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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (earliest event reported): December 10, 1998
Rocky Mountain Internet, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 001-12063 84-1322326
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
1099 Eighteenth Street, 30th Floor, Denver, Colorado 80202
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 672-0700
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(Former name or former address, if changed since last report.)
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ITEM 5. OTHER EVENTS.
On December 10, 1998, the Company completed a private placement (the
"Offering') of 8,000 shares of its newly-designated Series B Convertible
Preferred Stock (the "Series B Preferred Stock") for gross proceeds of
$8,000,000, or $1,000 per share, before associated costs, fees and expenses.
The Offering was exempted from securities registration under the provisions
afforded by Rule 506 of Regulation D as promulgated by the Securities and
Exchange Commission (the "SEC") under the Securities Act of 1933, as amended
(the "1933 Act"). Shares of the Series B Preferred Stock were issued to two
institutional investors in a private transaction not involving a public offering
under the 1933 Act.
The Series B Preferred Stock is convertible, subject to certain
restrictions, into shares of common stock of the Company at a variable rate,
based on a formula linked to the market price at the time of conversion. The
terms include restrictions on conversion depending on certain market
conditions, restrictions against short sales and other hedging transactions
by the investors and a conversion rate which may be at a premium or discount
to the market price depending on the time of conversion.
The holders of the Series B Preferred Stock are entitled to receive
dividends at the rate of $50.00 per year per share of Series B Preferred Stock,
one-half of which is payable semiannually. Dividends are payable in cash or, at
the option of the Company, and subject to certain limitations and restrictions,
in additional shares of Series B Preferred Stock.
In addition, the Company issued warrants to purchase 155,000 shares of
common stock with an exercise price equal to 130% of the closing day market
price, exercisable at any time over the next five years, to the purchasers of
the Series B Preferred Stock and warrants to purchase 100,000 shares of
common stock with an exercise price equal to 120% of the closing date market
price, exercisable over the next five years, to certain brokers in connection
with the transaction. The Company has agreed to register for resale the
common stock issuable upon conversion of the Series B Preferred Stock
(including any shares of Series B Preferred Stock issued as dividends) and
the exercise of the warrants pursuant to registration rights agreements.
In connection with the Offering, Advantage Fund II Ltd., a British
Virgin Islands corporation which was one of the investors in the Offering,
agreed, at the Company's option and subject to certain conditions, to
purchase $5,000,000 of a new series of preferred stock with the same terms as
the Series B Preferred Stock. The commitment expires on the earlier of 365
days after the effective date of the registration statement referred to in
the previous paragraph, subject to earlier termination by the Company or by
Advantage Fund II Ltd. under certain conditions.
The Company will use the proceeds from the sale of the Series B Preferred
Stock for general working capital purposes and in the operation of its business.
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(c) Exhibits.
4.15 Subscription Agreement, dated as of December 10, 1998, by and
between Rocky Mountain Internet, Inc. and Koch Industries, Inc.
4.16 Subscription Agreement, dated as of December 10, 1998, by and
between Rocky Mountain Internet, Inc. and Advantage Fund II Ltd.
4.17 Form of Common Stock Purchase Warrant issued to Koch Industries,
Inc. and Advantage Fund II Ltd.
4.18 Form of Common Stock Purchase Warrant issued to Wharton Capital
Partners Ltd., Leslie Bines, and Neidiger Tucker Bruner Inc.
4.19 Form of Registration Rights Agreement between Rocky Mountain
Internet, Inc. and (i) Koch Industries, Inc.; and (ii) Advantage
Fund II Ltd.
4.20 Form of Registration Rights Agreement between Rocky Mountain
Internet and (i) Wharton Capital Partners Ltd.; (ii) Leslie Bines;
and (iii) Neidiger Tucker Bruner Inc.
10.22 Commitment Letter dated December 10, 1998 from Advantage Fund II
Ltd. to Rocky Mountain Internet, Inc.
99.7 News Release dated December 14, 1998 announcing the completion of
the Offering.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed by its behalf by the
undersigned hereunto duly authorized.
Rocky Mountain Internet, Inc.
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(Registrant)
Date: January 7, 1999 By: /s/ Peter J. Kushar
------------------------------------------
Peter J. Kushar, Secretary, Treasurer, and Chief
Financial Officer
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SUBSCRIPTION AGREEMENT
DATED AS OF DECEMBER 10, 1998
BY AND BETWEEN
ROCKY MOUNTAIN INTERNET, INC.
AND
KOCH INDUSTRIES, INC.
--------------------
SERIES B CONVERTIBLE PREFERRED STOCK
AND
COMMON STOCK PURCHASE WARRANTS
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SUBSCRIPTION AGREEMENT
SERIES B CONVERTIBLE PREFERRED STOCK
AND
COMMON STOCK PURCHASE WARRANTS
ROCKY MOUNTAIN INTERNET, INC.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
1. AGREEMENT TO SUBSCRIBE 1
(a) Subscription 1
(b) Form of Payment 1
(c) Method of Payment 2
2. BUYER REPRESENTATIONS, WARRANTIES, ETC. 2
(a) Purchase for Investment 2
(b) Accredited Investor 2
(c) Reoffers and Resales 2
(d) Company Reliance 2
(e) Information Provided 3
(f) Absence of Approvals 3
(g) Subscription Agreement 3
3. COMPANY REPRESENTATIONS, WARRANTIES, ETC. 3
(a) Organization and Authority 3
(b) Capitalization 3
(c) Concerning the Shares and the Common Stock 4
(d) Subscription Agreement and Other Transaction Documents 5
(e) Non-contravention 5
(f) Approvals 5
(g) Information Provided 6
(h) Absence of Certain Changes 6
(i) Absence of Certain Proceedings 6
(j) Properties 6
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(k) Labor Relations 7
(l) SEC Filings 7
(m) Absence of Brokers, Finders, Etc. 7
(n) No Solicitation 8
(o) Certain Issuances of Securities 8
(p) Absence of Rights Agreement 8
4. CERTAIN COVENANTS AND ACKNOWLEDGMENTS 8
(a) Transfer Restrictions 8
(b) Restrictive Legend 8
(c) Registration Rights Agreement 10
(d) Form D 10
(e) Authorization for Trading 10
(f) Use of Proceeds 10
(g) Blue Sky Laws 10
(h) Certain Expenses 10
(i) Certain Issuances of Securities 11
(j) Stockholder Approval 12
(k) Certain Trading Restrictions 12
(l) Restriction on Conversions 12
(m) Restriction on Beneficial Ownership 13
(n) Best Efforts 13
5. TRANSFER AGENT AGREEMENT 13
(a) Transfer Agent Agreement 13
(b) Conversion Procedure 13
6. CLOSING DATE 14
7. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL AND ISSUE 14
8. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE 14
9. MISCELLANEOUS 15
(a) Governing Law 15
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(b) Counterparts 15
(c) Headings, etc. 15
(d) Severability 15
(e) Amendments 15
(f) Waivers 15
(g) Notices 16
(h) Assignment 16
(i) Survival of Representations and Warranties 16
(j) Entire Agreement 16
(k) Termination 16
(l) Further Assurances 17
(m) Public Statements, Press Releases, Etc. 17
(n) Construction 17
SCHEDULES
Schedule 3(a)-1 Subsidiaries
Schedule 3(b)-1 Antidilution Adjustments
Schedule 3(b)-2 Registration Rights
Schedule 3(c)-1 Nasdaq Notification
Schedule 3(i)-1 Confidential Treatment Requests
Schedule 3(j)-1 Company Proprietary Rights
ANNEXES
Annex I Form of Certificate of Designations
Annex II Form of Common Stock Purchase Warrant
Annex III Joint Escrow Instructions
Annex IV Form of Registration Rights Agreement
Annex V Form of Transfer Agent Agreement
Annex VI Form of Notice of Conversion of Series B Convertible
Preferred Stock
Annex VII Form of Opinion of Counsel to Be Delivered on Closing Date
</TABLE>
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SUBSCRIPTION AGREEMENT
THIS SUBSCRIPTION AGREEMENT, dated as of December 10, 1998, by and
between ROCKY MOUNTAIN INTERNET, INC., a Delaware corporation (the "Company"),
with headquarters located at 1099 18th Street, Suite 3000, Denver, Colorado
80202, and KOCH INDUSTRIES, INC., a Kansas corporation (the "Buyer").
W I T N E S S E T H:
WHEREAS, the Buyer wishes to purchase, upon the terms and subject to
the conditions of this Agreement, shares of non-voting, convertible preferred
stock of the Company which will be convertible into shares of Common Stock,
$.001 par value (the "Common Stock"), of the Company and in connection therewith
the Company is to issue to the Buyer warrants to purchase shares of Common Stock
as provided in this Agreement; and
WHEREAS, the Company and the Buyer are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by Rule 506 of Regulation D as promulgated by the Securities and Exchange
Commission (the "SEC") under the Securities Act of 1933, as amended (the "1933
Act");
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 parties agree as
follows:
1. AGREEMENT TO SUBSCRIBE; PURCHASE PRICE.
(a) SUBSCRIPTION. The Buyer hereby agrees to purchase from the
Company the number of shares (the "Preferred Shares") of Series B Convertible
Preferred Stock, $.001 par value (the "Preferred Stock"), of the Company set
forth on the signature page of this Agreement, having the terms and conditions
as set forth in the form of the Certificate of Designations of the Series B
Convertible Preferred Stock attached hereto as ANNEX I (the "Certificate of
Designations") at the price per share and for the aggregate purchase price set
forth on the signature page of this Agreement (the "Purchase Price"). The
Purchase Price shall be payable in United States dollars. In connection with
the purchase of the Preferred Shares by the Buyer, the Company shall issue to
the Buyer, at the closing on the Closing Date (as defined herein), Common Stock
Purchase Warrants in the form attached hereto as ANNEX II (the "Warrants") to
purchase the number of shares of Common Stock set forth therein (subject to
adjustment as provided in the Warrants).
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The shares of Preferred Stock issuable pursuant to Section 5 of the Certificate
of Designations as dividends on the Preferred Shares are referred to herein as
the "Dividend Shares." The shares of Common Stock issuable upon exercise of the
Warrants are referred to herein as the "Warrant Shares." The Warrant Shares and
the shares of Common Stock issuable upon conversion of the Preferred Shares and
upon conversion of the Dividend Shares are referred to herein collectively as
the "Common Shares." The Common Shares, the Preferred Shares and the Dividend
Shares are referred to herein collectively as the "Shares." The Shares and the
Warrants are referred to herein collectively as the "Securities."
(b) FORM OF PAYMENT. The Buyer shall pay the Purchase Price for the
Preferred Shares by delivering good funds in United States Dollars to the escrow
agent (the "Escrow Agent") identified in the Joint Escrow Instructions attached
hereto as ANNEX III (the "Joint Escrow Instructions"). Such delivery of funds
shall be made against delivery by the Company of the certificates for the
Preferred Shares and the Warrants registered in the name of the Buyer or its
nominee. Promptly following payment by the Buyer to the Escrow Agent of the
Purchase Price, but in any event prior to the Closing Date, the Company shall
deliver certificates for the Preferred Shares and the Warrants, registered in
the name of the Buyer or its nominee, to the Escrow Agent. The certificates for
the Preferred Shares shall be delivered by the Company to the Escrow Agent on a
delivery against payment basis at the closing. By signing this Agreement, the
Buyer and the Company each agrees to all of the terms and conditions of, and
becomes a party to, the Joint Escrow Instructions, all of the provisions of
which are incorporated herein by this reference as if set forth in full.
(c) METHOD OF PAYMENT. Payment of the Purchase Price for the
Preferred Shares shall be made by wire transfer of funds to:
Citibank, N.A.
153 East 53rd Street
New York, New York 10043
ABA#021000089
For credit to A/C#37179446
For credit to the account of Brian W. Pusch Attorney Escrow Account
Reference: Koch/Rocky
Not later than 4:00 p.m., New York City time, on the date which is one Business
Day after the Company shall have accepted this Agreement and returned a signed
counterpart of this
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Agreement to the Buyer or its legal counsel, the Buyer shall deposit with the
Escrow Agent an amount equal to the Purchase Price. As used in this Agreement,
the term "Business Day" means any day other than a Saturday, Sunday or other day
on which commercial banks in The City of New York are authorized or required by
law to remain closed.
2. BUYER REPRESENTATIONS, WARRANTIES, ETC.
The Buyer represents and warrants to, and covenants and agrees with,
the Company as follows:
(a) PURCHASE FOR INVESTMENT. The Buyer is purchasing the Preferred
Shares and acquiring the Warrants, and will acquire all other Securities, for
its own account for investment only and not with a view towards the public sale
or distribution thereof, except as contemplated by the Registration Rights
Agreement (as defined herein);
(b) ACCREDITED INVESTOR. The Buyer is an "accredited investor" as
that term is defined in Rule 501 of the General Rules and Regulations under the
1933 Act by reason of Rule 501(a)(3);
(c) REOFFERS AND RESALES. All subsequent offers and sales of the
Securities by the Buyer shall be made pursuant to registration of the Securities
being offered and sold under the 1933 Act or pursuant to an exemption from
registration;
(d) COMPANY RELIANCE. The Buyer understands that the Preferred
Shares are being offered and sold, the Warrants are being issued, and the Common
Shares are being offered, in each case to it in reliance on specific exemptions
from the registration requirements of United States federal and state securities
laws and that the Company is relying upon the truth and accuracy of, and the
Buyer's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of the Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility of the Buyer
to acquire the Preferred Shares and the Warrants and to receive an offer of the
Common Shares;
(e) INFORMATION PROVIDED. The Buyer and its advisors, if any, have
been furnished with all materials relating to the business, finances and
operations of the Company and materials relating to the offer and sale of the
Preferred Shares and the issuance of the Warrants and the offer of the Common
Shares which have been requested by the Buyer; the Buyer and its advisors, if
any, have been afforded the opportunity to ask questions of the Company and have
received satisfactory answers to any such inquiries; without limiting the
generality of the foregoing, the Buyer has had the opportunity to
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obtain and to review the Company's (1) Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1997 (the "1997 10-K"), (2) Quarterly Reports on
Form 10-Q for the fiscal quarters ended March 31, 1998 (as amended on Form
10-QSB/A), June 30, 1998 and September 30, 1998, (3) definitive proxy statement
for the Company's 1998 Annual Meeting of Shareholders held on March 12, 1998 and
(4) Current Reports on Form 8-K and 8-K/A filed June 11, 1998, July 14, 1998,
August 19, 1998, August 24, 1998 and December 7, 1998, in each case as filed
with the SEC (collectively, the "SEC Reports"); and the Buyer understands that
its investment in the Shares involves a high degree of risk;
(f) ABSENCE OF APPROVALS. The Buyer understands that no United
States federal or state agency or any other government or governmental agency
has passed on or made any recommendation or endorsement of the Shares; and
(g) SUBSCRIPTION AGREEMENT. This Agreement has been duly and validly
authorized, executed and delivered on behalf of the Buyer and is a valid and
binding agreement of the Buyer enforceable in accordance with its terms, subject
as to enforceability to general principles of equity and to bankruptcy,
insolvency, moratorium and other similar laws affecting the enforcement of
creditors' rights generally.
3. COMPANY REPRESENTATIONS, WARRANTIES, ETC.
The Company represents and warrants to, and covenants and agrees with,
the Buyer that:
(a) ORGANIZATION AND AUTHORITY. Each of the Company and its
subsidiaries listed on SCHEDULE 3(a)-1 attached hereto (the "Subsidiaries") is a
corporation duly organized, validly existing and in good standing under the laws
of its jurisdiction of incorporation, and has all requisite corporate power and
authority to (i) own, lease and operate its properties and to carry on its
business as now being conducted, and (ii) to execute, deliver and perform its
obligations under this Agreement, the Certificate of Designations, the Warrants,
the Registration Rights Agreement, the form of which is attached hereto as ANNEX
IV (the "Registration Rights Agreement"), the Transfer Agent Agreement, the form
of which is attached hereto as ANNEX V (the "Transfer Agent Agreement"), and the
other agreements to be executed and delivered by the Company in connection
herewith, and to consummate the transactions contemplated hereby and thereby.
Each of the Company and the Subsidiaries is duly qualified to do business as a
foreign corporation and is in good standing in all jurisdictions wherein such
qualification is necessary and where failure so to qualify could have a material
adverse effect on the business, properties, operations, condition (financial or
other), results of operations or prospects of the Company and the Subsidiaries,
taken as a whole (a "Company Material
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Adverse Effect"). The Company has no subsidiaries or equity investment in any
person other than the Subsidiaries.
(b) CAPITALIZATION. The authorized capital stock of the Company
consists of (a) 25,000,000 shares of Common Stock of which 9,193,649 shares were
outstanding on December 9, 1998, all of which are fully paid and nonassessable;
and (b) 750,000 shares of Preferred Stock, $.001 par value, none of which are
outstanding, and 9,600 shares of which will be designated as Series B
Convertible Preferred Stock, of which 8,000 shares will be issued pursuant to
this Agreement and the other subscription agreement for the purchase of shares
of Preferred Stock and the acquisition of common stock purchase warrants being
entered into in connection herewith (the "Other Subscription Agreement"); and on
the Closing Date there will be (x) no material increase from December 9, 1998 in
the number of shares of Common Stock outstanding and (y) no issuances of
preferred stock except as issued pursuant to this Agreement and the Other
Subscription Agreement. No shares of the Company's former Series A Preferred
Stock, $.001 par value, are outstanding and such series was retired on April 30,
1998. As of December 9, 1998, the Company had outstanding options, warrants and
similar rights entitling the holders to purchase 8,193,026 shares of Common
Stock. Other than as set forth in the preceding sentence, the Company does not
have outstanding any material amount of securities (or obligations to issue any
such securities) convertible into, exchangeable for or otherwise entitling the
holders thereof to acquire shares of Common Stock, except as disclosed in the
SEC Reports. The Company has duly reserved from its authorized and unissued
shares of Common Stock the full number of shares required for (a) all options,
warrants, convertible securities and other rights to acquire shares of Common
Stock which are outstanding and (b) all shares of Common Stock and options and
other rights to acquire shares of Common Stock which may be issued or granted
under the stock option and similar plans which have been adopted by the Company
or any of the Subsidiaries. Each outstandin class or series of securities for
which any antidilution or similar adjustment arising by reason of the issuance
or conversion of the Preferred Shares and the Dividend Shares or the issuance or
exercise of the Warrants or the issuance or conversion of the shares of
Preferred Stock and the issuance or exercise of the warrants to be issued
pursuant to the Other Subscription Agreement will occur is identified on
SCHEDULE 3(b)-1 attached hereto, together with the amount of such antidilution
adjustment. The outstanding shares of Common Stock and outstanding options,
warrants and other securities convertible into, exchangeable for or otherwise
entitling the holder thereof to acquire shares of Common Stock have been duly
authorized and validly issued. None of such outstanding shares of Common Stock,
options, warrants and other securities has been issued in violation of the
preemptive rights of any securityholder of the Company. The offers and sales of
the outstanding shares of Common Stock and such options,
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warrants and other securities were at all relevant times either registered under
the 1933 Act and applicable state securities laws or exempt from such
requirements. Except as set forth on SCHEDULE 3(b)-2 hereto, no holder of any
of the Company's securities has any rights, "demand," "piggy-back" or otherwise,
to have such securities registered by reason of the intention to file, filing or
effectiveness of the Registration Statement (as defined in the Registration
Rights Agreement).
(c) CONCERNING THE SHARES AND THE COMMON STOCK. The Shares have
been duly authorized. The Preferred Shares, when issued and paid for in
accordance with this Agreement, the Dividend Shares, when issued as dividends
on the outstanding shares of Preferred Stock, and the Common Shares, when
issued upon conversion of the Preferred Shares or the Dividend Shares or upon
exercise of the Warrants, as the case may be, will be duly and validly
issued, fully paid and non-assessable and will not subject the holder thereof
to personal liability by reason of being such holder. There are no
preemptive or similar rights of any stockholder of the Company or any other
person to acquire any of the Shares. The Company has duly reserved 1,838,700
shares of Common Stock for conversion of the shares of Preferred Stock and
exercise of the Warrants and the warrants issuable in connection with the
Other Subscription Agreement, and such shares shall remain so reserved
(subject to reduction from time to time for shares of Common Stock issued
upon conversion of shares of Preferred Stock or redemption or other permitted
retirement of shares of Preferred Stock), and the Company shall from time to
time reserve such additional shares of Common Stock as shall be required to
be reserved pursuant to the Certificate of Designations, as long as the
Preferred Stock is convertible, and pursuant to the Warrants, as long as the
Warrants are exercisable. The Common Stock is listed for trading on the
Nasdaq SmallCap Market ("Nasdaq") and (1) the Company and the Common Stock
meet the criteria for continued listing and trading on Nasdaq; (2) except as
set forth on SCHEDULE 3(c)-1 attached hereto, the Company has not been
notified since January 1, 1996 by Nasdaq of any failure or potential failure
to meet the criteria for continued listing and trading on Nasdaq and (3) no
suspension of trading in the Common Stock is in effect. The Company knows of
no reason that the Common Shares will not be eligible for listing on Nasdaq.
(d) SUBSCRIPTION AGREEMENT AND OTHER TRANSACTION DOCUMENTS. This
Agreement, the Certificate of Designations, the Registration Rights Agreement,
the Warrants and the Transfer Agent Agreement and the other agreements and
instruments contemplated hereby and thereby have been duly and validly
authorized by the Company, this Agreement has been duly executed and delivered
by the Company and this Agreement is, and the Registration Rights Agreement, the
Warrants and the Transfer Agent Agreement and such other agreements, when
executed and delivered by the Company, will be, valid
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and binding obligations of the Company enforceable in accordance with their
respective terms, subject as to enforceability to general principles of equity
and to bankruptcy, insolvency, moratorium and other similar laws affecting the
enforcement of creditors' rights generally.
(e) NON-CONTRAVENTION. The execution and delivery by the Company of
this Agreement and the other documents contemplated by this Agreement and the
consummation by the Company of the issuance of the Preferred Shares and the
Warrants as contemplated by this Agreement, and the other transactions
contemplated by this Agreement, the Certificate of Designations, the
Registration Rights Agreement, the Warrants and the Transfer Agent Agreement do
not and will not, with or without the giving of notice or the lapse of time, or
both (i) result in any violation of any terms of the Certificate of
Incorporation, as amended, or By-laws of the Company or any Subsidiary, (ii)
conflict with or result in a breach by the Company or any Subsidiary of any of
the terms or provisions of, or constitute a default under, or result in the
modification, amendment, termination or cancellation of, result in the
acceleration of any obligation of the Company or any Subsidiary under, or result
in the creation or imposition of any lien, security interest, charge or
encumbrance upon any of the properties or assets of the Company or any
Subsidiary pursuant to, any indenture, mortgage, deed of trust or other
agreement or instrument to which the Company or any Subsidiary is a party or by
which the Company or any Subsidiary or any of their respective properties or
assets is bound or affected, (iii) violate or contravene any applicable law,
rule or regulation or any applicable decree, judgment or order of any court,
United States federal or state regulatory body, administrative agency or other
governmental body having jurisdiction over the Company or any Subsidiary or any
of their respective properties or assets or (iv) have any Company Material
Adverse Effect on any permit, certification, registration, approval, consent,
license or franchise necessary for the Company or any Subsidiary to own or lease
and operate any of their respective properties or to conduct any of their
respective businesses or the ability of the Company or any Subsidiary to make
use thereof.
(f) APPROVALS. No authorization, approval or consent of, or
filing with, any court, governmental body, regulatory agency, self-regulatory
organization, or stock exchange or market or the stockholders of the Company
is required to be obtained or made by the Company for (1) the execution,
delivery and performance by the Company of this Agreement, the Registration
Rights Agreement, the Warrants, the Transfer Agent Agreement and the other
agreements and instruments contemplated hereby and thereby, (2) the
execution, filing and performance by the Company of the Certificate of
Designations, (3) the issuance and sale of the Preferred Shares and the
Dividend Shares and the issuance of the Warrants as contemplated by this
Agreement and (4) the issuance
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of Common Shares on conversion of the Preferred Shares or the Dividend Shares
or upon the exercise of the Warrants or the issuance of Dividend Shares as
dividends on shares of Preferred Stock, other than (w) the filing of the
Certificate of Designations with the Secretary of State of the State of
Delaware, (x) registration of the resale of the Common Shares under the 1933
Act as contemplated by the Registration Rights Agreement, (y) as may be
required under applicable state securities or "blue sky" laws and (z) filing
of one or more Forms D with respect to the Securities as required under
Regulation D.
(g) INFORMATION PROVIDED. The information provided by or on behalf
of the Company to the Buyer in connection with the transactions contemplated by
this Agreement, including, without limitation, the information referred to in
Section 2(e) of this Agreement, does not contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they are made,
not misleading, it being understood that, for purposes of this Section 3(g), any
statement contained in such information shall be deemed to be modified or
superseded for purposes of this Section 3(g) to the extent that a statement in
any document included in such information which was prepared or filed with the
SEC on a later date modifies or replaces such statement, whether or not such
later prepared or filed statement so states. The Company has not filed any
reports with the SEC under the Securities Exchange Act of 1934, as amended (the
"1934 Act"), since December 31, 1997 other than the SEC Reports.
(h) ABSENCE OF CERTAIN CHANGES. Since December 31, 1997, there has
been no change and no development which could have a Company Material Adverse
Effect, except as disclosed in the SEC Reports. Except as and to the extent
disclosed, reflected or reserved against in the financial statements of the
Company and the notes thereto included in the SEC Reports, neither the Company
nor any Subsidiary has any material (individually or in the aggregate)
liabilities, debts or obligations whether accrued, absolute, contingent or
otherwise, and whether due or to become due. Subsequent to December 31, 1997,
neither the Company nor any Subsidiary has incurred any liabilities, debts or
obligations of any nature whatsoever which are individually or in the aggregate
material to the Company and the Subsidiaries taken as a whole, other than those
incurred in the ordinary course of their respective businesses or disclosed in
the SEC Reports.
(i) ABSENCE OF CERTAIN PROCEEDINGS. Except as disclosed in the SEC
Reports, there is no action, suit, proceeding, inquiry or investigation before
or by any court, arbitrator, public board or body or governmental agency
(collectively, an "Action") pending or, to the knowledge of the Company or any
Subsidiary, threatened against the Company or any Subsidiary, in any such case
wherein an unfavorable decision, ruling or finding would have a Company Material
Adverse Effect or a material adverse effect on the
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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; neither the Company or any Subsidiary
nor any director or officer thereof is or has been the subject of any Action
involving a claim of violation of or liability under federal or state securities
laws or a claim of breach of fiduciary duty; except as set forth on SCHEDULE
3(i)-1 attached hereto, the Company does not have pending before the SEC any
request for confidential treatment of information and to the best of the
Company's knowledge no such request will be made by the Company prior to the
time the Registration Statement relating to the Common Shares which is
contemplated by the Registration Rights Agreement is first ordered effective by
the SEC; and there has not been, and to the best of the Company's knowledge
there is not pending or contemplated, any investigation by the SEC involving the
Company or any current or former director or officer of the Company.
(j) PROPERTIES. The Company and the Subsidiaries have good title to
or leasehold interests in all property real and personal (tangible and
intangible) and other assets owned by them, free and clear of all security
interests, charges, mortgages, liens or other encumbrances, except with respect
to capital lease obligations and protective filings by lessors and except such
as are described in the SEC Reports or such as do not materially interfere with
the use of such property made, or proposed to be made, by the Company or any
Subsidiary. The leases, licenses or other contracts or instruments under which
the Company and the Subsidiaries lease, hold or are entitled to use any
property, real or personal, are valid, subsisting and enforceable with only such
exceptions as do not materially interfere with the use of such property made, or
proposed to be made, by the Company or any Subsidiary. Neither the Company nor
any Subsidiary has received notice of any material violation of any applicable
law, ordinance, regulation, order or requirement relating to its owned or leased
properties. Except as set forth on SCHEDULE 3(j)-1 attached hereto, the Company
does not have any knowledge of, and the Company has not given or received any
notice of, any pending conflicts with or infringement of the rights of others
with respect to any Company Proprietary Rights (as defined herein) or with
respect to any license of Company Proprietary Rights. No action, suit,
arbitration, or legal, administrative or other proceeding or investigation is
pending, or, to the best knowledge of the Company, threatened, which involves
any Company Proprietary Rights. Neither the Company nor any Subsidiary is
subject to any judgment, order, writ, injunction or decree of any court or any
federal, state, local, foreign or other governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign, or any
arbitrator, or has entered into or is a party to any contract which restricts or
impairs the use of any such Company Proprietary Rights in a manner which would
have a material adverse effect on the use by the Company or any Subsidiary of
any of the Company
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Proprietary Rights. To the best knowledge of the Company, no Company
Proprietary Rights and no services or products sold by the Company or any
Subsidiary, conflict with or infringe upon any proprietary rights available to
any third party. Neither the Company nor any Subsidiary has received written
notice of any pending conflict with or infringement upon such third-party
proprietary rights. Neither the Company nor any Subsidiary has entered into any
consent, indemnification, forbearance to sue or settlement agreement with
respect to Company Proprietary Rights other than in the ordinary course of
business. Except as set forth on SCHEDULE 3(j)-1 attached hereto, no claims
have been asserted by any person with respect to the validity of the Company's
or any Subsidiary's ownership or right to use the Company Proprietary Rights
and, to the best knowledge of the Company, there is no reasonable basis for any
such claim to be successful. To the best knowledge of the Company, the Company
Proprietary Rights are valid and enforceable. No registration relating to the
Company Proprietary Rights has lapsed, expired or been abandoned or canceled or
is the subject of cancellation or other adversarial proceedings, and all
applications therefor are pending and are in good standing, except for such
lapses, expirations, abandonments, cancellations, adversarial proceedings or
failures to be in good standing which would not, singly or in the aggregate,
have a Company Material Adverse Effect. The Company and the Subsidiaries have
complied, in all material respects, with their respective contractual
obligations relating to the protection of the Company Proprietary Rights used
pursuant to licenses. To the best knowledge of the Company, no person is
infringing on or violating the Company Proprietary Rights. As used herein, the
term "Company Proprietary Rights" means all patents, patent applications,
inventions, trademarks, trade names, applications for registration of
trademarks, service marks, service mark applications, copyrights, know-how,
manufacturing processes, formulae, trade secrets, licenses and rights in any
thereof and any other intangible property and assets which are material to the
businesses of the Company and the Subsidiaries as now conducted, as proposed to
be conducted or as described in this Agreement.
(k) LABOR RELATIONS. No material labor problem exists or, to the
knowledge of the Company or any Subsidiary, is imminent with respect to any of
the employees of the Company or any Subsidiary.
(l) SEC FILINGS. The Company has timely filed all required forms,
reports and other documents required to be filed by the Company with the SEC
under the 1934 Act. All of such forms, reports and other documents complied,
when filed, in all material respects, with all applicable requirements of the
1933 Act and the 1934 Act.
(m) ABSENCE OF BROKERS, FINDERS, ETC. No broker, finder or similar
person is entitled to any commission, fee or other compensation by reason of the
transactions contemplated by this Agreement other than as disclosed in writing
by the
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Company to the Buyer with respect to certain persons prior to the date of
execution and delivery of this Agreement by the Buyer, and the Company shall
pay, and indemnify and hold harmless the Buyer from, any claim made against the
Buyer by such persons or any other person for any such commission, fee or other
compensation.
(n) NO SOLICITATION. No form of general solicitation or general
advertising was used by the Company or, to the best of its knowledge, any other
person acting on behalf of the Company, in respect of or in connection with the
offer and sale of the Securities. Neither the Company nor, to its knowledge,
any person acting on behalf of the Company has, either directly or indirectly,
sold or offered for sale to any person any of the Preferred Shares or the
Warrants or, within the six months prior to the date hereof, any other similar
security of the Company except as contemplated by this Agreement and the Other
Subscription Agreement; and neither the Company nor any person authorized to act
on its behalf will sell or offer for sale any shares of Preferred Stock or
shares of Common Stock or Warrants, or solicit any offers to buy any shares of
Preferred Stock or shares of Common Stock or Warrants, so as thereby to cause
the issuance or sale of any of the Shares or the issuance of the Warrants to be
in violation of Section 5 of the 1933 Act.
(o) CERTAIN ISSUANCES OF SECURITIES. The Company has not issued any
shares of Common Stock or shares of any series of preferred stock or other
securities convertible into, exchangeable for or otherwise entitling the holder
to acquire shares of Common Stock which are subject to Rule 4310(c)(25)(H) of
the Nasdaq as in effect from time to time or any successor, replacement or
similar provision thereof or of any other market on which the Common Stock is
listed for trading (the "Stockholder Approval Rule") and which would be
integrated with the sale of the Preferred Shares to the Buyer or the issuance of
Common Shares upon conversion thereof or upon exercise of the Warrants or the
Dividend Shares in payment of dividends thereon for purposes of the Stockholder
Approval Rule.
(p) ABSENCE OF RIGHTS AGREEMENT. The Company has not adopted a
shareholder rights plan or similar arrangement relating to accumulations of
beneficial ownership of Common Stock or a change in control of the Company.
4. CERTAIN COVENANTS AND ACKNOWLEDGMENTS.
(a) TRANSFER RESTRICTIONS. The Company and the Buyer acknowledge and
agree that (1) the Preferred Shares and the Warrants have not been and are not
being registered under the provisions of the 1933 Act and, except as provided in
the Registration Rights Agreement with respect to the resale of the Common
Shares, the Common Shares
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have not been and are not being registered for resale under the 1933 Act, and
the Securities may not be transferred unless (A) subsequently registered for
resale thereunder or (B) the Buyer shall have delivered to the Company an
opinion of counsel, reasonably satisfactory in form, scope and substance to the
Company, to the effect that the Securities to be sold or transferred may be sold
or transferred pursuant to an exemption from such registration; (2) any resale
of the Securities made in reliance on Rule 144 promulgated under the 1933 Act
may be made only in accordance with the terms of said Rule and further, if said
Rule is not applicable, any such resale of Securities under circumstances in
which the seller, or the person through whom the sale is made, may be deemed to
be an underwriter, as that term is used in the 1933 Act, may require compliance
with some other exemption under the 1933 Act or the rules and regulations of the
SEC thereunder; and (3) neither the Company nor any other person is under any
obligation to register the Securities (other than pursuant to the Registration
Rights Agreement) under the 1933 Act or to comply with the terms and conditions
of any exemption thereunder (other than pursuant to Section 4(d) hereof and
pursuant to the Registration Rights Agreement).
(b) RESTRICTIVE LEGEND. (1) The Buyer acknowledges and agrees that
the Preferred Shares shall bear a restrictive legend in substantially the
following form (and a stop-transfer order may be placed against transfer of the
Preferred Shares):
The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended. The securities have been
acquired for investment and may not be sold, transferred or assigned in the
absence of an effective registration statement for the securities under the
Securities Act of 1933, as amended, or an opinion of counsel that
registration is not required under said Act.
The number of shares constituting the portion of the Maximum Share Amount,
as defined in the Certificate of Designations of the Series B Convertible
Preferred Stock (the "Certificate of Designations"), allocated to the
shares represented by this certificate for purposes of conversion thereof
is 689,512.
Section 10(b)(3)(A) of the Certificate of Designations permits a holder of
the securities represented by this certificate to convert such securities
in accordance with the Certificate of Designations without being required
to surrender this certificate to the Company unless all of the securities
represented hereby are so converted. Consequently, following conversion of
any of the securities represented by this certificate, the number of shares
represented by this certificate may be less than the number of shares
stated hereon. Upon request of any proposed transferee
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of this certificate, the Company will provide confirmation of the number of
shares evidenced by this certificate.
(2) The Buyer further acknowledges and agrees that the Warrants shall
bear a restrictive legend in substantially the following form (and a
stop-transfer order may be placed against transfer of the Warrants):
The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended. The securities have been
acquired for investment and may not be resold, transferred or assigned in
the absence of an effective registration statement for the securities under
the Securities Act of 1933, as amended, or an opinion of counsel that
registration is not required under said Act.
(3) The Buyer further acknowledges and agrees that until such time as
the Common Shares have been registered for resale under the 1933 Act as
contemplated by the Registration Rights Agreement, the certificates for the
Common Shares may bear a restrictive legend in substantially the following form
(and a stop-transfer order may be placed against transfer of the certificates
for the Common Shares):
The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended. The securities have been
acquired for investment and may not be resold, transferred or assigned in
the absence of an effective registration statement for the securities under
the Securities Act of 1933, as amended, or an opinion of counsel that
registration is not required under said Act.
(4) Once the Registration Statement required to be filed by the
Company pursuant to Section 2 of the Registration Rights Agreement has been
declared effective, thereafter (1) upon request of the Buyer the Company will
substitute certificates without restrictive legend for certificates for any
Common Shares issued prior to the date such Registration Statement is declared
effective by the SEC which bear such restrictive legend and remove any
stop-transfer restriction relating thereto promptly, but in no event later than
three Trading Days (as defined in the Certificate of Designations) after
surrender of such certificates by the Buyer and (2) the Company shall not place
any restrictive legend on certificates for Common Shares issued on conversion of
or as dividends on the Preferred Shares or upon exercise of the Warrants or
impose any stop-transfer restriction thereon.
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(c) REGISTRATION RIGHTS AGREEMENT. The parties hereto agree to enter
into the Registration Rights Agreement in the form attached hereto as ANNEX IV
on or before the Closing Date.
(d) FORM D. The Company agrees to file a Form D with respect to the
Securities as required under Regulation D and to provide a copy thereof to the
Buyer promptly after such filing. The Buyer agrees to cooperate with the
Company in connection with such filing and, upon request of the Company, to
provide all information relating to the Buyer reasonably required for such
filing.
(e) AUTHORIZATION FOR TRADING; REPORTING STATUS. On or before the
Closing Date, the Company shall file a notification for listing of additional
shares with the Nasdaq relating to the Common Shares and shall provide evidence
of such filing to the Buyer. So long as the Buyer beneficially owns any of the
Preferred Shares, the Dividend Shares, the Warrants or the Common Shares, the
Company shall file all reports required to be filed with the SEC pursuant to
Section 13 or 15(d) of the 1934 Act and the Company shall not terminate its
status as an issuer required to file reports under the 1934 Act even if the 1934
Act or the rules and regulations thereunder would permit such termination.
(f) USE OF PROCEEDS. Neither the Company nor any Subsidiary owns or
has any present intention of acquiring any "margin stock" as defined in
Regulation G (12 CFR Part 207) of the Board of Governors of the Federal Reserve
System ("margin stock"). The proceeds of sale of the Preferred Shares will be
used for general working capital purposes and in the operation of the Company's
business. None of such proceeds will be used, directly or indirectly (1) to
make any loan to or investment in any other person (other than financing the
Company's subsidiaries in the ordinary course of business or in connection with
an acquisition of another corporation or business or assets of another
corporation or business) or (2) for the purpose, whether immediate, incidental
or ultimate, of purchasing or carrying any margin stock or for the purpose of
maintaining, reducing or retiring any indebtedness which was originally incurred
to purchase or carry any stock that is currently a margin stock or for any other
purpose which might constitute the transactions contemplated by this Agreement a
"purpose credit" within the meaning of such Regulation G. Neither the Company
nor any agent acting on its behalf has taken or will take any action which might
cause this Agreement or the transactions contemplated hereby to violate
Regulation G, Regulation T or any other regulation of the Board of Governors of
the Federal Reserve System or to violate the 1934 Act, in each case as in effect
now or as the same may hereafter be in effect.
(g) BLUE SKY LAWS. On or before the Closing Date, the Company shall
take such action as shall be necessary to qualify, or to obtain an exemption
for, the
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Preferred Shares for sale to the Buyer and the Warrants for issuance to the
Buyer pursuant to this Agreement and the Common Shares for issuance to the Buyer
on conversion of the Preferred Shares under such of the securities or "blue sky"
laws of jurisdictions as shall be applicable to the sale of the Preferred Shares
and the issuance of the Warrants pursuant to this Agreement and the issuance to
the Buyer of Common Shares on conversion of the Preferred Shares and exercise of
the Warrants. The Company shall furnish copies of all filings, applications,
orders and grants or confirmations of exemptions relating to such securities or
"blue sky" laws on or prior to the Closing Date.
(h) CERTAIN EXPENSES. If the closing occurs, the Company shall pay
or reimburse the Buyer for all reasonable expenses (including, without
limitation, legal fees and expenses of counsel to the Buyer and the Buyer's due
diligence expenses) not in excess of $30,000 incurred by the Buyer in connection
with this Agreement and the transactions contemplated hereby and the buyer under
the Other Subscription Agreement. In addition, the Company or the Buyer, as the
case may be, shall pay on demand all expenses incurred by the other party,
including reasonable attorneys' fees and expenses, as a consequence of, or in
connection with (1) the negotiation, preparation or execution of any amendment,
modification or waiver of this Agreement, the Certificate of Designations, the
Registration Rights Agreement, the Warrants, the Transfer Agent Agreement and
the other agreements and instruments contemplated hereby and thereby requested
by the requesting party, (2) any default or breach of any of the defaulting or
breaching party's obligations set forth in any of such agreements or instruments
and (3) the enforcement or restructuring of any right of, including the
collection of any payments due, the other party under any of such agreements or
instruments, including any action or proceeding relating to such enforcement, or
any order, injunction or other process seeking to restrain a party from paying
any amount due the other party, in which the other party prevails.
(i) CERTAIN ISSUANCES OF SECURITIES. (1) Unless the Company obtains
the Stockholder Approval (as defined in the Certificate of Designations) or a
waiver thereof from the Nasdaq, the Company will not issue any shares of Common
Stock or shares of any other series of preferred stock or other securities
convertible into, exchangeable for, or otherwise entitling the holder to
acquire, shares of Common Stock which would be subject to the requirements of
the Stockholder Approval Rule and which would be integrated with the sale of the
Preferred Shares and issuance of the Warrants to the Buyer or the issuance of
Common Shares upon conversion of the Preferred Shares or Dividend Shares or upon
exercise of the Warrants for purposes of the Stockholder Approval Rule.
(2) During the period from the date of this Agreement to the date on
which the Registration Statement (as defined in the Registration Rights
Agreement) shall
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have been effective with the SEC for 180 consecutive days, the Company shall not
offer, sell, contract to sell or issue (or engage any person to assist the
Company in taking any such action) (A) any security (whether debt or equity)
with conversion or exchange terms similar in nature to the conversion rights of
the Preferred Stock or (B) any equity securities or securities convertible into,
exchangeable for or otherwise entitling the holder to acquire, any Common Stock
at a price below the market price of the Common Stock on the date of such
issuance (or below an average market price for a reasonable period prior to such
issuance) or the date of conversion, exchange or other exercise thereof
(collectively, "Equity Securities"); PROVIDED, HOWEVER, that nothing in this
Section 4(i)(2) shall prohibit the Company from issuing securities (w) pursuant
to compensation plans for employees, directors, officers, advisers or
consultants of the Company and in accordance with the terms of such plans as in
effect as of the date of this Agreement, (x) upon exercise of conversion,
exchange, purchase or similar rights issued, granted or given by the Company and
outstanding as of the date of this Agreement and disclosed in the SEC Reports or
this Agreement, (y) pursuant to a public offering underwritten on a firm
commitment basis registered under the 1933 Act or (z) as part of a transaction
involving a strategic alliance, acquisition of stock or assets, merger,
collaboration, joint venture, partnership or other similar arrangement of the
Company with another corporation, partnership or other business entity which is
engaged in a business similar to or related to the business of the Company, so
long as in the case of this clause (z) the Board of Directors by resolution duly
adopted (and a copy of which shall be furnished to the Buyer promptly after
adoption) determines that such issuance is fair to the holders of each class and
series of capital stock of the Company and to the Buyer in respect of its equity
interest in the Company that is represented by the Preferred Shares, the
Dividend Shares, if any, and the Warrants.
(3) Subject to the restrictions in Section 4(i)(1), during the period
from the date of execution and delivery of this Agreement to the date which is
one year after the Closing Date, the Company shall not offer, sell, contract to
sell or issue (or engage any person to assist the Company in taking any such
action) any Equity Securities without giving the Buyer the first right to
acquire the Equity Securities on the same terms as the Equity Securities are to
be offered to other investors; PROVIDED, HOWEVER, that this Section 4(i)(3)
shall not apply to the offer or sale of Equity Securities by the Company in the
transactions, and subject to the conditions, set forth in clauses (w), (x), (y)
and (z) of the proviso to the first sentence of Section 4(i)(2) above. The
Company shall give notice to the Buyer of the detailed terms of the Equity
Securities proposed to be issued and, promptly after requested by the Buyer,
such other information as requested by the Buyer. The Buyer may, by notice to
the Company, exercise such right of first refusal at any time until the later of
(x) 15 Business Days after such notice from the Company to the Buyer and (y)
five Business Days after the Company provides such additional information as
shall
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have been requested by the Buyer.
(j) STOCKHOLDER APPROVAL. The Company shall seek and use its best
efforts to obtain at the Company=s next regularly scheduled Annual Meeting of
Stockholders, Stockholder Approval of the issuance of all shares of Preferred
Stock issuable pursuant to the Certificate of Designations and all shares of
Common Stock issuable upon conversion of the Preferred Stock. The Company shall
prepare and file with the SEC within 30 days prior to the scheduled mailing of
notice of such Annual Meeting preliminary proxy materials which set forth a
proposal to seek such Stockholder Approval. The Company shall provide the Buyer
an opportunity to consult with the Company regarding the content of such proxy
materials insofar as it relates to the Stockholder Approval by providing copies
of such preliminary proxy materials and any revised preliminary proxy materials
to the Buyer a reasonable period of time prior to their filing with the SEC.
Such consultation shall occur within five Business Days after the Buyer's
receipt of each proposed draft of such materials. The Company shall furnish to
the Buyer and its counsel a copy of its definitive proxy materials for such
Annual Meeting and any amendments or supplements thereto promptly after the same
are mailed to stockholders or filed with the SEC.
(k) CERTAIN TRADING RESTRICTIONS. The Buyer agrees that on the
Closing Date it will have no short position in the Common Stock. So long as (i)
the Company is in compliance in all material respects with its obligations to
the Buyer under this Agreement, the Certificate of Designations, the Warrants
and the Registration Rights Agreement or (ii) any noncompliance with such
obligations is cured within ten Business Days of the Company's receipt of notice
thereof from the Buyer, the Buyer agrees on its behalf and on behalf of its
Affiliates (as defined in the Certificate of Designations) that it will not
engage in any short sales or other hedging transactions relating to the Common
Stock; PROVIDED, HOWEVER, that for purposes of this Agreement any such
transaction involving a number of shares of Common Stock which does not exceed
the number of shares for which a Conversion Notice (as defined in Section 5(b))
has been submitted to the Transfer Agent (as defined in Section 5(a)) and the
Company shall not be deemed to be a short sale or hedging transaction.
(l) RESTRICTION ON CONVERSIONS. So long as the Company is in
compliance in all material respects with its obligations to the Buyer under this
Agreement, the Certificate of Designations, the Warrants and the Registration
Rights Agreement, the aggregate number of Limitation Shares (as defined below)
in any period of 30 consecutive days through November 30, 1999 shall not exceed
20% of the number of Preferred Shares purchased by the Buyer on the Closing
Date. For purposes of this Agreement, "Limitation Shares" means, for each
conversion of Preferred Shares pursuant to the Certificate of
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Designations, the number of Preferred Shares converted into Common Stock when
the Volume-Weighted Trading Price (as defined below) of the Common Stock on the
Conversion Date for such conversion is less than 110% of the Conversion Price
(as defined in the Certificate of Designations) applicable to such conversion;
and "Volume-Weighted Trading Price" for any security for any period means the
quotient obtained by dividing (A) the sum for all trades (regular way) of such
security between 9:15 a.m. and 4:30 p.m., Eastern Time, on each Trading Day
during such period on the principal securities market for such security of the
product of (x) the number of shares of such security traded in each trade TIMES
(y) the price at which such security was traded in such trade BY (B) the sum of
the number of shares of such security traded in all such trades, as reported by
Bloomberg, L.P. in its AQR function for such security.
(m) RESTRICTION ON BENEFICIAL OWNERSHIP. So long as the Company is
in compliance in all material respects with its obligations to the Buyer under
this Agreement, the Certificate of Designations, the Warrants and the
Registration Rights Agreement, the Buyer agrees to (i) comply with the
restrictions on beneficial ownership of Common Stock set forth in the proviso to
the second sentence of Section 10(a) of the Certificate of Designations as if
the reference to "4.9%" therein were reduced to 1.8375% and (ii) require any
transferee of the Preferred Shares or the Warrants to agree in writing with the
Company to be bound by this Section 4(m).
(n) BEST EFFORTS. Each of the parties shall use its best efforts
timely to satisfy each of the conditions to the other party's obligations to
sell and purchase the Preferred Shares set forth in Section 7 or 8, as the case
may be, of this Agreement on or before the Closing Date.
5. TRANSFER AGENT AGREEMENT; CONVERSION PROCEDURE.
(a) TRANSFER AGENT AGREEMENT. Prior to the Closing Date, the Company
will (1) execute and deliver the Transfer Agent Agreement in the form attached
hereto as ANNEX V and thereby irrevocably instruct, American Securities Transfer
& Trust, Inc., as Transfer Agent and Registrar (the "Transfer Agent"), to issue
certificates for the Common Shares from time to time upon conversion of the
Preferred Shares and the Dividend Shares and exercise of the Warrants in such
amounts as specified from time to time to the Transfer Agent in the Notices of
Conversion surrendered in connection with such conversions and referred to in
Section 5(b) of this Agreement and the Form of Subscription in the form attached
to the Warrants and (2) appoint the Transfer Agent the conversion agent for the
Preferred Stock and the exercise agent for the Warrants. The certificates for
the Common Shares may bear the restrictive legend specified in Section 4(b) of
this Agreement prior to registration of the resale of the Common Shares under
the
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1933 Act. The certificates for the Common Shares shall be registered in the
name of the Buyer or its designee and in such denominations to be specified by
the Buyer in connection with each conversion of Preferred Shares or Dividend
Shares or exercise of the Warrants. The Company warrants that no instruction
other than (x) such instructions referred to in this Section 5, (y) stop
transfer instructions to give effect to Section 4(a) prior to registration of
the resale of the Common Shares under the 1933 Act and (z) the instructions
required by Section 3(n) of the Registration Rights Agreement will be given by
the Company to the Transfer Agent and that the Common Shares shall otherwise be
freely transferable on the books and records of the Company as and to the extent
provided in this Agreement. Nothing in this Section 5(a) shall limit in any way
the Buyer's obligations and agreement to comply with the registration
requirements of the 1933 Act upon resale of the Common Shares. If the Buyer
provides the Company with an opinion of counsel, reasonably satisfactory in
form, scope and substance to the Company and its legal counsel, that
registration of a resale by the Buyer of ny of the Securities is not required
under the 1933 Act, the Company shall permit the transfer of such Securities
and, in the case of the Common Shares, in accordance with clause (1)(B) of
Section 4(a) of this Agreement, promptly instruct the Transfer Agent to issue
upon transfer one or more share certificates in such name and in such
denominations as specified by the Buyer within three Business Days after receipt
of such opinion. Nothing in this Section 5(a) shall limit the obligations of
the Company under Section 3(n) of the Registration Rights Agreement.
(b) CONVERSION PROCEDURE. In connection with the exercise of
conversion rights relating to the Preferred Shares and the Dividend Shares, the
Buyer or any subsequent holder of the Preferred Shares shall complete, sign and
furnish to the Transfer Agent and the Company a Notice of Conversion of Series B
Convertible Preferred Stock in the form attached hereto as ANNEX VI (a
"Conversion Notice"), which shall be deemed to satisfy all requirements of the
Certificate of Designations.
6. CLOSING DATE.
Subject to the satisfaction or waiver of the conditions set forth in
Sections 7 and 8, the date and time of the issuance and sale of the Preferred
Shares and the issuance of the Warrants (the "Closing Date") shall be 12:00
noon, New York City time, on or before the date which is one Business Day after
the date the Buyer has deposited the Purchase Price with the Escrow Agent in
accordance with Section 1(b), or such other mutually agreed to time. The
closing shall occur on the Closing Date at the Law Offices of Brian W Pusch,
Penthouse Suite, 29 West 57th Street, New York, New York 10019.
7. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL AND ISSUE.
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The Buyer understands that the Company's obligation to sell the
Preferred Shares and issue the Warrants to the Buyer pursuant to this Agreement
is conditioned upon the satisfaction of the following conditions precedent on or
before the Closing Date (any or all of which may be waived by the Company in its
sole discretion):
(a) The receipt and acceptance by the Company of this Agreement as
evidenced by execution of this Agreement by the Company and delivery of an
executed counterpart of this Agreement to the Buyer or its legal counsel;
(b) Delivery by the Buyer to the Escrow Agent of good funds as
payment in full of an amount equal to the Purchase Price for the Preferred
Shares in accordance with Section 1(b) hereof; and
(c) The accuracy on the Closing Date of the representations and
warranties of the Buyer contained in this Agreement as if made on the Closing
Date and the performance by the Buyer on or before the Closing Date of all
covenants and agreements of the Buyer required to be performed on or before the
Closing Date.
8. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE.
The Company understands that the Buyer's obligation to purchase the
Preferred Shares and acquire the Warrants on the Closing Date is conditioned
upon the satisfaction of the following conditions precedent on or before the
Closing Date (any or all of which may be waived by the Buyer in its sole
discretion):
(a) Delivery by the Company to the Escrow Agent of the certificates
for the Preferred Shares and the Warrants in accordance with this Agreement;
(b) The accuracy on the Closing Date of the representations and
warranties of the Company contained in this Agreement as if made on the Closing
Date and the performance by the Company on or before the Closing Date of all
covenants and agreements of the Company required to be performed on or before
the Closing Date, and receipt by the Buyer of a certificate, dated the Closing
Date, of the Chief Executive Officer of the Company confirming such matters and
such other matters as the Buyer may reasonably request;
(c) The receipt by the Buyer of confirmation of the filing with the
Secretary of State of the State of Delaware of the Certificate of Designations;
(d) The receipt by the Buyer of a certificate, dated the Closing
Date, of
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the Secretary of the Company certifying (1) the Certificate of Incorporation, as
amended, and By-Laws of the Company as in effect on the Closing Date and (2) all
resolutions of the Board of Directors (and committees thereof) of the Company
relating to this Agreement and the transactions contemplated hereby;
(e) The Transfer Agent shall have executed and delivered the Transfer
Agent Agreement in the form attached hereto as ANNEX V; and
(f) Receipt by the Buyer on the Closing Date of an opinion of Jacobs
Chase Frick Kleinkopf & Kelley, LLC, counsel for the Company, dated the Closing
Date, in form, scope and substance reasonably satisfactory to the Buyer, to the
effect set forth in ANNEX VII attached hereto.
9. MISCELLANEOUS.
(a) GOVERNING LAW. This Agreement shall be governed by and
interpreted in accordance with the laws of the State of Colorado.
(b) COUNTERPARTS. This Agreement may be executed in counterparts and
by the parties hereto on separate counterparts, all of which together shall
constitute one and the same instrument. A facsimile transmission of this
Agreement bearing a signature on behalf of a party hereto shall be legal and
binding on such party. Although this Agreement is dated as of the date first
set forth above, the actual date of execution and delivery of this Agreement by
each party is the date set forth below such party's signature on the signature
page hereof. Any reference in this Agreement or in any of the documents
executed and delivered by the parties hereto in connection herewith to (1) the
date of execution and delivery of this Agreement by the Buyer shall be deemed a
reference to the date set forth below the Buyer's signature on the signature
page hereof, (2) the date of execution and delivery of this Agreement by the
Company shall be deemed a reference to the date set forth below the Company's
signature on the signature page hereof and (3) the date of execution and
delivery of this Agreement or the date of execution and delivery of this
Agreement by the Buyer and the Company shall be deemed a reference to the later
of the dates set forth below the signatures of the parties on the signature page
hereof.
(c) HEADINGS, ETC. The headings, captions and footers of this
Agreement are for convenience of reference and shall not form part of, or affect
the interpretation of, this Agreement.
(d) SEVERABILITY. If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the
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<PAGE>
validity or enforceability of the remainder of this Agreement or the validity or
enforceability of this Agreement in any other jurisdiction.
(e) AMENDMENTS. No amendment, modification, waiver, discharge or
termination of any provision of this Agreement nor consent to any departure by
the Buyer or the Company therefrom shall in any event be effective unless the
same shall be in writing and signed by the party to be charged with enforcement,
and then shall be effective only in the specific instance and for the purpose
for which given. No course of dealing between the parties hereto shall operate
as an amendment of this Agreement.
(f) WAIVERS. 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, or any course of dealings between the parties, shall not operate as a
waiver thereof or an amendment hereof, nor shall any single or partial exercise
of any such right or power, or any abandonment or discontinuance of steps to
enforce such a right or power, preclude any other or further exercise thereof or
exercise of any other right or power.
(g) NOTICES. Any notices required or permitted to be given under the
terms of this Agreement shall be delivered personally (which shall include
telephone line facsimile transmission with answer back confirmation) or by
courier and shall be effective upon receipt, in the case of the Company
addressed to the Company at its address shown in the introductory paragraph of
this Agreement, Attention: Chief Executive Officer (telephone line facsimile
transmission number (303) 672-0711) or, in the case of the Buyer, at its address
or telephone line facsimile transmission number shown on the signature page of
this Agreement, or such other address or telephone line facsimile transmission
number as a party shall have provided by notice to the other party in accordance
with this provision. The Buyer hereby designates as its address for any notice
required or permitted to be given to the Buyer pursuant to the Certificate of
Designations the address shown on the signature page of this Agreement until the
Buyer shall designate another address for such purpose.
(h) ASSIGNMENT. Prior to the Closing Date, the Buyer may not assign
its rights and obligations under this Agreement. Any transfer of the Preferred
Shares or the Warrants by the Buyer after the Closing Date shall be made in
accordance with Section 4(a). After the Closing Date, the Buyer shall have the
right to assign its rights and obligations under this Agreement in connection
with any transfer of the Buyer's rights under the Registration Rights Agreement
by compliance with the provisions of Section 9 of the Registration Rights
Agreement and Section 4(m) of this Agreement.
(i) SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The respective
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representations, warranties, covenants and agreements of the Buyer and the
Company contained in this Agreement or made by or on behalf of them,
respectively, pursuant to this Agreement shall survive the delivery of and
payment for the Preferred Shares and shall remain in full force and effect
regardless of any investigation made by or on behalf of them or any person
controlling or advising any of them.
(j) ENTIRE AGREEMENT. This Agreement and its Schedules and Annexes
set forth the entire agreement between the parties hereto with respect to the
subject matter hereof and supersede all prior agreements and understandings,
whether written or oral, with respect thereto.
(k) TERMINATION. The Buyer shall have the right to terminate this
Agreement by giving notice to the Company at any time at or prior to the Closing
Date if:
(1) the Company shall have failed, refused, or been unable at or
prior to the date of such termination of this Agreement to perform any of
its obligations hereunder;
(2) any other condition of the Buyer's obligations hereunder is not
fulfilled; or
(3) the closing shall not have occurred on a Closing Date on or
before December 15, 1998, other than solely by reason of a breach of this
Agreement by the Buyer.
Any such termination shall be effective upon the giving of notice thereof by the
Buyer. Upon such termination, the Buyer shall have no further obligation to the
Company hereunder and the Company shall remain liable for any breach of this
Agreement or the other documents contemplated hereby which occurred on or prior
to the date of such termination.
(l) FURTHER ASSURANCES. Each party to this Agreement will perform
any and all acts and execute any and all documents as may be necessary and
proper under the circumstances in order to accomplish the intents and purposes
of this Agreement and to carry out its provisions.
(m) PUBLIC STATEMENTS, PRESS RELEASES, ETC. The Company and the
Buyer shall have the right to approve before issuance any press releases 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 Buyer, to
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<PAGE>
make any press release or other public disclosure with respect to such
transactions as is required by applicable law or Nasdaq regulation (although the
Buyer shall be consulted by the Company in connection with any such press
release or other public disclosure prior to its release and shall be provided
with a copy thereof).
(n) CONSTRUCTION. The language used in this Agreement will be deemed
to be the language chosen by the parties to express their mutual intent, and no
rules of strict construction will be applied against any party.
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<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed by the Buyer
and the Company by their respective officers or other representatives thereunto
duly authorized on the respective dates set forth below.
NUMBER OF SHARES:
PRICE PER SHARE: $1,000.00
AGGREGATE PURCHASE PRICE:
KOCH INDUSTRIES, INC.
By:
Name:
Title:
Date:
Address: c/o CITCO
Kaya Flamboyan 9
Curacao, Netherlands Antilles
Facsimile No.: 011-599-9732-2008
ROCKY MOUNTAIN INTERNET, INC.
By:
Name:
Title:
Date:
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<PAGE>
ANNEX III
TO
SUBSCRIPTION
AGREEMENT
JOINT ESCROW INSTRUCTIONS
Dated as of the Date of the Subscription
Agreement to Which These Joint Escrow
Instructions Are Attached
Law Offices of Brian W Pusch,
as Escrow Agent
Penthouse Suite
29 West 57th Street
New York, New York 10019
Attention: Brian W. Pusch, Esq.
Dear Sir or Madam:
As Escrow Agent for both Rocky Mountain Internet, Inc., a Delaware
corporation (the "Company"), and the purchaser of shares (the "Preferred
Shares") of Preferred Stock of the Company (the "Buyer"), who is named in the
Subscription Agreement between the Company and the Buyer to which a copy of
these Joint Escrow Instructions is attached as ANNEX III (the "Agreement"), the
Escrow Agent is hereby authorized and directed to hold the funds (the "Escrow
Funds"), any interest on the Escrow Funds (the "Escrow Interest") and the
documents delivered to the Escrow Agent pursuant to the terms of the Agreement,
in accordance with the following instructions:
1. After receipt of written or oral notice from the Company and the
Buyer to the Escrow Agent that their respective conditions precedent to the
purchase and sale of the Preferred Shares and the acquisition and issuance of
the Warrants have been satisfied or waived by the Company and the Buyer, the
Escrow Agent shall release the Escrow Funds (less the amount referred to in the
next sentence) to or upon the order of the Company and shall release the
certificates for the Preferred Shares and the Warrants and the Escrow Interest
to the Buyer. After receipt of such notices, a portion of the Escrow Funds
shall be released to or upon the order of the Buyer in payment of the expenses
of the Buyer payable by the Company in accordance with Section 4(h) of the
Agreement in such amount as shall be specified in writing by or on behalf of the
Buyer to the Escrow Agent prior to release of the Escrow Funds. If Escrow Funds
are released to or upon the order of the Company, the amount thereof shall be
reduced by all wire transfer fees in respect of release of the Escrow Funds. If
the Company or the Buyer notifies the Escrow
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<PAGE>
Agent that on the Closing Date, the conditions precedent to the obligations of
the Company or the Buyer, as the case may be, under the Agreement were not
satisfied or waived, then the Escrow Agent shall release the Escrow Funds and
the Escrow Interest to the Buyer and shall release the certificates for the
Preferred Shares and the Warrants to the Company. Prior to release of the
Escrow Funds and the Escrow Interest to the Buyer, the Buyer shall furnish such
tax reporting or other information as shall be appropriate for the Escrow Agent
to comply with applicable United States laws. The Escrow Agent shall deposit
all funds received hereunder in the Escrow Agent's attorney escrow account at
Citibank, N.A. and as promptly as practicable after receipt of such funds
deposit the same in an interest-bearing account. The Escrow Agent shall not be
liable for interest on the Escrow Funds (other than such interest as shll be
paid to the Escrow Agent by its depository bank for the Escrow Funds, less any
tax withholdings) for any reason, including by reason of any delay or mistake in
delivery of the Escrow Funds or any other funds held by the Escrow Agent
hereunder.
2. The Escrow Agent's duties hereunder may be altered, amended,
modified or revoked only by a writing signed by the Company, the Buyer and the
Escrow Agent.
3. The Escrow Agent shall be obligated only for the performance of
such duties as are specifically set forth herein and may rely and shall be
protected in relying or refraining from acting on any instrument reasonably
believed by the Escrow Agent to be genuine and to have been signed or presented
by the proper party or parties. The Escrow Agent shall not be personally liable
for any act the Escrow Agent may do or omit to do hereunder as Escrow Agent
while acting in good faith, and any act done or omitted by the Escrow Agent
pursuant to the advice of the Escrow Agent's attorneys-at-law shall be
conclusive evidence of such good faith. In no event shall the Escrow Agent
incur any liability or be held responsible, if any certificate for Preferred
Shares or Warrants, once released from escrow hereunder, shall become lost,
stolen, destroyed, mutilated or misplaced while in transit to any person,
provided the Escrow Agent shall have dispatched the same by a means customarily
used by the Escrow Agent.
4. The Escrow Agent is hereby expressly authorized to disregard any
and all warnings given by any of the parties hereto or by any other person, firm
or corporation, excepting only orders or process of courts of law and is hereby
expressly authorized to comply with and obey orders, judgments or decrees of any
court. In case the Escrow Agent obeys or complies with any such order, judgment
or decree, the Escrow Agent shall not be liable to any of the parties hereto or
to any other person, firm or corporation by reason of such decree being
subsequently reversed, modified, annulled, set aside, vacated or found to have
been entered without jurisdiction.
5. The Escrow Agent shall not be liable in any respect on account of
the
III-2
<PAGE>
identity, authorities or rights of the parties executing or delivering or
purporting to execute or deliver the Agreement or any documents or papers
deposited or called for hereunder.
6. The Escrow Agent shall not be liable for the outlawing of any
rights under the Statute of Limitations with respect to these Joint Escrow
Instructions or any documents or Escrow Funds deposited with or held by the
Escrow Agent.
7. The Escrow Agent shall be entitled to employ such legal counsel
and other experts as the Escrow Agent may deem necessary properly to advise the
Escrow Agent in connection with the Escrow Agent's obligations hereunder, may
rely upon the advice of such counsel, and may pay such counsel reasonable
compensation therefor. The Escrow Agent has acted as legal counsel for
Advantage Fund II Ltd. in connection with the transactions contemplated by the
Agreement and may continue to act as legal counsel for Advantage Fund II Ltd.
notwithstanding its duties as Escrow Agent hereunder.
8. The Escrow Agent's responsibilities as Escrow Agent hereunder
shall terminate if the Escrow Agent shall resign by written notice to the
Company and the Buyer. In the event of any such resignation, the Buyer shall
appoint a successor Escrow Agent.
9. If the Escrow Agent reasonably requires other or further
instruments in connection with these Joint Escrow Instructions or obligations in
respect hereto, the necessary parties hereto shall join in furnishing such
instruments.
10. It is understood and agreed that should any dispute arise with
respect to the delivery and/or ownership or right of possession of the
documents, Escrow Funds or Escrow Interest held by the Escrow Agent hereunder,
the Escrow Agent is authorized and directed, in its sole discretion (a) to
retain in the Escrow Agent's possession without liability to anyone all or any
part of said documents, Escrow Funds or Escrow Interest until such disputes
shall have been settled either by mutual written agreement of the parties
concerned or by a final order, decree or judgment of a court of competent
jurisdiction after the time for appeal has expired and no appeal has been
perfected, but the Escrow Agent shall be under no duty whatsoever to institute
or defend any such proceedings or (b) at any time, to deposit any or all of the
documents, Escrow Funds or Escrow Interest with any court of competent
jurisdiction in the State of New York, in which event the Escrow Agent shall
give notice thereof to the Buyer and the Company and shall thereupon be relieved
and discharged from all further obligations hereunder with respect to the
documents, Escrow Funds and Escrow Interest so deposited.
11. The Company and the Buyer jointly and severally agree to
indemnify and hold harmless the Escrow Agent from any and all claims,
liabilities, costs or expenses in any way arising from or relating to the duties
or performance of the Escrow Agent
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<PAGE>
hereunder other than any such claim, liability, cost or expense to the extent
the same shall have been determined by final, unappealable judgment of a court
of competent jurisdiction to have resulted from the gross negligence or willful
misconduct of the Escrow Agent.
12. Any notice required or permitted hereunder shall be given in
writing (unless otherwise specified herein) and shall be deemed effectively
given upon personal delivery (including overnight courier service) or
transmission by telephone line facsimile transmission or three business days
after deposit in the United States Postal Service, by registered or certified
mail with postage and fees prepaid, addressed to each of the other parties
thereunto entitled at the following addresses, or at such other addresses as a
party may designate by ten days advance written notice to each of the other
parties hereto.
COMPANY: At the address set forth in the introductory paragraph of the
Agreement
Attention: Chief Executive Officer
Facsimile No.: (303) 672-0711
with a copy to:
Jacobs Chase Frick Kleinkopf & Kelley LLC
Independence Plaza
1050 17th Street, Suite 1500
Denver, Colorado 80265
Attention: Matthew R. Perkins, Esq.
Facsimile No.: (303) 685-4869
BUYER: At the address and telephone line facsimile number set forth in the
Agreement (with a copy as provided therein)
ESCROW AGENT: Law Offices of Brian W Pusch,
as Escrow Agent
Penthouse Suite
29 West 57th Street
New York, New York 10019
Facsimile No.: (212) 980-7055
13. By signing these Joint Escrow Instructions, the Escrow Agent
becomes a party hereto only for the purpose of these Joint Escrow Instructions;
the Escrow Agent does not become a party to the Agreement. The Company and the
Buyer have become parties hereto by their execution and delivery of the
Agreement, as provided therein.
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<PAGE>
14. This instrument shall be binding upon and inure to the benefit of
the parties hereto, and their respective successors and permitted assigns and
shall be governed by the laws of the State of New York.
15. Capitalized terms used herein and not otherwise defined herein
shall have the respective meanings provided in the Agreement.
ACCEPTED BY ESCROW AGENT:
- -----------------------------------
Brian W. Pusch, as Escrow Agent
III-5
<PAGE>
ANNEX V
TO
SUBSCRIPTION
AGREEMENT
TRANSFER AGENT AGREEMENT
THIS TRANSFER AGENT AGREEMENT, dated as of December 10, 1998, by and
among ROCKY MOUNTAIN INTERNET, INC., a Delaware corporation (the "Company"),
AMERICAN SECURITIES TRANSFER & TRUST, INC., as Transfer Agent and Registrar (the
"Transfer Agent"), and each of the holders of Preferred Stock (as defined below)
named on the signature pages hereto (each, an "Original Holder" and
collectively, the "Original Holders").
W I T N E S S E T H:
WHEREAS, pursuant to the several Subscription Agreements, dated as of
December 10, 1998, by and between the Company and each Original Holder (the
"Purchase Agreements"), the Company has agreed, upon the terms and subject to
the conditions of the Purchase Agreements, to issue to the Original Holders, and
the Original Holders have agreed to purchase from the Company, upon the terms
and subject to the conditions of the Purchase Agreements, shares (the "Preferred
Shares") of Series B Convertible Preferred Stock, $.001 par value per share (the
"Preferred Stock"), of the Company and in connection therewith the Company has
agreed to issue Common Stock Purchase Warrants (the "Warrants") to the Original
Holders; and
WHEREAS, as a condition precedent to the several obligations of the
Original Holders to purchase the Preferred Shares and acquire the Warrants, the
Original Holders require the execution and delivery of this Agreement by the
Company and the Transfer Agent to assure that the Original Holders and each
other holder of the Preferred Shares and the Warrants (such other holders,
together with the Original Holders, the "Holders") will be assured of the timely
issuance and receipt of shares of Common Stock, $.001 par value (the "Common
Stock"), of the Company upon conversion of Preferred Shares and exercise of the
Warrants;
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 parties hereto
agree as follows:
1. DELIVERIES BY THE COMPANY. Contemporaneously with the execution
and delivery of this Agreement, the Company is delivering to the Transfer Agent
the following:
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<PAGE>
(a) a list showing the name and address of each holder of record of
the Preferred Shares and the date of issuance, certificate number and
number of Preferred Shares initially issued to each such holder;
(b) the form of Notice of Conversion of Series B Convertible
Preferred Stock (the "Conversion Notice") relating to the Preferred Stock;
(c) a list showing the name and address of each registered holder of
Warrants and the date of issuance, Warrant certificate number and number of
shares of Common Stock initially issuable upon exercise thereof;
(d) the Subscription Form (the "Subscription Form") relating to the
Warrants; and
(e) an opinion of Jacobs Chase Frick Kleinkopf & Kelley, LLC, counsel
to the Company, as to the due authorization, validity of issuance and
fully-paid and non-assessable nature of the shares (the "Common Shares")
issuable upon conversion of the Preferred Shares and the shares (the
"Warrant Shares") issuable upon exercise of the Warrants; and stating that
the Common Shares may be issued to the Original Holders without
registration under the Securities Act of 1933, as amended (the "1933 Act").
2. ISSUANCE OF COMMON SHARES AND WARRANT SHARES. (a) The Company
hereby appoints the Transfer Agent, and the Transfer Agent hereby agrees to
act, as conversion agent for the Preferred Stock and exercise agent for the
Warrants. The Company hereby irrevocably instructs the Transfer Agent to
issue Common Shares upon conversion of all or any part of the outstanding
Preferred Shares from time to time upon receipt of (i) a Conversion Notice
from a Holder and (ii) a notice from the Company confirming the conversion
instructions in such Conversion Notice. The Holder shall give a copy of each
Conversion Notice to the Company. A Conversion Notice may be given by
telephone line facsimile transmission to the Transfer Agent and the Company
or otherwise given to the Transfer Agent and the Company, in each such case
at the address and in the manner provided in Section 6(g). The certificates
for Preferred Shares need not be surrendered in connection with the
conversion thereof by a Holder unless all of the outstanding Preferred Shares
evidenced by a particular certificate are so converted. The Company may by
notice to any Holder from time to time require such Holder to surrender the
certificates for such Holder's Preferred Shares in exchange for the issuance
by the Company of one or more new certificate or certificates for a number of
shares of Preferred Stock equal to the number of outstanding shares of
Preferred Stock evidenced by the certificate(s) so surrendered. The Company
hereby irrevocably instructs the Transfer Agent to issue Warrant Shares upon
exercise of all or any part of the outstanding Warrants from time to time
upon receipt from a Holder of (i) a Subscription Form for the Warrant
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<PAGE>
being exercised and (ii) a notice from the Company confirming the exercise
instructions in such Subscription Form. The Holder shall give a copy of each
Subscription Form to the Company.
(b) The certificates for Common Shares and the Warrant Shares issued
prior to receipt by the Transfer Agent of an opinion of counsel (who may be
counsel to a Holder), which counsel shall be reasonably acceptable to the
Transfer Agent, that a registration statement under the 1933 Act relating to the
resale of Common Shares has been declared effective by the Securities and
Exchange Commission (the "SEC") shall bear the following legend:
The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended (the "Act"). The securities
have been acquired for investment and may not be resold, transferred or
assigned in the absence of an effective registration statement for the
securities under the Act, or an opinion of counsel reasonably satisfactory
in form, scope and substance to the Company that registration is not
required under the Act.
Once the Transfer Agent receives such opinion of counsel, thereafter (1) upon
request of the holder of any such shares of Common Stock, the Transfer Agent
will prepare and issue within three Trading Days after such request substitute
certificates without any restrictive legend for any certificates for Common
Shares or Warrant Shares issued prior to the date the Transfer Agent receives
such opinion of counsel and shall immediately remove any stop-transfer
restriction against such Common Shares or Warrant Shares and (2) neither the
Company nor the Transfer Agent shall place any restrictive legend or
stop-transfer restriction against Common Shares or Warrant Shares issued after
the Transfer Agent receives such opinion of counsel. As used herein, "Trading
Day" means a day on whichever of (x) the national securities exchange, (y) the
Nasdaq National Market or (z) the Nasdaq SmallCap Market, which at the time
constitutes the principal securities market for the Common Stock, is open for
general trading of securities.
3. CONVERSION OBLIGATIONS ABSOLUTE; NO CONTRARY INSTRUCTIONS. (a)
If a Holder shall have given a Conversion Notice for conversion of Preferred
Shares, the Company shall, or shall cause the Transfer Agent to, issue and
deliver as stated in such Conversion Notice the Common Shares issuable upon such
conversion within three Trading Days after such Conversion Notice is given and
the Holder converting shall be deemed to be the holder of record of the Common
Shares issuable upon such conversion, and all rights with respect to that
portion of the Preferred Shares so converted shall forthwith terminate except
the right to receive the Common Shares or other securities, cash, or other
assets as provided in the Certificate of Designations for the Preferred Stock
(the "Certificate of Designations"). The Transfer Agent acknowledges and agrees
that, if a Holder shall have given a Conversion Notice as provided herein, the
Company's obligation to issue and
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<PAGE>
deliver the certificates for Common Shares upon such conversion shall be
absolute and unconditional, irrespective of any action or inaction by the
converting Holder to enforce the same, any waiver or consent with respect to any
provision of the Certificate of Designations, the recovery of any judgment
against any person or any action to enforce the same, any failure or delay in
the enforcement of any other obligation of the Company to such Holder, or any
setoff, counterclaim, recoupment, limitation or termination, or any breach or
alleged breach by such Holder or any other person of any obligation to the
Company, or any violation or alleged violation of law by such Holder or any
other person, and irrespective of any other circumstance which might otherwise
limit such obligation of the Company to such Holder in connection with such
conversion. In lieu of delivering physical certificates representing the Common
Shares issuable upon conversion of shares of Preferred Stock, provided the
Transfer Agent is participating in the Depository Trust Company ("DTC") Fast
Automated Securities Transfer program, upon request of a Holder, the Transfr
Agent shall electronically transmit the Common Shares issuable upon such
conversion or exercise to such Holder by crediting the account of such Holder or
such Holder's broker with DTC through its Deposit Withdrawal Agent Commission
system.
(b) The Company agrees not to give any instruction to the Transfer
Agent which is contrary to this Agreement. The Transfer Agent hereby agrees
that it will disregard any request, instruction or other communication from or
on behalf of the Company which is contrary to or inconsistent with this
Agreement. The Company shall not appoint any transfer agent (other than the
Transfer Agent) or registrar for its Common Stock unless at the time of such
appointment any such successor enters into an agreement of like tenor with this
Agreement.
(c) As set forth in Section 10(b)(3) of the Certificate of
Designations, the number of Common Shares to be issued in connection with a
particular conversion of Preferred Shares is, absent manifest error,
conclusively the number of Common Shares stated in the applicable Conversion
Notice. Within one Trading Day after receipt of each Conversion Notice, the
Company shall send a notice by telephone line facsimile transmission to the
Transfer Agent confirming the conversion instructions in such Conversion
Notice. If in connection with a particular conversion of Preferred Shares the
Company determines that manifest error has been made by virtue of the
conversion price or other information set forth in the applicable Conversion
Notice, the Company shall, within one Trading Day after a Holder gives such
Conversion Notice, notify the Transfer Agent and such Holder of such error,
which notice shall state the number of Common Shares in dispute, and,
notwithstanding such notice from the Company, the Transfer Agent shall issue
and deliver the number of Common Shares not in dispute as and when required
by this Agreement. A Conversion Notice shall be deemed for all purposes to
be in proper form unless the Company otherwise notifies the Holder giving
such Conversion Notice by telephone line facsimile transmission within one
Trading Day after a Conversion Notice has been given (which notice from the
Company shall specify all defects in the Conversion
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<PAGE>
Notice), and any Conversion Notice containing any such defect shall nonetheless
be effective on the date given if such Holder corrects all such defects within
two Trading Days after receiving such notice from the Company. If the Company
shall have notified the Transfer Agent and such Holder of any such claim of
manifest error, and the Company and such Holder do not agree as to a resolution
of such claim on or before the date of such notice by the Company of an error in
such Conversion Notice the Company shall on the date such notice is given submit
the dispute to Ernst & Young LLP oranother firm of independent public
accountants of recognized national standing (the "Auditors") for determination
and shall instruct the Auditors to resolve such dispute and to notify the
Company, the Transfer Agent and such Holder within two Trading Days after such
dispute is submitted to the Auditors. Immediately after receipt of timely
notice of the Auditors' determination (but in any event within three Trading
Days after the applicable Conversion Notice is given to the Transfer Agent), the
Transfer Agent shall issue to the converting Holder any additional Common Shares
to which such Holder is entitled based on the determination of the Auditors.
The Transfer Agent is authorized and directed to rely on the Auditors'
determination. Such immediate and prompt action shall be taken by all the
parties hereto in order to assure that there shall be full compliance with the
Company's unqualified obligation that all Common Shares issuable upon such
conversion be issued by the due date therefor as provided herein and in the
Certificate of Designations.
(d) In order to assist the Transfer Agent in fulfilling its
obligations under this Agreement, the Company will, in addition to confirming
the instructions given in each Conversion Notice and Subscription Form within
one Trading Day of the Company's receipt thereof, use its best efforts to
contact the Transfer Agent promptly after the Company learns that a Conversion
Notice or Subscription Form has been given and will cooperate with the Transfer
Agent in providing such other information as the Transfer Agent may reasonably
request, including the Company's receipt of the applicable purchase price due
upon exercise of Warrants; PROVIDED, HOWEVER, that the Company's failure to
comply with this Section 3(d) shall not limit the obligations of the Company to
issue certificates for Common Shares and the Warrant Shares as and when required
by this Agreement, the Certificate of Designations and the Warrants.
4. TRANSFER AGENT DUTIES. (a) The obligations and duties of the
Transfer Agent under this Agreement are at all times and in all respects subject
to the requirements of the Securities Exchange Act of 1934, as amended (the
"1934 Act"), and the rules and regulations of the SEC thereunder applicable to
transfer agents registered with the SEC. This Agreement relates only to the
Transfer Agent's duties as exercise agent for the Warrants and conversion agent
for the Preferred Stock and does not otherwise limit or affect the Transfer
Agent's other duties, obligations and agreements relating to its service as
transfer agent and registrar for the Common Stock.
(b) The Transfer Agent shall not, and is not being requested to,
serve as
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<PAGE>
transfer agent for the Preferred Stock or the Warrants. The Transfer Agent
shall not be required to maintain records of the names of the holders of record
of the Preferred Stock and Warrants and the amounts of such securities so held
from time to time or to effect or record any transfers thereof. The Transfer
Agent shall be entitled to rely solely on lists and other written information
provided by the Company from time to time with respect to the holders of
Preferred Stock and Warrants and the respective amounts of such securities so
held.
5. INDEMNIFICATION. The Company agrees to indemnify and hold
harmless the Transfer Agent, each officer, director, employee and agent of the
Transfer Agent, and each person, if any, who controls the Transfer Agent within
the meaning of the 1933 Act or the 1934 Act against any losses, claims, damages
or liabilities, joint or several, to which it, they or any of them, or such
controlling person, may become subject, under the 1933 Act, the 1934 Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon the performance by the Transfer
Agent of its duties pursuant to this Agreement; and will reimburse the Transfer
Agent, and each officer, director, employee and agent of the Transfer Agent, and
each such controlling person for any legal or other expenses reasonably incurred
by it or any of them in connection with investigating or defending any such
loss, claim, damage, liability or action; PROVIDED, HOWEVER, that the Company
will not be liable in any case if such loss, claim, damage or liability arises
out of or is based upon any action not taken in good faith, or any act or
omission that constitutes gross negligence or willful misconduct. Promptly
after receipt by an indemnified party under this Section 5 of notice of the
commencement of any action, such indemnified party will, if a claim in respect
thereof is to be made against the Company under this Section 5, notify in
writing the Company of the commencement thereof, and failure so to notify the
Company will relieve the Company from any liability under this Section 5 as to
the particular item for which indemnification is then being sought if such
failure shall have materially prejudiced the Company's right to defend or
contest such action, but not from any other liability which it may have to any
indemnified party. In case any such action is brought against any indemnified
party, and it notifies the Company of the commencement thereof, the Company will
be entitled to participate with any other indemnifying party, similarly
notified, to assume the defense thereof, with counsel who shall be to the
reasonable satisfaction of such indemnified party, and after notice from such
indemnifying party to such indemnified party under this Section 5, shall be
liable for any legal or other expenses subsequently incurred by such indemnified
party in connection with the defense thereof other than reasonable costs of
investigation. The Company shall not be liable to any such indemnified party on
account of any settlement of any claim or action effected without the consent of
the Company.
6. MISCELLANEOUS.
(a) This Agreement shall be governed by and interpreted in accordance
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<PAGE>
with the laws of the State of Colorado.
(b) This Agreement may be executed in counterparts and by the parties
hereto on separate counterparts, all of which together shall constitute one and
the same instrument. A facsimile transmission of this Agreement bearing a
signature on behalf of a party hereto shall be legally binding on such party.
(c) The headings of this Agreement are for convenience of reference
and shall not form part of, or affect the interpretation of, this Agreement.
(d) 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.
(e) No failure or delay by any party in exercising any right or
remedy under or in connection with this Agreement or otherwise, and no course of
dealing between the parties, shall operate as a waiver thereof or amendment of
this Agreement, nor shall any single or partial exercise of any such right or
power, or any abandonment or discontinuance of steps to enforce such a right or
power, preclude any other or further exercise thereof or exercise of any other
right or power.
(f) Neither this Agreement nor any term hereof (including this
paragraph) may be amended, changed, waived, discharged or terminated unless such
amendment, change, waiver, discharge or termination is in writing signed by the
Company, the Transfer Agent, and, with respect to the Holders, the Majority
Holders (as defined in the Certificate of Designations).
(g) Any notices required or permitted to be given under the terms of
this Agreement shall be in writing and shall be sent by mail or delivered
personally (which shall include telephone line facsimile transmission) or by
courier and shall be effective five days after being placed in the mail, if
mailed, or upon receipt, if delivered personally or by courier, in each case
addressed to a party as follows:
if to the Company:
Rocky Mountain Internet, Inc.
1099 18th Street
Suite 3000
Denver, Colorado 80202
Attention: Chief Executive Officer
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<PAGE>
Facsimile No.: (303) 672-0711
if to the Transfer Agent:
American Securities Transfer & Trust, Inc.,
as Conversion Agent and Exercise Agent
938 Quail Street
Suite 101
Lakewood, Colorado 80215-5513
Facsimile No.: (303) 234-5340
if to any Original Holder:
at the address and facsimile number set forth below its signature on the
signature pages hereto
or, in the case of any Holder who is not an Original Holder, to such address as
such Holder shall have provided in writing to the Company and the Transfer Agent
for such purpose or, in each such case, such other address as a party shall have
provided by notice to the other parties in accordance with this provision.
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<PAGE>
IN WITNESS WHEREOF, this Transfer Agent Agreement has been duly
executed by the parties hereto by their respective officers or other
representatives thereunto duly authorized as of the date first set forth above.
ROCKY MOUNTAIN INTERNET, INC.
By:
Name:
Title:
AMERICAN SECURITIES TRANSFER & TRUST, INC.,
as Transfer Agent, Registrar,
Conversion Agent And Exercise Agent
By:
Name:
Title:
ADVANTAGE FUND II LTD.
By:
W. R. Weber
President
Address:
c/o CITCO
Kaya Flamboyan 9
Curacao
Netherlands Antilles
Facsimile No.: 011-599-9732-2008
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<PAGE>
with a copy to:
Genesee International, Inc.
10500 N.E. 8th Street
Suite 1920
Bellevue, Washington 98004-4332
Facsimile No.: (425) 462-4645
KOCH INDUSTRIES, INC.
By:
Name:
Title:
Address:
4111 East 37th Street North
Wichita, Kansas 67220
Facsimile No.: (316) 828-7947
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<PAGE>
SUBSCRIPTION AGREEMENT
DATED AS OF DECEMBER 10, 1998
BY AND BETWEEN
ROCKY MOUNTAIN INTERNET, INC.
AND
ADVANTAGE FUND II LTD.
--------------------
SERIES B CONVERTIBLE PREFERRED STOCK
AND
COMMON STOCK PURCHASE WARRANTS
<PAGE>
SUBSCRIPTION AGREEMENT
SERIES B CONVERTIBLE PREFERRED STOCK
AND
COMMON STOCK PURCHASE WARRANTS
ROCKY MOUNTAIN INTERNET, INC.
<TABLE>
<CAPTION>
PAGE
<S> <C>
1. AGREEMENT TO SUBSCRIBE 1
(a) Subscription 1
(b) Form of Payment 1
(c) Method of Payment 2
2. BUYER REPRESENTATIONS, WARRANTIES, ETC. 2
(a) Purchase for Investment 2
(b) Accredited Investor 2
(c) Reoffers and Resales 2
(d) Company Reliance 2
(e) Information Provided 3
(f) Absence of Approvals 3
(g) Subscription Agreement 3
3. COMPANY REPRESENTATIONS, WARRANTIES, ETC. 3
(a) Organization and Authority 3
(b) Capitalization 3
(c) Concerning the Shares and the Common Stock 4
(d) Subscription Agreement and Other Transaction Documents 5
(e) Non-contravention 5
(f) Approvals 5
(g) Information Provided 6
(h) Absence of Certain Changes 6
(i) Absence of Certain Proceedings 6
(j) Properties 6
(k) Labor Relations 7
(l) SEC Filings 7
(m) Absence of Brokers, Finders, Etc. 7
(n) No Solicitation 8
(o) Certain Issuances of Securities 8
(p) Absence of Rights Agreement 8
4. CERTAIN COVENANTS AND ACKNOWLEDGMENTS 8
(a) Transfer Restrictions 8
(b) Restrictive Legend 8
(c) Registration Rights Agreement 10
(d) Form D 10
(e) Authorization for Trading 10
(f) Use of Proceeds 10
(g) Blue Sky Laws 10
(h) Certain Expenses 10
(i) Certain Issuances of Securities 11
(j) Stockholder Approval 12
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<PAGE>
(k) Certain Trading Restrictions 12
(l) Restriction on Conversions 12
(m) Restriction on Beneficial Ownership 13
(n) Best Efforts 13
5. TRANSFER AGENT AGREEMENT 13
(a) Transfer Agent Agreement 13
(b) Conversion Procedure 13
6. CLOSING DATE 14
7. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL AND ISSUE 14
8. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE 14
9. MISCELLANEOUS 15
(a) Governing Law 15
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(b) Counterparts 15
(c) Headings, etc. 15
(d) Severability 15
(e) Amendments 15
(f) Waivers 15
(g) Notices 16
(h) Assignment 16
(i) Survival of Representations and Warranties 16
(j) Entire Agreement 16
(k) Termination 16
(l) Further Assurances 17
(m) Public Statements, Press Releases, Etc. 17
(n) Construction 17
</TABLE>
SCHEDULES
Schedule 3(a)-1 Subsidiaries
Schedule 3(b)-1 Antidilution Adjustments
Schedule 3(b)-2 Registration Rights
Schedule 3(c)-1 Nasdaq Notification
Schedule 3(i)-1 Confidential Treatment Requests
Schedule 3(j)-1 Company Proprietary Rights
ANNEXES
Annex I Form of Certificate of Designations
Annex II Form of Common Stock Purchase Warrant
Annex III Joint Escrow Instructions
Annex IV Form of Registration Rights Agreement
Annex V Form of Transfer Agent Agreement
Annex VI Form of Notice of Conversion of Series B Convertible
Preferred Stock
Annex VII Form of Opinion of Counsel to Be Delivered on Closing Date
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<PAGE>
SUBSCRIPTION AGREEMENT
THIS SUBSCRIPTION AGREEMENT, dated as of December 10, 1998, by and
between ROCKY MOUNTAIN INTERNET, INC., a Delaware corporation (the "Company"),
with headquarters located at 1099 18th Street, Suite 3000, Denver, Colorado
80202, and ADVANTAGE FUND II LTD., a British Virgin Islands corporation (the
"Buyer").
W I T N E S S E T H:
WHEREAS, the Buyer wishes to purchase, upon the terms and subject to
the conditions of this Agreement, shares of non-voting, convertible preferred
stock of the Company which will be convertible into shares of Common Stock,
$.001 par value (the "Common Stock"), of the Company and in connection therewith
the Company is to issue to the Buyer warrants to purchase shares of Common Stock
as provided in this Agreement; and
WHEREAS, the Company and the Buyer are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by Rule 506 of Regulation D as promulgated by the Securities and Exchange
Commission (the "SEC") under the Securities Act of 1933, as amended (the "1933
Act");
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 parties agree as
follows:
1. AGREEMENT TO SUBSCRIBE; PURCHASE PRICE.
(a) SUBSCRIPTION. The Buyer hereby agrees to purchase from the
Company the number of shares (the "Preferred Shares") of Series B Convertible
Preferred Stock, $.001 par value (the "Preferred Stock"), of the Company set
forth on the signature page of this Agreement, having the terms and conditions
as set forth in the form of the Certificate of Designations of the Series B
Convertible Preferred Stock attached hereto as ANNEX I (the "Certificate of
Designations") at the price per share and for the aggregate purchase price set
forth on the signature page of this Agreement (the "Purchase Price"). The
Purchase Price shall be payable in United States dollars. In connection with
the purchase of the Preferred Shares by the Buyer, the Company shall issue to
the Buyer, at the closing on the Closing Date (as defined herein), Common Stock
Purchase Warrants in the form attached hereto as ANNEX II (the "Warrants") to
purchase the number of shares
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<PAGE>
of Common Stock set forth therein (subject to adjustment as provided in the
Warrants). The shares of Preferred Stock issuable pursuant to Section 5 of the
Certificate of Designations as dividends on the Preferred Shares are referred to
herein as the "Dividend Shares." The shares of Common Stock issuable upon
exercise of the Warrants are referred to herein as the "Warrant Shares." The
Warrant Shares and the shares of Common Stock issuable upon conversion of the
Preferred Shares and upon conversion of the Dividend Shares are referred to
herein collectively as the "Common Shares." The Common Shares, the Preferred
Shares and the Dividend Shares are referred to herein collectively as the
"Shares." The Shares and the Warrants are referred to herein collectively as
the "Securities."
(b) FORM OF PAYMENT. The Buyer shall pay the Purchase Price for the
Preferred Shares by delivering good funds in United States Dollars to the escrow
agent (the "Escrow Agent") identified in the Joint Escrow Instructions attached
hereto as ANNEX III (the "Joint Escrow Instructions"). Such delivery of funds
shall be made against delivery by the Company of the certificates for the
Preferred Shares and the Warrants registered in the name of the Buyer or its
nominee. Promptly following payment by the Buyer to the Escrow Agent of the
Purchase Price, but in any event prior to the Closing Date, the Company shall
deliver certificates for the Preferred Shares and the Warrants, registered in
the name of the Buyer or its nominee, to the Escrow Agent. The certificates for
the Preferred Shares shall be delivered by the Company to the Escrow Agent on a
delivery against payment basis at the closing. By signing this Agreement, the
Buyer and the Company each agrees to all of the terms and conditions of, and
becomes a party to, the Joint Escrow Instructions, all of the provisions of
which are incorporated herein by this reference as if set forth in full.
(c) METHOD OF PAYMENT. Payment of the Purchase Price for the
Preferred Shares shall be made by wire transfer of funds to:
Citibank, N.A.
153 East 53rd Street
New York, New York 10043
ABA#021000089
For credit to A/C#37179446
For credit to the account of Brian W. Pusch Attorney Escrow Account
Reference: Advantage/Rocky
Not later than 4:00 p.m., New York City time, on the date which is one Business
Day after
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<PAGE>
the Company shall have accepted this Agreement and returned a signed counterpart
of this Agreement to the Buyer or its legal counsel, the Buyer shall deposit
with the Escrow Agent an amount equal to the Purchase Price. As used in this
Agreement, the term "Business Day" means any day other than a Saturday, Sunday
or other day on which commercial banks in The City of New York are authorized or
required by law to remain closed.
2. BUYER REPRESENTATIONS, WARRANTIES, ETC.
The Buyer represents and warrants to, and covenants and agrees with,
the Company as follows:
(a) PURCHASE FOR INVESTMENT. The Buyer is purchasing the Preferred
Shares and acquiring the Warrants, and will acquire all other Securities, for
its own account for investment only and not with a view towards the public sale
or distribution thereof, except as contemplated by the Registration Rights
Agreement (as defined herein);
(b) ACCREDITED INVESTOR. The Buyer is an "accredited investor" as
that term is defined in Rule 501 of the General Rules and Regulations under the
1933 Act by reason of Rule 501(a)(3);
(c) REOFFERS AND RESALES. All subsequent offers and sales of the
Securities by the Buyer shall be made pursuant to registration of the Securities
being offered and sold under the 1933 Act or pursuant to an exemption from
registration;
(d) COMPANY RELIANCE. The Buyer understands that the Preferred
Shares are being offered and sold, the Warrants are being issued, and the Common
Shares are being offered, in each case to it in reliance on specific exemptions
from the registration requirements of United States federal and state securities
laws and that the Company is relying upon the truth and accuracy of, and the
Buyer's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of the Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility of the Buyer
to acquire the Preferred Shares and the Warrants and to receive an offer of the
Common Shares;
(e) INFORMATION PROVIDED. The Buyer and its advisors, if any, have
been furnished with all materials relating to the business, finances and
operations of the Company and materials relating to the offer and sale of the
Preferred Shares and the issuance of the Warrants and the offer of the Common
Shares which have been requested by the Buyer; the Buyer and its advisors, if
any, have been afforded the opportunity to ask questions of the Company and have
received satisfactory answers to any such inquiries;
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<PAGE>
without limiting the generality of the foregoing, the Buyer has had the
opportunity to obtain and to review the Company's (1) Annual Report on Form
10-KSB for the fiscal year ended December 31, 1997 (the "1997 10-K"), (2)
Quarterly Reports on Form 10-Q for the fiscal quarters ended March 31, 1998 (as
amended on Form 10-QSB/A), June 30, 1998 and September 30, 1998, (3) definitive
proxy statement for the Company's 1998 Annual Meeting of Shareholders held on
March 12, 1998 and (4) Current Reports on Form 8-K and 8-K/A filed June 11,
1998, July 14, 1998, August 19, 1998, August 24, 1998 and December 7, 1998, in
each case as filed with the SEC (collectively, the "SEC Reports"); and the Buyer
understands that its investment in the Shares involves a high degree of risk;
(f) ABSENCE OF APPROVALS. The Buyer understands that no United
States federal or state agency or any other government or governmental agency
has passed on or made any recommendation or endorsement of the Shares; and
(g) SUBSCRIPTION AGREEMENT. This Agreement has been duly and validly
authorized, executed and delivered on behalf of the Buyer and is a valid and
binding agreement of the Buyer enforceable in accordance with its terms, subject
as to enforceability to general principles of equity and to bankruptcy,
insolvency, moratorium and other similar laws affecting the enforcement of
creditors' rights generally.
3. COMPANY REPRESENTATIONS, WARRANTIES, ETC.
The Company represents and warrants to, and covenants and agrees with,
the Buyer that:
(a) ORGANIZATION AND AUTHORITY. Each of the Company and its
subsidiaries listed on SCHEDULE 3(a)-1 attached hereto (the "Subsidiaries") is a
corporation duly organized, validly existing and in good standing under the laws
of its jurisdiction of incorporation, and has all requisite corporate power and
authority to (i) own, lease and operate its properties and to carry on its
business as now being conducted, and (ii) to execute, deliver and perform its
obligations under this Agreement, the Certificate of Designations, the Warrants,
the Registration Rights Agreement, the form of which is attached hereto as ANNEX
IV (the "Registration Rights Agreement"), the Transfer Agent Agreement, the form
of which is attached hereto as ANNEX V (the "Transfer Agent Agreement"), and the
other agreements to be executed and delivered by the Company in connection
herewith, and to consummate the transactions contemplated hereby and thereby.
Each of the Company and the Subsidiaries is duly qualified to do business as a
foreign corporation and is in good standing in all jurisdictions wherein such
qualification is necessary and where failure so to qualify could have a material
adverse effect on the business, properties, operations, condition (financial or
other), results of operations or
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<PAGE>
prospects of the Company and the Subsidiaries, taken as a whole (a "Company
Material Adverse Effect"). The Company has no subsidiaries or equity investment
in any person other than the Subsidiaries.
(b) CAPITALIZATION. The authorized capital stock of the Company
consists of (a) 25,000,000 shares of Common Stock of which 9,193,649 shares were
outstanding on December 9, 1998, all of which are fully paid and nonassessable;
and (b) 750,000 shares of Preferred Stock, $.001 par value, none of which are
outstanding, and 9,600 shares of which will be designated as Series B
Convertible Preferred Stock, of which 8,000 shares will be issued pursuant to
this Agreement and the other subscription agreement for the purchase of shares
of Preferred Stock and the acquisition of common stock purchase warrants being
entered into in connection herewith (the "Other Subscription Agreement"); and on
the Closing Date there will be (x) no material increase from December 9, 1998 in
the number of shares of Common Stock outstanding and (y) no issuances of
preferred stock except as issued pursuant to this Agreement and the Other
Subscription Agreement. No shares of the Company's former Series A Preferred
Stock, $.001 par value, are outstanding and such series was retired on April 30,
1998. As of December 9, 1998, the Company had outstanding options, warrants and
similar rights entitling the holders to purchase 8,193,026 shares of Common
Stock. Other than as set forth in the preceding sentence, the Company does not
have outstanding any material amount of securities (or obligations to issue any
such securities) convertible into, exchangeable for or otherwise entitling the
holders thereof to acquire shares of Common Stock, except as disclosed in the
SEC Reports. The Company has duly reserved from its authorized and unissued
shares of Common Stock the full number of shares required for (a) all options,
warrants, convertible securities and other rights to acquire shares of Common
Stock which are outstanding and (b) all shares of Common Stock and options and
other rights to acquire shares of Common Stock which may be issued or granted
under the stock option and similar plans which have been adopted by the Company
or any of the Subsidiaries. Each outstanding class or series of securities for
which any antidilution or similar adjustment arising by reason of the issuance
or conversion of the Preferred Shares and the Dividend Shares or the issuance or
exercise of the Warrants or the issuance or conversion of the shares of
Preferred Stock and the issuance or exercise of the warrants to be issued
pursuant to the Other Subscription Agreement will occur is identified on
SCHEDULE 3(b)-1 attached hereto, together with the amount of such antidilution
adjustment. The outstanding shares of Common Stock and outstanding options,
warrants and other securities convertible into, exchangeable for or otherwise
entitling the holder thereof to acquire shares of Common Stock have been duly
authorized and validly issued. None of such outstanding shares of Common Stock,
options, warrants and other securities has been issued in violation of the
preemptive rights of any securityholder of the Company.
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<PAGE>
The offers and sales of the outstanding shares of Common Stock and such options,
warrants and other securities were at all relevant times either registered under
the 1933 Act and applicable state securities laws or exempt from such
requirements. Except as set forth on SCHEDULE 3(b)-2 hereto, no holder of any
of the Company's securities has any rights, "demand," "piggy-back" or otherwise,
to have such securities registered by reason of the intention to file, filing or
effectiveness of the Registration Statement (as defined in the Registration
Rights Agreement).
(c) CONCERNING THE SHARES AND THE COMMON STOCK. The Shares have
been duly authorized. The Preferred Shares, when issued and paid for in
accordance with this Agreement, the Dividend Shares, when issued as dividends
on the outstanding shares of Preferred Stock, and the Common Shares, when
issued upon conversion of the Preferred Shares or the Dividend Shares or upon
exercise of the Warrants, as the case may be, will be duly and validly
issued, fully paid and non-assessable and will not subject the holder thereof
to personal liability by reason of being such holder. There are no
preemptive or similar rights of any stockholder of the Company or any other
person to acquire any of the Shares. The Company has duly reserved 1,838,700
shares of Common Stock for conversion of the shares of Preferred Stock and
exercise of the Warrants and the warrants issuable in connection with the
Other Subscription Agreement, and such shares shall remain so reserved
(subject to reduction from time to time for shares of Common Stock issued
upon conversion of shares of Preferred Stock or redemption or other permitted
retirement of shares of Preferred Stock), and the Company shall from time to
time reserve such additional shares of Common Stock as shall be required to
be reserved pursuant to the Certificate of Designations, as long as the
Preferred Stock is convertible, and pursuant to the Warrants, as long as the
Warrants are exercisable. The Common Stock is listed for trading on the
Nasdaq SmallCap Market ("Nasdaq") and (1) the Company and the Common Stock
meet the criteria for continued listing and trading on Nasdaq; (2) except as
set forth on SCHEDULE 3(c)-1 attached hereto, the Company has not been
notified since January 1, 1996 by Nasdaq of any failure or potential failure
to meet the criteria for continued listing and trading on Nasdaq and (3) no
suspension of trading in the Common Stock is in effect. The Company knows of
no reason that the Common Shares will not be eligible for listing on Nasdaq.
(d) SUBSCRIPTION AGREEMENT AND OTHER TRANSACTION DOCUMENTS. This
Agreement, the Certificate of Designations, the Registration Rights Agreement,
the Warrants and the Transfer Agent Agreement and the other agreements and
instruments contemplated hereby and thereby have been duly and validly
authorized by the Company, this Agreement has been duly executed and delivered
by the Company and this Agreement is, and the Registration Rights Agreement, the
Warrants and the Transfer Agent Agreement
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<PAGE>
and such other agreements, when executed and delivered by the Company, will be,
valid and binding obligations of the Company enforceable in accordance with
their respective terms, subject as to enforceability to general principles of
equity and to bankruptcy, insolvency, moratorium and other similar laws
affecting the enforcement of creditors' rights generally.
(e) NON-CONTRAVENTION. The execution and delivery by the Company of
this Agreement and the other documents contemplated by this Agreement and the
consummation by the Company of the issuance of the Preferred Shares and the
Warrants as contemplated by this Agreement, and the other transactions
contemplated by this Agreement, the Certificate of Designations, the
Registration Rights Agreement, the Warrants and the Transfer Agent Agreement do
not and will not, with or without the giving of notice or the lapse of time, or
both (i) result in any violation of any terms of the Certificate of
Incorporation, as amended, or By-laws of the Company or any Subsidiary, (ii)
conflict with or result in a breach by the Company or any Subsidiary of any of
the terms or provisions of, or constitute a default under, or result in the
modification, amendment, termination or cancellation of, result in the
acceleration of any obligation of the Company or any Subsidiary under, or result
in the creation or imposition of any lien, security interest, charge or
encumbrance upon any of the properties or assets of the Company or any
Subsidiary pursuant to, any indenture, mortgage, deed of trust or other
agreement or instrument to which the Company or any Subsidiary is a party or by
which the Company or any Subsidiary or any of their respective properties or
assets is bound or affected, (iii) violate or contravene any applicable law,
rule or regulation or any applicable decree, judgment or order of any court,
United States federal or state regulatory body, administrative agency or other
governmental body having jurisdiction over the Company or any Subsidiary or any
of their respective properties or assets or (iv) have any Company Material
Adverse Effect on any permit, certification, registration, approval, consent,
license or franchise necessary for the Company or any Subsidiary to own or lease
and operate any of their respective properties or to conduct any of their
respective businesses or the ability of the Company or any Subsidiary to make
use thereof.
(f) APPROVALS. No authorization, approval or consent of, or filing
with, any court, governmental body, regulatory agency, self-regulatory
organization, or stock exchange or market or the stockholders of the Company is
required to be obtained or made by the Company for (1) the execution, delivery
and performance by the Company of this Agreement, the Registration Rights
Agreement, the Warrants, the Transfer Agent Agreement and the other agreements
and instruments contemplated hereby and thereby, (2) the execution, filing and
performance by the Company of the Certificate of Designations, (3) the issuance
and sale of the Preferred Shares and the Dividend Shares
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and the issuance of the Warrants as contemplated by this Agreement and (4) the
issuance of Common Shares on conversion of the Preferred Shares or the Dividend
Shares or upon the exercise of the Warrants or the issuance of Dividend Shares
as dividends on shares of Preferred Stock, other than (w) the filing of the
Certificate of Designations with the Secretary of State of the State of
Delaware, (x) registration of the resale of the Common Shares under the 1933 Act
as contemplated by the Registration Rights Agreement, (y) as may be required
under applicable state securities or "blue sky" laws and (z) filing of one or
more Forms D with respect to the Securities as required under Regulation D.
(g) INFORMATION PROVIDED. The information provided by or on behalf
of the Company to the Buyer in connection with the transactions contemplated by
this Agreement, including, without limitation, the information referred to in
Section 2(e) of this Agreement, does not contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they are made,
not misleading, it being understood that, for purposes of this Section 3(g), any
statement contained in such information shall be deemed to be modified or
superseded for purposes of this Section 3(g) to the extent that a statement in
any document included in such information which was prepared or filed with the
SEC on a later date modifies or replaces such statement, whether or not such
later prepared or filed statement so states. The Company has not filed any
reports with the SEC under the Securities Exchange Act of 1934, as amended (the
"1934 Act"), since December 31, 1997 other than the SEC Reports.
(h) ABSENCE OF CERTAIN CHANGES. Since December 31, 1997, there has
been no change and no development which could have a Company Material Adverse
Effect, except as disclosed in the SEC Reports. Except as and to the extent
disclosed, reflected or reserved against in the financial statements of the
Company and the notes thereto included in the SEC Reports, neither the Company
nor any Subsidiary has any material (individually or in the aggregate)
liabilities, debts or obligations whether accrued, absolute, contingent or
otherwise, and whether due or to become due. Subsequent to December 31, 1997,
neither the Company nor any Subsidiary has incurred any liabilities, debts or
obligations of any nature whatsoever which are individually or in the aggregate
material to the Company and the Subsidiaries taken as a whole, other than those
incurred in the ordinary course of their respective businesses or disclosed in
the SEC Reports.
(i) ABSENCE OF CERTAIN PROCEEDINGS. Except as disclosed in the SEC
Reports, there is no action, suit, proceeding, inquiry or investigation before
or by any court, arbitrator, public board or body or governmental agency
(collectively, an "Action") pending or, to the knowledge of the Company or any
Subsidiary, threatened against the Company or any Subsidiary, in any such case
wherein an unfavorable decision, ruling or finding
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would have a Company Material Adverse Effect or a material adverse effect on 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; neither the Company or any Subsidiary
nor any director or officer thereof is or has been the subject of any Action
involving a claim of violation of or liability under federal or state securities
laws or a claim of breach of fiduciary duty; except as set forth on SCHEDULE
3(i)-1 attached hereto, the Company does not have pending before the SEC any
request for confidential treatment of information and to the best of the
Company's knowledge no such request will be made by the Company prior to the
time the Registration Statement relating to the Common Shares which is
contemplated by the Registration Rights Agreement is first ordered effective by
the SEC; and there has not been, and to the best of the Company's knowledge
there is not pending or contemplated, any investigation by the SEC involving the
Company or any current or former director or officer of the Company.
(j) PROPERTIES. The Company and the Subsidiaries have good title to
or leasehold interests in all property real and personal (tangible and
intangible) and other assets owned by them, free and clear of all security
interests, charges, mortgages, liens or other encumbrances, except with respect
to capital lease obligations and protective filings by lessors and except such
as are described in the SEC Reports or such as do not materially interfere with
the use of such property made, or proposed to be made, by the Company or any
Subsidiary. The leases, licenses or other contracts or instruments under which
the Company and the Subsidiaries lease, hold or are entitled to use any
property, real or personal, are valid, subsisting and enforceable with only such
exceptions as do not materially interfere with the use of such property made, or
proposed to be made, by the Company or any Subsidiary. Neither the Company nor
any Subsidiary has received notice of any material violation of any applicable
law, ordinance, regulation, order or requirement relating to its owned or leased
properties. Except as set forth on SCHEDULE 3(j)-1 attached hereto, the Company
does not have any knowledge of, and the Company has not given or received any
notice of, any pending conflicts with or infringement of the rights of others
with respect to any Company Proprietary Rights (as defined herein) or with
respect to any license of Company Proprietary Rights. No action, suit,
arbitration, or legal, administrative or other proceeding or investigation is
pending, or, to the best knowledge of the Company, threatened, which involves
any Company Proprietary Rights. Neither the Company nor any Subsidiary is
subject to any judgment, order, writ, injunction or decree of any court or any
federal, state, local, foreign or other governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign, or any
arbitrator, or has entered into or is a party to any contract which restricts or
impairs the use of any such Company Proprietary Rights in a manner which would
have a material
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adverse effect on the use by the Company or any Subsidiary of any of the Company
Proprietary Rights. To the best knowledge of the Company, no Company
Proprietary Rights and no services or products sold by the Company or any
Subsidiary, conflict with or infringe upon any proprietary rights available to
any third party. Neither the Company nor any Subsidiary has received written
notice of any pending conflict with or infringement upon such third-party
proprietary rights. Neither the Company nor any Subsidiary has entered into any
consent, indemnification, forbearance to sue or settlement agreement with
respect to Company Proprietary Rights other than in the ordinary course of
business. Except as set forth on SCHEDULE 3(j)-1 attached hereto, no claims
have been asserted by any person with respect to the validity of the Company's
or any Subsidiary's ownership or right to use the Company Proprietary Rights
and, to the best knowledge of the Company, there is no reasonable basis for any
such claim to be successful. To the best knowledge of the Company, the Company
Proprietary Rights are valid and enforceable. No registration relating to the
Company Proprietary Rights has lapsed, expired or been abandoned or canceled or
is the subject of cancellation or other adversarial proceedings, and all
applications therefor are pending and are in good standing, except for such
lapses, expirations, abandonments, cancellations, adversarial proceedings or
failures to be in good standing which would not, singly or in the aggregate,
have a Company Material Adverse Effect. The Company and the Subsidiaries have
complied, in all material respects, with their respective contractual
obligations relating to the protection of the Company Proprietary Rights used
pursuant to licenses. To the best knowledge of the Company, no person is
infringing on or violating the Company Proprietary Rights. As used herein, the
term "Company Proprietary Rights" means all patents, patent applications,
inventions, trademarks, trade names, applications for registration of
trademarks, service marks, service mark applications, copyrights, know-how,
manufacturing processes, formulae, trade secrets, licenses and rights in any
thereof and any other intangible property and assets which are material to the
businesses of the Company and the Subsidiaries as now conducted, as proposed to
be conducted or as described in this Agreement.
(k) LABOR RELATIONS. No material labor problem exists or, to the
knowledge of the Company or any Subsidiary, is imminent with respect to any of
the employees of the Company or any Subsidiary.
(l) SEC FILINGS. The Company has timely filed all required forms,
reports and other documents required to be filed by the Company with the SEC
under the 1934 Act. All of such forms, reports and other documents complied,
when filed, in all material respects, with all applicable requirements of the
1933 Act and the 1934 Act.
(m) ABSENCE OF BROKERS, FINDERS, ETC. No broker, finder or
similar person is entitled to any commission, fee or other compensation by
reason of the
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transactions contemplated by this Agreement other than as disclosed in writing
by the Company to the Buyer with respect to certain persons prior to the date of
execution and delivery of this Agreement by the Buyer, and the Company shall
pay, and indemnify and hold harmless the Buyer from, any claim made against the
Buyer by such persons or any other person for any such commission, fee or other
compensation.
(n) NO SOLICITATION. No form of general solicitation or general
advertising was used by the Company or, to the best of its knowledge, any other
person acting on behalf of the Company, in respect of or in connection with the
offer and sale of the Securities. Neither the Company nor, to its knowledge,
any person acting on behalf of the Company has, either directly or indirectly,
sold or offered for sale to any person any of the Preferred Shares or the
Warrants or, within the six months prior to the date hereof, any other similar
security of the Company except as contemplated by this Agreement and the Other
Subscription Agreement; and neither the Company nor any person authorized to act
on its behalf will sell or offer for sale any shares of Preferred Stock or
shares of Common Stock or Warrants, or solicit any offers to buy any shares of
Preferred Stock or shares of Common Stock or Warrants, so as thereby to cause
the issuance or sale of any of the Shares or the issuance of the Warrants to be
in violation of Section 5 of the 1933 Act.
(o) CERTAIN ISSUANCES OF SECURITIES. The Company has not issued any
shares of Common Stock or shares of any series of preferred stock or other
securities convertible into, exchangeable for or otherwise entitling the holder
to acquire shares of Common Stock which are subject to Rule 4310(c)(25)(H) of
the Nasdaq as in effect from time to time or any successor, replacement or
similar provision thereof or of any other market on which the Common Stock is
listed for trading (the "Stockholder Approval Rule") and which would be
integrated with the sale of the Preferred Shares to the Buyer or the issuance of
Common Shares upon conversion thereof or upon exercise of the Warrants or the
Dividend Shares in payment of dividends thereon for purposes of the Stockholder
Approval Rule.
(p) ABSENCE OF RIGHTS AGREEMENT. The Company has not adopted a
shareholder rights plan or similar arrangement relating to accumulations of
beneficial ownership of Common Stock or a change in control of the Company.
4. CERTAIN COVENANTS AND ACKNOWLEDGMENTS.
(a) TRANSFER RESTRICTIONS. The Company and the Buyer acknowledge and
agree that (1) the Preferred Shares and the Warrants have not been and are not
being registered under the provisions of the 1933 Act and, except as provided in
the Registration
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Rights Agreement with respect to the resale of the Common Shares, the Common
Shares have not been and are not being registered for resale under the 1933 Act,
and the Securities may not be transferred unless (A) subsequently registered for
resale thereunder or (B) the Buyer shall have delivered to the Company an
opinion of counsel, reasonably satisfactory in form, scope and substance to the
Company, to the effect that the Securities to be sold or transferred may be sold
or transferred pursuant to an exemption from such registration; (2) any resale
of the Securities made in reliance on Rule 144 promulgated under the 1933 Act
may be made only in accordance with the terms of said Rule and further, if said
Rule is not applicable, any such resale of Securities under circumstances in
which the seller, or the person through whom the sale is made, may be deemed to
be an underwriter, as that term is used in the 1933 Act, may require compliance
with some other exemption under the 1933 Act or the rules and regulations of the
SEC thereunder; and (3) neither the Company nor any other person is under any
obligation to register the Securities (other than pursuant to the Registration
Rights Agreement) under the 1933 Act or to comply with the terms and conditions
of any exemption thereunder (other than pursuant to Section 4(d) hereof and
pursuant to the Registration Rights Agreement).
(b) RESTRICTIVE LEGEND. (1) The Buyer acknowledges and agrees that
the Preferred Shares shall bear a restrictive legend in substantially the
following form (and a stop-transfer order may be placed against transfer of the
Preferred Shares):
The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended. The securities have been
acquired for investment and may not be sold, transferred or assigned in the
absence of an effective registration statement for the securities under the
Securities Act of 1933, as amended, or an opinion of counsel that
registration is not required under said Act.
The number of shares constituting the portion of the Maximum Share Amount,
as defined in the Certificate of Designations of the Series B Convertible
Preferred Stock (the "Certificate of Designations"), allocated to the
shares represented by this certificate for purposes of conversion thereof
is 1,149,188.
Section 10(b)(3)(A) of the Certificate of Designations permits a holder of
the securities represented by this certificate to convert such securities
in accordance with the Certificate of Designations without being required
to surrender this certificate to the Company unless all of the securities
represented hereby are so converted. Consequently, following conversion of
any of the securities represented by this certificate, the number of shares
represented by this certificate may be less
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than the number of shares stated hereon. Upon request of any proposed
transferee of this certificate, the Company will provide confirmation of
the number of shares evidenced by this certificate.
(2) The Buyer further acknowledges and agrees that the Warrants shall
bear a restrictive legend in substantially the following form (and a
stop-transfer order may be placed against transfer of the Warrants):
The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended. The securities have been
acquired for investment and may not be resold, transferred or assigned in
the absence of an effective registration statement for the securities under
the Securities Act of 1933, as amended, or an opinion of counsel that
registration is not required under said Act.
(3) The Buyer further acknowledges and agrees that until such time as
the Common Shares have been registered for resale under the 1933 Act as
contemplated by the Registration Rights Agreement, the certificates for the
Common Shares may bear a restrictive legend in substantially the following form
(and a stop-transfer order may be placed against transfer of the certificates
for the Common Shares):
The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended. The securities have been
acquired for investment and may not be resold, transferred or assigned in
the absence of an effective registration statement for the securities under
the Securities Act of 1933, as amended, or an opinion of counsel that
registration is not required under said Act.
(4) Once the Registration Statement required to be filed by the
Company pursuant to Section 2 of the Registration Rights Agreement has been
declared effective, thereafter (1) upon request of the Buyer the Company will
substitute certificates without restrictive legend for certificates for any
Common Shares issued prior to the date such Registration Statement is declared
effective by the SEC which bear such restrictive legend and remove any
stop-transfer restriction relating thereto promptly, but in no event later than
three Trading Days (as defined in the Certificate of Designations) after
surrender of such certificates by the Buyer and (2) the Company shall not place
any restrictive legend on certificates for Common Shares issued on conversion of
or as dividends on the Preferred Shares or upon exercise of the Warrants or
impose any stop-transfer restriction thereon.
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(c) REGISTRATION RIGHTS AGREEMENT. The parties hereto agree to enter
into the Registration Rights Agreement in the form attached hereto as ANNEX IV
on or before the Closing Date.
(d) FORM D. The Company agrees to file a Form D with respect to the
Securities as required under Regulation D and to provide a copy thereof to the
Buyer promptly after such filing. The Buyer agrees to cooperate with the
Company in connection with such filing and, upon request of the Company, to
provide all information relating to the Buyer reasonably required for such
filing.
(e) AUTHORIZATION FOR TRADING; REPORTING STATUS. On or before the
Closing Date, the Company shall file a notification for listing of additional
shares with the Nasdaq relating to the Common Shares and shall provide evidence
of such filing to the Buyer. So long as the Buyer beneficially owns any of the
Preferred Shares, the Dividend Shares, the Warrants or the Common Shares, the
Company shall file all reports required to be filed with the SEC pursuant to
Section 13 or 15(d) of the 1934 Act and the Company shall not terminate its
status as an issuer required to file reports under the 1934 Act even if the 1934
Act or the rules and regulations thereunder would permit such termination.
(f) USE OF PROCEEDS. Neither the Company nor any Subsidiary owns or
has any present intention of acquiring any "margin stock" as defined in
Regulation G (12 CFR Part 207) of the Board of Governors of the Federal Reserve
System ("margin stock"). The proceeds of sale of the Preferred Shares will be
used for general working capital purposes and in the operation of the Company's
business. None of such proceeds will be used, directly or indirectly (1) to
make any loan to or investment in any other person (other than financing the
Company's subsidiaries in the ordinary course of business or in connection with
an acquisition of another corporation or business or assets of another
corporation or business) or (2) for the purpose, whether immediate, incidental
or ultimate, of purchasing or carrying any margin stock or for the purpose of
maintaining, reducing or retiring any indebtedness which was originally incurred
to purchase or carry any stock that is currently a margin stock or for any other
purpose which might constitute the transactions contemplated by this Agreement a
"purpose credit" within the meaning of such Regulation G. Neither the Company
nor any agent acting on its behalf has taken or will take any action which might
cause this Agreement or the transactions contemplated hereby to violate
Regulation G, Regulation T or any other regulation of the Board of Governors of
the Federal Reserve System or to violate the 1934 Act, in each case as in effect
now or as the same may hereafter be in effect.
(g) BLUE SKY LAWS. On or before the Closing Date, the Company shall
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take such action as shall be necessary to qualify, or to obtain an exemption
for, the Preferred Shares for sale to the Buyer and the Warrants for issuance to
the Buyer pursuant to this Agreement and the Common Shares for issuance to the
Buyer on conversion of the Preferred Shares under such of the securities or
"blue sky" laws of jurisdictions as shall be applicable to the sale of the
Preferred Shares and the issuance of the Warrants pursuant to this Agreement and
the issuance to the Buyer of Common Shares on conversion of the Preferred Shares
and exercise of the Warrants. The Company shall furnish copies of all filings,
applications, orders and grants or confirmations of exemptions relating to such
securities or "blue sky" laws on or prior to the Closing Date.
(h) CERTAIN EXPENSES. If the closing occurs, the Company shall pay
or reimburse the Buyer for all reasonable expenses (including, without
limitation, legal fees and expenses of counsel to the Buyer and the Buyer's due
diligence expenses) not in excess of $30,000 incurred by the Buyer in connection
with this Agreement and the transactions contemplated hereby and the buyer under
the Other Subscription Agreement. In addition, the Company or the Buyer, as the
case may be, shall pay on demand all expenses incurred by the other party,
including reasonable attorneys' fees and expenses, as a consequence of, or in
connection with (1) the negotiation, preparation or execution of any amendment,
modification or waiver of this Agreement, the Certificate of Designations, the
Registration Rights Agreement, the Warrants, the Transfer Agent Agreement and
the other agreements and instruments contemplated hereby and thereby requested
by the requesting party, (2) any default or breach of any of the defaulting or
breaching party's obligations set forth in any of such agreements or instruments
and (3) the enforcement or restructuring of any right of, including the
collection of any payments due, the other party under any of such agreements or
instruments, including any action or proceeding relating to such enforcement, or
any order, injunction or other process seeking to restrain a party from paying
any amount due the other party, in which the other party prevails.
(i) CERTAIN ISSUANCES OF SECURITIES. (1) Unless the Company obtains
the Stockholder Approval (as defined in the Certificate of Designations) or a
waiver thereof from the Nasdaq, the Company will not issue any shares of Common
Stock or shares of any other series of preferred stock or other securities
convertible into, exchangeable for, or otherwise entitling the holder to
acquire, shares of Common Stock which would be subject to the requirements of
the Stockholder Approval Rule and which would be integrated with the sale of the
Preferred Shares and issuance of the Warrants to the Buyer or the issuance of
Common Shares upon conversion of the Preferred Shares or Dividend Shares or upon
exercise of the Warrants for purposes of the Stockholder Approval Rule.
(2) During the period from the date of this Agreement to the date on
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which the Registration Statement (as defined in the Registration Rights
Agreement) shall have been effective with the SEC for 180 consecutive days, the
Company shall not offer, sell, contract to sell or issue (or engage any person
to assist the Company in taking any such action) (A) any security (whether debt
or equity) with conversion or exchange terms similar in nature to the conversion
rights of the Preferred Stock or (B) any equity securities or securities
convertible into, exchangeable for or otherwise entitling the holder to acquire,
any Common Stock at a price below the market price of the Common Stock on the
date of such issuance (or below an average market price for a reasonable period
prior to such issuance) or the date of conversion, exchange or other exercise
thereof (collectively, "Equity Securities"); PROVIDED, HOWEVER, that nothing in
this Section 4(i)(2) shall prohibit the Company from issuing securities (w)
pursuant to compensation plans for employees, directors, officers, advisers or
consultants of the Company and in accordance with the terms of such plans as in
effect as of the date of this Agreement, (x) upon exercise of conversion,
exchange, purchase or similar rights issued, granted or given by the Company and
outstanding as of the date of this Agreement and disclosed in the SEC Reports or
this Agreement, (y) pursuant to a public offering underwritten on a firm
commitment basis registered under the 1933 Act or (z) as part of a transaction
involving a strategic alliance, acquisition of stock or assets, merger,
collaboration, joint venture, partnership or other similar arrangement of the
Company with another corporation, partnership or other business entity which is
engaged in a business similar to or related to the business of the Company, so
long as in the case of this clause (z) the Board of Directors by resolution duly
adopted (and a copy of which shall be furnished to the Buyer promptly after
adoption) determines that such issuance is fair to the holders of each class and
series of capital stock of the Company and to the Buyer in respect of its equity
interest in the Company that is represented by the Preferred Shares, the
Dividend Shares, if any, and the Warrants.
(3) Subject to the restrictions in Section 4(i)(1), during the period
from the date of execution and delivery of this Agreement to the date which is
one year after the Closing Date, the Company shall not offer, sell, contract to
sell or issue (or engage any person to assist the Company in taking any such
action) any Equity Securities without giving the Buyer the first right to
acquire the Equity Securities on the same terms as the Equity Securities are to
be offered to other investors; PROVIDED, HOWEVER, that this Section 4(i)(3)
shall not apply to the offer or sale of Equity Securities by the Company in the
transactions, and subject to the conditions, set forth in clauses (w), (x), (y)
and (z) of the proviso to the first sentence of Section 4(i)(2) above. The
Company shall give notice to the Buyer of the detailed terms of the Equity
Securities proposed to be issued and, promptly after requested by the Buyer,
such other information as requested by the Buyer. The Buyer may, by notice to
the Company, exercise such right of first refusal at any time until the later of
(x) 15 Business Days after such notice from the Company to the Buyer
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and (y) five Business Days after the Company provides such additional
information as shall have been requested by the Buyer.
(j) STOCKHOLDER APPROVAL. The Company shall seek and use its best
efforts to obtain at the Company's next regularly scheduled Annual Meeting of
Stockholders, Stockholder Approval of the issuance of all shares of Preferred
Stock issuable pursuant to the Certificate of Designations and all shares of
Common Stock issuable upon conversion of the Preferred Stock. The Company shall
prepare and file with the SEC within 30 days prior to the scheduled mailing of
notice of such Annual Meeting preliminary proxy materials which set forth a
proposal to seek such Stockholder Approval. The Company shall provide the Buyer
an opportunity to consult with the Company regarding the content of such proxy
materials insofar as it relates to the Stockholder Approval by providing copies
of such preliminary proxy materials and any revised preliminary proxy materials
to the Buyer a reasonable period of time prior to their filing with the SEC.
Such consultation shall occur within five Business Days after the Buyer's
receipt of each proposed draft of such materials. The Company shall furnish to
the Buyer and its counsel a copy of its definitive proxy materials for such
Annual Meeting and any amendments or supplements thereto promptly after the same
are mailed to stockholders or filed with the SEC.
(k) CERTAIN TRADING RESTRICTIONS. The Buyer agrees that on the
Closing Date it will have no short position in the Common Stock. So long as (i)
the Company is in compliance in all material respects with its obligations to
the Buyer under this Agreement, the Certificate of Designations, the Warrants
and the Registration Rights Agreement or (ii) any noncompliance with such
obligations is cured within ten Business Days of the Company's receipt of notice
thereof from the Buyer, the Buyer agrees on its behalf and on behalf of its
Affiliates (as defined in the Certificate of Designations) that it will not
engage in any short sales or other hedging transactions relating to the Common
Stock; PROVIDED, HOWEVER, that for purposes of this Agreement any such
transaction involving a number of shares of Common Stock which does not exceed
the number of shares for which a Conversion Notice (as defined in Section 5(b))
has been submitted to the Transfer Agent (as defined in Section 5(a)) and the
Company shall not be deemed to be a short sale or hedging transaction.
(l) RESTRICTION ON CONVERSIONS. So long as the Company is in
compliance in all material respects with its obligations to the Buyer under this
Agreement, the Certificate of Designations, the Warrants and the Registration
Rights Agreement, the aggregate number of Limitation Shares (as defined below)
in any period of 30 consecutive days through November 30, 1999 shall not exceed
20% of the number of Preferred Shares purchased by the Buyer on the Closing
Date. For purposes of this Agreement, "Limitation
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Shares" means, for each conversion of Preferred Shares pursuant to the
Certificate of Designations, the number of Preferred Shares converted into
Common Stock when the Volume-Weighted Trading Price (as defined below) of the
Common Stock on the Conversion Date for such conversion is less than 110% of the
Conversion Price (as defined in the Certificate of Designations) applicable to
such conversion; and "Volume-Weighted Trading Price" for any security for any
period means the quotient obtained by dividing (A) the sum for all trades
(regular way) of such security between 9:15 a.m. and 4:30 p.m., Eastern Time, on
each Trading Day during such period on the principal securities market for such
security of the product of (x) the number of shares of such security traded in
each trade TIMES (y) the price at which such security was traded in such trade
BY (B) the sum of the number of shares of such security traded in all such
trades, as reported by Bloomberg, L.P. in its AQR function for such security.
(m) RESTRICTION ON BENEFICIAL OWNERSHIP. So long as the Company is
in compliance in all material respects with its obligations to the Buyer under
this Agreement, the Certificate of Designations, the Warrants and the
Registration Rights Agreement, the Buyer agrees to (i) comply with the
restrictions on beneficial ownership of Common Stock set forth in the proviso to
the second sentence of Section 10(a) of the Certificate of Designations as if
the reference to "4.9%" therein were reduced to 3.0625% and (ii) require any
transferee of the Preferred Shares or the Warrants to agree in writing with the
Company to be bound by this Section 4(m).
(n) BEST EFFORTS. Each of the parties shall use its best efforts
timely to satisfy each of the conditions to the other party's obligations to
sell and purchase the Preferred Shares set forth in Section 7 or 8, as the case
may be, of this Agreement on or before the Closing Date.
5. TRANSFER AGENT AGREEMENT; CONVERSION PROCEDURE.
(a) TRANSFER AGENT AGREEMENT. Prior to the Closing Date, the Company
will (1) execute and deliver the Transfer Agent Agreement in the form attached
hereto as ANNEX V and thereby irrevocably instruct, American Securities Transfer
& Trust, Inc., as Transfer Agent and Registrar (the "Transfer Agent"), to issue
certificates for the Common Shares from time to time upon conversion of the
Preferred Shares and the Dividend Shares and exercise of the Warrants in such
amounts as specified from time to time to the Transfer Agent in the Notices of
Conversion surrendered in connection with such conversions and referred to in
Section 5(b) of this Agreement and the Form of Subscription in the form attached
to the Warrants and (2) appoint the Transfer Agent the conversion agent for the
Preferred Stock and the exercise agent for the Warrants. The certificates for
the Common Shares may bear the restrictive legend specified in Section
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4(b) of this Agreement prior to registration of the resale of the Common Shares
under the 1933 Act. The certificates for the Common Shares shall be registered
in the name of the Buyer or its designee and in such denominations to be
specified by the Buyer in connection with each conversion of Preferred Shares or
Dividend Shares or exercise of the Warrants. The Company warrants that no
instruction other than (x) such instructions referred to in this Section 5, (y)
stop transfer instructions to give effect to Section 4(a) prior to registration
of the resale of the Common Shares under the 1933 Act and (z) the instructions
required by Section 3(n) of the Registration Rights Agreement will be given by
the Company to the Transfer Agent and that the Common Shares shall otherwise be
freely transferable on the books and records of the Company as and to the extent
provided in this Agreement. Nothing in this Section 5(a) shall limit in any way
the Buyer's obligations and agreement to comply with the registration
requirements of the 1933 Act upon resale of the Common Shares. If the Buyer
provides the Company with an opinion of counsel, reasonably satisfactory in
form, scope and substance to the Company and its legal counsel, that
registration of a resale by the Buyer of ny of the Securities is not required
under the 1933 Act, the Company shall permit the transfer of such Securities
and, in the case of the Common Shares, in accordance with clause (1)(B) of
Section 4(a) of this Agreement, promptly instruct the Transfer Agent to issue
upon transfer one or more share certificates in such name and in such
denominations as specified by the Buyer within three Business Days after receipt
of such opinion. Nothing in this Section 5(a) shall limit the obligations of
the Company under Section 3(n) of the Registration Rights Agreement.
(b) CONVERSION PROCEDURE. In connection with the exercise of
conversion rights relating to the Preferred Shares and the Dividend Shares, the
Buyer or any subsequent holder of the Preferred Shares shall complete, sign and
furnish to the Transfer Agent and the Company a Notice of Conversion of Series B
Convertible Preferred Stock in the form attached hereto as ANNEX VI (a
"Conversion Notice"), which shall be deemed to satisfy all requirements of the
Certificate of Designations.
6. CLOSING DATE.
Subject to the satisfaction or waiver of the conditions set forth in
Sections 7 and 8, the date and time of the issuance and sale of the Preferred
Shares and the issuance of the Warrants (the "Closing Date") shall be 12:00
noon, New York City time, on or before the date which is one Business Day after
the date the Buyer has deposited the Purchase Price with the Escrow Agent in
accordance with Section 1(b), or such other mutually agreed to time. The
closing shall occur on the Closing Date at the Law Offices of Brian W Pusch,
Penthouse Suite, 29 West 57th Street, New York, New York 10019.
7. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL AND
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ISSUE.
The Buyer understands that the Company's obligation to sell the
Preferred Shares and issue the Warrants to the Buyer pursuant to this Agreement
is conditioned upon the satisfaction of the following conditions precedent on or
before the Closing Date (any or all of which may be waived by the Company in its
sole discretion):
(a) The receipt and acceptance by the Company of this Agreement as
evidenced by execution of this Agreement by the Company and delivery of an
executed counterpart of this Agreement to the Buyer or its legal counsel;
(b) Delivery by the Buyer to the Escrow Agent of good funds as
payment in full of an amount equal to the Purchase Price for the Preferred
Shares in accordance with Section 1(b) hereof; and
(c) The accuracy on the Closing Date of the representations and
warranties of the Buyer contained in this Agreement as if made on the Closing
Date and the performance by the Buyer on or before the Closing Date of all
covenants and agreements of the Buyer required to be performed on or before the
Closing Date.
8. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE.
The Company understands that the Buyer's obligation to purchase the
Preferred Shares and acquire the Warrants on the Closing Date is conditioned
upon the satisfaction of the following conditions precedent on or before the
Closing Date (any or all of which may be waived by the Buyer in its sole
discretion):
(a) Delivery by the Company to the Escrow Agent of the certificates
for the Preferred Shares and the Warrants in accordance with this Agreement;
(b) The accuracy on the Closing Date of the representations and
warranties of the Company contained in this Agreement as if made on the Closing
Date and the performance by the Company on or before the Closing Date of all
covenants and agreements of the Company required to be performed on or before
the Closing Date, and receipt by the Buyer of a certificate, dated the Closing
Date, of the Chief Executive Officer of the Company confirming such matters and
such other matters as the Buyer may reasonably request;
(c) The receipt by the Buyer of confirmation of the filing with the
Secretary of State of the State of Delaware of the Certificate of Designations;
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(d) The receipt by the Buyer of a certificate, dated the Closing
Date, of the Secretary of the Company certifying (1) the Certificate of
Incorporation, as amended, and By-Laws of the Company as in effect on the
Closing Date and (2) all resolutions of the Board of Directors (and committees
thereof) of the Company relating to this Agreement and the transactions
contemplated hereby;
(e) The Transfer Agent shall have executed and delivered the Transfer
Agent Agreement in the form attached hereto as ANNEX V; and
(f) Receipt by the Buyer on the Closing Date of an opinion of Jacobs
Chase Frick Kleinkopf & Kelley, LLC, counsel for the Company, dated the Closing
Date, in form, scope and substance reasonably satisfactory to the Buyer, to the
effect set forth in ANNEX VII attached hereto.
9. MISCELLANEOUS.
(a) GOVERNING LAW. This Agreement shall be governed by and
interpreted in accordance with the laws of the State of Colorado.
(b) COUNTERPARTS. This Agreement may be executed in counterparts and
by the parties hereto on separate counterparts, all of which together shall
constitute one and the same instrument. A facsimile transmission of this
Agreement bearing a signature on behalf of a party hereto shall be legal and
binding on such party. Although this Agreement is dated as of the date first
set forth above, the actual date of execution and delivery of this Agreement by
each party is the date set forth below such party's signature on the signature
page hereof. Any reference in this Agreement or in any of the documents
executed and delivered by the parties hereto in connection herewith to (1) the
date of execution and delivery of this Agreement by the Buyer shall be deemed a
reference to the date set forth below the Buyer's signature on the signature
page hereof, (2) the date of execution and delivery of this Agreement by the
Company shall be deemed a reference to the date set forth below the Company's
signature on the signature page hereof and (3) the date of execution and
delivery of this Agreement or the date of execution and delivery of this
Agreement by the Buyer and the Company shall be deemed a reference to the later
of the dates set forth below the signatures of the parties on the signature page
hereof.
(c) HEADINGS, ETC. The headings, captions and footers of this
Agreement are for convenience of reference and shall not form part of, or affect
the interpretation of, this Agreement.
(d) SEVERABILITY. If any provision of this Agreement shall be
invalid or
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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.
(e) AMENDMENTS. No amendment, modification, waiver, discharge or
termination of any provision of this Agreement nor consent to any departure by
the Buyer or the Company therefrom shall in any event be effective unless the
same shall be in writing and signed by the party to be charged with enforcement,
and then shall be effective only in the specific instance and for the purpose
for which given. No course of dealing between the parties hereto shall operate
as an amendment of this Agreement.
(f) WAIVERS. 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, or any course of dealings between the parties, shall not operate as a
waiver thereof or an amendment hereof, nor shall any single or partial exercise
of any such right or power, or any abandonment or discontinuance of steps to
enforce such a right or power, preclude any other or further exercise thereof or
exercise of any other right or power.
(g) NOTICES. Any notices required or permitted to be given under the
terms of this Agreement shall be delivered personally (which shall include
telephone line facsimile transmission with answer back confirmation) or by
courier and shall be effective upon receipt, in the case of the Company
addressed to the Company at its address shown in the introductory paragraph of
this Agreement, Attention: Chief Executive Officer (telephone line facsimile
transmission number (303) 672-0711) or, in the case of the Buyer, at its address
or telephone line facsimile transmission number shown on the signature page of
this Agreement, with a copy to Genesee International, Inc., 10500 N.E. 8th
Street, Suite 1920, Bellevue, Washington 98004-4332 (telephone line facsimile
transmission number (425) 462-4645) or such other address or telephone line
facsimile transmission number as a party shall have provided by notice to the
other party in accordance with this provision. The Buyer hereby designates as
its address for any notice required or permitted to be given to the Buyer
pursuant to the Certificate of Designations the address shown on the signature
page of this Agreement, with a copy to: Advantage Fund II Ltd., c/o Genesee
International, Inc., 10500 N.E. 8th Street, Suite 1920, Bellevue, Washington
98004-4332 (facsimile number (425) 462-4645), until the Buyer shall designate
another address for such purpose.
(h) ASSIGNMENT. Prior to the Closing Date, the Buyer may not assign
its rights and obligations under this Agreement. Any transfer of the Preferred
Shares or the Warrants by the Buyer after the Closing Date shall be made in
accordance with Section 4(a). After the Closing Date, the Buyer shall have the
right to assign its rights and
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obligations under this Agreement in connection with any transfer of the Buyer's
rights under the Registration Rights Agreement by compliance with the provisions
of Section 9 of the Registration Rights Agreement and Section 4(m) of this
Agreement.
(i) SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The respective
representations, warranties, covenants and agreements of the Buyer and the
Company contained in this Agreement or made by or on behalf of them,
respectively, pursuant to this Agreement shall survive the delivery of and
payment for the Preferred Shares and shall remain in full force and effect
regardless of any investigation made by or on behalf of them or any person
controlling or advising any of them.
(j) ENTIRE AGREEMENT. This Agreement and its Schedules and Annexes
set forth the entire agreement between the parties hereto with respect to the
subject matter hereof and supersede all prior agreements and understandings,
whether written or oral, with respect thereto.
(k) TERMINATION. The Buyer shall have the right to terminate this
Agreement by giving notice to the Company at any time at or prior to the Closing
Date if:
(1) the Company shall have failed, refused, or been unable at or
prior to the date of such termination of this Agreement to perform any of
its obligations hereunder;
(2) any other condition of the Buyer's obligations hereunder is not
fulfilled; or
(3) the closing shall not have occurred on a Closing Date on or
before December 15, 1998, other than solely by reason of a breach of this
Agreement by the Buyer.
Any such termination shall be effective upon the giving of notice thereof by the
Buyer. Upon such termination, the Buyer shall have no further obligation to the
Company hereunder and the Company shall remain liable for any breach of this
Agreement or the other documents contemplated hereby which occurred on or prior
to the date of such termination.
(l) FURTHER ASSURANCES. Each party to this Agreement will perform
any and all acts and execute any and all documents as may be necessary and
proper under the circumstances in order to accomplish the intents and purposes
of this Agreement and to carry out its provisions.
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(m) PUBLIC STATEMENTS, PRESS RELEASES, ETC. The Company and the
Buyer shall have the right to approve before issuance any press releases 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 Buyer, to make any press release or other public disclosure with
respect to such transactions as is required by applicable law or Nasdaq
regulation (although the Buyer shall be consulted by the Company in connection
with any such press release or other public disclosure prior to its release and
shall be provided with a copy thereof).
(n) CONSTRUCTION. The language used in this Agreement will be deemed
to be the language chosen by the parties to express their mutual intent, and no
rules of strict construction will be applied against any party.
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IN WITNESS WHEREOF, this Agreement has been duly executed by the Buyer
and the Company by their respective officers or other representatives thereunto
duly authorized on the respective dates set forth below.
NUMBER OF SHARES:
PRICE PER SHARE: $1,000.00
AGGREGATE PURCHASE PRICE:
ADVANTAGE FUND II LTD.
By:
W.R. Weber
President
Date:
Address: c/o CITCO
Kaya Flamboyan 9
Curacao, Netherlands Antilles
Facsimile No.: 011-599-9732-2008
ROCKY MOUNTAIN INTERNET, INC.
By:
Name:
Title:
Date:
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THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED. THE SECURITIES HAVE BEEN ACQUIRED FOR
INVESTMENT AND MAY NOT BE RESOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR AN OPINION OF COUNSEL THAT REGISTRATION IS NOT REQUIRED
UNDER SAID ACT.
Right to Purchase 58,125 Shares of Common
Stock of Rocky Mountain Internet, Inc.
ROCKY MOUNTAIN INTERNET, INC.
COMMON STOCK PURCHASE WARRANT
NO. B-2
ROCKY MOUNTAIN INTERNET, INC., a Delaware corporation (the "Company"),
hereby certifies that, for value received, Koch Industries, Inc. or registered
assigns (the "Holder"), is entitled, subject to the terms set forth below, to
purchase from the Company at any time or from time to time after the date
hereof, and before 5:00 p.m., New York City time, on the Expiration Date (as
hereinafter defined), 58,125 fully paid and nonassessable shares of Common Stock
(as hereinafter defined) at a purchase price per share equal to the Purchase
Price (as hereinafter defined). The number of such shares of Common Stock and
the Purchase Price are subject to adjustment as provided in this Warrant.
As used herein the following terms, unless the context otherwise
requires, have the following respective meanings:
"Common Stock" includes the Company's Common Stock, $.001 par value
per share, as authorized on the date hereof, and any other securities into
which or for which the Common Stock may be converted or exchanged pursuant
to a plan of recapitalization, reorganization, merger, sale of assets or
otherwise.
"Company" shall include Rocky Mountain Internet, Inc. and any
corporation
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that shall succeed to or assume the obligation of Rocky Mountain Internet,
Inc. hereunder in accordance with the terms hereof.
"Expiration Date" means December 10, 2003.
"Issuance Date" means the first date of original issuance of this
Warrant.
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"1933 Act" means the Securities Act of 1933, as amended.
"Other Securities" refers to any stock (other than Common Stock) and
other securities of the Company or any other person (corporate or
otherwise) which the Holder at any time shall be entitled to receive, or
shall have received, on the exercise of this Warrant, in lieu of or in
addition to Common Stock, or which at any time shall be issuable or shall
have been issued in exchange for or in replacement of Common Stock or Other
Securities pursuant to Section 4.
"Purchase Price" shall mean $13.21125 per share, subject to adjustment
as provided in this Warrant.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of December 10, 1998, by and between the Company and
the original Holder of this Warrant, as amended from time to time in
accordance with its terms.
"Subscription Agreement" means the Subscription Agreement, dated as of
December 10, 1998, by and between the Company and the original Holder of
this Warrant, as amended from time to time in accordance with its terms.
"Trading Day" means a day on which the principal securities market for
the Common Stock is open for general trading of securities.
1. EXERCISE OF WARRANT.
1.1 EXERCISE. (a) This Warrant may be exercised by the Holder hereof
in full or in part at any time or from time to time during the exercise period
specified in the first paragraph hereof until the Expiration Date by surrender
of this Warrant and the subscription form annexed hereto (duly executed by the
Holder) to the Company's transfer agent and registrar for the Common Stock, and
by making payment, in cash or by certified or official bank check payable to the
order of the Company, in the amount obtained by multiplying (a) the number of
shares of Common Stock designated by the Holder in the
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subscription form by (b) the Purchase Price then in effect. The Holder shall
provide a copy of the subscription form to the Company at the time of exercise
and the Company will confirm the exercise instructions given therein by notice
to the Company's transfer agent within one Trading Day after receiving such
subscription form. On any partial exercise the Company will forthwith issue and
deliver to or upon the order of the Holder hereof a new Warrant or Warrants of
like tenor, in the name of the Holder hereof or as the Holder (upon payment by
the Holder of any applicable transfer taxes) may request, providing in the
aggregate on the face or faces thereof for the purchase of the number of shares
of Common Stock for which such Warrant or Warrants may still be exercised.
(b) Notwithstanding any other provision of this Warrant, in no event
shall the Holder be entitled at any time to purchase a number of shares of
Common Stock on exercise of this Warrant in excess of that number of shares upon
purchase of which the sum of (1) the number of shares of Common Stock
beneficially owned by the Holder and all persons whose beneficial ownership of
shares of Common Stock would be aggregated with the Holder's beneficial
ownership of shares of Common Stock for purposes of Section 13(d) of the 1934
Act and Regulation 13D-G thereunder (each such person other than the Holder an
"Aggregated Person" and all such persons other than the Holder, collectively,
the "Aggregated Persons") (other than shares of Common Stock deemed beneficially
owned through the ownership by the Holder and all Aggregated Persons of the
Holder of the unexercised portion of this Warrant and the unexercised or
unconverted portion of any other security of the Company which contains similar
provisions) and (2) the number of shares of Common Stock issuable upon exercise
of the portion of this Warrant with respect to which the determination in this
sentence is being made, would result in beneficial ownership by the Holder and
all Aggregated Persons of the Holder of more than 4.9% of the outstanding shares
of Common Stock. For purposes of the immediately preceding sentence, beneficial
ownership shall be determined in accordance with Section 13(d) of the 1934 Act
and Regulation 13D-G thereunder, except as otherwise provided in clause (1) of
the immediately preceding sentence.
1.2 NET ISSUANCE. Notwithstanding anything to the contrary contained
in Section 1.1, the Holder may elect to exercise this Warrant in whole or in
part by receiving shares of Common Stock equal to the net issuance value (as
determined below) of this Warrant, or any part hereof, upon surrender of this
Warrant to the Company's transfer agent and registrar for the Common Stock the
principal office of the Company together with the subscription form annexed
hereto (duly executed by the Holder), in which event the Company shall issue to
the Holder a number of shares of Common Stock computed using the following
formula:
X = Y (A-B)
-------
A
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Where: X = the number of shares of Common Stock to be issued to the
Holder
Y = the number of shares of Common Stock as to which this
Warrant is to be exercised
A = the current fair market value of one share of Common Stock
calculated as of the last Trading Day immediately preceding
the exercise of this Warrant
B = the Purchase Price
As used herein, current fair market value of Common Stock as of a
specified date shall mean with respect to each share of Common Stock the closing
sale price of the Common Stock on the principal securities market on which the
Common Stock may at the time be listed or, if there have been no sales on any
such exchange on such day, the average of the highest bid and lowest asked
prices on the principal securities market at the end of such day, or, if on such
day the Common Stock is not so listed, the average of the representative bid and
asked prices quoted in the Nasdaq System as of 4:00 p.m., New York City time,
or, if on such day the Common Stock is not quoted in the Nasdaq System, the
average of the highest bid and lowest asked price on such day in the domestic
over-the-counter market as reported by the National Quotation Bureau,
Incorporated, or any similar successor organization, in each such case averaged
over a period of five consecutive Trading Days consisting of the day as of which
the current fair market value of a share of Common Stock is being determined (or
if such day is not a Trading Day, the Trading Day next preceding such day) and
the four consecutive Trading Days prior to such day. If on the date for which
current fair market value is to be determined the Common Stock is not listed on
any securities exchange or quoted in the Nasdaq System or the over-the-counter
market, the current fair market value of Common Stock shall be the highest price
per share which the Company could then obtain from a willing buyer (not a
current employee or director) for shares of Common Stock sold by the Company,
from authorized but unissued shares, as determined in good faith by the Board of
Directors of the Company, unless prior to such date the Company has become
subject to a merger, acquisition or other consolidation pursuant to which the
Company is not the surviving party, in which case the current fair market value
of the Common Stock shall be deemed to be the value received by the holders of
the Company's Common Stock for each share thereof pursuant to the Company's
acquisition.
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2. DELIVERY OF STOCK CERTIFICATES, ETC., ON EXERCISE. As soon as
practicable after the exercise of this Warrant, and in any event within three
Trading Days thereafter, the Company at its expense (including the payment by
it of any applicable issue or stamp taxes) will cause to be issued in the
name of and delivered to the Holder hereof, or as the Holder (upon payment by
the Holder of any applicable transfer taxes) may direct, a certificate or
certificates for the number of fully paid and nonassessable shares of Common
Stock (or Other Securities) to which the Holder shall be entitled on such
exercise, in such denominations as may be requested by the Holder, plus, in
lieu of any fractional share to which the Holder would otherwise be entitled,
cash equal to such fraction multiplied by the then current fair market value
(as determined in accordance with subsection 1.2) of one full share, together
with any other stock or other securities and property (including cash, where
applicable) to which the Holder is entitled upon such exercise pursuant to
Section 1 or otherwise. Upon exercise of this Warrant as provided herein,
the Company's obligation to issue and deliver the certificates for Common
Stock shall be absolute and unconditional, irrespective of the absence of any
action by the Holder to enforce the same, any waiver or consent with respect
to any provision thereof, the recovery of any judgment against any person or
any action to enforce the same, any failure or delay in the enforcement of
any other obligation of the Company to the Holder, or any setoff,
counterclaim, recoupment, limitation or termination, or any breach or alleged
breach by the Holder or any other person of any obligation to the Company,
and irrespective of any other circumstance which might otherwise limit such
obligation of the Company to the Holder in connection with such exercise. If
the Company fails to issue and deliver the certificates for the Common Stock
to the Holder pursuant to the first sentence of this paragraph as and when
required to do so, in addition to any other liabilities the Company may have
hereunder and under applicable law, the Company shall pay or reimburse the
Holder on demand for all out-of-pocket expenses including, without
limitation, reasonable fees and expenses of legal counsel incurred by the
Holder as a result of such failure.
3. ADJUSTMENT FOR DIVIDENDS IN OTHER STOCK, PROPERTY, ETC.;
RECLASSIFICATION, ETC. In case at any time or from time to time after the
Issuance Date, all the holders of Common Stock (or Other Securities) shall have
received, or (on or after the record date fixed for the determination of
stockholders eligible to receive) shall have become entitled to receive, without
payment therefor,
(a) other or additional stock or other securities or property (other
than cash) by way of dividend, or
(b) any cash (excluding cash dividends payable solely out of earnings
or earned surplus of the Company), or
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(c) other or additional stock or other securities or property
(including cash) by way of spin-off, split-up, reclassification,
recapitalization, combination of shares or similar corporate rearrangement,
other than additional shares of Common Stock (or Other Securities) issued as a
stock dividend or in a stock-split (adjustments in respect of which are provided
for in Section 5), then and in each such case the Holder, on the exercise hereof
as provided in Section 1, shall be entitled to receive the amount of stock and
other securities and property (including cash in the cases referred to in
subdivisions (b) and (c) of this Section 3) which the Holder would hold on the
date of such exercise if on the date thereof the Holder had been the holder of
record of the number of shares of Common Stock called for on the face of this
Warrant and had thereafter, during the period from the date hereof to and
including the date of such exercise, retained such shares and all such other or
additional stock and other securities and property (including cash in the case
referred to in subdivisions (b) and (c) of this Section 3) receivable by the
Holder as aforesaid during such period, giving effect to all adjustments called
for during such period by Section 4. Notwithstanding anything in this Section 3
to the contrary, no adjustments pursuant to this Section 3 shall actually be
made until the cumulative effect of the adjustments called for by this Section 3
since the date of the last adjustment actually made would change the amount of
stock or other securities and property which the Holder would hold by more than
1%.
4. EXERCISE UPON REORGANIZATION, CONSOLIDATION, MERGER, ETC. In
case at any time or from time to time after the Issuance Date, the Company shall
(a) effect a reorganization, (b) consolidate with or merge into any other
person, or (c) transfer all or substantially all of its properties or assets to
any other person under any plan or arrangement contemplating the dissolution of
the Company, then, in each such case, as a condition of such reorganization,
consolidation, merger, sale or conveyance, the Company shall give at least 30
days notice to the Holder of such pending transaction whereby the Holder shall
have the right to exercise this Warrant prior to any such reorganization,
consolidation, merger, sale or conveyance. Any exercise of this Warrant
pursuant to notice under this Section shall be conditioned upon the closing of
such reorganization, consolidation, merger, sale or conveyance which is the
subject of the notice and the exercise of this Warrant shall not be deemed to
have occurred until immediately prior to the closing of such transaction.
5. ADJUSTMENT FOR EXTRAORDINARY EVENTS. In the event that after the
Issuance Date the Company shall (i) issue additional share of Common Stock as a
dividend or other distribution on outstanding Common Stock, (ii) subdivide or
reclassify its outstanding share of Common Stock, or (iii) combine its
outstanding share of Common Stock into a smaller number of shares of Common
Stock, then, in each event, the
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Purchase Price shall, simultaneously with the happening of such event, be
adjusted by multiplying the Purchase Price in effect immediately prior to such
event by a fraction, the numerator of which shall be the number of shares of
Common Stock outstanding immediately prior to such event and the denominator of
which shall be the number of shares of Common Stock outstanding immediately
after such event, and the product so obtained shall thereafter be the Purchase
Price then in effect. The Purchase Price, as so adjusted, shall be readjusted
in the same manner upon the happening of any successive event or events
described herein in this Section 5. The Holder shall thereafter, on the
exercise hereof as provided in Section 1, be entitled to receive that number of
shares of Common Stock determined by multiplying the number of shares of Common
Stock which would be issuable on such exercise immediately prior to such
issuance by a fraction of which (i) the numerator is the Purchase Price in
effect immediately prior to such issuance and (ii) the denominator is the
Purchase Price in effect on the date of such exercise.
6. ADJUSTMENT FOR CERTAIN STOCK ISSUANCES. In case at any time the
Company shall issue shares of its Common Stock or debt or equity securities
convertible into or exercisable or exchangeable for shares of Common Stock
(collectively, the "Newly Issued Shares"), other than (i) an issuance pro rata
to all holders of its outstanding Common Stock, (ii) issuances pursuant to
options, warrants and convertible securities outstanding on the Issuance Date
(including securities issued pursuant to the Subscription Agreement) and (iii)
issuances pursuant to employee stock option plans (other than in connection with
any corporate financing or acquisition transaction), at a price below the
Purchase Price in effect at the time of such issuance, then following such
issuance of Newly Issued Shares the number of shares of Common Stock which the
Holder shall be entitled to receive upon exercise of this Warrant shall be
increased and the Purchase Price shall be decreased to the respective amounts
determined pursuant to this Section 6. The number of shares of Common Stock
purchasable upon the exercise of this Warrant following any such adjustment
shall be determined by multiplying the number of shares purchasable upon
exercise of this Warrant immediately prior to such adjustment by a fraction, the
numerator of which shall be the sum of (a) the number of shares of Common Stock
outstanding immediately prior to the issuance of the Newly Issued Shares
(calculated on a fully-diluted basis assuming the exercise or conversion of all
options, warrants, purchase rights or convertible securities which are
exercisable at the time of the issuance of the Newly Issued Shares), plus (b)
the number of Newly Issued Shares, and the denominator of which shall be the sum
of (a) the number of shares of Common Stock outstanding immediately prior to the
issuance of the Newly Issued Shares (calculated on a fully-diluted basis
assuming the conversion of all options, warrants, purchase rights or convertible
securities which are exercisable at the time of the issuance of the Newly Issued
Shares), plus (b) the number of shares of Common Stock which the aggregate
consideration, if any,
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received by the Company for the number of Newly Issued Shares would purchase at
a price equal to the Purchase Price in effect at the time of such issuance.
Upon any adjustment under this Section 6, the number of shares of Common Stock
purchasable upon exercise of this Warrant in full immediately after such
adjustment shall be rounded to the nearest one-one-hundredth of a share of
Common Stock subject, however, to Section 2 of this Warrant relating to
fractional shares of Common Stock. Such adjustment of the number of shares
purchasable provided for in this Section 6 may be expressed as the following
mathematical formula:
X = W x [O+N]
-----------
[O+(C/P)]
where:
C = aggregate consideration received by the Company for the Newly Issued
Shares
N = number of Newly Issued Shares
O = number of shares of Common Stock outstanding (on a fully diluted basis,
as described above) prior to the issuance of the Newly Issued Shares
P = Purchase Price in effect at the time of the issuance of the Newly Issued
Shares
W = number of shares issuable upon exercise of this Warrant prior to the
issuance of the Newly Issued Shares
X = number of shares issuable upon exercise of this Warrant after the
issuance of the Newly Issued Shares
Upon the issuance of such Newly Issued Shares, the Purchase Price shall,
simultaneously with the happening of such event, be adjusted by multiplying the
Purchase Price in effect immediately prior to such event by a fraction, the
numerator of which shall be the number of shares of Common Stock issuable upon
exercise of this Warrant prior to the issuance of the Newly Issued Shares and
the denominator of which shall be the number of shares of Common Stock issuable
upon the exercise of this Warrant after the issuance of the Newly Issued Shares
as provided in this Section 6, and the product so obtained shall thereafter be
the Purchase Price then in effect. The number of shares issuable upon exercise
of this Warrant and the Purchase Price, as each is so adjusted, shall be
readjusted in the same manner upon the happening of any successive issuances of
Newly Issued Shares described in this Section 6.
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7. FURTHER ASSURANCES. The Company will take all action that may be
necessary or appropriate in order that the Company may validly and legally issue
fully paid and nonassessable shares of stock, free from all taxes, liens and
charges with respect to the issue thereof, on the exercise of all or any portion
of this Warrant from time to time outstanding.
8. NOTICES OF RECORD DATE, ETC. In the event of
(a) any taking by the Company of a record of the holders of any class
of securities for the purpose of determining the holders thereof who are
entitled to receive any dividend on, or any right to subscribe for,
purchase or otherwise acquire any shares of stock of any class or any other
securities or property, or to receive any other right, or
(b) any capital reorganization of the Company, any reclassification
or recapitalization of the capital stock of the Company or any transfer of
all or substantially all of the assets of the Company to or consolidation
or merger of the Company with or into any other person (other than a
wholly-owned subsidiary of the Company), or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company,
then and in each such event the Company will mail or cause to be mailed to the
Holder, at least ten days prior to such record date, a notice specifying (i) the
date on which any such record is to be taken for the purpose of such dividend,
distribution or right, and stating the amount and character of such dividend,
distribution or right, (ii) the date on which any such reorganization,
reclassification, recapitalization, transfer, consolidation, merger,
dissolution, liquidation or winding-up is to take place, and the time, if any is
to be fixed, as of which the holders of record of Common Stock (or Other
Securities) shall be entitled to exchange their shares of Common Stock (or Other
Securities) for securities or other property deliverable on such reorganization,
reclassification, recapitalization, transfer, consolidation, merger,
dissolution, liquidation or winding-up, and (iii) the amount and character of
any stock or other securities, or rights or options with respect thereto,
proposed to be issued or granted, the date of such proposed issue or grant and
the persons or class of persons to whom such proposed issue or grant is to be
offered or made. Such notice shall also state that the action in question or
the record date is subject to the effectiveness of a registration statement
under the 1933 Act, or a favorable vote of stockholders if either is required.
Such notice shall be mailed at least ten days prior to the
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date specified in such notice on which any such action is to be taken or the
record date, whichever is earlier.
9. RESERVATION OF STOCK, ETC., ISSUABLE ON EXERCISE OF WARRANTS.
The Company will at all times reserve and keep available out of its authorized
but unissued shares of capital stock, solely for issuance and delivery on the
exercise of this Warrant, a sufficient number of shares of Common Stock (or
Other Securities) to effect the full exercise of this Warrant and the exercise,
conversion or exchange of any other warrant or security of the Company
exercisable for, convertible into, exchangeable for or otherwise entitling the
holder to acquire shares of Common Stock (or Other Securities), and if at any
time the number of authorized but unissued shares of Common Stock (or Other
Securities) shall not be sufficient to effect such exercise, conversion or
exchange, the Company shall take such action as may be necessary to increase its
authorized but unissued shares of Common Stock (or Other Securities) to such
number as shall be sufficient for such purposes.
10. TRANSFER OF WARRANT. This Warrant shall inure to the benefit of
the successors to and assigns of the Holder. This Warrant and all rights
hereunder, in whole or in part, are registrable at the office or agency of the
Company referred to below by the Holder hereof in person or by his duly
authorized attorney, upon surrender of this Warrant properly endorsed.
11. REGISTER OF WARRANTS. The Company shall maintain, at the
principal office of the Company (or such other office as it may designate by
notice to the Holder hereof), a register 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 successor and prior owner of such Warrant.
The Company shall be entitled to treat the person in whose name this Warrant is
so registered as the sole and absolute owner of this Warrant for all purposes.
12. EXCHANGE OF WARRANT. This Warrant is exchangeable, upon the
surrender hereof by the Holder hereof at the office or agency of the Company
referred to in Section 11, for one or more new Warrants of like tenor
representing in the aggregate the right to subscribe for and purchase the number
of shares of Common Stock which may be subscribed for and purchased hereunder,
each of such new Warrants to represent the right to subscribe for and purchase
such number of shares as shall be designated by said Holder hereof at the time
of such surrender.
13. REPLACEMENT OF WARRANT. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and,
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in the case of any such loss, theft or destruction of this Warrant, on delivery
of an indemnity agreement or security reasonably satisfactory in form and amount
to the Company or, in the case of any such mutilation, on surrender and
cancellation of this Warrant, the Company at its expense will execute and
deliver, in lieu thereof, a new Warrant of like tenor.
14. WARRANT AGENT. In accordance with the Transfer Agent Agreement,
dated as of December 10, 1998, by and among the Company, American Securities
Transfer & Trust, Inc., as Transfer Agent and Registrar (the "Transfer Agent"),
and the original Holder of this Warrant and the other common stock purchase
warrants of like tenor issued by the Company in connection with the issuance of
this Warrant, the Company has appointed the Transfer Agent as the exercise agent
for purposes of issuing shares of Common Stock (or Other Securities) on the
exercise of this Warrant pursuant to Section 1. The Company may, by notice to
the Holder, appoint an agent having an office in the United States of America
for the purpose of exchanging this Warrant pursuant to Section 12 and replacing
this Warrant pursuant to Section 13, or either of the foregoing, and thereafter
any such exchange or replacement, as the case may be, shall be made at such
office by such agent.
15. REMEDIES. The Company stipulates that the remedies at law of the
Holder in the event of any default or threatened default by the Company in the
performance of or compliance with any of the terms of this Warrant are not and
will not be adequate, and that such terms may be specifically enforced by a
decree for the specific performance of any agreement contained herein or by an
injunction against a violation of any of the terms hereof or otherwise.
16. NO RIGHTS OR LIABILITIES AS A STOCKHOLDER. This Warrant shall
not entitle the Holder hereof to any voting rights or other rights as a
stockholder of the Company. No provision of this Warrant, in the absence of
affirmative action by the Holder hereof to purchase Common Stock, and no mere
enumeration herein of the rights or privileges of the Holder hereof, shall give
rise to any liability of the Holder for the Purchase Price or as a stockholder
of the Company, whether such liability is asserted by the Company or by
creditors of the Company.
17. NOTICES, ETC. All notices and other communications from the
Company to the registered Holder or from the registered Holder to the Company
shall be delivered personally (which shall include telephone line facsimile
transmission with answer back confirmation) or by courier and shall be
effective upon receipt, addressed to each party at the address or telephone
line facsimile transmission number for each party set forth in the Subscription
Agreement or at such other address or telephone line facsimile
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transmission number as a party shall have provided to the other party in
accordance with this provision.
18. TRANSFER RESTRICTIONS. By acceptance of this Warrant, the Holder
represents to the Company that this Warrant is being acquired for the Holder's
own account and for the purpose of investment and not with a view to, or for
sale in connection with, the distribution thereof, nor with any present
intention of distributing or selling this Warrant or the Common Stock issuable
upon exercise of this Warrant. The Holder acknowledges and agrees that this
Warrant and, except as otherwise provided in the Registration Rights Agreement,
the shares of Common Stock issuable upon exercise of this Warrant (if any) have
not been (and at the time of acquisition by the Holder, will not have been or
will not be), registered under the 1933 Act or under the securities laws of any
state, in reliance upon certain exemptive provisions of such statutes. The
Holder further recognizes and acknowledges that because this Warrant and, except
as provided in the Registration Rights Agreement, the Common Stock issuable upon
exercise of this Warrant (if any) are unregistered, they may not be eligible for
resale, and may only be resold in the future pursuant to an effective
registration statement under the 1933 Act and any applicable state securities
laws, or pursuant to a valid exemption from such registration requirements.
Unless the shares of Common Stock issuable upon exercise of this Warrant have
theretofore been registered for resale under the 1933 Act, the Company may
require, as a condition to the issuance of Common Stock upon the exercise of
this Warrant (i) in the case of an exercise in accordance with Section 1.1
hereof, a confirmation as of the date of exercise of the Holder's
representations pursuant to this Section 18, or (ii) in the case of an exercise
in accordance with Section 1.2 hereof, an opinion of counsel reasonably
satisfactory to the Company that the shares of Common Stock to be issued upon
such exercise may be issued without registration under the 1933 Act.
19. LEGEND. Unless theretofore registered for resale under the 1933
Act, each certificate for shares issued upon exercise of this Warrant shall bear
the following legend:
The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended. The securities have been
acquired for investment and may not be resold, transferred or assigned in
the absence of an effective registration statement for the securities under
the Securities Act of 1933, as amended, or an opinion of counsel that
registration is not required under said Act.
20. MISCELLANEOUS. This Warrant and any terms hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by the
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party against which enforcement of such change, waiver, discharge or termination
is sought. This Warrant shall be construed and enforced in accordance with and
governed by the internal laws of the State of Colorado. The headings in this
Warrant are for purposes of reference only, and shall not limit or otherwise
affect any of the terms hereof. The invalidity or unenforceability of any
provision hereof shall in no way affect the validity or enforceability of any
other provision.
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
on its behalf by one of its officers thereunto duly authorized.
Dated: December , 1998 ROCKY MOUNTAIN INTERNET, INC.
By:
Title:
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<PAGE>
FORM OF SUBSCRIPTION
ROCKY MOUNTAIN INTERNET, INC.
(To be signed only on exercise of Warrant)
TO: American Securities Transfer & Trust, CC: Rocky Mountain Internet, Inc.
Inc., as Exercise Agent 1099 18th Street
938 Quail Street Suite 3000
Suite 101 Denver, Colorado 80202
Lakewood, Colorado 80215-5513
Attention: Chief Financial
Officer
1. The undersigned Holder of the attached original, executed Warrant
hereby elects to exercise its purchase right under such Warrant with respect to
______________ shares of Common Stock, as defined in the Warrant, of Rocky
Mountain Internet, Inc., a Delaware corporation (the "Company").
2. The undersigned Holder (check one):
/ / (a) elects to pay the aggregate purchase price for such shares of Common
Stock (the "Exercise Shares") (i) by lawful money of the United States
or the enclosed certified or official bank check payable in United
States dollars to the order of the Company in the amount of
$___________, or (ii) by wire transfer of United States funds to the
account of the Company in the amount of $____________, which transfer
has been made before or simultaneously with the delivery of this Form
of Subscription pursuant to the instructions of the Company;
or
/ / (b) elects to receive shares of Common Stock having a value equal to the
value of the Warrant calculated in accordance with Section 1.2 of the
Warrant.
3. Please issue a stock certificate or certificates representing the
appropriate number of shares of Common Stock in the name of the undersigned or
in such other name
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as is specified below:
Name:
-------------------
Address:
----------------
----------------
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4. The undersigned Holder hereby represents to the Company that the
exercise of the Warrant elected hereby does not violate Section 1.1(b) of the
Warrant.
Dated: ,
------------ --- ---- (Signature must conform to name of
Holder as specified on the face of
the Warrant)
---------------------------------
---------------------------------
(Address)
S-17
<PAGE>
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED. THE SECURITIES HAVE BEEN ACQUIRED FOR
INVESTMENT AND MAY NOT BE RESOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR AN OPINION OF COUNSEL THAT REGISTRATION IS NOT REQUIRED
UNDER SAID ACT.
Right to Purchase 45,000 Shares of Common
Stock of Rocky Mountain Internet, Inc.
ROCKY MOUNTAIN INTERNET, INC.
COMMON STOCK PURCHASE WARRANT
NO. B-3
ROCKY MOUNTAIN INTERNET, INC., a Delaware corporation (the "Company"),
hereby certifies that, for value received, Wharton Capital Partners Ltd. or
registered assigns (the "Holder"), is entitled, subject to the terms set forth
below, to purchase from the Company at any time or from time to time after the
date hereof, and before 5:00 p.m., New York City time, on the Expiration Date
(as hereinafter defined), 45,000 fully paid and nonassessable shares of Common
Stock (as hereinafter defined) at a purchase price per share equal to the
Purchase Price (as hereinafter defined). The number of such shares of Common
Stock and the Purchase Price are subject to adjustment as provided in this
Warrant.
As used herein the following terms, unless the context otherwise
requires, have the following respective meanings:
"Common Stock" includes the Company's Common Stock, $.001 par value
per share, as authorized on the date hereof, and any other securities into
which or for which the Common Stock may be converted or exchanged pursuant
to a plan of recapitalization, reorganization, merger, sale of assets or
otherwise.
"Company" shall include Rocky Mountain Internet, Inc. and any
corporation
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that shall succeed to or assume the obligation of Rocky
Mountain Internet, Inc. hereunder in accordance with the terms hereof.
"Expiration Date" means December 10, 2003.
"Issuance Date" means the first date of original issuance of this
Warrant.
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"1933 Act" means the Securities Act of 1933, as amended.
"Other Securities" refers to any stock (other than Common Stock) and
other securities of the Company or any other person (corporate or
otherwise) which the Holder at any time shall be entitled to receive, or
shall have received, on the exercise of this Warrant, in lieu of or in
addition to Common Stock, or which at any time shall be issuable or shall
have been issued in exchange for or in replacement of Common Stock or Other
Securities pursuant to Section 4.
"Purchase Price" shall mean $12.195 per share, subject to adjustment
as provided in this Warrant.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of December 10, 1998, by and between the Company and
the original Holder of this Warrant, as amended from time to time in
accordance with its terms.
"Trading Day" means a day on which the principal securities market for
the Common Stock is open for general trading of securities.
1. EXERCISE OF WARRANT.
1.1 EXERCISE. (a) This Warrant may be exercised by the Holder hereof
in full or in part at any time or from time to time during the exercise period
specified in the first paragraph hereof until the Expiration Date by surrender
of this Warrant and the subscription form annexed hereto (duly executed by the
Holder) to the Company's transfer agent and registrar for the Common Stock, and
by making payment, in cash or by certified or official bank check payable to the
order of the Company, in the amount obtained by multiplying (a) the number of
shares of Common Stock designated by the Holder in the subscription form by (b)
the Purchase Price then in effect. The Holder shall provide a copy of the
subscription form to the Company at the time of exercise and the Company will
confirm the exercise instructions given therein by notice to the Company's
transfer agent within one Trading Day after receiving such subscription form.
On any partial exercise the
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Company will forthwith issue and deliver to or upon the order of the Holder
hereof a new Warrant or Warrants of like tenor, in the name of the Holder
hereof or as the Holder (upon payment by the Holder of any applicable
transfer taxes) may request, providing in the aggregate on the face or faces
thereof for the purchase of the number of shares of Common Stock for which
such Warrant or Warrants may still be exercised.
(b) Notwithstanding any other provision of this Warrant, in no event
shall the Holder be entitled at any time to purchase a number of shares of
Common Stock on exercise of this Warrant in excess of that number of shares upon
purchase of which the sum of (1) the number of shares of Common Stock
beneficially owned by the Holder and all persons whose beneficial ownership of
shares of Common Stock would be aggregated with the Holder's beneficial
ownership of shares of Common Stock for purposes of Section 13(d) of the 1934
Act and Regulation 13D-G thereunder (each such person other than the Holder an
"Aggregated Person" and all such persons other than the Holder, collectively,
the "Aggregated Persons") (other than shares of Common Stock deemed beneficially
owned through the ownership by the Holder and all Aggregated Persons of the
Holder of the unexercised portion of this Warrant and the unexercised or
unconverted portion of any other security of the Company which contains similar
provisions) and (2) the number of shares of Common Stock issuable upon exercise
of the portion of this Warrant with respect to which the determination in this
sentence is being made, would result in beneficial ownership by the Holder and
all Aggregated Persons of the Holder of more than 4.9% of the outstanding shares
of Common Stock. For purposes of the immediately preceding sentence, beneficial
ownership shall be determined in accordance with Section 13(d) of the 1934 Act
and Regulation 13D-G thereunder, except as otherwise provided in clause (1) of
the immediately preceding sentence.
1.2 NET ISSUANCE. Notwithstanding anything to the contrary contained
in Section 1.1, the Holder may elect to exercise this Warrant in whole or in
part by receiving shares of Common Stock equal to the net issuance value (as
determined below) of this Warrant, or any part hereof, upon surrender of this
Warrant to the Company's transfer agent and registrar for the Common Stock the
principal office of the Company together with the subscription form annexed
hereto (duly executed by the Holder), in which event the Company shall issue to
the Holder a number of shares of Common Stock computed using the following
formula:
X = Y (A-B)
-------
A
Where: X = the number of shares of Common Stock to be issued to the
Holder
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Y = the number of shares of Common Stock as to which this
Warrant is to be exercised
A = the current fair market value of one share of Common Stock
calculated as of the last Trading Day immediately preceding
the exercise of this Warrant
B = the Purchase Price
As used herein, current fair market value of Common Stock as of a
specified date shall mean with respect to each share of Common Stock the closing
sale price of the Common Stock on the principal securities market on which the
Common Stock may at the time be listed or, if there have been no sales on any
such exchange on such day, the average of the highest bid and lowest asked
prices on the principal securities market at the end of such day, or, if on such
day the Common Stock is not so listed, the average of the representative bid and
asked prices quoted in the Nasdaq System as of 4:00 p.m., New York City time,
or, if on such day the Common Stock is not quoted in the Nasdaq System, the
average of the highest bid and lowest asked price on such day in the domestic
over-the-counter market as reported by the National Quotation Bureau,
Incorporated, or any similar successor organization, in each such case averaged
over a period of five consecutive Trading Days consisting of the day as of which
the current fair market value of a share of Common Stock is being determined (or
if such day is not a Trading Day, the Trading Day next preceding such day) and
the four consecutive Trading Days prior to such day. If on the date for which
current fair market value is to be determined the Common Stock is not listed on
any securities exchange or quoted in the Nasdaq System or the over-the-counter
market, the current fair market value of Common Stock shall be the highest price
per share which the Company could then obtain from a willing buyer (not a
current employee or director) for shares of Common Stock sold by the Company,
from authorized but unissued shares, as determined in good faith by the Board of
Directors of the Company, unless prior to such date the Company has become
subject to a merger, acquisition or other consolidation pursuant to which the
Company is not the surviving party, in which case the current fair market value
of the Common Stock shall be deemed to be the value received by the holders of
the Company's Common Stock for each share thereof pursuant to the Company's
acquisition.
2. DELIVERY OF STOCK CERTIFICATES, ETC., ON EXERCISE. As soon as
practicable after the exercise of this Warrant, and in any event within three
Trading Days thereafter, the Company at its expense (including the payment by it
of any applicable issue or stamp taxes) will cause to be issued in the name of
and delivered to the Holder hereof,
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<PAGE>
or as the Holder (upon payment by the Holder of any applicable transfer
taxes) may direct, a certificate or certificates for the number of fully paid
and nonassessable shares of Common Stock (or Other Securities) to which the
Holder shall be entitled on such exercise, in such denominations as may be
requested by the Holder, plus, in lieu of any fractional share to which the
Holder would otherwise be entitled, cash equal to such fraction multiplied by
the then current fair market value (as determined in accordance with
subsection 1.2) of one full share, together with any other stock or other
securities and property (including cash, where applicable) to which the
Holder is entitled upon such exercise pursuant to Section 1 or otherwise.
Upon exercise of this Warrant as provided herein, the Company's obligation to
issue and deliver the certificates for Common Stock shall be absolute and
unconditional, irrespective of the absence of any action by the Holder to
enforce the same, any waiver or consent with respect to any provision
thereof, the recovery of any judgment against any person or any action to
enforce the same, any failure or delay in the enforcement of any other
obligation of the Company to the Holder, or any setoff, counterclaim,
recoupment, limitation or termination, or any breach or alleged breach by the
Holder or any other person of any obligation to the Company, and irrespective
of any other circumstance which might otherwise limit such obligation of the
Company to the Holder in connection with such exercise. If the Company fails
to issue and deliver the certificates for the Common Stock to the Holder
pursuant to the first sentence of this paragraph as and when required to do
so, in addition to any other liabilities the ompany may have hereunder and
under applicable law, the Company shall pay or reimburse the Holder on demand
for all out-of-pocket expenses including, without limitation, reasonable fees
and expenses of legal counsel incurred by the Holder as a result of such
failure.
3. ADJUSTMENT FOR DIVIDENDS IN OTHER STOCK, PROPERTY, ETC.;
RECLASSIFICATION, ETC. In case at any time or from time to time after the
Issuance Date, all the holders of Common Stock (or Other Securities) shall have
received, or (on or after the record date fixed for the determination of
stockholders eligible to receive) shall have become entitled to receive, without
payment therefor,
(a) other or additional stock or other securities or property (other
than cash) by way of dividend, or
(b) any cash (excluding cash dividends payable solely out of earnings
or earned surplus of the Company), or
(c) other or additional stock or other securities or property
(including cash) by way of spin-off, split-up, reclassification,
recapitalization, combination of shares or similar corporate rearrangement,
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<PAGE>
other than additional shares of Common Stock (or Other Securities) issued as a
stock dividend or in a stock-split (adjustments in respect of which are provided
for in Section 5), then and in each such case the Holder, on the exercise hereof
as provided in Section 1, shall be entitled to receive the amount of stock and
other securities and property (including cash in the cases referred to in
subdivisions (b) and (c) of this Section 3) which the Holder would hold on the
date of such exercise if on the date thereof the Holder had been the holder of
record of the number of shares of Common Stock called for on the face of this
Warrant and had thereafter, during the period from the date hereof to and
including the date of such exercise, retained such shares and all such other or
additional stock and other securities and property (including cash in the case
referred to in subdivisions (b) and (c) of this Section 3) receivable by the
Holder as aforesaid during such period, giving effect to all adjustments called
for during such period by Section 4. Notwithstanding anything in this Section 3
to the contrary, no adjustments pursuant to this Section 3 shall actually be
made until the cumulative effect of the adjustments called for by this Section 3
since the date of the last adjustment actually made would change the amount of
stock or other securities and property which the Holder would hold by more than
1%.
4. EXERCISE UPON REORGANIZATION, CONSOLIDATION, MERGER, ETC. In
case at any time or from time to time after the Issuance Date, the Company shall
(a) effect a reorganization, (b) consolidate with or merge into any other
person, or (c) transfer all or substantially all of its properties or assets to
any other person under any plan or arrangement contemplating the dissolution of
the Company, then, in each such case, as a condition of such reorganization,
consolidation, merger, sale or conveyance, the Company shall give at least 30
days notice to the Holder of such pending transaction whereby the Holder shall
have the right to exercise this Warrant prior to any such reorganization,
consolidation, merger, sale or conveyance. Any exercise of this Warrant
pursuant to notice under this Section shall be conditioned upon the closing of
such reorganization, consolidation, merger, sale or conveyance which is the
subject of the notice and the exercise of this Warrant shall not be deemed to
have occurred until immediately prior to the closing of such transaction.
5. ADJUSTMENT FOR EXTRAORDINARY EVENTS. In the event that after the
Issuance Date the Company shall (i) issue additional share of Common Stock as a
dividend or other distribution on outstanding Common Stock, (ii) subdivide or
reclassify its outstanding share of Common Stock, or (iii) combine its
outstanding share of Common Stock into a smaller number of shares of Common
Stock, then, in each event, the Purchase Price shall, simultaneously with the
happening of such event, be adjusted by multiplying the Purchase Price in effect
immediately prior to such event by a fraction, the numerator of which shall be
the number of shares of Common Stock outstanding
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<PAGE>
immediately prior to such event and the denominator of which shall be the
number of shares of Common Stock outstanding immediately after such event,
and the product so obtained shall thereafter be the Purchase Price then in
effect. The Purchase Price, as so adjusted, shall be readjusted in the same
manner upon the happening of any successive event or events described herein
in this Section 5. The Holder shall thereafter, on the exercise hereof as
provided in Section 1, be entitled to receive that number of shares of Common
Stock determined by multiplying the number of shares of Common Stock which
would be issuable on such exercise immediately prior to such issuance by a
fraction of which (i) the numerator is the Purchase Price in effect
immediately prior to such issuance and (ii) the denominator is the Purchase
Price in effect on the date of such exercise.
6. ADJUSTMENT FOR CERTAIN STOCK ISSUANCES. In case at any time the
Company shall issue shares of its Common Stock or debt or equity securities
convertible into or exercisable or exchangeable for shares of Common Stock
(collectively, the "Newly Issued Shares"), other than (i) an issuance pro rata
to all holders of its outstanding Common Stock, (ii) issuances pursuant to
options, warrants and convertible securities outstanding on the Issuance Date
and (iii) issuances pursuant to employee stock option plans (other than in
connection with any corporate financing or acquisition transaction), at a price
below the Purchase Price in effect at the time of such issuance, then following
such issuance of Newly Issued Shares the number of shares of Common Stock which
the Holder shall be entitled to receive upon exercise of this Warrant shall be
increased and the Purchase Price shall be decreased to the respective amounts
determined pursuant to this Section 6. The number of shares of Common Stock
purchasable upon the exercise of this Warrant following any such adjustment
shall be determined by multiplying the number of shares purchasable upon
exercise of this Warrant immediately prior to such adjustment by a fraction, the
numerator of which shall be the sum of (a) the number of shares of Common Stock
outstanding immediately prior to the issuance of the Newly Issued Shares
(calculated on a fully-diluted basis assuming the exercise or conversion of all
options, warrants, purchase rights or convertible securities which are
exercisable at the time of the issuance of the Newly Issued Shares), plus (b)
the number of Newly Issued Shares, and the denominator of which shall be the sum
of (a) the number of shares of Common Stock outstanding immediately prior to the
issuance of the Newly Issued Shares (calculated on a fully-diluted basis
assuming the conversion of all options, warrants, purchase rights or convertible
securities which are exercisable at the time of the issuance of the Newly Issued
Shares), plus (b) the number of shares of Common Stock which the aggregate
considration, if any, received by the Company for the number of Newly Issued
Shares would purchase at a price equal to the Purchase Price in effect at the
time of such issuance. Upon any adjustment under this Section 6, the number of
shares of Common Stock purchasable upon exercise of this Warrant in full
immediately after such adjustment
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shall be rounded to the nearest one-one-hundredth of a share of Common Stock
subject, however, to Section 2 of this Warrant relating to fractional shares
of Common Stock. Such adjustment of the number of shares purchasable
provided for in this Section 6 may be expressed as the following mathematical
formula:
X = W x [O+N]
---------
[O+(C/P)]
where:
C = aggregate consideration received by the Company for the Newly Issued
Shares
N = number of Newly Issued Shares
O = number of shares of Common Stock outstanding (on a fully diluted
basis, as described above) prior to the issuance of the Newly
Issued Shares
P = Purchase Price in effect at the time of the issuance of the Newly
Issued Shares
W = number of shares issuable upon exercise of this Warrant prior to the
issuance of the Newly Issued Shares
X = number of shares issuable upon exercise of this Warrant after the
issuance of the Newly Issued Shares
Upon the issuance of such Newly Issued Shares, the Purchase Price shall,
simultaneously with the happening of such event, be adjusted by multiplying the
Purchase Price in effect immediately prior to such event by a fraction, the
numerator of which shall be the number of shares of Common Stock issuable upon
exercise of this Warrant prior to the issuance of the Newly Issued Shares and
the denominator of which shall be the number of shares of Common Stock issuable
upon the exercise of this Warrant after the issuance of the Newly Issued Shares
as provided in this Section 6, and the product so obtained shall thereafter be
the Purchase Price then in effect. The number of shares issuable upon exercise
of this Warrant and the Purchase Price, as each is so adjusted, shall be
readjusted in the same manner upon the happening of any successive issuances of
Newly Issued Shares described in this Section 6.
7. FURTHER ASSURANCES. The Company will take all action that may be
necessary or appropriate in order that the Company may validly and legally issue
fully paid and nonassessable shares of stock, free from all taxes, liens and
charges with respect to
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the issue thereof, on the exercise of all or any portion of this Warrant from
time to time outstanding.
8. NOTICES OF RECORD DATE, ETC. In the event of
(a) any taking by the Company of a record of the holders of any class
of securities for the purpose of determining the holders thereof who are
entitled to receive any dividend on, or any right to subscribe for,
purchase or otherwise acquire any shares of stock of any class or any other
securities or property, or to receive any other right, or
(b) any capital reorganization of the Company, any reclassification
or recapitalization of the capital stock of the Company or any transfer of
all or substantially all of the assets of the Company to or consolidation
or merger of the Company with or into any other person (other than a
wholly-owned subsidiary of the Company), or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company,
then and in each such event the Company will mail or cause to be mailed to
the Holder, at least ten days prior to such record date, a notice specifying
(i) the date on which any such record is to be taken for the purpose of such
dividend, distribution or right, and stating the amount and character of such
dividend, distribution or right, (ii) the date on which any such
reorganization, reclassification, recapitalization, transfer, consolidation,
merger, dissolution, liquidation or winding-up is to take place, and the
time, if any is to be fixed, as of which the holders of record of Common
Stock (or Other Securities) shall be entitled to exchange their shares of
Common Stock (or Other Securities) for securities or other property
deliverable on such reorganization, reclassification, recapitalization,
transfer, consolidation, merger, dissolution, liquidation or winding-up, and
(iii) the amount and character of any stock or other securities, or rights or
options with respect thereto, proposed to be issued or granted, the date of
such proposed issue or grant and the persons or class of persons to whom such
proposed issue or grant is to be offered or made. Such notice shall also
state that the action in question or the record date is subject to the
effectiveness of a registration statement under the 1933 Act, or a favorable
vote of stockholders if either is required. Such notice shall be mailed at
least ten days prior to the date specified in such notice on which any such
action is to be taken or the record date, whichever is earlier.
9. RESERVATION OF STOCK, ETC., ISSUABLE ON EXERCISE OF WARRANTS.
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The Company will at all times reserve and keep available out of its authorized
but unissued shares of capital stock, solely for issuance and delivery on the
exercise of this Warrant, a sufficient number of shares of Common Stock (or
Other Securities) to effect the full exercise of this Warrant and the exercise,
conversion or exchange of any other warrant or security of the Company
exercisable for, convertible into, exchangeable for or otherwise entitling the
holder to acquire shares of Common Stock (or Other Securities), and if at any
time the number of authorized but unissued shares of Common Stock (or Other
Securities) shall not be sufficient to effect such exercise, conversion or
exchange, the Company shall take such action as may be necessary to increase its
authorized but unissued shares of Common Stock (or Other Securities) to such
number as shall be sufficient for such purposes.
10. TRANSFER OF WARRANT. This Warrant shall inure to the benefit of
the successors to and assigns of the Holder. This Warrant and all rights
hereunder, in whole or in part, are registrable at the office or agency of the
Company referred to below by the Holder hereof in person or by his duly
authorized attorney, upon surrender of this Warrant properly endorsed.
11. REGISTER OF WARRANTS. The Company shall maintain, at the
principal office of the Company (or such other office as it may designate by
notice to the Holder hereof), a register 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 successor and prior owner of such Warrant.
The Company shall be entitled to treat the person in whose name this Warrant is
so registered as the sole and absolute owner of this Warrant for all purposes.
12. EXCHANGE OF WARRANT. This Warrant is exchangeable, upon the
surrender hereof by the Holder hereof at the office or agency of the Company
referred to in Section 11, for one or more new Warrants of like tenor
representing in the aggregate the right to subscribe for and purchase the number
of shares of Common Stock which may be subscribed for and purchased hereunder,
each of such new Warrants to represent the right to subscribe for and purchase
such number of shares as shall be designated by said Holder hereof at the time
of such surrender.
13. REPLACEMENT OF WARRANT. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of any such loss, theft or destruction of this
Warrant, on delivery of an indemnity agreement or security reasonably
satisfactory in form and amount to the Company or, in the case of any such
mutilation, on surrender and cancellation of this Warrant, the Company at its
expense will execute and deliver, in lieu thereof, a new
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Warrant of like tenor.
14. WARRANT AGENT. The Company has appointed American Securities
Transfer & Trust, Inc., as Transfer Agent and Registrar, as the exercise agent
for purposes of issuing shares of Common Stock (or Other Securities) on the
exercise of this Warrant pursuant to Section 1. The Company may, by notice to
the Holder, appoint an agent having an office in the United States of America
for the purpose of exchanging this Warrant pursuant to Section 12 and replacing
this Warrant pursuant to Section 13, or either of the foregoing, and thereafter
any such exchange or replacement, as the case may be, shall be made at such
office by such agent.
15. REMEDIES. The Company stipulates that the remedies at law of the
Holder in the event of any default or threatened default by the Company in the
performance of or compliance with any of the terms of this Warrant are not and
will not be adequate, and that such terms may be specifically enforced by a
decree for the specific performance of any agreement contained herein or by an
injunction against a violation of any of the terms hereof or otherwise.
16. NO RIGHTS OR LIABILITIES AS A STOCKHOLDER. This Warrant shall
not entitle the Holder hereof to any voting rights or other rights as a
stockholder of the Company. No provision of this Warrant, in the absence of
affirmative action by the Holder hereof to purchase Common Stock, and no mere
enumeration herein of the rights or privileges of the Holder hereof, shall give
rise to any liability of the Holder for the Purchase Price or as a stockholder
of the Company, whether such liability is asserted by the Company or by
creditors of the Company.
17. NOTICES, ETC. All notices and other communications from the
Company to the registered Holder or from the registered Holder to the Company
shall be delivered personally (which shall include telephone line facsimile
transmission with answer back confirmation) or by courier and shall be effective
upon receipt, addressed to each party at the address or telephone line facsimile
transmission number for each party set forth in the Registration Rights
Agreement or at such other address or telephone line facsimile transmission
number as a party shall have provided to the other party in accordance with this
provision.
18. TRANSFER RESTRICTIONS. By acceptance of this Warrant, the Holder
represents to the Company that this Warrant is being acquired for the Holder's
own account and for the purpose of investment and not with a view to, or for
sale in connection with, the distribution thereof, nor with any present
intention of distributing or selling this Warrant or the Common Stock issuable
upon exercise of this Warrant. The Holder
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acknowledges and agrees that this Warrant and, except as otherwise provided
in the Registration Rights Agreement, the shares of Common Stock issuable
upon exercise of this Warrant (if any) have not been (and at the time of
acquisition by the Holder, will not have been or will not be), registered
under the 1933 Act or under the securities laws of any state, in reliance
upon certain exemptive provisions of such statutes. The Holder further
recognizes and acknowledges that because this Warrant and, except as provided
in the Registration Rights Agreement, the Common Stock issuable upon exercise
of this Warrant (if any) are unregistered, they may not be eligible for
resale, and may only be resold in the future pursuant to an effective
registration statement under the 1933 Act and any applicable state securities
laws, or pursuant to a valid exemption from such registration requirements.
Unless the shares of Common Stock issuable upon exercise of this Warrant have
theretofore been registered for resale under the 1933 Act, the Company may
require, as a condition to the issuance of Common Stock upon the exercise of
this Warrant (i) in the case of an exercise in accordance with Section 1.1
hereof, a confirmation as of the date of exercise of the Holder's
representations pursuant to this Section 18, or (ii) in the case of an
exercise in accordance with Section 1.2 hereof, an opinion of counsel
reasonably satisfactory to the Company that the shares of Common Stock to be
issued upon such exercise may be issued without registration under the 1933
Act.
19. LEGEND. Unless theretofore registered for resale under the 1933
Act, each certificate for shares issued upon exercise of this Warrant shall bear
the following legend:
The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended. The securities have been
acquired for investment and may not be resold, transferred or assigned in
the absence of an effective registration statement for the securities under
the Securities Act of 1933, as amended, or an opinion of counsel that
registration is not required under said Act.
20. MISCELLANEOUS. This Warrant and any terms hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by the
party against which enforcement of such change, waiver, discharge or termination
is sought. This Warrant shall be construed and enforced in accordance with and
governed by the internal laws of the State of Colorado. The headings in this
Warrant are for purposes of reference only, and shall not limit or otherwise
affect any of the terms hereof. The invalidity or unenforceability of any
provision hereof shall in no way affect the validity or enforceability of any
other provision.
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IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
on its behalf by one of its officers thereunto duly authorized.
Dated: December , 1998 ROCKY MOUNTAIN INTERNET, INC.
By:
Title:
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FORM OF SUBSCRIPTION
ROCKY MOUNTAIN INTERNET, INC.
(To be signed only on exercise of Warrant)
TO: American Securities Transfer & Trust, Inc., CC: Rocky Mountain
as Exercise Agent Internet, Inc.
938 Quail Street 1099 18th Street
Suite 101 Suite 3000
Lakewood, Colorado 80215-5513 Denver, Colorado 80202
Attention: Chief Financial
Officer
1. The undersigned Holder of the attached original, executed Warrant
hereby elects to exercise its purchase right under such Warrant with respect to
______________ shares of Common Stock, as defined in the Warrant, of Rocky
Mountain Internet, Inc., a Delaware corporation (the "Company").
2. The undersigned Holder (check one):
/ / (a) elects to pay the aggregate purchase price for such shares of Common
Stock (the "Exercise Shares") (i) by lawful money of the United States
or the enclosed certified or official bank check payable in United
States dollars to the order of the Company in the amount of
$___________, or (ii) by wire transfer of United States funds to the
account of the Company in the amount of $____________, which transfer
has been made before or simultaneously with the delivery of this Form
of Subscription pursuant to the instructions of the Company;
or
/ /(b) elects to receive shares of Common Stock having a value equal to the
value of the Warrant calculated in accordance with Section 1.2 of the
Warrant.
3. Please issue a stock certificate or certificates representing the
appropriate number of shares of Common Stock in the name of the undersigned or
in such other name as is specified below:
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Name:
--------------------------
Address:
--------------------------
--------------------------
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4. The undersigned Holder hereby represents to the Company that the
exercise of the Warrant elected hereby does not violate Section 1.1(b) of the
Warrant.
Dated: (Signature must conform to name of
------------ ---, ---- Holder as specified on the face of
the Warrant)
-----------------------------------
-----------------------------------
(Address)
S-16
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REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of December 10, 1998
(this "Agreement"), is made by and between ROCKY MOUNTAIN INTERNET, INC., a
Delaware corporation (the "Company"), and the person named on the signature page
hereto (the "Initial Investor").
W I T N E S S E T H:
WHEREAS, in connection with the Subscription Agreement, dated as of
December 10, 1998, between the Initial Investor and the Company (the
"Subscription Agreement"), the Company has agreed, upon the terms and subject to
the conditions of the Subscription Agreement, to issue and sell to the Initial
Investor shares (the "Preferred Shares") of Series B Convertible Preferred
Stock, $.001 par value (the "Series B Preferred Stock"), of the Company as
provided in the Subscription Agreement, which Preferred Shares are convertible
into shares (the "Conversion Shares") of Common Stock, $.001 par value (the
"Common Stock"), of the Company, and to issue common stock purchase warrants
(the "Warrants") to purchase shares (the "Warrant Shares") of Common Stock; and
WHEREAS, to induce the Initial Investor to execute and deliver the
Subscription 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 with respect to the
Conversion Shares, the Warrant Shares and the shares of Common Stock issuable
upon conversion of shares (the "Dividend Shares") of Series B Preferred Stock
which are issuable in payment of dividends on the Preferred Shares;
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 Investor hereby agree as follows:
1. DEFINITIONS.
(a) As used in this Agreement, the following terms shall have the
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following meanings:
"Certificate of Designations" means the Certificate of Designations of
the Series B Convertible Preferred Stock establishing and designating the Series
B Preferred Stock and fixing the rights and preferences of such series as filed
by the Company with the Secretary of State of the State of Delaware.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Investor" or "Investors" means the Initial Investor and any
transferee or assignee who agrees to become bound by the provisions of this
Agreement in accordance with Section 9 hereof.
"Majority Holders" means those persons who hold a majority of the
shares of Series B Preferred Stock which are then outstanding, including such
shares originally issued pursuant to the Subscription Agreement and the Other
Subscription Agreement.
"Nasdaq" means the Nasdaq SmallCap Market.
"Permitted Transferee" means any person (1) who is an "accredited
investor" as defined in Regulation D under the Securities Act and (2) who,
immediately following the assignment of rights under this Agreement holds (x) at
least 500 shares of Preferred Stock or (y) shares of Preferred Stock which at
the time of such transfer are convertible into, or shares of Common Stock issued
upon conversion of shares of Preferred Stock which are equal to, at least 50,000
(subject to equitable adjustment from time to time on terms reasonably
acceptable to the Majority Holders for (i) stock splits, (ii) stock dividends,
(iii) combinations, (iv) capital reorganizations, (v) issuance to all holders of
Common Stock of rights or warrants to purchase shares of Common Stock and (vi)
similar events relating to the Common Stock, in each such case which occur on or
after the Closing Date) shares of Common Stock, or any combination thereof.
"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").
"Registrable Securities" means the Conversion Shares, the Warrant
Shares and any shares of Common Stock issued by the Company to any Investor upon
conversion of any Dividend Shares. As to any particular securities, such
securities shall cease to be
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Registrable Securities when they have been sold pursuant to an effective
registration statement or in compliance with Rule 144 or are eligible to be sold
pursuant to subsection (k) of Rule 144.
"Registration Period" means the period from the Closing Date to the
earliest of (i) the date which is three years after the SEC Effective Date, (ii)
the date on which each Investor may sell all of its Registrable Securities
without registration under the Securities Act pursuant to subsection (k) of Rule
144, without restriction on the manner of sale or the volume of securities which
may be sold in any period and without the requirement for the giving of any
notice to, or the making of any filing with, the SEC and (iii) the date on which
the Investors no longer beneficially own any Registrable Securities.
"Registration Statement" means a registration statement of the Company
under the Securities Act, including any amendment thereto.
"Rule 144" means Rule 144 promulgated under the Securities Act or any
other similar rule or regulation of the SEC that may at any time permit a holder
of any securities to sell securities of the Company to the public without
registration under the Securities Act.
"SEC Effective Date" means the date the Registration Statement is
declared effective by the SEC.
"SEC Filing Date" means the date the Registration Statement is first
filed with the SEC pursuant to Section 2(a).
(b) Capitalized terms defined in the introductory paragraph or the
recitals to this Agreement shall have the respective meanings therein provided.
Capitalized terms used herein and not otherwise defined herein shall have the
respective meanings set forth in the Subscription Agreement.
2. REGISTRATION.
(a) MANDATORY REGISTRATION. (1) The Company shall prepare, and on or
prior to January 29, 1999, file with the SEC a Registration Statement on Form
S-3 which, on the date of filing with the SEC, covers the resale by the Initial
Investor of a number of shares of Common Stock at least equal to the sum of (x)
a number of shares of Common Stock equal to 175% of the number of shares of
Common Stock issuable upon conversion of the Preferred Shares, determined as if
the Preferred Shares, together with accrued and unpaid dividends thereon, were
converted in full on the SEC Filing Date assuming a Conversion Percentage (as
defined in the Certificate of Designations) of 92% (and
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determined without regard to the limitations on conversion contained in the
Subscription Agreement and the Certificate of Designations) PLUS (y) the number
of Warrant Shares (in each case determined without regard to the limitations on
beneficial ownership contained in Section 4(m) of the Subscription Agreement,
the proviso to the second sentence of Section 10(a) of the Certificate of
Designations, and Section 1.1(b) of the Warrants) and the resale of such
additional number of shares of Common Stock as the Company shall in its
discretion determine to register to permit the issuance of Dividend Shares and
the resale of the shares of Common Stock issuable upon conversion thereof. If
at any time the number of shares of Common Stock included in the Registration
Statement required to be filed as provided in the first sentence of this Section
2(a) shall be insufficient to cover 125% of the number of shares of Common Stock
issuable on conversion in full of the unconverted Preferred Shares and Dividend
Shares plus the number of Warrant Shares issuable upon exercise of the
unexercised portion of the Warrants, then promptly, but in no event later than
20 days after such insufficiency shall occur, the Company shall file with the
SEC an additional Registration Statement on Form S-3 (which shall not constitute
a post-effective amendment to the Registration Statement filed pursuant to the
first sentence of this Section 2(a)), covering such number of shares of Common
Stock as shall be sufficient to permit such conversion and exercise. For all
purposes of this Agreement such additional Registration Statement shall be
deemed to be the Registration Statement required to be filed by the Company
pursuant to Section 2(a) of this Agreement, and the Company and the Investors
shall have the same rights and obligations with respect to such additional
Registration Statement as they shall have with respect to the initial
Registration Statement required to be filed by the Company pursuant to this
Section 2(a). The Registration Statement shall not include securities to be
sold for the account of any selling security holder other than (i) the Investors
and the investors contemplated by the registration rights agreement entered into
by the Company in connection with the Other Subscription Agreement, (ii) 60,000
shares of Common Stock to be issued in connection with a certain software
license agreement and (iii) 100,000 shares of Common Stock issuable upon the
exercise of warrants to be issued to certain placement agents, investment
banking firms and/or financial consultants in connection with the transactions
contemplated by the Subscription Agreement.
(2) Prior to the SEC Effective Date or during any time subsequent to
the SEC Effective Date when the Registration Statement for any reason is not
available for use by any Investor for the resale of any of Registrable
Securities, the Company shall not file any other registration statement or any
amendment thereto with the SEC under the 1933 Act or request the acceleration of
the effectiveness of any other registration statement previously filed with the
SEC, other than any registration statement on Form S-4 or Form S-8.
(b) CERTAIN OFFERINGS. If any offering pursuant to a Registration
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Statement pursuant to Section 2(a) hereof involves an underwritten offering,
Investors who hold a majority in interest of the Registrable Securities subject
to such underwritten offering shall have the right to select one legal counsel
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. The Investors who hold the Registrable
Securities to be included in such underwriting shall pay all underwriting
discounts and commissions and other fees and expenses of such investment banker
or bankers and manager or managers so selected in accordance with this Section
2(b) (other than fees and expenses relating to registration of Registrable
Securities under federal or state securities laws, which are payable by the
Company pursuant to Section 5 hereof) with respect to their Registrable
Securities and the fees and expenses of such legal counsel so selected by the
Investors.
(c) ADJUSTMENTS OF CONVERSION TERMS. The Certificate of Designations
provides, among other things, that, if a Registration Event (as defined in the
Certificate of Designations) occurs, then the Conversion Percentage and the
Ceiling Price (as such terms are defined in the Certificate of Designations)
shall be adjusted as provided in the Certificate of Designations.
(d) PIGGY-BACK REGISTRATIONS. If at any time the Company shall
determine to prepare and 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, the Company shall
send to each Investor who is entitled to registration rights under this Section
2(d) written notice of such determination and, if within ten (10) days after
receipt of such notice, such Investor shall so request in writing, the Company
shall include in such Registration Statement all or any part of the Registrable
Securities such Investor 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, such limitation is necessary to
effect an orderly 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 Investor has requested
inclusion hereunder. Any exclusion of Registrable Securities shall be made pro
rata among the Investors seeking to include Registrable Securities, in
proportion to the number of Registrable Securities sought to be included by such
Investors; 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 by right to inclusion of securities in such
Registration
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<PAGE>
Statement; 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, based on the number of securities for
which registration is requested except to the extent such pro rata exclusion of
such other securities is prohibited under any written agreement entered into by
the Company with the holder of such other securities prior to the date of this
Agreement, in which case such other securities shall be excluded, if at all, in
accordance with the terms of such agreement. No right to registration of
Registrable Securities under this Section 2(d) shall be construed to limit any
registration required under Section 2(a) hereof. The obligations of the Company
under this Section 2(d) may be waived by Investors holding a majority in
interest of the Registrable Securities and shall expire after the Company has
afforded the opportunity for the Investors to exercise registration rights under
this Section 2(d) for two registrations; PROVIDED, HOWEVER, that any Investor
who shall have had any Registrable Securities excluded from any Registration
Statement in accordance with this Section 2(d) shall be entitled to include in
an additional Registration Statement filed by the Company the Registrable
Securities so excluded. Notwithstanding any other provision of this Agreement,
if the Registration Statement required to be filed pursuant to Section 2(a) of
this Agreement shall have been ordered effective by the SEC and the Company
shall have maintained the effectiveness of such Registration Statement as
required by this Agreement and if the Company shall otherwise have complied in
all material respects with its obligations under this Agreement, then the
Company shall not be obligated to register any Registrable Securities on such
Registration Statement referred to in this Section 2(d).
(e) ELIGIBILITY FOR FORM S-3. The Company meets the requirements for
the use of Form S-3 for registration of the Registrable Securities for resale by
the Investors. The Company shall file all reports required to be filed by the
Company with the SEC in a timely manner so as to maintain such eligibility for
the use of Form S-3.
3. OBLIGATIONS OF THE COMPANY. In connection with the registration
of the Registrable Securities, the Company shall:
(a) prepare promptly, and file with the SEC not later than January
29, 1999, a Registration Statement with respect to the number of Registrable
Securities provided in Section 2(a), and thereafter to use its best efforts to
cause each Registration Statement relating to Registrable Securities to become
effective as soon as possible after such filing, and keep the Registration
Statement effective pursuant to Rule 415 at all times during the Registration
Period; submit to the SEC, within three Business Days after the Company learns
that no review of the Registration Statement will be made by the staff of the
SEC or that the staff of the SEC has no further comments on the Registration
Statement, as the case may be, a request for acceleration of effectiveness of
the
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Registration Statement to a time and date not later than 48 hours after the
submission of such request; notify the Investors of the effectiveness of the
Registration Statement on the date the Registration Statement is declared
effective; and the Company represents and warrants to, and covenants and agrees
with, the Investors that the Registration Statement (including any amendments or
supplements thereto and prospectuses contained therein), at the time it is first
filed with the SEC, at the time it is ordered effective by the SEC and at all
times during which it is required to be effective hereunder (and each such
amendment and supplement at the time it is filed with the SEC and at all times
during which it is available for use in connection with the offer and sale of
the Registrable Securities) 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, in light of the circumstances in which
they were made, not misleading;
(b) prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to the Registration Statement and the
prospectus used in connection with the Registration Statement as may be
necessary to keep the Registration Statement effective at all times during the
Registration Period, and, during the Registration 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 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;
(c) furnish to each Investor whose Registrable Securities are
included in the Registration Statement and its legal counsel, (1) 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, 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 relating to such Registration Statement (other than any portion of any
thereof which contains information for which the Company has sought confidential
treatment) and (2) such number of copies of a prospectus, including a
preliminary prospectus, and all amendments and supplements thereto and such
other documents, as such Investor may reasonably request in order to facilitate
the disposition of the Registrable Securities owned by such Investor;
(d) use reasonable efforts to (i) register and qualify the
Registrable Securities covered by the Registration Statement under such
securities or blue sky laws of such jurisdictions as the Investors who hold a
majority in interest of the Registrable Securities being offered reasonably
request, (ii) prepare and file in those jurisdictions such amendments (including
post-effective amendments) and supplements to such registrations
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and qualifications as may be necessary to maintain the effectiveness thereof at
all times until the end of the Registration Period, (iii) take such other
actions as may be necessary to maintain such registrations and qualifications in
effect at all times during the Registration Period and (iv) 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 (I) to qualify to do
business in any jurisdiction where it would not otherwise be required to qualify
but for this Section 3(d), (II) to subject itself to general taxation in any
such jurisdiction, (III) to file a general consent to service of process in any
such jurisdiction, (IV) to provide any undertakings that cause more than nominal
expense or burden to the Company or (V) to make any change in its Certificate of
Incorporation 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;
(e) in the event that the Registrable Securities are being offered in
an underwritten offering, 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;
(f) as promptly as practicable after becoming aware of such event or
circumstance, notify each Investor of any event or circumstance 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 omits to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, and use its best efforts promptly to
prepare a supplement or amendment to the Registration Statement to correct such
untrue statement or omission, file such supplement or amendment with the SEC at
such time as shall permit the Investors to sell Registrable Securities pursuant
to the Registration Statement as promptly as practicable, and deliver a number
of copies of such supplement or amendment to each Investor as such Investor may
reasonably request;
(g) as promptly as practicable after becoming aware of such event,
notify each Investor who holds Registrable Securities being sold (or, in the
event of an underwritten offering, the managing underwriters) of the issuance by
the SEC of any stop order or other suspension of effectiveness of the
Registration Statement at the earliest possible time;
(h) permit a single firm of counsel designated as selling
stockholders' counsel by the Investors who hold a majority in interest of the
Registrable Securities being sold to review and comment on the Registration
Statement and all amendments and supplements thereto a reasonable period of time
prior to their filing with the SEC;
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(i) 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;
(j) at the request of the Investors who hold a majority in interest
of the Registrable Securities being sold, furnish on the date that Registrable
Securities are delivered to an underwriter, if any, for sale in connection with
the Registration Statement (i) a letter, dated such date, from the Company's
independent certified public accountants in form and substance as is customarily
given by independent certified public accountants to underwriters in an
underwritten public offering, addressed to the underwriters; and (ii) an
opinion, dated such date, from counsel representing the Company for purposes of
such Registration Statement, in form and substance as is customarily given in an
underwritten public offering, addressed to the underwriters and the Investors;
(k) make available for inspection by any Investor, any underwriter
participating in any disposition pursuant to the Registration Statement, and any
attorney, accountant or other agent retained by any such Investor or underwriter
(collectively, the "Inspectors"), all pertinent financial and other records,
pertinent corporate documents and properties of the Company (collectively, the
"Records"), as shall be reasonably necessary to enable each Investor to exercise
its due diligence responsibility, and cause the Company's officers, directors
and employees to supply all information which any Inspector may reasonably
request for purposes of such due diligence; PROVIDED, HOWEVER, that each
Inspector shall hold in confidence and shall not make any disclosure (except to
an Investor) 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, unless (i) the disclosure of such Records is necessary to avoid or
correct a misstatement or omission in any Registration Statement, (ii) the
release of such Records is ordered pursuant to a subpoena or other order from a
court or government body of competent jurisdiction or (iii) 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. 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 substance satisfactory to the Company)
with the Company with respect thereto, substantially in the form of this Section
3(k). Each Investor 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 the Company's own expense, to undertake appropriate action to
prevent disclosure of, or to obtain a protective order for, the Records deemed
confidential.
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The Company shall hold in confidence and shall not make any disclosure of
information concerning an Investor provided to the Company pursuant to Section
4(e) hereof unless (i) disclosure of such information is necessary to comply
with federal or state securities laws, (ii) the disclosure of such information
is necessary to avoid or correct a misstatement or omission in any Registration
Statement, (iii) the release of such information is ordered pursuant to a
subpoena or other order from a court or governmental body of competent
jurisdiction or (iv) such information has been made generally available to the
public other han by disclosure in violation of this or, to the knowledge of the
Company, any other agreement. The Company agrees that it shall, upon learning
that disclosure of such information concerning an Investor is sought in or by a
court or governmental body of competent jurisdiction or through other means,
give prompt notice to such Investor and allow such Investor, at such Investor's
own expense, to undertake appropriate action to prevent disclosure of, or to
obtain a protective order for, such information;
(l) use its best efforts (i) to cause all the Registrable Securities
covered by the Registration Statement to be listed on the Nasdaq or such other
principal securities market on which securities of the same class or series
issued by the Company are then listed or traded or (ii) if securities of the
same class or series as the Registrable Securities are not then listed on Nasdaq
or any such other securities market, to cause all of the Registrable Securities
covered by the Registration Statement to be listed on the New York Stock
Exchange, the American Stock Exchange or the Nasdaq National Market;
(m) 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;
(n) cooperate with the Investors 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 Investors may reasonably request and registered in
such names as the managing underwriter or underwriters, if any, or the Investors
may request; and, within three Business Days after a Registration Statement
which includes Registrable Securities is ordered effective by the SEC, the
Company shall deliver to the transfer agent for the Registrable Securities (with
copies to the Investors whose Registrable Securities are included in such
Registration Statement) an instruction substantially in the form attached hereto
as EXHIBIT 1 and shall cause legal counsel selected by the Company to deliver to
the Investors an opinion of such counsel in the form attached hereto as EXHIBIT
2 (with a copy to the Company's transfer agent);
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(o) during the period the Company is required to maintain
effectiveness of the Registration Statement pursuant to Section 3(a), the
Company shall not bid for or purchase any Common Stock or any right to purchase
Common Stock or attempt to induce any person to purchase any such security or
right if such bid, purchase or attempt would in any way limit the right of the
Investors to sell Registrable Securities by reason of the limitations set forth
in Regulation M under the Exchange Act; and
(p) take all other reasonable actions necessary to expedite and
facilitate disposition by the Investors of the Registrable Securities pursuant
to the Registration Statement.
4. OBLIGATIONS OF THE INVESTORS. In connection with the
registration of the Registrable Securities, the Investors shall have the
following obligations:
(a) It shall be a condition precedent to the obligations of the
Company to complete the registration pursuant to this Agreement with respect to
the Registrable Securities of a particular Investor that such Investor 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 reasonably required to effect the registration
of such Registrable Securities and shall execute such documents in connection
with such registration as the Company may reasonably request. At least five
days prior to the first anticipated filing date of the Registration Statement,
the Company shall notify each Investor of the information the Company requires
from each such Investor (the "Requested Information") if any of such Investor's
Registrable Securities are eligible for inclusion in the Registration Statement.
If at least two Business Days prior to the filing date the Company has not
received the Requested Information from an Investor (a "Non-Responsive
Investor"), then the Company may file the Registration Statement without
including Registrable Securities of such Non-Responsive Investor but shall not
be relieved of its obligation to file a Registration Statement with the SEC
relating to the Registrable Securities of such Non-Responsive Investor promptly
after such Non-Responsive Investor provides the Requested Information;
(b) Each Investor by such Investor'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
Statement hereunder, unless such Investor has notified the Company in writing of
such Investor's election to exclude all of such Investor's Registrable
Securities from the Registration Statement;
(c) In the event Investors holding a majority in interest of the
Registrable Securities being registered determine to engage the services of an
underwriter, each Investor agrees to enter into and perform such Investor's
obligations under an
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underwriting agreement, in usual and customary form, including, without
limitation, customary indemnification and contribution obligations, with the
managing underwriter of such offering and take such other actions as are
reasonably required in order to expedite or facilitate the disposition of the
Registrable Securities, unless such Investor has notified the Company in writing
of such Investor's election to exclude all of such Investor's Registrable
Securities from the Registration Statement;
(d) Each Investor agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 3(f) or
3(g), such Investor will immediately discontinue disposition of Registrable
Securities pursuant to the Registration Statement covering such Registrable
Securities until such Investor's receipt of the copies of the supplemented or
amended prospectus contemplated by Section 3(f) or 3(g) and, if so directed by
the Company, such Investor 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 Investor's possession of the prospectus covering such
Registrable Securities current at the time of receipt of such notice;
(e) No Investor may participate in any underwritten registration
hereunder unless such Investor (i) agrees to sell such Investor's Registrable
Securities on the basis provided in any underwriting arrangements approved by
the Investors entitled hereunder to approve such arrangements, (ii) completes
and executes all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents reasonably required under the terms of such
underwriting arrangements and (iii) agrees to pay its pro rata share of all
underwriting discounts and commissions and other fees and expenses of investment
bankers and any manager or managers of such underwriting and legal expenses of
the underwriters applicable with respect to its Registrable Securities, in each
case to the extent not payable by the Company pursuant to the terms of this
Agreement; and
(f) Each Investor agrees to take all reasonable actions necessary to
comply with the prospectus delivery requirements of the Securities Act
applicable to its sales of Registrable Securities.
5. EXPENSES OF REGISTRATION. All reasonable expenses, other than
underwriting discounts and commissions and other fees and expenses of investment
bankers and other than brokerage commissions, incurred in connection with
registrations, filings or qualifications pursuant to Sections 2 and 3,
including, without limitation, all registration, listing and qualifications
fees, printers and accounting fees and the fees and disbursements of counsel for
the Company and one legal counsel for the Investors and the investors under the
registration rights agreement contemplated by the Other Subscription Agreement
(in addition to the payment of the Initial Investor's expenses to the extent
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provided in the Subscription Agreement), shall be borne by the Company,
PROVIDED, HOWEVER, that the Investors shall bear the fees and out-of-pocket
expenses of the one legal counsel selected by the Investors and the investors
under the registration rights agreement contemplated by the Other Subscription
Agreement pursuant to Section 2(b) hereof and thereof.
6. INDEMNIFICATION. In the event any Registrable Securities are
included in a Registration Statement under this Agreement:
(a) To the extent permitted by law, the Company will indemnify and
hold harmless each Investor who holds such Registrable Securities, the
directors, if any, of such Investor, the officers, if any, of such Investor,
each person, if any, who controls any Investor within the meaning of the
Securities Act or the Exchange Act, any underwriter (as defined in the
Securities Act) for the Investors, the directors, if any, of such underwriter
and the officers, if any, of such underwriter, and each person, if any, who
controls any such underwriter within the meaning of the Securities Act or the
Exchange Act (each, an "Indemnified Person"), against any losses, claims,
damages, liabilities or expenses (joint or several) incurred (collectively,
"Claims") to which any of them may become subject under the Securities Act, the
Exchange Act or otherwise, insofar as such Claims (or actions or proceedings,
whether commenced or threatened, in respect thereof) arise out of or are based
upon any of the following statements, omissions or violations in the
Registration Statement, or any post-effective amendment thereof, or any
prospectus included therein: (i) any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement or any
post-effective amendment thereof or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, (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
Companyof the Securities Act, the Exchange Act, any state securities law or any
rule or regulation under the Securities Act, the Exchange Act or any state
securities law (the matters in the foregoing clauses (i) through (iii) being,
collectively, "Violations"). Subject to the restrictions set forth in Section
6(d) with respect to the number of legal counsel, the Company shall reimburse
the Investors and the other Indemnified Persons, promptly as such expenses are
incurred and are due and payable, for any 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(a): (I) shall not apply
to a Claim
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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 any
Indemnified Person or underwriter for such Indemnified Person expressly for use
in connection with the preparation of the Registration Statement, the prospectus
or any such amendment thereof or supplement thereto, if such prospectus was
timely made available by the Company pursuant to Section 3(c) hereof; (II) 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 in the prospectus, as then
amended or supplemented, if such prospectus was timely made available by the
Company pursuant to Section 3(c) hereof; and (III) 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. 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 the Investors pursuant to
Section 9.
(b) In connection with any Registration Statement in which an
Investor is participating, each such Investor agrees to indemnify and hold
harmless, to the same extent and in the same manner set forth in Section 6(a),
the Company, each of its directors, each of its officers who signs the
Registration Statement, each person, if any, who controls the Company within the
meaning of the Securities Act or the Exchange Act, any underwriter and any other
stockholder selling securities pursuant to the Registration Statement or any of
its directors or officers or any person who controls such stockholder or
underwriter within the meaning of the Securities Act or the Exchange Act
(collectively and together with an Indemnified Person, 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 Investor expressly for use in
connection with such Registration Statement; and such Investor will reimburse
any legal or other expenses reasonably incurred by any Indemnified Party,
promptly as such expenses are incurred and are due and payable, in connection
with investigating or defending any such Claim; PROVIDED, HOWEVER, that the
indemnity agreement contained in this Section 6(b) shall not apply to amounts
paid in settlement of any Claim if such settlement is effected without the prior
written consent of such Investor, which consent shall not be unreasonably
withheld; PROVIDED, FURTHER, HOWEVER, that the Investor shall be liable under
this Section 6(b) for only that amount of a Claim as does not exceed the amount
by which the net proceeds to such Investor from the sale of Registrable
Securities pursuant to such Registration Statement exceeds the cost of such
Registrable Securities to such Investor. 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
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<PAGE>
of the Registrable Securities by the Investors pursuant to Section 9.
Notwithstanding anything to the contrary contained herein, the indemnification
agreement contained in this Section 6(b) 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.
(c) The Company shall be entitled to receive indemnities from
underwriters, selling brokers, dealer managers and similar securities industry
professionals participating in any distribution, to the same extent as provided
above, with respect to information so furnished in writing by such persons
expressly for inclusion in the Registration Statement.
(d) Promptly after receipt by an Indemnified Person or Indemnified
Party under this Section 6 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 Section 6, deliver to the indemnifying party a
written notice of the commencement thereof and the indemnifying party shall have
the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
control of the defense thereof with counsel selected by the indemnifying party
but reasonably acceptable to the Indemnified Person or the Indemnified Party, as
the case may be; PROVIDED, HOWEVER, that 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, in the reasonable opinion of counsel
retained by the indemnifying party, the representation by such counsel of the
Indemnified Person or Indemnified Party and the indemnifying party would be
inappropriate due to actual or potential differing interests between such
Indemnified Person or Indemnified Party and any other party represented by such
counsel in such proceeding. In such event, the Company shall pay for only one
separate legal counsel for the Investors; such legal counsel shall be selected
by the Investors holding a majority in interest of the Registrable Securities
included in the Registration Statement to which the Claim relates. 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 Section
6, except to the extent that the indemnifying party is prejudiced in its ability
to defend such action. The indemnification required by this Section 6 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.
7. CONTRIBUTION. To the extent any indemnification by an
indemnifying
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<PAGE>
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 Section 6 to the fullest extent permitted by law; PROVIDED,
HOWEVER, that (a) no contribution shall be made under circumstances where the
maker would not have been liable for indemnification under the fault standards
set forth in Section 6, (b) no seller of Registrable Securities guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any seller of Registrable
Securities who was not guilty of such fraudulent misrepresentation and (c)
contribution by any seller of Registrable Securities shall be limited in amount
to the amount by which the net amount of proceeds received by such seller from
the sale of such Registrable Securities exceeds the purchase price paid by such
seller for such Registrable Securities.
8. REPORTS UNDER EXCHANGE ACT. With a view to making available to
the Investors the benefits of Rule 144, the Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144;
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act;
and
(c) furnish to each Investor so long as such Investor owns Registrable
Securities, promptly upon request, (i) a written statement by the Company that
it has complied with the reporting requirements of Rule 144 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 Investors to sell
such securities pursuant to Rule 144 without registration.
9. ASSIGNMENT OF THE REGISTRATION RIGHTS. The rights to have the
Company register Registrable Securities pursuant to this Agreement shall be
automatically assigned by the Investors to any Permitted Transferee only if:
(a) the Investor agrees in writing with such Permitted Transferee 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 Permitted Transferee and (ii) the securities with
respect to which such registration rights are being transferred or assigned, (c)
immediately following such transfer or assignment the further disposition of
such securities by such Permitted Transferee is restricted under the Securities
Act and applicable state securities laws, and (d) at or before the time the
Company receives the written notice contemplated by clause (b) of this sentence
such Permitted Transferee agrees in writing
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with the Company to be bound by all of the provisions contained herein. In
connection with any such transfer the Company shall, at its sole cost and
expense, promptly after such assignment take such actions as shall be reasonably
acceptable to the Initial Investor and such Permitted Transferee to assure that
the Registration Statement and related prospectus are available for use by such
Permitted Transferee for sales of the Registrable Securities in respect of which
the rights to registration have been so assigned. In connection with any such
assignment, each Investor shall have the right to assign to such Permitted
Transferee such Investor's rights under the Subscription Agreement by notice of
such assignment to the Company. Following such notice of assignment of rights
under the Subscription Agreement, the Company shall be obligated to such
Permitted Transferee to perform all of its covenants under the Subscription
Agreement as if such Permitted Transferee were the Buyer under the Subscription
Agreement.
10. AMENDMENT OF REGISTRATION RIGHTS. Any provision 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 the written consent of the Majority Holders. Any
amendment or waiver effected in accordance with this Section 10 shall be binding
upon each Investor and the Company.
11. MISCELLANEOUS.
(a) A person or entity is deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such 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.
(b) Notices required or permitted to be given hereunder shall be in
writing and shall be deemed to be sufficiently given when personally delivered
(by hand, by courier, by telephone line facsimile transmission (with answer back
confirmation) or other means) (i) if to the Company, at 1099 18th Street, Suite
3000, Denver, Colorado 80202, Attention: Chief Executive Officer, telephone
line facsimile transmission number (303) 672-0711, (ii) if to the Initial
Investor, at 4111 East 37th Street North, Wichita, Kansas 67220, Attention: Josh
Taylor, telephone line facsimile transmission number (316) 828-7947 and (iii) if
to any other Investor, at such address as such Investor 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(b), and shall be effective upon
receipt.
(c) 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
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operate as a waiver thereof.
(d) This Agreement shall be enforced, governed by and construed in
accordance with the laws of the State of Colorado applicable to agreements made
and to be performed entirely within such State. In the event that any provision
of this Agreement is invalid or unenforceable under any applicable statute or
rule of law, then such provision shall be deemed inoperative to the extent that
it may conflict therewith and shall be deemed modified to conform with such
statute or rule of law. Any provision hereof which may prove invalid or
unenforceable under any law shall not affect the validity or enforceability of
any other provision hereof.
(e) This Agreement constitutes the entire agreement among the parties
hereto with respect to the subject matter hereof. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein. This Agreement supersedes all prior agreements and understandings among
the parties hereto with respect to the subject matter hereof.
(f) Subject to the requirements of Section 9 hereof, this Agreement
shall inure to the benefit of and be binding upon the successors and assigns of
each of the parties hereto.
(g) All pronouns and any variations thereof refer to the masculine,
feminine or neuter, singular or plural, as the context may require.
(h) The headings in this Agreement are for convenience of reference
only and shall not limit or otherwise affect the meaning hereof.
(i) The Company acknowledges that any failure by the Company to
perform its obligations under this Agreement, including, without limitation, the
Company's obligations under Section 3(n), or any delay in such performance could
result in damages to the Investors and the Company agrees that, in addition to
any other liability the Company may have by reason of any such failure or delay,
the Company shall be liable for all direct and consequential damages caused by
any such failure or delay.
(j) 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.
(k) The language used in this Agreement will be deemed to be the
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language chosen by the parties to express their mutual intent, and no rules of
strict construction will be applied against any party.
(l) 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 telephone line facsimile transmission of a copy of
this Agreement bearing the signature of the party so delivering this Agreement.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed by their respective officers thereunto duly authorized as of day and
year first above written.
ROCKY MOUNTAIN INTERNET, INC.
By:
Name:
Title:
KOCH INDUSTRIES, INC.
By:
Name:
Title:
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EXHIBIT 1
TO
REGISTRATION
RIGHTS
AGREEMENT
[Company Letterhead]
[Date]
American Securities Transfer & Trust, Inc.,
as Transfer Agent, Warrant Agent and Registrar
938 Quail Street
Suite 101
Lakewood, Colorado 80215-5513
Ladies and Gentlemen:
This letter shall serve as our irrevocable authorization and direction
to you [(1) to transfer or re-register the certificates for the shares of Common
Stock, $.001 par value (the "Common Stock"), of Rocky Mountain Internet, Inc., a
Delaware corporation (the "Company"), represented by certificate numbers _______
and _______ for an aggregate of _______ shares (the "Outstanding Shares") of
Common Stock presently registered in the name of [Name of Investors] upon
surrender of such certificate(s) to you, notwithstanding the legend appearing on
such certificates, and (2) ] to issue (a) shares (the "Conversion Shares") of
Common Stock to or upon the order of the holder from time to time on conversion
of the shares (the "Preferred Shares") of Series B Convertible Preferred Stock,
$.001 par value, of the Company upon receipt by you of a Notice of Conversion of
Series B Convertible Preferred Stock in the form enclosed herewith, and (b)
shares (the "Warrant Shares") of Common Stock to or upon the order of the holder
from time to time on exercise of the Common Stock Purchase Warrants (the
"Warrants") exercisable for Common Stock issued by the Company upon receipt by
you of a Subscription Form from such holder in the form enclosed herewith. [The
transfer or re-registration of the certificates for the Outstanding Shares by
you should be made at such time as you are requested to do so by the record
holder of the Outstanding Shares. The certificate issued upon such transfer or
re-registration should be registered in such name as requested by the holder of
record of the certificate surrendered to you and should not
- -----------------------------
(1) Omit if no conversions of Preferred Stock or exercises of Warrants have
occurred before SEC registration is declared effective.
1-21
<PAGE>
bear any legend which would restrict the transfer of the shares represented
thereby. In addition, you are hereby directed to remove any stop-transfer
instruction relating to the Outstanding Shares.] Certificates for the Conversion
Shares and Warrant Shares should not bear any restrictive legend and should not
be subject to any stop-transfer restriction.
Contemporaneously with the delivery of this letter, the Company is
delivering to you an opinion of Jacobs Chase Frick Kleinkopf & Kelley, LLC as to
registration of the resale of [the Outstanding Shares and]* the Conversion
Shares and Warrant Shares under the Securities Act of 1933, as amended.
- --------------------
1-22
<PAGE>
Should you have any questions concerning this matter, please contact
me.
Very truly yours,
ROCKY MOUNTAIN INTERNET, INC.
By:
Name:
Title:
Enclosures
cc: [Names of Investors]
1-23
<PAGE>
EXHIBIT 2
TO
REGISTRATION
RIGHTS
AGREEMENT
______________ ___, 1998
[Names and Addresses of Investors]
ROCKY MOUNTAIN INTERNET, INC.
SHARES OF COMMON STOCK
Ladies and Gentlemen:
We are counsel to Rocky Mountain Internet, Inc., a Delaware
corporation (the "Company"), and we understand that the Company has sold to
[Names of Investors] (the "Holders") an aggregate of 8,000 shares (the
"Preferred Shares") of the Company's Series B Convertible Preferred Stock, $.001
par value (the "Preferred Stock"), and issued to the Holders Common Stock
Purchase Warrants (the "Warrants"). The Preferred Shares were sold, and the
Warrants were issued, to the Holders pursuant to several Subscription
Agreements, dated as of December 10, 1998, by and between the Holders and the
Company (the "Subscription Agreements"). Pursuant to the several Registration
Rights Agreements, dated as of December 10, 1998, by and between the Company and
each Holder (the "Registration Rights Agreements") entered into in connection
with the purchase by the Holders of the Preferred Shares, the Company agreed
with each Holder, among other things, to register for resale (1) the shares (the
"Conversion Shares") of Common Stock issuable upon conversion of the Preferred
Shares and conversion of the shares of Preferred Stock issuable as dividends on
the Preferred Shares and (2) the shares (the "Warrant Shares") of Common Stock
issuable upon exercise of the Warrants under the Securities Act of 1933, as
amended (the "1933 Act"), upon the terms provided in the Registration Rights
Agreements. The Conversion Shares and the Warrant Shares are referred to herein
collectively as the "Shares". Pursuant to the Registration Rights Agreements,
on __________ ___, 1998 the Company filed a Registration Statement on Form S-3
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<PAGE>
(File No. 333-__________) (the "Registration Statement") with the Securities and
Exchange Commission (the "SEC") relating to the Shares, which names the Holders
as selling stockholders thereunder.
[Other introductory and scope of examination language to be inserted]
Based on the foregoing, we are of the opinion that:
(1) Since the Closing Date, the Company has timely filed with the SEC
all forms, reports and other documents required to be filed with the SEC
under the Securities Exchange Act of 1934, as amended (the "1934 Act").
All of such forms, reports and other documents complied, when filed, in all
material respects, with all applicable requirements of the 1933 Act and the
1934 Act;
(2) The Registration Statement and the Prospectus contained therein
(other than the financial statements and financial schedules and other
financial and statistical information contained or incorporated by
reference therein, as to which we have not been requested to and do not
express any opinion) comply as to form in all material respects with the
applicable requirements of the 1933 Act and the rules and regulations
promulgated thereunder; and
(3) The Registration Statement has become effective under the 1933
Act, to the best of our knowledge after due inquiry, no stop order
proceedings with respect thereto have been instituted or threatened by the
SEC. The Shares have been registered under the 1933 Act and may be resold
by the respective Holders pursuant to the Registration Statement.
We have participated in the preparation of the Registration Statement
and the Prospectus, including review and discussions with officers and other
representatives of the Company, representatives of the independent public
accountants for the Company, and your representatives at which the contents of
the Registration Statement and the Prospectus contained therein and related
matters were discussed, and, although we are not passing upon and do not assume
any responsibility for the accuracy, completeness or fairness of the statements
contained in the Registration Statement and the Prospectus contained therein, on
the basis of the foregoing, nothing has come to our attention that leads us to
believe either that the Registration Statement at the time the Registration
Statement became effective contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein not misleading, or that the Prospectus contained in
the Registration Statement, as
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<PAGE>
of its date, contained an untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading (it being understood that we have not been requested to and
do not express any view with respect to the financial statements and schedules
and other financial and statistical data included or incorporated by reference
in the Registration Statement or the Prospectus contained therein).
Paragraph (3) of this opinion may be relied upon by American
Securities Transfer & Trust, Inc., as Transfer Agent, Warrant Agent and
Registrar (the "Transfer Agent"), as if addressed to the Transfer Agent.
Very truly yours,
cc: American Securities Transfer & Trust, Inc.,
as Transfer Agent, Warrant Agent and Registrar
2-26
<PAGE>
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of December 10, 1998
(this "Agreement"), is made by and between ROCKY MOUNTAIN INTERNET, INC., a
Delaware corporation (the "Company"), and the person named on the signature page
hereto (the "Initial Investor").
W I T N E S E T H:
WHEREAS, in connection with the letter agreement, dated as of October
28, 1998, between Wharton Capital Partners Ltd. and the Company (the "Letter
Agreement"), the Company has agreed to issue to the Initial Investor common
stock purchase warrants (the "Warrants") to purchase shares (the "Warrant
Shares") of Common Stock, $.001 par value (the "Common Stock"), of the Company;
and
WHEREAS, in accordance with the Letter 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 with respect to the Warrant Shares;
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 Investor hereby agree as follows:
1. DEFINITIONS.
(a) As used in this Agreement, the following terms shall have the
following meanings:
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Investor" or "Investors" means the Initial Investor and any
transferee or assignee who agrees to become bound by the provisions of this
Agreement in accordance with Section 9 hereof.
"Majority Holders" means those persons who hold a majority of the
shares of Series B Convertible Preferred Stock of the Company which are then
outstanding, including such shares originally issued pursuant to the
Subscription Agreements, or, if no such shares are outstanding, those persons
who hold or have the right to acquire a
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<PAGE>
majority of the Registrable Securities issued or issuable upon exercise of the
Warrants.
"Nasdaq" means the Nasdaq SmallCap Market.
"Permitted Transferee" means any person (1) who is an "accredited
investor" as defined in Regulation D under the Securities Act and (2) who,
immediately following the assignment of rights under this Agreement holds (x)
Warrants to purchase at least 10,000 shares of Common Stock or (y) shares of
Common Stock issued upon exercise of Warrants which are equal to, at least
10,000 (subject to equitable adjustment from time to time on terms reasonably
acceptable to the Investors for (i) stock splits, (ii) stock dividends, (iii)
combinations, (iv) capital reorganizations, (v) issuance to all holders of
Common Stock of rights or warrants to purchase shares of Common Stock and (vi)
similar events relating to the Common Stock, in each such case which occur on or
after the Closing Date) shares of Common Stock, or any combination thereof.
"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").
"Registrable Securities" means the Warrant Shares. As to any
particular securities, such securities shall cease to be Registrable Securities
when they have been sold pursuant to an effective registration statement or in
compliance with Rule 144 or are eligible to be sold pursuant to subsection (k)
of Rule 144.
"Registration Period" means the period from the Closing Date to the
earliest of (i) the date which is three years after the SEC Effective Date, (ii)
the date on which each Investor may sell all of its Registrable Securities
without registration under the Securities Act pursuant to subsection (k) of Rule
144, without restriction on the manner of sale or the volume of securities which
may be sold in any period and without the requirement for the giving of any
notice to, or the making of any filing with, the SEC and (iii) the date on which
the Investors no longer beneficially own any Registrable Securities.
"Registration Statement" means a registration statement of the Company
under the Securities Act, including any amendment thereto.
"Rule 144" means Rule 144 promulgated under the Securities Act or any
other similar rule or regulation of the SEC that may at any time permit a holder
of any securities to sell securities of the Company to the public without
registration under the
-2-
<PAGE>
Securities Act.
"SEC Effective Date" means the date the Registration Statement is
declared effective by the SEC.
"SEC Filing Date" means the date the Registration Statement is first
filed with the SEC pursuant to Section 2(a).
"Subscription Agreements" means the respective Subscription
Agreements, dated as of the date hereof, between the Company and Advantage Fund
II Ltd. and Koch Industries, Inc.
(b) Capitalized terms defined in the introductory paragraph or the
recitals to this Agreement shall have the respective meanings therein provided.
Capitalized terms used herein and not otherwise defined herein shall have the
respective meanings set forth in the Subscription Agreements.
2. REGISTRATION.
(a) MANDATORY REGISTRATION. (1) The Company shall prepare, and on or
prior to January 29, 1999, file with the SEC a Registration Statement on Form
S-3 which, on the date of filing with the SEC, covers the resale by the Initial
Investor of a number of shares of Common Stock at least equal to the number of
Warrant Shares (determined without regard to the limitations on beneficial
ownership contained in Section 1.1(b) of the Warrants). If at any time the
number of shares of Common Stock included in the Registration Statement required
to be filed as provided in the first sentence of this Section 2(a) shall be
insufficient to cover the number of Warrant Shares issuable upon exercise of the
unexercised portion of the Warrants, then promptly, but in no event later than
20 days after such insufficiency shall occur, the Company shall file with the
SEC an additional Registration Statement on Form S-3 (which shall not constitute
a post-effective amendment to the Registration Statement filed pursuant to the
first sentence of this Section 2(a)), covering such number of shares of Common
Stock as shall be sufficient to permit such conversion and exercise. For all
purposes of this Agreement such additional Registration Statement shall be
deemed to be the Registration Statement required to be filed by the Company
pursuant to Section 2(a) of this Agreement, and the Company and the Investors
shall have the same rights and obligations with respect to such additional
Registration Statement as they shall have with respect to the initial
Registration Statement required to be filed by the Company pursuant to this
Section 2(a). The Registration Statement shall not include securities to be
sold for the account of any selling security holder other than (i) the Investors
and the holder of the other Warrants issued pursuant to the Letter Agreement,
(ii) holders of warrants to purchase 10,000 shares of Common Stock to be
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<PAGE>
initially issued to an investment banking firm or its designees, (iii) the
investors contemplated by the registration rights agreements entered ino by the
Company in connection with the Subscription Agreements and (iv) 60,000 shares of
Common Stock to be issued in connection with a software license agreement.
(2) Prior to the SEC Effective Date or during any time subsequent to
the SEC Effective Date when the Registration Statement for any reason is not
available for use by any Investor for the resale of any of Registrable
Securities, the Company shall not file any other registration statement or any
amendment thereto with the SEC under the 1933 Act or request the acceleration of
the effectiveness of any other registration statement previously filed with the
SEC, other than any registration statement on Form S-4 or Form S-8.
(b) CERTAIN OFFERINGS. If any offering pursuant to a Registration
Statement pursuant to Section 2(a) hereof involves an underwritten offering,
Investors who hold a majority in interest of the Registrable Securities subject
to such underwritten offering shall have the right to select one legal counsel
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. The Investors who hold the Registrable
Securities to be included in such underwriting shall pay all underwriting
discounts and commissions and other fees and expenses of such investment banker
or bankers and manager or managers so selected in accordance with this Section
2(b) (other than fees and expenses relating to registration of Registrable
Securities under federal or state securities laws, which are payable by the
Company pursuant to Section 5 hereof) with respect to their Registrable
Securities and the fees and expenses of such legal counsel so selected by the
Investors.
(c) PIGGY-BACK REGISTRATIONS. If at any time the Company shall
determine to prepare and 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, the Company shall
send to each Investor who is entitled to registration rights under this Section
2(c) written notice of such determination and, if within ten (10) days after
receipt of such notice, such Investor shall so request in writing, the Company
shall include in such Registration Statement all or any part of the Registrable
Securities such Investor 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, such limitation is
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<PAGE>
necessary to effect an orderly 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 Investor has requested
inclusion hereunder. Any exclusion of Registrable Securities shall be made pro
rata among the Investors seeking to include Registrable Securities, in
proportion to the number of Registrable Securities sought to be included by such
Investors; 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 by right to inclusion of securities in such
Registration Statement; 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, based on the number of
securities for which registration is requested except to the extent such pro
rata exclusion of such other securities is prohibited under any written
agreement entered into by the Company with the holder of such other securities
prior to the date of this Agreement, in which case such other securities shall
be excluded, if at all, in accordance with the terms of such agreement. No
right to registration of Registrable Securities under this Section 2(c) shall be
construed to limit any registration required under Section 2(a) hereof. The
obligations of the Company under this Section 2(c) may be waived by Investors
holding a majority in interest of the Registrable Securities and shall expire
after the Company has afforded the opportunity for the Investors to exercise
registration rights under this Section 2(c) for two registrations; PROVIDED,
HOWEVER, that any Investor who shall have had any Registrable Securities
excluded from any Registration Statement in accordance with this Section 2(c)
shall be entitled to include in an additional Registration Statement filed by
the Company the Registrable Securities so excluded. Notwithstanding any other
provision of this Agreement, if the Registration Statement required to be filed
pursuant to Section 2(a) of this Agreement shall have been ordered effective by
the SEC and the Company shall have maintained the effectiveness of such
Registration Statement as required by this Agreement and if the Company shall
otherwise have complied in all material respects with its obligations under this
Agreement, then the Company shall not be obligated to register any Registrable
Securities on such Registration Statement referred to in this Section 2(c).
(d) ELIGIBILITY FOR FORM S-3. The Company meets the requirements for
the use of Form S-3 for registration of the Registrable Securities for resale by
the Investors. The Company shall file all reports required to be filed by the
Company with the SEC in a timely manner so as to maintain such eligibility for
the use of Form S-3.
3. OBLIGATIONS OF THE COMPANY. In connection with the registration
of the Registrable Securities, the Company shall:
(a) prepare promptly, and file with the SEC not later than January
29,
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<PAGE>
1999, a Registration Statement with respect to the number of Registrable
Securities provided in Section 2(a), and thereafter to use its best efforts to
cause each Registration Statement relating to Registrable Securities to become
effective as soon as possible after such filing, and keep the Registration
Statement effective pursuant to Rule 415 at all times during the Registration
Period; submit to the SEC, within three Business Days after the Company learns
that no review of the Registration Statement will be made by the staff of the
SEC or that the staff of the SEC has no further comments on the Registration
Statement, as the case may be, a request for acceleration of effectiveness of
the Registration Statement to a time and date not later than 48 hours after the
submission of such request; notify the Investors of the effectiveness of the
Registration Statement on the date the Registration Statement is declared
effective; and the Company represents and warrants to, and covenants and agrees
with, the Investors that the Registration Statement (including any amendments or
supplements thereto and prospectuses contained therein), at the time it is first
filed with the SEC, at the time it is ordered effective by the SEC and at all
times during which it is required to be effective hereunder (and each such
amendment and supplement at the time it is filed with the SEC and at all times
during which it is available for use in connection with the offer and sale of
the Registrable Securities) 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, in light of the circumstances in which
they were made, not misleading;
(b) prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to the Registration Statement and the
prospectus used in connection with the Registration Statement as may be
necessary to keep the Registration Statement effective at all times during the
Registration Period, and, during the Registration 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 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;
(c) furnish to each Investor whose Registrable Securities are
included in the Registration Statement and its legal counsel, (1) 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, 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 relating to such Registration Statement (other than any portion of any
thereof which contains information for which the Company has sought confidential
treatment) and (2) such number of copies of a prospectus, including a
preliminary prospectus, and all amendments and supplements thereto and such
other
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<PAGE>
documents, as such Investor may reasonably request in order to facilitate the
disposition of the Registrable Securities owned by such Investor;
(d) use reasonable efforts to (i) register and qualify the
Registrable Securities covered by the Registration Statement under such
securities or blue sky laws of such jurisdictions as the Investors who hold a
majority in interest of the Registrable Securities being offered reasonably
request, (ii) 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 at all
times until the end of the Registration Period, (iii) take such other actions as
may be necessary to maintain such registrations and qualifications in effect at
all times during the Registration Period and (iv) 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 (I) to qualify to do business
in any jurisdiction where it would not otherwise be required to qualify but for
this Section 3(d), (II) to subject itself to general taxation in any such
jurisdiction, (III) to file a general consent to service of process in any such
jurisdiction, (IV) to provide any undertakings that cause more than nominal
expense or burden to the Company or (V) to make any change in its Certificate of
Incorporation 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;
(e) in the event that the Registrable Securities are being offered in
an underwritten offering, 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;
(f) as promptly as practicable after becoming aware of such event or
circumstance, notify each Investor of any event or circumstance 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 omits to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, and use its best efforts promptly to
prepare a supplement or amendment to the Registration Statement to correct such
untrue statement or omission, file such supplement or amendment with the SEC at
such time as shall permit the Investors to sell Registrable Securities pursuant
to the Registration Statement as promptly as practicable, and deliver a number
of copies of such supplement or amendment to each Investor as such Investor may
reasonably request;
(g) as promptly as practicable after becoming aware of such event,
notify each Investor who holds Registrable Securities being sold (or, in the
event of an
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<PAGE>
underwritten offering, the managing underwriters) of the issuance by the SEC of
any stop order or other suspension of effectiveness of the Registration
Statement at the earliest possible time;
(h) permit a single firm of counsel designated as selling
stockholders' counsel by the Investors who hold a majority in interest of the
Registrable Securities being sold to review and comment on the Registration
Statement and all amendments and supplements thereto a reasonable period of time
prior to their filing with the SEC;
(i) 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;
(j) at the request of the Investors who hold a majority in interest
of the Registrable Securities being sold, furnish on the date that Registrable
Securities are delivered to an underwriter, if any, for sale in connection with
the Registration Statement (i) a letter, dated such date, from the Company's
independent certified public accountants in form and substance as is customarily
given by independent certified public accountants to underwriters in an
underwritten public offering, addressed to the underwriters; and (ii) an
opinion, dated such date, from counsel representing the Company for purposes of
such Registration Statement, in form and substance as is customarily given in an
underwritten public offering, addressed to the underwriters and the Investors;
(k) make available for inspection by any Investor, any underwriter
participating in any disposition pursuant to the Registration Statement, and any
attorney, accountant or other agent retained by any such Investor or underwriter
(collectively, the "Inspectors"), all pertinent financial and other records,
pertinent corporate documents and properties of the Company (collectively, the
"Records"), as shall be reasonably necessary to enable each Investor to exercise
its due diligence responsibility, and cause the Company's officers, directors
and employees to supply all information which any Inspector may reasonably
request for purposes of such due diligence; PROVIDED, HOWEVER, that each
Inspector shall hold in confidence and shall not make any disclosure (except to
an Investor) 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, unless (i) the disclosure of such Records is necessary to avoid or
correct a misstatement or omission in any Registration Statement, (ii) the
release of such Records is ordered pursuant to a subpoena or other order from a
court or government body of competent jurisdiction or (iii) 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. The Company shall not
be
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<PAGE>
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 substance satisfactory to the Company)
with the Company with respect thereto, substantially in the form of this Section
3(k). Each Investor 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 the Company's own expense, to undertake appropriate action to
prevent disclosure of, or to obtain a protective order for, the Records deemed
confidential. The Company shall hold in confidence and shall not make any
disclosure of information concerning an Investor provided to the Company
pursuant to Section 4(e) hereof unless (i) disclosure of such information is
necessary to comply with federal or state securities laws, (ii) the disclosure
of such information is necessary to avoid or correct a misstatement or omission
in any Registration Statement, (iii) the release of such information is ordered
pursuant to a subpoena or other order from a court or governmental body of
competent jurisdiction or (iv) such information has been made generally
available to the public other han by disclosure in violation of this or, to the
knowledge of the Company, any other agreement. The Company agrees that it
shall, upon learning that disclosure of such information concerning an Investor
is sought in or by a court or governmental body of competent jurisdiction or
through other means, give prompt notice to such Investor and allow such
Investor, at such Investor's own expense, to undertake appropriate action to
prevent disclosure of, or to obtain a protective order for, such information;
(l) use its best efforts (i) to cause all the Registrable Securities
covered by the Registration Statement to be listed on the Nasdaq or such other
principal securities market on which securities of the same class or series
issued by the Company are then listed or traded or (ii) if securities of the
same class or series as the Registrable Securities are not then listed on Nasdaq
or any such other securities market, to cause all of the Registrable Securities
covered by the Registration Statement to be listed on the New York Stock
Exchange, the American Stock Exchange or the Nasdaq National Market;
(m) 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;
(n) cooperate with the Investors 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 Investors may
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<PAGE>
reasonably request and registered in such names as the managing underwriter or
underwriters, if any, or the Investors may request; and, within three Business
Days after a Registration Statement which includes Registrable Securities is
ordered effective by the SEC, the Company shall deliver to the transfer agent
for the Registrable Securities (with copies to the Investors whose Registrable
Securities are included in such Registration Statement) an instruction
substantially in the form attached hereto as EXHIBIT 1 and shall cause legal
counsel selected by the Company to deliver to the Investors an opinion of such
counsel in the form attached hereto as EXHIBIT 2 (with a copy to the Company's
transfer agent);
(o) during the period the Company is required to maintain
effectiveness of the Registration Statement pursuant to Section 3(a), the
Company shall not bid for or purchase any Common Stock or any right to purchase
Common Stock or attempt to induce any person to purchase any such security or
right if such bid, purchase or attempt would in any way limit the right of the
Investors to sell Registrable Securities by reason of the limitations set forth
in Regulation M under the Exchange Act; and
(p) take all other reasonable actions necessary to expedite and
facilitate disposition by the Investors of the Registrable Securities pursuant
to the Registration Statement.
4. OBLIGATIONS OF THE INVESTORS. In connection with the
registration of the Registrable Securities, the Investors shall have the
following obligations:
(a) It shall be a condition precedent to the obligations of the
Company to complete the registration pursuant to this Agreement with respect to
the Registrable Securities of a particular Investor that such Investor 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 reasonably required to effect the registration
of such Registrable Securities and shall execute such documents in connection
with such registration as the Company may reasonably request. At least five
days prior to the first anticipated filing date of the Registration Statement,
the Company shall notify each Investor of the information the Company requires
from each such Investor (the "Requested Information") if any of such Investor's
Registrable Securities are eligible for inclusion in the Registration Statement.
If at least two Business Days prior to the filing date the Company has not
received the Requested Information from an Investor (a "Non-Responsive
Investor"), then the Company may file the Registration Statement without
including Registrable Securities of such Non-Responsive Investor but shall not
be relieved of its obligation to file a Registration Statement with the SEC
relating to the Registrable Securities of such Non-Responsive Investor promptly
after such Non-Responsive Investor provides the Requested Information;
(b) Each Investor by such Investor's acceptance of the Registrable
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<PAGE>
Securities agrees to cooperate with the Company as reasonably requested by the
Company in connection with the preparation and filing of the Registration
Statement hereunder, unless such Investor has notified the Company in writing of
such Investor's election to exclude all of such Investor's Registrable
Securities from the Registration Statement;
(c) In the event Investors holding a majority in interest of the
Registrable Securities being registered determine to engage the services of an
underwriter, each Investor agrees to enter into and perform such Investor's
obligations under an underwriting agreement, in usual and customary form,
including, without limitation, customary indemnification and contribution
obligations, with the managing underwriter of such offering and take such other
actions as are reasonably required in order to expedite or facilitate the
disposition of the Registrable Securities, unless such Investor has notified the
Company in writing of such Investor's election to exclude all of such Investor's
Registrable Securities from the Registration Statement;
(d) Each Investor agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 3(f) or
3(g), such Investor will immediately discontinue disposition of Registrable
Securities pursuant to the Registration Statement covering such Registrable
Securities until such Investor's receipt of the copies of the supplemented or
amended prospectus contemplated by Section 3(f) or 3(g) and, if so directed by
the Company, such Investor 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 Investor's possession of the prospectus covering such
Registrable Securities current at the time of receipt of such notice;
(e) No Investor may participate in any underwritten registration
hereunder unless such Investor (i) agrees to sell such Investor's Registrable
Securities on the basis provided in any underwriting arrangements approved by
the Investors entitled hereunder to approve such arrangements, (ii) completes
and executes all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents reasonably required under the terms of such
underwriting arrangements and (iii) agrees to pay its pro rata share of all
underwriting discounts and commissions and other fees and expenses of investment
bankers and any manager or managers of such underwriting and legal expenses of
the underwriters applicable with respect to its Registrable Securities, in each
case to the extent not payable by the Company pursuant to the terms of this
Agreement; and
(f) Each Investor agrees to take all reasonable actions necessary to
comply with the prospectus delivery requirements of the Securities Act
applicable to its sales of Registrable Securities.
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<PAGE>
5. EXPENSES OF REGISTRATION. All reasonable expenses, other than
underwriting discounts and commissions and other fees and expenses of investment
bankers and other than brokerage commissions, incurred in connection with
registrations, filings or qualifications pursuant to Sections 2 and 3,
including, without limitation, all registration, listing and qualifications
fees, printers and accounting fees and the fees and disbursements of counsel for
the Company and one legal counsel for the investors under the registration
rights agreements contemplated by the Subscription Agreements, shall be borne by
the Company, PROVIDED, HOWEVER, that the Investors shall bear the fees and
out-of-pocket expenses of the one legal counsel selected by the Investors
pursuant to Section 2(b) hereof.
6. INDEMNIFICATION. In the event any Registrable Securities are
included in a Registration Statement under this Agreement:
(a) To the extent permitted by law, the Company will indemnify and
hold harmless each Investor who holds such Registrable Securities, the
directors, if any, of such Investor, the officers, if any, of such Investor,
each person, if any, who controls any Investor within the meaning of the
Securities Act or the Exchange Act, any underwriter (as defined in the
Securities Act) for the Investors, the directors, if any, of such underwriter
and the officers, if any, of such underwriter, and each person, if any, who
controls any such underwriter within the meaning of the Securities Act or the
Exchange Act (each, an "Indemnified Person"), against any losses, claims,
damages, liabilities or expenses (joint or several) incurred (collectively,
"Claims") to which any of them may become subject under the Securities Act, the
Exchange Act or otherwise, insofar as such Claims (or actions or proceedings,
whether commenced or threatened, in respect thereof) arise out of or are based
upon any of the following statements, omissions or violations in the
Registration Statement, or any post-effective amendment thereof, or any
prospectus included therein: (i) any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement or any
post-effective amendment thereof or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, (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
Companyof the Securities Act, the Exchange Act, any state securities law or any
rule or regulation under the Securities Act, the Exchange Act or any state
securities law (the matters in the foregoing clauses (i) through (iii) being,
collectively, "Violations"). Subject to the restrictions set forth in Section
6(d) with respect to the number of legal
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<PAGE>
counsel, the Company shall reimburse the Investors and the other Indemnified
Persons, promptly as such expenses are incurred and are due and payable, for any
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(a): (I) shall not apply 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 any Indemnified Person or underwriter for
such Indemnified Person expressly for use in connection with the preparation of
the Registration Statement, the prospectus or any such amendment thereof or
supplement thereto, if such prospectus was timely made available by the Company
pursuant to Section 3(c) hereof; (II) 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 in the prospectus, as then amended or supplemented, if such prospectus
was timely made available by the Company pursuant to Section 3(c) hereof; and
(III) 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. 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 the Investors pursuant to Section 9.
(b) In connection with any Registration Statement in which an
Investor is participating, each such Investor agrees to indemnify and hold
harmless, to the same extent and in the same manner set forth in Section 6(a),
the Company, each of its directors, each of its officers who signs the
Registration Statement, each person, if any, who controls the Company within the
meaning of the Securities Act or the Exchange Act, any underwriter and any other
stockholder selling securities pursuant to the Registration Statement or any of
its directors or officers or any person who controls such stockholder or
underwriter within the meaning of the Securities Act or the Exchange Act
(collectively and together with an Indemnified Person, 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 Investor expressly for use in
connection with such Registration Statement; and such Investor will reimburse
any legal or other expenses reasonably incurred by any Indemnified Party,
promptly as such expenses are incurred and are due and payable, in connection
with investigating or defending any such Claim; PROVIDED, HOWEVER, that the
indemnity agreement contained in this Section 6(b) shall not apply to amounts
paid in settlement of any Claim if such settlement is effected without the prior
written consent of such Investor, which consent shall not be unreasonably
withheld; PROVIDED, FURTHER, HOWEVER, that the Investor shall be
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<PAGE>
liable under this Section 6(b) for only that amount of a Claim as does not
exceed the amount by which the net proceeds to such Investor from the sale of
Registrable Securities pursuant to such Registration Statement exceeds the cost
of such Registrable Securities to such Investor. 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 the Investors pursuant to Section 9. Notwithstanding anything to
the contrary contained herein, the indemnification agreement contained in this
Section 6(b) 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.
(c) The Company shall be entitled to receive indemnities from
underwriters, selling brokers, dealer managers and similar securities industry
professionals participating in any distribution, to the same extent as provided
above, with respect to information so furnished in writing by such persons
expressly for inclusion in the Registration Statement.
(d) Promptly after receipt by an Indemnified Person or Indemnified
Party under this Section 6 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 Section 6, deliver to the indemnifying party a
written notice of the commencement thereof and the indemnifying party shall have
the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
control of the defense thereof with counsel selected by the indemnifying party
but reasonably acceptable to the Indemnified Person or the Indemnified Party, as
the case may be; PROVIDED, HOWEVER, that 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, in the reasonable opinion of counsel
retained by the indemnifying party, the representation by such counsel of the
Indemnified Person or Indemnified Party and the indemnifying party would be
inappropriate due to actual or potential differing interests between such
Indemnified Person or Indemnified Party and any other party represented by such
counsel in such proceeding. In such event, the Company shall pay for only one
separate legal counsel for the Investors; such legal counsel shall be selected
by the Investors holding a majority in interest of the Registrable Securities
included in the Registration Statement to which the Claim relates. 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 Section
6, except to the extent that the indemnifying party is prejudiced in its ability
to defend such action. The indemnification required by this
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<PAGE>
Section 6 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.
7. 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 Section 6 to the fullest extent permitted by
law; PROVIDED, HOWEVER, that (a) no contribution shall be made under
circumstances where the maker would not have been liable for indemnification
under the fault standards set forth in Section 6, (b) no seller of Registrable
Securities guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any seller
of Registrable Securities who was not guilty of such fraudulent
misrepresentation and (c) contribution by any seller of Registrable Securities
shall be limited in amount to the amount by which the net amount of proceeds
received by such seller from the sale of such Registrable Securities exceeds the
purchase price paid by such seller for such Registrable Securities.
8. REPORTS UNDER EXCHANGE ACT. With a view to making available to
the Investors the benefits of Rule 144, the Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144;
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act;
and
(c) furnish to each Investor so long as such Investor owns Registrable
Securities, promptly upon request, (i) a written statement by the Company that
it has complied with the reporting requirements of Rule 144 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 Investors to sell
such securities pursuant to Rule 144 without registration.
9. ASSIGNMENT OF THE REGISTRATION RIGHTS. The rights to have the
Company register Registrable Securities pursuant to this Agreement shall be
automatically assigned by the Investors to any Permitted Transferee only if:
(a) the Investor agrees in writing with such Permitted Transferee 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 Permitted Transferee and (ii) the
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<PAGE>
securities with respect to which such registration rights are being transferred
or assigned, (c) immediately following such transfer or assignment the further
disposition of such securities by such Permitted Transferee is restricted under
the Securities Act and applicable state securities laws, and (d) at or before
the time the Company receives the written notice contemplated by clause (b) of
this sentence such Permitted Transferee agrees in writing with the Company to be
bound by all of the provisions contained herein. In connection with any such
transfer the Company shall, at its sole cost and expense, promptly after such
assignment take such actions as shall be reasonably acceptable to the Initial
Investor and such Permitted Transferee to assure that the Registration Statement
and related prospectus are available for use by such Permitted Transferee for
sales of the Registrable Securities in respect of which the rights to
registration have been so assigned.
10. AMENDMENT OF REGISTRATION RIGHTS. Any provision 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 the written consent of the Majority Holders. Any
amendment or waiver effected in accordance with this Section 10 shall be binding
upon each Investor and the Company.
11. INITIAL INVESTOR REPRESENTATIONS, WARRANTIES, ETC.
The Initial Investor represents and warrants to, and covenants and
agrees with, the Company as follows:
(a) INVESTMENT PURPOSE. The Initial Investor is acquiring the
Warrants, and will acquire the Warrant Shares, for its own account for
investment only and not with a view towards the public sale or distribution
thereof, except as contemplated by this Agreement.
(b) ACCREDITED INVESTOR. The Initial Investor is an "accredited
investor" as that term is defined in Rule 501 of the General Rules and
Regulations under the Securities Act by reason of Rule 501(a)(3).
(c) REOFFERS AND RESALES. All subsequent offers and sales of the
Warrants and the Warrant Shares by the Initial Investor shall be made pursuant
to registration of the Warrants and the Warrant Shares being offered and sold
under the Securities Act or pursuant to an exemption from registration.
(d) COMPANY RELIANCE. The Initial Investor understands that the
Warrants are being issued, and the Warrant Shares are being offered, in each
case to it in reliance on specific exemptions from the registration requirements
of United States federal and state securities laws and that the Company is
relying upon the truth and accuracy of,
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<PAGE>
and the Initial Investor's compliance with, the representations, warranties,
agreements, acknowledgments and understandings of the Initial Investor set forth
herein in order to determine the availability of such exemptions and the
eligibility of the Initial Investor to acquire the Warrants and to receive an
offer of the Warrant Shares.
(e) INFORMATION PROVIDED. The Initial Investor and its advisors, if
any, have been furnished with all materials relating to the business, finances
and operations of the Company and materials relating to the issuance of the
Warrants and the offer of the Warrant Shares which have been requested by the
Initial Investor; the Initial Investor and its advisors, if any, have been
afforded the opportunity to ask questions of the Company and have received
satisfactory answers to any such inquiries; without limiting the generality of
the foregoing, the Initial Investor has had the opportunity to obtain and to
review the Company's (1) Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1997, (2) Quarterly Reports on Form 10-Q for the fiscal quarters
ended March 31, 1998 (as amended on Form 10-QSB/A), June 30, 1998 and September
30, 1998, (3) definitive proxy statement for the Company's 1998 Annual Meeting
of Shareholders held on March 12, 1998 and (4) Current Reports on Form 8-K and
8-K/A filed June 11, 1998, July 14, 1998, August 19, 1998, August 24, 1998 and
December 7, 1998, in each case as filed with the SEC; and the Initial Investor
understands that its investment in the Warrants and the Warrant Shares involves
a high degree of risk.
(f) ABSENCE OF APPROVALS. The Initial Investor understands that no
United States federal or state agency or any other government or governmental
agency has passed on or made any recommendation or endorsement of the Warrants
and the Warrant Shares.
(g) REGISTRATION RIGHTS AGREEMENT. This Agreement has been duly and
validly authorized, executed and delivered on behalf of the Initial Investor and
is a valid and binding agreement of the Initial Investor enforceable in
accordance with its terms, subject as to enforceability to general principles of
equity and to bankruptcy, insolvency, moratorium and other similar laws
affecting the enforcement of creditors' rights generally.
(h) CERTAIN TRADING RESTRICTIONS. The Initial Investor represents
that on the date hereof it has no short position in the Common Stock. So long
as (i) the Company is in compliance in all material respects with its
obligations to the Investors under this Agreement and the Warrants or (ii) any
noncompliance with such obligations is cured within ten Business Days of the
Company's receipt of notice thereof from an Investor, each Investor agrees on
its behalf and on behalf of its affiliates that it will not engage in any short
sales or other hedging transactions relating to the Common Stock; PROVIDED,
HOWEVER, that for purposes of this Agreement any such transaction involving a
number of
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<PAGE>
shares of Common Stock which does not exceed the number of shares for which a
subscription form for exercise of a Warrant has been submitted to the Company's
transfer agent and to the Company shall not be deemed to be a short sale or
hedging transaction.
12. MISCELLANEOUS.
(a) A person or entity is deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such 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.
(b) Notices required or permitted to be given hereunder shall be in
writing and shall be deemed to be sufficiently given when personally delivered
(by hand, by courier, by telephone line facsimile transmission (with answer back
confirmation) or other means) (i) if to the Company, at 1099 18th Street, Suite
3000, Denver, Colorado 80202, Attention: Chief Executive Officer, telephone
line facsimile transmission number (303) 672-0711, (ii) if to the Initial
Investor, at 545 Madison Avenue, New York, New York 10022, telephone line
facsimile transmission number (212) 888-7054, and (iii) if to any other
Investor, at such address as such Investor 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 12(b), and shall be effective upon receipt.
(c) 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.
(d) This Agreement shall be enforced, governed by and construed in
accordance with the laws of the State of Colorado applicable to agreements made
and to be performed entirely within such State. In the event that any provision
of this Agreement is invalid or unenforceable under any applicable statute or
rule of law, then such provision shall be deemed inoperative to the extent that
it may conflict therewith and shall be deemed modified to conform with such
statute or rule of law. Any provision hereof which may prove invalid or
unenforceable under any law shall not affect the validity or enforceability of
any other provision hereof.
(e) This Agreement constitutes the entire agreement among the parties
hereto with respect to the subject matter hereof. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein. This Agreement supersedes all prior agreements and understandings among
the parties hereto
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<PAGE>
with respect to the subject matter hereof.
(f) Subject to the requirements of Section 9 hereof, this Agreement
shall inure to the benefit of and be binding upon the successors and assigns of
each of the parties hereto.
(g) All pronouns and any variations thereof refer to the masculine,
feminine or neuter, singular or plural, as the context may require.
(h) The headings in this Agreement are for convenience of reference
only and shall not limit or otherwise affect the meaning hereof.
(i) The Company acknowledges that any failure by the Company to
perform its obligations under this Agreement, including, without limitation, the
Company's obligations under Section 3(n), or any delay in such performance could
result in damages to the Investors and the Company agrees that, in addition to
any other liability the Company may have by reason of any such failure or delay,
the Company shall be liable for all direct and consequential damages caused by
any such failure or delay.
(j) 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.
(k) The language used in this Agreement will be deemed to be the
language chosen by the parties to express their mutual intent, and no rules of
strict construction will be applied against any party.
(l) 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 telephone line facsimile transmission of a copy of
this Agreement bearing the signature of the party so delivering this Agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed by their respective officers thereunto duly authorized as of day and
year first above written.
ROCKY MOUNTAIN INTERNET, INC.
By:
Name:
Title:
WHARTON CAPITAL PARTNERS LTD.
By:
Name:
Title:
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<PAGE>
EXHIBIT 1
TO
REGISTRATION
RIGHTS
AGREEMENT
[Company Letterhead]
[Date]
American Securities Transfer & Trust, Inc.,
as Transfer Agent, Warrant Agent and Registrar
938 Quail Street
Suite 101
Lakewood, Colorado 80215-5513
Ladies and Gentlemen:
This letter shall serve as our irrevocable authorization and direction
to you to issue shares (the "Warrant Shares") of Common Stock to or upon the
order of the holder from time to time on exercise of the Common Stock Purchase
Warrants (the "Warrants") exercisable for Common Stock issued by the Company
upon receipt by you of a Subscription Form from such holder in the form enclosed
herewith. Certificates for the Warrant Shares should not bear any restrictive
legend and should not be subject to any stop-transfer restriction.
Contemporaneously with the delivery of this letter, the Company is
delivering to you an opinion of Jacobs Chase Frick Kleinkopf & Kelley, LLC as to
registration of the resale of the Warrant Shares under the Securities Act of
1933, as amended.
Should you have any questions concerning this matter, please contact
me.
Very truly yours,
ROCKY MOUNTAIN INTERNET, INC.
By:
Name:
Title:
Enclosures
cc: [Names of Investors]
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<PAGE>
EXHIBIT 2
TO
REGISTRATION
RIGHTS
AGREEMENT
______________ ___, 1998
[Names and Addresses of Investors]
ROCKY MOUNTAIN INTERNET, INC.
SHARES OF COMMON STOCK
Ladies and Gentlemen:
We are counsel to Rocky Mountain Internet, Inc., a Delaware
corporation (the "Company"), and we understand that the Company has issued to
[Names of Investors] (the "Holders") Common Stock Purchase Warrants (the
"Warrants"). The Warrants were issued to the Holders pursuant to a Letter
Agreement, dated as of October 28, 1998, by and between Wharton Capital Partners
Ltd. and the Company (the "Letter Agreement"). Pursuant to the several
Registration Rights Agreements, dated as of December 10, 1998, by and between
the Company and each Holder (the "Registration Rights Agreements") entered into
in connection with the acquisition by the Holders of the Warrants, the Company
agreed with each Holder, among other things, to register for resale the shares
(the "Warrant Shares") of Common Stock issuable upon exercise of the Warrants
under the Securities Act of 1933, as amended (the "1933 Act"), upon the terms
provided in the Registration Rights Agreements. Pursuant to the Registration
Rights Agreements, on _________ ___, 1998 the Company filed a Registration
Statement on Form S-3 (File No. 333-__________) (the "Registration Statement")
with the Securities and Exchange Commission (the "SEC") relating to the Warrant
Shares, which names the Holders as selling stockholders thereunder.
[Other introductory and scope of examination language to be inserted]
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<PAGE>
Based on the foregoing, we are of the opinion that:
(1) Since the Closing Date, the Company has timely filed with the SEC
all forms, reports and other documents required to be filed with the SEC
under the Securities Exchange Act of 1934, as amended (the "1934 Act").
All of such forms, reports and other documents complied, when filed, in all
material respects, with all applicable requirements of the 1933 Act and the
1934 Act;
(2) The Registration Statement and the Prospectus contained therein
(other than the financial statements and financial schedules and other
financial and statistical information contained or incorporated by
reference therein, as to which we have not been requested to and do not
express any opinion) comply as to form in all material respects with the
applicable requirements of the 1933 Act and the rules and regulations
promulgated thereunder; and
(3) The Registration Statement has become effective under the 1933
Act, to the best of our knowledge after due inquiry, no stop order
proceedings with respect thereto have been instituted or threatened by the
SEC. The Warrant Shares have been registered under the 1933 Act and may be
resold by the respective Holders pursuant to the Registration Statement.
We have participated in the preparation of the Registration Statement
and the Prospectus, including review and discussions with officers and other
representatives of the Company, representatives of the independent public
accountants for the Company, and your representatives at which the contents of
the Registration Statement and the Prospectus contained therein and related
matters were discussed, and, although we are not passing upon and do not assume
any responsibility for the accuracy, completeness or fairness of the statements
contained in the Registration Statement and the Prospectus contained therein, on
the basis of the foregoing, nothing has come to our attention that leads us to
believe either that the Registration Statement at the time the Registration
Statement became effective contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein not misleading, or that the Prospectus contained in
the Registration Statement, as of its date, contained an untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading (it being understood that we have not
been requested to and do not express any view with respect to the financial
statements and schedules and other financial and statistical data included or
incorporated by reference in the Registration Statement or the Prospectus
contained
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<PAGE>
therein).
Paragraph (3) of this opinion may be relied upon by American
Securities Transfer & Trust, Inc., as Transfer Agent, Warrant Agent and
Registrar (the "Transfer Agent"), as if addressed to the Transfer Agent.
Very truly yours,
cc: American Securities Transfer & Trust, Inc.,
as Transfer Agent, Warrant Agent and Registrar
2-24
<PAGE>
ADVANTAGE FUND II LTD.
C/O CITCO
KAYA FLAMBOYAN 9
CURACAO, NETHERLANDS ANTILLES
December 10, 1998
Rocky Mountain Internet, Inc.
1099 18th Street
Suite 3000
Denver, Colorado 80202
COMMITMENT LETTER
Dear Sirs:
Advantage Fund II Ltd., a British Virgin Islands corporation
("Advantage"), is pleased to provide Rocky Mountain Internet, Inc., a Delaware
corporation (the "Company"), with this commitment letter in respect of an
additional investment of $5,000,000 in preferred stock of the Company upon and
subject to the terms and conditions set forth below. Capitalized terms used
herein without definition shall have the meanings given them in the Subscription
Agreement, dated as of December 10, 1998 (the "Series B Subscription
Agreement"), between the Company and Advantage, or in the Certificate of
Designations referred to in the Subscription Agreement.
1. THE TRANSACTION. Following the closing on the Closing Date of
the issuance and sale to Advantage or its designee of 5,000 shares (the "Series
B Preferred Shares") of Series B Convertible Preferred Stock, $.001 par value
(the "Series B Preferred Stock"), of the Company for an aggregate purchase price
of $5,000,000 pursuant to the Series B Subscription Agreement and the issuance
to Advantage of Warrants (the "Series B Warrants") in connection therewith,
Advantage and/or one or more of its designees are prepared to purchase shares of
a new series of preferred stock of the Company for an aggregate purchase price
of $5,000,000 on the same terms and conditions as set forth in the Series B
Subscription Agreement, the Certificate of Designations, the Series B Warrants
and the other agreements, documents and transactions contemplated thereby (the
"Transaction"). The warrants issued in the Transaction shall be exercisable for
five years for an aggregate of 89,286 shares of Common Stock at an exercise
price equal to 120% of the average closing bid price of the Common Stock for the
five Trading Days prior to the closing of the Transaction.
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2. EFFECTIVE PERIOD; TERMINATION. (a) This commitment shall become
effective 90 days after the Registration Statement with respect to the Common
Shares shall have been declared effective by the SEC (the "SEC Effective Date")
and shall expire on the earlier of (x) 365 days after the SEC Effective Date or
(y) 470 days after the date hereof, subject to earlier termination (1) by the
Company at any time upon ten days' prior written notice to Advantage or (2) by
Advantage as follows: (i) at any time (before or after the SEC Effective Date)
upon the Company's failure to satisfy the conditions set forth in Sections 3(b),
3(d) or 3(e) or the Company's failure to comply with or perform, as and when
required, any of its material obligations set forth in this letter, in each case
upon two Business Days' prior written notice given by Advantage to the Company;
or (ii) if on any of the Specified Dates (as defined in Section 4) the Company
fails to satisfy any of the conditions set forth in Section 4, in each case upon
two Business Days' prior written notice given by Advantage to the Company. In
addition, this commitment shall terminate automatically, without any action by
any party hereto, upon the commencement of any voluntary or involuntary case or
other proceeding against the Company seeking liquidation, reorganization or
other relief with respect to itself or its debts under any bankruptcy,
insolvency or other similar law now or hereafter in effect or seeking the
appointment of a trustee, receiver, liquidator, custodian or similar official of
it or a substantial part of its property, or the Company shall consent to any
such relief or appointment, or the Company shall make a general assignment for
the benefit of creditors, or the Company shall fail generally to pay its debts
as they become due.
(b) To exercise its rights hereunder, the Company shall give written
notice thereof (the "Notice") to Advantage. Upon receipt of the Notice,
Advantage (or its designees) and the Company shall use their best efforts to
document and complete the Transaction.
3. GENERAL CONDITIONS. The obligation of Advantage (or its
designees) to proceed with and complete the Transaction shall be subject to the
following general conditions:
(a) Since the date hereof, there shall have been no material adverse
change and no material adverse development in the business, properties,
operations, condition (financial or other), results of operations or
prospects of the Company and its Subsidiaries, taken as a whole.
(b) (1) The Company shall not have failed or defaulted in the timely
performance of any material obligation to Advantage or any holder of the
Series B Preferred Stock under the Series B Subscription Agreement, the
Certificate of
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Designations, the Registration Rights Agreement or the other agreements or
documents entered into with Advantage and the other holders of the Series B
Preferred Stock (collectively, the "Series B Transaction Documents"), (2)
the representations and warranties of the Company made in the Series B
Transaction Documents continue at all times to be true and correct in all
material respects (except for representations and warranties given as of a
specific date which representations shall continue to be true and correct
as of such date), and (3) the Registration Statement shall be available for
use by the selling stockholders named therein.
(c) At the annual meeting referred to in Section 4(j) of the Series B
Subscription Agreement, the Company shall have obtained Stockholder
Approval with respect to the issuance of the Series B Preferred Stock and
the new shares of preferred stock to be issued in the Transaction.
(d) Since the date hereof, there shall not have occurred any Optional
Redemption Event (as defined in the Certificate of Designations) as to
which a holder of Series B Preferred Shares is entitled to exercise its
redemption rights with respect thereto or has exercised such rights and the
Company has not redeemed such holder's shares of Series B Preferred Stock
as required by the Certificate of Designations.
(e) Since the date hereof, there shall not have occurred a change in
the membership or size of the Company's Board of Directors such that
directors in office on the date hereof no longer constitute a majority of
the full Board.
(f) The parties shall negotiate, and, within 30 days after the date
the Notice is received by Advantage (the "Notice Date"), execute and
deliver definitive agreements and documents in forms substantially similar
to those delivered in connection with the purchase of the Series B
Preferred Shares, PROVIDED, HOWEVER, that Advantage (or its designees)
shall not be obligated to execute such definitive agreements if upon the
execution thereof Advantage (or its designees) would be entitled to
terminate any of such agreements in accordance with their respective terms.
4. ADDITIONAL CONDITIONS. The obligation of Advantage (or its
designees) to proceed with and complete the Transaction shall be subject to the
following additional conditions which must be satisfied on each of the Notice
Date, the date of execution of the subscription agreement for the Transaction
and the date of the closing of the Transaction (such dates, together with the
Notice Date are referred to herein as the
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"Specified Dates"):
(a) Determined on the basis of (i) the most recent financial
statements of the Company filed with the SEC under the 1934 Act or (ii)
financial statements of the Company more recent than those last filed with
the SEC which the Company certifies as being prepared on the same basis as
those filed with the SEC,
(1) total stockholders' equity, including the Series B Preferred
Stock ("Total Stockholders' Equity"), of the Company is at least
$10,000,000; and
(2) the ratio of the Company's total liabilities to Total
Stockholders' Equity is not greater than 1:1;
PROVIDED, HOWEVER, that Advantage (or its designees) shall not be obligated
to close the Transaction unless such financial statements are as of a date
no more than 60 days prior to the closing date of the Transaction.
(b) The average closing bid price of the Common Stock on Nasdaq for
the five Trading Days prior to each of the Specified Dates (the "Closing
Bid Price") is at least $9.00 per share.
(c) The average daily trading volume of the Common Stock on Nasdaq
for the 30 Trading Days prior to each of the Specified Dates is at least
100,000 shares.
The price and number of shares referred to in Sections 4(b) and 4(c)
above shall be subject to equitable adjustment from time to time on terms
reasonably acceptable to Advantage for (i) stock splits, (ii) stock
dividends, (iii) combinations, (iv) capital reorganizations, (v) issuance
to all holders of Common Stock of rights or warrants to purchase shares of
Common Stock at a price per share less than the Current Price which would
otherwise be applicable, (vi) the distribution by the Company to all
holders of Common Stock of evidences of indebtedness of the Company or cash
(other than regular quarterly cash dividends), (vii) tender offers by the
Company or any subsidiary of the Company or other repurchases of shares of
Common Stock in one or more transactions which, individually or in the
aggregate, result in the purchase of more than 10% of the Common Stock
outstanding and (viii) similar events relating to the Common Stock.
(d) On each of the Specified Dates, (1) the sum of (i) $5,000,000 and
(ii) the aggregate Conversion Amount of the outstanding shares of Series B
Preferred
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Stock is less than (2) 10% of the product obtained by multiplying (i) the
Closing Bid Price by (ii) the number of shares of Common Stock outstanding.
5. INDEMNITY. The Company hereby agrees to indemnify and hold
harmless Advantage, any designee of Advantage who participates in the
Transaction and their respective directors, officers, employees, agents,
advisors, successors and assigns, and each person, if any, who controls any such
person within the meaning of the 1933 Act or the 1934 Act (collectively, the
"Indemnified Persons"), against any losses, claims, damages, or liabilities
asserted by or due to a person other than the Company or another Indemnified
Person or any expenses (including reasonable attorneys' fees) incurred by the
Indemnified Persons in connection therewith arising out of, or in connection
with, or as a result of: (i) the execution and delivery of this commitment
letter or any agreement or document relating to the Transaction contemplated
hereby or the performance by the Company or the Indemnified Persons of their
respective obligations hereunder or thereunder, except to the extent such
execution and delivery or performance by the Indemnified Persons constitute a
breach by an Indemnified Person of an agreement between such Indemnified Person
and a third party unaffiliated with the Company which breach directly causes
such losses, claims, damages, liabilities and expenses, (ii) the use of any
proceeds from the Transaction or (iii) any claim, litigation, investigation or
proceeding relating to any of the foregoing, whether or not the Indemnified
Person is a party hereto. The provisions of this Section 5 shall survive any
termination of this letter.
6. MISCELLANEOUS. All notices hereunder to the Company and
Advantage shall be given to the addresses and in the manner provided in the
Series B Subscription Agreement. All notices to the designees, if any, of
Advantage hereunder shall be given to such address as such designees shall
advise the Company in writing and in the manner provided in the Series B
Subscription Agreement. This commitment letter is solely for the benefit of the
parties hereto and, with respect to Section 5, the Indemnified Persons and
nothing contained herein shall be deemed to confer upon anyone other than the
Company, Advantage, and, with respect to Section 5, the Indemnified Persons any
right to insist on or enforce the performance of any of the obligations
contained herein. Except as otherwise provided in Section 4(i)(3) of the Series
B Subscription Agreement, this letter supersedes any prior agreements,
commitments, communications or letters with respect to the subject matter
hereof. This letter shall be governed by the internal laws of the State of New
York. This letter may be executed in counterparts, and a facsimile transmission
hereof bearing a signature on behalf of a party hereto shall be binding on such
party.
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Very truly yours,
ADVANTAGE FUND II LTD.
By:
W. R. Weber
President
Accepted and agreed as of
the date first written above:
ROCKY MOUNTAIN INTERNET, INC.
By:
Name:
Title:
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[LOGO] ROCKY MOUNTAIN INTERNET
FOR IMMEDIATE RELEASE
CONTACTS:
Barbara Archer or Robyn Phipps Shiloh Kelly
Metzger Associates Director of Communications
[email protected] Rocky Mountain Internet Inc.
[email protected] [email protected]
(303) 786-7000 (303) 672-0732
ROCKY MOUNTAIN INTERNET COMPLETES $13 MILLION
EQUITY FINANCING, INCLUDING OPTION FOR $5 MILLION
DENVER - December 14, 1998 - Rocky Mountain Internet Inc. (NASDAQ SmallCap
Market-RMII, RMIIW) announced today the completion of a private placement of
Series B Convertible Preferred Stock raising gross proceeds of $8 million.
Additionally, RMI obtained a commitment for an additional $5 million, subject to
the satisfaction of certain conditions.
"This equity infusion will allow RMI to take the next step in our strategic
development," commented Douglas H. Hanson, chairman, president and CEO of Rocky
Mountain Internet (http://www.rmi.net). "I am pleased with the deal we made with
our new equity partners and look forward to continuing our growth plans."
Shares of the Series B Preferred Stock were issued to two institutional
investors in a private transaction under the Securities Act of 1933 and such
securities may not be offered or sold, without registration or an applicable
exemption from registration. The Series B Preferred Stock is convertible,
subject to certain restrictions, into shares of common stock of the Company.
The terms include restrictions on conversion depending on certain market
conditions and restrictions against short sales and other hedging transactions.
(more)
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As part of the transaction, the Company issued warrants to purchase 155,000
shares of common stock with an exercise price equal to 130% of the closing day
market price to the purchasers of the Series B Preferred Stock and warrants to
purchase 100,000 shares of common stock with an exercise price equal to 120% of
the closing day market price to the brokers involved with the transaction. The
Company has agreed to register the related common stock in connection with this
transaction and the warrants pursuant to registration rights agreements.
"This funding along with the recent acquisitions of Internet Now, Unicom
Communications, Stonehenge and DataXchange Network positions RMI as a nationwide
Tier 1 Internet provider," said Hanson.
ABOUT ROCKY MOUNTAIN INTERNET
Rocky Mountain Internet (http://www.rmi.net) is a national Web Solutions and
e-commerce company providing a wide range of Internet and data communication
services to businesses and consumers with an emphasis on e-commerce solutions.
Services include: a comprehensive browser-based electronic commerce software
package (www.e-sell.com); a leading-edge portal site (www.infohiway.com); and a
browser-based banner advertising management software package
(www.infohiway.com/adcafe/). Other RMI services consist of dedicated, DSL,
dial-up and wireless Internet access, network management, system integration and
co-location.
Rocky Mountain Broadband, a subsidiary and communications division of RMI,
offers a wide range of services; including, paging, voice mail, local and long
distance phone service, 800 service and IP Telephony (www.ic-ephone.net).
(This press release contains forward-looking statements. These forward-looking
statements are subject to risks and uncertainties. Actual results may differ
materially from such forward-looking statements as a result of risks and
uncertainties which are described in the cautionary statements section of the
company's 10K dated December 31, 1997, and include the need for additional
financing, the ICC litigation, ability to successfully integrate acquisitions,
changing technology, competition, possible future government regulation,
competition for talented employees, the Company's ability to fund future
operations and the Company's need to refinance debt.)
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