of the Company's Annual Report on Form 10-
KSB for the year ended December 31, 2000 and any other reports filed by
the Company pursuant to Sections 13 or 15(d) of the Securities Exchange
Act of 1934, as amended, since the date of the filing of such Form 10-
KSB, nothing has come to our attention that would lead us to believe
that any such report contains any untrue statement of a material fact
or omitted or omits to state a material fact necessary in order to make
the statements therein, in the light of circumstances under which they
were made, not misleading as of its filing date.
Scope
-----
The foregoing opinion and statement of confirmation are subject to the
following limitations and qualifications:
(i) Whenever our opinions or statements expressed herein are qualified by
or use the phrases "to our knowledge," "known to us," "based on our
knowledge" or words
158
of like import, it indicates that during the course of our
representation of the Company and after inquiry limited as described
in this letter with respect to the subject matter of any such opinion
or statement, no information has come to our attention, which would
give us knowledge of the existence or nonexistence of relevant facts.
No inference as to our knowledge of the existence or nonexistence of
any facts should or may be drawn merely from the fact that we
represent the Company. Except as otherwise expressly stated, no
independent investigation or verification of such matters has been
undertaken and we have not reviewed any court or other public
records.
(ii) Our attorneys are admitted to practice only in the State of
Minnesota. The foregoing opinions assume that for the purpose of
those opinions that are based on the laws of the State of Colorado
(other than the Colorado Business Corporation Act (the "CBCA")) or
the State of New York, that such laws are the same as the State of
Minnesota. We are not members of the Bar of the State of Colorado or
New York and we have not consulted with Colorado or New York counsel,
or otherwise made any inquiry regarding, or review of, Colorado or
New York law (other than the CBCA) in connection with the opinions
expressed above. We render no opinion as to the enforceability of any
choice of law provision.
(iii) The foregoing opinions including, without limitation, any opinion as
to enforceability of the Exchange Agreement or any other agreement is
limited by (A) the effect of bankruptcy, insolvency, reorganization,
arrangement, moratorium, fraudulent conveyance, transfer or other
similar laws affecting or relating to the rights of creditors or
secured creditors generally, (B) general principles of equity
(regardless of whether such enforceability is considered in a
proceeding in equity or at law), (C) judicial limitations on the
right of specific performance and other equitable remedies and (D)
the enforceability of indemnification or contribution provisions
thereof to the extent it may be limited by federal or state
securities laws or by public policy.
This letter contains our opinions and statements of confirmation only and
we express no opinion as to the truth or accuracy of any representation,
warranty or statement made by any person or entity in the Transaction Documents.
The opinions and statements of confirmation expressed in this letter are limited
to the matters expressly set forth above, and no opinion or statement is to be
inferred or may be implied beyond that expressly so stated.
The opinions and statements expressed above are rendered solely to Castle
Creek and may be relied upon by Castle Creek solely in connection with the
transactions identified in the first paragraph hereof. The opinions and
statements expressed in this letter are not to be used, circulated, reproduced,
quoted or otherwise relied upon by third parties without our prior written
consent.
This letter is limited to the specific issues addressed and is limited in
all respects to laws and facts existing on the date of this letter or earlier
date stated herein, and we expressly disclaim any responsibility for notifying
you of any changes which may occur after the date hereof which would or may
affect this letter.
Very truly yours,
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EXHIBIT I
TO EXCHANGE AGREEMENT
[LETTERHEAD OF XXXX INTERACTIVE SERVICES, INC.]
___ ____, 2002
TRANSFER AGENT
ADDRESS
Attn: Stock Transfer Dept.
Dear Ladies and Gentlemen:
Reference is made to that certain Exchange Agreement (the "Exchange Agreement"),
------------------
a copy of which is enclosed, dated as of January 17, 2002, by and between Xxxx
Interactive Services, Inc., a Colorado corporation (the "Company"), and Castle
-------
Creek Technology Partners LLC ("Castle Creek"), pursuant to which the Company is
issuing to Castle Creek 1,984 shares of Series D Junior Preferred Stock (as
defined in the Exchange Agreement) in exchange for $1,212,192 in principal
amount of the 1999 Note currently held by Castle Creek. Shares of common stock
("Common Stock"), no par value per share, of the Company issuable upon
------------
conversion of the Series D Junior Preferred Stock are hereinafter referred to as
"Conversion Shares". This letter shall serve as our irrevocable authorization
-----------------
and direction to you with respect to the issuance of Conversion Shares.
Certificates for the Conversion Shares shall not bear any legend restricting
their transfer and shall not be subject to any stop-transfer restriction
Please be advised that Castle Creek is relying upon this letter as an inducement
to enter into the Exchange Agreement and, accordingly, it is agreed that Castle
Creek is a third party beneficiary of these instructions. Moreover, the Company
cannot revoke or modify these instructions as to Castle Creek (or its
transferee) without the prior written consent of Castle Creek (or such
transferee, as the case may be). Please execute this letter in the space
indicated to acknowledge your agreement to act in accordance with these
instructions. Should you have any questions concerning this matter, please
contact me at (___) ___-____.
Very truly yours,
XXXX INTERACTIVE SERVICES, INC.
By: ______________________________________
Its: ______________________________________
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Agreed and Acknowledged as of ____ ___, 2002:
[NAME OF TRANSFER AGENT]
By: ______________________
Name: ______________________
Title: ______________________
Enclosures
cc: Castle Creek Technology Partners LLC
161
