THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OR
CONVERSION HEREOF (THE "SHARES") HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY
STATE OR OTHER JURISDICTION. NO INTEREST HEREIN OR IN THE SHARES MAY BE OFFERED,
SOLD, PLEDGED OR OTHERWISE TRANSFERRED UNLESS THERE IS AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT AND ALL OTHER APPLICABLE SECURITIES LAWS
COVERING ANY SUCH TRANSACTION OR THE COMPANY RECEIVES AN OPINION OF LEGAL
COUNSEL FOR THE HOLDER HEREOF (CONCURRED IN BY COUNSEL FOR THE COMPANY) STATING
THAT SUCH TRANSACTION IS EXEMPT FROM REGISTRATION OR THE COMPANY OTHERWISE
SATISFIES ITSELF THAT SUCH TRANSACTION IS EXEMPT FROM REGISTRATION.
ONLINE SPECIALTY RETAILING, INC.
COMMON STOCK PURCHASE WARRANT
Warrant No. 103 August 23, 1998
1. Number and Price of Shares Subject to Warrant. Subject to the terms and
conditions herein set forth, First Portland Corporation is entitled to purchase
from Online Specialty Retailing, Inc., a Washington corporation (the "Company"),
upon surrender hereof at the principal office of the Company and payment of the
purchase price at said office in cash or by check, 2,858 shares of common stock
of the Company (the "Shares") at a purchase price of $1.75 per Share. The
purchase price of one Share and the number of Shares purchasable upon exercise
of this Warrant are subject to adjustment as hereinafter provided. The purchase
price of one Share payable from time to time upon the exercise of this Warrant
(whether such price be the price specified above or an adjusted price determined
as hereinafter provided) is referred to herein as the "Warrant Price."
This Warrant shall remain exercisable pursuant to the provisions of
Section 5 until the earlier of (a) 5:00 p.m. Pacific Time on August 23, 2008,
(b) the date on which he Company completes a firm commitment underwritten public
offering pursuant to an effective registration statement under the Securities
Act covering the offer and sale of Common Stock for the account of the Company
to the public with aggregate cash proceeds of not less than $10,000,000 (before
deduction of underwriting commissions and offering expenses), or (c) the date
this Warrant is terminated under Section 2(b) upon a "Change of Control." Such
date shall be referred to herein as the "Expiration Date."
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2. Adjustment of Warrant Price and Number of Shares.
(a) Stock Splits, Recapitalization. In the event that the
outstanding shares of Common Stock of the Company are increased or decreased or
changed into or exchanged for a different number or kind of shares or securities
of the Company or shares of a different par value, through recapitalization,
reclassification, stock split, amendment to the Company's Articles of
Incorporation or reverse stock split, the Board of Directors shall make an
appropriate and proportionate adjustment in the number of Shares purchased
hereunder and the Warrant Price per share.
(b) Change of Control. Upon the effective date of a Change of
Control of the Company, this Warrant shall terminate unless provisions be made
in writing, approved by the Board of Directors, in connection with such
transaction for the assumption of the Warrant theretofore granted, or the
substitution for this Warrant of a new Warrant covering the shares of a
successor corporation, or a parent or subsidiary thereof, with appropriate
adjustments as to number and kind of shares and prices, in which event this
Warrant shall continue in the manner and under the terms so provided. A "Change
of Control" of the Company shall mean (a) any sale, consolidation, merger or
recapitalization, the effect of which is a material change to the capital
structure of the Company, other than such a transaction in which the holders of
the Common Stock immediately prior to the transaction continue to hold a
majority in interest of the voting stock of the surviving corporation
immediately after that transaction, (b) any sale or other transfer of
substantially all of the assets of the Company, (c) the adoption of any plan or
proposal for liquidation or dissolution of the Company or (d) the consummation
of any other transaction the effect of which is to cause any person not with
power to direct or cause direction of the management or policies of the Company
prior thereto to gain such power.
3. Other Adjustments. Except as provided in Section 2, no adjustment on
account of distributions with respect to Shares will be made upon the exercise
hereof.
4. No Shareholder Rights. This Warrant shall not entitle its holder to any
of the rights of a shareholder of the Company until this Warrant is exercised.
5. Exercise of Warrant.
(a) Cash Payment. This Warrant may be exercised by the registered
holder or its permitted registered assigns, in whole or in part, by the
surrender of this Warrant at the principal office of the Company, accompanied by
an executed subscription form in the form attached hereto and payment in full of
the Warrant Price as described above by certified or cashier's check. Upon
partial exercise hereof, a new warrant or warrants containing the same date and
provisions as this Warrant shall be issued by the Company to the registered
holder for the number of Shares with respect to which this Warrant shall not
have been exercised. This Warrant (or any portion thereof) shall be deemed to
have been exercised immediately prior to the close of business on the date of
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its surrender for exercise as provided above, and the person entitled to receive
the Shares issuable upon such exercise shall be treated for all purposes as the
holder of such Shares of record as of the close of business on such date.
(b) Cashless Exercise.
(i) In addition to and without limiting the rights of the
holder of this Warrant under the terms of this Warrant, the holder of this
Warrant shall have the right (the "Conversion Right") to convert the entirety of
the vested portion of this Warrant into Shares ("Converted Warrant Shares") as
provided in this Section 5(b) at any time or from time to time prior to
expiration of this Warrant, subject to the restrictions set forth in Section
5(b)(iii) below. Upon exercise of the Conversion Right, the Company shall
deliver to the holder of this Warrant, without payment by the holder of any
exercise price or any cash or other consideration, that number of Shares equal
to the quotient obtained by dividing the Net Value (as hereinafter defined) of
the Shares subject to purchase hereunder by the fair market value (as defined in
Section 5(b)(iv) below) of a single Share, determined in each case as of the
close of business on the Conversion Date (as hereinafter defined). The "Net
Value" of the Shares shall be determined by subtraction of the aggregate Warrant
Price of the Shares from the aggregate fair market value of the Shares. No
fractional Shares shall be issuable upon exercise of the Conversion Right, and
if the number of Shares to be issued in accordance with the foregoing formula is
other than a whole number, the Company shall pay to the holder of this Warrant
an amount in cash equal to the fair market value of the resulting fractional
Share.
(ii) The Conversion Right may be exercised by the holder of
this Warrant by the surrender of this Warrant at the principal office of the
Company together with a written statement specifying that the holder thereby
intends to exercise the Conversion Right. Such conversion shall be effective
upon receipt by the Company of this Warrant together with the aforesaid written
statement, or on such later date as is specified therein (the "Conversion
Date"), but not later than the Expiration Date of this Warrant. Certificates for
the Shares issuable upon exercise of the Conversion Right, together with a check
in payment of any fractional share, shall be issued as of the Conversion Date
and shall be delivered to the holder of this Warrant within seven (7) days
following the Conversion Date.
(iii) If the Conversion Right is reasonably determined by the
Company or its accountants to give rise to a charge to the Company's earnings
for financial reporting purposes, then the Conversion Right shall automatically
terminate upon the Company's written notice to the holder of this Warrant of
such adverse accounting treatment.
(iv) For purposes of this Section 5(b), the "fair market
value" of a Share as of a particular date shall be determined by the Board of
Directors of the Company in good faith.
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(c) Certificate of Adjustment. Whenever the Warrant Price or the
number of Shares subject to this Warrant is adjusted, as herein provided, the
Company shall deliver to the record holder of this Warrant a notice setting
forth the Warrant Price and number of Shares after such adjustment and setting
forth a brief statement of the facts requiring such adjustment.
6. Registration Rights.
(a) Company Registration. If (but without any obligation to do so)
the Company proposes to register its common stock under the Securities Act of
1933, as amended (the "Securities Act") in connection with the public offering
of such securities solely for cash (other than registrations relating solely to
employee benefit plans on Form S-8 or any similar form that may be promulgated
in the future, registrations relating solely to a Commission Rule 145
transaction on Form S-4 or similar forms that may be promulgated in the future
or registrations on any form that does not include substantially the same
information as would be required to be included in a registration statement
covering the sale of the Shares), the Company shall, at each such time, promptly
give the holder of this Warrant written notice of such registration. Upon the
written request of the such holder given within twenty (20) days after the
mailing of such notice by the Company, the Company shall, subject to the
provisions of this Section 6, use its reasonable best efforts to cause to be
registered under the Securities Act all of the Shares that such holder has
requested to be registered. If a the holder of this Warrant decides not to
include all of its Shares in any registration statement filed by the Company,
such holder shall nevertheless continue to have the right to include any Shares
in any subsequent registration statement or registration statements as may be
filed by the Company with respect to offerings of its securities, all upon the
terms and conditions set forth herein. Notwithstanding the provisions of this
Section 6, the Company shall have the right at any time after it shall have
given written notice pursuant to this Section 6 (irrespective of whether any
written request for inclusion of such securities shall have already been made)
to elect not to file any such proposed registration statement, or to withdraw
the same.
(b) Obligations of the Company. Whenever required under this Section
6 to effect the registration of any Shares, the Company shall, as expeditiously
as reasonably possible:
(i) Prepare and file with the SEC a registration statement
with respect, to such Shares and use its reasonable best efforts to cause such
registration statement to become effective, and, upon the request of the holders
of a majority of all securities requested to be registered thereunder, keep such
registration statement effective for up to 90 days, provided, however, that the
Company may cease to keep such registration statement effective if, in the good
faith judgment of the Board of Directors of the Company, it would be seriously
detrimental to the Company and its shareholders to do so;
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(ii) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement;
(iii) Furnish to the holder of this Warrant such numbers of
copies of a prospectus, including a preliminary prospectus, in conformity with
the requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of all securities
covered by such registration statement;
(iv) Use its reasonable best efforts to register and qualify
the securities covered by such registration statement under such other
securities or "Blue Sky" laws of such jurisdictions as shall be reasonably
requested by the holder hereof, provided that the Company shall not be required
in connection therewith or as a condition thereto to qualify to do business or
to file a general consent to service of process in any such states or
jurisdictions;
(v) In the event of any underwritten public offering, enter
into and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering; and
(vi) Notify the holder of any Shares covered by such
registration statement, at any time when a prospectus relating thereto covered
by such registration statement is required to be delivered under the Securities
Act, of the happening of any event as a result of which the prospectus included
in such registration statement, as then in effect, includes an untrue statement
of a material fact or omits to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in the light
of the circumstances then existing.
(c) Holder's Obligation to Furnish Information. It shall be a
condition precedent to the obligations of the Company to take any action
pursuant to this Section 6, that the holder hereof shall furnish to the Company
such information regarding itself, the Shares held by it and the intended method
of disposition of such securities as shall be reasonably required to effect the
registration of its Shares and to execute such documents in connection with such
registration as the Company may reasonably request.
(d) Expenses of Registration. Except as provided otherwise, all
reasonable expenses other than underwriting discounts and commissions and fees
and expenses of counsel to the holder incurred in connection with the
underwriting, registrations, filings or qualifications pursuant to Section 6,
including, without limitation, all registration, filing and qualification fees,
printing and accounting fees, and the fees and disbursements of counsel for the
Company shall be borne by the Company; provided, however, that the expenses paid
by the Company in connection with exercise of rights to registration pursuant to
this Section 6 shall be limited to those usual and customary
5
expenses associated with a nonunderwritten offering. In all cases the selling
holder shall bear the expenses of any underwriting discounts and expenses
relating to its Shares and the fees and disbursements of counsel or other
advisers engaged by such holder in connection with a registration.
Underwriting Requirements. The Company shall not be required under Section 6 to
include any of the holder's securities in an underwritten offering of the
Company's securities unless such holder accepts the terms of the underwriting as
agreed upon between the Company and the underwriters selected by it, assuming
usual and customary underwriting terms. If the total amount of securities
requested by shareholders to be included in such offering exceeds the amount of
securities that the underwriters reasonably believe compatible with the success
of the offering, then the Company shall be required to include in the offering
only that number of such securities which the underwriters reasonably believe
are compatible with the success of the offering. In such event the securities so
included will be apportioned first to the Company, then pro rata among the
selling shareholders according to the total amount of securities otherwise
entitled to be included therein owned by each selling shareholder or in such
other proportions as shall mutually be agreed to by such selling shareholders.
No such reduction shall reduce the securities being offered by the Company for
its own account to be included in the registration and underwriting.
(e) Delay of Registration. The holder hereof shall not have any
right to obtain or seek an injunction restraining or otherwise delaying any such
registration as the result of any controversy that might arise with respect to
the interpretation or implementation of this Warrant.
(f) Indemnification. In the event any Shares are included in a
registration statement under this Agreement:
(i) To the extent permitted by law, the Company will indemnify
and hold harmless the holder hereof, the partners, officers, agents, employees
and directors of such holder, any underwriter (as defined in the Securities Act)
for such holder and each person, if any, who controls such holder or underwriter
within the meaning of the Securities Act or the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), against any losses, claims, damages or
liabilities (joint or several) to which they may become subject under the
Securities Act, the Exchange Act or other federal or state law, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon any of the following statements, omissions or violations
(each a "Violation"): (i) any untrue statement or alleged untrue statement of a
material fact contained in such registration statement, including any
preliminary prospectus or final prospectus contained therein in light of the
circumstances under which they were made, or any amendments or supplements
thereto, (ii) the omission or alleged omission to state therein a material fact
required to be stated therein, or necessary to make the statements therein not
misleading, or (iii) any violation or alleged violation by
6
the Company of the Securities Act, the Exchange Act, any state securities law or
any rule or regulation promulgated under the Securities Act, the Exchange Act or
any state securities law; and the Company will reimburse each such holder,
partner, officer, agent, employee or director, underwriter or controlling person
for any legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the indemnity agreement contained in this Section
6(g)(i) shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability or action if such settlement is effected without the consent
of the Company, which consent shall not be unreasonably withheld, nor shall the
Company be liable in any such case for any such loss, claim, damage, liability
or action to the extent that it arises out of or is based upon a Violation which
occurs in reliance upon and in conformity with written information furnished
expressly for use in connection with such registration by, or on behalf of, any
such holder, underwriter or controlling person.
(ii) To the extent permitted by law, the holder hereof shall
indemnify and hold harmless the Company, each of its officers, directors, agents
or employees, each person, if any, who controls the Company within the meaning
of the Securities Act, any underwriter and any other shareholder selling
securities in such registration statement or any of its partners, agents,
employees, directors or officers or any person who controls such shareholder,
against any losses, claims, damages or liabilities (joint or several) to which
the Company or any such director, partner, agent, employee, officer, controlling
person, or underwriter, or such other shareholder or director, officer, partner,
agent, employee or controlling person of such other shareholder may become
subject, under the Securities Act, the Exchange Act or other federal or state
law, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any Violation, in each case to
the extent (and only to the extent) that such Violation occurs in reliance upon
and in conformity with written information furnished by, or on behalf of, such
holder; and such holder will reimburse any legal or other expenses reasonably
incurred by the Company or such other shareholder or any such partner, agent,
employee, director, officer, controlling person, or underwriter, in connection
with investigating, preparing or defending any such loss, claim, damage,
liability or action; provided, however, that the indemnity agreement contained
in this Section 6(g)(ii) shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability or action if such settlement is effected
without the consent of the holder against whom indemnity is sought, which
consent shall not be unreasonably withheld; and provided, further, that the
holder shall be liable, under this Section 6(g)(ii) for only that amount of
losses, claims, damages and liabilities as does not exceed the proceeds to such
holder as a result of such registration.
(iii) Promptly after receipt by an indemnified party under
this Section 6(g) of notice of the commencement of any action (including any
governmental action), such indemnified party shall, if a claim in respect
thereof is to be made against any indemnifying party under this Section 6(g),
deliver to the indemnifying party a
7
written notice of the commencement thereof and the indemnifying party shall have
the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly notified, to assume
the defense thereof with counsel mutually satisfactory to the parties; provided,
however, that an indemnified party shall have the right to retain its own
counsel, with the fees and expenses to be paid by the indemnifying party, if, in
the opinion of counsel for the indemnifying party, representation of such
indemnified party by the counsel retained by the indemnifying party would be
inappropriate due to actual or potential differing 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 thirty (30) days of the commencement of any such action shall relieve
such indemnifying party of any liability to the indemnified party under this
Section 6(g) to the extent materially prejudicial to its ability to defend 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(g).
(iv) If the indemnification provided for in this Section 6(g)
is held by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any expenses, losses, claims, damages or liabilities
referred to herein, the indemnifying party, in lieu of indemnifying such
indemnified party thereunder, shall to the extent permitted by applicable law
contribute to the amount paid or payable by such indemnified party as a result
of such loss, claim, damage or liability, in such proportion as is appropriate
to reflect the relative fault of the indemnifying party on the one hand and of
the indemnified party on the other in connection with the Violation(s) that
resulted in such expense, loss, claim, damage or liability, as well as any other
relevant equitable considerations. The relative fault of the indemnifying party
and of the indemnified party shall be determined by a court of law by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission to state a material fact relates to information
supplied by the indemnifying party or by the indemnified party and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission; provided, that in no event shall any
contribution by a holder hereunder exceed the net proceeds from the offering
received by such holder.
(v) The obligations of the Company and holder under this
Section 6(g) shall survive completion of any offering of Shares in a
registration statement. No indemnifying party, in the defense of any such claim
or litigation, shall, except with the consent of each indemnified party, consent
to entry of any judgment or enter into any settlement which does not include as
an unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect to such claim or
litigation.
(vi) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the underwriting
agreement
8
entered into in connection with the underwritten public offering are in conflict
with the foregoing provisions, the provisions in the underwriting agreement
shall control.
(g) Reports Under the Securities Act. With a view to making
available to the holder the benefits of SEC Rule 144 promulgated under the
Securities Act and any other rule or regulation of the SEC that may at any time
permit a holder to sell securities of the Company to the public without
registration, the Company agrees to:
(i) make and keep public information available, as those terms
are understood and defined in SEC Rule 144, at all times after the effective
date of the first registration statement filed by the Company under the
Securities Act for the offering of its securities to the general public;
(ii) file with the SEC in a timely manner all reports and
other documents required of the Company under the Securities Act and the
Exchange Act; and
(iii) furnish to the holder hereof, so long as the holder owns
any Shares, forthwith upon request (i) a written statement by the Company as to
its compliance with the reporting requirements of SEC Rule 144 (at any time
after 90 days after the effective date of the first registration statement filed
by the Company), the Securities Act and the Exchange Act (at any time after it
has become subject to such reporting requirements), (ii) 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 the holder of any rule or regulation of the SEC
which permits the selling of any such securities without registration.
(h) "Market Stand-Off" Agreement. The holder of this Warrant hereby
agrees that it shall not, to the extent requested by the Company as the
representative of the underwriter of Common Stock (or other securities) of the
Company, sell or otherwise transfer or dispose of any Shares for up to 180 days
following the effective date of a registration statement of the Company filed
under the Securities Act. In order to enforce the foregoing covenant, the
Company may impose stop-transfer instructions with respect to the Shares of the
holder (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period.
7. Transfer of Warrant. This Warrant may not be transferred by the holder
without the written consent of the Company (except by operation of law or to a
successor by merger, acquisition or other corporate reorganization) and
compliance with applicable federal and state securities laws to the satisfaction
of the Company.
8. Compliance with Securities Laws.
(a) The holder represents and agrees that this Warrant (and the
Shares, if the warrant is exercised) are purchased only for investment, for the
holder's own account,
9
and without any present intention to sell or distribute the Warrant or the
Shares. The holder further acknowledges that the Shares will not be issued
pursuant to the exercise of this Warrant unless the exercise of the Warrant and
the issuance and delivery of such Shares shall comply with all relevant
provisions of law, including, without limitation, the Securities Act and other
federal and state securities laws.
(b) The holder of this Warrant acknowledges and agrees that this
Warrant and the Shares have not been registered under the Securities Act or the
securities laws of any other jurisdiction and accordingly will not be
transferable except as permitted under the various exemptions contained in the
Securities Act, or upon satisfaction of the registration and prospectus delivery
requirements of the Securities Act. Therefore, the Warrant and Shares must be
held indefinitely unless they are subsequently registered under the Securities
Act and all other applicable securities or an exemption from such registration
is available. The holder understands that the certificates, if any, evidencing
the Shares will be imprinted with a legend which prohibits the transfer thereof
unless they are registered or unless the Company receives an opinion of counsel
reasonably satisfactory to the Company that such registration is not required.
The holder understands that a stop transfer instruction may be in effect with
respect to transfer of the Warrant and Shares consistent with the requirements
of the securities laws.
9. Miscellaneous. This Warrant shall be governed solely by the laws of the
State of Washington without regard to the conflicts of laws provisions thereof
to the contrary. The headings in this Warrant are for purposes of convenience
and reference only, and shall not be deemed to constitute a part hereof. Neither
this Warrant nor any term hereof may be changed, waived, discharged or
terminated except by an instrument in writing signed by the Company and the
registered holder hereof. All notices and other communications from the Company
to the holder of this Warrant shall be delivered in person or mailed
first-class, postage prepaid, to the address furnished to the Company in writing
by the last holder of this Warrant who shall have furnished an address to the
Company in writing. Each such notice or other communication shall for all
purposes of this Warrant be treated as effective or having been given when
delivered if delivered personally, or, if sent by mail, at the earlier of its
receipt or 72 hours after the same has been deposited in a regularly maintained
receptacle for the deposit of the United States mail, addressed and mailed as
aforesaid.
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ISSUED this 23rd, day of August, 1998.
ONLINE SPECIALTY RETAILING, INC.
By: /s/ Xxxxxxxx X. Xxxxxx
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Xxxxxxxx X. Xxxxxx
Chairman
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SUBSCRIPTION FORM
(To be signed only upon exercise of Warrant)
To: Online Specialty Retailing, Inc.
0000 Xxxxx Xxxxxx, Xxxxx Xxxxx
Xxxxxxx, XX 00000
The undersigned, the holder of the attached Warrant, hereby irrevocably
elects to exercise the purchase right represented by that Warrant for, and to
purchase under that Warrant, __________ shares of Common Stock of Online
Specialty Retailing, Inc. and herewith makes payment of $________________ for
those shares, and requests that any certificates for such shares be issued in
the name of, and delivered to, _________________________, whose address is
_________________________________________.
DATED: __________________, 19__.
WARRANT HOLDER:
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By:
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Title:
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ADDRESS:
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