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As filed with the Securities & Exchange Commission on January 3, 2000
Registration No. 333-87887
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------
AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
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WEBB INTERACTIVE SERVICES, INC.
(Exact name of issuer as specified in its charter)
Colorado 84-1293864
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
1800 Glenarm Place, Suite 700
Denver, Colorado 80202
(303) 296-9200
(Address and telephone number of principal executive offices)
-------------------------
R. Steven Adams
Webb Interactive Services, Inc.
1800 Glenarm Place, Suite 700
Denver, Colorado 80202
(303) 296-9200
(Name, address and telephone number of agent for service)
Copy to:
Lindley S. Branson
Steven J. Price
Gray, Plant, Mooty, Mooty & Bennett, P.A.
33 South Sixth Street
3400 City Center
Minneapolis, Minnesota 55402
(612) 343-2800
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this registration statement.
If the only securities being registered on this form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. |_|
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. |X|
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If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of earlier effective registration
statement for same offering. |_|
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Title of securities to Amount to be Proposed maximum Proposed maximum aggregate Amount of
be registered registered offering price (1) offering price (1) registration fee
- ------------------------ --------------------- ---------------------- ---------------------------- --- -------------------
<S> <C> <C> <C> <C>
Common Stock, no par
value (1) 1,129,568 (2) $11.625 $13,131,228 $3,650.48*
</TABLE>
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* Previously paid.
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) of Regulation C as of the close of the market on
September 21, 1999.
(2) Common stock issuable by Webb (i) upon exercise of stock purchase warrants
(273,038 shares); (ii) upon conversion of an outstanding promissory note
in the principal amount of $5,000,000 (the "Note"); and (iii) which may be
issued in payment of interest on the Note or upon the conversion of
similar notes issued to pay the interest on the Note. The shares include
any additional shares issued to prevent dilution resulting from stock
splits, stock dividends or similar transactions. The number of shares
included in this registration is sufficient to cover potential conversions
of the Note so long as the conversion price is approximately $6.00 or
more. The current conversion price is $10.07.
-------------------------------
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission acting pursuant to said Section 8(a),
may determine.
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SUBJECT TO COMPLETION, DATED JANUARY 3, 2000 PROSPECTUS
WEBB INTERACTIVE SERVICES, INC.
This is a public offering of a maximum of 1,129,568 shares of common
stock of Webb Interactive Services, Inc. The shares include up to (i) 856,530
shares which are reserved for issuance upon conversion of a 10% promissory note
in the principal amount of $5,000,000 and the payment of interest on the note
and (ii) 273,038 shares issuable upon exercise of transferable stock purchase
warrants.
The selling shareholder is offering all of the shares to be sold. We
will not receive any of the proceeds from the offer and sale of the shares,
however, 273,038 of the shares offered by the selling shareholder are issuable
upon the exercise of outstanding stock purchase warrants of Webb at exercise
prices of $11.44 and $18.51 per share. If these warrants were exercised in full,
we would receive gross proceeds of $4,088,198.
The Nasdaq SmallCap Market lists our common stock under the symbol
WEBB.
Investing in our common stock involves risks. You should not purchase
our common stock unless you can afford to lose your entire investment. See "Risk
Factors" beginning on page 3 of this prospectus.
Because the selling shareholder will offer and sell the shares at
various times, we have not included in this prospectus information about the
price to the public of the shares or the proceeds to the selling shareholder.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the securities or passed on the
adequacy of the disclosures in this prospectus. Any representation to the
contrary is a criminal offense.
The date of this prospectus is ________ __, 2000
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WEBB INTERACTIVE SERVICES, INC.
Webb Interactive Services, Inc. (Nasdaq: WEBB) ("Webb") develops next
generation Internet applications for unlocking the potential of local market
e-commerce. We believe that two of the biggest opportunities in the local online
marketplace are simplifying the ability to drive customers to local businesses'
web sites and enabling customers to quickly find what they want. We are
developing XML-based technologies that facilitate buyer-seller interaction and
enable individuals and local businesses to easily manage their web-based
communications.
To date, we have generated revenues through the sale of design and
consulting services for Web site development and network engineering services,
resale of software licenses, mark-ups on computer hardware and software sold to
customers, maintenance fees charged to customers to maintain computer hardware
and Web sites, license fees based on a percentage of revenues from our products
and services, training course fees, and monthly fees paid by customers for
Internet access which we have provided. We commenced sales in February 1995 and
have incurred losses from operations since inception. At September 30, 1999, we
had an accumulated deficit of $35,816,498. The reports of our independent public
accountants for the years ended December 31, 1998 and 1997 contained a paragraph
noting substantial doubt regarding our ability to continue as a going concern.
Based on our current projections, we have cash on hand which will allow
us to operate through February 2000. Accordingly, we will need to raise
additional capital, which could involve the issuance of dilutive equity
securities and/or reduce our operating activity to conserve cash.
Prior to the third quarter of 1997, our focus generally was on three
markets: general Web site development, maintenance and hosting; rural or small
market Internet service providers ("ISPs"); and healthcare information services
and continuing medical education. Each of these activities involved, to varying
degrees, the building of online communities and the development of tools and
services to allow for the building of strategic and customized Web sites. As an
outgrowth of these activities, since mid 1997, our business has evolved to the
development of online communities and more recently, the development of Internet
applications that simplify and support e-commerce transactions in local markets.
We are organized into two business units. First, in the local commerce
segment, we target small and medium sized enterprises with our AccelX(TM)
product line supporting XML-based publishing and buyer-seller interaction. This
business unit offers its services on a private-labeled, application services
basis through high volume distribution partners. On June 30, 1999, we entered
into our first such agreement for the local commerce market with CBS
Switchboard, a leading online directory service. This agreement provides for
monthly revenues from each local business web site created by Switchboard
utilizing our technology.
The Kelsey Group estimates that the number of U.S. based local
businesses that are active advertisers and have a web presence will increase to
5.2 million in 2004. According to Forrester Research, local online sales are
projected to grow from $680 million in 1998 to $6.1 billion in 2003 and
local-only advertising dollars spent in support of these web site activities are
projected to balloon from $135 million in 1998 to $1.7 billion in 2003.
Our second business unit, electronic banking applications, targets
credit unions, community banks, and savings and loan institutions with a full
line of e-banking transaction processing and account management services. We are
developing a tailored version of our merchant-based interaction services to
provide financial institutions with services that will allow them to market
their products and services as enhancements to other e-banking services. In
addition to monthly recurring revenues from service and transaction fees, we
receive a one-time set-up fee from each financial institution. We distribute our
e-banking services on a private label basis through distribution partners, the
most significant of which is the CU Cooperative Systems, Inc., a credit union
cooperative made up of more than 650 credit unions with over 8 million members.
International Data Corporation estimates that there were approximately
3.4 million users banking over the Internet in the United States at the end of
1998 and projects that that number will increase to over 37 million by 2003. Our
primary market is financial institutions having less than $500 million in
assets. It is estimated that in excess of 90% of the over 10,000 FDIC-insured
financial institutions and all but a few of the over 11,000 credit unions,
including both federally and state chartered credit unions, have less than $500
million in assets.
Our strategy is to grow our local commerce and e-banking businesses by:
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* Delivering first mover, expert technical solutions capitalizing on our
expertise in online communities and communication;
* Securing additional distribution partnerships to rapidly expand the
deployment of our technologies;
* Creating and innovating, value-added services to enhance buyer-seller
interaction; and
* Developing strategic alliances in order to more rapidly gain market share.
During the first nine months of 1999, we acquired privately held Durand
Communications, Inc. and NetIgnite, Inc.
We were incorporated under the laws of the State of Colorado on
March 22, 1994. Our executive offices are located at 1800 Glenarm Place, Suite
700, Denver, Colorado 80202, telephone number (303) 296-9200.
RECENT EVENTS
In order to fund operations throughout fiscal 2000, we have borrowed
$5,000,000 pursuant to a three-year convertible promissory note bearing interest
at the rate of 10% per annum and obtained a commitment for an additional $10
million investment which we expect to complete early in the first quarter of
2000. The new investment is to be in the form of the purchase of shares of our
Series B Convertible Preferred Stock and stock purchase warrants.
Promissory Note
On August 25, 1999, we issued to the selling shareholder a three-year
convertible promissory note in the amount of $5 million and a five-year warrant
representing the right to acquire 136,519 shares of our common stock at an
exercise price of $11.44 per share in consideration for which the selling
shareholder loaned us $5 million. On December 18, 1999, we amended the terms of
the promissory note and issued to the selling shareholder a second five-year
warrant representing the right to acquire 136,519 shares of our common stock at
an exercise price of $18.51 per share. The note is convertible at a conversion
price of $10.07 per share. This would result in the issuance of 496,524 shares
of our common stock if the note were fully converted today. If we complete a
financing by March 22, 2000, of $10 million or more in which the selling
shareholder has a right to invest $5 million, the conversion price will remain
at $10.07 per share until at least September 30, 2000, at which time the
conversion price will be adjusted if the average of the closing bid prices for
our common stock during the period from September 1, 2000 to September 29, 2000,
is less than $10.07. In this event the conversion price would be fixed at the
greater of the average of the closing bid prices during this period or $8.00.
If the additional $10 million financing is not completed by March 22,
2000, the conversion price after March 22, 2000, will be the lower of $10.07 per
share or the variable conversion price. The variable conversion price is the
average of the five lowest closing bid prices for our common stock during the 15
trading days prior to conversion. We have the right to force the conversion of
$2,500,000 principal amount of the note if the average closing bid price for our
common stock during the 15-day period following the date of this prospectus is
at least $12.50.
Series B Convertible Preferred Stock.
On December 31, 1999, we obtained a commitment from investors,
including the selling shareholder, for a proposed purchase of 10,000 shares of
our Series B Convertible Preferred Stock. The commitment is subject to the
registration stastement of which this prospectus is a part being made effective
by the SEC by February 1, 2000, and there being no material adverse changes in
Webb's business prior to the completion of the financing. The purchase price for
the preferred stock is $1,000 per share for an aggregate purchase price of $10
million.
The preferred stock will be convertible into shares of our common
stock, initially at a conversion price equal to the lower of (i) the average of
the 10-day closing bid prices for our common stock immediately prior to the date
we sell the preferred stock to the investors or (ii) $20.0. The conversion rate
for the preferred stock will be subject to potential resets. The first will be
on the date that a registration statement relating to the common stock issuable
upon conversion of the preferred stock is declared effective by the SEC and the
second will be on the later of nine months after the sale of the preferred stock
or three months after the effective date of the registration statement. The
adjustment price on
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each such date shall be the then market price for our common stock if lower than
the then effective conversion price but will not be less than $8.00 per share.
Based on the current market price for our common stock, we estimate
that the preferred stock will be convertible into from a minimum of
approximately 500,000 to a maximum of approximately 1,250,000 shares of our
common stock. For every share of common stock initially issuable upon conversion
of the preferred stock, the investors will also receive a warrant representing
the right to acquire .55 shares of our common stock at an exercise price
initially set at 101% of the initial conversion price of the preferred stock.
The exercise price for the warrants will be subject to being reset based upon
future market prices for our common stock. The warrants are to be for a term of
five years. We estimate that the warrants will represent the right to acquire up
to approximately 300,000 shares of our common stock.
RISK FACTORS
Our limited operating history could affect our business. We were
founded in March 1994 and commenced sales in February 1995. Accordingly, we have
a limited operating history upon which you may evaluate us. Our business is
subject to the risks, expenses and difficulties frequently encountered by
companies with a limited operating history including:
* Limited ability to respond to competitive developments,
* Exaggerated effect of unfavorable changes in general economic and
market conditions,
* Ability to attract qualified personnel, and
* Ability to develop and introduce new product and service offerings.
There is no assurance we will be successful in addressing these risks. If we are
unable to successfully address these risks our business could be significantly
affected.
We have accumulated losses since inception and we anticipate that we
will continue to accumulate losses for the foreseeable future. We have incurred
net losses since inception totaling $35,816,498 through September 30, 1999. In
addition, we expect to incur additional substantial operating and net losses in
1999 and for one or more years thereafter. We expect to incur these additional
losses because:
* We currently intend to increase our capital expenditures and
operating expenses to expand the functionality and performance of
our products and services,
* We recorded goodwill and other intangible assets in connection with
the DCI and NetIgnite acquisitions which will be amortized over
their estimated useful lives of approximately three years. We have
allocated approximately $15 million to goodwill and other intangible
assets in connection with these acquisitions.
Net losses since inception include approximately $14.6 million of
non-cash expenses related to the issuance of preferred stock and warrants in
financing transactions, stock and stock options issued for services, warrants
issued to four customers and interest expense on the 10% convertible note
payable. We will be required to record significant additional non-cash charges
in connection with the recent amendment to the terms of the note which could
exceed $12 million. The current competitive business environment is expected to
result in our issuance of similar securities in future financing transactions or
to other companies as an inducement for them to enter into a business
relationship with us. The proposed issuance of $10 million of our preferred
stock with warrants described under "Recent Events - Series B Convertible
Preferred Stock," will, if completed in accordance with the terms of the
commitment, result in significant non-cash charges which could be as much as or
more than the purchase price for the preferred stock. While these transactions
represent non-cash charges, they will increase our expenses and net loss and our
net loss available to common shareholders..
If we are unable to raise additional working capital funds, we may not
be able to sustain our operations. We believe that our present cash and cash
equivalents, working capital and commitments for additional equity investments
will be adequate to sustain our current level of operations only through
February 2000. We estimate that we will need to raise through equity, debt or
other external financing at least $8 million to sustain operations for the next
12 months. While we have obtained a commitment for the purchase of $10 million
stated amount of our preferred stock, the commitment is subject to certain
conditions and there is no assurance that we will be able to
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raise additional funds in amounts required or upon acceptable terms. In
addition, we may discover that we have underestimated our working capital needs,
and we may need to obtain additional funds to sustain our operations. If we
cannot raise additional funds when needed, we may be required to curtail or
scale back our operations. These actions could have a material adverse effect on
our business, financial condition, or results of operations. In its report
accompanying the audited financial statements for the years ended December 31,
1998 and 1997, our auditor, Arthur Andersen LLP, expressed substantial doubt
about our ability to continue as a going concern.
We may never become or remain profitable. Our ability to become
profitable depends on the ability of our products and services to generate
revenues. The success of our revenue model will depend upon many factors
including:
* The success of our distribution partners in marketing their
products and services, and
* The extent to which consumers and businesses use our products and
conduct e-commerce transactions and advertising utilizing our
products.
Because of the new and evolving nature of the Internet, we cannot
predict whether our revenue model will prove to be viable, whether demand for
our products and services will materialize at the prices we expect to be
charged, or whether current or future pricing levels will be sustainable.
Additionally, our customer contracts may result in significant development
revenue in one quarter, which will not recur in the next quarter for that
customer. As a result, it is likely that certain components of our revenue will
be volatile, which may cause our stock price to be volatile as well.
Our business depends on the growth of the Internet. Our business plan
assumes that the Internet will develop into a significant source of
communication and communication interactivity. However, the Internet market is
new and rapidly evolving and there is no assurance that the Internet will
develop in this manner. If the Internet does not develop in this manner, our
business, operating results and financial condition would be materially
adversely effected. Numerous factors could prevent or inhibit the development of
the Internet in this manner, including:
* The failure of the Internet's infrastructure to support Internet
usage or electronic commerce,
* The failure of businesses developing and promoting Internet
commerce to adequately secure the confidential information, such as
credit card numbers, needed to carry out Internet commerce, and
* Regulation of Internet activity
Use of many of our products and services will be dependent on
distribution partners. Because we have elected to partner with other companies
for the distribution of many of our products and services, many users of our
products and services are expected to utilize our products through our
distribution partners. As a result, our distribution partners, and not us, will
substantially control the customer relationship with these users. If the
business of the companies with whom we partner is adversely affected in any
manner our business, operating results and financial condition could be
materially adversely affected.
We may be unable to develop desirable products. Our products are
subject to rapid obsolescence and our future success will depend upon our
ability to develop new products and services that meet changing customer and
marketplace requirements. There is no assurance that we will be able to
successfully:
* Identify new product and service opportunities, or
* Develop and introduce new products and services to market in a
timely manner.
If we are unable to accomplish these items, our business, operating
results and financial condition could be materially adversely affected.
Our products and services may not be successful. Even if we are able to
successfully identify, develop, and introduce new products and services there is
no assurance that a market for these products and services will materialize to
the size and extent that we anticipate. If a market does not materialize as we
anticipate, our business, operating results, and financial condition could be
materially adversely affected. The following factors could affect the success of
our products and services:
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* The failure of our business plan to accurately predict the rate at
which the market for Internet products and services will grow,
* The failure of our business plan to accurately predict the types
of products and services the future Internet marketplace will
demand,
* Our limited experience in marketing our products and services,
* The failure of our business plan to accurately predict our future
participation in the Internet marketplace,
* The failure of our business plan to accurately predict the
estimated sales cycle, price, and acceptance of our products and
services,
* The development by others of products and services that renders our
products and services noncompetitive or obsolete, or
* Our failure to keep pace with the rapidly changing technology,
evolving industry standards, and frequent new product and service
introductions that characterize the Internet marketplace.
The intense competition that is prevalent in the Internet market could
have a material adverse effect on our business. Our current and prospective
competitors include many companies whose financial, technical, marketing and
other resources are substantially greater than ours. There is no assurance that
we will have the financial resources, technical expertise, or marketing, sales
and support capabilities to compete successfully. The presence of these
competitors in the Internet marketplace could have a material adverse effect on
our business, operating results, or financial condition by causing us to:
* Reduce the average selling price of our products and services, or
* Increase our spending on marketing, sales and product development.
There is no assurance that we would be able to offset the effects of
any such price reductions or increases in spending through an increase in the
number of our customers, higher sales from premium services, cost reductions or
otherwise. Further, our financial condition may put us at a competitive
disadvantage relative to our competitors. If we fail to, or cannot, meet
competitive challenges, our business, operating results and financial condition
could be materially adversely affected.
A limited number of our customers generate a significant portion of our
revenues. We had four customers representing 79% of revenues for the September
30, 1999 three-month period and three customers representing 71% of net revenues
for the similar 1998 period. We had five customers representing 76% of revenues
for the September 30, 1999 nine-month period and four customers representing 76%
of revenues for the similar 1998 period. There is no assurance that we will be
able to attract or retain major customers. The loss of, or reduction in demand
for products or related services from major customers could have a material
adverse effect on our business, operating results, cashflow, and financial
condition.
The sales cycle for our products and services is lengthy and
unpredictable. While our sales cycle varies from customer to customer, it
typically has ranged from one to six months. Our pursuit of sales leads
typically involves an analysis of our prospective customer's needs, preparation
of a written proposal, one or more presentations and contract negotiations. We
often provide significant education to prospective customers regarding the use
and benefits of our Internet technologies and products. Our sales cycle may also
be affected by a prospective customer's budgetary constraints and internal
acceptance reviews, over which we have little or no control. In order to quickly
respond to, or anticipate, customer requirements, we may begin development work
prior to having a signed contract, which exposes us to the risk that the
development work will not be recovered from revenue from that customer.
We may be unable to adjust our spending to account for potential
fluctuations in our quarterly results. As a result of our limited operating
history, we do not have historical financial data for a sufficient number of
periods on which to base planned operating expenses. Therefore, our expense
levels are based in part on our expectations as to future sales and to a large
extent are fixed. We typically operate with little backlog and the sales cycles
for our products and services may vary significantly. As a result, our quarterly
sales and operating results generally depend on the volume and timing of and the
ability to close customer contracts within the quarter, which are difficult to
forecast. We may be unable to adjust spending in a timely manner to compensate
for any unexpected sales shortfalls. If we were unable to so adjust, any
significant shortfall of demand for our products and services in relation to our
expectations would have an immediate adverse effect on our business, operating
results and financial
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condition. Further, we currently intend to increase our
capital expenditures and operating expenses to fund product development and
increase sales and marketing efforts. To the extent that such expenses precede
or are not subsequently followed by increased sales, our business, operating
results and financial condition will be materially adversely affected.
We may be unable to retain our key executives and research and
development personnel. Our future success also depends in part on our ability to
identify, hire and retain additional personnel, including key product
development, sales, marketing, financial and executive personnel. Competition
for such personnel is intense and there is no assurance that we can identify or
hire additional qualified personnel.
Executives and research and development personnel who leave us may
compete against us in the future. We generally enter into written nondisclosure
and nonsolicitation agreements with our officers and employees which restrict
the use and disclosure of proprietary information and the solicitation of
customers for the purpose of selling competing products or services. However, we
generally do not require our employees to enter into non-competition agreements.
Thus, if any of these officers or key employees left, they could compete with
us, so long as they did not solicit our customers. Any such competition could
have a material adverse effect on our business.
We may be unable to manage our expected growth. If we are able to
implement our growth strategy, we will experience significant growth in the
number of our employees, the scope of our operating and financial systems, and
the geographic area of our operations. There is no assurance that we will be
able to implement in whole or in part our growth strategy or that our management
or other resources will be able to successfully manage any future growth in our
business. Any failure to do so could have a material adverse effect on our
operating results and financial condition.
We may be unable to protect our intellectual property rights.
Intellectual property rights are important to our success and our competitive
position. There is no assurance that the steps we take to protect our
intellectual property rights will be adequate to prevent the imitation or
unauthorized use of our intellectual property rights. Policing unauthorized use
of proprietary systems and products is difficult and, while we are unable to
determine the extent to which piracy of our software exists, we expect software
piracy to be a persistent problem. In addition, the laws of some foreign
countries do not protect software to the same extent as do the laws of the
United States. Even if the steps we take to protect our proprietary rights prove
to be adequate, our competitors may develop products or technologies that are
both non-infringing and substantially equivalent or superior to our products or
technologies.
Computer viruses and similar disruptive problems could have a material
adverse effect on our business. Our software and equipment may be vulnerable to
computer viruses or similar disruptive problems caused by our customers or other
Internet users. Our business, financial condition or operating results could be
materially adversely effected by:
* Losses caused by the presence of a computer virus that causes us
or third parties with whom we do business to interrupt, delay or
cease service to our customers,
* Losses caused by the misappropriation of secured or confidential
information by a third party who, in spite of our security
measures, obtains illegal access to this information,
* Costs associated with efforts to protect against and remedy
security breaches, or
* Lost potential revenue caused by the refusal of consumers to use
our products and services due to concerns about the security of
transactions and commerce that they conduct on the Internet.
Future government regulation could materially adversely effect our
business. There are currently few laws or regulations directly applicable to
access to, communications on, or commerce on the Internet. Therefore, we are not
currently subject to direct regulation of our business operations by any
government agency, other than regulations applicable to businesses generally.
Due to the increasing popularity and use of the Internet, however, federal,
state, local, and foreign governmental organizations are currently considering a
number of legislative and regulatory proposals related to the Internet. The
adoption of any of these laws or regulations may decrease the growth in the use
of the Internet, which could, in turn:
* Decrease the demand for our products and services,
* Increase our cost of doing business, or
* Otherwise have a material adverse effect on our business, results
of operations and financial condition.
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Moreover, the applicability to the Internet of existing laws governing
issues such as property ownership, copyright, trademark, trade secret,
obscenity, libel and personal privacy is uncertain and developing. Our business,
results of operations and financial condition could be materially adversely
effected by the application or interpretation of these existing laws to the
Internet.
Our systems may not be year 2000 compliant. We have reviewed our
internal software and hardware systems. Based on this review, we believe that
our internal software and hardware systems will function properly with respect
to dates in the year 2000 and thereafter. We expect to incur no significant
costs in the future for Year 2000 problems. Nonetheless, there is no assurance
in this regard until our internal software and hardware systems are operational
in the year 2000.
Our articles of incorporation and bylaws may discourage lawsuits and
other claims against our directors. Our articles of incorporation provide, as
permitted by Colorado law, that our directors shall have no personal liability
for certain breaches of their fiduciary duties to us. In addition, our bylaws
provide for mandatory indemnification of directors and officers to the fullest
extent permitted by Colorado law. These provisions may reduce the likelihood of
derivative litigation against directors and may discourage shareholders from
bringing a lawsuit against directors for a breach of their duty.
The price of our common stock has been highly volatile due to factors
that will continue to effect the price of our stock. Our common stock traded as
high as $23.25 per share and as low as $8.00 per share between January 1, 1999
and December 23, 1999. Historically, the over-the-counter markets for securities
such as our common stock have experienced extreme price and volume fluctuations.
Some of the factors leading to this volatility include:
* Price and volume fluctuations in the stock market at large that do
not relate to our operating performance,
* Fluctuations in our quarterly revenue and operating results,
* Announcements of product releases by us or our competitors,
* Announcements of acquisitions and/or partnerships by us or our
competitors, and
* Increases in outstanding shares of common stock upon exercise or
conversion of derivative securities.
These factors may continue to affect the price of our common stock in
the future.
We have issued numerous options, warrants, and convertible securities
to acquire our common stock that could have a dilutive effect on our
shareholders. As of December 23, 1999, we had issued warrants and options to
acquire 3,491,062 shares of our common stock, exercisable at prices ranging from
$1.63 to $18.51 per share, with a weighted average exercise price of
approximately $10.36 per share. In addition to these warrants and options, we
have reserved an indeterminate and potentially unlimited number of shares of
common stock for issuance upon conversion of outstanding shares of our 10%
preferred stock and 10% convertible note. During the terms of these derivative
securities, the holders will have the opportunity to profit from either an
increase or, in the case of the preferred stock and note, decrease in the market
price of our common stock with resulting dilution to the holders of shares who
purchased shares for a price higher than the respective exercise or conversion
price. In addition, the increase in the outstanding shares of our common stock
as a result of the exercise or conversion of these derivative securities, which
could be unlimited, could result in a significant decrease in the percentage
ownership of our common stock by the purchasers of our common stock.
The potentially unlimited number of shares issuable upon conversion of
our 10% preferred stock and 10% convertible note could make it difficult to
obtain additional financing. Due to the potentially unlimited number of shares
of our common stock which could result from a conversion of our 10% preferred
stock or 10% convertible note, new investors may either decline to make an
investment in Webb due to the potential negative
8
<PAGE>
effect this additional dilution could have on their investment or require that
their investment be on terms at least as favorable as the terms of the 10%
preferred stock or 10% convertible note. If we are required to provide similar
terms to obtain required financing in the future, the potential adverse effect
of these existing financings could be perpetuated and significantly increased.
Future sales of our common stock in the public market could adversely
affect the price of our common stock. Sales of substantial amounts of common
stock in the public market that is not currently freely tradable, or even the
potential for such sales, could have an adverse affect on the market price for
shares of our common stock and could impair the ability of purchasers of our
common stock to recoup their investment or make a profit. As of December 23,
1999, these shares consist of:
* Approximately 770,000 shares owned by our officers and directors
of our outstanding common stock ("Affiliate Shares");
* Approximately 1,582,000 shares issued and issuable to former
shareholders and warrant and option holders of Durand
Communications, Inc. and for services rendered offered pursuant to
a registration statement declared effective by the SEC on
September 27, 1999;
* An indeterminate and potentially unlimited number of shares
issuable upon conversion of the 10% preferred stock and 10%
convertible note; and
* Approximately 3,372,000 shares issued and issuable to warrant and
option holders (other than those owned by the former shareholders
and warrant and option holders of Durand Communications, Inc.)
In addition, we have obtained a commitment for the purchase of 10,000
shares of our Series B Convertible Preferred Stock with warrants attached. If
the transaction is completed as contemplated, we estimate, based on the current
market price for our common stock, that the preferred stock will be convertible
into from a minimum of approximately 500,000 to a maximum of approximately
1,250,000 shares of our common stock. In adidtion we estimate that the warrants
would entitle the holders to purchase up to approximately 300,000 shares of our
common stock.
Unless the Affiliate Shares are further registered under the
securities laws, they may not be resold except in compliance with Rule 144
promulgated by the SEC, or some other exemption from registration. Rule 144 does
not prohibit the sale of these shares but does place conditions on their resale
which must be complied with before they can be resold.
The common stock issuable upon conversion of our preferred stock and
convertible notes may increase as the price of our common stock decreases, which
may adversely affect the price of our common stock. On December 23, 1999, we had
issued and outstanding 85,000 shares of 10% preferred stock and $5,000,000
principal amount of a 10% convertible note. The number of shares of common stock
that may ultimately be issued upon conversion of these securities is presently
indeterminable and potentially unlimited and could fluctuate significantly.
Purchasers of common stock could therefore experience substantial dilution upon
conversion of the preferred stock and convertible note. In addition, the
significant downward pressure on the market price of our common stock could
develop as the holders convert and sell material amounts of common stock which
could encourage short sales by the holders or others, placing further downward
pressure on the market price of our common stock.
To illustrate the potential dilution that may occur upon conversion of
the preferred stock and convertible notes, the following table sets forth the
number of shares of common stock that would be issued upon conversion of the
preferred stock, including accrued dividends, and the principal of the
convertible note if the market price for our common stock is $19.69, the closing
sale price for our common stock on December 23, 1999, and at assumed market
prices of 75%, 50% and 25% of the market price on December 23, 1999. The table
assumes that we have not completed a $10 million financing by March 22, 2000 and
that the conversion price for the notes is therefore the lower of $10.07 per
share or the variable conversion price and shows the aggregate number of shares
which can be issued over the life of the convertible securities at that price.
9
<PAGE>
<TABLE>
<CAPTION>
Shares Issued Upon Conversion
-----------------------------------------------------------
Market Price 10% Preferred Stock 10% Notes (Conversion Total (Percentage of
(Conversion Price) Price) Outstanding)
- ---------------------------------- ---------------------------- --------------------------- ----------------------
<S> <C> <C> <C>
$19.69 (actual at 12/23/99) 101,936 ($10.00) 496,524 ($10.07) 598,460 (7.1%)
$14.77 (75% of 12/23/99 price) 101,936 ($10.00) 496,524 ($10.07) 598,460 (7.1%)
$9.84 (50% of 12/23/99 price) 129,361 ($7.88) 507,924 ($9.84) 637,285 (7.5%)
$4.92 (25% of 12/23/99 price) 258,722 ($3.94) 1,015,847 ($4.92) 1,274,569 (13.9%)
</TABLE>
- ---------------
Pursuant to their terms, the convertible notes and warrants are
convertible or exercisable by any holder only to the extent that the number of
shares thereby issuable, together with the number of shares of common stock
owned by such holder, but not including unconverted or unexercisable shares of
convertible notes or warrants, would not exceed 4.99% of the then outstanding
shares of our common stock as determined in accordance with Section 13(d) of the
Securities Exchange Act of 1934, unless such conversion is approved by the
majority of the holders of our common stock. While this limits the number of
shares which may be issued upon conversion at any one time, this 4.99% limit
will not prevent any holder from converting all of its convertible notes or
exercising its warrants, because the holder can convert or exercise convertible
notes and warrants into 4.99% of our outstanding common stock, then sell all of
that stock to permit it to engage in further conversions or exercises. As a
result, the 4.99% limit does not prevent the selling shareholder from selling
more than 4.99% of our common stock.
Future sales of our common stock in the public market could limit our
ability to raise capital. Sales of substantial amounts of common stock in the
public market pursuant to Rule 144, upon exercise or conversion of derivative
securities or otherwise, or even the potential for such sales, could affect our
ability to raise capital through the sale of equity securities.
Provisions in our articles of incorporation allow us to issue shares of
stock that could make a third party acquisition of us difficult. Our Articles of
Incorporation authorize our Board of Directors to issue up to 20,000,000 shares
of common stock and 5,000,000 shares of preferred stock in one or more series,
the terms of which may be determined at the time of issuance by the Board of
Directors, without further action by our shareholders. Preferred stock
authorized by the Board of Directors may include voting rights, preferences as
to dividends and liquidation, conversion and redemptive rights and sinking fund
provisions. If the Board of Directors authorizes the issuance of preferred stock
in the future, this authorization could affect the rights of the holders of
common stock, thereby reducing the value of the common stock, and could make it
more difficult for a third party to acquire us, even if a majority of the
holders of our common stock approved of an acquisition.
The issuance of our 10% convertible note payable will require us to
record a non-cash expense which will, in turn, increase our net loss available
to common shareholders. Based on current accounting standards, we recorded a
non-cash expense of $638,495 as additional interest expense for the quarter
ended September 30, 1999 as a result of the issuance of our 10% convertible
note. We will record additional non-cash expenses of possibly $12 million or
more during the fourth quarter of 1999 and the the three years ending December
31, 2002 related to this transaction.
We do not anticipate paying dividends on our common stock for the
foreseeable future. We have never paid dividends on our common stock and do not
intend to pay any dividends on our common stock in the foreseeable future. Any
decision by us to pay dividends on our common stock will depend upon our
profitability at the time, cash available therefor, and other factors. We
anticipate that we will devote profits, if any, to our future operations.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements made in this prospectus and the documents
incorporated by reference in this prospectus under the captions "Webb
Interactive Services, Inc." and "Risk Factors" and elsewhere in this prospectus
constitute forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. These statements are subject to the
safe harbor provisions of the reform act. Forward-looking statements may be
identified by the use of the terminology such as may, will, expect, anticipate,
intend, believe, estimate, should, or
10
<PAGE>
continue or the negatives of these terms or other variations on these words or
comparable terminology. To the extent that this prospectus contains
forward-looking statements regarding the financial condition, operating results,
business prospects or any other aspect of Webb, you should be aware that our
actual financial condition, operating results and business performance may
differ materially from that projected or estimated by Webb in the
forward-looking statements. We have attempted to identify, in context, some of
the factors that we currently believe may cause actual future experience and
results to differ from their current expectations. These differences may be
caused by a variety of factors, including but not limited to adverse economic
conditions, intense competition, including entry of new competitors, ability to
obtain sufficient financing to support our operations, progress in research and
development activities, variations in costs that are beyond our control, changes
in capital expenditure budgets for cable companies, adverse federal, state and
local government regulation, inadequate capital, unexpected costs, lower sales
and net income, or higher net losses than forecasted, price increases for
equipment, inability to raise prices, failure to obtain new customers, the
possible fluctuation and volatility of our operating results and financial
condition, inability to carry out marketing and sales plans, loss of key
executives, and other specific risks that may be alluded to in this prospectus.
USE OF PROCEEDS
We will not receive any of the proceeds from the offer and sale of the
shares, however, 273,038 of the shares offered by the selling shareholder are
issuable upon the exercise of outstanding warrants of Webb at exercise prices of
$11.44 and $18.51 per share. If these warrants were exercised in full, we would
receive $4,088,197 in the aggregate.
SELLING SHAREHOLDER
The common stock covered by this prospectus consists of shares issued
or issuable upon conversion of our $5,000,000 aggregate principal amount of 10%
convertible note due August 25, 2002 and warrants to purchase 273,038 shares of
our common stock. The selling shareholder acquired all of its convertible note
and one-half of the warrants in exchange for a cash investment given to Webb on
August 25, 1999. The remaining warrants were issued to the selling shareholder
on December 18, 1999, in connection with an amendment to the terms of the note.
The number of shares that may be actually sold by the selling
shareholder will be determined by such selling shareholder. Because the selling
shareholder may sell all, some or none of the shares of common stock which it
holds, and because the offering contemplated by this prospectus is not currently
being underwritten, no estimate can be given as to the number of shares of
common stock that will be held by the selling shareholder upon termination of
the offering.
The following table sets forth certain information as of December 23,
1999, regarding the selling shareholder, including:
* The name of the selling shareholder,
* The beneficial ownership of common stock of the selling
shareholder, and
* The maximum number of shares of common stock offered by the selling
shareholder.
The information presented is based on data furnished to Webb by the
selling shareholder and assumes a conversion price for the notes of $10.07 per
share. The actual number of shares of common stock issuable upon conversion of
the convertible note is subject to adjustment and could be materially less or
more than the amounts set forth in the table below, depending on factors which
we cannot predict at this time, including, among other factors, the future
market price of the common stock.
Under the registration rights agreement, we are required to register
for resale by the selling shareholder 1,129,568 shares of our common stock. This
amount is based upon:
* The number of shares issuable upon conversion of the convertible
note and exercise of the warrants, and
11
<PAGE>
* The potential increase in the number of shares issuable with
respect to the convertible note if the conversion price declines
due to a decline in the market price for our common stock.
If the warrants were exercised in full and all of the convertible note
were converted at the conversion price of $10.07 per share, only 769,562 shares
of common stock would be issued and available for resale under this prospectus.
However, we cannot determine the exact number of shares of common stock that we
will ultimately issue upon exercise of the warrants and conversion of the
convertible note if anti-dilution adjustments occur with respect to the warrants
or the conversion price for the convertible note changes from the initial
conversion price.
Pursuant to their terms, the convertible note and warrants are
convertible or exercisable by any holder only to the extent that the number of
shares thereby issuable, together with the number of shares of common stock
owned by such holder, but not including unconverted or unexercisable shares of
convertible note or warrants, would not exceed 4.99% of the then outstanding
shares of our common stock as determined in accordance with Section 13(d) of the
Securities Exchange Act of 1934, unless such conversion is approved by the
majority of the holders of our common stock. Accordingly, the number of shares
of common stock set forth in the third and fourth columns in the table below for
the selling shareholder exceeds the number of shares of common stock that the
selling shareholder beneficially owns in accordance with Section 13(d) as of
December 23, 1999. This 4.99% limit may not prevent any holder from converting
all of its convertible note or exercising its warrants, because the holder can
convert or exercise convertible note and warrants into 4.99% of our outstanding
common stock, then sell all of that stock to permit it to engage in further
conversions or exercises. As a result, the 4.99% limit does not prevent the
selling shareholder from selling more than 4.99% of our common stock.
<TABLE>
<CAPTION>
Shares of Common Stock Owned
Shares Of Common Stock Before Offering Plus All Maximum Number of
Shares of Common Stock Shares Which Can Be Acquired Shares Offered Under Shares of Common Stock
Selling Owned Beneficially Before Over the Life of Convertible This Registration Owned Beneficially After
Shareholder Offering (%) Securities (%) Statement (%) Offering (%) (2)
- --------------------- --------------------------- ------------------------------- ------------------------- ------------------------
<S> <C> <C> <C> <C>
Castle Creek 414,079 (4.99%) 769,562 (8.9%) 1,129,568 (12.5%) None (0%)
Technology Partners
LLC (1)
c/o Castle Creek
Technology Partners
LLC, 77 West Wacker
Drive, Suite 4040,
Chicago, Illinois
60601
</TABLE>
(1) Castle Creek Technology Partners LLC beneficially owns 414,079 shares,
determined in accordance with Rule 13d-3, and disclaims beneficial ownership of
any shares other than these shares. As investment manager, pursuant to a
management agreement with Castle Creek Technology Partners LLC, Castle Creek
Partners, LLC may be deemed to beneficially own the securities held by Castle
Creek Technology Partners LLC. Castle Creek Partners, LLC disclaims such
beneficial ownership. John Ziegelman and Daniel Asher, as managing members of
Castle Creek Partners, LLC, hold the voting and dispositive powers over the
shares owned by Castle Creek Technology Partners LLC and may be deemed to be
beneficial owners of the securities. Messrs. Ziegelman and Asher disclaim such
beneficial ownership.
(2) The selling shareholder has agreed, subject to certain conditions, to
purchase $5 million stated amount of our Series B. Preferred Stock with warrants
attached. If the transaction is completed as contemplated, the selling
shareholder would at the conclusion of this offering own preferred stock and
warrants representing the right, based on current market prices for our common
stock and without giving effect to any contractual limitations, to acquire
approximately 390,000 shares of our common stock which would represent
approximately 4.7% of the then outstanding shares.
12
<PAGE>
PLAN OF DISTRIBUTION
The sale of the shares offered by this prospectus may be made in the
Nasdaq SmallCap Market or other over-the-counter markets at prices and at terms
then prevailing or at prices related to the then current market price or in
negotiated transactions. These shares may be sold by one or more of the
following:
* A block trade in which the broker or dealer will attempt to sell
shares as agent but may position and resell a portion of the block
as principal to facilitate the transaction.
* Purchases by a broker or dealer as principal and resale by a
broker or dealer for its account using this prospectus.
* Ordinary brokerage transactions and transactions in which the
broker solicits purchasers.
* In privately negotiated transactions not involving a broker or
dealer.
Each sale may be made either at market prices prevailing at the time of
such sale, at negotiated prices, at fixed prices which may be changed, or at
prices related to prevailing market prices.
In effecting sales, brokers or dealers engaged to sell the shares may
arrange for other brokers or dealers to participate. Brokers or dealers engaged
to sell the shares will receive compensation in the form of commissions or
discounts in amounts to be negotiated immediately prior to each sale. These
brokers or dealers and any other participating brokers or dealers may be deemed
to be underwriters within the meaning of the Securities Act of 1933 in
connection with these sales. Webb will receive no proceeds from any resales of
the shares offered by this prospectus, and we anticipate that the brokers or
dealers, if any, participating in the sales of the shares will receive the usual
and customary selling commissions. If the warrants are exercised in full, Webb
will receive $4,088,197.
In connection with distributions of the shares or otherwise, the
selling shareholders may enter into hedging transactions with broker-dealers. In
connection with such transactions, broker-dealers may engage in short sales of
the shares registered hereunder in the course of hedging the positions they
assume with selling shareholders. The selling shareholder may also sell shares
short and deliver the shares to close out such short positions. The selling
shareholders may also enter into option, swaps, derivatives or other
transactions with broker-dealers which require the delivery to the broker-dealer
of the shares registered hereunder, which the broker-dealer may resell pursuant
to this Prospectus. The selling shareholders may also pledge the shares
registered hereunder to a broker or dealer and upon a default, the broker or
dealer may effect sales of the pledged shares pursuant to this prospectus.
From time to time the selling shareholders may be engaged in short
sales, short sales against the box, puts and calls and other hedging
transactions in our securities, and may sell and deliver the shares in
connection with such transactions or in settlement of securities loans. These
transactions may be entered into with broker-dealers or other financial
institutions. In addition, from time to time, a selling share holder may pledge
its shares pursuant to the margin provisions of its customer agreements with its
broker-dealer. Upon delivery of the shares or a default by a selling
shareholder, the broker-dealer or financial institution may offer and sell the
pledged shares from time to time.
To comply with the securities laws of some states, if applicable, the
shares will be sold in those states only through brokers or dealers. In
addition, in some states, the shares may not be sold in those states unless they
have been registered or qualified for sale in those states or an exemption from
registration or qualification is available and is complied with.
If necessary, the specific shares of our common stock to be sold, the
names of the selling shareholders, the respective purchase prices and public
offering prices, the names of any agent, dealer or underwriter, and any
applicable commissions or discounts with respect to a particular offer will be
set forth in an accompanying prospectus supplement or, if appropriate, a
post-effective amendment to the registration statement of which this prospectus
is a part. We entered into a registration rights agreement in connection with
the private placement of the convertible notes and the warrants which required
us to register the underlying shares of our common stock under applicable
federal and state securities laws under certain circumstances and at certain
times. The registration rights agreement provides for cross-indemnification of
the selling shareholder and us and each party's respective directors, officers
and controlling persons against certain liabilities in connection with the offer
and sale of the common stock, including liabilities under the Securities Act of
1933 and to contribute to payments the parties may be required to
13
<PAGE>
make in respect thereof. We have agreed to indemnify and hold harmless the
selling shareholder from certain liabilities under the Securities Act of 1933.
Under applicable rules and regulations under Regulation M under the
Securities Exchange Act of 1934, any person engaged in the distribution of the
common stock may not simultaneously engage in market making activities, subject
to certain exceptions, with respect to the common stock for a specified period
set forth in Regulation M prior to the commencement of such distribution and
until its completion. In addition and without limiting the foregoing, the
selling shareholder will be subject to the applicable provisions of the
Securities Act of 1933 and Securities Exchange Act of 1934 and the rules and
regulations thereunder, including, without limitation, Regulation M, which
provisions may limit the timing of purchases and sales of shares of the common
stock by the selling shareholder. The foregoing may affect the marketability of
the common stock.
We will bear all expenses of the offering of the common stock, except
that the selling shareholders will pay any applicable underwriting commissions
and expenses, brokerage fees and transfer taxes, as well as the fees and
disbursements of counsel to and experts for the selling shareholders.
DESCRIPTION OF SECURITIES
General
Our articles of incorporation authorize our board of directors to issue
25,000,000 shares of capital stock, including 20,000,000 shares of common stock
and 5,000,000 shares of preferred stock, with rights, preferences and privileges
as are determined by our board of directors.
Common Stock
As of December 23, 1999, we had 7,884,089 shares of common stock
outstanding. All outstanding shares of our common stock are fully paid and
nonassessable and the shares of our common stock offered by this prospectus will
be, upon issuance, fully paid and nonassessable. The following is a summary of
the material rights and privileges of our common stock.
Voting. Holders of our common stock are entitled to cast one vote for
each share held at all shareholder meetings for all purposes, including the
election of directors. The holders of more than 50% of the voting power of our
common stock issued and outstanding and entitled to vote and present in person
or by proxy, together with any preferred stock issued and outstanding and
entitled to vote and present in person or by proxy, constitute a quorum at all
meetings of our shareholders. The vote of the holders of a majority of our
common stock present and entitled to vote at a meeting, together with any
preferred stock present and entitled to vote at a meeting, will decide any
question brought before the meeting, except when Colorado law, our articles of
incorporation, or our bylaws require a greater vote and except when Colorado law
requires a vote of any preferred stock issued and outstanding, voting as a
separate class, to approve a matter brought before the meeting. Holders of our
common stock do not have cumulative voting for the election of directors.
Dividends. Holders of our common stock are entitled to dividends when,
as and if declared by the board of directors out of funds available for
distribution. The payment of any dividends may be limited or prohibited by loan
agreement provisions or priority dividends for preferred stock that may be
outstanding.
Preemptive Rights. The holders of our common stock have no preemptive
rights to subscribe for any additional shares of any class of our capital stock
or for any issue of bonds, notes or other securities convertible into any class
of our capital stock.
Liquidation. If we liquidate or dissolve, the holders of each
outstanding share of our common stock will be entitled to share equally in our
assets legally available for distribution to our shareholders after payment of
all liabilities and after distributions to holders of preferred stock legally
entitled to be paid distributions prior to the payment of distributions to
holders of our common stock.
14
<PAGE>
Convertible Note
On August 25, 1999, we issued $5,000,000 principal amount of a 10%
convertible note. The following is a summary of the material terms of the 10%
convertible note.
Conversion Price. The convertible note is convertible into shares of
common stock at a conversion price of $10.07 per share. If we complete a
financing prior to March 22, 2000, of $10 million or more in which the selling
shareholder has the right to invest $5 million, the conversion price between
March 22, 2000 and September 30, 2000 will continue to be $10.07. If the
financing is completed, the conversion price after September 29, 2000 will
continue to be $10.07 per share unless the market price for our common stock at
that time is less than $10.07. In this event, the conversion price will be
adjusted and will be the greater of (i) the average of the five lowest closing
bid prices during the period from September 1, 2000 through September 29, 2000
and (ii) $8.00.
If we do not complete a $10 million financing by March 22, 2000, the
convertible note will thereafter be convertible into a number of shares of
common stock determined by dividing the principal amount of the convertible note
by the lesser of (i) $10.07 and (ii) the average of the five lowest closing bid
prices for our common stock during the 15 trading days prior to conversion.
The number of shares of common stock that may ultimately be issued upon
conversion is presently undeterminable and potentially unlimited and could
fluctuate between a minimum of 496,524 shares if the market price of our common
stock remains higher than $10.07, the maximum conversion price, and a maximum of
1,382,351 shares, unless Webb's shareholders approve an increase in the maximum
number of shares issuable upon conversion of the note. Purchasers of common
stock could therefore experience substantial dilution upon conversion of the
convertible note. To illustrate the potential dilution that may occur upon
conversion of the convertible notes, the following table sets forth the number
of shares of common stock that would be issued upon conversion of the
convertible note at various conversion prices, assuming that we have not
completed a $10 million financing by March 22, 2000, and that the $8.00 minimum
for the conversion price is therefore not effective.
15
<PAGE>
<TABLE>
<CAPTION>
Conversion Shares Issued Upon Percentage of
Market Price Price Conversion Outstanding Shares
- -------------------------------------- ---------------- ---------------------------- --------------------------
<S> <C> <C> <C>
$19.69 (actual price at 12/23/99) $10.070 496,524 5.7%
$14.77 (75% of 12/23/99 price) $10.070 496,524 5.7%
$9.84 (50% of 12/23/99 price) $ 9.84 507,939 5.9%
$4.92 (25% of 12/23/99 price) $ 4.92 1,015,868 11.1%
</TABLE>
- ---------------
The variable conversion price formula of the convertible notes could affect
the common stock as follows:
* Reduction in Stock Price. If our common stock trades at a price less
than the maximum conversion price of $10.07 per share, then the
convertible note will be convertible into shares of our common stock at
a variable rates based on future trading prices of the common stock and
events that may occur in the future. The number of shares of common
stock issuable upon conversion of the convertible note will be
inversely proportional to the market price of the common stock at the
time of conversion.
* Effect of Additional Shares in Market. Even though the holder may not
convert its notes into more than 4.99% of the outstanding stock at any
one time, the holder may obtain and sell an aggregate of substantially
more than 4.99% of our outstanding stock by converting and selling up
to 4.99% of the outstanding shares in multiple transactions. To the
extent that the holder of the convertible note converts and then sells
its common stock, the common stock price may decrease due to the
additional shares in the market, allowing the holder to convert the
convertible note into greater amounts of common stock, further
depressing the stock price.
* Interest Payable in Common Stock. In the event that we force the
conversion of one-half of the convertible note, the interest payable on
the convertible note may be paid in additional convertible notes or
common stock at the selling shareholder's option. In this regard, the
lower the common stock price, the more shares of common stock the
holders of the convertible note will receive in payment of interest.
* Impact of Dilution. The additional shares issued upon conversion of the
convertible note would dilute the percentage interest of each of our
existing common shareholders, and this dilution would increase as more
shares of common stock are issued due to the impact of the variable
conversion price. Each additional issuance of shares upon conversion
would increase the supply of shares in the market and, as a result,
may cause the market price of our common stock to decline. The effect
of this increased supply of common stock leading to a lower market
price may be magnified if there are sequential conversions of
convertible note. Specifically, the selling shareholder could convert
a portion of its convertible note and then sell the common stock
issued upon conversion, which likely would result in a drop in our
stock price. Then the selling shareholder could convert another
portion of its convertible note at a lower conversion price because of
the decreased stock price, and be issued a greater number of shares of
common stock due to the lower conversion price. If it then sold shares
of common stock, our stock price would likely decrease again,
permitting the selling shareholder to do more conversions at a
conversion price even more favorable to it. A pattern of such partial
conversions and sales could increase the aggregate number of shares of
common stock issued upon conversion of the convertible notes above
what it would otherwise be, and could place significant downward
pressure on our stock price. This downward pressure on our stock price
might encourage market participants to sell our stock short, which
would put further downward pressure on our stock price, and further
decrease the conversion price and increase the dilution of our
existing common shareholders upon conversion of the convertible note.
Forced Conversion; Redemption. We can force the selling shareholder to
convert up to $2,500,000 of the convertible note if the average of the closing
trade prices for the 15 consecutive trading days after the date of this
prospectus is at least $12.50. We can also prepay the promissory note at any
time after August 25, 2000, if the closing bid price for our common stock for 20
consecutive trading days is at least 200% of the conversion price then
16
<PAGE>
in effect. The redemption price would equal 115% of the face amount of the
convertible note, plus accrued and unpaid interest.
Interest. The convertible note bears interest at the rate of 10% per
annum. If we force the conversion of one-half of the convertible note, the
selling shareholder may elect to have the interest on the convertible note paid
either in shares of our common stock or by the issuance of additional
convertible notes. In this event, we could be required to pay approximately
$660,000 in interest in additional shares of common stock or convertible notes.
If the selling shareholder elected to have the interest paid in convertible
notes, we could be required to pay interest of approximately $80,000 on the
additional notes issued in payment of interest on the convertible note. This
combination could result in approximately $740,000 of principal and interest in
addition to the original $5 million principal amount of the note that could be
converted into shares of our common stock. At a conversion price of $10.07, this
would result in an additional approximately 73,500 shares of our common stock.
If the market value of our common stock stays above $10.07, the
issuance of notes to pay interest would also result in an effective interest
rate of more than 10%. For example, if our market price was $19.69, the closing
price on December 23, 1999, the selling shareholder could exercise its right to
have interest paid in notes which would be immediately convertible into common
stock with an economic value approximately 96% more than if the interest had
been paid in cash. This would be an effective interest rate of 19.6%.
The terms of the convertible note limit the maximum number of shares
which can be issued pursuant to the conversion of the note and the exercise of
the warrants issued to the selling shareholder to $1,518,870 shares of common
stock prior to our obtaining shareholder approval of the transaction. In the
event that the maximum number of shares to be issued upon conversion of the
notes and exercise of the warrants was to exceed this maximum number of shares
and we could not obtain shareholder approval of the transaction, the interest
rate on the note would be increased to 14%.
Registration Rights. Pursuant to the securities purchase agreement
under which the convertible note were issued, we filed with the SEC a
Registration Statement on Form S-3, of which this prospectus forms a part, with
respect to the resale of the shares and agreed to use our best efforts to keep
such Registration Statement effective until such date as all of the shares have
been resold, or such time as all of the shares held by the selling shareholder
can be sold immediately without compliance with the registration requirement of
the Securities Act of 1933, pursuant to Rule 144 or otherwise.
Warrants
The selling shareholder also has been granted two five-year warrants
for 136,519 shares each, one exercisable at $11.44 per share and one exercisable
at $18.51 per share. If we complete a financing of at least $10 million by March
22, 2000, the exercise price for both warrants will be subject to adjustment on
September 29, 2000, if the market price for our common stock is then less than
the exercise price of the warrants. In this event, the exercise price will be
equal to the average closing bid prices for the period from September 1, 2000
through September 29, 2000. The warrants are also subject to anti-dilution
protection in the event of the issuance of our common stock at prices less than
the exercise prices for the warrants or the then current price for our common
stock and for stock splits, stock dividends and other similar transactions.
10% Preferred Stock
As of December 23, 1999, 85,000 shares of our 10% Preferred Stock were
outstanding. The following is a summary of the rights, privileges and
preferences of the 10% Preferred Stock.
Voting. Each share of 10% Preferred Stock entitles the holder to one
vote per share. The holders of the common stock and the 10% Preferred Stock vote
as a single class on all matters on which our shareholders vote, except where
otherwise required by law. The holders of the 10% Preferred Stock do not have
cumulative voting for the election of directors.
Dividends. The cumulative noncompounded dividend on the 10% Preferred
Stock is 10% per annum based on the stated value of $10.00 per share, payable
quarterly as permitted by law, or upon the redemption or
17
<PAGE>
conversion of the 10% Preferred Stock into common stock. We may not declare or
pay any dividends on the common stock unless we first declare and pay all unpaid
dividends on the 10% Preferred Stock.
Redemption and Conversion. We may redeem the 10% Preferred Stock at any
time for $10.00 per share. Each share of the outstanding 10% Preferred Stock is
convertible, at the election of the holder thereof, into the number of shares of
our common stock equal to $10.00 divided by the lesser of (i) $10.00 or (ii) 80%
of the average per share closing bid price of the our common stock for the five
trading days immediately preceding the election by the holder to convert. At any
time while any shares of the 10% Preferred Stock are outstanding, we may not
incur any obligations (other than trade payables and other indebtedness) that
are senior to the 10% Preferred Stock in any respect, including liquidation.
Upon any redemption or conversion of the 10% Preferred Stock, we have the option
to pay the accrued but unpaid cumulative dividends on the 10% Preferred Stock
either (i) in cash, or (ii) by issuing additional shares of common stock.
Preemptive Rights. The holders of the 10% Preferred Stock do not have
preemptive rights to subscribe for any additional shares of any class of our
capital stock or for any issue of bonds, notes or other securities convertible
into any class of our capital stock.
Liquidation Preference. If we liquidate, dissolve or wind-up our
business, whether voluntary or otherwise, after we pay our debts and other
liabilities, the holders of the 10% Preferred Stock will be entitled to receive
from our remaining net assets, before any distribution to the holders of our
common stock, the amount of $10.00 per share of 10% Preferred Stock in cash plus
payment of all accrued but unpaid cumulative dividends. Holders of the 10%
Preferred Stock will not be entitled to receive any other payments if we
liquidate, dissolve or wind-up our business.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and
other information with the SEC. You may read and copy any document we file with
the SEC at the SEC's public reference room located at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the SEC's public reference rooms located at it's
regional offices in New York, New York and Chicago, Illinois. Please call the
SEC at 1-800-SEC-0300 for further information on the operation of public
reference rooms. You can also obtain copies of this material from the SEC's
Internet web site located at http://www.sec.gov.
The SEC allows us to incorporate by reference the information we file
with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be a part of this prospectus, and information that we file later
with the SEC will automatically update and supersede this information. We
incorporate by reference the documents listed below and any future filings we
will make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934, file no. 0-28462:
* Our annual report on Form 10-KSB for the year ended December 31,
1998.
* Our quarterly report on Form 10-QSB for the quarter ended March 31,
1999.
* Our quarterly report on Form 10-QSB for the quarter ended June 30,
1999.
* The description of our common stock contained in our registration
statement on Form 8-A filed with the SEC on May 22, 1996.
* Our current report on Form 8-K filed January 11, 1999.
* Our current report on Form 8-K filed July 14, 1999.
* Our current report on Form 8-K filed September 2, 1999.
* Our registration statement on Form S-3 filed September 27, 1999, as
amended on November 24, 1999.
You may request a copy of these filings, at no cost, by writing or
telephoning us at the following address and telephone number:
18
<PAGE>
Shareholder Services
Attn: Kim Boswood
Webb Interactive Services, Inc.
1800 Glenarm Place
Suite 700
Denver, Colorado 80202
(303) 296-9200
This prospectus is part of a registration statement we filed with the
SEC. You should rely only on the information or representations provided in this
prospectus. We have authorized no one to provide you with different information.
The selling shareholder will not make an offer of these shares in any state
where the offer is not permitted. You should not assume that the information in
this prospectus is accurate as of any date other than the date on the front page
of this prospectus.
LEGAL MATTERS
Gray, Plant, Mooty, Mooty & Bennett, P.A., Minneapolis, Minnesota, has
issued an opinion about the legality of the shares registered by this
prospectus.
EXPERTS
The financial statements of Webb incorporated by reference in this
prospectus and elsewhere in the registration statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and are incorporated by reference in reliance upon
the authority of said firm as experts in giving said reports. Reference is made
to said report, which includes an explanatory paragraph with respect to the
uncertainty regarding our ability to continue as a going concern as discussed in
Note 1 to the financial statements incorporated by reference.
In December 1999, the SEC staff issued Staff Accounting Bulletin 101
regarding revenue recognition. Webb is currently reviewing the impact, if any,
this bulletin will have on its financial reporting.
INDEMNIFICATION
Our articles of incorporation provide that we shall indemnify, to the
full extent permitted by Colorado law, any of our directors, officers, employees
or agents who are made, or threatened to be made, a party to a proceeding by
reason of the fact that he or she is or was one of our directors, officers,
employees or agents against judgments, penalties, fines, settlements and
reasonable expenses incurred by the person in connection with the proceeding if
specified standards are met. Although indemnification for liabilities arising
under the Securities Act of 1933 may be permitted to our directors, officers and
controlling persons under these provisions, we have been advised that, in the
opinion of the SEC, indemnification for liabilities arising under the Securities
Act of 1933 is against public policy as expressed in the Securities Act and is,
therefore, unenforceable.
Our articles of incorporation also limit the liability of our directors
to the fullest extent permitted by the Colorado law. Specifically, our articles
of incorporation provide that our directors will not be personally liable for
monetary damages for breach of fiduciary duty as directors, except for:
* Any breach of the duty of loyalty to Webb or its shareholders,
* Acts or omissions not in good faith or that involved intentional
misconduct or a knowing violation of law,
* Dividends or other distributions of corporate assets that are in
contravention of specified statutory or contractual restrictions,
* Violations of specified laws, or
* Any transaction from which the director derives an improper
personal benefit.
19
<PAGE>
================================================================================
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in this
prospectus in connection with the offer made by this prospectus and, if given or
made, the information or representations must not be relied upon as having been
authorized by Webb. This prospectus does not constitute an offer to sell or the
solicitation of any offer to buy any security other than the securities offered
by this prospectus, nor does it constitute an offer to sell or a solicitation of
any offer to buy the securities offered by this prospectus by anyone in any
jurisdiction in which the offer or solicitation is not authorized, or in which
the person making the offer or solicitation is not qualified to do so, or to any
person to whom it is unlawful to make an offer or solicitation. Neither the
delivery of this prospectus nor any sale made under this prospectus shall, under
any circumstances, create any implication that information contained in this
prospectus is correct as of any time subsequent to the date of this prospectus.
---------------
TABLE OF CONTENTS
Page
----
Webb Interactive Services, Inc................................................2
Recent Events.................................................................3
Risk Factors..................................................................4
Special Note Regarding Forward-Looking
Statements................................................................10
Use of Proceeds..............................................................11
Selling Shareholder..........................................................11
Plan of Distribution.........................................................12
Description of Securities....................................................13
Where You Can Find More Information..........................................17
Legal Matters................................................................18
Experts......................................................................18
Indemnification..............................................................18
WEBB INTERACTIVE
SERVICES, INC.
----------
PROSPECTUS
----------
____________, __, 2000
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED TO BE IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The following table sets forth the various expenses of Webb in
connection with the sale and distribution of the Shares being registered
pursuant to this Form S-3 Registration Statement. All of the amounts shown are
estimates, except for the Securities and Exchange Commission registration fee
and the Nasdaq listing fee. All of such expenses will be paid by Webb.
Securities and Exchange Commission fee $ 3,650.48
Accounting fees and expenses 2,000.00
Legal fees and expenses 10,000.00
Printing, Mailing 1,000.00
Transfer Agent fees 200.00
Miscellaneous $ 3,149.52
-----------------
TOTAL $20,000.00
Item 15. Indemnification of Officers and Directors
Webb's articles of incorporation provide that Webb shall indemnify, to
the full extent permitted by Colorado law, any director, officer, employee or
agent of Webb made or threatened to be made a party to a proceeding, by reason
of the fact that such person is or was a director, officer, employee or agent of
Webb against judgments, penalties, fines, settlements and reasonable expenses
incurred by the person in connection with the proceeding if certain standards
are met. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of Webb pursuant to the foregoing provisions, or otherwise, Webb has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable.
Webb's articles of incorporation limit the liability of its directors
to the fullest extent permitted by Colorado law. Specifically, the articles of
incorporation provide that directors of Webb will not be personally liable for
monetary damages for breach of fiduciary duty as directors, except for (i) any
breach of the duty of loyalty to Webb or its shareholders, (ii) acts or
omissions not in good faith or that involved intentional misconduct or a knowing
violation of law, (iii) dividends or other distributions of corporate assets
that are in contravention of certain statutory or contractual restrictions, (iv)
violations of certain laws, or (v) any transaction from which the director
derives an improper personal benefit. Liability under federal securities law is
not limited by the Articles.
Item 16. Exhibits
3.1 Articles of Incorporation, as amended, of Webb Interactive
Services, Inc. (1)
3.2 Bylaws of Webb Interactive Services, Inc. (2)
4.1 Specimen form of Webb Interactive Services, Inc. common stock
certificate (3)
5.1 Opinion of Counsel (4)
10.1 Securities Purchase Agreement dated August 25, 1999 between
Webb and the Selling Shareholder, including the Form of
Warrant and Registration Rights Agreement (5)
10.2 Promissory note dated August 25, 1999 issued by Webb to the
Selling Shareholder*
10.3 Amendment dated December 18, 1999 to Securities Purchase
Agreement dated August 25, 1999 between Webb and the Selling
Shareholder*
10.4 First Amendment dated December 18, 1999 to Promissory Note
dated August 25, 1999 issued by Webb to Selling Shareholder*
II-1
<PAGE>
10.5 Stock Purchase Warrant dated August 25, 1999, as amended,
December 18, 1999, issued by Webb to Selling Shareholder*
10.6 Stock Purchase Warrant dated December 18, 1999, issued by Webb
to Selling Shareholder*
23.1 Consent of Arthur Andersen LLP*
- ------------
* Filed herewith
(1) Filed with the Registration Statement on Form S-3, filed January 29, 1999,
Commission File No. 333-71503.
(2) Filed with the initial Registration Statement on Form SB-2, filed April 5,
1996, Commission File No. 333-3282-D.
(3) Filed with the Registration Statement on Form S-3, filed September 24,
1999, Commission File No. 333-86465.
(4) Filed with the Registration Statement on Form S-3, filed September 27,
1999, Commission File No. 333-87887.
(5) Filed with the current report on Form 8-K, filed September 2, 1999,
Commission File No. 000-28462.
Item 17. Undertakings
A. The undersigned registrant hereby undertakes:
(1) to file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement
to:
(a) include any prospectus required by Section
10(a)(3) of the Securities Act of 1933,
(b) to reflect in the prospectus any facts or events
arising after the effective date of the
registration statement (or the most recent
post-effective amendment thereof) which,
individually or together, represent a fundamental
change in the information in the registration
statement, and
(c) to include any additional or changed material
information on the plan of distribution;
(2) to treat, for determining liability under the Securities
Act of 1933, each such post-effective amendment as a new registration
statement relating to the securities offered therein, and the offering
of such securities at that time shall be deemed to be the initial bona
fide offering thereof; and
(3) to remove from registration by means of a post-effective
amendment any of the securities being registered that remain unsold at
the termination of the offering.
B. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers, and controlling
persons of the registrant as discussed above, or otherwise, the registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer, or controlling person of the registrant in the
successful defense of any action, suit, or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-2
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this amendment to
the registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Denver, State of Colorado, on December
30, 1999.
WEBB INTERACTIVE SERVICES, INC.
By /s/ R. Steven Adams*
--------------------------------------
R. Steven Adams, Chairman and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
amendment to the registration statement has been signed below on December 30,
1999, by the following persons in the capacities indicated:
/s/ R. Steven Adams *
- ------------------------------
R. Steven Adams,
(Chairman, Chief Executive Officer and a Director)
/s/ William R. Cullen
- ------------------------------
William R. Cullen
(Executive Vice President, Chief Financial Officer and a Director)
/s/ Stuart J. Lucko
- ------------------------------
Stuart J. Lucko
(Controller)
/s/ Perry Evans*
- ------------------------------
Perry Evans
(President and a Director)
/s/ Robert J. Lewis*
- ------------------------------
Robert J. Lewis
(Director)
- ------------------------------
Richard C. Jennewine
(Director)
*By /s/ Lindley S. Branson
--------------------------
Attorney-in-fact
II-3
<PAGE>
Webb Interactive Services, Inc.
Form S-3
Index to Exhibits
3.1 Articles of Incorporation, as amended, of Webb Interactive
Services, Inc. (1)
3.2 Bylaws of Webb Interactive Services, Inc. (2)
4.1 Specimen form of Webb Interactive Services, Inc. common stock
certificate (3)
5.1 Opinion of Counsel (4)
10.1 Securities Purchase Agreement dated August 25, 1999 between
Webb and the Selling Shareholder, including the Form of
Warrant and Registration Rights Agreement (5)
10.2 Promissory note dated August 25, 1999 issued by Webb to the
Selling Shareholder*
10.3 Amendment dated December 18, 1999 to Securities Purchase
Agreement dated August 25, 1999 between Webb and the Selling
Shareholder*
10.4 First Amendment dated December 18, 1999 to Promissory Note
dated August 25, 1999 issued by Webb to Selling Shareholder*
10.5 Stock Purchase Warrant dated August 25, 1999, as amended
December 18, 1999, issued by Webb to Selling Shareholder*
10.6 Stock Purchase Warrant dated December 18, 1999, issued by Webb
to Selling Shareholder*
23.1 Consent of Arthur Andersen LLP*
- -----------
* Filed herewith
(1) Filed with the Registration Statement on Form S-3, filed January 29, 1999,
Commission File No. 333-71503.
(2) Filed with the initial Registration Statement on Form SB-2, filed April 5,
1996, Commission File No. 333-3282-D.
(3) Filed with the Registration Statement on Form S-3, filed September 24,
1999, Commission File No. 333-86465.
(4) Filed with the Registration Statement on Form S-3, filed September 27,
1999, Commission File No. 333-87887.
(5) Filed with the current report on Form 8-K, filed September 2, 1999,
Commission File No. 000-28462.
<PAGE>
Exhibit 10.3
December 18, 1999
Webb Interactive Services, Inc.
1800 Glenarm Place, 8th Floor
Denver, Colorado 80202
Attn.: Chairman of the Board
RE: Amendment to Securities Purchase Agreement Dated August 25, 1999
("Securities Purchase Agreement"), Stock Purchase Warrant Dated
August 25, 1999 ("Warrant") and Registration Rights Agreement Dated
August 25, 1999 ("Registration Rights Agreement")
Gentlemen:
Effective on the date hereof, Webb Interactive Services, Inc. (the
"Company") and Castle Creek Technology Partners LLC ("Castle Creek") have
entered into a First Amendment to the 10% Promissory Note issued by the Company
to Castle Creek on August 25, 1999 (the "First Amendment"). In connection with
the First Amendment, Castle Creek agreed to make certain amendments to the Stock
Purchase Agreement, Warrant and Registration Rights Agreement. This letter
confirms that, upon receipt by Castle Creek of (i) the First Amendment duly
executed by the Company and (ii) the new Warrant and the First Warrant, as
provided in Section 3 of the First Amendment, the Securities Purchase Agreement,
Warrant and Registration Rights Agreements shall be amended as follows:
Securities Purchase Agreement
1. Upon consummation prior to March 22, 2000 of an equity-like financing
raising proceeds for the Company of not less than $10 million in which Castle
Creek has been given the right to invest not less than $5 million on terms no
less favorable than are offered to any other investor, Section 4.5 of the
Securities Purchase Agreement shall be deleted in its entirety. In the event
that Castle Creek participates in such an equity-like financing, Sections 8.13,
8.14, 8.15, 8.19, 8.20 and 8.25 shall be deleted in their entirety.
Warrant
Section 4(l) shall be deleted in its entirety and the following substituted
therefore:
Key Officer and Director Transfers. If any Key Officer (as defined below)
or director (in each case, or any member of his/her family or any trust or
other entity for the benefit of any member of his/her family), during the
period beginning on the Closing Date and ending on the date that is six
months after the registration statement required pursuant to Section 2.1 of
the Registration Rights Agreement
<PAGE>
is declared effective, and while such person is a Key Officer or director,
directly or indirectly, offers, sells, transfers, assigns, pledges, or
otherwise disposes of any shares of Common Stock, or any securities
directly or indirectly convertible into or exercisable or exchangeable for,
or warrants, options or rights to purchase or acquire shares of Common
Stock (all such securities, "Options") or enter into any agreement,
contract, arrangement or understanding with respect to any such offer,
sale, transfer, assignment, pledge or other disposition of any Common Stock
or Options or provides or files any public notice, including pursuant to
Rule 144 of the Securities Act, of a bona fide intent to dispose of a
specified amount of Common Stock or Options (an "Executive Transfer"), then
the Exercise Price shall be reduced by twenty (20) percent of that Exercise
Price calculated pursuant to this Agreement; provided, however, that Key
Officers or directors (and all such entities for the benefit of any members
of his/her family, collectively) may sell, assign, pledge or otherwise
dispose of (except by gift to family members or charitable organizations)
up to 20,000 shares in the aggregate prior to December 31, 1999 and during
the 6-month period following the effective date of the registration
statement, a Key Officer or director (and all such entities for the benefit
of any members of his/her family, collectively) may sell, assign, pledge or
otherwise dispose of up to the greater of (i) ten percent (10%) of his or
her total holdings as of the Issue Date determined in accordance with
Section 13(d) of the Securities Exchange Act of 1934, as amended, or (ii)
25,000 shares of Common Stock without triggering the adjustments of this
Section. For purposes of this Section, Key Officer shall mean R. Steven
Adams, Lindley S. Branson, William R. Cullen, Perry Evans, Andre Durand,
Gwenael Hagan and Simon Greenman and any person who assumes or performs the
duties of any other Key Officer.
Registration Rights Agreement
The first sentence of Section 2.3 shall be deleted in its entirety and the
following substituted therefore:
The Company shall use its best efforts to cause each Registration Statement
required to be filed pursuant to Section 2.1 hereof to become effective as
soon as practicable, but in no event later than the ninetieth (90th) day
(but 150th day, if reviewed by SEC) following the Closing Date (the
"Registration Deadline").
<PAGE>
Except as expressly modified herein and in the First Amendment, the Company
hereby acknowledges, confirms and ratifies all of the terms and conditions set
forth in, and all of its obligations under, the Securities Purchase Agreement,
the Warrant and the Registration Rights Agreement.
Sincerely,
CASTLE CREEK TECHNOLOGY PARTNERS LLC
By Castle Creek Partners, LLC
By /s/ Richard S. Marks
----------------------------------
Its Vice President
-----------------------------
Acknowledged and Agreed this
18th day of December 1999.
WEBB INTERACTIVE SERVICES, INC.
By /s/ William R. Cullen
-----------------------------------
Its Executive Vice President, CFO
-------------------------------
<PAGE>
Exhibit 10.4
FIRST AMENDMENT TO 10% PROMISSORY NOTE
--------------------------------------
This First Amendment to 10% Promissory Note (this "First Amendment") is
effective as of December 18, 1999 and is entered into between Webb Interactive
Services, Inc. f/k/a Online System Services, Inc. (the "Company") and Castle
Creek Technology Partners LLC ("Castle Creek").
RECITALS
--------
A. The Company issued to Castle Creek a 10% Promissory Note dated August
25, 1999 in the principal amount of $5,000,000 (the "Note"). Unless otherwise
defined herein, capitalized terms shall have the meanings ascribed to such terms
in the Note.
B. The Company has requested that Castle Creek make certain amendments to
the Note and Castle Creek is willing to do so subject to the terms and
conditions of this First Amendment.
AGREEMENT
---------
Now, therefore, in consideration of the continued performance by the
Company of its obligations under the Note, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
Company and Castle Creek hereby agree as follows:
1. Ratification and Incorporation of Note. Except as expressly modified
under this First Amendment (a) the Company hereby acknowledges, confirms, and
ratifies all of the terms and conditions set forth in, and all of its
obligations under, the Note, and (b) all of the terms and conditions set forth
in the Note are incorporated herein by this reference as if set forth in full
herein. The Company represents that it has no offset, defense, counterclaim,
dispute or disagreement of any kind or nature whatsoever with respect to the
amount owing under the Note.
2. Amendments to Note.
(a) The third paragraph of the Note is hereby deleted in its entirety and
the following is substituted therefore:
At the option of the Holder, from and after the completion of the Company
Conversion (as defined below), interest accruing after the Company
Conversion may be paid in notes in the form hereof ("PIK Notes") or in
shares of the Company's Common Stock, no par value (the "Common Stock").
Interest accruing prior to the Company Conversion shall be paid in cash. If
the Holder determines to receive interest in shares of Common Stock or
cash, it shall notify
<PAGE>
the Company at least three business days in advance of the applicable
Interest Payment Date, otherwise the interest shall be paid in PIK Notes.
The principal amount of PIK Notes to be issued as interest shall be equal
to the dollar amount of interest due at the time of payment. The number of
shares of Common Stock issued as interest shall be the number determined by
dividing the dollar amount of interest due by the greater of (i) an amount
equal to the average of the Closing Bid Prices (as defined herein) of the
Common Stock for the ten (10) business days prior to the date interest is
so paid or (ii) $8.00.
Notwithstanding the foregoing, any terms that are defined in the third paragraph
of the Note prior to the date of this First Amendment that are used elsewhere in
the Note from and after the date of this First Amendment but not otherwise
defined in the Note shall continue to have the meanings ascribed to such terms
after the date of this First Amendment.
(b) The first paragraph of Section 1.2(a) is hereby deleted in its entirety
and the following is substituted therefor:
The Company shall have the right ("Prepayment at Company's Election") to
prepay, subject to the limitations herein contained, all or any portion of
the then outstanding Notes (other than Notes which are the subject of a
Notice of Conversion (as herein defined) delivered prior to the delivery
date of prepayment) for the Optional Prepayment Amount if, at any time
after August 25, 2000, the Closing Bid Prices of the Common Stock is
greater than or equal to two hundred percent (200%) of the Conversion Price
then in effect for each of the twenty (20) consecutive trading days
immediately preceding the date of delivery to the Holders of the Optional
Prepayment Notice in accordance with the prepayment procedures set forth in
this Article I (the "200% Election"). Any Prepayment at Company's Election
pursuant to this Section 1.2 shall be made ratably among Holders in
proportion to the principal amount of Notes then outstanding. Holders may
convert all or any part of their Notes selected for prepayment hereunder
into Common Stock at the Conversion Price by delivering a Notice of
Conversion to the Company at any time prior to the Effective Time of
Prepayment (as defined herein). The Optional Prepayment Amount is 115% of
the principal plus accrued and unpaid interest of the Notes being prepaid.
Notwithstanding the foregoing, any terms that are defined in Section 1.2 of the
Note prior to the date of this First Amendment that are used elsewhere in the
Note from and after the date of this First Amendment but not otherwise defined
in the Note shall continue to have the meanings ascribed to such terms after the
date of this First Amendment.
(c) The definition of "Conversion Amount" in Section 2.1 is hereby deleted
in its entirety and the following is substituted therefore:
"Conversion Amount" means (i) the portion of the principal amount of this
Note elected by Holder to be converted (the "Selected Amount"), which
amount may
<PAGE>
be all or any portion of the principal amount of this Note plus (ii) an
amount equal to the product of (A) N divided by 365 times (B) .10 times (C)
the Selected Amount.
(d) The definition of "Conversion Price" in Section 2.1 is hereby deleted
in its entirety and the following is substituted therefore:
"Conversion Price" means (i) with respect to any Conversion Date prior to
March 22, 2000, the Fixed Conversion Price, and (ii) with respect to any
Conversion Date on or after March 22, 2000, the lower of the Fixed
Conversion Price and the Variable Conversion Price; provided, however, upon
consummation prior to March 22, 2000 of an equity or equity-like financing
raising proceeds for the Company of not less than $10 million in which
Castle Creek Technology Partners LLC has the right to elect to invest not
less than $5 million on terms no less favorable than are offered to any
other investor in the financing pursuant to its right pursuant to Section
4.5(b) of the Securities Purchase Agreement (the "Permanent Financing"),
then the Conversion Price thereafter means the Fixed Conversion Price. The
Conversion Price is subject to adjustments as provided herein.
(e) The definition of "Fixed Conversion Price" in Section 2.1 is hereby
deleted in its entirety and the following is substituted therefor:
"Fixed Conversion Price" means (i) prior to September 30, 2000, $10.07 and
(ii) on and after September 30, 2000, if the Permanent Financing is
consummated, the lower of (A) $10.07, and (B) the greater of (x) the
average of the Closing Bid Prices for the 20 consecutive trading days
ending on September 29, 2000 and (y) $8.00 (adjusted for any stock split,
stock dividend, combination, reclassification or other similar events). The
Fixed Conversion Price is subject to adjustment as provided herein.
(f) Section 3.1 is hereby deleted in its entirety and the following is
substituted therefor:
Conversion at the Option of the Holder. Subject to the limitations on
conversions contained in Section 3.7 hereof, the Holder may, at any time
after the Closing Date and from time to time, convert (an "Optional
Conversion") a Conversion Amount into a number of fully paid and
nonassessable shares of Common Stock equal to the number determined by
dividing such Conversion Amount by the Conversion Price.
(g) The following new Section 3.10 is inserted immediately following
Section 3.9:
Section 3.10 Company Conversion Option.
<PAGE>
(a) If the average of the closing trade prices for the Common Stock
(as reported by Bloomberg Financial Markets) for the 15 consecutive trading
days commencing on the day after the Registration Statement is declared
effective (the "Conversion Option Period"), is greater than or equal to
$12.50 (adjusted for any stock split, stock dividend, combination,
reclassification or other similar events), then the Company may require the
Holder to convert up to $2,500,000 of principal amount of this Note in
accordance with this Article III (a "Company Conversion"). The Company
Conversion shall be made ratably among Holders in proportion to the
principal amount of Notes.
(b) The Company may effect a Company Conversion by delivery of written
notice to such effect to the Holders (a "Company Conversion Notice") on or
before the 10th day following the last day of the Conversion Option Period.
The Company may not deliver a Company Conversion Notice or effect a Company
Conversion unless (a) the Registration Statement is and has been effective
and available for use by the Holders for the resale of all shares of Common
Stock issuable hereunder and pursuant to the Warrants during and since the
Conversion Option Period, (b) the shares of Common Stock issuable hereunder
and pursuant to the Warrants are listed for trading on Nasdaq, Nasdaq NMS
or NYSE and have been reserved for issuance in accordance with the Reserved
Amount requirement of Section 4.1 hereof, (c) no Event of Default has
occurred or is continuing.
(h) Section 8.10 is hereby deleted in its entirety and the following is
substituted therefor:
Key Officer and Director Transfers. If any Key Officer (as defined below)
or director (in each case, or any member of his/her family or any trust or
other entity for the benefit of any member of his/her family), during the
period beginning on the Closing Date and ending on the date that is six
months after the registration statement required pursuant to Section 2.1 of
the Registration Rights Agreement is declared effective, and while such
person is a Key Officer or director, directly or indirectly, offers, sells,
transfers, assigns, pledges, or otherwise disposes (except by gift to
family members or charitable organizations) of any shares of Common Stock,
or any securities directly or indirectly convertible into or exercisable or
exchangeable for, or warrants, options or rights to purchase or acquire
shares of Common Stock (all such securities, "Options") or enter into any
agreement, contract, arrangement or understanding with respect to any such
offer, sale, transfer, assignment, pledge or other disposition of any
Common Stock or Options or provides or files any public notice, including
pursuant to Rule 144 of the Securities Act, of a bona fide intent to
dispose of a specified amount of Common Stock or Options (an "Executive
Transfer"), then the Conversion Price shall be reduced by thirty (30)
percent of that amount calculated pursuant to Article II hereof; provided,
however, that Key Officers or directors (and all such entities for the
benefit of any members of his/her family, collectively) may sell, assign,
pledge or otherwise dispose of up to 20,000 shares in the aggregate prior
<PAGE>
to December 31, 1999 and during the 6-month period following the effective
date of the registration statement, a Key Officer or director (and all such
entities for the benefit of any member of his/her family, collectively) may
sell, assign, pledge or otherwise dispose of up to the greater of (i) ten
percent (10%) of his or her total holdings as of the Issue Date determined
in accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, or (ii) 25,000 shares of Common Stock without triggering the
adjustments of this Section 8.10. For purposes of this Section 8.10, Key
Officer shall mean R. Steven Adams, Lindley S. Branson, William R. Cullen,
Perry Evans, Andre Durand, Gwenael Hagan and Simon Greenman and any person
who assumes or performs the duties of any other Key Officer.
3. Warrant. Simultaneous with execution of this First Amendment, the
Company will issue to Castle Creek a five-year warrant (the "Warrant") to
purchase 136,519 shares of common stock in substantially the form of the
warrant, as amended, previously issued to Castle Creek on August 25, 1999 (the
"First Warrant") except as described below. The exercise price of the Warrant
will be equal to $18.506. If the Permanent Financing is consummated, the
exercise price of the Warrant and the First Warrant shall reset (lower only) on
September 30, 2000 to the average of the closing bid prices for the 20
consecutive trading days ending on September 29, 2000. The shares of Common
Stock issuable upon exercise of the Warrant shall be included in the
registration statement for the First Warrant.
4. Conditions to Effectiveness. This First Amendment shall become effective
on December 18, 1999 (the "Effective Date"), only upon satisfaction of each of
the following conditions:
(a) receipt by Castle Creek of this First Amendment duly executed by
the Company; and
(b) receipt by Castle Creek of the Warrant and the amended First
Warrant.
5. Representations and Warranties. In order to induce Castle Creek to enter
into this First Amendment, the Company represents and warrants to Castle Creek
that the following statements are true, correct and complete as of the Effective
Date of this First Amendment:
(a) Corporate Power and Authority. (i) The Company has the requisite power
and authority to enter into and perform its obligations under this First
Amendment and the Warrant; (ii) the execution, delivery and performance of this
First Amendment and the Warrant by the Company and the consummation by it of the
transactions contemplated hereby and thereby have been duly authorized by the
Company's Board of Directors and no further consent or authorization of the
Company, its Board of Directors or its stockholders is required; and (iii) this
First Amendment and the Warrant constitute
<PAGE>
valid and binding obligations of the Company enforceable against the Company in
accordance with their respective terms.
(b) No Conflict. The execution, delivery and performance of this First
Amendment and the Warrant by the Company and the consummation by the Company of
the transactions contemplated hereby and thereby will not (i) result in a
violation of the Certificate of Incorporation or the bylaws of the Company; (ii)
conflict with, or constitute a default (or an event which with notice or lapse
of time or both would become a default) under, or give to others any rights
under, or result in termination, amendment, acceleration or cancellation of, any
agreement, indenture or instrument to which the Company or any of its
subsidiaries is a party, or (iii) result in a violation of any law, rule,
regulation, order, judgment or decree applicable to the Company or any of its
subsidiaries or by which any property or assets of the Company or any of its
subsidiaries is bound or affected.
(c) Governmental Consents. The execution, delivery and performance by the
Company of this First Amendment and the Warrant will not require any
registration with, consent or approval of, or notice to, or other action to,
with or by, any federal, state or other governmental authority or regulatory
body.
(d) Incorporation of Representations and Warranties from Securities
Purchase Agreement. The representations and warranties contained in Article III
of the Securities Purchase Agreement are correct in all material respects on and
as of the Effective Date as though made on and as of such date, except to the
extent that a particular representation or warranty by its terms expressly
applies only to an earlier date.
(e) Absence of Event of Default. No event has occurred and is continuing
that would constitute an Event of Default and no event has occurred which with
the passage of time or the giving of notice would constitute an Event of
Default.
6. Entire Agreement. This First Amendment, together with the Warrant and
the Note and the other documents executed in connection with the Securities
Purchase Agreement (collectively, the "Loan Documents"), is the entire agreement
between the parties hereto with respect to the subject matter hereof. This First
Amendment supersedes all prior and contemporaneous oral and written agreements
and discussions with respect to the subject matter hereof.
7. Miscellaneous.
(a) Counterparts. This First Amendment may be executed in identical
counterpart copies, each of which shall be an original, but all of which shall
constitute one and the same agreement; signature pages may be detached from
multiple separate counterparts and attached to a single counterpart so that all
signature pages are physically attached to the same document. Delivery of an
executed counterpart of a signature page to this First Amendment by facsimile
transmission shall be effective as delivery of a manually executed counterpart
thereof.
<PAGE>
(b) Headings. Section headings used herein are for convenience of reference
only, are not part of this First Amendment, and are not to be taken into
consideration in interpreting this First Amendment.
(c) Recitals. The recitals set forth at the beginning of this First
Amendment are true and correct, and such recitals are incorporated into and are
a part of this First Amendment.
(d) Governing Law. This First Amendment shall be governed by, and construed
and enforced in accordance with, the internal laws of the state of New York
applicable to contracts made and performed in such state, without regard to the
principles thereof regarding conflict of laws.
(e) Effect. Upon the effectiveness of this First Amendment, from and after
the date hereof, each reference in the Note to "this Note," "hereunder,"
"hereof.," or words of like import shall mean and be a reference to the Note as
amended hereby.
(f) No Novation. Except as expressly provided in this First Amendment, the
execution, delivery and effectiveness of this First Amendment shall not (i)
limit, impair, constitute a waiver of, or otherwise affect any right, power, or
remedy of Castle Creek under the Note or any other Loan Documents, (ii)
constitute a waiver of any provision in the Note and the Loan Documents, or
(iii) alter, modify, amend, or in any way affect any of the terms, conditions,
obligations, covenants, or agreements contained in the Note and the Loan
Documents, all of which are ratified and affirmed in all respects and shall
continue in full force and effect.
(g) Conflict of Terms. In the event of any inconsistency between the
provision of this First Amendment and any provision of the Note, the terms and
provisions of this First Amendment shall govern and control.
In witness whereof, this First Amendment has been duly executed and
delivered as of the date first written above.
WEBB INTERACTIVE SERVICES, INC.
By: /s/ William R. Cullen
-------------------------------
Its: Executive Vice President, CFO
-------------------------------
CASTLE CREEK TECHNOLOGY PARTNERS LLC
By Castle Creek Partners, LLC.
By: /s/ Richard S. Marks
-------------------------------
Its: Vice President
-------------------------------
<PAGE>
Exhibit 10.5
VOID AFTER 5:00 P.M., CENTRAL TIME ON AUGUST 25, 2004
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE OF
THE UNITED STATES. THE SECURITIES REPRESENTED HEREBY MAY NOT BE OFFERED OR SOLD
OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
FOR THE SECURITIES UNDER APPLICABLE SECURITIES LAWS, OR UNLESS OFFERED, SOLD OR
TRANSFERRED PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THOSE LAWS.
Right to Purchase 136,519 Shares of
Common Stock, no par value
Date: August 25, 1999, amended December 18, 1999
WEBB INTERACTIVE SERVICES, INC.
STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, Castle Creek Technology Partners
LLC ("Castle Creek"), or its registered assigns, is entitled to purchase from
Webb Interactive Services, Inc., a Colorado corporation doing business as Webb
Interactive Services, Inc. (the "Company"), at any time or from time to time
during the period specified in Section 2 hereof, 136,519 fully paid and
nonassessable shares of the Company's Common Stock, no par value (the "Common
Stock"), at an exercise price of $11.44 per share (the "Exercise Price").
Subject to the completion by the Company prior to March 22, 2000 of an equity or
equity-like financing raising proceeds for the Company of not less than $10
million in which Castle Creek has the right to invest not less than $5 million,
the Exercise Price shall be adjusted and shall be effective September 30, 2000,
subject to adjustment as provided in Section 4 hereof, the lower of (i) the
Exercise Price in effect on September 29, 2000, or (ii) a price which is equal
to the average of the Closing Bid Prices for the Company's Common Stock for the
20 consecutive trading days ending on September 29, 2000. This Warrant is being
issued pursuant to that certain Securities Purchase Agreement dated August 25,
1999, as amended on December 18, 1999, by and between the Company and Castle
Creek (the "Securities Purchase Agreement"). The number of shares of Common
Stock purchasable hereunder (the "Warrant Shares") and the Exercise Price are
subject to adjustment as provided in Section 4 hereof.
The term "Closing Bid Price" means, for any security as of any date, the
closing bid price of such security on the principal securities exchange or
trading market where such security is listed or traded as reported by Bloomberg
Financial Markets or a comparable reporting service of national reputation
selected by the Company and
<PAGE>
reasonably acceptable to the holder hereof (the "Holder") if Bloomberg Financial
Markets is not then reporting closing bid prices of such security (collectively,
"Bloomberg"), or if the foregoing does not apply, the last reported sale price
of such security in the over-the-counter market on the electronic bulletin board
of such security as reported by Bloomberg, or, if no sale price is reported for
such security by Bloomberg, the average of the bid prices of any market makers
for such security as reported in the "pink sheets" by the National Quotation
Bureau, Inc. If the Closing Bid Price cannot be calculated for such security on
such date on any of the foregoing bases, the Closing Bid Price of such security
on such date shall be the fair market value as reasonably determined by an
investment banking firm selected by the Company and reasonably acceptable to the
Holder with the costs of such appraisal to be borne by the Company.
This Warrant is subject to the following terms, provisions, and conditions:
1. Mechanics of Exercise. Subject to the provisions hereof, including,
without limitation, the limitations contained in Section 8(f) hereof, this
Warrant may be exercised as follows:
(a) Manner of Exercise. This Warrant may be exercised by the Holder,
in whole or in part, by the surrender of this Warrant (or evidence of loss,
theft, destruction or mutilation thereof in accordance with Section 8(c)
hereof), together with a completed exercise agreement in the Form of
Exercise Agreement attached hereto as Exhibit 1 (the "Exercise Agreement"),
to the Company at the Company's principal executive offices (or such other
office or agency of the Company as it may designate by notice to the
Holder), and upon (i) payment to the Company in cash, by certified or
official bank check or by wire transfer for the account of the Company, of
the Exercise Price for the Warrant Shares specified in the Exercise
Agreement or (ii) if the Holder elects to effect a Cashless Exercise (as
defined in Section 12(c) below), delivery to the Company of a written
notice of an election to effect a Cashless Exercise for the Warrant Shares
specified in the Exercise Agreement. The Warrant Shares so purchased shall
be deemed to be issued to the Holder or Holder's designees, as the record
owner of such shares, as of the date on which this Warrant shall have been
surrendered, the completed Exercise Agreement shall have been delivered,
and payment (or notice of an election to effect a Cashless Exercise) shall
have been made for such shares as set forth above.
(b) Issuance of Certificates. Subject to Section 1(c), certificates
for the Warrant Shares so purchased, representing the aggregate number of
shares specified in the Exercise Agreement, shall be delivered to the
Holder within a reasonable time, not exceeding three (3) business days,
after this Warrant shall have been so exercised (the "Delivery Period").
The certificates so delivered shall be in such denominations as may be
requested by the Holder and shall be registered in the name of Holder or
such other name as shall be designated by such
<PAGE>
Holder. If this Warrant shall have been exercised only in part, then,
unless this Warrant has expired, the Company shall, at its expense, at the
time of delivery of such certificates, deliver to the Holder a new Warrant
representing the number of shares with respect to which this Warrant shall
not then have been exercised.
(c) Exercise Disputes. In the case of any dispute with respect to an
exercise, the Company shall promptly issue such number of shares of Common
Stock as are not disputed in accordance with this Section. If such dispute
involves the calculation of the Exercise Price, the Company shall submit
the disputed calculations to a nationally recognized independent accounting
firm (selected by the Company and reasonably acceptable to Holder) via
facsimile within three (3) business days of receipt of the Exercise
Agreement. The accounting firm shall audit the calculations and notify the
Company and the converting Holder of the results no later than two (2)
business days from the date it receives the disputed calculations. The
accounting firm's calculation shall be deemed conclusive, absent manifest
error. The Company shall then issue the appropriate number of shares of
Common Stock in accordance with this Section.
(d) Fractional Shares. No fractional shares of Common Stock are to be
issued upon the exercise of this Warrant, but the Company shall pay a cash
adjustment in respect of any fractional share which would otherwise be
issuable in an amount equal to the same fraction of the Exercise Price of a
share of Common Stock (as determined for exercise of this Warrant into
whole shares of Common Stock); provided that in the event that sufficient
funds are not legally available for the payment of such cash adjustment any
fractional shares of Common Stock shall be rounded up to the next whole
number.
2. Period of Exercise. This Warrant is exercisable at any time and from
time to time on or after the date hereof and before 5:00 P.M., Central Standard
Time on the fifth (5th) anniversary of the date hereof (the "Exercise Period").
3. Certain Agreements of the Company. The Company hereby covenants and
agrees as follows:
(a) Shares to be Fully Paid. All Warrant Shares will, upon issuance in
accordance with the terms of this Warrant, be validly issued, fully paid,
and non-assessable and free from all taxes, liens, claims and encumbrances.
(b) Reservation of Shares. During the Exercise Period, the Company
shall at all times have authorized, and reserved for the purpose of
issuance upon exercise of this Warrant, a sufficient number of shares of
Common Stock to provide for the exercise of this Warrant.
<PAGE>
(c) Listing. The Company shall promptly secure the listing of the
shares of Common Stock issuable upon exercise of this Warrant upon the
Nasdaq Small Cap Market ("Nasdaq") and use its best efforts to secure the
listing of its securities on the Nasdaq National Market System, or the New
York Stock Exchange, as required by Section 4.9 of the Securities Purchase
Agreement and upon each such national securities exchange or automated
quotation system, if any, upon which shares of Common Stock are then listed
or become listed and shall maintain, so long as any other shares of Common
Stock shall be so listed, such listing of all shares of Common Stock from
time to time issuable upon the exercise of this Warrant; and the Company
shall so list on each national securities exchange or automated quotation
system, as the case may be, and shall maintain such listing of any other
shares of capital stock of the Company issuable upon the exercise of this
Warrant so long as any shares of the same class shall be listed on such
national securities exchange or automated quotation system.
(d) Certain Actions Prohibited. The Company will not, by amendment of
its charter or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities, or any
other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms to be observed or performed by it
hereunder, but will at all times in good faith assist in the carrying out
of all the provisions of this Warrant and in the taking of all such actions
as may reasonably be requested by the Holder of this Warrant in order to
protect the exercise privilege of the Holder of this Warrant, consistent
with the tenor and purpose of this Warrant. Without limiting the generality
of the foregoing, the Company (i) will not increase the par value of any
shares of Common Stock receivable upon the exercise of this Warrant above
the Exercise Price then in effect, and (ii) will take all such actions as
may be necessary or appropriate in order that the Company may at all times
validly and legally issue fully paid and nonassessable shares of Common
Stock upon the exercise of this Warrant.
4. Antidilution Provisions. During the Exercise Period, the Exercise Price
and the number of Warrant Shares shall be subject to adjustment from time to
time as provided in this Section 4. In the event that any adjustment of the
Exercise Price as required herein results in a fraction of a cent, such Exercise
Price shall be rounded up or down to the nearest cent.
(a) Adjustment of Exercise Price and Number of Shares upon Issuance of
Common Stock. Except as otherwise provided in Section 4(c) and 4(e) hereof,
if and whenever after the initial issuance of this Warrant, the Company
issues or sells, or in accordance with Section 4(b) hereof is deemed to
have issued or sold, any shares of Common Stock for no consideration or for
a consideration per share less than the greater of the then current Market
Price (as herein defined) and the then current Exercise
<PAGE>
Price on the date of issuance (a "Dilutive Issuance"), then effective
immediately upon the Dilutive Issuance, the Exercise Price will be adjusted
in accordance with the following formula:
E' = (E) (O + P/M) / (CSDO)
where:
E' = the adjusted Exercise Price
E = the then current Exercise Price;
M = the greater of the then current Market Price and the then current
Exercise Price;
O = the number of shares of Common Stock outstanding immediately
prior to the Dilutive Issuance;
P = the aggregate consideration, calculated as set forth in Section
4(b) hereof, received by the Company upon such Dilutive Issuance;
and
CSDO = the total number of shares of Common Stock Deemed Outstanding (as
herein defined) immediately after the Dilutive Issuance.
(b) Effect on Exercise Price of Certain Events. For purposes of
determining the adjusted Exercise Price under Section 4(a) hereof, the
following will be applicable:
(i) Issuance of Rights or Options. If the Company in any manner
issues or grants any warrants, rights or options, whether or not
immediately exercisable, to subscribe for or to purchase Common Stock
or other securities exercisable, convertible into or exchangeable for
Common Stock ("Convertible Securities"), but not to include the grant
or exercise of any stock or options which may hereafter be granted or
exercised under any employee or Director benefit plan of the Company
now existing or to be implemented in the future, so long as the
issuance of such stock or options is approved by a majority of the
non-employee members of the Board of Directors of the Company or a
majority of the members of a committee of non-employee directors
established for such purpose (such warrants, rights and options to
purchase Common Stock or Convertible Securities are hereinafter
referred to as "Options"), and the price per share for which Common
Stock is issuable upon the exercise of such Options is less than the
greater of the Exercise Price or the Market Price on the date of
issuance ("Below Market Options"), then the maximum total number of
shares of Common Stock issuable upon the exercise of all such Below
Market
<PAGE>
Options (assuming full exercise, conversion or exchange of Convertible
Securities, if applicable) will, as of the date of the issuance or
grant of such Below Market Options, be deemed to be outstanding and to
have been issued and sold by the Company for such price per share. For
purposes of the preceding sentence, the price per share for which
Common Stock is issuable upon the exercise of such Below Market
Options is determined by dividing (i) the total amount, if any,
received or receivable by the Company as consideration for the
issuance or granting of such Below Market Options, plus the minimum
aggregate amount of additional consideration, if any, payable to the
Company upon the exercise of all such Below Market Options, plus, in
the case of Convertible Securities issuable upon the exercise of such
Below Market Options, the minimum aggregate amount of additional
consideration payable upon the exercise, conversion or exchange
thereof at the time such Convertible Securities first become
exercisable, convertible or exchangeable, by (ii) the maximum total
number of shares of Common Stock issuable upon the exercise of all
such Below Market Options (assuming full conversion of Convertible
Securities, if applicable). No further adjustment to the Exercise
Price will be made upon the actual issuance of such Common Stock upon
the exercise of such Below Market Options or upon the exercise,
conversion or exchange of Convertible Securities issuable upon
exercise of such Below Market Options.
(ii) Issuance of Convertible Securities.
(1) If the Company in any manner issues or sells any
Convertible Securities, whether or not immediately convertible
(other than where the same are issuable upon the exercise of
Options) and the price per share for which Common Stock is
issuable upon such exercise, conversion or exchange (as
determined pursuant to Section 4(b)(ii)(B) if applicable) is less
than the greater of the Market Price or the Exercise Price then
in effect on the date of issuance, then the maximum total number
of shares of Common Stock issuable upon the exercise, conversion
or exchange of all such Convertible Securities will, as of the
date of the issuance of such Convertible Securities, be deemed to
be outstanding and to have been issued and sold by the Company
for such price per share. For the purposes of the preceding
sentence, the price per
<PAGE>
share for which Common Stock is issuable upon such exercise,
conversion or exchange is determined by dividing (i) the total
amount, if any, received or receivable by the Company as
consideration for the issuance or sale of all such Convertible
Securities, plus the minimum aggregate amount of additional
consideration, if any, payable to the Company upon the exercise,
conversion or exchange thereof at the time such Convertible
Securities first become exercisable, convertible or exchangeable,
by (ii) the maximum total number of shares of Common Stock
issuable upon the exercise, conversion or exchange of all such
Convertible Securities. No further adjustment to the Exercise
Price will be made upon the actual issuances of such Common Stock
upon exercise, conversion or exchange of such Convertible
Securities.
(2) If the Company in any manner issues or sells any
Convertible Securities with a fluctuating conversion or exercise
price or exchange ratio (a "Variable Rate Convertible Security"),
then the price per share for which Common Stock is issuable upon
such exercise, conversion or exchange for purposes of the
calculation contemplated by Section 4(b)(ii)(A) shall be deemed
to be the lowest price per share which would be applicable
assuming that (1) all holding period and other conditions to any
discounts contained in such Convertible Security have been
satisfied, and (2) the Market Price on the date of issuance of
such Convertible Security was 80% of the Market Price on such
date (the "Assumed Variable Market Price").
(iii) Change in Option Price or Conversion Rate. Except for the
grant or exercise of any stock or options which may hereafter be
granted or exercised under any employee or Director benefit plan of
the Company now existing or to be implemented in the future, so long
as the issuance of such stock or options is approved by a majority of
the non-employee members of the Board of Directors of the Company or a
majority of the members of a committee of non-employee directors
established for such purpose, if there is a change at any time in (i)
the amount of additional consideration payable to the Company upon the
exercise of
<PAGE>
any Options; (ii) the amount of additional consideration, if any,
payable to the Company upon the exercise, conversion or exchange or
any Convertible Securities; or (iii) the rate at which any Convertible
Securities are convertible into or exchangeable for Common Stock
(other than under or by reason of provisions designed to protect
against dilution), the Exercise Price in effect at the time of such
change will be readjusted to the Exercise Price which would have been
in effect at such time had such Options or Convertible Securities
still outstanding provided for such changed additional consideration
or changed conversion rate, as the case may be, at the time initially
granted, issued or sold.
(iv) Treatment of Expired Options and Unexercised Convertible
Securities. If, in any case, the total number of shares of Common
Stock issuable upon exercise of any Options or upon exercise,
conversion or exchange of any Convertible Securities is not, in fact,
issued and the rights to exercise such option or to exercise, convert
or exchange such Convertible Securities shall have expired or
terminated, the Exercise Price then in effect will be readjusted to
the Exercise Price which would have been in effect at the time of such
expiration or termination had such Options or Convertible Securities,
to the extent outstanding immediately prior to such expiration or
termination (other than in respect of the actual number of shares of
Common Stock issued upon exercise or conversion thereof), never been
issued.
(v) Calculation of Consideration Received. If any Common Stock,
Options or Convertible Securities are issued, granted or sold for
cash, the consideration received therefor for purposes of this Warrant
will be the amount received by the Company therefor, before deduction
of reasonable commissions, underwriting discounts or allowances or
other reasonable expenses paid or incurred by the Company in
connection with such issuance, grant or sale. In case any Common
Stock, Options or Convertible Securities are issued or sold for a
consideration part or all of which shall be other than cash, the
amount of the consideration other than cash received by the Company
will be the fair market value of such consideration except where such
consideration consists of freely-tradeable securities, in which case
the amount of consideration received by the Company will be the Market
Price thereof as of the date of receipt. In case any Common Stock,
Options or Convertible Securities are issued in connection with any
<PAGE>
merger or consolidation in which the Company is the surviving
corporation, the amount of consideration therefor will be deemed to be
the fair market value of such portion of the net assets and business
of the non-surviving corporation as is attributable to such Common
Stock, Options or Convertible Securities, as the case may be. The fair
market value of any consideration other than cash or securities will
be determined in the good faith reasonable business judgment of the
Board of Directors.
(vi) Exceptions to Adjustment of Exercise Price. No adjustment to
the Exercise Price will be made (i) upon the exercise of any warrants,
options or convertible securities issued and outstanding on the date
hereof in accordance with the terms of such securities as of such
date; (ii) upon the grant or exercise of any stock or options which
may hereafter be granted or exercised under any employee or Director
benefit plan of the Company now existing or to be implemented in the
future, so long as the issuance of such stock or options is approved
by a majority of the non-employee members of the Board of Directors of
the Company or a majority of the members of a committee of
non-employee directors established for such purpose; (iii) upon the
issuance of the Conversion Shares (as defined in the Securities
Purchase Agreement) or the Warrant in accordance with terms of the
Securities Purchase Agreement; or (iv) upon the exercise of the
Warrant.
(c) Subdivision or Combination of Common Stock. If the Company, at any
time after the initial issuance of this Warrant, subdivides (by any stock
split, stock dividend, recapitalization, reorganization, reclassification
or otherwise) its shares of Common Stock into a greater number of shares,
then, after the date of record for effecting such subdivision, the Exercise
Price in effect immediately prior to such subdivision will be
proportionately reduced. If the Company, at any time after the initial
issuance of this Warrant, combines (by reverse stock split,
recapitalization, reorganization, reclassification or otherwise) its shares
of Common Stock into a smaller number of shares, then, after the date of
record for effecting such combination, the Exercise Price in effect
immediately prior to such combination will be proportionately increased.
(d) Adjustment in Number of Shares. Upon each adjustment of the
Exercise Price pursuant to the provisions of this Section 4, the number of
shares of Common Stock issuable upon exercise of this Warrant shall be
adjusted by multiplying a number equal to the Exercise Price in effect
immediately prior to such
<PAGE>
adjustment by the number of shares of Common Stock issuable upon exercise
of this Warrant immediately prior to such adjustment and dividing the
product so obtained by the adjusted Exercise Price.
(e) Major Transactions. If the Company shall consolidate or merge with
any other corporation or entity (other than a consolidation or merger in
which the Company is the surviving or continuing entity and its capital
stock is unchanged and unissued in such transaction (except for issuances
which do not exceed fifty percent (50%) of the Common Stock)) or there
shall occur any share exchange pursuant to which all of the outstanding
shares of Common Stock are converted into other securities or property or
any such other reclassification or change of the outstanding shares of
Common Stock or the Company shall sell all or substantially all of its
assets (each of the foregoing being a "Major Transaction"), then the holder
of this Warrant may, at its option, either (a) in the event that the Common
Stock remains outstanding or holders of Common Stock receive any common
stock or substantially similar equity interest, in each of the foregoing
cases which is publicly traded, retain this Warrant and this Warrant shall
continue to apply to such Common Stock or shall apply, as nearly as
practicable, to such other common stock or equity interest, as the case may
be, or (b) regardless of whether (a) applies, receive consideration, in
exchange for this Warrant (without payment of any exercise price
hereunder), equal to the greater of, as determined in the sole discretion
of such holder, (i) the number of shares of stock or securities or property
of the Company, or of the entity resulting from such Major Transaction (the
"Major Transaction Consideration"), to which a holder of the number of
shares of Common Stock delivered upon the exercise of this Warrant
(pursuant to the cashless exercise feature hereof) would have been entitled
upon such Major Transaction had such holder so exercised this Warrant
(without regard to any limitations on exercise herein or elsewhere
contained) on the trading date immediately preceding the public
announcement of the transaction resulting in such Major Transaction and had
such Common Stock been issued and outstanding and had such Holder been the
holder of record of such Common Stock at the time of the consummation of
such Major Transaction, and (ii) cash paid by the Company in immediately
available funds in an amount equal to the Black-Scholes Amount (as defined
herein) times the number of shares of Common Stock for which this Warrant
was exercisable (without regard to any limitations on exercise herein
contained and assuming payment of the exercise payment in cash hereunder)
but in no event shall such amount exceed the Black Scholes value of the
Warrant as of the Closing Date as determined by the Company's Auditors, and
the Company shall make lawful provision for the foregoing as a part of such
Major Transaction and shall cause the issuer of any security in such
transaction which constitutes Registrable Securities under that certain
Registration Rights Agreement dated August 25, 1999 by and between the
Company and Castle Creek (the "Registration Rights Agreement") to assume
all of the Company's obligations under the Registration Rights Agreement.
In the event that the
<PAGE>
Company shall consolidate or merge with any other corporation in a
transaction in which common stock of the surviving corporation or the
parent thereof (the "Exchange Securities") is issued to the holders of
Common Stock in such transaction in exchange for all such Common Stock, and
(a) the Exchange Securities are publicly traded, (b) the average daily
dollar trading volume of the Exchange Securities during the one hundred
eighty (180) day period ending on the date on which such transaction is
publicly disclosed is greater than One Million Dollars ($1,000,000.00) per
day as reported by Bloomberg, (c) the historical one hundred (100) day
volatility of the Exchange Securities during the period ending on the date
on which such transaction is publicly disclosed is greater than fifty
percent (50%), and (d) the market capitalization of the issuer of the
Exchange Securities is not less than One hundred Million Dollars
($100,000,000.00) based on the last sale price of the Exchange Securities
on the date immediately before the date on which such transaction is
publicly disclosed (in each case, with respect to the foregoing clauses (a)
through (d), as reported by Bloomberg), then the provisions of clause (b)
of the preceding sentence shall not apply. In the event that the Company
shall, in a Major Transaction, consolidate or merge with any other
corporation in a transaction in which the Company is the survivor (a
"Company Transaction"), the provisions of clause (ii) of the second
preceding sentence shall not apply to the extent that each of the following
conditions remain true for the thirty (30) business days commencing as of
the date of the consummation of such transaction (the "Measurement
Period"): (a) the Common Stock remains publicly traded during the period,
(b) the average daily dollar trading volume of the Common Stock is greater
than One Million Dollars ($1,000,000.00), (c) the historical thirty (30)
day volatility of the Company's Common Stock is greater than fifty percent
(50%), and (d) the market capitalization of the Company is not less than
One Hundred Million Dollars ($100,000,000.00) on the last day of the period
(in each case, with respect to the foregoing clauses (a) through (d), as
reported by Bloomberg. No sooner than ten (10) business days nor later than
five (5) business days prior to the consummation of the Major Transaction,
but not prior to the public announcement of such Major Transaction, the
Company shall deliver written notice ("Notice of Major Transaction") to
each holder of a Warrant, which Notice of Major Transaction shall be deemed
to have been delivered one (1) business day after the Company's sending
such notice by telecopy (provided that the Company sends a confirming copy
of such notice on the same day by overnight courier) of such Notice of
Major Transaction. Such Notice of Major Transaction shall indicate the
amount and type of the Major Transaction consideration which such holder of
a Warrant would receive under this Section. If the Major Transaction
Consideration is cash and does not consist entirely of United States
currency, such holder may elect to receive United States currency in an
amount equal to the value of the Major Transaction Consideration in lieu
<PAGE>
of the Major Transaction Consideration by delivering notice of such
election to the Company within five (5) business days of such holder's
receipt of the Notice of Major Transaction.
The "Black-Scholes Amount" shall be the amount determined by
calculating the "Black-Scholes" value of an option to purchase one share of
Common Stock on the applicable page on the Bloomberg online page, using the
following variable values: (i) the current market price of the Common Stock
equal to the closing trade price on the last trading day before the date of
the Notice of the Major Transaction; (ii) volatility of the Common Stock
equal to the volatility of the common Stock during the 100 trading day
period preceding the date of the Notice of the Major Transaction; (iii) a
risk free rate equal to the interest rate on the United States treasury
bill or treasury note with a maturity corresponding to the remaining term
of this Warrant on the date of the Notice of the Major Transaction; and
(iv) an exercise price equal to the Exercise Price on the date of the
Notice of the Major Transaction. In the event such calculation function is
no longer available utilizing the Bloomberg online page, the Holder shall
calculate such amount in its sole discretion using the closest available
alternative mechanism and variable values to those available utilizing the
Bloomberg online page for such calculation function.
(f) Distribution of Assets. In case the Company shall declare or make
any distribution of its assets (or rights to acquire its assets) to holders
of Common Stock as a partial liquidating dividend, by way of return of
capital or otherwise (including any dividend or distribution to the
Company's shareholders of cash or shares (or rights to acquire shares) of
capital stock of a subsidiary) (a "Distribution"), at any time after the
initial issuance of this Warrant, then the Holder shall be entitled upon
exercise of this Warrant for the purchase of any or all of the shares of
Common Stock subject hereto, to receive the amount of such assets (or
rights) which would have been payable to the Holder had such Holder been
the holder of such shares of Common Stock on the record date for the
determination of shareholders entitled to such Distribution.
(g) Special Adjustment and Notices of Adjustment. Upon the occurrence
of any event which requires any adjustment of the Exercise Price, then, and
in each such case, the Company shall give notice thereof to the Holder,
which notice shall state the Exercise Price resulting from such adjustment
and the increase or decrease in the number of Warrant Shares purchasable at
such price upon exercise, setting forth in reasonable detail the method of
calculation and the facts upon which such calculation is based. Such
calculation shall be certified by the chief financial officer of the
Company. If the Company takes any actions (including under or by virtue of
Section 4 of the Warrant) which would have a dilutive effect on the Holder
or which would materially and adversely affect the Holder with respect to
its investment in the Warrant, and if the provisions of Section 4
<PAGE>
of the Warrant, are not strictly applicable to such actions or, if
applicable to such actions, would not operate to equitably protect the
Holder against such actions, then the Company shall promptly upon notice
from Holder appoint its independent certified public accountants to
determine as promptly as practicable an appropriate adjustment to the terms
hereof, including without limitation adjustments to the Exercise Price, or
another appropriate action to so equitably protect such Holder and prevent
any such dilution and any such material adverse effect, as the case may be.
Following such determination, the Company shall forthwith make the
adjustments or take the other actions described therein.
(h) Minimum Adjustment of Exercise Price. No adjustment of the
Exercise Price shall be made in an amount of less than 1% of the Exercise
Price in effect at the time such adjustment is otherwise required to be
made, but any such lesser adjustment shall be carried forward and shall be
made at the time and together with the next subsequent adjustment which,
together with any adjustments so carried forward, shall amount to not less
than 1% of such Exercise Price.
(i) [Intentionally Omitted]
(h) Other Notices. In case at any time:
(i) the Company shall declare any dividend upon the Common Stock
payable in shares of stock of any class or make any other distribution
to the holders of the Common Stock;
(ii) the Company shall offer for subscription pro rata to the
holders of the Common Stock any additional shares of stock of any
class or other rights;
(iii) there shall be any capital reorganization of the Company,
or reclassification of the Common Stock, or consolidation or merger of
the Company with or into, or sale of all or substantially all of its
assets to, another corporation or entity; or
(iv) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Company;
then, in each such case, the Company shall give to the Holder (a) notice of
the date on which the books of the Company shall close or a record shall be
taken for determining the holders of Common Stock entitled to receive any
such dividend, distribution, or subscription rights or for determining the
holders of Common Stock entitled to vote in respect of any such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding-up and (b) in the case of any such reorganization,
<PAGE>
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up, notice of the date (or, if not then known, a reasonable
approximation thereof by the Company) when the same shall take place. Such
notice shall also specify the date on which the holders of Common Stock
shall be entitled to receive such dividend, distribution, or subscription
rights or to exchange their Common Stock for stock or other securities or
property deliverable upon such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation, or winding-up, as
the case may be. Such notice shall be given at least thirty (30) days prior
to the record date or the date on which the Company's books are closed in
respect thereto, but in no event earlier than public announcement of such
proposed transaction or event. Failure to give any such notice or any
defect therein shall not affect the validity of the proceedings referred to
in clauses (i), (ii), (iii) and (iv) above.
(i) Certain Definitions.
(1) "Common Stock Deemed Outstanding" shall mean the number of
shares of Common Stock actually outstanding (not including shares of
Common Stock held in the treasury of the Company), plus (x) in case of
any adjustment required by Section 4(a) resulting from the issuance of
any Options, the maximum total number of shares of Common Stock
issuable upon the exercise of the Options for which the adjustment is
required (including any Common Stock issuable upon the conversion of
Convertible Securities issuable upon the exercise of such Options),
and (y) in the case of any adjustment required by Section 4(a)
resulting from the issuance of any Convertible Securities, the maximum
total number of shares of Common Stock issuable upon the exercise,
conversion or exchange of the Convertible Securities for which the
adjustment is required, as of the date of issuance of such Convertible
Securities, if any.
(2) "Market Price," as of any date, (i) means the average of the
Closing Bid Prices for the shares of Common Stock as reported to
Nasdaq for the ten (10) trading days immediately preceding such date,
or (ii) if Nasdaq is not the principal trading market for the Common
Stock, the average of the last reported bid prices on the principal
trading market for the Common Stock during the same period, or, if
there is no bid price for such period, the last reported sales price
for such period, or (iii) if market value cannot be calculated as of
such date on any of the foregoing bases, the Market Price shall be the
average fair market value as reasonably determined by an investment
<PAGE>
banking firm selected by the Company and reasonably acceptable to the
Holders of a majority in interest of the Warrant, with the costs of
the appraisal to be borne by the Company. The manner of determining
the Market Price of the Common Stock set forth in the foregoing
definition shall apply with respect to any other security in respect
of which a determination as to market value must be made hereunder.
(3) "Common Stock," for purposes of this Section 4, includes the
Common Stock and any additional class of stock of the Company having
no preference as to dividends or distributions on liquidation,
provided that the shares purchasable pursuant to this Warrant shall
include only Common Stock in respect of which this Warrant is
exercisable, or shares resulting from any subdivision or combination
of such Common Stock, or in the case of any reorganization,
reclassification, consolidation, merger, or sale of the character
referred to in Section 4(e) hereof, the stock or other securities or
property provided for in such Section.
(j) Key Officer or Director Transfers. If any Key Officer (as defined
below) or director (in each case, or any member of his/her family or any
trust or other entity for the benefit of any member of his/her family),
during the period beginning on the Closing Date and ending on the date that
is six months after the registration statement required pursuant to Section
2.1 of the Registration Rights Agreement is declared effective, and while
such person is a Key Officer or director, directly or indirectly, offers,
sells, transfers, assigns, pledges, or otherwise disposes (except by gift
to family members or charitable organizations) of any shares of Common
Stock, or any securities directly or indirectly convertible into or
exercisable or exchangeable for, or warrants, options or rights to purchase
or acquire shares of Common Stock (all such securities, "Options") or enter
into any agreement, contract, arrangement or understanding with respect to
any such offer, sale, transfer, assignment, pledge or other disposition of
any Common Stock or Options or provides or files any public notice,
including pursuant to Rule 144 of the Securities Act, of a bona fide intent
to dispose of a specified amount of Common Stock or Options (an "Executive
Transfer"), then the Exercise Price shall be reduced by twenty (20) percent
of that Exercise Price calculated pursuant to this Agreement; provided,
however, that Key Officers or directors (and all such entities for the
benefit of any members of his/her family, collectively) may sell, assign,
pledge or otherwise dispose of up to 20,000 shares in the aggregate prior
to December 31, 1999 and during the six-month period following the
effective date of the registration statement, a Key Officer or director
(and all such entities for the benefit of any members of his/her family,
collectively) may sell, assign, pledge or otherwise dispose of up to the
greater of (i) ten percent (10%) of his or her total holdings as of the
Issue Date determined
<PAGE>
in accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, or (ii) 25,000 shares of Common Stock without triggering the
adjustments of this Section. For purposes of this Section, Key Officer
shall mean R. Steven Adams, Lindley S. Branson, William R. Cullen, Perry
Evans, Andre Durand, Gwenael Hagan and Simon Greenman and any person who
assumes or performs the duties of any other Key Officer.
5. Intentionally omitted.
6. Issue Tax. The issuance of certificates for Warrant Shares upon the
exercise of this Warrant shall be made without charge to the Holder or such
shares for any issuance tax or other costs in respect thereof, provided that the
Company shall not be required to pay any tax which may be payable in respect of
any transfer involved in the issuance and delivery of any certificate in a name
other than the Holder.
7. No Rights or Liabilities as a Shareholder. This Warrant shall not
entitle the Holder to any voting rights or other rights as a shareholder of the
Company. No provision of this Warrant, in the absence of affirmative action by
the Holder to purchase Warrant Shares, and no mere enumeration herein of the
rights or privileges of the Holder, shall give rise to any liability of the
Holder for the Exercise Price or as a shareholder of the Company, whether such
liability is asserted by the Company or by creditors of the Company.
8. Transfer, Exchange, Redemption and Replacement of Warrant.
a. Restriction on Transfer. This Warrant and the rights granted to the
Holder are transferable, in whole or in part, upon surrender of this
Warrant, together with a properly executed assignment in the Form of
Assignment attached hereto as Exhibit 2, at the office or agency of the
Company referred to in Section 8(e) below, provided, however, that any
transfer or assignment shall be subject to the provisions of Section 5.1
and 5.2 of the Securities Purchase Agreement. Until due presentment for
registration of transfer on the books of the Company, the Company may treat
the registered holder hereof as the owner and holder hereof for all
purposes, and the Company shall not be affected by any notice to the
contrary. Notwithstanding anything to the contrary contained herein, the
registration rights described in Section 9 hereof are assignable only in
accordance with the provisions of the Registration Rights Agreement.
b. Warrant Exchangeable for Different Denominations. This Warrant is
exchangeable, upon the surrender hereof by the Holder at the office or
agency of the Company referred to in Section 8(e) below, for new Warrants,
in the form hereof, of different denominations representing in the
aggregate the right to purchase the number of shares of Common Stock which
may be purchased hereunder, each of such new Warrants to
<PAGE>
represent the right to purchase such number of shares as shall be
designated by the Holder of at the time of such surrender.
c. Replacement of Warrant. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction, or mutilation
of this Warrant or, in the case of any such loss, theft, or destruction,
upon delivery, of an indemnity agreement reasonably satisfactory in form
and amount to the Company, or, in the case of any such mutilation, upon
surrender and cancellation of this Warrant, the Company, at its expense,
will execute and deliver, in lieu thereof, a new Warrant, in the form
hereof, in such denominations as Holder may request.
d. Cancellation; Payment of Expenses. Upon the surrender of this
Warrant in connection with any transfer, exchange, or replacement as
provided in this Section 8, this Warrant shall be promptly canceled by the
Company. The Company shall pay all issuance taxes (other than securities
transfer taxes) and charges payable in connection with the preparation,
execution, and delivery of Warrants pursuant to this Section 8.
e. Warrant Register. The Company shall maintain, at its principal
executive offices (or such other office or agency of the Company as it may
designate by notice to the Holder), a register for this Warrant, in which
the Company shall record the name and address of the person in whose name
this Warrant has been issued, as well as the name and address of each
transferee and each prior owner of this Warrant.
f. Additional Restriction on Exercise or Transfer. Notwithstanding
anything to the contrary contained herein, the Warrant shall not be
exercisable by the Holder to the extent (but only to the extent) that, if
exercisable by Holder, Holder would beneficially own in excess of 4.99%
(the "Applicable Percentage") of the shares of Common Stock. To the extent
the above limitation applies, the determination of whether the Warrant
shall be exercisable (vis-a-vis other securities owned by Holder which
contain similar limitations on conversion) and of which Warrants shall be
exercisable (as among Warrants) shall be made on the basis of the earliest
submission of the Warrants (vis-a-vis other securities owned by the Holder
which contain similar limitations on conversion and vis a vis other
Warrants), in each case subject to such aggregate percentage limitation. No
prior inability to exercise Warrants pursuant to this paragraph shall have
any effect on the applicability of the provisions of this paragraph with
respect to any subsequent determination of exercisability. For the purposes
of this paragraph, beneficial ownership and all determinations and
calculations, including without limitation, with respect to calculations of
percentage ownership, shall be determined in accordance with Section 13(d)
of the Securities Exchange Act of 1934, as amended, and Regulation 13D and
G thereunder. The provisions of this paragraph may be implemented in a
manner otherwise than in strict
<PAGE>
conformity with the terms of this Section 8(f) with the approval of the
Board of Directors of the Company and the Holder: (i) with respect to any
matter to cure any ambiguity herein, to correct this paragraph (or any
portion hereof) which may be defective or inconsistent with the intended
Applicable Percentage beneficial ownership limitation herein contained or
to make changes or supplements necessary or desirable to properly give
effect to such Applicable Percentage limitation; and (ii) with respect to
any other matter, with the further consent of the holders of a majority of
the then outstanding shares of Common Stock. For clarification, it is
expressly a term of this security that the limitations contained in this
Section shall apply to each successor Holder. The holders of Common Stock
of the Company shall be third-party beneficiaries of this Section 8(f) and
the Company may not waive this Section 8(f) without the consent of holders
of a majority of its Common Stock.
9. Registration Rights. The initial holder of this Warrant (and certain
assignees thereof) is entitled to the benefit of such registration rights in
respect of the Warrant Shares as are set forth in the Registration Rights
Agreement.
10. Notices. Any notice herein required or permitted to be given shall be
in writing and may be personally served or delivered by courier or by confirmed
telecopy, and shall be deemed delivered at the time and date of receipt (which
shall include telephone line facsimile transmission). The addresses for such
communications shall be:
If to the Company:
Webb Interactive Services, Inc.
1800 Glenarm Place, Suite 700
Denver, Colorado 80202
Telecopy: (303) 292-5039
Attention: William Cullen
with a copy to:
Gray, Plant, Mooty, Mooty & Bennett, P.A.
3400 City Center
33 South Sixth Street
Minneapolis, MN 55402-3796
Telecopy: (612) 333-0066
Attention: Lindley S. Branson, Esq.
and if to the Holder, at such address as Holder shall have provided in writing
to the Company, or at such other address as each such party furnishes by notice
given in accordance with this Section 10.
11. Governing Law; Jurisdiction. This Warrant shall be governed by and
construed in accordance with the laws of the State of New York applicable to
contracts made and to be performed in the State of New York. The Company
irrevocably consents
<PAGE>
to the jurisdiction of the United States federal courts located in the State of
New York in any suit or proceeding based on or arising under this Warrant and
irrevocably agrees that all claims in respect of such suit or proceeding may be
determined in such courts. The Company irrevocably waives the defense of an
inconvenient forum to the maintenance of such suit or proceeding. The Company
agrees that a final nonappealable judgment in any such suit or proceeding shall
be conclusive and may be enforced in other jurisdictions by suit on such
judgment or in any other lawful manner.
12. Miscellaneous.
12.1 Amendments. This Warrant and any provision hereof may only be
amended by an instrument in writing signed by the Company and the Holder.
12.2 Descriptive Headings. The descriptive headings of the several
Sections of this Warrant are inserted for purposes of reference only, and
shall not affect the meaning or construction of any of the provisions
hereof.
12.3 Cashless Exercise. Notwithstanding anything to the contrary
contained in this Warrant, this Warrant may be exercised by presentation
and surrender of this Warrant to the Company at its principal executive
offices with a written notice of the Holder's intention to effect a
cashless exercise, including a calculation of the number of shares of
Common Stock to be issued upon such exercise in accordance with the terms
hereof (a "Cashless Exercise"). In the event of a Cashless Exercise, in
lieu of paying the Exercise Price in cash, the Holder shall surrender this
Warrant for the number of shares of Common Stock determined by multiplying
the number of Warrant Shares to which it would otherwise be entitled by a
fraction, the numerator of which shall be the difference between the then
current Market Price per share of the Common Stock and the Exercise Price,
and the denominator of which shall be such then current Market Price per
share of Common Stock. Notwithstanding the provisions of this section
12(c), so long as a Registration Statement is effective and is available
for immediate use pursuant to the Registration Rights Agreement dated even
date herewith, the Holder shall not have the rights provided to it under
this provision.
12.4 Assignability. This Warrant shall be binding upon the Company and
its successors and assigns and shall inure to the benefit of Holder and its
successors and assigns. The Holder shall notify the Company upon the
assignment of this Warrant.
* * *
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed
by its duly authorized officer.
Webb Interactive Services, Inc.
By: /s/ William R. Cullen
-------------------------------
Name: William R. Cullen
-------------------------------
Title: EVP & CFO
-------------------------------
<PAGE>
FORM OF EXERCISE AGREEMENT
(To be Executed by the Holder in order to Exercise the Warrant)
The undersigned hereby irrevocably exercises the right to purchase
____________ of the shares of common stock of Webb Interactive Services, Inc., a
Colorado corporation doing business as Webb Interactive Services, Inc. (the
"Company"), evidenced by the attached Warrant, and [herewith makes payment of
the Exercise Price with respect to such shares in full/ elects to effect a
Cashless Exercise pursuant to the terms of the Warrant], all in accordance with
the conditions and provisions of said Warrant.
(i) The undersigned agrees not to offer, sell, transfer or otherwise
dispose of any Common Stock obtained on exercise of the Warrant, except under
circumstances that will not result in a violation of the Securities Act of 1933,
as amended, or any state securities laws.
(ii) The undersigned requests that stock certificates for such shares be
issued, and a Warrant representing any unexercised portion hereof be issued,
pursuant to the Warrant in the name of the Holder (or such other person or
persons indicated below) and delivered to the undersigned (or designee(s) at the
address (or addresses) set forth below:
Date:__________________ ________________________________________
Signature of Holder
Name of Holder (Print)
Address:
<PAGE>
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers
all rights of the undersigned under the within Warrant, with respect to the
number of shares of Common Stock covered thereby set forth hereinbelow, to:
Name of Assignee Address No. of Shares
- ---------------- ------- -------------
, and hereby irrevocably constitutes and appoints ______________________________
as agent and attorney-in-fact to transfer said Warrant on the books of the
within-named corporation, with full power of substitution in the premises.
Date:____________, _____,
In the presence of
Name:
-------------------------------------
Signature:
--------------------------------
Title of Signing Officer or
Agent (if any):
Address:
-----------------------------
Note: The above signature should
correspond exactly with the
name on the face of the within
Warrant.
<PAGE>
Exhibit 10.6
VOID AFTER 5:00 P.M., CENTRAL TIME ON DECEMBER 18, 2004
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE OF
THE UNITED STATES. THE SECURITIES REPRESENTED HEREBY MAY NOT BE OFFERED OR SOLD
OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
FOR THE SECURITIES UNDER APPLICABLE SECURITIES LAWS, OR UNLESS OFFERED, SOLD OR
TRANSFERRED PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THOSE LAWS.
Right to Purchase 136,519 Shares of
Common Stock, no par value
Date: December 18, 1999
WEBB INTERACTIVE SERVICES, INC.
STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, Castle Creek Technology Partners
LLC ("Castle Creek"), or its registered assigns, is entitled to purchase from
Webb Interactive Services, Inc., a Colorado corporation doing business as Webb
Interactive Services, Inc. (the "Company"), at any time or from time to time
during the period specified in Section 2 hereof, 136,519 fully paid and
nonassessable shares of the Company's Common Stock, no par value (the "Common
Stock"), at an exercise price of $18.506 per share (the "Exercise Price").
Subject to the completion by the Company prior to March 22, 2000 of an equity or
equity-like financing raising proceeds for the Company of not less than $10
million in which Castle Creek has the right to invest not less than $5 million,
the Exercise Price shall be adjusted and shall be effective September 30, 2000,
subject to adjustment as provided in Section 4 hereof, the lower of (i) the
Exercise Price in effect on September 29, 2000, or (ii) a price which is equal
to the average of the Closing Bid Prices for the Company's Common Stock for the
20 consecutive trading days ending on September 29, 2000. This Warrant is being
issued pursuant to that certain Securities Purchase Agreement dated August 25,
1999, as amended on December 18, 1999, by and between the Company and Castle
Creek (the "Securities Purchase Agreement"). The number of shares of Common
Stock purchasable hereunder (the "Warrant Shares") and the Exercise Price are
subject to adjustment as provided in Section 4 hereof.
The term "Closing Bid Price" means, for any security as of any date, the
closing bid price of such security on the principal securities exchange or
trading market where such security is listed or traded as reported by Bloomberg
Financial Markets or a comparable reporting service of national reputation
selected by the Company and
<PAGE>
reasonably acceptable to the holder hereof (the "Holder") if Bloomberg Financial
Markets is not then reporting closing bid prices of such security (collectively,
"Bloomberg"), or if the foregoing does not apply, the last reported sale price
of such security in the over-the-counter market on the electronic bulletin board
of such security as reported by Bloomberg, or, if no sale price is reported for
such security by Bloomberg, the average of the bid prices of any market makers
for such security as reported in the "pink sheets" by the National Quotation
Bureau, Inc. If the Closing Bid Price cannot be calculated for such security on
such date on any of the foregoing bases, the Closing Bid Price of such security
on such date shall be the fair market value as reasonably determined by an
investment banking firm selected by the Company and reasonably acceptable to the
Holder with the costs of such appraisal to be borne by the Company.
This Warrant is subject to the following terms, provisions, and conditions:
1. Mechanics of Exercise. Subject to the provisions hereof, including,
without limitation, the limitations contained in Section 8(f) hereof, this
Warrant may be exercised as follows:
(a) Manner of Exercise. This Warrant may be exercised by the Holder,
in whole or in part, by the surrender of this Warrant (or evidence of loss,
theft, destruction or mutilation thereof in accordance with Section 8(c)
hereof), together with a completed exercise agreement in the Form of
Exercise Agreement attached hereto as Exhibit 1 (the "Exercise Agreement"),
to the Company at the Company's principal executive offices (or such other
office or agency of the Company as it may designate by notice to the
Holder), and upon (i) payment to the Company in cash, by certified or
official bank check or by wire transfer for the account of the Company, of
the Exercise Price for the Warrant Shares specified in the Exercise
Agreement or (ii) if the Holder elects to effect a Cashless Exercise (as
defined in Section 12(c) below), delivery to the Company of a written
notice of an election to effect a Cashless Exercise for the Warrant Shares
specified in the Exercise Agreement. The Warrant Shares so purchased shall
be deemed to be issued to the Holder or Holder's designees, as the record
owner of such shares, as of the date on which this Warrant shall have been
surrendered, the completed Exercise Agreement shall have been delivered,
and payment (or notice of an election to effect a Cashless Exercise) shall
have been made for such shares as set forth above.
(b) Issuance of Certificates. Subject to Section 1(c), certificates
for the Warrant Shares so purchased, representing the aggregate number of
shares specified in the Exercise Agreement, shall be delivered to the
Holder within a reasonable time, not exceeding three (3) business days,
after this Warrant shall have been so exercised (the "Delivery Period").
The certificates so delivered shall be in such denominations as may be
requested by the Holder and shall be registered in the name of Holder or
such other name as shall be designated by such
<PAGE>
Holder. If this Warrant shall have been exercised only in part, then,
unless this Warrant has expired, the Company shall, at its expense, at the
time of delivery of such certificates, deliver to the Holder a new Warrant
representing the number of shares with respect to which this Warrant shall
not then have been exercised.
(c) Exercise Disputes. In the case of any dispute with respect to an
exercise, the Company shall promptly issue such number of shares of Common
Stock as are not disputed in accordance with this Section. If such dispute
involves the calculation of the Exercise Price, the Company shall submit
the disputed calculations to a nationally recognized independent accounting
firm (selected by the Company and reasonably acceptable to Holder) via
facsimile within three (3) business days of receipt of the Exercise
Agreement. The accounting firm shall audit the calculations and notify the
Company and the converting Holder of the results no later than two (2)
business days from the date it receives the disputed calculations. The
accounting firm's calculation shall be deemed conclusive, absent manifest
error. The Company shall then issue the appropriate number of shares of
Common Stock in accordance with this Section.
(d) Fractional Shares. No fractional shares of Common Stock are to be
issued upon the exercise of this Warrant, but the Company shall pay a cash
adjustment in respect of any fractional share which would otherwise be
issuable in an amount equal to the same fraction of the Exercise Price of a
share of Common Stock (as determined for exercise of this Warrant into
whole shares of Common Stock); provided that in the event that sufficient
funds are not legally available for the payment of such cash adjustment any
fractional shares of Common Stock shall be rounded up to the next whole
number.
2. Period of Exercise. This Warrant is exercisable at any time and from
time to time on or after the date hereof and before 5:00 P.M., Central Standard
Time on the fifth (5th) anniversary of the date hereof (the "Exercise Period").
3. Certain Agreements of the Company. The Company hereby covenants and
agrees as follows:
(a) Shares to be Fully Paid. All Warrant Shares will, upon issuance in
accordance with the terms of this Warrant, be validly issued, fully paid,
and non-assessable and free from all taxes, liens, claims and encumbrances.
(b) Reservation of Shares. During the Exercise Period, the Company
shall at all times have authorized, and reserved for the purpose of
issuance upon exercise of this Warrant, a sufficient number of shares of
Common Stock to provide for the exercise of this Warrant.
<PAGE>
(c) Listing. The Company shall promptly secure the listing of the
shares of Common Stock issuable upon exercise of this Warrant upon the
Nasdaq Small Cap Market ("Nasdaq") and use its best efforts to secure the
listing of its securities on the Nasdaq National Market System, or the New
York Stock Exchange, as required by Section 4.9 of the Securities Purchase
Agreement and upon each such national securities exchange or automated
quotation system, if any, upon which shares of Common Stock are then listed
or become listed and shall maintain, so long as any other shares of Common
Stock shall be so listed, such listing of all shares of Common Stock from
time to time issuable upon the exercise of this Warrant; and the Company
shall so list on each national securities exchange or automated quotation
system, as the case may be, and shall maintain such listing of any other
shares of capital stock of the Company issuable upon the exercise of this
Warrant so long as any shares of the same class shall be listed on such
national securities exchange or automated quotation system.
(d) Certain Actions Prohibited. The Company will not, by amendment of
its charter or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities, or any
other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms to be observed or performed by it
hereunder, but will at all times in good faith assist in the carrying out
of all the provisions of this Warrant and in the taking of all such actions
as may reasonably be requested by the Holder of this Warrant in order to
protect the exercise privilege of the Holder of this Warrant, consistent
with the tenor and purpose of this Warrant. Without limiting the generality
of the foregoing, the Company (i) will not increase the par value of any
shares of Common Stock receivable upon the exercise of this Warrant above
the Exercise Price then in effect, and (ii) will take all such actions as
may be necessary or appropriate in order that the Company may at all times
validly and legally issue fully paid and nonassessable shares of Common
Stock upon the exercise of this Warrant.
4. Antidilution Provisions. During the Exercise Period, the Exercise Price
and the number of Warrant Shares shall be subject to adjustment from time to
time as provided in this Section 4. In the event that any adjustment of the
Exercise Price as required herein results in a fraction of a cent, such Exercise
Price shall be rounded up or down to the nearest cent.
(a) Adjustment of Exercise Price and Number of Shares upon Issuance of
Common Stock. Except as otherwise provided in Section 4(c) and 4(e) hereof,
if and whenever after the initial issuance of this Warrant, the Company
issues or sells, or in accordance with Section 4(b) hereof is deemed to
have issued or sold, any shares of Common Stock for no consideration or for
a consideration per share less than the greater of the then current Market
Price (as herein defined) and the then current Exercise
<PAGE>
Price on the date of issuance (a "Dilutive Issuance"), then effective
immediately upon the Dilutive Issuance, the Exercise Price will be adjusted
in accordance with the following formula:
E' = (E) (O + P/M) / (CSDO)
where:
E' = the adjusted Exercise Price
E = the then current Exercise Price;
M = the greater of the then current Market Price and the then current
Exercise Price;
O = the number of shares of Common Stock outstanding immediately
prior to the Dilutive Issuance;
P = the aggregate consideration, calculated as set forth in Section
4(b) hereof, received by the Company upon such Dilutive Issuance;
and
CSDO = the total number of shares of Common Stock Deemed Outstanding (as
herein defined) immediately after the Dilutive Issuance.
(b) Effect on Exercise Price of Certain Events. For purposes of
determining the adjusted Exercise Price under Section 4(a) hereof, the
following will be applicable:
(i) Issuance of Rights or Options. If the Company in any manner
issues or grants any warrants, rights or options, whether or not
immediately exercisable, to subscribe for or to purchase Common Stock
or other securities exercisable, convertible into or exchangeable for
Common Stock ("Convertible Securities"), but not to include the grant
or exercise of any stock or options which may hereafter be granted or
exercised under any employee or Director benefit plan of the Company
now existing or to be implemented in the future, so long as the
issuance of such stock or options is approved by a majority of the
non-employee members of the Board of Directors of the Company or a
majority of the members of a committee of non-employee directors
established for such purpose (such warrants, rights and options to
purchase Common Stock or Convertible Securities are hereinafter
referred to as "Options"), and the price per share for which Common
Stock is issuable upon the exercise of such Options is less than the
greater of the Exercise Price or the Market Price on the date of
issuance ("Below Market Options"), then the maximum total number of
shares of Common Stock issuable upon the exercise of all such Below
Market
<PAGE>
Options (assuming full exercise, conversion or exchange of Convertible
Securities, if applicable) will, as of the date of the issuance or
grant of such Below Market Options, be deemed to be outstanding and to
have been issued and sold by the Company for such price per share. For
purposes of the preceding sentence, the price per share for which
Common Stock is issuable upon the exercise of such Below Market
Options is determined by dividing (i) the total amount, if any,
received or receivable by the Company as consideration for the
issuance or granting of such Below Market Options, plus the minimum
aggregate amount of additional consideration, if any, payable to the
Company upon the exercise of all such Below Market Options, plus, in
the case of Convertible Securities issuable upon the exercise of such
Below Market Options, the minimum aggregate amount of additional
consideration payable upon the exercise, conversion or exchange
thereof at the time such Convertible Securities first become
exercisable, convertible or exchangeable, by (ii) the maximum total
number of shares of Common Stock issuable upon the exercise of all
such Below Market Options (assuming full conversion of Convertible
Securities, if applicable). No further adjustment to the Exercise
Price will be made upon the actual issuance of such Common Stock upon
the exercise of such Below Market Options or upon the exercise,
conversion or exchange of Convertible Securities issuable upon
exercise of such Below Market Options.
(ii) Issuance of Convertible Securities.
(1) If the Company in any manner issues or sells any
Convertible Securities, whether or not immediately convertible
(other than where the same are issuable upon the exercise of
Options) and the price per share for which Common Stock is
issuable upon such exercise, conversion or exchange (as
determined pursuant to Section 4(b)(ii)(B) if applicable) is less
than the greater of the Market Price or the Exercise Price then
in effect on the date of issuance, then the maximum total number
of shares of Common Stock issuable upon the exercise, conversion
or exchange of all such Convertible Securities will, as of the
date of the issuance of such Convertible Securities, be deemed to
be outstanding and to have been issued and sold by the Company
for such price per share. For the purposes of the preceding
sentence, the price per
<PAGE>
share for which Common Stock is issuable upon such exercise,
conversion or exchange is determined by dividing (i) the total
amount, if any, received or receivable by the Company as
consideration for the issuance or sale of all such Convertible
Securities, plus the minimum aggregate amount of additional
consideration, if any, payable to the Company upon the exercise,
conversion or exchange thereof at the time such Convertible
Securities first become exercisable, convertible or exchangeable,
by (ii) the maximum total number of shares of Common Stock
issuable upon the exercise, conversion or exchange of all such
Convertible Securities. No further adjustment to the Exercise
Price will be made upon the actual issuances of such Common Stock
upon exercise, conversion or exchange of such Convertible
Securities.
(2) If the Company in any manner issues or sells any
Convertible Securities with a fluctuating conversion or exercise
price or exchange ratio (a "Variable Rate Convertible Security"),
then the price per share for which Common Stock is issuable upon
such exercise, conversion or exchange for purposes of the
calculation contemplated by Section 4(b)(ii)(A) shall be deemed
to be the lowest price per share which would be applicable
assuming that (1) all holding period and other conditions to any
discounts contained in such Convertible Security have been
satisfied, and (2) the Market Price on the date of issuance of
such Convertible Security was 80% of the Market Price on such
date (the "Assumed Variable Market Price").
(iii) Change in Option Price or Conversion Rate. Except for the
grant or exercise of any stock or options which may hereafter be
granted or exercised under any employee or Director benefit plan of
the Company now existing or to be implemented in the future, so long
as the issuance of such stock or options is approved by a majority of
the non-employee members of the Board of Directors of the Company or a
majority of the members of a committee of non-employee directors
established for such purpose, if there is a change at any time in (i)
the amount of additional consideration payable to the Company upon the
exercise of
<PAGE>
any Options; (ii) the amount of additional consideration, if any,
payable to the Company upon the exercise, conversion or exchange or
any Convertible Securities; or (iii) the rate at which any Convertible
Securities are convertible into or exchangeable for Common Stock
(other than under or by reason of provisions designed to protect
against dilution), the Exercise Price in effect at the time of such
change will be readjusted to the Exercise Price which would have been
in effect at such time had such Options or Convertible Securities
still outstanding provided for such changed additional consideration
or changed conversion rate, as the case may be, at the time initially
granted, issued or sold.
(iv) Treatment of Expired Options and Unexercised Convertible
Securities. If, in any case, the total number of shares of Common
Stock issuable upon exercise of any Options or upon exercise,
conversion or exchange of any Convertible Securities is not, in fact,
issued and the rights to exercise such option or to exercise, convert
or exchange such Convertible Securities shall have expired or
terminated, the Exercise Price then in effect will be readjusted to
the Exercise Price which would have been in effect at the time of such
expiration or termination had such Options or Convertible Securities,
to the extent outstanding immediately prior to such expiration or
termination (other than in respect of the actual number of shares of
Common Stock issued upon exercise or conversion thereof), never been
issued.
(v) Calculation of Consideration Received. If any Common Stock,
Options or Convertible Securities are issued, granted or sold for
cash, the consideration received therefor for purposes of this Warrant
will be the amount received by the Company therefor, before deduction
of reasonable commissions, underwriting discounts or allowances or
other reasonable expenses paid or incurred by the Company in
connection with such issuance, grant or sale. In case any Common
Stock, Options or Convertible Securities are issued or sold for a
consideration part or all of which shall be other than cash, the
amount of the consideration other than cash received by the Company
will be the fair market value of such consideration except where such
consideration consists of freely-tradeable securities, in which case
the amount of consideration received by the Company will be the Market
Price thereof as of the date of receipt. In case any Common Stock,
Options or Convertible Securities are issued in connection with any
<PAGE>
merger or consolidation in which the Company is the surviving
corporation, the amount of consideration therefor will be deemed to be
the fair market value of such portion of the net assets and business
of the non-surviving corporation as is attributable to such Common
Stock, Options or Convertible Securities, as the case may be. The fair
market value of any consideration other than cash or securities will
be determined in the good faith reasonable business judgment of the
Board of Directors.
(vi) Exceptions to Adjustment of Exercise Price. No adjustment to
the Exercise Price will be made (i) upon the exercise of any warrants,
options or convertible securities issued and outstanding on the date
hereof in accordance with the terms of such securities as of such
date; (ii) upon the grant or exercise of any stock or options which
may hereafter be granted or exercised under any employee or Director
benefit plan of the Company now existing or to be implemented in the
future, so long as the issuance of such stock or options is approved
by a majority of the non-employee members of the Board of Directors of
the Company or a majority of the members of a committee of
non-employee directors established for such purpose; (iii) upon the
issuance of the Conversion Shares (as defined in the Securities
Purchase Agreement) or the Warrant in accordance with terms of the
Securities Purchase Agreement; or (iv) upon the exercise of the
Warrant.
(c) Subdivision or Combination of Common Stock. If the Company, at any
time after the initial issuance of this Warrant, subdivides (by any stock
split, stock dividend, recapitalization, reorganization, reclassification
or otherwise) its shares of Common Stock into a greater number of shares,
then, after the date of record for effecting such subdivision, the Exercise
Price in effect immediately prior to such subdivision will be
proportionately reduced. If the Company, at any time after the initial
issuance of this Warrant, combines (by reverse stock split,
recapitalization, reorganization, reclassification or otherwise) its shares
of Common Stock into a smaller number of shares, then, after the date of
record for effecting such combination, the Exercise Price in effect
immediately prior to such combination will be proportionately increased.
(d) Adjustment in Number of Shares. Upon each adjustment of the
Exercise Price pursuant to the provisions of this Section 4, the number of
shares of Common Stock issuable upon exercise of this Warrant shall be
adjusted by multiplying a number equal to the Exercise Price in effect
immediately prior to such adjustment by the number of shares of Common
Stock issuable upon exercise of this Warrant immediately prior to such
<PAGE>
adjustment and dividing the product so obtained by the adjusted Exercise
Price.
(e) Major Transactions. If the Company shall consolidate or merge with
any other corporation or entity (other than a consolidation or merger in
which the Company is the surviving or continuing entity and its capital
stock is unchanged and unissued in such transaction (except for issuances
which do not exceed fifty percent (50%) of the Common Stock)) or there
shall occur any share exchange pursuant to which all of the outstanding
shares of Common Stock are converted into other securities or property or
any such other reclassification or change of the outstanding shares of
Common Stock or the Company shall sell all or substantially all of its
assets (each of the foregoing being a "Major Transaction"), then the holder
of this Warrant may, at its option, either (a) in the event that the Common
Stock remains outstanding or holders of Common Stock receive any common
stock or substantially similar equity interest, in each of the foregoing
cases which is publicly traded, retain this Warrant and this Warrant shall
continue to apply to such Common Stock or shall apply, as nearly as
practicable, to such other common stock or equity interest, as the case may
be, or (b) regardless of whether (a) applies, receive consideration, in
exchange for this Warrant (without payment of any exercise price
hereunder), equal to the greater of, as determined in the sole discretion
of such holder, (i) the number of shares of stock or securities or property
of the Company, or of the entity resulting from such Major Transaction (the
"Major Transaction Consideration"), to which a holder of the number of
shares of Common Stock delivered upon the exercise of this Warrant
(pursuant to the cashless exercise feature hereof) would have been entitled
upon such Major Transaction had such holder so exercised this Warrant
(without regard to any limitations on exercise herein or elsewhere
contained) on the trading date immediately preceding the public
announcement of the transaction resulting in such Major Transaction and had
such Common Stock been issued and outstanding and had such Holder been the
holder of record of such Common Stock at the time of the consummation of
such Major Transaction, and (ii) cash paid by the Company in immediately
available funds in an amount equal to the Black-Scholes Amount (as defined
herein) times the number of shares of Common Stock for which this Warrant
was exercisable (without regard to any limitations on exercise herein
contained and assuming payment of the exercise payment in cash hereunder)
but in no event shall such amount exceed the Black Scholes value of the
Warrant as of the Closing Date as determined by the Company's Auditors, and
the Company shall make lawful provision for the foregoing as a part of such
Major Transaction and shall cause the issuer of any security in such
transaction which constitutes Registrable Securities under that certain
Registration Rights Agreement dated August 25, 1999 by and between the
Company and Castle Creek (the "Registration Rights Agreement") to assume
all of the Company's obligations under the Registration Rights Agreement.
In the event that the
<PAGE>
Company shall consolidate or merge with any other corporation in a
transaction in which common stock of the surviving corporation or the
parent thereof (the "Exchange Securities") is issued to the holders of
Common Stock in such transaction in exchange for all such Common Stock, and
(a) the Exchange Securities are publicly traded, (b) the average daily
dollar trading volume of the Exchange Securities during the one hundred
eighty (180) day period ending on the date on which such transaction is
publicly disclosed is greater than One Million Dollars ($1,000,000.00) per
day as reported by Bloomberg, (c) the historical one hundred (100) day
volatility of the Exchange Securities during the period ending on the date
on which such transaction is publicly disclosed is greater than fifty
percent (50%), and (d) the market capitalization of the issuer of the
Exchange Securities is not less than One hundred Million Dollars
($100,000,000.00) based on the last sale price of the Exchange Securities
on the date immediately before the date on which such transaction is
publicly disclosed (in each case, with respect to the foregoing clauses (a)
through (d), as reported by Bloomberg), then the provisions of clause (b)
of the preceding sentence shall not apply. In the event that the Company
shall, in a Major Transaction, consolidate or merge with any other
corporation in a transaction in which the Company is the survivor (a
"Company Transaction"), the provisions of clause (ii) of the second
preceding sentence shall not apply to the extent that each of the following
conditions remain true for the thirty (30) business days commencing as of
the date of the consummation of such transaction (the "Measurement
Period"): (a) the Common Stock remains publicly traded during the period,
(b) the average daily dollar trading volume of the Common Stock is greater
than One Million Dollars ($1,000,000.00), (c) the historical thirty (30)
day volatility of the Company's Common Stock is greater than fifty percent
(50%), and (d) the market capitalization of the Company is not less than
One Hundred Million Dollars ($100,000,000.00) on the last day of the period
(in each case, with respect to the foregoing clauses (a) through (d), as
reported by Bloomberg. No sooner than ten (10) business days nor later than
five (5) business days prior to the consummation of the Major Transaction,
but not prior to the public announcement of such Major Transaction, the
Company shall deliver written notice ("Notice of Major Transaction") to
each holder of a Warrant, which Notice of Major Transaction shall be deemed
to have been delivered one (1) business day after the Company's sending
such notice by telecopy (provided that the Company sends a confirming copy
of such notice on the same day by overnight courier) of such Notice of
Major Transaction. Such Notice of Major Transaction shall indicate the
amount and type of the Major Transaction consideration which such holder of
a Warrant would receive under this Section. If the Major Transaction
Consideration is cash and does not consist entirely of United States
currency, such holder may elect to receive United States currency in an
amount equal to the value of the Major Transaction Consideration in lieu
<PAGE>
of the Major Transaction Consideration by delivering notice of such
election to the Company within five (5) business days of such holder's
receipt of the Notice of Major Transaction.
The "Black-Scholes Amount" shall be the amount determined by
calculating the "Black-Scholes" value of an option to purchase one share of
Common Stock on the applicable page on the Bloomberg online page, using the
following variable values: (i) the current market price of the Common Stock
equal to the closing trade price on the last trading day before the date of
the Notice of the Major Transaction; (ii) volatility of the Common Stock
equal to the volatility of the common Stock during the 100 trading day
period preceding the date of the Notice of the Major Transaction; (iii) a
risk free rate equal to the interest rate on the United States treasury
bill or treasury note with a maturity corresponding to the remaining term
of this Warrant on the date of the Notice of the Major Transaction; and
(iv) an exercise price equal to the Exercise Price on the date of the
Notice of the Major Transaction. In the event such calculation function is
no longer available utilizing the Bloomberg online page, the Holder shall
calculate such amount in its sole discretion using the closest available
alternative mechanism and variable values to those available utilizing the
Bloomberg online page for such calculation function.
(f) Distribution of Assets. In case the Company shall declare or make
any distribution of its assets (or rights to acquire its assets) to holders
of Common Stock as a partial liquidating dividend, by way of return of
capital or otherwise (including any dividend or distribution to the
Company's shareholders of cash or shares (or rights to acquire shares) of
capital stock of a subsidiary) (a "Distribution"), at any time after the
initial issuance of this Warrant, then the Holder shall be entitled upon
exercise of this Warrant for the purchase of any or all of the shares of
Common Stock subject hereto, to receive the amount of such assets (or
rights) which would have been payable to the Holder had such Holder been
the holder of such shares of Common Stock on the record date for the
determination of shareholders entitled to such Distribution.
(g) Special Adjustment and Notices of Adjustment. Upon the occurrence
of any event which requires any adjustment of the Exercise Price, then, and
in each such case, the Company shall give notice thereof to the Holder,
which notice shall state the Exercise Price resulting from such adjustment
and the increase or decrease in the number of Warrant Shares purchasable at
such price upon exercise, setting forth in reasonable detail the method of
calculation and the facts upon which such calculation is based. Such
calculation shall be certified by the chief financial officer of the
Company. If the Company takes any actions (including under or by virtue of
Section 4 of the Warrant) which would have a dilutive effect on the Holder
or which would materially and adversely affect the Holder with respect to
its investment in the Warrant, and if the provisions of Section 4
<PAGE>
of the Warrant, are not strictly applicable to such actions or, if
applicable to such actions, would not operate to equitably protect the
Holder against such actions, then the Company shall promptly upon notice
from Holder appoint its independent certified public accountants to
determine as promptly as practicable an appropriate adjustment to the terms
hereof, including without limitation adjustments to the Exercise Price, or
another appropriate action to so equitably protect such Holder and prevent
any such dilution and any such material adverse effect, as the case may be.
Following such determination, the Company shall forthwith make the
adjustments or take the other actions described therein.
(h) Minimum Adjustment of Exercise Price. No adjustment of the
Exercise Price shall be made in an amount of less than 1% of the Exercise
Price in effect at the time such adjustment is otherwise required to be
made, but any such lesser adjustment shall be carried forward and shall be
made at the time and together with the next subsequent adjustment which,
together with any adjustments so carried forward, shall amount to not less
than 1% of such Exercise Price.
(i) [Intentionally Omitted]
(h) Other Notices. In case at any time:
(i) the Company shall declare any dividend upon the Common Stock
payable in shares of stock of any class or make any other distribution
to the holders of the Common Stock;
(ii) the Company shall offer for subscription pro rata to the
holders of the Common Stock any additional shares of stock of any
class or other rights;
(iii) there shall be any capital reorganization of the Company,
or reclassification of the Common Stock, or consolidation or merger of
the Company with or into, or sale of all or substantially all of its
assets to, another corporation or entity; or
(iv) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Company;
then, in each such case, the Company shall give to the Holder (a) notice of
the date on which the books of the Company shall close or a record shall be
taken for determining the holders of Common Stock entitled to receive any
such dividend, distribution, or subscription rights or for determining the
holders of Common Stock entitled to vote in respect of any such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding-up and (b) in the case of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up, notice of the date (or, if not then known, a reasonable
approximation thereof by the Company) when the same shall take place. Such
notice shall also specify the date on which the holders of Common Stock
shall be entitled to receive such dividend, distribution, or subscription
rights or to exchange their Common Stock for stock or other securities or
property deliverable upon such reorganization,
<PAGE>
reclassification, consolidation, merger, sale, dissolution, liquidation, or
winding-up, as the case may be. Such notice shall be given at least thirty
(30) days prior to the record date or the date on which the Company's books
are closed in respect thereto, but in no event earlier than public
announcement of such proposed transaction or event. Failure to give any
such notice or any defect therein shall not affect the validity of the
proceedings referred to in clauses (i), (ii), (iii) and (iv) above.
(i) Certain Definitions.
(1) "Common Stock Deemed Outstanding" shall mean the number of
shares of Common Stock actually outstanding (not including shares of
Common Stock held in the treasury of the Company), plus (x) in case of
any adjustment required by Section 4(a) resulting from the issuance of
any Options, the maximum total number of shares of Common Stock
issuable upon the exercise of the Options for which the adjustment is
required (including any Common Stock issuable upon the conversion of
Convertible Securities issuable upon the exercise of such Options),
and (y) in the case of any adjustment required by Section 4(a)
resulting from the issuance of any Convertible Securities, the maximum
total number of shares of Common Stock issuable upon the exercise,
conversion or exchange of the Convertible Securities for which the
adjustment is required, as of the date of issuance of such Convertible
Securities, if any.
(2) "Market Price," as of any date, (i) means the average of the
Closing Bid Prices for the shares of Common Stock as reported to
Nasdaq for the ten (10) trading days immediately preceding such date,
or (ii) if Nasdaq is not the principal trading market for the Common
Stock, the average of the last reported bid prices on the principal
trading market for the Common Stock during the same period, or, if
there is no bid price for such period, the last reported sales price
for such period, or (iii) if market value cannot be calculated as of
such date on any of the foregoing bases, the Market Price shall be the
average fair market value as reasonably determined by an investment
<PAGE>
banking firm selected by the Company and reasonably acceptable to the
Holders of a majority in interest of the Warrant, with the costs of
the appraisal to be borne by the Company. The manner of determining
the Market Price of the Common Stock set forth in the foregoing
definition shall apply with respect to any other security in respect
of which a determination as to market value must be made hereunder.
(3) "Common Stock," for purposes of this Section 4, includes the
Common Stock and any additional class of stock of the Company having
no preference as to dividends or distributions on liquidation,
provided that the shares purchasable pursuant to this Warrant shall
include only Common Stock in respect of which this Warrant is
exercisable, or shares resulting from any subdivision or combination
of such Common Stock, or in the case of any reorganization,
reclassification, consolidation, merger, or sale of the character
referred to in Section 4(e) hereof, the stock or other securities or
property provided for in such Section.
(j) Key Officer or Director Transfers. If any Key Officer (as defined
below) or director (in each case, or any member of his/her family or any
trust or other entity for the benefit of any member of his/her family),
during the period beginning on the Closing Date and ending on the date that
is six months after the registration statement required pursuant to Section
2.1 of the Registration Rights Agreement is declared effective, and while
such person is a Key Officer or director, directly or indirectly, offers,
sells, transfers, assigns, pledges, or otherwise disposes (except by gift
to family members or charitable organizations) of any shares of Common
Stock, or any securities directly or indirectly convertible into or
exercisable or exchangeable for, or warrants, options or rights to purchase
or acquire shares of Common Stock (all such securities, "Options") or enter
into any agreement, contract, arrangement or understanding with respect to
any such offer, sale, transfer, assignment, pledge or other disposition of
any Common Stock or Options or provides or files any public notice,
including pursuant to Rule 144 of the Securities Act, of a bona fide intent
to dispose of a specified amount of Common Stock or Options (an "Executive
Transfer"), then the Exercise Price shall be reduced by twenty (20) percent
of that Exercise Price calculated pursuant to this Agreement; provided,
however, that Key Officers or directors (and all such entities for the
benefit of any members of his/her family, collectively) may sell, assign,
pledge or otherwise dispose of up to 20,000 shares in the aggregate prior
to December 31, 1999 and during the six-month period following the
effective date of the registration statement, a Key Officer or director
(and all such entities for the benefit of any members of his/her family,
collectively) may sell, assign, pledge or otherwise dispose of up to the
greater of (i) ten percent (10%) of his or her total holdings as of the
Issue Date determined
<PAGE>
in accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, or (ii) 25,000 shares of Common Stock without triggering the
adjustments of this Section. For purposes of this Section, Key Officer
shall mean R. Steven Adams, Lindley S. Branson, William R. Cullen, Perry
Evans, Andre Durand, Gwenael Hagan and Simon Greenman and any person who
assumes or performs the duties of any other Key Officer.
5. Intentionally omitted.
6. Issue Tax. The issuance of certificates for Warrant Shares upon the
exercise of this Warrant shall be made without charge to the Holder or such
shares for any issuance tax or other costs in respect thereof, provided that the
Company shall not be required to pay any tax which may be payable in respect of
any transfer involved in the issuance and delivery of any certificate in a name
other than the Holder.
7. No Rights or Liabilities as a Shareholder. This Warrant shall not
entitle the Holder to any voting rights or other rights as a shareholder of the
Company. No provision of this Warrant, in the absence of affirmative action by
the Holder to purchase Warrant Shares, and no mere enumeration herein of the
rights or privileges of the Holder, shall give rise to any liability of the
Holder for the Exercise Price or as a shareholder of the Company, whether such
liability is asserted by the Company or by creditors of the Company.
8. Transfer, Exchange, Redemption and Replacement of Warrant.
a. Restriction on Transfer. This Warrant and the rights granted to the
Holder are transferable, in whole or in part, upon surrender of this
Warrant, together with a properly executed assignment in the Form of
Assignment attached hereto as Exhibit 2, at the office or agency of the
Company referred to in Section 8(e) below, provided, however, that any
transfer or assignment shall be subject to the provisions of Section 5.1
and 5.2 of the Securities Purchase Agreement. Until due presentment for
registration of transfer on the books of the Company, the Company may treat
the registered holder hereof as the owner and holder hereof for all
purposes, and the Company shall not be affected by any notice to the
contrary. Notwithstanding anything to the contrary contained herein, the
registration rights described in Section 9 hereof are assignable only in
accordance with the provisions of the Registration Rights Agreement.
b. Warrant Exchangeable for Different Denominations. This Warrant is
exchangeable, upon the surrender hereof by the Holder at the office or
agency of the Company referred to in Section 8(e) below, for new Warrants,
in the form hereof, of different denominations representing in the
aggregate the right to purchase the number of shares of Common Stock which
may be purchased hereunder, each of such new Warrants to
<PAGE>
represent the right to purchase such number of shares as shall be
designated by the Holder of at the time of such surrender.
c. Replacement of Warrant. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction, or mutilation
of this Warrant or, in the case of any such loss, theft, or destruction,
upon delivery, of an indemnity agreement reasonably satisfactory in form
and amount to the Company, or, in the case of any such mutilation, upon
surrender and cancellation of this Warrant, the Company, at its expense,
will execute and deliver, in lieu thereof, a new Warrant, in the form
hereof, in such denominations as Holder may request.
d. Cancellation; Payment of Expenses. Upon the surrender of this
Warrant in connection with any transfer, exchange, or replacement as
provided in this Section 8, this Warrant shall be promptly canceled by the
Company. The Company shall pay all issuance taxes (other than securities
transfer taxes) and charges payable in connection with the preparation,
execution, and delivery of Warrants pursuant to this Section 8.
e. Warrant Register. The Company shall maintain, at its principal
executive offices (or such other office or agency of the Company as it may
designate by notice to the Holder), a register for this Warrant, in which
the Company shall record the name and address of the person in whose name
this Warrant has been issued, as well as the name and address of each
transferee and each prior owner of this Warrant.
f. Additional Restriction on Exercise or Transfer. Notwithstanding
anything to the contrary contained herein, the Warrant shall not be
exercisable by the Holder to the extent (but only to the extent) that, if
exercisable by Holder, Holder would beneficially own in excess of 4.99%
(the "Applicable Percentage") of the shares of Common Stock. To the extent
the above limitation applies, the determination of whether the Warrant
shall be exercisable (vis-a-vis other securities owned by Holder which
contain similar limitations on conversion) and of which Warrants shall be
exercisable (as among Warrants) shall be made on the basis of the earliest
submission of the Warrants (vis-a-vis other securities owned by the Holder
which contain similar limitations on conversion and vis a vis other
Warrants), in each case subject to such aggregate percentage limitation. No
prior inability to exercise Warrants pursuant to this paragraph shall have
any effect on the applicability of the provisions of this paragraph with
respect to any subsequent determination of exercisability. For the purposes
of this paragraph, beneficial ownership and all determinations and
calculations, including without limitation, with respect to calculations of
percentage ownership, shall be determined in accordance with Section 13(d)
of the Securities Exchange Act of 1934, as amended, and Regulation 13D and
G thereunder. The provisions of this paragraph may be implemented in a
manner otherwise than in strict
<PAGE>
conformity with the terms of this Section 8(f) with the approval of the
Board of Directors of the Company and the Holder: (i) with respect to any
matter to cure any ambiguity herein, to correct this paragraph (or any
portion hereof) which may be defective or inconsistent with the intended
Applicable Percentage beneficial ownership limitation herein contained or
to make changes or supplements necessary or desirable to properly give
effect to such Applicable Percentage limitation; and (ii) with respect to
any other matter, with the further consent of the holders of a majority of
the then outstanding shares of Common Stock. For clarification, it is
expressly a term of this security that the limitations contained in this
Section shall apply to each successor Holder. The holders of Common Stock
of the Company shall be third-party beneficiaries of this Section 8(f) and
the Company may not waive this Section 8(f) without the consent of holders
of a majority of its Common Stock.
9. Registration Rights. The initial holder of this Warrant (and certain
assignees thereof) is entitled to the benefit of such registration rights in
respect of the Warrant Shares as are set forth in the Registration Rights
Agreement.
10. Notices. Any notice herein required or permitted to be given shall be
in writing and may be personally served or delivered by courier or by confirmed
telecopy, and shall be deemed delivered at the time and date of receipt (which
shall include telephone line facsimile transmission). The addresses for such
communications shall be:
If to the Company:
Webb Interactive Services, Inc.
1800 Glenarm Place, Suite 700
Denver, Colorado 80202
Telecopy: (303) 292-5039
Attention: William Cullen
with a copy to:
Gray, Plant, Mooty, Mooty & Bennett, P.A.
3400 City Center
33 South Sixth Street
Minneapolis, MN 55402-3796
Telecopy: (612) 333-0066
Attention: Lindley S. Branson, Esq.
and if to the Holder, at such address as Holder shall have provided in writing
to the Company, or at such other address as each such party furnishes by notice
given in accordance with this Section 10.
11. Governing Law; Jurisdiction. This Warrant shall be governed by and
construed in accordance with the laws of the State of New York applicable to
contracts made and to be performed in the State of New York. The Company
irrevocably consents
<PAGE>
to the jurisdiction of the United States federal courts located in the State of
New York in any suit or proceeding based on or arising under this Warrant and
irrevocably agrees that all claims in respect of such suit or proceeding may be
determined in such courts. The Company irrevocably waives the defense of an
inconvenient forum to the maintenance of such suit or proceeding. The Company
agrees that a final nonappealable judgment in any such suit or proceeding shall
be conclusive and may be enforced in other jurisdictions by suit on such
judgment or in any other lawful manner.
12. Miscellaneous.
12.1 Amendments. This Warrant and any provision hereof may only be
amended by an instrument in writing signed by the Company and the Holder.
12.2 Descriptive Headings. The descriptive headings of the several
Sections of this Warrant are inserted for purposes of reference only, and
shall not affect the meaning or construction of any of the provisions
hereof.
12.3 Cashless Exercise. Notwithstanding anything to the contrary
contained in this Warrant, this Warrant may be exercised by presentation
and surrender of this Warrant to the Company at its principal executive
offices with a written notice of the Holder's intention to effect a
cashless exercise, including a calculation of the number of shares of
Common Stock to be issued upon such exercise in accordance with the terms
hereof (a "Cashless Exercise"). In the event of a Cashless Exercise, in
lieu of paying the Exercise Price in cash, the Holder shall surrender this
Warrant for the number of shares of Common Stock determined by multiplying
the number of Warrant Shares to which it would otherwise be entitled by a
fraction, the numerator of which shall be the difference between the then
current Market Price per share of the Common Stock and the Exercise Price,
and the denominator of which shall be such then current Market Price per
share of Common Stock. Notwithstanding the provisions of this section
12(c), so long as a Registration Statement is effective and is available
for immediate use pursuant to the Registration Rights Agreement dated even
date herewith, the Holder shall not have the rights provided to it under
this provision.
12.4 Assignability. This Warrant shall be binding upon the Company and
its successors and assigns and shall inure to the benefit of Holder and its
successors and assigns. The Holder shall notify the Company upon the
assignment of this Warrant.
* * *
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed
by its duly authorized officer.
Webb Interactive Services, Inc.
By: /s/ William R. Cullen
-------------------------------
Name: William R. Cullen
-------------------------------
Title: EVP & CFO
-------------------------------
<PAGE>
FORM OF EXERCISE AGREEMENT
(To be Executed by the Holder in order to Exercise the Warrant)
The undersigned hereby irrevocably exercises the right to purchase
____________ of the shares of common stock of Webb Interactive Services, Inc., a
Colorado corporation doing business as Webb Interactive Services, Inc. (the
"Company"), evidenced by the attached Warrant, and [herewith makes payment of
the Exercise Price with respect to such shares in full/ elects to effect a
Cashless Exercise pursuant to the terms of the Warrant], all in accordance with
the conditions and provisions of said Warrant.
(i) The undersigned agrees not to offer, sell, transfer or otherwise
dispose of any Common Stock obtained on exercise of the Warrant, except under
circumstances that will not result in a violation of the Securities Act of 1933,
as amended, or any state securities laws.
(ii) The undersigned requests that stock certificates for such shares be
issued, and a Warrant representing any unexercised portion hereof be issued,
pursuant to the Warrant in the name of the Holder (or such other person or
persons indicated below) and delivered to the undersigned (or designee(s) at the
address (or addresses) set forth below:
Date:__________________ ________________________________________
Signature of Holder
Name of Holder (Print)
Address:
<PAGE>
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers
all rights of the undersigned under the within Warrant, with respect to the
number of shares of Common Stock covered thereby set forth hereinbelow, to:
Name of Assignee Address No. of Shares
- ---------------- ------- -------------
, and hereby irrevocably constitutes and appoints ______________________________
as agent and attorney-in-fact to transfer said Warrant on the books of the
within-named corporation, with full power of substitution in the premises.
Date:____________, _____,
In the presence of
Name:
-------------------------------------
Signature:
--------------------------------
Title of Signing Officer or
Agent (if any):
Address:
-----------------------------
Note: The above signature should
correspond exactly with the
name on the face of the within
Warrant.
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use incorporated by
reference in this registration statement on Form S-3 of our report dated March
10, 1999, included in Webb Interactive Services, Inc.'s Form 10-KSB for the year
ended December 31, 1998 and to all references to our Firm included in this
registration statement.
/s/ Arthur Andersen LLP
Denver, Colorado
December 29, 1999
