Exhibit 10.1
SECURITIES PURCHASE AGREEMENT
-----------------------------
This SECURITIES PURCHASE AGREEMENT ("Agreement") is entered into as of
---------
August 25, 1999, by and between Online System Services, Inc., a Colorado
corporation doing business as Xxxx Interactive Services, Inc. (the "Company"),
-------
with headquarters located at 0000 Xxxxxxx Xxxxx, Xxxxx 000, Xxxxxx, Xxxxxxxx
00000, and Castle Creek Technology Partners LLC (the "Purchaser"):
---------
RECITALS
--------
A. The Company and the Purchaser are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by the provisions of Regulation D ("Regulation D"), as promulgated by the United
------------
States Securities and Exchange Commission (the "SEC") under the Securities Act
---
of 1933, as amended (the "Securities Act").
--------------
B. The Purchaser desires to purchase, and the Company desires to
issue and sell, upon the terms and conditions stated in this Agreement, (i) an
amount of the Company's three-year 10% Convertible Promissory Notes (the "Note")
----
in the form of Exhibit A which is convertible into shares of the Company's
---------
Common Stock, no par value (the "Common Stock"), (ii) a warrant in the form of
------------
Exhibit B (the "Warrant" and, when taken together with the Note, the "Purchased
--------- ------- ---------
Securities") entitling the holder thereof to purchase the number of shares (the
----------
"Warrant Shares") of Common Stock as set forth below. The Note and the PIK
--------------
Notes (as defined in the Note) are collectively referred to herein as the
"Convertible Securities". The shares of Common Stock issuable upon conversion
-----------------------
of or otherwise pursuant to the Convertible Securities are referred to herein as
the "Conversion Shares." The Convertible Securities, the Warrant, the
-----------------
Conversion Shares and the Warrant Shares are collectively referred to herein as
the "Securities".
----------
C. Contemporaneously with the execution and delivery of this
Agreement, the parties hereto are executing and delivering a Registration Rights
Agreement in the form attached hereto as Exhibit C (the "Registration Rights
--------- -------------------
Agreement"), pursuant to which the Company has agreed to provide certain
---------
registration rights under the Securities Act, the rules and regulations
promulgated thereunder and applicable state securities laws.
AGREEMENTS
----------
NOW, THEREFORE, in consideration of their respective promises
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and the Purchaser
hereby agree as follows:
ARTICLE 1
PURCHASE AND SALE OF SECURITIES; SECURITY
1.1 Purchase of Note and Warrant. The purchase price (the "Purchase
---------------------------- --------
Price") to be paid by the Purchaser for the Note and Warrant being purchased by
-----
the Purchaser shall be Five Million Dollars ($5,000,000.00). On the Closing
Date (as defined herein), subject to the terms and the satisfaction (or waiver)
of the conditions set forth in Articles VI and VII, the Company shall issue and
sell to the Purchaser, and the Purchaser shall purchase from the Company (i) a
Note in principal amount equal to the Purchase Price and (ii) a Warrant
entitling the holder thereof to purchase 136,519 Warrant Shares.
1.2 Form of Payment. At the Closing, the Purchaser shall pay the
---------------
Purchase Price for the Note and Warrant by wire transfer to the Company, in
accordance with the Company's written wiring instructions, against delivery of a
duly executed Note and Warrant, and the Company shall deliver to the Purchaser
such executed Note and Warrant against delivery of such Purchase Price from the
Purchaser.
1.3 Closing Date. Subject to the satisfaction (or waiver) of the
------------
conditions set forth in Articles VI and VII below, the date and time of the
issuance, sale and purchase of the Note and Warrant pursuant to this Agreement
shall be August 25 , 1999. (the "Closing"). The Closing shall occur at 11:00
-------
a.m. Chicago time, at the offices of Altheimer & Xxxx, 00 X. Xxxxxx Xxxxx,
Xxxxxxx, XX 00000. The date of the Closing is hereinafter referred to as the
"Closing Date."
ARTICLE 2
PURCHASER'S REPRESENTATIONS AND WARRANTIES
The Purchaser represents and warrants to the Company as set forth in
this Article II. The Purchaser makes no other representations or warranties,
express or implied, to the Company in connection with the transactions
contemplated hereby and any and all prior representations and warranties, if
any, which may have been made by the Purchaser to the Company in connection with
the transactions contemplated hereby shall be deemed to have been merged in this
Agreement and any such prior representations and warranties, if any, shall not
survive the execution and delivery of this Agreement.
2.1 Purchase for Own Account. The Purchaser is purchasing the Note
------------------------
and Warrant for the Purchaser's own account for investment only and not with a
view toward or in connection with the public resale or distribution thereof,
except pursuant to sales that are exempt from the registration requirements of
the Securities Act and/or sales registered under the Securities Act. The
Purchaser will not resell any of the Purchased Securities or any securities
which may be issued upon exchange or conversion thereof except pursuant to sales
that are exempt from the registration requirements of the Securities Act and/or
sales registered under the Securities Act. The Purchaser understands that the
Purchaser must bear the economic risk of this investment indefinitely, unless
the Securities are registered pursuant to the Securities Act and any applicable
state securities laws or an exemption from such registration is available, and
that the Company has no present intention of registering any such Securities
other than as contemplated by the Registration Rights Agreement. By making the
representations in this Section 2.1, the Purchaser does not agree to hold any
Securities for any minimum or other specific term and reserves the right to
dispose of any or all of the Securities at any time in accordance with or
pursuant to a registration statement or an exemption from registration under the
Securities Act.
2.2 Accredited Investor Status. The Purchaser is an "accredited
--------------------------
investor" as that term is defined in Rule 501(a) of Regulation D.
2.3 Reliance on Exemptions. The Purchaser understands that the
----------------------
Securities are being offered and sold to the Purchaser in reliance upon specific
exemptions from the registration requirements of the United States federal and
state securities laws and that the Company is relying upon the truth and
accuracy of the representations and warranties of the Purchaser set forth herein
in order to determine the availability of such exemptions and the eligibility of
the Purchaser to acquire the Securities.
2.4 Information. The Purchaser and its counsel have been furnished
-----------
all materials relating to the business, finances and operations of the Company
and materials relating to the offer and sale of the Purchased Securities which
have been specifically requested by the Purchaser. The Purchaser has been
afforded the opportunity to ask questions of the Company and has received what
the Purchaser believes to be complete and satisfactory answers to any such
inquiries. Neither such materials or inquiries nor any other due diligence
investigation conducted by the Purchaser nor any of its representations,
warranties, covenants or agreements shall modify, amend or affect the
Purchaser's right to rely on the Company's representations and warranties
contained in Article III. The Purchaser understands that the Purchaser's
investment in the Securities involves a high degree of risk.
2.5 Governmental Review. The Purchaser understands that no United
-------------------
States federal or state agency or any other government or governmental agency
has passed upon or made any recommendation or endorsement of the Securities or
an investment therein.
2.6 Transfer or Resale. The Purchaser understands that (i) except as
------------------
provided in the Registration Rights Agreement, the Securities have not been and
are not being registered under the Securities Act or any state securities laws,
and may not be transferred unless subsequently registered thereunder or an
exemption from such registration is available (which exemption the Company
expressly agrees may be established as contemplated in clauses (b) and (c) of
Section 5.1 hereof or as otherwise may be permissible under the Securities Act);
(ii) any sale of such Securities made in reliance on Rule 144 under the
Securities Act (or a successor rule) ("Rule 144") may be made only in accordance
--------
with the terms of said Rule and further, if said Rule is not applicable, any
resale of such Securities without registration under the Securities Act) may
require compliance with some other exemption under the Securities Act or the
rules and regulations of the SEC thereunder; and (iii) neither the Company nor
any other person is
under any obligation to register such Securities under the Securities Act or any
state securities laws or to comply with the terms and conditions of any
exemption thereunder (in each case, other than pursuant to this Agreement or the
Registration Rights Agreement).
2.7 Legends. The Purchaser understands that, subject to Article V
-------
hereof, the certificates for the Note, the Warrant and, until such time as the
Conversion Shares and Warrant Shares have been registered under the Securities
Act as contemplated by the Registration Rights Agreement or otherwise may be
sold by the Purchaser pursuant to Rule 144 or otherwise without registration,
the certificates for the Conversion Shares and the Warrant Shares will bear a
restrictive legend (the "Legend") in the following form:
------
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.
Except for the Legend in accordance with this Section 2.7 and Section
5.1 hereof, the Securities shall bear no other legend.
2.8 Authorization; Enforcement. This Agreement and the Registration
--------------------------
Rights Agreement have been duly and validly authorized, executed and delivered
on behalf of the Purchaser and are valid and binding agreements of the Purchaser
enforceable against Purchaser in accordance with their terms.
2.9 Residency. The Purchaser is a resident of the State of Illinois.
---------
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Purchaser that:
3.1 Organization and Qualification. The Company and each of its
------------------------------
subsidiaries is a corporation duly organized, validity existing and in good
standing under the laws of the jurisdiction in which it is incorporated, and has
the requisite corporate power and authority to own its properties and to carry
on its business as now being conducted. The Company and each of its
subsidiaries is duly qualified as a foreign corporation to do business and is in
good standing in every jurisdiction where the failure to so qualify would have a
Material Adverse Effect. "Material Adverse Effect" means any material adverse
-----------------------
effect on (i) the business, operations, properties, financial condition,
operating results or prospects of the Company and its subsidiaries, taken as a
whole on a
consolidated basis, (ii) the transactions contemplated hereby, (iii) the ability
of the Company to perform its obligations under this Agreement, the Note, the
Warrant or the Registration Rights Agreement, including any exhibits thereto
(collectively, the "Investment Agreements") or (iv) the Purchaser's interest in
---------------------
the Securities.
3.2 Authorization; Enforcement. (a) The Company has the requisite
--------------------------
corporate power and authority to (i) enter into, and perform its obligations
under each of the Investment Agreements, (ii) issue, sell and perform its
obligations with respect to the Note and the Warrant in accordance with the
terms hereof and thereof, and (v) issue the Conversion Shares in accordance with
the terms and conditions of the Note and the Warrant Shares in accordance with
the terms and conditions of the Warrant; (b) the execution, delivery and
performance of this Agreement and the Registration Rights Agreement and the
execution and delivery of the Note and the Warrant by the Company and the
consummation by it of each of the transactions contemplated hereby and thereby
(including without limitation the issuance of the Convertible Securities and the
Warrant and the reservation for issuance and issuance of the Conversion Shares
and the Warrant Shares) have been duly authorized by all necessary corporate
action and no further consent or authorization of the Company, its board of
directors, or its stockholders or any other person, body or agency is required
with respect to any of the transactions contemplated hereby or thereby (whether
under rules of the Nasdaq Small Cap Market ("Nasdaq") or Nasdaq National Market
------
System ("Nasdaq NMS"), the New York Stock Exchange ("NYSE") or any other
---------- ----
exchange on which the Company's Securities are traded, the National Association
of Securities Dealers or otherwise); (c) this Agreement, the Note, the Warrant
and the Registration Rights Agreement have been duly executed and delivered by
the Company; and (d) each of the Investment Agreements constitutes a legal,
valid and binding obligation of the Company enforceable against the Company in
accordance with its terms.
3.3 Capitalization. The capitalization of the Company as of the date
--------------
of this Agreement, including the authorized capital stock, the number of shares
issued and outstanding, the number of shares reserved for issuance pursuant to
the Company's stock option plans, the number of shares reserved for issuance
pursuant to securities (other than the Convertible Securities and the Warrant),
directly or indirectly, exercisable for, or convertible into or exchangeable for
any shares of Common Stock and the number of shares to be initially reserved for
issuance upon conversion of the Convertible Securities and the exercise of the
Warrant is set forth on Schedule 3.3. All of such outstanding shares of capital
------------
stock have been, or upon issuance will be, validly issued, fully paid and non-
assessable. No shares of capital stock of the Company (including the Warrant
Shares and the Conversion Shares) are subject to preemptive rights or any other
similar rights of the stockholders of the Company or any liens or encumbrances.
Except as disclosed in Schedule 3.3, as of the date of this Agreement, (i) 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 or exercisable or exchangeable for, directly or indirectly, any
shares of capital stock of the Company or any of its subsidiaries, or contracts,
commitments, understandings or arrangements by which the
Company or any of its subsidiaries is or may become bound to issue additional
shares of capital stock of the Company or any of its subsidiaries, and (ii)
there are no agreements or arrangements under which the Company or any of its
subsidiaries is obligated to register the sale of any of its or their securities
under the Securities Act (except the Registration Rights Agreement). The Company
has furnished to the Purchaser true and correct copies of the Company's
Certificate of Incorporation as currently in effect ("Certificate of
--------------
Incorporation"), and the Company's By-laws as currently in effect (the "By-laws)
------------- -------
The Company has set forth on Schedule 3.3 all instruments and agreements (other
------------
than the Certificate of Incorporation and By-laws) governing securities
convertible into or exercisable or exchangeable for Common Stock of the Company
(and the Company shall provide to the Purchaser copies thereof upon the request
of the Purchaser). Except as set forth on Schedule 3.3, the Company has no
------------
indebtedness for borrowed money and no agreement providing for indebtedness for
borrowed money. The Company has no share purchase agreements, rights plans,
agreements or instruments containing similar provisions and no agreements
containing anti-dilution provisions. The Company shall provide the Purchaser
with a written update of this representation signed by the Company's Chief
Executive Officer or Chief Financial Officer on behalf of the Company as of the
Closing Date and it shall be a condition to the Purchaser's obligations at
Closing that there are no material changes in such capitalization since the
Company's representation on the date hereof. The Company has no subsidiaries,
except as provided on Schedule 3.3. All such subsidiaries included on Schedule
------------ --------
3.3. are one hundred percent (100%) owned by the Company. Except as provided on
---
Schedule 3.3, the Company has no investments, either debt or equity, in any
------------
other entity.
3.4 Issuance of Shares. The Conversion Shares and Warrant Shares are
------------------
duly authorized and reserved for issuance, and, upon conversion of the
Convertible Securities or exercise of the Warrant, each in accordance with the
terms thereof, will be validly issued, fully paid and non-assessable, and free
from all taxes, liens, claims and encumbrances and will not be subject to
preemptive rights or other similar rights of stockholders of the Company. The
Convertible Securities and the Warrant are duly authorized and reserved for
issuance, and are validly issued, fully paid and non-assessable, and free from
all taxes, liens claims and encumbrances and are not and will not be subject to
preemptive rights or other similar rights of stockholders of the Company. No
further corporate authorization or approval (other than authorization and
approval of the Rule 4460(i) Authorization by the shareholders of the Company
(the "Shareholder Approval") is required under the rules of the Nasdaq with
respect to the transaction contemplated by this Agreement, including, without
limitation, the issuance of the Conversion Shares and the Warrant Shares. The
"Rule 4460(i) Authorization" shall mean (i) if Nasdaq has confirmed in writing
---------------------------
to the Company that the Warrant Shares issuable upon full exercise of the
Warrant (without giving effect to any limitations thereon) are not subject to
Rule 4460(i) and are not integrated with the issuance of shares of Common Stock
upon conversion of the Convertible Securities, the issuance of shares of Common
Stock upon conversion of the Convertible Securities (without giving effect to
any limitations thereon, including Rule 4460(i)), and (ii) otherwise, the
issuance of shares of Common Stock upon conversion of the Convertible Securities
and upon full exercise
of the Warrant (in each case, without giving effect to any limitations thereon,
including Rule 4460(i)).
3.5 No Conflicts. The execution, delivery and performance of each of
------------
the Investment Agreements, by the Company and the consummation by the Company of
the transactions contemplated hereby and thereby (including the issuance and
reservation for issuance, as applicable, of the Warrant Shares and the
Conversion Shares) do not and will not (a) result in a violation of the
Certificate of Incorporation or By-laws of the Company or any of its
subsidiaries, (b) conflict with, or constitute a default (or an event which with
notice or lapse of time or both would become a default) under, or give to 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 (except for such conflicts, defaults, terminations,
amendments, accelerations, and cancellations as would not, individually or in
the aggregate, have a Material Adverse Effect), or (c) result in a violation of
any law, rule, regulation, order, judgment or decree (including, without
limitation, U.S. federal and state securities laws and regulations) applicable
to the Company or any of its subsidiaries, or by which any property or asset of
the Company or any of its subsidiaries, is bound or affected. Neither the
Company nor any of its subsidiaries is in violation of its Certificate of
Incorporation, by-laws or other organizational documents, and neither the
Company nor any of its subsidiaries is in default (and no event has occurred
which, with notice or lapse of time or both, would put the Company or any of its
subsidiaries in default) under, nor has there occurred any event giving others
(with notice or lapse of time or both) 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, except for possible defaults
or rights as would not, individually or in the aggregate, have a Material
Adverse Effect. The business of the Company and its subsidiaries is not being
conducted, and shall not be conducted so long as the Purchaser owns any of the
Securities, in violation of any law, ordinance, rule, regulation, order,
judgment or decree of any governmental entity, court or arbitration tribunal
except for possible violations the sanctions for which either singly or in the
aggregate would not have a Material Adverse Effect. The Company is not required
to obtain any consent, authorization or order of, or make any filing or
registration with, any court or governmental agency or any regulatory or self-
regulatory agency or authority in order for it to execute, deliver or perform
any of its obligations under any of the Investment Agreements or to perform its
obligations in accordance with the terms hereof or thereof. The purchase and
acquisition of the Securities by the Purchaser does not violate any law, rule,
regulation, order, judgment or decree applicable to the Company, or require
further filing by the Company or the Purchaser under such law, rule, regulation,
order, judgment or decree, by virtue of the Company's business or assets. The
Company is not in violation of the listing requirements of Nasdaq and does not
reasonably anticipate that the Common Stock will be de-listed by Nasdaq for the
foreseeable future. The Company will make all necessary filings and
notifications with, and will obtain all necessary approvals from, Nasdaq with
respect to the transactions contemplated hereby, including, without limitation,
the issuance of the Securities and the listing of the
Conversion Shares and the Warrant Shares on Nasdaq immediately upon request by
the Purchaser.
3.6 Registration and SEC Documents. The Common Stock is registered
------------------------------
under Section 12 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") and has been so registered since May 23, 1996. Since June 30,
1998, the Company has timely filed all reports, schedules, forms, statements and
other documents required to be filed by it with the SEC pursuant to the
reporting requirements of the Exchange Act (all of the foregoing filed after
January 1, 1998 and all exhibits included therein and financial statements and
schedules thereto and documents incorporated by reference therein, being
referred to herein as the "SEC Documents"). The Company has delivered to the
-------------
Purchaser true and complete copies of the SEC Documents (the SEC documents filed
prior to the date hereof, the "Filed SEC Documents"). As of their respective
-------------------
dates, the SEC Documents complied in all material respects with the requirements
of the Exchange Act and the rules and regulations of the SEC promulgated
thereunder applicable to the SEC Documents, and none of the SEC Documents, at
the time they were filed with the SEC, contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. Except as disclosed
on Schedule 3.6 of this Agreement, none of the statements made in any such SEC
Document is, or has been, required to be updated or amended under applicable
law. The financial statements of the Company included in the SEC Documents were
prepared in accordance with U.S. generally accepted accounting principles,
consistently applied, and the rules and regulations of the SEC 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 do not include footnotes or are condensed or
summary statements) and present accurately and completely the consolidated
financial position of the Company and its consolidated subsidiaries as of the
dates thereof and the consolidated results of their operations and cash flows
for the periods then ended (subject, in the case of unaudited statements, to
normal, immaterial year-end audit adjustments). Except as set forth in the
financial statements of the Company included in the Filed SEC Documents, the
Company has no liabilities, contingent or otherwise, other than (i) liabilities
incurred subsequent to the date of such financial statements in the ordinary
course of business consistent with past practice and (ii) obligations under
contracts and commitments incurred in the ordinary course of business and not
required under generally accepted accounting principles to be reflected in such
financial statements, in each case of clause (i) and (ii) next above which,
individually and in the aggregate, are not material to the financial condition,
business, operations, properties, operating results or prospects of the Company
and its subsidiaries taken on a whole. The Filed SEC Documents, as supplemented
by Schedule 3.6 hereto, contain a complete and accurate list of all material
------------
undischarged written or oral contracts, agreements, leases or other instruments
to which the Company or any subsidiary is a party or by which the Company or any
subsidiary is bound or to which any of the properties or assets of the Company
or any subsidiary is subject (each a "Contract"). None of the Company, its
--------
subsidiaries or, to the best knowledge of the Company, any of the other parties
thereto, is in breach or violation of
any Contract, which breach or violation relates to indebtedness for borrowed
money, is with respect to an obligation in excess of One Hundred Thousand
dollars ($100,000) or would have a Material Adverse Effect. No event, occurrence
or condition exists which, with the lapse of time, the giving of notice, or
both, or the happening of any further event or condition, would become a breach
or default by the Company or its subsidiaries under any Contract which breach or
default would have a Material Adverse Effect.
3.7 Absence of Certain Changes. Since June 30, 1999, there has been
--------------------------
no material adverse change and no material adverse development in the business,
properties, operations, financial condition, results of operations or prospects
of the Company.
3.8 Absence of Litigation. Except as disclosed in Schedule 3.8,
--------------------- ------------
there is no action, suit, proceeding, inquiry or investigation before or by any
court, public board, governmental agency or authority, or self-regulatory
organization or body pending or, to the knowledge of the Company or any of its
subsidiaries, threatened against or affecting the Company, any of its
subsidiaries, or any of their respective directors or officers in their
capacities as such, wherein an unfavorable decision, ruling or finding could
have a Material Adverse Effect or would adversely affect the transactions
contemplated by this Agreement or any of the documents contemplated hereby or
which would adversely affect the validity or enforceability of, or the authority
or ability of the Company to perform its obligations under, this Agreement or
any of such other documents. There are no facts which, if known by a potential
claimant or governmental agency or authority, could give rise to a claim or
proceeding which, if asserted or conducted with results unfavorable to the
Company or any of its subsidiaries, could have a Material Adverse Effect.
3.9 Disclosure. No information relating to or concerning the Company
----------
set forth in this Agreement or provided to the Purchaser in connection with the
transactions contemplated hereby contains an untrue statement of a material fact
or omits to state a 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. Except for the execution and performance of this Agreement, no
material fact (within the meaning of the federal securities laws of the United
States) exists with respect to the Company or any of its subsidiaries which has
not been publicly disclosed.
3.10 Acknowledgment Regarding Purchaser's Purchase of the Securities.
----------------------------------------------------------------
The Company acknowledges and agrees that the Purchaser is acting independently
and is not acting as a financial advisor or fiduciary of the Company (or in any
similar capacity) with respect to this Agreement or the transactions
contemplated hereby, that this Agreement and the transaction contemplated
hereby, and the relationship between the Purchaser and the Company, are "arms-
length", and that any statement made by the Purchaser, or any of its
representatives or agents, in connection with this Agreement or the transactions
contemplated hereby is not advice or a recommendation, is merely incidental to
the Purchaser's purchase of the Securities and has not been relied upon in any
way by the Company, its officers, directors or other representatives. The
Company further represents
to the Purchaser that the Company's decision to enter into this Agreement and
the transactions contemplated hereby has been based solely on an independent
evaluation by the Company and its representatives.
3.11 Current Public Information. The Company is currently eligible
--------------------------
to register the resale of the Conversion Shares and Warrant Shares by the
Purchaser on a registration statement on Form S-3 under the Securities Act for
the account of Purchaser (and not for or on behalf of Company).
3.12 No General Solicitation. Neither the Company nor any person
-----------------------
acting on behalf of the Company has conducted any "general solicitation," as
described in Rule 502(c) under Regulation D, with respect to any of the
Securities being offered hereby.
3.13 No Integrated Offering. Neither the Company, nor any of its
----------------------
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offers to
buy any security under circumstances that would prevent the parties hereto from
consummating the transactions contemplated hereby pursuant to an exemption from
registration under the Securities Act pursuant to the provisions of Regulation
D. The transactions contemplated hereby are exempt from the registration
requirements of the Securities Act, assuming the accuracy of the representations
and warranties herein contained of the Purchaser to the extent relevant for such
determination.
3.14 No Brokers. The Company has taken no action which would give
----------
rise to any claim by any person for brokerage commissions, finder's fees or
similar payments by the Purchaser relating to this Agreement or the transactions
contemplated hereby, except for dealings with Xxxxx Xxxxxx Incorporated (the
fees of which shall be paid in full by the Company)
3.15 Acknowledgment of Dilution. The number of Conversion Shares
--------------------------
issuable upon conversion of the Convertible Securities and/or Warrant Shares
issuable upon exercise of the Warrant may increase substantially in certain
circumstances, including the circumstance wherein the trading price of the
Common Stock declines. The Company's executive officers and directors have
studied and fully understand the terms of this Agreement and the transactions
contemplated hereby and the nature of the securities being sold hereunder and
recognize that they have a potential dilutive effect. The board of directors of
the Company has unanimously concluded in its good faith business judgment that
the issuance of the Securities as contemplated hereby is in the best interests
of the Company. The Company acknowledges that its obligation to issue
Conversion Shares upon conversion of the Convertible Securities and the Warrant
Shares upon exercise of the Warrant is binding upon it and enforceable
regardless of the dilution that such issuance may have on the ownership
interests of other stockholders.
3.16 Intellectual Property. Each of the Company and its subsidiaries
---------------------
owns or possesses adequate and enforceable rights to use all patents, patent
applications, trademarks, trademark applications, trade names, service marks,
copyrights, copyright
applications, licenses, know-how (including trade secrets and other unpatented
and/or unpatentable proprietary or confidential information, systems or
procedures) and other similar rights and proprietary knowledge (collectively,
"Intangibles") used or necessary for the conduct of its business as now being
-----------
conducted and as previously described in the Company's Annual Report on Form 10-
KSB most recently filed and any subsequently filed reports on Form 10-QSB and
Form 8-K. Neither the Company nor any subsidiary of the Company infringes on or
is in conflict with any right of any other person with respect to any
Intangibles nor is there any claim of infringement made by a third party against
or involving the Company or any of its subsidiaries, which infringement,
conflict or claim, individually or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would have a Material Adverse Effect.
3.17 Foreign Corrupt Practices. Except as provided in Schedule 3.17,
-------------------------
neither the Company, nor any of its subsidiaries, nor any director, officer,
agent, employee or other person acting on behalf of the Company or any
subsidiary has, in the course of his actions for, or on behalf of, the Company,
used any corporate funds for any unlawful contribution, gift, entertainment or
other unlawful expenses relating to political activity; made any direct or
indirect unlawful payment to any foreign or domestic government official or
employee from corporate funds; violated or is in violation of any provision of
the U.S. Foreign Corrupt Practices Act of 1977, as amended; or made any bribe,
rebate, payoff, influence payment, kickback or other unlawful payment to any
foreign or domestic government official or employee. Without limiting the
generality of the foregoing, the Company and its subsidiaries have not directly
or indirectly made or agreed to make (whether or not said payment is lawful) any
payment to obtain, sales other than usual and regular compensation to its or
their employees and sales representatives with respect to such sales.
3.18 Key Employees. Each Key Employee (as defined below) is
-------------
currently serving the Company in the capacity disclosed in Schedule 3.18. No
-------------
Key Employee, to the best of the knowledge of the Company and its subsidiaries,
is, or is now expected to be, in violation of any material term of any
employment contract, confidentiality, disclosure or proprietary information
agreement, non-competition agreement, or any other contract or agreement or any
restrictive covenant, and the continued employment of each Key Employee does not
subject the Company or any of its subsidiaries to any liability with respect to
any of the foregoing matters. No Key Employee has, to the best of the knowledge
of the Company and its subsidiaries, any intention to terminate or limit his
employment with, or services to, the Company or any of its subsidiaries, nor is
any such Key Employee subject to any constraints (e.g., litigation) which would
cause such employee to be unable to devote his full time and attention to such
employment or services. "Key Employee" means each of R. Xxxxxx Xxxxx, Xxxxxxx
------------
X. Xxxxxxx, Xxxxxxx X. Xxxxxx, Xxxxx Xxxxx, Xxxxx Xxxxxx, Xxxxx Xxxxxxxx, and
Xxxxxxx Xxxxx and any individual hired by the Company after the date hereof to
perform or assume any of the duties of any Key Officer.
3.19 Solvency. Immediately before and after giving effect to the
--------
transactions contemplated by this Agreement, the Company (i) has not incurred
and does not intend to incur, or believe that it will incur, debts beyond its
ability to pay such debts as they become due, and (ii) owns and will have
assets, the fair saleable value of which is (a) greater than the total amount of
its liabilities (including contingent liabilities) and (b) greater than the
amount that will be required to pay the probable liabilities of its then
existing debts as they become absolute and matured.
3.20 Year 2000 Compliance. The information set forth in the Filed
--------------------
SEC Documents with respect to Year 2000-related compliance by the Company does
not contain any untrue statement of a material fact or omit any material fact
necessary to make the statements contained therein not misleading. The
Company's testing compliance program and contingency plan, in each case
regarding Year 2000-related matters, are adequate to prevent a Material Adverse
Effect and such Year 2000-related matters will not cause a Material Adverse
Effect.
ARTICLE 4
COVENANTS
4.1 Best Efforts. The Company shall use its best efforts timely to
------------
satisfy each of the conditions described in Articles VI and VII of this
Agreement.
4.2 Securities Laws. The Company agrees to file a Form D with
---------------
respect to the Securities with the SEC as required under Regulation D and to
provide a copy thereof to the Purchaser on or prior to the date of Closing. The
Company agrees to file a Form 8-K disclosing this Agreement and the transactions
contemplated hereby with the SEC within three (3) days following the Closing
Date. Such Form 8-K shall contain as exhibits this Agreement, the form of Note,
the form of Warrant and the Registration Rights Agreement. The Company shall,
on or prior to the date of Closing, take such action as is necessary to sell the
Securities to the Purchaser in accordance with applicable securities laws of the
states of the United States, and shall provide evidence of any such action so
taken to the Purchaser on or prior to the date of the applicable Closing.
Without limiting any of the Company's obligations under any Investment Agreement
from and after the Closing Date, neither the Company nor any person acting on
its behalf shall take any action which would adversely affect any exemptions
from registration under the Securities Act with respect to the transactions
contemplated hereby.
4.3 Reporting Status. So long as the Purchaser beneficially owns any
----------------
of the Securities, the Company shall timely file all reports required to be
filed with the SEC pursuant to the Exchange Act, and the Company shall not
terminate its status as an issuer required to file reports under the Exchange
Act even if the Exchange Act or the rules and regulations thereunder would
permit such termination.
4.4 Use of Proceeds. The Company shall use the proceeds from the
---------------
sale of the Securities for working capital and general corporate purposes.
4.5 Issuance of Additional Securities.
---------------------------------
(a) The Company shall use its best efforts to consummate an
equity, equity-linked or equity-like offering of at least Twenty Million
Dollars ($20,000,000.00) on or before the date which is one hundred twenty
(120) days after the Closing Date (the "Financing").
---------
(b) For a period (the "Restricted Period") beginning on the date
hereof and ending the earlier of one-year from Closing or the completion of
a Financing transaction in compliance with this Section 4.5 and in which
(i) investors other than Purchaser invest $10 million and (ii) the
Purchaser had a right, pursuant to this Section 4.5, to acquire Additional
Securities (as defined below) with a purchase price of at least Ten Million
Dollars ($10,000,000.00) (subject, however, to the $5 million limitation
contained below for strategic investors), the Company shall not issue or
agree to issue, (except (i) to the Purchaser pursuant to this Agreement,
the Convertible Securities or the Warrant, (ii) equity securities issued in
an underwritten public offering which raises proceeds to Company of at
least Twenty Million Dollars ($20,000,000), (iii) equity securities issued
as payment for corporate acquisitions or (iv) stock options issued to
directors, officers and employees pursuant to any employee stock option,
stock purchase or restricted stock plan of the Company in effect on the
date hereof up to the aggregate amounts set forth on Schedule 4.5 hereto),
------------
any equity securities, any equity-like or any equity-linked securities (or
any security convertible into or exercisable or exchangeable, directly or
indirectly, for equity, equity-like or equity-linked securities of the
Company) (each of the foregoing being an "Additional Security") unless the
-------------------
Company first offers such Additional Securities to the Purchaser and
provides Purchaser with at least twenty (20) days advance written notice of
the proposed terms and conditions of the proposed offering of Additional
Securities, including, without limitation, pricing and aggregate amount of
such offering. Purchaser shall have the right, but not the obligation, by
written notice to the Company prior to the closing of such offering, to
participate in such offering (which notice of participation may be
conditioned upon the successful consummation of such offering in an amount
of at least Twenty Million Dollars ($20,000,000) including any amount to be
so taken up by Purchaser (provided that in the event such offering is
consummated in accordance with this Section 4.5 with investments by
investors other than Purchaser investing an aggregate amount of at least
$10 million, Purchaser's right of participation shall terminate as
aforesaid regardless of whether Purchaser participates in such offering)).
In the event that Purchaser elects to so participate in an offering under
this paragraph, Purchaser shall be entitled to pay the purchase price for
the Additional Securities to be purchased by it in such offering by
exchanging outstanding Notes. Any Notes so exchanged in
satisfaction of the payment of the purchase price by Purchaser in such
offering shall be credited against such purchase price on a dollar for
dollar basis in an amount equal to the sum of the outstanding principal
amount of such Notes so exchanged plus interest accrued thereon through the
date of such exchange. Notwithstanding the foregoing, the Company may limit
Purchaser's rights under this Section 4.5(b) to acquire Additional
Securities having a purchase price of up to Five Million Dollars
($5,000,000.00) if the balance of capital to be raised is funded by
strategic investors. Without the consent of Purchaser, the Company may not
consummate an offering which was the subject of a notice pursuant to this
paragraph except on terms and conditions (including, without limtation,
price) which are the same or are less favorable to the investors than set
forth in such notice to Purchaser pursuant to this paragraph unless the
Company again complies with the provisions of this Section 4.5(b) with
respect thereto. Following such Restricted Period, the Company may issue
Additional Securities provided that any securities so issued (and any
securities issued or issuable, directly or indirectly, upon conversion,
exercise or exchange of any of such securities) shall be ineligible for
conversion, exercise, exchange, sale, resale and registration under Federal
and state securities laws for a period of nine (9) months following the
Closing Date.
(c) While the Purchaser holds any Convertible Securities, the
Company and each of its subsidiaries shall not, directly or indirectly,
issue, or authorize for issuance, or enter into any commitment to issue,
sell, transfer, distribute or otherwise dispose of any debt or equity
security, bond, note or other security of, or with respect to, any of the
Company's subsidiaries.
4.6 Expenses. The Company shall pay to the Purchaser Fifty Thousand
--------
Dollars ($50,000.00) at the Closing for the expenses incurred by it and its
affiliates and advisors in connection with the negotiation, preparation,
execution, and delivery of this Agreement and the other agreements and documents
to be executed in connection herewith, including, without limitation,
Purchaser's and its affiliates' and advisors' due diligence and attorneys' fees
and expenses (the "Expenses").
--------
4.7 Information. The Company agrees to send the following reports to
-----------
the Purchaser until the Purchaser transfers, assigns or sells all of its
Securities: (a) within three (3) days after the filing with the SEC, a copy of
its Annual Report on Form 10-KSB, its Quarterly Reports on Form 10-QSB, any
proxy statements and any Current Reports on Form 8-K; and (b) within one (1) day
after release, copies of all press releases issued by the Company or any of its
subsidiaries. The Company further agrees to promptly provide to the Purchaser
any information with respect to the Company, its properties, or its business or
the Purchaser's investment as the Purchaser may reasonably request; provided,
however, that if any information requested by the Purchaser from the
Company contains material non-public information, the Company shall inform the
Purchaser in writing that the information requested contains material non-public
information and shall in no event provide the material non-public portion of
such information to the Purchaser without the express prior written consent of
the Purchaser after being so informed, and in the case of any such consent the
Company shall make public disclosure of such information simultaneously with
providing such information to Purchaser (unless the Board of Directors of the
Company determines in its good faith business judgment that such public
disclosure would have a Material Adverse Effect, in which event no such public
disclosure shall be made and no such material non-public information shall be
provided to Purchaser). In the event that the Company shall be required under
the terms of this Agreement or any other Investment Agreement to make disclosure
of material non-public information, the Company shall upon provision thereof to
Purchaser make simultaneous public disclosure thereof.
4.8 Intentionally omitted.
---------------------
4.9 Listing Requirement. The Company shall continue the trading and
-------------------
listing of its Common Stock on the Nasdaq Small Cap Market and the Company shall
use its best efforts to become listed on the Nasdaq National Market System or
the New York Stock Exchange and shall include from and after the Closing all
Conversion Shares and Warrant Shares in such listing(s) and shall comply in all
respects with the Company's filing and other obligations under the rules of
Nasdaq Small Cap Market or Nasdaq National Market System or the New York Stock
Exchange, as applicable, and shall not permit the suspension or termination of
any such trading.
4.10 Prospectus Delivery Requirement. The Purchaser understands that
-------------------------------
the Securities Act may require delivery of a prospectus relating to the Common
Stock in connection with any sale thereof pursuant to a registration statement
under the Securities Act covering the resale by the Purchaser of the Common
Stock being sold.
4.11 Intentional Acts or Omissions. The Company shall not
-----------------------------
intentionally perform any act which if performed, or intentionally omit to
perform any act which, if omitted to be performed, would prevent or excuse the
performance of this Agreement or any of the transactions contemplated hereby or
the benefits intended to be secured thereby by the Purchaser (including, without
limitation, pursuant to any agreements or documents obtained by the Company as a
condition to any Closing hereunder).
4.12 Corporate Existence. So long as the Purchaser beneficially owns
-------------------
any Convertible Securities or the Warrant, the Company shall maintain its
corporate existence, except in the event of a merger, consolidation or sale of
all or substantially all of the Company's assets, as long as the surviving or
successor entity in such transaction assumes the Company's obligations hereunder
and under the agreements and instruments entered into in connection herewith
regardless of whether or not the Company would have had a sufficient number of
shares of Common Stock authorized and available for
issuance in order to effect the conversion of all Convertible Securities
outstanding as of the date of such transaction.
4.13 Intentionally omitted.
---------------------
4.14 Intentionally omitted.
---------------------
4.15 Reserved Amount. On the Closing Date and thereafter, the
---------------
Company shall have authorized and reserved and keep available for issuance not
less than 1,129,568 shares (subject to equitable adjustment for any stock
splits, stock dividends, reclassification or similar events and subject to
reduction for the number of any shares of Common Stock issued upon conversion of
the Convertible Securities and upon the exercise of the Warrants)) shares of
Common Stock (the "Reserved Amount") solely for the purpose of effecting the
---------------
conversion of the Convertible Securities and the exercise of the Warrant. The
Company shall at all times reserve and keep available out of its authorized but
unissued shares of Common Stock a sufficient number of shares of Common Stock to
provide for the full conversion of all Convertible Securities and issuance of
the shares of Common Stock in connection therewith in each of the foregoing
cases without regard to any limitation on conversion or exercise and the full
exercise of the Warrant and issuance of the shares of Common Stock in connection
therewith in each of the foregoing cases without regard to any limitation on
conversion or exercise. If the Reserved Amount for any three (3) consecutive
trading days (the last of such three (3) trading days being the "Authorization
-------------
Trigger Date") shall be less than 175% of the number of shares of Common Stock
------------
issuable upon conversion of Convertible Securities and exercise of the Warrant
on such trading days, the Company shall immediately notify the Purchaser of such
occurrence and shall take action as soon as possible, but in any event within
sixty (60) days after an Authorization Trigger Date (including, if necessary,
shareholder approval to authorize the issuance of additional shares of Common
Stock), to increase the Reserved Amount to two hundred percent (200%) of the
number of shares of Common Stock then issuable upon conversion of the
Convertible Securities and exercise of the Warrant in each of the foregoing
cases without regard to any limitation on conversion or exercise.
4.16 [Intentionally Deleted].
------------------------
4.17 Waiver of Usury Defense. To the extent permitted by applicable
-----------------------
law, the Company agrees that it will not assert, plead (as a defense or
otherwise) or in any manner whatsoever claim (and will actively resist any
attempt to compel it to assert, plead or claim) in any action, suit or
proceeding that the effective interest rate on the Convertible Securities
violates present or future usury or other laws relating to the interest payable
on any indebtedness and will not otherwise avail itself (and will actively
resist any attempt to compel it to avail itself) of the benefits or advantages
of any such laws.
ARTICLE 5
LEGEND REMOVAL, TRANSFER, AND CERTAIN SALES
5.1 Removal of Legend. The Legend shall be removed and the Company
-----------------
shall issue a certificate without any legend to the holder of any Security upon
which such Legend is stamped, and a certificate for a Security shall be
originally issued without the Legend if (a) the sale of such Security is
registered under the Securities Act, (b) such holder provides the Company with
an opinion of counsel, in form, substance and scope customary for opinions of
counsel in comparable transactions (the reasonable cost of which shall be borne
by the Company, so long as the Securities represented by such Legended
certificate(s) are not registered on an effective Registration Statement which
is available for immediate use and all the Securities may be publicly sold or
transferred in reliance thereon) to the effect that a public sale or transfer of
such Security may be made without registration under the Securities Act or (c)
such Security can be sold pursuant to Rule 144 and a registered broker dealer
provides to the Company's transfer agent and counsel copies of (i) a "will sell"
letter satisfying the guidelines established by the SEC and its staff from time
to time and (ii) a customary seller's representation letter with respect to such
a sale to be made pursuant to Rule 144 and (iii) a Form 144 in respect of such
Security executed by such holder and filed (or mailed for filing) with the SEC
or (d) such Security can be sold pursuant to Rule 144(k). The Purchaser agrees
to sell all Securities, including those represented by a certificate(s) from
which the Legend has been removed, or which were originally issued without the
Legend, pursuant to an effective registration statement and to deliver a
prospectus in connection with such sale or in compliance with an exemption from
the registration requirements of the Securities Act. In the event the Legend is
removed from any Security or any Security is issued without the Legend and
thereafter the effectiveness of a registration statement covering the resale of
such Security is suspended or a supplement or amendment thereto is required by
applicable securities laws, then upon reasonable advance notice to the Purchaser
holding such Security, the Company may require that the Legend be placed on any
such Security that cannot then be sold pursuant to an effective registration
statement or Rule 144 or with respect to which the opinion referred to in clause
(b) next above has not been rendered, which Legend shall be removed when such
Security may be sold pursuant to an effective Registration Statement or Rule 144
or such holder provides the opinion with respect thereto described in clause (b)
next above.
5.2 Transfer Agent Instructions. The Company shall instruct its
---------------------------
transfer agent to issue certificates, registered in the name of the Purchaser or
its nominee, for the Conversion Shares or Warrant Shares in such amounts as
specified from time to time by the Purchaser to the Company upon, and in
accordance with, the conversion of the Convertible Securities and the exercise
of the Warrant. Such certificates shall bear a legend only in the form of the
Legend and only to the extent permitted by Section 5.1 above. The Company
warrants that no instruction other than such instructions referred to in this
Article V, and no stop transfer instructions other than stop transfer
instructions to give effect to Section 2.6 hereof in the case of the Conversion
Shares or Warrant Shares prior to registration under the Securities Act, will be
given by the Company to its transfer
agent and that the Securities shall otherwise be freely transferable on the
books and records of the Company. Nothing in this Section shall affect in any
way the Purchaser's obligations and agreement set forth in Section 5.1 hereof to
resell the Securities pursuant to an effective registration statement and to
deliver a prospectus in connection with such sale or in compliance with an
exemption from the registration requirements of applicable securities laws.
Without limiting any other rights of the Purchaser or obligations of the
Company, if (a) the Purchaser provides the Company with an opinion of counsel,
which opinion of counsel shall be in form, substance and scope customary for
opinions of counsel in comparable transactions (the reasonable cost of which
shall be borne by the Company, so long as the Securities represented by such
Legended certificate(s) are not registered on an effective Registration
Statement which is available for immediate use and all the Securities may be
publicly sold or transferred in reliance thereon), to the effect that the
Securities to be sold or transferred may be sold or transferred pursuant to an
exemption from registration or (b) the Purchaser transfers Securities pursuant
to Rule 144, the Company shall permit the transfer, and, in the case of the
Conversion Shares and Warrant Shares, promptly instruct its transfer agent to
issue one or more certificates in such name and in such denomination as
specified by the Purchaser in order to effect such a transfer or sale. The
Company acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to the Purchaser by vitiating the intent and purpose of the
transaction contemplated hereby. Accordingly, the Company acknowledges that the
remedy at law for a breach of its obligations under this Article V will be
inadequate and agrees, in the event of a breach or threatened breach by the
Company of the provisions of this Article V, that the Purchaser shall be
entitled, in addition to all other available remedies, to an injunction
restraining any breach and requiring immediate issuance and transfer, without
the necessity of showing economic loss and without any bond or other security
being required.
ARTICLE 6
CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL
6.1 Conditions to the Company's Obligation to Sell. The obligation
----------------------------------------------
of the Company hereunder to issue and sell the Purchased Securities to the
Purchaser at Closing is subject to the satisfaction, as of the date of such
Closing, of each of the following conditions thereto, provided that these
conditions are for the Company's sole benefit and may be waived by the Company
at any time in its sole discretion:
(a) The Purchaser shall have executed the signature page to this
Agreement and the Registration Rights Agreement and delivered the same to
the Company.
(b) The Purchaser shall deliver the applicable Purchase Price for
the Note and the Warrant purchased at Closing.
(c) The representations and warranties of the Purchaser shall be
true and correct as of the date when made and as of the Closing as though
made at that time, and the Purchaser shall have performed, satisfied and
complied in all material respects with the covenants and agreements
required by this Agreement to be performed or complied with by the
Purchaser at or prior to the Closing.
(d) No statute, rule, regulation, executive order, decree, ruling
or injunction shall have been enacted, entered, promulgated or endorsed by
any court or governmental authority of competent jurisdiction or any self-
regulatory organization having authority over the matters contemplated
hereby which restricts or prohibits the consummation of any of the
transactions contemplated by this Agreement.
ARTICLE 7
CONDITIONS TO PURCHASER'S OBLIGATION TO PURCHASE
7.1 Conditions to the Closing. The obligation of the Purchaser
-------------------------
hereunder to purchase the Convertible Securities and the Warrant to be purchased
by it on the Closing Date is subject to the satisfaction of each of the
following conditions, provided that these conditions are for the Purchaser's
sole benefit and may be waived by the Purchaser at any time in the Purchaser's
sole discretion:
(a) The Company shall have executed the signature page to this
Agreement, the Warrant and the Registration Rights Agreement and delivered
the same to the Purchaser.
(b) The Company shall have delivered a duly executed Note (in
such denominations as the Purchaser shall request) being so purchased by
the Purchaser at the Closing.
(c) The Common Stock, including all Conversion Shares and Warrant
Shares, shall be listed on The Nasdaq Small Cap Market and the Company
shall use its best efforts to become listed on the Nasdaq National Market
System or the New York Stock Exchange (individually or collectively,
"Exchange") and trading in the Common Stock shall not have been suspended
by the Exchange, the SEC or any other regulatory authority and no de-
listing or suspension shall be reasonably likely to occur in the judgment
of the Purchaser for the foreseeable future.
(d) The representations and warranties of the Company shall be
true and correct as of the date when made and as of the Closing as though
made at that time and the Company shall have performed, satisfied and
complied with the covenants and agreements required by this Agreement to be
performed or complied with by the Company at or prior to the Closing. The
Purchaser shall have received a certificate, executed by the Chief
Executive Officer or Chief Financial Officer of the Company, dated
as of the Closing to the foregoing effect and as to such other matters as
may be reasonably requested by the Purchaser.
(e) No statute, rule, regulation, executive order, decree, ruling
or injunction shall have been enacted, entered, promulgated or endorsed by
any court or governmental authority of competent jurisdiction or any self-
regulatory organization having authority over the matters contemplated
hereby which prohibits the consummation of any of the transactions
contemplated by this Agreement.
(f) The Purchaser shall have received the officer's certificate
described in Section 3.3, dated as of the Closing.
(g) The Purchaser shall have received an opinion of the Company's
counsel, dated as of the Closing, in the form attached hereto as Exhibit E.
---------
(h) The Company's transfer agent has agreed to act in accordance
with irrevocable instructions in the form attached hereto as Exhibit F.
---------
(i) [intentionally omitted]
(j) No event has occurred which constitutes an Event of Default
(as defined in the Note) or an event of default under any capitalized lease
or which would constitute an Event of Default or an event of default under
any capitalized lease with notice or the passage of time or both which have
not been cured or waived to the satisfaction of the Purchaser.
(k) The Company has timely filed an application for listing of
additional shares as required under the rules of Nasdaq or has obtained an
effective waiver of such requirement.
ARTICLE 8
ADDITIONAL COVENANTS
8.1 Effect. Except as specifically provided below, the provisions of
------
this Article VIII will remain in effect until the earliest of the following to
occur: (i) the Note is paid in full, (ii) the Note is terminated in connection
with a Financing (as defined in Section 4.5), and (iii) six months from the date
of this Agreement.
8.2 Definitions. For purposes of this Article VIII, the following
-----------
terms shall have the indicated meaning:
"Affiliate" means (i) any officer, director or shareholder of the
---------
Company or any of its subsidiaries, (ii) any corporation or any other
person or entity that directly or indirectly, through one or more
intermediaries, controls or is controlled by or is under common control
with the Company or any of its subsidiaries or (iii) any officer, director,
trustee, partner or shareholder of any corporation or any other person or
entity that directly or indirectly, through one or more intermediaries,
controls or is controlled by or is under common control with the Company or
any of its subsidiaries.
"Employee Plan" includes any pension, retirement, disability,
-------------
medical, dental or other health plan, life insurance or other death benefit
plan, profit sharing, deferred compensation, stock option, bonus or other
incentive plan, vacation benefit plan, severance plan, or other employee
benefit plan or arrangement, including, without limitation, those pension,
profit-sharing and retirement plans of the Company and each of its
subsidiaries and any pension plan, welfare plan, Defined Benefit Pension
Plans (as defined in the Employee Retirement Income Security Act of 1974,
as amended from time to time ("ERISA")) or any multi-employer plan,
-----
maintained or administered by the Company or any of its subsidiaries to
which the Company or any of its subsidiaries is a party or may have any
liability or by which the Company or any of its subsidiaries is bound.
"Environmental Laws" means all federal, state and local Laws
------------------
(including, without limitation, the common law), statutes, ordinances,
rules, regulations and other requirements (including, without limitation,
administrative orders, consent agreements and conditions contained in the
applicable permits), relating to health, safety or the protection of the
environment, including, without limitation, the Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA"), 42 U.S.C. ss. 9601 et
------
seq., the Resource Conservation and Recovery Act ("RCRA"), 42 U.S.C. ss.
----
6901 et seq., and the Clean Air Act 42. U.S.C. ss. 7401 et seq., as
amended or hereafter amended.
"Information Technology" means, with respect to a person or
----------------------
entity, all systems, software, hardware, information technology, microcode,
embedded chips, and all electronic or electronically controlled systems,
machinery or components reliant on or included within the foregoing, which
are owned, leased, licensed or used by such person or entity, including,
without limitation, items of the foregoing description related to the
facilities, equipment, manufacturing and order entry processes, quality
control activities, accounting and bookkeeping, records and record-keeping
activities of such person or entity.
"Year 2000 Compliant" means (i) with respect to data that includes
-------------------
date or time information or that is otherwise derived from or dependent
upon date or time information ("Date Data"), that such data is in proper
---------
format and accurate for all dates and times (A) from, into and between the
twentieth and twenty-first centuries, (B) from and into date values
representing September 9, 1999, and (C) for date values representing dates
during leap years, and (ii) with respect to all Information Technology of a
Person, that such Information Technology accurately processes (including,
without limitation, calculating, receiving, comparing, sequencing, storing,
transmitting or displaying) Date Data, including processing such data
described in clauses (A) through (C) of clause (i) hereof, without loss of
any functionality or performance, when used as a stand-alone system or in
combination with other software, hardware, system, component, equipment,
embedded chips or other information technology.
8.3 Intentionally omitted.
---------------------
8.4 Financial Information and Reporting. The Company shall cause to be
-----------------------------------
furnished to the Purchaser:
(a) As soon as practicable and, in any event, within ninety (90) days
after the end of each of the Company's fiscal years, beginning with the
fiscal year ending December 31, 1999, a written statement of such Company's
independent certificated public accountant (i) that in performing the audit
such accountant has not obtained knowledge of any Event of Default or
disclosing all Events of Default of which it has obtained knowledge and
(ii) that such accountant and is aware that the Purchaser is relying on
such accountant's certification, together with a copy of Company's 10-KSB,
as filed with the SEC;
(b) Together with the delivery of the Company's 10-QSB and 10-KSB
required to be delivered under this Agreement, a certificate of the Company
executed by an authorized officer of the Company stating whether any Event
of Default or any event which, with the passage of time or giving of notice
or both, would constitute such an Event of Default currently exists and is
continuing and what action, if any, the Company and/or any of its
subsidiaries is taking or propose to take with respect thereto; and
(c) Promptly (but in any event within five business days) after the
occurrence of a Material Adverse Effect or a prepayment event under the
Note, written notice thereof (together with simultaneous public disclosure
thereof if not previously made).
8.5 Intentionally omitted.
---------------------
8.6 Corporate Existence. The Company and each of its material
-------------------
subsidiaries shall maintain and preserve their corporate existence, good
standing, certificates of authority, licenses, permits, franchises, patents,
trademarks, trade names, service marks, copyrights, leases and all other
contracts and rights necessary or desirable to continue their operations and
business as now conducted and will generally continue its existing lines of
business or such businesses as are substantially related to those being
presently conducted by the Company and its material subsidiaries.
8.7 Taxes and Laws. The Company and each of its subsidiaries will
--------------
pay when due all taxes, including excise taxes and duty, assessments, charges
and levies imposed on the Company and each of its subsidiaries or any of their
income, profits, property or assets, or which they are required to withhold and
pay out, and will comply with all applicable present and future laws unless the
Company or any of its affiliates is contesting in good faith, by an appropriate
proceeding, the validity, amount or imposition of the above, subject to
appropriate reserves, and such contest does not have or cause a Material Adverse
Effect or impair the Company or any of its affiliates ability to perform any of
its material obligations.
8.8 Repair and Maintenance. The Company and each of its subsidiaries
----------------------
will maintain all of their assets and properties in good condition and repair
and in proper working order, normal wear and tear excepted, and will pay and
discharge, or cause to be paid and discharged, when due, the cost of repairs,
replacement or maintenance to the foregoing and all rentals or mortgage payments
on the foregoing. Notwithstanding the foregoing, the Company may determine not
to repair and maintain certain of its asset(s) so long as such determination and
failure to repair and maintain such asset(s) shall not have a Material Adverse
Effect on the business of the Company and its subsidiaries, taken as a whole.
8.9 Intentionally omitted.
---------------------
8.10 Employee Plans. The Company and each of its subsidiaries shall
--------------
(i) keep in full force and effect any and all Employee Plans which are presently
in existence or may, from time to time, come into existence under ERISA, and not
withdraw from any such Employee Plans, unless such withdrawal can be effected or
such Employee Plans can be terminated without material liability to the Company
and each of its subsidiaries; (ii) make contributions to all of such Employee
Plans in a timely manner and in a sufficient amount to comply with the
requirements of ERISA, including the minimum funding standards of Section 302 of
ERISA; (iii) comply with all material requirements of ERISA which relate to such
Employee Plans; (iv) notify the Purchaser immediately upon receipt by the
Company or any of its subsidiaries of any notice concerning the imposition of
any withdrawal liability or of the institution of any proceeding or other action
which may result in the termination of any such Employee Plans or the
appointment of a trustee to administer such Employee Plans; and (v) promptly
advise the Purchaser of the occurrence of any Reportable Event or Prohibited
Transaction that is not exempt by statute, as defined in ERISA, with respect to
any such Employee Plans.
8.11 Intentionally deleted.
---------------------
8.12 Environmental Matters - Indemnification. The Company and each
---------------------------------------
of its subsidiaries shall take or cause to be taken all actions to comply in all
material respects with the requirements of all Environmental Laws including,
without limitation, all filing and reporting requirements thereof. The Company
hereby agrees to indemnify, hold harmless and reimburse the Purchaser for any
and all loss, damage, expenses or costs of any kind or nature arising out of or
incurred in connection with any prior, existing or future violations by the
Company and each of its subsidiaries of any Environmental Laws.
8.13 Transfer of Assets. The Company and each of its subsidiaries
------------------
shall not sell, lease, transfer or otherwise dispose of any of their assets,
properties or rights, except in the ordinary course of business consistent with
past practice or to the extent such assets or property and/or rights to transfer
are not individually or in the aggregate material to the Company and its
subsidiaries taken as a whole.
8.14 Investments and Loans. The Company shall not make any loans to
---------------------
or investments in any person or entity, including any officer, director or
employee, except that the Company may make a loan to or invest in a wholly-owned
subsidiary of the Company.
8.15 Prepayment or Modification of Indebtedness; New Indebtedness.
------------------------------------------------------------
The Company and each of its subsidiaries will not (i) prepay any indebtedness
for money borrowed or any indebtedness secured by any of their assets (except
for obligations under a capital lease), (ii) enter into or modify any agreement
as a result of which the terms of payment of any of the foregoing indebtedness
are amended or modified in a manner which would accelerate its payment, or (iii)
enter into any note or other arrangement which would result in, or otherwise
incur, additional indebtedness in an amount in excess of one hundred thousand
dollars ($100,000.00).
8.16 Transactions with Affiliates. The Company and each of its
----------------------------
subsidiaries will not enter into any agreement or arrangement, written or oral,
directly or indirectly, with an Affiliate, or provide services or sell goods to,
or for the benefit of, or pay or otherwise distribute monies, goods or other
valuable consideration to, an Affiliate, except upon fair and reasonable terms
no less favorable to the Company and each of its subsidiaries than terms in a
comparable arm's length transaction with an unaffiliated person or entity and
except for existing intercompany debt.
8.17 Guarantees. The Company and each of its subsidiaries shall not
----------
guarantee, assume, endorse or otherwise, in any way, become directly or
contingently liable in any manner with respect to the obligations or liabilities
of any other person or entity, except by endorsement of instruments or items for
payment or deposit or collection.
8.18 Capital Structure. The Company and each of its subsidiaries
-----------------
shall not make any material change in their capital structures, enter into any
new business or make
any material change in their business objectives, purposes and operations, any
of which would have a Material Adverse Effect.
8.19 Leases. Except for those leases currently contemplated by the
------
Company and which are fully set forth in Schedule 8.19 of this Agreement, the
Company and each of its subsidiaries shall not incur or permit to exist (i) any
obligations under any operating leases other than leases having an aggregate
rent not in excess of Two Hundred Fifty Thousand $250,000 per fiscal year, and
(ii) any indebtedness with respect to purchase money indebtedness and
obligations with respect to leases which have been, or, in accordance with GAAP,
should be, recorded as capitalized leases, for which the Company and each of its
subsidiaries are obligated to pay in excess of Two Hundred and Fifty Thousand
Dollars ($250,000) in the aggregate at any time ("Permitted Liens").
8.20 Capital Expenditures. The Company and each of its subsidiaries
--------------------
shall not make or incur any capital expenditures in excess of One Million
Dollars ($1,000,000.00) in any fiscal year.
8.21 Limitation of Agreements. The Company will not, and will not
------------------------
permit any subsidiary to, enter into any contract, or any amendment,
modification, extension or supplement to any existing contract, which
contractually prohibits the Company from paying interest on, or principal of,
the Notes or effecting the conversion of the Notes.
8.22 Compliance Certification. At the end of each quarter of the
------------------------
Company's fiscal year, the Company shall deliver to each Purchaser a certificate
of an authorized financial officer of the Company regarding compliance by the
Company with the covenants set forth herein and certifying that no default under
this Agreement, default or Event of Default under the Loan Agreement, or default
or Event of Failure under the Debentures shall have occurred and be continuing.
8.23 Notice of Breach. As promptly as practicable, and in any event
----------------
not later than five business days after senior management of the Company becomes
aware thereof, the Company shall provide each Purchaser with written notice of
any breach by the Company of any provision of this Agreement, any Capital Lease,
any note representing indebtedness of the Company or any of its subsidiaries or
the Notes, including, without limitation, this Article VIII, specifying the
nature of such breach and any actions proposed to be taken by the Company to
cure such breach.
8.24 Year 2000 Compliance. All of Company's Information Technology
--------------------
(as defined below), and, to the best of Company's knowledge, all Information
Technology of all parties with whom Company exchanges information electronically
("EDI Parties") (as defined below), significant suppliers and significant
customers, is and shall be Year 2000 Compliant (as defined below). The Company
has developed (i) a testing and compliance program, and (ii) a contingency plan,
in each case regarding Year 2000-related matters pertaining to Company's
Information Technology and that of the EDI Parties. Such program and plan, are
adequate to prevent a Material Adverse Effect upon the Company
as a consequence of any Information Technology of the Company and/or the EDI
Parties not being Year 2000 Compliant from and after the date hereof through
March 31, 2001.
8.25 Liens. The Company shall not create or suffer to exist any Lien
-----
upon any of its property now owned or hereafter acquired, or acquire any
property upon any conditional sale or other title retention device or
arrangement or any purchase money security agreement other than those Permitted
Liens provided for in Section 8.19(ii) or this Agreement.
ARTICLE 9
GOVERNING LAW; MISCELLANEOUS
9.1 Governing Law; Jurisdiction. This Agreement 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 parties hereto
irrevocably consent 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 Agreement or the transactions contemplated hereby and irrevocably
agree 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 further agrees
that service of process upon the Company mailed by the first class mail shall be
deemed in every respect effective service of process upon the Company in any
suit or proceeding arising hereunder. Nothing herein shall affect the
Purchaser's right to serve process in any other manner permitted by law. The
parties hereto agree that a final non-appealable 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.
9.2 Counterparts. This Agreement may be executed in two or more
------------
counterparts, including, without limitation, by facsimile transmission, all of
which counterparts shall be considered one and the same agreement and shall
become effective when counterparts have been signed by each party and delivered
to the other party. In the event any signature page is delivered by facsimile
transmission, the party using such means of delivery shall cause additional
original executed signature pages to be promptly delivered to the other parties.
9.3 Headings. The headings of this Agreement are for convenience of
--------
reference and shall not form part of, or affect the interpretation of, this
Agreement.
9.4 Severability. If any provision of this Agreement shall be
------------
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement or the validity or enforceability of this Agreement
in any other jurisdiction.
9.5 Scope of Agreement; Amendments. This Agreement and the documents
------------------------------
and instruments referenced herein contain the entire understanding of the
parties with
respect to the matters covered herein and therein and, except as specifically
set forth herein, the Purchaser makes no representation, warranty, covenant or
undertaking with respect to the transactions contemplated hereby. No provision
of this Agreement may be waived other than by an instrument in writing signed by
the party to be charged with enforcement and no provision of this Agreement may
be amended other than by an instrument in writing signed by the Company and the
Purchaser.
9.6 Notice. Any notice herein required or permitted to be given
------
shall be in writing and may be personally served or delivered by courier or by
facsimile-machine 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:
Online System Services, Inc.
0000 Xxxxxxx Xxxxx, 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.
If to the Purchaser:
Castle Creek Technology Partners LLC
c/o Castle Creek Partners LLC
00 Xxxx Xxxxxx Xxxxx, Xxxxx 0000
Xxxxxxx, Xxxxxxxx 00000
Telecopy: (000) 000-0000
Attention: Portfolio Manager
Each party shall provide notice to the other party of any change in
address.
9.7 Successors and Assigns. This Agreement shall be binding upon and
----------------------
inure to the benefit of the parties and their successors and assigns. Neither
the Company nor the Purchaser shall assign this Agreement or any rights or
obligations hereunder without the prior written consent of the other, which, in
the case of any consent required of the Company, shall not be unreasonably
withheld. Notwithstanding the foregoing, the
Purchaser may assign its rights and obligations hereunder and may transfer any
or all of its Securities to any of its "affiliates",as that term is defined
under the Exchange Act, without the consent of the Company so long as such
affiliate is an accredited investor. This provision shall not limit the
Purchaser's right to transfer the Securities pursuant to the terms of this
Agreement. In addition, and notwithstanding anything to the contrary contained
in this Agreement, the Convertible Securities, the Warrant or the Registration
Rights Agreement, the Securities may be pledged, and all rights of the Purchaser
under this Agreement or any other agreement or document related to the
transaction contemplated hereby may be assigned, without further consent of the
Company, to a bona fide pledgee in connection with the Purchaser's margin or
brokerage accounts.
9.8 Third Party Beneficiaries. This Agreement is intended for the
-------------------------
benefit of the parties hereto and their respective permitted successors and
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
9.9 Survival. The representations, warranties, agreements and
--------
covenants of the Company in this Agreement shall survive the Closing hereunder
notwithstanding any due diligence investigation conducted by or on behalf of the
Purchaser. The Company agrees to indemnify and hold harmless the Purchaser and
each of the Purchaser's officers, directors, shareholders, members, employees,
partners, agents and affiliates and any direct or indirect investors,
shareholders, officers, directors, agents, partners, employees, members, agents
or affiliates of any of the foregoing for loss or damage arising as a result of
or related to (a) any breach by the Company of any of its representations or
covenants set forth herein or the unenforceability or invalidity of any
provision of any of the Investment Agreements, or (b) any cause of action, suit
or claim brought or made against such indemnitee (other than directly by the
Company solely for breach of this Agreement, the Warrant, the Note or the
Registration Rights Agreement by the indemnitee or by governmental or regulatory
authorities), and arising out of or resulting from (whether in whole or in part)
the execution, delivery, performance or enforcement of this Agreement or any
other Investment Agreements or any other instrument, document or agreement
executed pursuant hereto or thereto or contemplated hereby or thereby (including
without limitation the acquisition of the Convertible Securities, the Warrants,
the Convertible Shares, and/or the Warrant Shares), any transaction financed or
to be financed in whole or in part, directly or indirectly, with the proceeds of
the issuance of the Securities or the status of the Purchaser as an investor in
the Company, except to the extent that such actual loss or damage directly
results from a breach by such indemnitee of this Agreement, the Warrant, the
Note or the Registration Rights Agreement or from a violation of law. The right
to indemnification shall include the right to advancement of expenses as they
are incurred.
9.10 Public Filings; Publicity. Immediately following execution of
-------------------------
this Agreement, the Company shall issue a press release with respect to the
transactions contemplated hereby. The Company and the Purchaser shall have the
right to approve before issuance any press releases (including the foregoing
press release), SEC or other filings, or any other public statements, with
respect to the transactions contemplated
hereby; provided, however, that the Company shall be entitled, without the prior
approval of the Purchaser, to make any press release or SEC, Nasdaq, NASD or
exchange filings with respect to such transactions as is required by applicable
law and regulations (although the Purchaser shall (to the extent time permits)
be consulted by the Company in connection with any such press release prior to
its release and shall be provided with a copy thereof).
9.11 Further Assurances. Each party shall do and perform, or cause
------------------
to be done and performed, all such further acts and things, and shall execute
and deliver all such other agreements, certificates, instruments and documents,
as the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
9.12 Remedies. No provision of this Agreement providing for any
--------
remedy to the Purchaser shall limit any remedy which would otherwise be
available to the Purchaser at law or in equity. Nothing in this Agreement shall
limit any rights the Purchaser may have with any applicable federal or state
securities laws with respect to the investment contemplated hereby.
9.13 Directly or Indirectly. Where any provision in this Agreement
----------------------
refers to action to be taken by any Person, or which such Person is prohibited
from taking, such provision shall be applicable whether the action in question
is taken directly or indirectly by such Person.
9.14 Termination. In the event that the Closing shall not have
-----------
occurred by August 30, 1999, unless the parties agree otherwise, this Agreement
shall terminate.
IN WITNESS WHEREOF, the undersigned Purchaser and the Company have
caused this Agreement to be duly executed as of the date first above written.
# # #
[signature page to Securities Purchase Agreement]
COMPANY:
ONLINE SYSTEM SERVICES, INC.
By: /s/ Xxxxxxx X. Xxxxxx
-----------------------------------------
Name: Xxxxxxx X. Xxxxxx
----------------------------------
Title: EVP & CFO
---------------------------------
PURCHASER:
CASTLE CREEK TECHNOLOGY PARTNERS LLC
By: CASTLE CREEK PARTNERS LLC
Its: Managing Member
By: /s/ Xxxx Xxxxxxxxx
-----------------------------------------
Name: Xxxx Xxxxxxxxx
----------------------------------
Title: Managing Member
---------------------------------
SECURITIES PURCHASE AGREEMENT
-----------------------------
SCHEDULE OF EXHIBITS AND SCHEDULES
----------------------------------
EXHIBIT A Note
EXHIBIT B Warrant
EXHIBIT C Registration Rights Agreement
EXHIBIT D [Intentionally Omitted]
EXHIBIT E Opinion of Counsel
EXHIBIT F Irrevocable Instruction
EXHIBIT G [Intentionally Omitted]
EXHIBIT H Amendment to Capital Lease or other indebtedness, if applicable
SCHEDULE 3.3 Capitalization
SCHEDULE 3.6 Registration & SEC Documents
SCHEDULE 3.8 Litigation
SCHEDULE 3.17 Foreign Corrupt Practices
SCHEDULE 3.18 Key Employees
SCHEDULE 4.5 Stock Options
SCHEDULE 8.19 Leases
EXHIBIT E to the
---------
Stock Purchase Agreement
[FORM OF OPINION]
[ATTACHED HERETO OPINION FROM XXXX PLANT, XXXXX, XXXXX & XXXXXXX]
EXHIBIT F
to Securities Purchase Agreement
[FORM OF IRREVOCABLE INSTRUCTION - SUBJECT TO REVIEW AND DISCUSSION]
[COMPANY LETTERHEAD]
August __, 1999
COMPANY
ADDRESS
Attn: Stock Transfer Dept.
Ladies and Gentlemen:
Reference is made to that certain Securities Purchase Agreement (the "Securities
----------
Purchase Agreement"), a copy of which is enclosed, dated as of even date
------------------
herewith, by and between Online system Services, Inc., a Colorado corporation
(the "Company"), and the Purchasers set forth in the Securities Purchase
-------
Agreement (the "Holders"), pursuant to which the Company is issuing to the
-------
Holders the 10% Promissory Note, which are convertible into shares of Common
Stock ("Common Stock"), $________ par value per share, of the Company (such
------------
shares of Common Stock, the "Conversion Shares") and Warrants to acquire shares
-----------------
of Common Stock (such shares of Common Stock, the "Warrant Shares"). This
--------------
letter shall serve as our irrevocable authorization and direction to you with
respect to the issuance of Conversion Shares and the Warrant Shares.
Certificates for the Conversion Shares and the Warrant Shares shall not bear any
legend restricting their transfer and shall not be subject to any stop-transfer
restriction other than as permitted in Article V of the Securities Purchase
Agreement; provided, however, if the Conversion Shares and the Warrant Shares
are not registered for resale under the Securities Act of 1933, as amended,
then, subject to Article V of the Securities Purchase Agreement, the
certificates for the Conversion Shares and the Warrant Shares shall bear the
following legend (and only the following legend):
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.
Please be advised that each Holder is relying upon this letter as an inducement
to enter into the Securities Purchase Agreement and, accordingly, it is agreed
that each Holder is a third party beneficiary of these instructions. Moreover,
the Company cannot revoke or modify these instructions as to a particular Holder
(or its transferee) without the prior written consent of such Holder (or
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,
ONLINE SYSTEM SERVICES, INC.
By:__________________________________________
Its:_________________________________________
Agreed and Acknowledged as of ________________:
____________________________
By:____________________________
Name:__________________________
Title:_________________________
Enclosures
cc: [Initial Purchasers]
EXHIBIT A
Pro Forma Balance Sheet
[To be provided by the Company]
EXHIBIT B
to Securities Purchase 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 136,519 Shares of
Common Stock, no par value
Date: August 25, 1999
ONLINE SYSTEM 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 Online System Services, Inc., a Colorado corporation doing
business as Xxxx Interactive Services, Inc. (the "Company"), at any time or from
-------
time to time during the period specified in Section 2 hereof, 136,519 fully paid
and nonassessable shares of the Company's Common Stock, no par value (the
"Common Stock"), at an exercise price of $11.44 per share (the "Exercise
------------- --------
Price"). This Warrant is being issued pursuant to that certain Securities
Purchase Agreement dated August 25, 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-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 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
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;
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.
(ii) Issuance of Convertible Securities.
----------------------------------
(1) 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.
(2) 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 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 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 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 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 ($1,000,000.00) on the last day of the period (in each case, with
respect to the foregoing clauses (a) through (d), as reported by Bloomberg.
No sooner than ten (10) business days nor later than five (5) business days
prior to the consummation of the Major Transaction, but not prior to the
public
announcement of such Major Transaction, the Company shall deliver written
notice ("Notice of Major Transaction") to each holder of a Warrant, which
---------------------------
Notice of Major Transaction shall be deemed to have been delivered one (1)
business day after the Company's sending such notice by telecopy (provided
that the Company sends a confirming copy of such notice on the same day by
overnight courier) of such Notice of Major Transaction. Such Notice of
Major Transaction shall indicate the amount and type of the Major
Transaction consideration which such holder of a Warrant would receive
under this Section. If the Major Transaction Consideration is cash and does
not consist entirely of United States currency, such holder may elect to
receive United States currency in an amount equal to the value of the Major
Transaction Consideration in lieu of the Major Transaction Consideration by
delivering notice of such election to the Company within five (5) business
days of such holder's receipt of the Notice of Major Transaction.
The "Black-Scholes Amount" shall be the amount determined by
--------------------
calculating the "Black-Scholes" value of an option to purchase one share of
Common Stock on the applicable page on the Bloomberg online page, using the
following variable values: (i) the current market price of the Common
Stock equal to the closing trade price on the last trading day before the
date of the Notice of the Major Transaction; (ii) volatility of the Common
Stock equal to the volatility of the common Stock during the 100 trading
day period preceding the date of the Notice of the Major Transaction; (iii)
a risk free rate equal to the interest rate on the United States treasury
xxxx or treasury note with a maturity corresponding to the remaining term
of this Warrant on the date of the Notice of the Major Transaction; and
(iv) an exercise price equal to the Exercise Price on the date of the
Notice of the Major Transaction. In the event such calculation function is
no longer available utilizing the Bloomberg online page, the Holder shall
calculate such amount in its sole discretion using the closest available
alternative mechanism and variable values to those available utilizing the
Bloomberg online page for such calculation function.
(f) 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 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]
(h) 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 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.
(i) 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.
(j) 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 date of the Closing and ending
on the date that is six (6) months after the Registration Statement
required
pursuant to Section 2.1 of the Registration Rights Agreement is declared
effective, and while a Key Officer or director, directly or indirectly,
offers, sells, transfers, assigns, pledges, or otherwise disposes 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 enters 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 adjusted to be reduced by twenty (20%) percent of that Exercise
Price calculated pursuant to this Agreement; provided, however that a Key
-------- -------
Officer or director (and all such entities for the benefit of any member of
his/her family, collectively) may in the aggregate sell during the six (6)
month period following effectiveness of such Registration Statement up to
ten percent (10%) of his/her total holdings as of the date hereof without
triggering any adjustments pursuant to this section. For purposes of this
Section, a Key Officer shall mean R. Xxxxxx Xxxxx, Xxxxxxx X. Xxxxxxx,
-----------
Xxxxxxx X. Xxxxxx, Xxxxx Xxxxx, Xxxxx Xxxxxx, Xxxxxxx Xxxxx and Xxxxx
Xxxxxxxx and any individual who assumes or performs any of the duties of
any 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.
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.
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:
Online System Services, Inc.
0000 Xxxxxxx Xxxxx, Xxxxx 000
Xxxxxx, Xxxxxxxx 00000
Telecopy: (000) 000-0000
Attention: Xxxxxxx Xxxxxx
with a copy to:
Xxxx, Plant, Xxxxx, Xxxxx & Xxxxxxx, P.A.
3400 City Center
00 Xxxxx Xxxxx Xxxxxx
Xxxxxxxxxxx, XX 00000-0000
Telecopy: (000) 000-0000
Attention: Xxxxxxx X. Xxxxxxx, Esq.
and if to 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 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.
* * *
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer.
Online System Services, Inc.
By: /s/ Xxxxxxx X. Xxxxxx
-----------------------
Name: Xxxxxxx X. Xxxxxx
-------------------
Title: EVP & CFO
-----------
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 Online System 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:
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.
EXHIBIT C
to Securities Purchase Agreement
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement"), is made as of
---------
August 25, 1999, by and among Online System Services, Inc., a Colorado
corporation doing business as Xxxx Interactive Services, Inc. (the "Company"),
-------
with headquarters located at 0000 Xxxxxxx Xxxxx, Xxxxx 000, Xxxxxx, Xxxxxxxx,
00000, and Castle Creek Technology Partners LLC (the "Initial Purchaser").
-----------------
RECITALS
--------
A. In connection with the Securities Purchase Agreement dated of even
date herewith by and between the Company and the Initial Purchaser (the
"Securities Purchase Agreement"), the Company has agreed, upon the terms and
-----------------------------
subject to the conditions contained therein, to issue and sell to the Initial
Purchaser (i) an amount of the Company's three-year 10% Promissory Note (the
"Note") which is convertible into shares of the Company's Common Stock, no par
----
value (the "Common Stock"), (ii) a warrant in the form of Exhibit B (the
------------ ---------
"Warrant") entitling the holder thereof to purchase the number of shares (the
--------
"Warrant Shares") of Common Stock as set forth below. The Note and the PIK
---------------
Notes (as defined in the Note) are collectively referred to herein as the
"Convertible Securities". The shares of Common Stock issuable upon conversion
-----------------------
of or otherwise pursuant to the Convertible Securities are referred to herein as
the "Conversion Shares." The Convertible Securities, the Warrant, the
-----------------
Conversion Shares and the Warrant Shares are collectively referred to herein as
the "Securities".
----------
B. To induce the Initial Purchaser to execute and deliver the Securities
Purchase Agreement, the Company has agreed to provide certain registration
rights under the Securities Act of 1933, as amended, and the rules and
regulations thereunder, or any similar successor statute (collectively, the
"Securities Act"), and applicable state securities laws.
--------------
AGREEMENTS
----------
NOW THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company, and the Initial
Purchaser hereby agree as follows:
ARTICLE I
DEFINITIONS
-----------
1.1 Definitions. As used in this Agreement, the following terms
-----------
shall have the following meanings:
(a) "Purchasers" means the Initial Purchaser and any transferees or
----------
assignees who agree to become bound by the provisions of this Agreement
in accordance with Article IX hereof.
(b) "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 or any successor rule providing for offering
securities on a continuous basis ("Rule 415"), and the declaration or
--------
ordering of effectiveness of such Registration Statement by the United
States Securities and Exchange Commission (the "SEC").
---
(c) "Registrable Securities" means the Conversion Shares (including
----------------------
any Conversion Shares issuable with respect to payments under the Note)
issued or issuable with respect to the Convertible Securities and the
Warrant Shares issued or issuable with respect to the Warrant (without
regard to any limitations on conversion or exercise) and any shares of
capital stock or other securities issued or issuable, from time to time
(with any adjustments), on or in exchange for or otherwise with respect to
the Common Stock or any other Registrable Securities.
(d) "Registration Statement" means a registration statement of the
----------------------
Company under the Securities Act pursuant to the provisions of this
Agreement.
1.2 Capitalized Terms. Capitalized terms used herein and not otherwise
-----------------
defined herein shall have the respective meanings set forth in the Securities
Purchase Agreement.
ARTICLE II
REGISTRATION
------------
2.1 Mandatory Registration. The Company shall prepare and file as soon as
----------------------
practicable but in any event on or prior to thirty (30) days after the date of
the Closing with the SEC a Registration Statement on Form S-3 (or, if Form S-3
is not then available, on such form of Registration Statement as is then
available to effect a registration of all of the Registrable Securities, subject
to the consent of the Initial Purchaser) covering the resale of all of the
Registrable Securities issuable upon full conversion of the Convertible
Securities and full exercise of the Warrant purchased and sold at the Closing,
including for purposes of this Section 2.1 any PIK Notes and without regard to
any limitation on any conversion or exercise, but limited to 1,129,568 shares of
Common Stock. The Registration Statement (and each amendment or supplement
thereto, and each request for acceleration of effectiveness thereof) shall be
provided to (and subject to the approval of (which approval shall not be
unreasonably withheld or denied)) the Initial Purchaser and its counsel at least
seven (7) business days (or fewer to the extent provided herein) prior to its
filing or other submission. The Company shall also prepare and file such
amendments to registration statements and such additional registration
statements as may from time to time be required by this Agreement.
2.2 Underwritten Offering. If any offering pursuant to a Registration
---------------------
Statement pursuant to Section 2.1 hereof involves an underwritten offering, the
initial Purchaser shall have the right to select legal counsel to represent it
and an investment banker or bankers and manager or managers to administer the
offering, which investment banker or bankers or manager or managers shall be
reasonably satisfactory to the Company.
2.3 Payments by the Company. The Company shall use its best efforts to
-----------------------
cause each Registration Statement required to be filed pursuant to Section 2.1
hereof to become effective as soon as practicable, but in no event later than
the ninetieth (90th) day (but 120th day if reviewed by SEC) following the
Closing Date (the "Registration Deadline"). If a Registration Statement covering
---------------------
the Registrable Securities required to be filed by the Company pursuant to
Section 2.1 or Section 3.2 hereof is not declared effective by the SEC on or
before the applicable Registration Deadline (a "Registration Failure"), or if
--------------------
after such Registration Statement has been declared effective by the SEC, sales
of all the Registrable Securities covered thereby cannot be made pursuant to
such Registration Statement (by reason of a stop order or the Company's failure
to update the registration statement or any other reason outside the control of
the Purchasers) (a "Registration Suspension"), then the Company will make
-----------------------
payments to the Purchasers in such amounts and at such times as shall be
determined pursuant to this Section 2.3 as partial relief for the damages to the
Purchasers by reason of any such delay in or reduction of their ability to sell
the Registrable Securities (which remedy shall not be exclusive of any other
remedies available at law or in equity). In the event of a Registration
Failure, the Company shall pay to the Purchasers an amount equal to (A) the
Multiplier (as defined below) times (B) the Funded Amount (as defined below)
-----
times (C) the number of months (prorated per day for partial months) following
-----
the applicable Registration Deadline prior to the date the applicable
Registration Statement filed pursuant to Section 2.1 or Section 3.2 is declared
effective by the SEC. In addition, in the event of a Registration Suspension,
the Company shall pay to the Purchasers an amount equal to (D) the Multiplier
times (E) the Funded Amount times (F) the number of months (prorated per day for
-----
partial months) from (x) the date on which sales of all the Registrable
Securities first cannot be made to (y) the date on which sales of all such
Registrable Securities can again be made. With respect to any given
Registration Statement, the "Funded Amount" means the aggregate purchase price
-------------
of the Convertible Securities and the Warrant relating to the Common Stock
registered (or to be registered) on such Registration Statement. Amounts to be
paid pursuant to this Section 2.3 shall be paid pro rata to Purchasers based
upon the number of Conversion Shares and Warrant Shares owned by them
(including, for these purposes, Conversion Shares issuable upon full conversion
of the Convertible Securities and Warrant Shares issuable upon full exercise of
the Warrant by each Purchaser, in each case without regard to any limitations
upon exercise and conversion contained therein) and shall be paid in cash. Such
payments shall be made within five (5) days after the end of each period that
gives rise to
such obligation, provided that, if any such period extends for more than thirty
(30) days, payments shall be made for each such thirty (30) day period within
five (5) days after the end of such thirty (30) day period. For purposes of this
Section 2.3, the "Multiplier" is equal to (a) for the first thirty (30) days in
----------
the aggregate of any Registration Failures and Registration Suspensions, 0.01;
(b) for the second thirty (30) days in the aggregate of any Registration
Failures and Registration Suspensions, 0.015; (c) for the third thirty (30) days
in the aggregate and all successive thirty (30) day periods thereafter in the
aggregate of any Registration Failures and Registration Suspensions, 0.02.
Without limiting the foregoing, the Company shall cause the initial such
Registration Statement required to be filed pursuant to Section 2.1 hereof to
become effective within 180 days of the Closing Date and shall not permit such
Registration Statement (or any other Registration Statement hereunder) after it
becomes so effective to cease to be effective or available for use for five
consecutive trading days or ten trading days in any twelve month period.
2.4 Piggy-Back Registrations. If at any time prior to the expiration of
------------------------
the Registration Period (as hereinafter defined) the Company shall file with the
SEC a Registration Statement relating to an offering for its own account or the
account of others under the Securities Act of any of its equity securities
(other than on Form S-4 or Form S-8 or their then equivalents relating to equity
securities to be issued solely in connection with any acquisition of any entity
or business or equity securities issuable in connection with stock option or
other employee benefit plans), then the Company shall send to each Purchaser who
has a right to have Registrable Securities covered by a Registration Statement
pursuant to this Agreement written notice of such determination and, if within
fifteen (15) days after the date of such notice, such Purchaser shall so request
in writing, the Company shall include in such Registration Statement all or any
part of the Registrable Securities such Purchaser requests to be registered,
except that if, in connection with any underwritten public offering for the
account of the Company 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 such underwriter(s)' judgment, marketing or
other factors dictate such limitation is necessary to facilitate public
distribution, then the Company shall be obligated to include in such
Registration Statement only such limited portion of the Registrable Securities
with respect to which such Purchaser has requested inclusion hereunder as the
underwriter shall permit. Any exclusion of Registrable Securities shall be made
pro rata among the Purchasers seeking to include Registrable Securities, in
proportion to the number of Registrable Securities sought to be included by such
Purchasers; 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, however, 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. No
right to registration of Registrable Securities under this Section 2.4 shall be
construed to limit any registration required under Section 2.1 or 3.2 hereof. If
an offering in connection with which a Purchaser is entitled to registration
under this Section 2.4 is an underwritten offering, then each Purchaser whose
Registrable Securities are included in such Registration Statement shall, unless
otherwise agreed by the Company, offer and sell such Registrable Securities in
an underwritten offering using the same underwriter or underwriters and, subject
to the provisions of this Agreement, on the same terms and conditions as other
shares of Common Stock included in such underwritten offering. So long as a
Registration Statement is effective and immediately available for use so that
all of the Registrable Securities may be sold in reliance thereon, the
provisions of this section shall not apply.
2.5 Eligibility for Form S-3. The Company represents and warrants that it
------------------------
is currently eligible to register the resale of the Conversion Shares, Warrant
Shares and all Registrable Securities by the Purchaser on a Registration
Statement on Form S-3 under the Securities Act for the account of Purchaser (and
not for or on behalf of Company). The Company shall file all reports required to
be filed by the Company with the SEC in a timely manner and take all other
actions which may be required so as to maintain such eligibility for the use of
Form S-3.
ARTICLE III
OBLIGATIONS OF THE COMPANY
--------------------------
In connection with the registration of the Registrable Securities, the
Company shall have the following obligations, including with respect to each
Registration Statement required to be filed hereunder:
3.1 The Company shall prepare promptly and file with the SEC the
Registration Statement required by Section 2.1, and cause such Registration
Statement relating to Registrable Securities to become effective as soon as
practicable after such filing, and keep the Registration Statement effective
pursuant to Rule 415 and available for use at all times until such date as is
the earlier of (i) the date on which all of the Registrable Securities have been
sold (and no further Registrable Securities may be issued in the future) and
(ii) the date on which all of the Registrable Securities (in the reasonable
opinion of counsel to the Initial Purchaser) may be immediately sold to the
public without registration and without restriction as to the number of
Registrable Securities to be sold, whether pursuant to Rule 144 or otherwise
(the "Registration Period"). The Registration Statement (including any
-------------------
amendments or supplements thereto and prospectuses contained therein and all
documents incorporated by reference therein) shall not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein, or necessary to make the statements therein not misleading.
3.2 The Company shall prepare and file with the SEC such amendments
(including post-effective amendments) and supplements to a Registration
Statement and the prospectus used in connection with the Registration Statement
as may be necessary to keep the Registration Statement effective and immediately
available for use at all times during the Registration Period, and, during such
period, comply with the provisions of the Securities Act with respect to the
disposition of all Registrable Securities of the Company
covered by the Registration Statement until the termination of the Registration
Period or, if earlier, such time as all of such Registrable Securities have been
disposed of in accordance with the intended methods of disposition by the seller
or sellers thereof as set forth in the Registration Statement. In the event the
number of shares available under a Registration Statement filed pursuant to this
Agreement is, at any time, insufficient to cover one hundred fifty percent
(150%) of the Registrable Securities issued or issuable upon conversion of the
Convertible Securities or upon exercise of the Warrant (in each case, without
giving effect to any limitation on conversion or exercise thereof) held by any
Purchaser and required to be covered by such Registration Statement pursuant to
Section 2.1 or Section 3.2 hereof, the Company shall amend, if permissible, the
Registration Statement, or file a new Registration Statement (on the short form
available therefor, if applicable), or both, so as to cover two hundred percent
(200%) of the Registrable Securities issued or issuable to such Purchaser upon
such exercise or conversion (in each case, without giving effect to any
limitation on conversion or exercise thereof), in each case, as soon as
practicable, but in any event within five (5) business days. The Company shall
cause such amendment and/or new Registration Statement to become effective as
soon as practicable following the filing thereof, but in any event within five
(5) business days with respect to amendment and ten (10) business days with
respect to a new Registration Statement (each such deadline also being a
"Registration Deadline").
Notwithstanding the foregoing, in the event the SEC reviews an amendment or
a new Registration Statement filed pursuant to this Agreement and so long as (i)
the Company in good faith uses its best efforts to address and resolve each and
all of the SEC comments made pursuant to such review and (ii) the Purchaser may
sell up to and including 100% of the Registrable Securities under an effective
Registration Statement which is immediately available for use so that all of the
Registrable Securities may be sold in reliance thereon, then the Company shall
not be subject to the payment provisions of Section 2.3 until such date of not
more than thirty (30) days from the date when such Registration Deadline or
Registration Failure first occurred.
3.3 The Company shall furnish to each Purchaser whose Registrable
Securities are included in the Registration Statement and its legal counsel (a)
promptly after the same is prepared and publicly distributed, filed with the
SEC, or received by the Company, one copy of the Registration Statement and any
amendment thereto, each preliminary prospectus and prospectus and each amendment
or supplement thereto, and, in the case of the Registration Statement referred
to in Section 2.1, each letter written by or on behalf of the Company to the SEC
or the staff of the SEC, and each item of correspondence from the SEC or the
staff of the SEC, in each case relating to such Registration Statement (other
than any portion, if any, thereof which contains information for which the
Company has sought confidential treatment), and (b) such number of copies of a
prospectus, including a preliminary prospectus, and all amendments and
supplements thereto and such other documents as such Purchaser may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned (or to be owned) by such Purchaser.
3.4 The Company shall (a) register and qualify the Registrable Securities
covered by the Registration Statement under securities laws of such
jurisdictions in the United States as each Initial Purchaser who holds (or has
the right to hold) Registrable Securities being offered reasonably requests, (b)
prepare and file in those jurisdictions such amendments (including post-
effective amendments) and supplements to such registrations and qualifications
as may be necessary to maintain the effectiveness thereof and availability for
use during the Registration Period, (c) take such other actions as may be
necessary to maintain such registrations and qualifications in effect at all
times during the Registration Period, and (d) take all other actions reasonably
necessary or advisable to qualify the Registrable Securities for sale in such
jurisdictions; provided, however, that the Company shall not be required in
connection therewith or as a condition thereto to (i) qualify to do business in
any jurisdiction where it would not otherwise be required to qualify but for
this Section 3.4, (ii) subject itself to general taxation in any such
jurisdiction, (iii) file a general consent to service of process in any such
jurisdiction, (iv) make any change in its charter or by-laws, which in each case
the board of directors of the Company determines to be contrary to the best
interests of the Company and its stockholders. Notwithstanding the foregoing,
this Section 3.4 shall only be for the benefit of Initial Purchaser and any
transferee of Initial Purchaser of $500,000 of the face amount of Securities at
the time of such transfer.
3.5 In the event the Purchaser in an offering pursuant to a Registration
Statement or any amendment or supplement thereto under Section 2.1 or Section
3.2 hereof and the Initial Purchaser elects underwriters for the offering, the
Company shall enter into and perform its obligations under an underwriting
agreement, in usual and customary form, including, without limitation, customary
indemnification and contribution obligations, with the underwriters of such
offering.
3.6 As soon as practicable after becoming aware of such event, the Company
shall notify (by telephone and also by facsimile and reputable overnight
courier) each Purchaser of the happening of any event, of which the Company has
knowledge, as a result of which the prospectus included in the Registration
Statement, as then in effect, includes an untrue statement of a material fact or
omission to state a material fact required to be stated therein or necessary to
make the statements therein not misleading, and use its best efforts as soon as
possible (but in any event within five (5) days) to prepare a supplement or
amendment to the Registration Statement (and make all required filings with the
SEC) to correct such untrue statement or omission, and the Company shall
simultaneously (and thereafter as requested) deliver such number of copies of
such supplement or amendment (or other applicable document) to each Purchaser as
such Purchaser may request in writing.
3.7 The Company shall use its best efforts to prevent the issuance of any
stop order or other suspension of effectiveness of a Registration Statement,
and, if such an order is issued, to obtain the withdrawal of such order at the
earliest practicable time and the Company shall immediately notify by facsimile
each Purchaser (at the facsimile number for such Purchaser set forth on the
signature page hereto) who holds Registrable
Securities being sold (or, in the event of an underwritten offering, the
managing underwriters) of the issuance of such order and the resolution thereof.
3.8 The Company shall permit a counsel designated by the Initial Purchaser
to review the Registration Statement and all amendments and supplements thereto
a reasonable period of time prior to their filing with the SEC, and not file any
document in a form to which such counsel reasonably objects.
3.9 The Company shall make generally available to its security holders as
soon as practical, but not later than ninety (90) days after the close of the
period covered thereby, an earnings statement (in form complying with the
provisions of Rule 158 under the Securities Act) covering a twelve-month period
beginning not later than the first day of the Company's fiscal quarter next
following the effective date of the Registration Statement.
3.10 At the request of any Purchaser, the Company shall use reasonable
efforts to furnish, on the date of effectiveness of the Registration Statement
and thereafter from time to time on such dates as a Purchaser may reasonably
request but not more frequently than once every three months (a) an opinion,
dated as of such applicable date, from counsel representing the Company
addressed to the Purchasers and in form, scope and substance as is customarily
given in an underwritten public offering and (b) a letter, dated as of such
applicable date, from the Company's independent certified public accountants
addressed to the Purchasers and in form, scope and substance as customarily
given to underwriters in an underwritten public offering. Such requests made by
Purchaser shall not result in the Company bearing expenses which in light of all
the facts and circumstances and existing law and interpretations would be
unreasonable.
3.11 The Company shall make available for inspection by (i) any Purchaser,
(ii) any underwriter participating in any disposition pursuant to the
Registration Statement, (iii) attorneys and accountants retained by any
Purchaser, and (iv) attorneys retained by such underwriters (collectively, the
"Inspectors") all pertinent financial and other records, and pertinent corporate
----------
documents and properties of the Company (collectively, the "Records"), as shall
-------
be reasonably deemed necessary by each Inspector and cause the Company's
officers, directors and employees to supply all information which any Inspector
may reasonably request; provided, however, that each Inspector shall hold in
confidence and shall not make any disclosure (except to a Purchaser) of any
Record or other information which the Company determines in good faith to be
confidential, and of which determination the Inspectors are so notified in
writing, unless (a) the disclosure of such Records is necessary to avoid or
correct a misstatement or omission in any Registration Statement or is otherwise
required to be disclosed in such Registration Statement to permit Purchaser to
sell under such Registration Statement, (b) the release of such Records is
ordered pursuant to a subpoena or other order from a court or government body of
competent jurisdiction, or is otherwise required by applicable law or legal
process or (c) the information in such Records has been made generally available
to the public other than by disclosure in violation of this or any other
agreement (to the
knowledge of the relevant Purchaser). The Company shall not be required to
disclose any confidential information in such Records to any Inspector until and
unless such Inspector shall have entered into confidentiality agreements (in
form and reasonable substance satisfactory to the Company) with the Company with
respect thereto, substantially in the form of this Section 3.11. Each Purchaser
agrees that it shall, upon learning that disclosure of such Records is sought in
or by a court or governmental body of competent jurisdiction or through other
means, give prompt notice to the Company and allow the Company, at its expense,
to undertake appropriate action to prevent disclosure of, or to obtain a
protective order for, the Records deemed confidential. Nothing herein shall be
deemed to limit a Purchaser's ability to sell Registrable Securities in a manner
which is consistent with applicable laws and regulations.
3.12 The Company shall hold in confidence and not make any disclosure of
information concerning a Purchaser provided to the Company unless (a) disclosure
of such information is necessary to comply with federal or state securities
laws, (b) the disclosure of such information is necessary to avoid or correct a
misstatement or omission in any Registration Statement, (c) the release of such
information is ordered pursuant to a subpoena or other order from a court or
governmental body of competent jurisdiction or is otherwise required by
applicable law or legal process, (d) such information has been made generally
available to the public other than by disclosure in violation of this or any
other agreement (to the knowledge of the Company), or (e) such Purchaser
consents to the form and content of any such disclosure. The Company agrees that
it shall, upon learning that disclosure of such information concerning a
Purchaser is sought in or by a court or governmental body of competent
jurisdiction or through other means, give prompt notice to such Purchaser prior
to making such disclosure, and allow the Purchaser, at its expense, to undertake
appropriate action to prevent disclosure of, or to obtain a protective order
for, such information.
3.13 From and after Closing, the Company shall cause the listing and the
continuation of listing of all the Registrable Securities on Nasdaq Smallcap
Market and the Company shall use its best efforts to list its Common Stock on
the Nasdaq National Market System or the New York Stock Exchange and cause the
Registrable Securities to be quoted or listed on each additional national
securities exchange or quotation system upon which the Common Stock is then
listed or quoted.
3.14 The Company shall provide a transfer agent and registrar, which may
be a single entity, for the Registrable Securities not later than the effective
date of the Registration Statement.
3.15 The Company shall cooperate with the Purchasers who hold Registrable
Securities being offered and the managing underwriter or underwriters, if any,
to facilitate the timely preparation and delivery of certificates (not bearing
any restrictive legends) representing Registrable Securities to be offered
pursuant to the Registration Statement and enable such certificates to be in
such denominations or amounts, as the case may be, as the managing underwriter
or underwriters, if any, or the Purchasers may reasonably
request and registered in such names as the managing underwriter or
underwriters, if any, or the Purchasers may request, and, within one (1)
business day after a Registration Statement which includes Registrable
Securities is ordered effective by the SEC, the Company shall cause legal
counsel selected by the Company to deliver, to the transfer agent for the
Registrable Securities (with copies to the Purchasers whose Registrable
Securities are included in such Registration Statement) an opinion of such
counsel in the form attached hereto as Exhibit 1.
---------
3.16 At the request of any Purchaser, the Company shall promptly prepare
and file with the SEC such amendments (including post-effective amendments) and
supplements to a Registration Statement and the prospectus used in connection
with the Registration Statement as may be necessary in order to change the plan
of distribution set forth in such Registration Statement.
3.17 The Company shall comply with all applicable laws related to a
Registration Statement and offering and sale of securities covered by the
Registration Statement and all applicable rules and regulations of governmental
authorities in connection therewith (including, without limitation, the
Securities Act and the Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated by the Commission).
3.18 The Company shall take all such other actions as any Purchaser or the
underwriters, if any, reasonably request in order to expedite or facilitate the
disposition of such Registrable Securities.
3.19 From and after the date of this Agreement, the Company shall not, and
shall not agree to, allow the holders of any securities of the Company (other
than Purchasers with respect to Registrable Securities) to include any of their
securities in any Registration Statement or any amendment or supplement thereto
under Section 2.1 or 3.2 hereof without the consent of the Initial Purchaser.
3.20 The Registration Statement shall state that it covers such
indeterminate number of additional shares as may be issuable upon conversion of
the Convertible Securities or exercise of the Warrant to prevent dilution
resulting from stock splits, stock dividends and other similar transactions.
ARTICLE IV
OBLIGATIONS OF THE PURCHASERS
-----------------------------
In connection with the registration of the Registrable Securities, each
Purchaser shall have the following obligations:
4.1 Purchaser shall furnish to the Company such information regarding
itself, the Registrable Securities held by it and the intended method of
disposition of the Registrable Securities held by it as shall be required to
effect the registration of such Registrable Securities. At least five (5)
business days prior to the first anticipated filing
date of the Registration Statement, the Company shall notify each Purchaser of
the information the Company requires from each such Purchaser.
4.2 Each Purchaser, by such Purchaser's acceptance of the Registrable
Securities, agrees to cooperate with the Company as reasonably requested by the
Company in connection with the preparation and filing of the Registration
Statements hereunder, unless such Purchaser has notified the Company in writing
of such Purchaser's election to exclude all of such Purchaser's Registrable
Securities from the Registration Statement.
4.3 Each Purchaser whose Registrable Securities are included in a
Registration Statement understands that the Securities Act may require delivery
of a prospectus relating thereto in connection with any sale thereof pursuant to
such Registration Statement, and each such Purchaser shall use its reasonable
efforts to comply with the applicable prospectus delivery requirements of the
Securities Act in connection with any such sale.
4.4 Intentionally Deleted.
---------------------
4.5 Each Purchaser agrees that, upon receipt of written notice from the
Company of the happening of any event of the kind described in Section 3.6, such
Purchaser will immediately discontinue disposition of Registrable Securities
pursuant to the Registration Statement covering such Registrable Securities
until such Purchaser's receipt of the copies of the supplemented or amended
prospectus contemplated by Section 3.6 or advice that a supplement or amendment
is not required and, if so directed by the Company, such Purchaser shall deliver
to the Company (at the expense of the Company) or destroy (and deliver to the
Company a certificate of destruction) all copies in such Purchaser's possession
(other than a limited number of permanent file copies), of the prospectus
covering such Registrable Securities current at the time of receipt of such
notice. Purchaser's obligations under this paragraph shall in no way limit the
Company's obligations under this Agreement or Purchaser's rights or remedies
against the Company with respect to any breach or threatened breach by the
Company of any such obligations.
4.6 Without limiting a Purchaser's rights under Section 2.1 or 3.2 hereof,
no Purchaser may participate in any underwritten distribution hereunder unless
such Purchaser (a) agrees to sell such Purchaser's Registrable Securities on the
basis provided in any underwriting agreements in usual and customary form
entered into by the Company pursuant to Section 3.5 hereof, (b) completes and
executes all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents reasonably required under the terms of such
underwriting arrangements, and (c) agrees to pay its pro rata share of all
underwriting discounts and commissions and any expenses in excess of those
payable by the Company pursuant to Article V. Without implication that the
contrary would otherwise be true, it is expressly understood and agreed that no
Purchaser shall be required to participate in any such underwritten
distribution.
ARTICLE V
EXPENSES OF REGISTRATION
------------------------
All expenses, other than underwriting discounts and commissions, incurred
in connection with registrations, filings or qualifications pursuant to Articles
II and III, including, without limitation, all registration, listing and
qualification fees, printers and accounting fees, the fees and disbursements of
counsel for the Company, and the reasonable fees and disbursements of the
Inspectors selected by the Initial Purchaser pursuant to Section 3.11, hereof
shall be borne by the Company; provided that the Company shall not be obligated
--------
to pay any fees or expenses of the Inspectors in an amount in excess of Five
Thousand Dollars ($5,000.00) for each Registration Statement.
ARTICLE VI
INDEMNIFICATION
---------------
In the event any Registrable Securities are included in a Registration
Statement under this Agreement:
6.1 To the extent permitted by law, the Company will indemnify, hold
harmless and defend (a) each Purchaser who holds such Registrable Securities,
(b) each underwriter of Registrable Securities and (c) the directors, officers,
partners, members, employees, agents and persons who control any Purchaser
within the meaning of Section 15 of the Securities Act or Section 20 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), if any, (each,
------------
an "Indemnified Person"), against any losses, claims, damages, liabilities or
------------------
expenses (collectively, together with actions, proceedings or inquiries whether
or not in any court, before any administrative body or by any regulatory or
self-regulatory organization, whether commenced or threatened, in respect
thereof, "Claims") to which any of them may become subject insofar as such
------
Claims arise out of or are based upon: (i) any untrue statement or alleged
untrue statement of a material fact in a Registration Statement or the omission
or alleged omission to state therein a material fact required to be stated or
necessary to make the statements therein not misleading, (ii) any untrue
statement or alleged untrue statement of a material fact contained in any
preliminary prospectus if used prior to the effective date of such Registration
Statement, or contained in the final prospectus (as amended or supplemented, if
the Company files any amendment thereof or supplement thereto with the SEC) or
the omission or alleged omission to state therein any material fact necessary to
make the statements made therein, in light of the circumstances under which the
statements therein were made, not misleading, or (iii) any violation or alleged
violation by the Company of the Securities Act, the Exchange Act, any other law,
including, without limitation, any state securities law, or any rule or
regulation thereunder relating to the offer or sale of the Registrable
Securities (the matters in the foregoing clauses (i) through (iii) being,
collectively, "Violations"). The Company shall reimburse each such Indemnified
----------
Person, promptly as such expenses are incurred and are due and payable, for any
reasonable legal fees or other reasonable expenses incurred by them in
connection with investigating or defending any such Claim. Notwithstanding
anything to the
contrary contained herein, the indemnification agreement contained in this
Section 6.1: (x) shall not apply to an Indemnified Person with respect to a
Claim arising out of or based upon a Violation which occurs in reliance upon and
in conformity with information furnished in writing to the Company by such
Indemnified Person expressly for use in the Registration Statement or any such
amendment thereof or supplement thereto; (y) shall not apply to amounts paid in
settlement of any Claim if such settlement is effected without the prior written
consent of the Company, which consent shall not be unreasonably withheld; and
(z) with respect to any preliminary prospectus, shall not inure to the benefit
of any Indemnified Person if the untrue statement or omission of material fact
contained in the preliminary prospectus was corrected on a timely basis in the
prospectus, as then amended or supplemented, if such corrected prospectus was
timely made available by the Company pursuant to Section 3.3 hereof, and the
Indemnified Person was promptly advised in writing not to use the incorrect
prospectus prior to the use giving rise to a Violation and such Indemnified
Person, notwithstanding such advice, used it. Such indemnity shall remain in
full force and effect regardless of any investigation made by or on behalf of
the Indemnified Person and shall survive the transfer of the Registrable
Securities by a Purchaser pursuant to Article IX.
6.2 In connection with any Registration Statement in which a Purchaser is
participating, each such Purchaser agrees to indemnify, hold harmless and
defend, to the same extent and in the same manner set forth in Section 6.1, the
Company, each of its directors, each of its officers who signs the Registration
Statement, its employees, agents and persons, if any, who control the Company
within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act, and any other stockholder selling securities pursuant to the
Registration Statement, together with its directors, officers and members, and
any person who controls such stockholder or underwriter within the meaning of
the Securities Act or the Exchange Act (such an "Indemnified Party"), against
-----------------
any Claim to which any of them may become subject, under the Securities Act, the
Exchange Act or otherwise, insofar as such Claim arises out of or is 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 to the Company by such Purchaser expressly for use in connection with
such Registration Statement; and such Purchaser will reimburse any legal or
other expenses (promptly as such expenses are incurred and are due and payable)
reasonably incurred by them in connection with investigating or defending any
such Claim; provided, however, that the indemnity agreement contained in this
Section 6.2 shall not apply to amounts paid in settlement of any Claim if such
settlement is effected without the prior written consent of such Purchaser,
which consent shall not be unreasonably withheld; provided, further, however,
that a Purchaser shall be liable under this Agreement (including this Section
6.2 and Article VII) for only that amount as does not exceed the net proceeds
actually received by such Purchaser as a result of the sale of Registrable
Securities pursuant to such Registration Statement. Such indemnity shall remain
in full force and effect regardless of any investigation made by or on behalf of
such Indemnified Party and shall survive the transfer of the Registrable
Securities by a Purchaser pursuant to Article IX. Notwithstanding anything to
the contrary contained herein, the indemnification
agreement contained in this Section 6.2 with respect to any preliminary
prospectus shall not inure to the benefit of any Indemnified Party if the untrue
statement or omission of material fact contained in the preliminary prospectus
was corrected on a timely basis in the prospectus, as then amended or
supplemented, and the Indemnified Party failed to utilize such corrected
prospectus.
6.3 Promptly after receipt by an Indemnified Person or Indemnified Party
under this Article VI of notice of the commencement of any action (including any
governmental action), such Indemnified Person or Indemnified Party shall, if a
Claim in respect thereof is to be made against any indemnifying party under this
Article VI, 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 the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, to assume control of the
defense thereof with counsel mutually satisfactory to the indemnifying party and
the Indemnified Person or the Indemnified Party, as the case may be; provided,
however, that such indemnifying party shall diligently pursue such defense and
that such indemnifying party shall not be entitled to assume such defense and an
Indemnified Person or Indemnified Party shall have the right to retain its own
counsel with the fees and expenses to be paid by the indemnifying party, if the
representation by such counsel of the Indemnified Person or Indemnified Party
and the indemnifying party would be inappropriate due to actual or potential
conflicts of interest between such Indemnified Person or Indemnified Party and
any other party represented by such counsel in such proceeding or the actual or
potential defendants in, or targets of, any such action include both the
Indemnified Person or the Indemnified Party and any such Indemnified Person or
Indemnified Party reasonably determines that there may be legal defenses
available to such Indemnified Person or Indemnified Party which are different
from or in addition to those available to such indemnifying party. The
indemnifying party shall pay for only one separate legal counsel for the
Indemnified Persons or the Indemnified Parties, as applicable, and such legal
counsel shall be selected by Purchasers holding a majority-in-interest of the
Registrable Securities included in the Registration Statement to which the Claim
relates (with the approval of the Initial Purchaser if it holds Registrable
Securities included in such Registration Statement), if the Purchasers are
entitled to indemnification hereunder, or by the Company, if the Company is
entitled to indemnification hereunder, as applicable. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action shall not relieve such indemnifying party of any
liability to the Indemnified Person or Indemnified Party under this Article VI,
except to the extent that the indemnifying party is actually prejudiced in its
ability to defend such action. The indemnification required by this Article VI
shall be made by periodic payments of the amount thereof during the course of
the investigation or defense, as such expense, loss, damage or liability is
incurred and is due and payable.
ARTICLE VII
CONTRIBUTION
------------
To the extent any indemnification by an indemnifying party is prohibited or
limited by law, the indemnifying party agrees to make the maximum contribution
with respect to any amounts for which it would otherwise be liable under Article
VI to the fullest extent permitted by law; provided, however, that (i) no person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person of
Registrable Securities who was not guilty of such fraudulent misrepresentation,
and (ii) contribution (together with any indemnification or other obligations
under this Agreement) by any seller of Registrable Securities shall be limited
in amount to the net amount of proceeds received by such seller from the sale of
such Registrable Securities.
ARTICLE VIII
REPORTS UNDER THE EXCHANGE ACT
------------------------------
With a view to making available to the Purchasers the benefits of Rule 144
promulgated under the Securities Act or any other similar rule or regulation of
the SEC that may at any time permit the Purchasers to sell securities of the
Company to the public without registration ("Rule 144"), the Company agrees to:
--------
8.1 File with the SEC in a timely manner and make and keep available all
reports and other documents required of the Company under the Securities Act and
the Exchange Act so long as the Company remains subject to such requirements (it
being understood that nothing herein shall limit the Company's obligations under
Section 4.3 of the Securities Purchase Agreement) and the filing and
availability of such reports and other documents is required for the applicable
provisions of Rule 144; and
8.2 Furnish to each Purchaser so long as such Purchaser holds Convertible
Securities, the Warrant or Registrable Securities, promptly upon request, (i) a
written statement by the Company that it has complied with the reporting
requirements of Rule 144, the Securities Act and the Exchange Act, (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 to permit the Purchasers to sell such securities
pursuant to Rule 144 without registration. This Section 8.2 shall not apply in
the event all of the Registrable Securities are registered on a Registration
Statement declared effective by the SEC and which is immediately available for
use for the sale or transfer of the Registrable Securities herein, or two years
has lapsed since the date of this agreement and the Securities may be sold or
transferred in reliance on Section (k) of Rule 144 of the Securities Act of
1933.
ARTICLE IX
ASSIGNMENT OF REGISTRATION RIGHTS
---------------------------------
The rights of the Purchasers hereunder, including the right to have the
Company register Registrable Securities pursuant to this Agreement, shall be
automatically assigned by each Purchaser to any transferee of all or any portion
of the Convertible Securities or the Registrable Securities if: (a) the
Purchaser agrees in writing with the transferee or assignee to assign such
rights, and a copy of such agreement is furnished to the Company within a
reasonable time after such assignment, (b) the Company is, within a reasonable
time after such transfer or assignment, furnished with written notice of (i) the
name and address of such transferee or assignee, and (ii) the securities with
respect to which such registration rights are being transferred or assigned, (c)
following such transfer or assignment, the further disposition of such
securities by the transferee or assignee is restricted under the Securities Act
or applicable state securities laws, and (d) at or before the time the Company
receives the written notice contemplated by clause (ii) of this sentence, the
transferee or assignee agrees in writing for the benefit of the Company to be
bound by all of the provisions contained herein. The rights of a Purchaser
hereunder with respect to any Registrable Securities not transferred (and not
represented by Convertible Securities or the Warrant transferred) shall not be
assigned by virtue of the transfer of other Registrable Securities or
transferred Convertible Securities or the Warrant representing other Registrable
Securities. Any such transferee who succeeds to rights hereunder shall be deemed
to have a separate agreement with the Company independent of this Agreement.
ARTICLE X
AMENDMENT OF REGISTRATION RIGHTS
--------------------------------
Provisions of this Agreement may be amended and the observance thereof may
be waived (either generally or in a particular instance and either retroactively
or prospectively), only with written consent of the Company and the Initial
Purchaser. In the event of the assignment of rights hereunder pursuant to
Article IX, the Company shall not take any action pursuant to such assignment
rights that would adversely affect Purchaser's rights hereunder without
Purchaser's consent. In addition, should the Company take any action or refrain
from any action with respect thereto, Purchaser shall be entitled to, at its
option, have the Company take such action or refrain from such action with
respect to Purchaser hereunder.
ARTICLE XI
MISCELLANEOUS
-------------
11.1 A person or entity is deemed to be a holder (or a holder in interest)
of Registrable Securities whenever such person or entity owns of record such
Registrable Securities (or the Convertible Securities or the Warrant which may
be converted into or exercised for Registrable Securities). If the Company
receives conflicting instructions, notices or elections from two or more persons
or entities with respect to the same
Registrable Securities, the Company shall act upon the basis of instructions,
notice or election received from the registered owner of such Registrable
Securities (or Convertible Securities or the Warrant, as the case may be).
11.2 Any notices herein required or permitted to be given shall be in
writing and may be personally served or delivered by courier or by machine-
generated 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:
Online System Services, Inc.
0000 Xxxxxxx Xxxxx, 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.
if to any Purchaser, at such address as such Purchaser, 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 11.2.
11.3 Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.
11.4 This Agreement 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 federal courts located in the State of New York in any suit
or proceeding based on or arising under this Agreement 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 parties hereto further agree
that service of process upon the parties hereto mailed by first class mail shall
be deemed in every respect effective service of process upon each such party in
any such suit or proceeding. Nothing herein shall affect either party's right to
serve process in any other manner permitted by law. The parties hereto agree
that a final
non-appealable 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.
11.5 This Agreement, the Convertible Securities, the Warrant and the
Securities Purchase Agreement (including all schedules and exhibits thereto and
all certificates and opinions required thereby) constitute the entire agreement
among the parties hereto with respect to the subject matter hereof and thereof.
There are no restrictions, promises, warranties or undertakings, other than
those set forth or referred to herein and therein. This Agreement, the
Convertible Securities, the Warrant and the Securities Purchase Agreement
supersede all prior agreements and understandings among the parties hereto with
respect to the subject matter hereof and thereof.
11.6 Subject to the requirements of Article IX hereof, this Agreement
shall inure to the benefit of and be binding upon the successors and assigns of
each of the parties hereto. Notwithstanding anything to the contrary contained
herein, including, without limitation, Article IX, the rights of a Purchaser
hereunder shall be assignable to and exercisable by a bona fide pledgee of the
Registrable Securities in connection with a Purchaser's margin or brokerage
accounts.
11.7 The headings in this Agreement are for convenience of reference only
and shall not limit or otherwise affect the meaning hereof.
11.8 This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original but all of which shall constitute one and the
same agreement. This Agreement, once executed by a party, may be delivered to
the other party hereto, by facsimile transmission of a copy of this Agreement
bearing the signature of the party so delivering this Agreement.
11.9 Each party shall do and perform, or cause to be done and performed,
all such further acts and things, and shall execute and deliver all such other
agreements, certificates, instruments and documents, as the other party may
reasonably request in order to carry out the intent and accomplish the purposes
of this Agreement and the consummation of the transactions contemplated hereby.
11.10 [Intentionally omitted]
11.11 In the event Purchaser shall sell or otherwise transfer any of
such holder's Registrable Securities, each transferee shall be allocated a pro
rata portion of the number of Registrable Securities included on a Registration
Statement for such transferor. Any shares of Common Stock included on a
Registration Statement and which remain allocated to any person or entity which
does not hold any Registrable Securities shall be allocated to the remaining
participant, in such Registration Statement, pro rata based on the number of
shares of Registrable Securities then held by such participant. Without
implication that the contrary would otherwise be true, for purposes of this
paragraph, all Convertible Securities and the Warrant then outstanding shall be
assumed converted into
and exercised for Registrable Securities (without giving effect to any
limitations on conversion or exercise).
11.12 If any provision of this Agreement shall be invalid or
unenforceable, such invalidity or unenforceability shall not affect the validity
or enforceability of the remainder of this Agreement.
* * *
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first above written.
ONLINE SYSTEM SERVICES, INC.
By: /s/ Xxxxxxx X. Xxxxxx
-------------------------------
Name: Xxxxxxx X. Xxxxxx
-------------------------
Title: EVP & CFO
------------------------
Address: 0000 Xxxxxxx Xxxxx, Xxxxx 000
Xxxxxx, Xxxxxxxx 00000
Facsimile Number: (000) 000-0000
Initial Purchaser:
CASTLE CREEK TECHNOLOGY PARTNERS LLC
By: CASTLE CREEK PARTNERS LLC
Its: Managing Member
By: /s/ Xxxx Xxxxxxxxx
------------------------
Name: Xxxx Xxxxxxxxx
----------------------
Title: Managing Member
---------------------
Address: c/o Castle Creek Partners LLC
00 Xxxx Xxxxxx Xxxxx, Xxxxx 0000
Xxxxxxx, Xxxxxxxx 00000
Attention: Portfolio Manager
Facsimile Number: (000) 000-0000
EXHIBIT 1
to Registration
Rights Agreement
[Date]
[Name and address
of transfer agent]
RE: ONLINE SYSTEM SERVICES, INC.
Ladies and Gentlemen:
We are counsel to Online System Services, Inc., a Colorado corporation (the
"Company"), and we understand that [Name of Purchaser] (the "Holder") has
-------- ------
purchased from the Company an amount of the Company's three-year 10% Promissory
Notes (the "Note") convertible into shares of the Company's common stock, no par
----
value (the "Common Stock"). The Note was purchased by the Holder pursuant to a
------------
Securities Purchase Agreement, dated as of August __, 1999, by and among the
Company and the signatories thereto (the "Agreement"). Pursuant to a
---------
Registration Rights Agreement, dated as of August __, 1999, by and among the
Company and the signatories thereto (the "Registration Rights Agreement"), the
-----------------------------
Company agreed with the Holder, among other things, to register the Registrable
Securities (as that term is defined in the Registration Rights Agreement) under
the Securities Act of 1933, as amended (the "Securities Act"), upon the terms
--------------
provided in the Registration Rights Agreement. In connection with the Company's
obligations under the Registration Rights Agreement, on March __, 1999, the
Company filed a Registration Statement on Form S-_____ (File No. 333-
__________) (the "Registration Statement") with the Securities and Exchange
----------------------
Commission (the "SEC") relating to the Registrable Securities, which names the
---
Holder as a selling stockholder thereunder.
[Other customary introductory and scope of examination language to be
inserted]
Based on the foregoing, we are of the opinion that the Registrable Securities
have been registered under the Securities Act.
[Other appropriate customary language reasonably acceptable to holder to be
included.]
Very truly yours,
cc: [Name of Purchaser]
