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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): May 2, 2000
POPMAIL.COM, INC.
(Exact name of registrant as specified in its charter)
Minnesota
(State or other jurisdiction
of incorporation)
0-23243
(Commission File Number)
31-1487885
(IRS Employer
Identification No.)
1331 Corporate Drive, Suite 350, Irving, Texas 75038
(Address of principal executive offices) (Zip Code)
(Former Name or Former Address, if Changed Since Last Report)
Registrant's telephone number, including area code: (972) 550-5000
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Item 5. OTHER EVENTS
The Registrant's Press Release dated May 3, 2000, which is filed as
Exhibit 99.1 to this Form 8-K, is incorporated herein by reference.
Item 7. FINANCIAL STATEMENTS AND EXHIBITS
(c) Exhibits
3.1(a) Articles of Incorporation, as amended (Incorporated herein by
reference to Exhibit 3.1 to the Company's Quarterly Report on
Form 10-Q for the quarter ended April 4, 1999)
3.1(b) Certificate of Designation of Series B Convertible Preferred
Stock (Incorporated herein by reference to Exhibit 3.1(b) to
the Company's report on Form 8-K dated June 22, 1999 and filed
on June 25, 1999)
3.1(c) Certificate of Designation of Series C 8% Convertible
Preferred Stock (incorporated herein by reference to Exhibit
3.1(c) to the Registrant's report on Form 8-K dated July 13,
1999 and filed on July 23, 1999)
3.1(d) Certificate of Designation of Series D 8% Convertible
Preferred Stock (incorporated hereby by reference to Exhibit
3.1(d) to the Registrant's Form 8-K dated September 1, 1999
and filed on September 16, 1999)
3.1(e) Articles of Amendment of Articles of Incorporation filed on
September 3, 1999 (incorporated hereby by reference to Exhibit
3.1(d) to the Registrant's Form 8-K dated September 1, 1999
and filed on September 16, 1999)
3.1(f) Certificate of Designation of Series F Convertible Preferred
Stock (incorporated herein by reference to Exhibit 3.1 of the
Company's Current Report on Form 8-K dated February 9, 2000
filed on February 24, 2000)
3.1(g) Certificate of Designation of Series E Convertible Preferred
Stock (incorporated herein by reference to Exhibit 3.1(g) of
the Company's Annual Report on Form 10-KSB for the fiscal year
ended January 2, 2000)
3.1(h) Certificate of Designation of Series G 10% Convertible
Preferred Stock
10.1 Form of Warrant
10.2 Securities Purchase Agreement, dated May 2, 2000 between the
Company and The Shaar Fund Ltd.
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10.3 Registration Rights Agreement, dated May 2, 2000 between the
Company and The Shaar Fund Ltd.
10.4 Investment Banking Agreement by and between the Company and
Sands Brothers & Co., Ltd. dated April 17, 2000.
10.5 Warrant Agreement dated as of April 17, 2000 between the
Company and Sands Brothers & Co., Ltd. (with attached Form
of Warrants)
99.1. Press Release dated May 8, 2000.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
POPMAIL.COM, INC.
Date: May 8, 2000 By: /s/ Stephen D. King
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Name: Stephen D. King
Title: Chief Executive Officer
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Exhibit Index
3.1(h) Certificate of Designation of Series G 10% Convertible Preferred Stock
10.1 Form of Warrant
10.2 Securities Purchase Agreement, dated May 2, 2000 between the Company
and The Shaar Fund Ltd.
10.3 Registration Rights Agreement, dated May 2, 2000 between the Company
and The Shaar Fund Ltd.
10.4 Letter Agreement by and between the Company and Sands Brothers & Co.,
Ltd. dated April 17, 2000.
10.5 Warrant Agreement dated as of April 17, 2000 between the Company and
Sands Brothers & Co., Ltd. (with attached Form of Warrants)
99.1. Press Release dated May 8, 2000.
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EXHIBIT 3.1(h)
CERTIFICATE OF DESIGNATION
OF
SERIES G 10% CONVERTIBLE PREFERRED STOCK
OF
POPMAIL.COM INC.
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Pursuant to Section 302A.401 of the
Business Corporation Act of the State of Minnesota
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Popmail.com, a corporation organized and existing under the
Business Corporation Act of the State of Minnesota (the "CORPORATION"), hereby
certifies that the following resolutions were adopted by the Board of Directors
of the Corporation on May 1, 2000 pursuant to authority of the Board of
Directors as required by Section 302A.401 of the Business Corporation Act of the
State of Minnesota:
RESOLVED, that pursuant to the authority granted to and vested
in the Board of Directors of this Corporation (the "BOARD OF DIRECTORS" or the
"BOARD") in accordance with the provisions of its Certificate of Incorporation,
the Board of Directors hereby authorizes a series of the Corporation's
previously authorized Preferred Stock, par value $.01 per share (the "PREFERRED
STOCK"), and hereby states the designation and number of shares, and fixes the
relative rights, preferences, privileges, powers and restrictions thereof as
follows:
Series G 10% Convertible Redeemable Preferred Stock:
ARTICLE 1
DEFINITIONS
The terms defined in this Article whenever used in this
Certificate of Designation have the following respective meanings:
(a) "ADDITIONAL CAPITAL SHARES" has the meaning set forth in
Section 6.1(c).
(b) "AFFILIATE" has the meaning ascribed to such term in Rule
12b-2 under the Securities Exchange Act of 1934, as amended.
(c) "BUSINESS DAY" means a day other than Saturday, Sunday or
any day on which banks located in the State of New York are authorized or
obligated to close.
(d) "CAPITAL SHARES" means the Common Shares and any other
shares of any other class or series of capital stock, whether now or hereafter
authorized and however designated, which have the right to participate in the
distribution of earnings and assets (upon dissolution, liquidation or
winding-up) of the Corporation.
(e) "COMMON SHARES" or "COMMON STOCK" means shares of common
stock, par value $.01 per share, of the Corporation.
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(f) "COMMON STOCK ISSUED AT CONVERSION", when used with
reference to the securities issuable upon conversion of the Series G Preferred
Stock, means all Common Shares now or hereafter Outstanding and securities of
any other class or series into which the Series G Preferred Stock hereafter
shall have been changed or substituted, whether now or hereafter created and
however designated.
(g) "CONVERSION DATE" means any day on which all or any
portion of shares of the Series G Preferred Stock is converted in accordance
with the provisions hereof.
(h) "CONVERSION NOTICE" means a written notice of conversion
substantially in the form annexed hereto as Annex I.
(i) "CONVERSION PRICE" means on any date of determination the
applicable price for the conversion of shares of Series G Preferred Stock into
Common Shares on such day as set forth in Section 6.1.
(j) "CORPORATION" means PopMail.com Inc., a Minnesota
corporation, and any successor or resulting corporation by way of merger,
consolidation, sale or exchange of all or substantially all of the Corporation's
assets, or otherwise.
(k) "CURRENT MARKET PRICE" means on any date of determination
the closing bid price of a Common Share on such day as reported on Nasdaq;
provided, if such security bid is not listed or admitted to trading on Nasdaq,
as reported on the principal national security exchange or quotation system on
which such security is quoted or listed or admitted to trading, or, if not
quoted or listed or admitted to trading on any national securities exchange or
quotation system, the closing bid price of such security on the over-the-counter
market on the day in question as reported by Bloomberg LP, or a similar
generally accepted reporting service, as the case may be.
(l) "DEFAULT DIVIDEND RATE" is equal to the Dividend Rate plus
an additional 4% per annum.
(m) "DIVIDEND PERIOD" means the semi-annual period commencing
on and including the Issue Date or, if a dividend has previously been paid, the
day after the immediately preceding Dividend Payment Due Date and ending on and
including the immediately subsequent Dividend Payment Due Date; provided,
however, that the first Dividend Period shall commence on and include the Issue
Date and end on and include December 31, 2000.
(n) "DIVIDEND PAYMENT DUE DATE" means June 30 and December 31
of each year.
(o) "DIVIDEND RATE" means 10% per annum, computed on the basis
of a 360-day year.
(p) "HOLDER" means The Shaar Fund Ltd., any successor thereto,
or any Person or Persons to whom the Series G Preferred Stock is subsequently
transferred in accordance with the provisions hereof.
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(q) "ISSUE DATE" means, as to any share of Series G Preferred
Stock, the date of issuance of such share.
(r) "JUNIOR SECURITIES" means all capital stock of the
Corporation except for the Series G Preferred Stock.
(s) "LIQUIDATION PREFERENCE" means, with respect to a share of
the Series G Preferred Stock, an amount equal to the sum of (i) the Stated Value
thereof, plus (ii) an amount equal to 5% of such Stated Value, plus (iii) the
aggregate of all accrued and unpaid dividends (whether or not earned or
declared, whether or not there were funds legally available for the payment of
dividends and whether or not a Dividend Payment Due Date has occurred since the
last dividend payment) on such share of Series G Preferred Stock until the most
recent Dividend Payment Due Date; provided that, in the event of an actual
liquidation, dissolution or winding up of the Corporation, the amount referred
to in clause (iii) above shall be calculated by including accrued and unpaid
dividends to the actual date of such liquidation, dissolution or winding up,
rather than the Dividend Payment Due Date referred to above.
(t) "MANDATORY CONVERSION DATE" has the meaning set forth in
Section 6.8.
(u) "MARKET PRICE" per Common Share means the lowest, three
closing bid prices of the Common Shares as reported on Nasdaq during any
Valuation Period, it being understood that such three Trading Days need not be
consecutive; provided, if such security bid is not listed or admitted to trading
on Nasdaq, as reported on the principal national security exchange or quotation
system on which such security is quoted or listed or admitted to trading, or, if
not quoted or listed or admitted to trading on any national securities exchange
or quotation system, the closing bid price of such security on the
over-the-counter market on the day in question as reported by Bloomberg LP, or a
similar generally accepted reporting service, for the three Trading Days on
which the three lowest closing bid prices are reported during any Valuation
Period, it being understood that such three Trading Days need not be
consecutive.
(v) "NASDAQ" means the Nasdaq SmallCap Market.
(w) "OPTIONAL REDEMPTION PRICE" has the meaning set forth in
Section 6.5.
(x) "OUTSTANDING", when used with reference to Common Shares
or Capital Shares (collectively, "SHARES"), means, on any date of determination,
all issued and outstanding Shares, and includes all such Shares issuable in
respect of outstanding scrip or any certificates representing fractional
interests in such Shares; provided, however, that any such Shares directly or
indirectly owned or held by or for the account of the Corporation or any
Subsidiary of the Corporation shall not be deemed "OUTSTANDING" for purposes
hereof.
(y) "PERSON" means an individual, a corporation, a
partnership, an association, a limited liability company, an unincorporated
business organization, a trust or other entity or organization, and any
government or political subdivision or any agency or instrumentality thereof.
(z) "REDEMPTION DATE" has the meaning set forth in Section
6.5.
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(aa) "REGISTRATION RIGHTS AGREEMENT" means that certain
Registration Rights Agreement to be dated as of May 1, 2000 between the
Corporation and The Shaar Fund Ltd.
(bb) "SEC" means the United States Securities and Exchange
Commission.
(cc) "SECURITIES ACT" means the Securities Act of 1933, as
amended, and the rules and regulations of the SEC thereunder, all as in effect
at the time.
(dd) "SECURITIES PURCHASE AGREEMENT" means that certain
Securities Purchase Agreement to be dated as of May 1, 2000 between the
Corporation and The Shaar Fund Ltd.
(ee) "SERIES F PREFERRED SHARES" or "SERIES F PREFERRED STOCK"
means the 287,408 shares of Series F Preferred Stock issued by the Company and
the shares of Series F Preferred Stock issued and issuable by the Company
pursuant to the exercise of options outstanding prior to the date hereof.
(ff) "SERIES G PREFERRED SHARES" or "SERIES G PREFERRED STOCK"
means the shares of Series G 10% Convertible Redeemable Preferred Stock of the
Corporation or such other convertible preferred stock of the Corporation as may
be exchanged therefor.
(gg) "STATED VALUE" has the meaning set forth in Article 2.
(hh) "SUBSIDIARY" means any entity of which securities or
other ownership interests having ordinary voting power to elect a majority of
the board of directors or other persons performing similar functions are owned
directly or indirectly by the Corporation.
(ii) "TRADING DAY" means any day on which (a) purchases and
sales of securities authorized for quotation on Nasdaq are reported thereon, (b)
no event which results in a material suspension or limitation of trading of the
Common Shares on Nasdaq has occurred and (c) at least one bid for the trading of
Common Shares is reported on Nasdaq.
(jj) "VALUATION EVENT" has the meaning set forth in Section
6.1.
(kk) "VALUATION PERIOD" means the period of 10 Trading Days
immediately preceding the Conversion Date; provided, however, that if a
Valuation Event occurs during a Valuation Period on a date less than 5 Trading
Days before the Conversion Date, the Valuation Period shall be extended until
the date 5 Trading Days after the occurrence of the Valuation Event.
All references to "CASH" or "$" herein mean currency of the
United States of America.
ARTICLE 2
DESIGNATION AND AMOUNT
The designation of this series, which consists of 600,000
shares of Preferred Stock, shall be Series G 10% Convertible Redeemable
Preferred Stock (the "SERIES G PREFERRED STOCK") and the stated value shall be
$10.00 per share (the "STATED VALUE").
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ARTICLE 3
RANK
The Series G Preferred Stock shall rank prior to any other
capital stock of the Corporation, except the Series F Preferred Stock.
ARTICLE 4
DIVIDENDS
(a) (i) The Holder shall be entitled to receive, when, as and
if declared by the Board of Directors, out of funds legally available for the
payment of dividends, dividends at the Dividend Rate on the Stated Value of each
share of Series G Preferred Stock on and as of each Dividend Payment Due Date
with respect to each Dividend Period; provided, however, that if any dividend is
not paid in full on any Dividend Payment Due Date, dividends shall thereafter
accrue and be payable at the Default Dividend Rate on the Stated Value of each
share of Series G Preferred Stock until all accrued dividends are paid in full.
Dividends on the Series G Preferred Stock shall be cumulative from the date of
issue, whether or not declared for any reason, including if such declaration is
prohibited under any outstanding indebtedness or borrowings of the Corporation
or any of its Subsidiaries, or any other contractual provision binding on the
Corporation or any of its Subsidiaries, and whether or not there shall be funds
legally available for the payment thereof.
(ii) Each dividend shall be payable in equal semi-annual
amounts on each Dividend Payment Due Date, commencing December 31, 2000, to the
Holders of record of shares of the Series G Preferred Stock, as they appear on
the stock records of the Corporation at the close of business on such record
date, not more than 60 days or less than 10 days preceding the payment dates
thereof, as shall be fixed by the Board of Directors. Accrued and unpaid
dividends for any past Dividend Period may be declared and paid at any time,
without reference to any Dividend Payment Due Date, to Holders of record, not
more than 15 days preceding the payment date thereof, as may be fixed by the
Board of Directors.
(iii) At the option of the Corporation, the dividend shall be
paid either (x) in cash or (y) through the issuance of duly and validly
authorized and issued, fully paid and nonassessable shares of the Common Stock
valued at the then applicable Conversion Price calculated in accordance with the
provisions of Section 6.1, assuming for this purpose, that the applicable
Dividend Payment Date is the applicable Conversion Date and registered for
resale in open market transactions on the Registration Statement (as defined in
the Registration Rights Agreement), which Registration Statement shall then be
effective under the Securities Act; provided, however, that if no funds are
legally available for the payment of cash dividends on the Series G Preferred
Stock, dividends shall be paid as provided in clause (y) above.
(b) Except as provided in Section 4(d) hereof, the Holder shall
not be entitled to any dividends in excess of the cumulative dividends, as
herein provided, on the Series G Preferred Stock.
(c) So long as any shares of the Series G Preferred Stock are
outstanding, no dividends shall be declared or paid or set apart for payment or
other distribution declared or
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made upon any Junior Securities, nor shall any Junior Securities be redeemed,
purchased or otherwise acquired (other than a redemption, purchase or other
acquisition of shares of Common Stock made for purposes of an employee incentive
or benefit plan (including a stock option plan) of the Corporation or any
Subsidiary) for any consideration by the Corporation, directly or indirectly,
nor shall any moneys be paid to or made available for a sinking fund for the
redemption of any shares of any Junior Securities, unless in each case (i) the
full cumulative dividends required to be paid in cash on all outstanding shares
of the Series G Preferred Stock shall have been paid or set apart for payment
for all past Dividend Periods with respect to the Series G Preferred Stock and
(ii) sufficient funds shall have been paid or set apart for the payment of the
dividend for the current Dividend Period with respect to the Series G Preferred
Stock.
(d) If the Corporation shall at any time or from time to time
after the Issue Date declare, order, pay or make a dividend or other
distribution (including, without limitation, any distribution of stock or other
securities or property or rights or warrants to subscribe for securities of the
Corporation or any of its Subsidiaries by way of dividend or spin-off) on shares
of its Common Stock, then, and in each such case, in addition to the dividend
obligation of the Corporation specified in Section 4(a) hereof, the Corporation
shall declare, order, pay and make the same dividend or distribution to each
Holder of Series G Preferred Stock as would have been made with respect to the
number of Common Shares the Holder would have received had it converted all of
its Series G Preferred Shares, and exercised the Warrant held by it in full for
all the Common Shares then underlying the Warrant, immediately prior to such
dividend or distribution.
ARTICLE 5
LIQUIDATION PREFERENCE; MERGERS, CONSOLIDATIONS, ETC.
(a) If the Corporation shall commence a voluntary case under
the Federal bankruptcy laws or any other applicable Federal or state bankruptcy,
insolvency or similar law, or consent to the entry of an order for relief in an
involuntary case under any law or to the appointment of a receiver, liquidator,
assignee, custodian, trustee or sequestrator (or other similar official) of the
Corporation or of any substantial part of its property, or make an assignment
for the benefit of its creditors, or admit in writing its inability to pay its
debts generally as they become due, or if a decree or order for relief in
respect of the Corporation shall be entered by a court having jurisdiction in
the premises in an involuntary case under the Federal bankruptcy laws or any
other applicable Federal or state bankruptcy, insolvency or similar law
resulting in the appointment of a receiver, liquidator, assignee, custodian,
trustee or sequestrator (or other similar official) of the Corporation or of any
substantial part of its property, or ordering the winding up or liquidation of
its affairs, and any such decree or order shall be unstayed and in effect for a
period of 30 consecutive days and, on account of any such event, the Corporation
shall liquidate, dissolve or wind up, or if the Corporation shall otherwise
liquidate, dissolve or wind up, no distribution shall be made to the holders of
any shares of capital stock of the Corporation, other than distributions to
holders of Series F Preferred Stock up to the amount of their prior liquidation
preference thereof, upon liquidation, dissolution or winding-up unless prior
thereto, the Holders of shares of Series G Preferred Stock, subject to this
Article 5, shall have received the Liquidation Preference with respect to each
share.
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(b) In case the Corporation shall reorganize its capital,
reclassify its capital stock, consolidate or merge with or into another Person
(where the Corporation is not the survivor or where there is a change in or
distribution with respect to the Common Stock of the Corporation), sell, convey,
transfer or otherwise dispose of all or substantially all its property, assets
or business to another Person, or effectuate a transaction or series of related
transactions in which more than 50% of the voting power of the Corporation is
disposed of (each, a "FUNDAMENTAL CORPORATE CHANGE") and, pursuant to the terms
of such Fundamental Corporate Change, shares of common stock of the successor or
acquiring corporation, or any cash, shares of stock or other securities or
property of any nature whatsoever (including warrants or other subscription or
purchase rights) in addition to or in lieu of common stock of the successor or
acquiring corporation ("OTHER PROPERTY"), are to be received by or distributed
to the holders of Common Stock of the Corporation, then each Holder of Series G
Preferred Stock shall have the right thereafter, at its sole option, either (x)
to require the Corporation to deem such Fundamental Corporate Change to be a
liquidation, dissolution or winding up of the Corporation pursuant to which the
Corporation shall be required to distribute, upon consummation of and as a
condition to, such Fundamental Corporate Change an amount equal to 100% of the
Liquidation Preference with respect to each outstanding share of Series G
Preferred Stock, (subject to the prior liquidation preference of the holders of
Series F Preferred Stock), (y) to receive the number of shares of common stock
of the successor or acquiring corporation or of the Corporation, if it is the
surviving corporation, and Other Property as is receivable upon or as a result
of such Fundamental Corporate Change by a holder of the number of shares of
Common Stock into which such Series G Preferred Stock may be converted at the
Conversion Price applicable immediately prior to such Fundamental Corporate
Change or (z) require the Corporation, or such successor, resulting or
purchasing corporation, as the case may be, to, without benefit of any
additional consideration therefor, to execute and deliver to the Holder shares
of its Preferred Stock with substantial identical rights, preferences,
privileges, powers, restrictions and other terms as the Series G Preferred Stock
equal to the number of shares of Series G Preferred Stock held by such Holder
immediately prior to such Fundamental Corporate Change; provided, that all
Holders of Series G Preferred Stock shall be deemed to elect the option set
forth in clause (x) above if at least a majority in interest of such Holders
elect such option. For purposes of this Section 5(b), "COMMON STOCK OF THE
SUCCESSOR OR ACQUIRING CORPORATION" shall include stock of such corporation of
any class which is not preferred as to dividends or assets over any other class
of stock of such corporation and which is not subject to redemption and shall
also include any evidences of indebtedness, shares of stock or other securities
which are convertible into or exchangeable for any such stock, either
immediately or upon the arrival of a specified date or the happening of a
specified event and any warrants or other rights to subscribe for or purchase
any such stock. The foregoing provisions of this Section 5(b) shall similarly
apply to successive Fundamental Corporate Changes.
ARTICLE 6
CONVERSION OF PREFERRED STOCK SECTION
6.1 Conversion; Conversion Price
At the option of the Holder, the shares of Series G Preferred
Stock may be converted, either in whole or in part, into Common Shares
(calculated as to each such conversion
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to the nearest 1/100th of a share) at any time and from time to time following
the date 180 days after April 12, 2000 at a Conversion Price per share of Common
Stock equal to 97% of the Market Price (subject to adjustment for any
stock-split or stock combination to occur after the date hereof), provided that
any unconverted Series G Preferred Stock remaining 211 days after the Issue Date
may be converted, at the sole option of the Holder, at a Conversion Price per
share of Common Stock equal to 94% of the Market Price; provided, further, that
any unconverted Series G Preferred Stock remaining 271 days or more after the
Issue Date may be converted, at the sole option of the Holder, at a Conversion
Price per share of Common Stock equal to 91% of the Market Price; and provided,
further, that if the Corporation's Common Stock is delisted off Nasdaq for any
reason, then any remaining unconverted Series G Preferred Stock may be
converted, at the sole option of the Holder, at a Conversion Price per share of
Common Stock equal to 75% of the Market Price. At the Corporation's option, the
amount of accrued and unpaid dividends as of the Conversion Date (whether or not
earned or declared, whether or not there were funds legally available for the
payment of dividends and whether or not a Dividend Payment Due Date has occurred
since the last dividend payment) shall not be subject to conversion but instead
may be paid in cash as of the Conversion Date; if the Corporation elects to
convert the amount of such accrued and unpaid dividends at the Conversion Date
into Common Stock, the Common Stock issued to the Holder shall be valued at the
applicable Conversion Price.
The number of shares of Common Stock due upon conversion of
Series G Preferred Stock shall be (i) the number of shares of Series G Preferred
Stock to be converted, multiplied by (ii) the Stated Value plus accrued and
unpaid dividends (whether or not earned or declared, whether or not there were
funds legally available for the payment of dividends and whether or not a
Dividend Payment Due Date has occurred since the last dividend payment), to the
extent the Corporation does not at its election pay such accrued and unpaid
dividends in cash, and divided by (iii) the applicable Conversion Price.
Within two Business Days of the occurrence of a Valuation
Event, the Corporation shall send notice thereof to each Holder. Notwithstanding
anything to the contrary contained herein, if a Valuation Event occurs during
any Valuation Period, the Holder may convert some or all of its Series G
Preferred Stock, at its sole option, at a Conversion Price equal to the Current
Market Price on any Trading Day during the Valuation Period.
For purposes of this Section 6.1, a "VALUATION EVENT" shall
mean an event in which the Corporation takes any of the following actions:
(a) subdivides or combines its Capital Shares;
(b) makes any distribution on its Capital Shares;
(c) issues any additional Capital Shares (the "ADDITIONAL
CAPITAL SHARES"), otherwise than as provided in the foregoing Sections 6.1(a)
and 6.1(b) above, at a price per share less, or for other consideration lower,
than the Current Market Price in effect immediately prior to such issuances, or
without consideration, except for issuances under employee benefit plans
consistent with those presently in effect and issuances under presently
outstanding warrants, options or convertible securities;
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(d) issues any warrants, options or other rights to subscribe
for or purchase any Additional Capital Shares if the price per share for which
Additional Capital Shares may at any time thereafter be issuable pursuant to
such warrants, options or other rights shall be less than the Current Market
Price in effect immediately prior to such issuance;
(e) issues any securities convertible into or exchangeable or
exercisable for Additional Capital Shares if the consideration per share for
which Additional Capital Shares may at any time thereafter be issuable pursuant
to the terms of such convertible, exchangeable or exercisable securities shall
be less than the Current Market Price in effect immediately prior to such
issuance;
(f) announces or effects a Fundamental Corporate Change;
(g) makes any distribution of its assets or evidences of
indebtedness to the holders of its Capital Shares as a dividend in liquidation
or by way of return of capital or other than as a dividend payable out of
earnings or surplus legally available for the payment of dividends under
applicable law or any distribution to such holders made in respect of the sale
of all or substantially all of the Corporation's assets (other than under the
circumstances provided for in the foregoing Sections 6.1(a) through 6.1(e)); or
(h) takes any action affecting the number of Outstanding
Capital Shares, other than an action described in any of the foregoing Sections
6.1(a) through 6.1(g) hereof, inclusive, which in the opinion of the Holder,
determined in good faith, would have a material adverse effect upon the rights
of the Holder at the time of a conversion of the Preferred Stock or is
reasonably likely to result in a decrease in the Market Price.
SECTION 6.2 Exercise of Conversion Privilege
(a) Conversion of the Series G Preferred Stock may be
exercised, in whole or in part, by the Holder by telecopying an executed and
completed Conversion Notice to the Corporation. Each date on which a Conversion
Notice is telecopied to the Corporation in accordance with the provisions of
this Section 6.2 shall constitute a Conversion Date. The Corporation shall
convert the Preferred Stock and issue the Common Stock Issued at Conversion, and
all voting and other rights associated with the beneficial ownership of the
Common Stock Issued at Conversion shall vest with the Holder, effective as of
the Conversion Date at the time specified in the Conversion Notice. The
Conversion Notice also shall state the name or names (with addresses) of the
Persons who are to become the holders of the Common Stock Issued at Conversion
in connection with such conversion. The Holder shall deliver the shares of
Series G Preferred Stock to the Corporation by express courier within 15 days
following the Conversion Date. Upon surrender for conversion, the Preferred
Stock shall be accompanied by a proper assignment thereof to the Corporation or
be endorsed in blank. As promptly as practicable after the receipt of the
Conversion Notice as aforesaid, but in any event not more than five Business
Days after the Corporation's receipt of such Conversion Notice, the Corporation
shall (i) issue the Common Stock issued at Conversion in accordance with the
provisions of this Article 6, and (ii) cause to be mailed for delivery by
overnight courier to the Holder (x) a certificate or certificate(s) representing
the number of Common Shares to which the Holder is entitled by virtue of such
conversion, (y) cash, as provided in Section 6.3, in respect of any fraction of
a
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Common Share issuable upon such conversion and (z) if the Corporation chooses
to pay accrued and unpaid dividends in cash, cash in the amount of accrued and
unpaid dividends as of the Conversion Date. Such conversion shall be deemed to
have been effected at the time at which the Conversion Notice indicates so long
as the Series G Preferred Stock shall have been surrendered as aforesaid at such
time, and at such time the rights of the Holder of the Series G Preferred Stock,
as such, shall cease and the Person or Persons in whose name or names the Common
Stock Issued at Conversion shall be issuable shall be deemed to have become the
holder or holders of record of the Common Shares represented thereby and all
voting and other rights associated with the beneficial ownership of such Common
Shares shall at such time vest with such Person or Persons. The Conversion
Notice shall constitute a contract between the Holder and the Corporation,
whereby the Holder shall be deemed to subscribe for the number of Common Shares
which it will be entitled to receive upon such conversion and, in payment and
satisfaction of such subscription (and for any cash adjustment to which it is
entitled pursuant to Section 6.3), to surrender the Series G Preferred Stock and
to release the Corporation from all liability thereon. No cash payment
aggregating less than $1.00 shall be required to be given unless specifically
requested by the Holder.
(b) If, at any time (i) the Corporation challenges, disputes
or denies the right of the Holder hereof to effect the conversion of the Series
G Preferred Stock into Common Shares or otherwise dishonors or rejects any
Conversion Notice delivered in accordance with this Section 6.2 or (ii) any
third party commences any lawsuit or proceeding or otherwise asserts any claim
before any court or public or governmental authority which seeks to challenge,
deny, enjoin, limit, modify, delay or dispute the right of the Holder hereof to
effect the conversion of the Series G Preferred Stock into Common Shares, then
the Holder shall have the right, by written notice to the Corporation, to
require the Corporation promptly to redeem the Series G Preferred Stock for cash
at a redemption price equal to 135% of the Stated Value thereof together with
all accrued and unpaid dividends (whether or not earned or declared, whether or
not there were funds legally available for the payment of dividends and whether
or not a Dividend Payment Due Date has occurred since the last dividend payment)
thereon (the "MANDATORY PURCHASE AMOUNT"). Under any of the circumstances set
forth above, the Corporation shall be responsible for the payment of all costs
and expenses of the Holder, including reasonable legal fees and expenses, as and
when incurred in disputing any such action or pursuing its rights hereunder (in
addition to any other rights of the Holder).
(c) The Holder shall be entitled to exercise its conversion
privilege notwithstanding the commencement of any case under 11 U.S.C. ss. 101
et seq. (the "BANKRUPTCY CODE"). In the event the Corporation is a debtor under
the Bankruptcy Code, the Corporation hereby waives to the fullest extent
permitted any rights to relief it may have under 11 U.S.C. ss. 362 in respect of
the Holder's conversion privilege. The Corporation hereby waives to the fullest
extent permitted any rights to relief it may have under 11 U.S.C. ss. 362 in
respect of the conversion of the Series G Preferred Stock. The Corporation
agrees, without cost or expense to the Holder, to take or consent to any and all
action necessary to effectuate relief under 11 U.S.C. ss. 362.
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<PAGE> 11
SECTION 6.3 Fractional Shares
No fractional Common Shares or scrip representing fractional
Common Shares shall be issued upon conversion of the Series G Preferred Stock.
Instead of any fractional Common Shares which otherwise would be issuable upon
conversion of the Series G Preferred Stock, the Corporation shall pay a cash
adjustment in respect of such fraction in an amount equal to the same fraction.
SECTION 6.4 Adjustments to Conversion Price
For so long as any shares of the Series G Preferred Stock are
outstanding, if the Corporation issues and sells pursuant to an exemption from
registration under the Securities Act (A) Common Shares at a purchase price that
is lower than (i) 35% of the Current Market Price on the date of issuance and
(ii) the Conversion Price on the date of issuance of such Common Shares, (B)
warrants or options with an exercise price on the date of issuance thereof that
is lower than (i) 35% of the Current Market Price on the date of issuance and
(ii) the Conversion Price for the Holder on such date, except for warrants or
options issued pursuant to employee stock option agreements or stock incentive
agreements of the Corporation, or (C) convertible, exchangeable or exercisable
securities with a right to exchange at lower than (i) 35% of the Current Market
Price on the date of issuance and (ii) the Current Market Price on the date of
issuance or conversion, as applicable, of such convertible, exchangeable or
exercisable securities, except for stock option agreements or stock incentive
agreements, then the Conversion Price shall be reduced to equal the lowest of
any such purchase price, exercise price or exchange price, and the number of
shares of Common Stock into which the Series G Preferred Stock is convertible
pursuant to the second paragraph of Section 6.1 shall be correspondingly
adjusted. After such reduction, the Conversion Price shall never exceed the
Conversion Price as so reduced, in spite of any subsequent increase in the
Market Price.
SECTION 6.5 Optional Redemption
At any time after the date of issuance of the Series G
Preferred Stock until the Mandatory Conversion Date (as defined below), the
Corporation, upon notice delivered to the Holder as provided in Section 6.6, may
redeem, in cash, the Series G Preferred Stock (but only with respect to such
shares as to which the Holder has not theretofore furnished a Conversion Notice
in compliance with Section 6.2) (i) at 103% of the Stated Value at any time and
from time to time following the date of issuance through and including the date
210 days after April 12, 2000; (ii) at 106% of the Stated Value at any time and
from time to time from the date 211 days after April 12, 2000 and through and
including the date 270 days after April 12, 2000, (iii) at 109% of the Stated
Value at any time and from time to time from the date 271 days after April 12,
2000 and until the Mandatory Conversion date, together with all accrued and
unpaid dividends (whether or not earned or declared, whether or not there were
funds legally available for the payment of dividends and whether or not a
Dividend Payment Due Date has occurred since the last dividend payment) thereon
to the date of redemption (the "REDEMPTION DATE"); provided, however, that the
Corporation may only redeem the Series G Preferred Stock under this Section 6.5
if the Current Market Price is less than the Current Market Price on the Issue
Date. Except as set forth in this Section 6.5, the Corporation shall not have
the right to redeem the Series G Preferred Stock.
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<PAGE> 12
SECTION 6.6 Notice of Redemption
Notice of redemption pursuant to Section 6.5 shall be provided
by the Corporation to the Holder in writing (by registered mail or overnight
courier at the Holder's last address appearing in the Corporation's security
registry) not less than 10 nor more than 15 days prior to the Redemption Date,
which notice shall specify the Redemption Date and refer to Section 6.5
(including a statement of the Current Market Price per Common Share) and this
Section 6.6.
SECTION 6.7 Surrender of Preferred Stock
Upon any redemption of the Series G Preferred Stock pursuant
to Sections 6.5 and 6.6, the Holder shall either deliver the Series G Preferred
Stock by hand to the Corporation at its principal executive offices or surrender
the same to the Corporation at such address by express courier within 14 days
after the date that the Buyer receives payment therefore. Payment of the
Optional Redemption Price shall be made by the Corporation to the Holder by wire
transfer of immediately available funds to such account(s) as the Holder shall
specify to the Corporation. If payment of such Optional Redemption Price is not
made in full by the Redemption Date, the Holder shall again have the right to
convert the Series G Preferred Stock as provided in Article 6 hereof.
SECTION 6.8 Mandatory Conversion
On the fifth anniversary of the date of this Certificate of
Designation (the "MANDATORY CONVERSION DATE"), the Corporation shall convert all
Series G Preferred Stock outstanding, at the Conversion Price utilizing the
Stated Value (plus accrued and unpaid dividends (whether or not earned or
declared, whether or not there were funds legally available for the payment of
dividends and whether or not a Dividend Payment Due Date has occurred since the
last dividend payment)) as the value of each share of Series G Preferred Stock,
into shares of Common Stock registered for resale in open market transactions on
the Registration Statement (as defined in the Registration Rights Agreement),
which Registration Statement shall then be effective under the Securities Act.
SECTION 6.9 Certain Conversion Limitations
(a) Notwithstanding anything herein to the contrary, the
Holder shall not have the right, and the Corporation shall not have the
obligation, to convert all or any portion of the Series G Preferred Stock (and
the Corporation shall not have the right to pay dividends on the Series G
Preferred Stock in shares of Common Stock) if and to the extent that the
issuance to the Holder of shares of Common Stock upon such conversion (or
payment of dividends) would result in the Holder being deemed the "beneficial
owner" of more than 5% of the then Outstanding shares of Common Stock within the
meaning of Section 13(d) of the Securities Exchange Act of 1934, as amended, and
the rules promulgated thereunder. If any court of competent jurisdiction shall
determine that the foregoing limitation is ineffective to prevent a Holder from
being deemed the beneficial owner of more than 5% of the then Outstanding shares
of Common Stock, then the Corporation shall redeem so many of such Holder's
shares (the "REDEMPTION SHARES") of Series G Preferred Stock as are necessary to
cause such Holder to be deemed the beneficial owner of not more than 5% of the
then Outstanding shares of Common
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<PAGE> 13
Stock. Upon such determination by a court of competent jurisdiction, the
Redemption Shares shall immediately and without further action be deemed
returned to the status of authorized but unissued shares of Series G Preferred
Stock, and the Holder shall have no interest in or rights under such Redemption
Shares. Any and all dividends paid on or prior to the date of such determination
shall be deemed dividends paid on the remaining shares of Series G Preferred
Stock held by the Holder. Such redemption shall be for cash at a redemption
price equal to the sum of (i) 105% of the Stated Value of the Redemption Shares
and (ii) any accrued and unpaid dividends (whether or not earned or declared,
whether or not there were funds legally available for the payment of dividends
and whether or not a Dividend Payment Due Date has occurred since the last
dividend payment) to the date of such redemption.
(b) Notwithstanding anything herein to the contrary, if and to
the extent that, on any date (the "SECTION 16 DETERMINATION DATE"), the holding
by the Holder of shares of the Series G Preferred Stock would result in the
Holder's becoming subject to the provisions of Section 16(b) of the Exchange Act
in virtue of being deemed the "beneficial owner" of more than 10% of the then
Outstanding shares of Common Stock, then the Holder shall not have the right,
and the Corporation shall not have the obligation, to convert so many of such
Holder's shares of Series G Preferred Stock (the "SECTION 16 REDEMPTION SHARES")
as shall cause such Holder to be deemed the beneficial owner of more than 10% of
the then Outstanding shares of Common Stock during the period ending 60 days
after the Section 16 Determination Date. If any court of competent jurisdiction
shall determine that the foregoing limitation is ineffective to prevent a Holder
from being deemed the beneficial owner of more than 10% of the then Outstanding
shares of Common Stock for the purposes of such Section 16(b), then the
Corporation shall redeem the Section 16 Redemption Shares. Upon such
determination by a court of competent jurisdiction, the Section 16 Redemption
Shares shall immediately and without further action be deemed returned to the
status of authorized but unissued shares of Series G Preferred Stock, and the
Holder shall have no interest in or rights under such Section 16 Redemption
Shares. Any and all dividends paid on or prior to the date of such determination
shall be deemed dividends paid on the remaining shares of Series G Preferred
Stock held by the Holder. Such redemption shall be for cash at a redemption
price equal to the sum of (i) 105% of the Stated Value of the Section 16
Redemption Shares and (ii) any declared and unpaid dividends to the date of such
redemption.
(c) Unless the Corporation shall have obtained the approval of
its voting stockholders to such issuance in accordance with the rules of Nasdaq
or any other stock market rules with which the Corporation shall be required to
comply, but only to the extent required thereby, the Corporation shall not issue
shares of Common Stock (i) upon conversion of any shares of Series G Preferred
Stock or (ii) as a dividend on the Series G Preferred Stock, if such issuance of
Common Stock, when added to the number of shares of Common Stock previously
issued by the Corporation (x) upon conversion of shares of the Series G
Preferred Stock, (y) upon exercise of the Warrants issued pursuant to the terms
of the Securities Purchase Agreement and (z) in payment of dividends on the
Series G Preferred Stock, would equal or exceed 20% of the number of shares of
the Corporation's Common Stock which were issued and Outstanding on the Issue
Date (the "MAXIMUM ISSUANCE AMOUNT"). In the event that a properly executed
Conversion Notice is received by the Corporation which would require the
Corporation to issue shares of Common Stock equal to or in excess of the Maximum
Issuance Amount, the Corporation shall honor such conversion request by (a)
converting the number of shares of
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<PAGE> 14
Series G Preferred Stock stated in the Conversion Notice which is not in excess
of the Maximum Issuance Amount and (b) redeeming the remaining number of shares
of Series G Preferred Stock stated in the Conversion Notice in cash at a price
equal to 105% of the Stated Value thereof, together with all accrued and unpaid
dividends (whether or not earned or declared, whether or not there were funds
legally available for the payment of dividends and whether or not a Dividend
Payment Due Date has occurred since the last dividend payment) on the total
number of shares stated in the Conversion Notice. In the event that the
Corporation shall elect to pay a dividend in shares of Common Stock which would
require the Corporation to issue shares of Common Stock equal to or in excess of
the Maximum Issuance Amount, the Corporation shall pay (1) a dividend in a
number of shares of Common Stock equal to one less than the Maximum Issuance
Amount and (2) the balance of the dividend in cash.
ARTICLE 7
VOTING RIGHTS
The Holders of the Series G Preferred Stock have no voting
power, except as otherwise provided by the Business Corporation Act of the State
of Minnesota (the "MBCA"), in this Article 7, and in Article 8 below.
Notwithstanding the above, the Corporation shall provide each
Holder of Series G Preferred Stock with prior notification of any meeting of the
shareholders (and copies of all proxy materials and other information sent to
shareholders). In the event of any taking by the Corporation of a record of its
shareholders for the purpose of determining shareholders who are entitled to
receive payment of any dividend or other distribution, any right to subscribe
for, purchase or otherwise acquire (including by way of merger, consolidation or
recapitalization) any share of any class or any other securities or property, or
to receive any other right, or for the purpose of determining shareholders who
are entitled to vote in connection with any proposed liquidation, dissolution or
winding up of the Corporation, the Corporation shall mail a notice thereof to
each Holder at least 30 days prior to the date on which any such record is to be
taken for the purpose of such dividend, distribution, right or other event,
together with a brief statement regarding the amount and character of such
dividend, distribution, right or other event to the extent known at such time.
To the extent that under the MBCA the vote of the Holders of
the Series G Preferred Stock, voting separately as a class or series as
applicable, is required to authorize a given action of the Corporation, the
affirmative vote or consent of the Holders of at least a majority of the
outstanding shares of Series G Preferred Stock represented at a duly held
meeting at which a quorum is present or by written consent of a majority of the
outstanding shares of Series G Preferred Stock (except as otherwise may be
required under the MBCA) shall constitute the approval of such action by the
class. To the extent that under the MBCA Holders of the Series G Preferred Stock
are entitled to vote on a matter with holders of Common Stock, voting together
as one class, each share of Series G Preferred Stock shall be entitled to a
number of votes equal to the number of shares of Common Stock into which it is
then convertible using the record date for the taking of such vote of
shareholders as the date as of which the Conversion Price is calculated. Holders
of the Series G Preferred Stock shall be entitled to notice of all shareholder
meetings or written consents (and copies of all proxy materials and other
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<PAGE> 15
information sent to shareholders) with respect to which they would be entitled
to vote, which notice would be provided pursuant to the Corporation's bylaws and
the MBCA.
ARTICLE 8
PROTECTIVE PROVISIONS
So long as shares of Series G Preferred Stock are outstanding,
the Corporation shall not, without first obtaining the approval (by vote or
written consent, as provided in the MBCA) of the Holders of at least a majority
of the then outstanding shares of Series G Preferred Stock:
(a) alter or change the rights, preferences or privileges of
the Series G Preferred Stock;
(b) create any new class or series of capital stock having a
preference over the Series G Preferred Stock as to distribution of assets upon
liquidation, dissolution or winding up of the Corporation ("SENIOR SECURITIES")
or alter or change the rights, preferences or privileges of any Senior
Securities so as to affect adversely the Series G Preferred Stock;
(c) increase the authorized number of shares of Series G
Preferred Stock; or
(d) do any act or thing not authorized or contemplated by this
Certificate of Designation which would result in taxation of the Holders of
shares of the Series G Preferred Stock under Section 305 of the Internal Revenue
Code of 1986, as amended (or any comparable provision of the Internal Revenue
Code of 1986, as hereafter from time to time amended).
In the event Holders of least a majority of the then
outstanding shares of Series G Preferred Stock agree to allow the Corporation to
alter or change the rights, preferences or privileges of the shares of Series
Preferred Stock, pursuant to subsection (a) above, so as to affect the Series G
Preferred Stock, then the Corporation will deliver notice of such approved
change to the Holders of the Series Preferred Stock that did not agree to such
alteration or change (the "DISSENTING HOLDERS") and Dissenting Holders shall
have the right for a period of 30 days to convert pursuant to the terms of this
Certificate of Designation as in effect prior to such alteration or change or to
continue to hold their shares of Series G Preferred Stock.
Notwithstanding anything to the contrary herein, if at any
time the Corporation shall "spin-off" certain of its assets or businesses by
transferring, directly or indirectly, such assets or businesses to a Subsidiary
of the Corporation ("SPINCO") and making a dividend (the "SPIN-OFF DIVIDEND") to
the Corporation's stockholders of the shares of capital stock of Spinco, then
prior to making the Spin-off Dividend, the Corporation shall cause Spinco to
issue to each Holder that number of shares of preferred stock of Spinco with
substantially identical rights, preferences, privileges, powers, restrictions
and other terms as the Series G Preferred Stock equal to the number of shares of
Series G Preferred Shares held by such Holder immediately prior to the Spin-off
Dividend.
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<PAGE> 16
ARTICLE 9
MISCELLANEOUS
SECTION 9.1 Loss, Theft, Destruction of Preferred Stock
Upon receipt of evidence satisfactory to the Corporation of
the loss, theft, destruction or mutilation of shares of Series G Preferred Stock
and, in the case of any such loss, theft or destruction, upon receipt of
indemnity or security reasonably satisfactory to the Corporation, or, in the
case of any such mutilation, upon surrender and cancellation of the Series G
Preferred Stock, the Corporation shall make, issue and deliver, in lieu of such
lost, stolen, destroyed or mutilated shares of Series G Preferred Stock, new
shares of Series G Preferred Stock of like tenor. The Series G Preferred Stock
shall be held and owned upon the express condition that the provisions of this
Section 9.1 are exclusive with respect to the replacement of mutilated,
destroyed, lost or stolen shares of Series G Preferred Stock and shall preclude
any and all other rights and remedies notwithstanding any law or statute
existing or hereafter enacted to the contrary with respect to the replacement of
negotiable instruments or other securities without the surrender thereof.
SECTION 9.2 Who Deemed Absolute Owner
The Corporation may deem the Person in whose name the Series G
Preferred Stock shall be registered upon the registry books of the Corporation
to be, and may treat it as, the absolute owner of the Series G Preferred Stock
for the purpose of receiving payment of dividends on the Series G Preferred
Stock, for the conversion of the Series G Preferred Stock and for all other
purposes, and the Corporation shall not be affected by any notice to the
contrary. All such payments and such conversion shall be valid and effectual to
satisfy and discharge the liability upon the Series G Preferred Stock to the
extent of the sum or sums so paid or the conversion so made.
SECTION 9.3 Fundamental Corporate Change
In the case of the occurrence of any Fundamental Corporate
Change described in Section 5(b), the Corporation shall cause to be mailed to
the Holder of the Series G Preferred Stock at its last address as it appears in
the Corporation's security registry, at least 20 days prior to the applicable
record, effective or expiration date specified in connection therewith (or, if
such 20 days notice is not possible, at the earliest possible date prior to any
such record, effective or expiration date), a notice stating (x) the date on
which a record is to be taken for the purpose of such corporate action, or if a
record is not to be taken, the date as of which the Holders of record of Series
G Preferred Stock to be entitled to any dividend, distribution, issuance or
granting of rights, options or warrants are to be determined or the date on
which such Fundamental Corporate Change is expected to become effective, and (y)
the date as of which it is expected that Holders of record of Series G Preferred
Stock will be entitled to exchange their shares for securities, cash or other
property deliverable upon such Fundamental Corporate Change.
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<PAGE> 17
SECTION 9.4 Register
The Corporation shall keep at its principal office a register
in which the Corporation shall provide for the registration of the Series G
Preferred Stock. Upon any transfer of the Series G Preferred Stock in accordance
with the provisions hereof, the Corporation shall register such transfer on the
register of Series G Preferred Stock.
SECTION 9.5 Withholding
To the extent required by applicable law, the Corporation may
withhold amounts for or on account of any taxes imposed or levied by or on
behalf of any taxing authority in the United States having jurisdiction over the
Corporation from any payments made pursuant to the Series G Preferred Stock.
SECTION 9.6 Headings
The headings of the Articles and Sections of this Certificate
of Designation are inserted for convenience only and do not constitute a part of
this Certificate of Designation.
SECTION 9.7 Severability
If any provision of this Certificate of Designation, or the
application thereof to any person or entity or any circumstance, is invalid or
unenforceable, (i) a suitable and equitable provision shall be substituted
therefor in order to carry out, so far as may be valid and enforceable, the
intent and purpose of such invalid or unenforceable provision, and (ii) the
remainder of this Certificate of Designation and the application of such
provision to other persons, entities or circumstances shall not be affected by
such invalidity or unenforceability, nor shall such invalidity or
unenforceability affect the validity or enforceability of such provision, or the
application thereof, in any other jurisdiction.
[SIGNATURE PAGE FOLLOWS.]
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<PAGE> 18
IN WITNESS WHEREOF, the Corporation has caused this
Certificate of Designation to be signed by its duly authorized officers on May
2, 2000.
POPMAIL.COM INC.
By: s/ Mark D. Dacko
---------------------------------
Name: Mark D. Dacko
Title: Secretary
<PAGE> 19
ANNEX I
FORM OF CONVERSION NOTICE
TO: PopMail.com Inc.
1331 Corporate Drive, Suite 350
Irving, TX 75038
The undersigned owner of this Series G 10% Convertible
Redeemable Preferred Stock (the "SERIES G PREFERRED STOCK") issued by
PopMail.com Inc. (the "CORPORATION") hereby irrevocably exercises its option to
convert shares of the Series G Preferred Stock into shares of the
common stock, par value $.01 per share ("COMMON STOCK"), of the Corporation in
accordance with the terms of the Certificate of Designation. The undersigned
hereby instructs the Corporation to convert the number of shares of the Series G
Preferred Stock specified above into Shares of Common Stock Issued at Conversion
in accordance with the provisions of Article 6 of the Certificate of
Designation. The undersigned directs that the Common Stock issuable and
certificates therefor deliverable upon conversion and the recertificated Series
G Preferred Stock, if any, not being surrendered for conversion hereby, together
with any check in payment for fractional Common Stock, be issued in the name of
and delivered to the undersigned unless a different name has been indicated
below. All capitalized terms used and not defined herein have the respective
meanings assigned to them in the Certificate of Designation. So long as the
Series G Preferred Stock shall have been surrendered for conversion hereby, the
conversion pursuant hereto shall be deemed to have been effected at the date and
time specified below, and at such time the rights of the undersigned as a Holder
of the Series G Preferred Stock shall cease and the Person or Persons in whose
name or names the Common Stock Issued at Conversion shall be issuable shall be
deemed to have become the holder or holders of record of the Common Shares
represented thereby and all voting and other rights associated with the
beneficial ownership of such Common Shares shall at such time vest with such
Person or Persons.
Date and time:
------------------------------
-----------------------------------------
Signature
Fill in for registration of Series G Preferred Stock:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Please print name and address (including zip code number)
STATE OF MINNESOTA
FILED -
MAY 02 2000
S/Mary Kiffmeyer
Secretary of State
<PAGE> 1
EXHIBIT 10.1
THIS COMMON STOCK PURCHASE WARRANT AND THE SECURITIES REPRESENTED HEREBY HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE
TRANSFERRED IN VIOLATION OF SUCH ACT, THE RULES AND REGULATIONS THEREUNDER OR
THE PROVISIONS OF THIS COMMON STOCK PURCHASE WARRANT.
Number of Shares of Common Stock: 500,000
Warrant No. G-1
COMMON STOCK PURCHASE WARRANT
To Purchase Common Stock of
PopMail.com Inc.
THIS IS TO CERTIFY THAT The Shaar Fund Ltd., or registered
assigns, is entitled, at any time from the Closing Date (as hereinafter defined)
to the Expiration Date (as hereinafter defined), to purchase from PopMail.com
Inc., a Minnesota corporation (the "COMPANY"), 500,000 shares of Common Stock
(as hereinafter defined and subject to adjustment as provided herein), in whole
or in part, including fractional parts, at a purchase of $2.51, subject to
adjustment as provided herein, all on the terms and conditions and pursuant to
the provisions hereinafter set forth.
1. DEFINITIONS
As used in this Common Stock Purchase Warrant (this "WARRANT"),
the following terms shall have the respective meanings set forth below:
"ADDITIONAL SHARES OF COMMON STOCK" shall mean all shares of
Common Stock issued by the Company after the Closing Date, other than Warrant
Stock.
"BOOK VALUE" shall mean, in respect of any share of Common Stock
on any date herein specified, the consolidated book value of the Company as of
the last day of any month immediately preceding such date, divided by the number
of Fully Diluted Outstanding shares of Common Stock as determined in accordance
with GAAP (assuming the payment of the exercise prices for such shares) by Grant
Thornton LLP or any other firm of independent certified public accountants of
recognized national standing selected by the Company.
"BUSINESS DAY" shall mean any day that is not a Saturday or
Sunday or a day on which banks are required or permitted to be closed in the
State of New York.
<PAGE> 2
"CLOSING DATE" shall have the meaning set forth in the Securities
Purchase Agreement.
"COMMISSION" shall mean the Securities and Exchange Commission or
any other federal agency then administering the Securities Act and other federal
securities laws.
"COMMON STOCK" shall mean (except where the context otherwise
indicates) the Common Stock, par value $.01 per share, of the Company as
constituted on the Closing Date, and any capital stock into which such Common
Stock may thereafter be changed, and shall also include (i) capital stock of the
Company of any other class (regardless of how denominated) issued to the holders
of shares of Common Stock upon any reclassification thereof which is also not
preferred as to dividends or assets over any other class of stock of the Company
and which is not subject to redemption and (ii) shares of common stock of any
successor or acquiring corporation received by or distributed to the holders of
Common Stock of the Company in the circumstances contemplated by Section 4.4.
"CONVERTIBLE SECURITIES" shall mean evidences of indebtedness,
shares of stock or other securities which are convertible into or exchangeable,
with or without payment of additional consideration in cash or property, for
shares of Common Stock, either immediately or upon the occurrence of a specified
date or a specified event.
"CURRENT MARKET PRICE" shall mean on any date of determination
the closing bid price of a Common Share on such day as reported on Nasdaq;
provided, if such security bid is not listed or admitted to trading on Nasdaq,
as reported on the principal national security exchange or quotation system on
which such security is quoted or listed or admitted to trading, or, if not
quoted or listed or admitted to trading on any national securities exchange or
quotation system, the closing bid price of such security on the over-the-counter
market on the day in question as reported by Bloomberg LP, or a similar
generally accepted reporting service, as the case may be.
"CURRENT WARRANT PRICE" shall mean, in respect of a share of
Common Stock at any date herein specified, the price at which a share of Common
Stock may be purchased pursuant to this Warrant on such date, as set forth in
the first paragraph hereof.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended, or any successor federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect from time to time.
"EXERCISE PERIOD" shall mean the period during which this Warrant
is exercisable pursuant to Section 2.1.
"EXPIRATION DATE" shall mean May 2, 2005.
"FULLY DILUTED OUTSTANDING" shall mean, when used with reference
to Common Stock, at any date as of which the number of shares thereof is to be
determined, all shares of Common Stock Outstanding at such date and all shares
of Common Stock issuable in respect of this Warrant, outstanding on such date,
and other options or warrants to purchase, or securities convertible into,
shares of Common Stock outstanding on such date which would be deemed
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<PAGE> 3
outstanding in accordance with GAAP for purposes of determining Book Value or
net income per share.
"FUNDAMENTAL CORPORATE CHANGE" shall have the meaning set forth
in Section 4.4.
"GAAP" shall mean generally accepted accounting principles in the
United States of America as from time to time in effect.
"HOLDER" shall mean the Person in whose name the Warrant or
Warrant Stock set forth herein is registered on the books of the Company
maintained for such purpose.
"MARKET PRICE" per Common Share means the closing bid prices of
the Common Shares as reported on the Nasdaq SmallCap Market ("NASDAQ").
"OTHER PROPERTY" shall have the meaning set forth in Section 4.4.
"OUTSTANDING" shall mean, when used with reference to Common
Stock, at any date as of which the number of shares thereof is to be determined,
all issued shares of Common Stock, except shares then owned or held by or for
the account of the Company or any subsidiary thereof, and shall include all
shares issuable in respect of outstanding scrip or any certificates representing
fractional interests in shares of Common Stock.
"PERSON" shall mean any individual, sole proprietorship,
partnership, joint venture, trust, incorporated organization, association,
corporation, institution, public benefit corporation, entity or government
(whether federal, state, county, city, municipal or otherwise, including,
without limitation, any instrumentality, division, agency, body or department
thereof).
"REGISTRATION RIGHTS AGREEMENT" shall mean the Registration
Rights Agreement dated as of a date even herewith between the Company and The
Shaar Fund Ltd., as it may be amended from time to time.
"RESTRICTED COMMON STOCK" shall mean shares of Common Stock which
are, or which upon their issuance on their exercise of this Warrant would be,
evidenced by a certificate bearing the restrictive legend set forth in Section
9.1(a).
"SECURITIES ACT" shall mean the Securities Act of 1933, as
amended, or any successor federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"SECURITIES PURCHASE AGREEMENT" shall mean the Securities
Purchase Agreement dated as of a date even herewith between the Company and The
Shaar Fund Ltd., as it may be amended from time to time.
"TRANSFER" shall mean any disposition of any Warrant or Warrant
Stock or of any interest in either thereof, which would constitute a sale
thereof within the meaning of the Securities Act.
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"TRANSFER NOTICE" shall have the meaning set forth in Section
9.2.
"WARRANT PRICE" shall mean an amount equal to (i) the number of
shares of Common Stock being purchased upon exercise of this Warrant pursuant to
Section 2.1, multiplied by (ii) the Current Warrant Price as of the date of such
exercise.
"WARRANT STOCK" shall mean the shares of Common Stock purchased
by the holders of the Warrants upon the exercise thereof.
"WARRANTS" shall mean this Warrant and all warrants issued upon
transfer, division or combination of, or in substitution for, any thereof. All
Warrants shall at all times be identical as to terms and conditions and date,
except as to the number of shares of Common Stock for which they may be
exercised.
2. EXERCISE OF WARRANT
2.1 MANNER OF EXERCISE
From and after the Closing Date and until 5:00 p.m., New York
time, on the Expiration Date, Holder may exercise this Warrant, on any Business
Day, for all or any part of the number of shares of Common Stock purchasable
hereunder.
In order to exercise this Warrant, in whole or in part, Holder
shall deliver to the Company at its principal office at 1331 Corporate Drive,
Suite 350, Irving, TX 75038, or at the office or agency designated by the
Company pursuant to Section 12, (i) a written notice of Holder's election to
exercise this Warrant, which notice shall specify the number of shares of Common
Stock to be purchased, (ii) to the extent such exercise is not being effected
through a Cashless Exercise, payment of the Warrant Price in cash or wire
transfer or cashier's check drawn on a United States bank and (iii) this
Warrant. Such notice shall be substantially in the form of the subscription form
appearing at the end of this Warrant as Exhibit A, duly executed by Holder or
its agent or attorney. Upon receipt of the items referred to in clauses (i),
(ii) and (iii) above, the Company shall, as promptly as practicable, and in any
event within five Business Days thereafter, execute or cause to be executed and
deliver or cause to be delivered to Holder a certificate or certificates
representing the aggregate number of full shares of Common Stock issuable upon
such exercise, together with cash in lieu of any fraction of a share, as
hereinafter provided. The stock certificate or certificates so delivered shall
be, to the extent possible, in such denomination or denominations as Holder
shall request in the notice and shall be registered in the name of Holder or,
subject to Section 9, such other name as shall be designated in the notice. This
Warrant shall be deemed to have been exercised and such certificate or
certificates shall be deemed to have been issued, and Holder or any other Person
so designated to be named therein shall be deemed to have become a holder of
record of such shares for all purposes, as of the date the notice, together with
the cash or check or checks and this Warrant, is received by the Company as
described above and all taxes required to be paid by Holder, if any, pursuant to
Section 2.2 prior to the issuance of such shares have been paid. If this Warrant
shall have been exercised in part, the Company shall, at the time of delivery of
the certificate or certificates representing Warrant Stock, deliver to Holder a
new Warrant evidencing the rights of Holder to purchase the unpurchased shares
of Common Stock called for by this Warrant, which new
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Warrant shall in all other respects be identical with this Warrant, or, at the
request of Holder, appropriate notation may be made on this Warrant and the same
returned to Holder. Notwithstanding any provision herein to the contrary, the
Company shall not be required to register shares in the name of any Person who
acquired this Warrant (or part hereof) or any Warrant Stock otherwise than in
accordance with this Warrant.
Simultaneously with the exercise of this Warrant, payment in full
of the Warrant Price shall be made, at the option of the Holder, (i) by payment
of the Warrant Price in cash or by wire transfer or cashier's check drawn on a
United States bank, (ii) through a net exercise without payment of the Warrant
Price in cash by providing notice to the Company of the Holder's election to
receive a number of shares of Common Stock in a Cashless Exercise equal to the
product of (1) the number of shares for which such Warrant is exercisable with
payment in cash of the Warrant Price as of the date of exercise and (2) the
Cashless Exercise Ratio or (iii) by any combination of clauses (i) and (ii). For
purposes of this Agreement, the "CASHLESS EXERCISE RATIO" shall equal a
fraction, the numerator of which is the excess of the Current Market Price per
share of the Common Stock on the date of exercise over the Current Warrant Price
as of the date of exercise, and the denominator of which is the Current Market
Price per share of the Common Stock on the date of exercise. An exercise of a
Warrant in accordance with clause (ii) above is herein called a "CASHLESS
EXERCISE." Following a Cashless Exercise, this Warrant shall be canceled in all
respects with regard to (a) the number of shares of Common Stock issued in
accordance with the Cashless Exercise plus (b) the number of shares used as
consideration for the Cashless Exercise.
2.2 PAYMENT OF TAXES AND CHARGES
All shares of Common Stock issuable upon the exercise of this
Warrant pursuant to the terms hereof shall be validly issued, fully paid and
nonassessable, freely tradable and without any preemptive rights. The Company
shall pay all expenses in connection with, and all taxes and other governmental
charges that may be imposed with respect to, the issuance or delivery thereof,
unless such tax or charge is imposed by law upon Holder, in which case such
taxes or charges shall be paid by Holder. The Company shall not be required,
however, to pay any tax or other charge imposed in connection with any transfer
involved in the issuance of any certificate for shares of Common Stock issuable
upon exercise of this Warrant in any name other than that of Holder, and in such
case the Company shall not be required to issue or deliver any stock certificate
until such tax or other charge has been paid or it has been established to the
satisfaction of the Company that no such tax or other charge is due.
2.3 FRACTIONAL SHARES
The Company shall not be required to issue a fractional share of
Common Stock upon exercise of any Warrant. As to any fraction of a share which
Holder would otherwise be entitled to purchase upon such exercise, the Company
shall pay a cash adjustment in respect of such final fraction in an amount equal
to the same fraction of the Market Price per share of Common Stock as of the
Closing Date.
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2.4 CONTINUED VALIDITY
A holder of shares of Common Stock issued upon the exercise of
this Warrant, in whole or in part (other than a holder who acquires such shares
after the same have been publicly sold pursuant to a Registration Statement
under the Securities Act or sold pursuant to Rule 144 thereunder) shall continue
to be entitled with respect to such shares to all rights to which it would have
been entitled as Holder under Sections 9, 10 and 14 of this Warrant. The Company
will, at the time of exercise of this Warrant, in whole or in part, upon the
request of Holder, acknowledge in writing, in form reasonably satisfactory to
Holder, its continuing obligation to afford Holder all such rights; provided,
however, that if Holder shall fail to make any such request, such failure shall
not affect the continuing obligation of the Company to afford to Holder all such
rights.
3. TRANSFER, DIVISION AND COMBINATION
3.1 TRANSFER
Subject to compliance with Section 9, transfer of this Warrant
and all rights hereunder, in whole or in part, shall be registered on the books
of the Company to be maintained for such purpose, upon surrender of this Warrant
at the principal office of the Company referred to in Section 2.1 or the office
or agency designated by the Company pursuant to Section 12, together with a
written assignment of this Warrant substantially in the form of Exhibit B hereto
duly executed by Holder or its agent or attorney and funds sufficient to pay any
transfer taxes payable upon the making of such transfer. Upon such surrender
and, if required, such payment, the Company shall, subject to Section 9, execute
and deliver a new Warrant or Warrants in the name of the assignee or assignees
and in the denomination specified in such instrument of assignment, and shall
issue to the assignor a new Warrant evidencing the portion of this Warrant not
so assigned, and this Warrant shall promptly be canceled. A Warrant, if properly
assigned in compliance with Section 9, may be exercised by a new Holder for the
purchase of shares of Common Stock without having a new warrant issued.
3.2 DIVISION AND COMBINATION
Subject to Section 9, this Warrant may be divided or combined
with other Warrants upon presentation hereof at the aforesaid office or agency
of the Company, together with a written notice specifying the names and
denominations in which new Warrants are to be issued, signed by Holder or its
agent or attorney. Subject to compliance with Sections 3.1 and 9, as to any
transfer which may be involved in such division or combination, the Company
shall execute and deliver a new Warrant or Warrants in exchange for the Warrant
or Warrants to be divided or combined in accordance with such notice.
3.3 EXPENSES
The Company shall prepare, issue and deliver at its own expense
(other than transfer taxes) the new Warrants or Warrants under this Section 3.
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3.4 MAINTENANCE OF BOOKS
The Company agrees to maintain, at its aforesaid office or
agency, books for the registration and the registration of transfer of the
Warrants.
4. ADJUSTMENTS
The number of shares of Common Stock for which this Warrant is
exercisable, or the price at which such shares may be purchased upon exercise of
this Warrant, shall be subject to adjustment from time to time as set forth in
this Section 4. The Company shall give Holder notice of any event described
below which requires an adjustment pursuant to this Section 4 at the time of
such event.
4.1 STOCK DIVIDENDS, SUBDIVISIONS AND COMBINATIONS
If at any time the Company shall:
(a) take a record of the holders of its Common Stock for the
purpose of entitling them to receive a dividend payable in, or other
distribution of, Additional Shares of Common Stock;
(b) subdivide its outstanding shares of Common Stock into a
larger number of shares of Common Stock; or
(c) combine its outstanding shares of Common Stock into a
smaller number of shares of Common Stock;
then (i) the number of shares of Common Stock for which this Warrant is
exercisable immediately after the occurrence of any such event shall be adjusted
to equal the number of shares of Common Stock which a record holder of the same
number of shares of Common Stock for which this Warrant is exercisable
immediately prior to the occurrence of such event would own or be entitled to
receive after the happening of such event, and (ii) the Current Warrant Price
shall be adjusted to equal (A) the Current Warrant Price multiplied by the
number of shares of Common Stock for which this Warrant is exercisable
immediately prior to the adjustment divided by (B) the number of shares for
which this Warrant is exercisable immediately after such adjustment.
4.2 CERTAIN OTHER DISTRIBUTIONS
If at any time the Company shall take a record of the holders of
its Common Stock for the purpose of entitling them to receive any dividend or
other distribution of:
(a) cash;
(b) any evidences of its indebtedness, any shares of its stock
or any other securities or property of any nature whatsoever (other than cash,
Convertible Securities or Additional Shares of Common Stock); or
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(c) any warrants or other rights to subscribe for or purchase
any evidences of its indebtedness, any shares of its stock or any other
securities or property of any nature whatsoever (other than cash, Convertible
Securities or Additional Shares of Common Stock);
then Holder shall be entitled to receive such dividend or distribution as if
Holder had exercised the Warrant. A reclassification of the Common Stock (other
than a change in par value, or from par value to no par value or from no par
value to par value) into shares of Common Stock and shares of any other class of
stock shall be deemed a distribution by the Company to the holders of its Common
Stock of such shares of such other class of stock within the meaning of this
Section 4.2 and, if the outstanding shares of Common Stock shall be changed into
a larger or smaller number of shares of Common Stock as a part of such
reclassification, such change shall be deemed a subdivision or combination, as
the case may be, of the outstanding shares of Common Stock within the meaning of
Section 4.1.
4.3 OTHER PROVISIONS APPLICABLE TO ADJUSTMENTS UNDER THIS
SECTION
The following provisions shall be applicable to the making of
adjustments of the number of shares of Common Stock for which this Warrant is
exercisable and the Current Warrant Price provided for in this Section 4:
(a) WHEN ADJUSTMENTS TO BE MADE. The adjustments required by
this Section 4 shall be made whenever and as often as any specified event
requiring an adjustment shall occur. For the purpose of any adjustment, any
specified event shall be deemed to have occurred at the close of business on the
date of its occurrence.
(b) FRACTIONAL INTERESTS. In computing adjustments under this
Section 4, fractional interests in Common Stock shall be taken into account to
the nearest 1/10th of a share.
(c) WHEN ADJUSTMENT NOT REQUIRED. If the Company shall take a
record of the holders of its Common Stock for the purpose of entitling them to
receive a dividend or distribution or subscription or purchase rights and shall,
thereafter and before the distribution to stockholders thereof, legally abandon
its plan to pay or deliver such dividend, distribution, subscription or purchase
rights, then thereafter no adjustment shall be required by reason of the taking
of such record and any such adjustment previously made in respect thereof shall
be rescinded and annulled.
(d) CHALLENGE TO GOOD FAITH DETERMINATION. Whenever the Board of
Directors of the Company shall be required to make a determination in good faith
of the fair value of any item under this Section 4, such determination may be
challenged in good faith by the Holder, and any dispute shall be resolved by an
investment banking firm of recognized national standing selected by the Company
and acceptable to Holder.
4.4 REORGANIZATION, RECLASSIFICATION, MERGER, CONSOLIDATION OR
DISPOSITION OF ASSETS
In case the Company shall reorganize its capital, reclassify its
capital stock, consolidate or merge with or into another Person (where the
Company is not the survivor or where there is a change in or distribution with
respect to the Common Stock of the Company), or
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sell, convey, transfer or otherwise dispose of all or substantially all its
property, assets or business to another Person, or effectuate a transaction or
series of related transactions in which more than 50% of the voting power of the
Company is disposed of (each, a "FUNDAMENTAL CORPORATE CHANGE") and, pursuant to
the terms of such Fundamental Corporate Change, shares of common stock of the
successor or acquiring corporation, or any cash, shares of stock or other
securities or property of any nature whatsoever (including warrants or other
subscription or purchase rights) in addition to or in lieu of common stock of
the successor or acquiring corporation ("OTHER PROPERTY"), are to be received by
or distributed to the holders of Common Stock of the Company, then Holder shall
have the right thereafter to receive, upon exercise of the Warrant, such number
of shares of common stock of the successor or acquiring corporation or of the
Company, if it is the surviving corporation, and Other Property as is receivable
upon or as a result of such Fundamental Corporate Change by a holder of the
number of shares of Common Stock for which this Warrant is exercisable
immediately prior to such Fundamental Corporate Change. In case of any such
Fundamental Corporate Change, the successor or acquiring corporation (if other
than the Company) shall expressly assume the due and punctual observance and
performance of each and every covenant and condition of this Warrant to be
performed and observed by the Company and all the obligations and liabilities
hereunder, subject to such modifications as may be deemed appropriate (as
determined by resolution of the Board of Directors of the Company) in order to
provide for adjustments of shares of Common Stock for which this Warrant is
exercisable which shall be as nearly equivalent as practicable to the
adjustments provided for in this Section 4. For purposes of this Section 4.4,
"COMMON STOCK OF THE SUCCESSOR OR ACQUIRING CORPORATION" shall include stock of
such corporation of any class which is not preferred as to dividends or assets
over any other class of stock of such corporation and which is not subject to
redemption and shall also include any evidences of indebtedness, shares of stock
or other securities which are convertible into or exchangeable for any such
stock, either immediately or upon the arrival of a specified date or the
happening of a specified event and any warrants or other rights to subscribe for
or purchase any such stock. The foregoing provisions of this Section 4.4 shall
similarly apply to successive Fundamental Corporate Change.
4.5 OTHER ACTION AFFECTING COMMON STOCK
In case at any time or from time to time the Company shall take
any action in respect of its Common Stock, other than any action described in
this Section 4, which would have a materially adverse effect upon the rights of
Holder, the number of shares of Common Stock and/or the purchase price thereof
shall be adjusted in such manner as may be equitable in the circumstances, as
determined in good faith by the Board of Directors of the Company.
4.6 CERTAIN LIMITATIONS
Notwithstanding anything herein to the contrary, the Company
agrees not to enter into any transaction which, by reason of any adjustment
hereunder, would cause the Current Warrant Price to be less than the par value
per share of Common Stock.
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5. NOTICES TO HOLDER
5.1 NOTICE OF ADJUSTMENTS
Whenever the number of shares of Common Stock for which this
Warrant is exercisable, or whenever the price at which a share of such Common
Stock may be purchased upon exercise of the Warrants, shall be adjusted pursuant
to Section 4, the Company shall forthwith prepare a certificate to be executed
by the chief financial officer of the Company setting forth, in reasonable
detail, the event requiring the adjustment and the method by which such
adjustment was calculated (including a description of the basis on which the
Board of Directors of the Company determined the fair value of any evidences of
indebtedness, shares of stock, other securities or property or warrants or other
subscription or purchase rights referred to in Section 4.2), specifying the
number of shares of Common Stock for which this Warrant is exercisable and (if
such adjustment was made pursuant to Section 4.4 or 4.5) describing the number
and kind of any other shares of stock or Other Property for which this Warrant
is exercisable, and any change in the purchase price or prices thereof, after
giving effect to such adjustment or change. The Company shall promptly cause a
signed copy of such certificate to be delivered to the Holder in accordance with
Section 14.2. The Company shall keep at its office or agency designated pursuant
to Section 12 copies of all such certificates and cause the same to be available
for inspection at said office during normal business hours by the Holder or any
prospective purchaser of a Warrant designated by Holder.
5.2 NOTICE OF CORPORATE ACTION
If at any time:
(a) the Company shall take a record of the holders of its Common
Stock for the purpose of entitling them to receive a dividend or other
distribution, or any right to subscribe for or purchase any evidences of its
indebtedness, any shares of stock of any class or any other securities or
property, or to receive any other right; or
(b) there shall be any capital reorganization of the Company,
any reclassification or recapitalization of the capital stock of the Company or
any consolidation or merger of the Company with, or any sale, transfer or other
disposition of all or substantially all the property, assets or business of the
Company to, another corporation; or
(c) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then, in any one or more of such cases, the Company shall give to Holder (i) at
least 30 days' prior written notice of the date on which a record date shall be
selected for such dividend, distribution or right or for determining rights to
vote in respect of any such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, dissolution, liquidation or winding
up, and (ii) in the case of any such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, dissolution, liquidation or winding
up, at least 30 days' prior written notice of the date when the same shall take
place. Such notice in accordance with the foregoing clause also shall specify
(i) the date on which any such record is to be taken for the purpose of such
dividend, distribution or right, the date on which the holders of Common Stock
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shall be entitled to any such dividend, distribution or right, and the amount
and character thereof, and (ii) the date on which any such reorganization,
reclassification, merger, consolidation, sale, transfer, disposition,
dissolution, liquidation or winding up is to take place and the time, if any
such time is to be fixed, as of which the holders of Common Stock shall be
entitled to exchange their shares of Common Stock for securities or other
property deliverable upon such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, dissolution, liquidation or winding
up. Each such written notice shall be sufficiently given if addressed to Holder
at the last address of Holder appearing on the books of the Company and
delivered in accordance with Section 14.2.
6. NO IMPAIRMENT
The Company shall not by any action, including, without
limitation, amending its certificate of incorporation or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issuance
or sale of securities or other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, but will at all
times in good faith assist in the carrying out of all such terms and in the
taking of all such actions as may be necessary or appropriate to protect the
rights of Holder against impairment. Without limiting the generality of the
foregoing, the Company will (a) not increase the par value of any shares of
Common Stock receivable upon the exercise of this Warrant above the amount
payable therefor upon such exercise immediately prior to such increase in par
value, (b) take all such action as may be necessary or appropriate in order that
the Company may validly and legally issue fully paid and nonassessable shares of
Common Stock upon the exercise of this Warrant, and (c) use its best efforts to
obtain all such authorizations, exemptions or consents from any public
regulatory body having jurisdiction thereof as may be necessary to enable the
Company to perform its obligations under this Warrant.
Upon the request of Holder, the Company will at any time during
the period this Warrant is outstanding acknowledge in writing, in form
satisfactory to Holder, the continuing validity of this Warrant and the
obligations of the Company hereunder.
7. RESERVATION AND AUTHORIZATION OF COMMON STOCK
From and after the Closing Date, the Company shall at all times
reserve and keep available for issuance upon the exercise of Warrants such
number of its authorized but unissued shares of Common Stock as will be
sufficient to permit the exercise in full of all outstanding Warrants. All
shares of Common Stock which shall be so issuable, when issued upon exercise of
any Warrant and payment therefor in accordance with the terms of such Warrant,
shall be duly and validly issued and fully paid and nonassessable and not
subject to preemptive rights.
Before taking any action which would cause an adjustment reducing
the Current Warrant Price below the then par value, if any, of the shares of
Common Stock issuable upon exercise of the Warrants, the Company shall take any
corporate action which may be necessary in order that the Company may validly
and legally issue fully paid and nonassessable shares of such Common Stock at
such adjusted Current Warrant Price.
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Before taking any action which would result in an adjustment in
the number of shares of Common Stock for which this Warrant is exercisable or in
the Current Warrant Price, the Company shall obtain all such authorizations or
exemptions thereof, or consents thereto, as may be necessary from any public
regulatory body or bodies having jurisdiction thereof.
8. TAKING OF RECORD; STOCK AND WARRANT TRANSFER BOOKS
In the case of all dividends or other distributions by the
Company to the holders of its Common Stock with respect to which any provision
of Section 4 refers to the taking of record of such holders, the Company will in
each case take such a record and will take such record as of the close of
business on a Business Day. The Company will not at any time, except upon
dissolution, liquidation or winding up of the Company, close its stock transfer
books or Warrant transfer books so as to result in preventing or delaying the
exercise or transfer of any Warrant.
9. RESTRICTIONS ON TRANSFERABILITY
The Warrants and the Warrant Stock shall not be transferred,
hypothecated or assigned before satisfaction of the conditions specified in this
Section 9, which conditions are intended to ensure compliance with the
provisions of the Securities Act with respect to the Transfer of any Warrant or
any Warrant Stock. Holder, by acceptance of this Warrant, agrees to be bound by
the provisions of this Section 9.
9.1 RESTRICTIVE LEGEND
(a) Holder, by accepting this Warrant and any Warrant Stock
agrees that this Warrant and the Warrant Stock issuable upon exercise hereof may
not be assigned or otherwise transferred unless and until (i) the Company has
received an opinion of counsel for Holder that such securities may be sold
pursuant to an exemption from registration under the Securities Act or (ii) a
registration statement relating to such securities has been filed by the Company
and declared effective by the Commission.
Each certificate for Warrant Stock issuable hereunder shall bear
a legend as follows until such securities have been sold pursuant to an
effective registration statement under the Securities Act:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES
LAWS OF ANY STATE, AND ARE BEING OFFERED AND SOLD PURSUANT TO AN
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT AND SUCH LAWS. THESE SECURITIES MAY NOT BE SOLD OR
TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE
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EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT OR SUCH OTHER LAWS."
(b) Except as otherwise provided in this Section 9, the Warrant
shall be stamped or otherwise imprinted with a legend in substantially the
following form:
"THIS COMMON STOCK PURCHASE WARRANT AND THE SECURITIES
REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, AND MAY NOT BE TRANSFERRED IN VIOLATION
OF SUCH ACT, THE RULES AND REGULATIONS THEREUNDER OR THE
PROVISIONS OF THIS COMMON STOCK PURCHASE WARRANT."
9.2 NOTICE OF PROPOSED TRANSFERS
Prior to any Transfer or attempted Transfer of any Warrants or
any shares of Restricted Common Stock, the Holder shall give ten days' prior
written notice (a "TRANSFER NOTICE") to the Company of Holder's intention to
effect such Transfer, describing the manner and circumstances of the proposed
Transfer, and obtain from counsel to Holder who shall be reasonably satisfactory
to the Company, an opinion that the proposed Transfer of such Warrants or such
Restricted Common Stock may be effected without registration under the
Securities Act. After receipt of the Transfer Notice and opinion, the Company
shall, within five days thereof, notify the Holder as to whether such opinion is
reasonably satisfactory and, if so, such holder shall thereupon be entitled to
Transfer such Warrants or such Restricted Common Stock, in accordance with the
terms of the Transfer Notice. Each certificate, if any, evidencing such shares
of Restricted Common Stock issued upon such Transfer shall bear the restrictive
legend set forth in Section 9.1(a), and the Warrant issued upon such Transfer
shall bear the restrictive legend set forth in Section 9.1(b), unless in the
opinion of such counsel such legend is not required in order to ensure
compliance with the Securities Act. Holder shall not be entitled to Transfer
such Warrants or such Restricted Common Stock until receipt of notice from the
Company under this Section 9.2 that such opinion is reasonably satisfactory.
9.3 REQUIRED REGISTRATION
Pursuant to the terms and conditions set forth in Registration
Rights Agreement, the Company shall prepare and file with the Commission not
later than the 60th day after the Closing Date, a Registration Statement
relating to the offer and sale of the Common Stock issuable upon exercise of the
Warrants and shall use its best efforts to cause the Commission to declare such
Registration Statement effective under the Securities Act as promptly as
practicable but no later than 150 days after the Closing Date.
9.4 TERMINATION OF RESTRICTIONS
Notwithstanding the foregoing provisions of Section 9, the
restrictions imposed by this Section upon the transferability of the Warrants,
the Warrant Stock and the Restricted Common Stock (or Common Stock issuable upon
the exercise of the Warrants) and the legend requirements of Section 9.1 shall
terminate as to any particular Warrant or share of Warrant
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Stock or Restricted Common Stock (or Common Stock issuable upon the exercise of
the Warrants) (i) when and so long as such security shall have been effectively
registered under the Securities Act and disposed of pursuant thereto or (ii)
when the Company shall have received an opinion of counsel reasonably
satisfactory to it that such shares may be transferred without registration
thereof under the Securities Act. Whenever the restrictions imposed by Section 9
shall terminate as to this Warrant, as hereinabove provided, the Holder hereof
shall be entitled to receive from the Company upon written request of the
Holder, at the expense of the Company, a new Warrant bearing the following
legend in place of the restrictive legend set forth hereon:
"THE RESTRICTIONS ON TRANSFERABILITY OF THE WITHIN WARRANT
CONTAINED IN SECTION 9 HEREOF TERMINATED ON __________, _____,
AND ARE OF NO FURTHER FORCE AND EFFECT."
All Warrants issued upon registration of transfer, division or combination of,
or in substitution for, any Warrant or Warrants entitled to bear such legend
shall have a similar legend endorsed thereon. Whenever the restrictions imposed
by this Section shall terminate as to any share of Restricted Common Stock, as
hereinabove provided, the holder thereof shall be entitled to receive from the
Company, at the Company's expense, a new certificate representing such Common
Stock not bearing the restrictive legend set forth in Section 9.1(a).
9.5 LISTING ON SECURITIES EXCHANGE
If the Company shall list any shares of Common Stock on any
securities exchange or quotation system, it will, at its expense, list thereon,
maintain and, when necessary, increase such listing of, all shares of Common
Stock issued or, to the extent permissible under the applicable securities
exchange rules, issuable upon the exercise of this Warrant so long as any shares
of Common Stock shall be so listed during any such Exercise Period.
10. SUPPLYING INFORMATION
The Company shall cooperate with Holder in supplying such
information as may be reasonably necessary for Holder to complete and file any
information reporting forms presently or hereafter required by the Commission as
a condition to the availability of an exemption from the Securities Act for the
sale of any Warrant or Restricted Common Stock.
11. LOSS OR MUTILATION
Upon receipt by the Company from Holder of evidence reasonably
satisfactory to it of the ownership of and the loss, theft, destruction or
mutilation of this Warrant and indemnity reasonably satisfactory to it (it being
understood that the written agreement of the Holder shall be sufficient
indemnity), and in case of mutilation upon surrender and cancellation hereof,
the Company will execute and deliver in lieu hereof a new Warrant of like tenor
to Holder; provided, in the case of mutilation no indemnity shall be required if
this Warrant in identifiable form is surrendered to the Company for
cancellation.
-14-
<PAGE> 15
12. OFFICE OF THE COMPANY
As long as any of the Warrants remain outstanding, the Company
shall maintain an office or agency (which may be the principal executive offices
of the Company) where the Warrants may be presented for exercise, registration
of transfer, division or combination as provided in this Warrant.
13. LIMITATION OF LIABILITY
No provision hereof, in the absence of affirmative action by
Holder to purchase shares of Common Stock, and no enumeration herein of the
rights or privileges of Holder hereof, shall give rise to any liability of
Holder for the purchase price of any Common Stock or as a stockholder of the
Company, whether such liability is asserted by the Company or by creditors of
the Company.
14. MISCELLANEOUS
14.1 NONWAIVER AND EXPENSES
No course of dealing or any delay or failure to exercise any
right hereunder on the part of Holder shall operate as a waiver of such right or
otherwise prejudice Holder's rights, powers or remedies. If the Company fails to
make, when due, any payments provided for hereunder, or fails to comply with any
other provision of this Warrant, the Company shall pay to Holder such amounts as
shall be sufficient to cover any costs and expenses including, without
limitation, reasonable attorneys' fees, including those of appellate
proceedings, incurred by Holder in collecting any amounts due pursuant hereto or
in otherwise enforcing any of its rights, powers or remedies hereunder.
14.2 NOTICE GENERALLY
Except as may be otherwise provided herein, any notice or other
communication or delivery required or permitted hereunder shall be in writing
and shall be delivered personally or sent by certified mail, postage prepaid, or
by a nationally recognized overnight courier service, and shall be deemed given
when so delivered personally or by overnight courier service, or, if mailed,
three days after the date of deposit in the United States mails, as follows:
(a) if to the Company, to:
PopMail.com Inc.
1331 Corporate Drive, Suite 350
Irving, TX 75038
Attention: Stephen D. King
(972) 550-5500
(972) 550-5581 (Fax)
with a copy to:
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<PAGE> 16
Maslon Edelman Borman & Brand, LLP
3300 Norwest Center
Minneapolis, MN 55402
Attention: William M. Mower
(612) 672-8358
(612) 672-8397 (Fax)
(b) if to the Holder, to:
The Shaar Fund Ltd.,
c/o Levinson Capital Management
2 World Trade Center, Suite 1820
New York, NY 10048
Attention: Samuel Levinson
(212) 432-7711
(212) 432-7771 (Fax)
with a copy to:
Cadwalader, Wickersham & Taft
100 Maiden Lane
New York, NY 10038
Attention: Dennis J. Block, Esq.
(212) 504-5555
(212) 504-5557 (Fax)
The Company or the Holder may change the foregoing address by notice given
pursuant to this Section 14.2.
14.3 INDEMNIFICATION
The Company agrees to indemnify and hold harmless Holder from and
against any liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, claims, costs, attorneys' fees, expenses and disbursements of
any kind which may be imposed upon, incurred by or asserted against Holder in
any manner relating to or arising out of any failure by the Company to perform
or observe in any material respect any of its covenants, agreements,
undertakings or obligations set forth in this Warrant; provided, however, that
the Company will not be liable hereunder to the extent that any liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, claims,
costs, attorneys' fees, expenses or disbursements are found in a final
nonappealable judgment by a court to have resulted from Holder's gross
negligence, bad faith or willful misconduct in its capacity as a stockholder or
warrantholder of the Company.
14.4 REMEDIES
Holder in addition to being entitled to exercise all rights
granted by law, including recovery of damages, will be entitled to specific
performance of its rights under Section 9 of this Warrant. The Company agrees
that monetary damages would not be adequate compensation for any loss incurred
by reason of a breach by it of the provisions of Section 9 of this Warrant and
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<PAGE> 17
hereby agrees to waive the defense in any action for specific performance that a
remedy at law would be adequate.
14.5 SUCCESSORS AND ASSIGNS
Subject to the provisions of Sections 3.1 and 9, this Warrant and
the rights evidenced hereby shall inure to the benefit of and be binding upon
the successors of the Company and the successors and assigns of Holder. The
provisions of this Warrant are intended to be for the benefit of all Holders
from time to time of this Warrant and, with respect to Section 9 hereof, holders
of Warrant Stock, and shall be enforceable by any such Holder or holder of
Warrant Stock.
14.6 AMENDMENT
This Warrant and all other Warrants may be modified or amended or
the provisions hereof waived with the written consent of the Company and Holder.
14.7 SEVERABILITY
Wherever possible, each provision of this Warrant shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Warrant shall be prohibited by or invalid under
applicable law, such provision shall only be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions of this Warrant.
14.8 HEADINGS
The headings used in this Warrant are for the convenience of
reference only and shall not, for any purpose, be deemed a part of this Warrant.
14.9 GOVERNING LAW
This Warrant shall be governed by the laws of the State of New
York, without regard to the provisions thereof relating to conflicts of law.
[SIGNATURE PAGE FOLLOWS.]
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<PAGE> 18
IN WITNESS WHEREOF, the Company has caused this Warrant to be
duly executed and its corporate seal to be impressed hereon and attested by its
Secretary or an Assistant Secretary.
Dated: May 2, 2000
PopMail.com Inc.
By:
------------------------------------------
Name:
Title:
Attest:
By:
------------------------------------------
Name:
Title:
<PAGE> 19
EXHIBIT A
SUBSCRIPTION FORM
[To be executed only upon exercise of Warrant]
The undersigned registered owner of this Warrant irrevocably
exercises this Warrant for the purchase of __________ shares of Common Stock of
PopMail.com Inc. and herewith makes payment therefor, all at the price and on
the terms and conditions specified in this Warrant and requests that
certificates for the shares of Common Stock hereby purchased (and any securities
or other property issuable upon such exercise) be issued in the name of and
delivered to
- --------------------------------------------------------------------------------
whose address is
- --------------------------------------------------------------------------------
and, if such shares of Common Stock shall not include all of the shares of
Common Stock issuable as provided in this Warrant, that a new Warrant of like
tenor and date for the balance of the shares of Common Stock issuable hereunder
be delivered to the undersigned.
-------------------------------------
(Name of Registered Owner)
-------------------------------------
(Signature of Registered Owner)
-------------------------------------
(Street Address)
-------------------------------------
(City) (State) (Zip Code)
A-1
<PAGE> 20
NOTICE: The signature on this subscription must
correspond with the name as written upon the
face of the within Warrant in every particular,
without alteration or enlargement or any change
whatsoever.
A-2
<PAGE> 21
EXHIBIT B
ASSIGNMENT FORM
FOR VALUE RECEIVED the undersigned registered owner of this
Warrant hereby sells, assigns and transfers unto the Assignee named below all of
the rights of the undersigned under this Warrant, with respect to the number of
shares of Common Stock set forth below:
No. of Shares of
Name and Address of Assignee Common Stock
- ---------------------------- ------------
and does hereby irrevocably constitute and appoint
- --------------------------------------------------------------------------------
attorney-in-fact to register such transfer on the books of PopMail.com Inc.
maintained for the purpose, with full power of substitution in the premises.
Dated:
------------------------------------
-------------------------------------
(Print Name)
-------------------------------------
(Signature)
-------------------------------------
(Print Name of Witness)
-------------------------------------
(Witness's Signature)
NOTICE: The signature on this subscription must
correspond with the name as written upon the
face of the within Warrant in every particular,
without alteration or enlargement or any change
whatsoever.
B-1
<PAGE> 1
EXHIBIT 10.2
SECURITIES PURCHASE AGREEMENT
This SECURITIES PURCHASE AGREEMENT, dated as of May 2, 2000
(this "AGREEMENT"), by and between PopMail.com, a Minnesota corporation, with
principal executive offices located at 1331 Corporate Drive, Suite 350, Irving,
TX 75038 (the "COMPANY"), and The Shaar Fund Ltd. ("BUYER").
WHEREAS, Buyer desires to purchase from the Company, and the
Company desires to issue and sell to Buyer, upon the terms and subject to the
conditions of this Agreement, (i) 600,000 shares of the Company's Series G 10%
Convertible Redeemable Preferred Stock, par value $.01 per share (collectively,
the "PREFERRED Shares"), and (ii) Common Stock Purchase Warrants in the form
attached hereto as Exhibit A to purchase 500,000 shares of Common Stock (as
defined below) (collectively, the "WARRANTS");
WHEREAS, upon the terms and subject to the designations,
preferences and rights set forth in the Company's Certificate of Designation of
Series G 10% Convertible Redeemable Preferred Stock in the form attached hereto
as Exhibit B (the "CERTIFICATE OF DESIGNATION"), the Preferred Shares are
convertible into shares of the Company's common stock, par value $.01 per share
(the "COMMON STOCK"); and
WHEREAS, the Warrants, upon the terms and subject to the
conditions specified in the Warrants, will be exercisable for a period of five
years;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants contained herein, the parties hereto, intending to be legally
bound, hereby agree as follows:
I. PURCHASE AND SALE OF PREFERRED SHARES AND WARRANTS
A. TRANSACTION. Buyer hereby agrees to purchase from the
Company, and the Company has offered and hereby agrees to issue and sell to
Buyer in a transaction exempt from the registration and prospectus delivery
requirements of the Securities Act of 1933, as amended (the "SECURITIES ACT"),
the Preferred Shares and the Warrants to purchase 500,000 shares of Common
Stock.
B. PURCHASE PRICE; FORM OF PAYMENT. The purchase price for the
Preferred Shares and the Warrants to be purchased by Buyer hereunder shall be
$4,500,000 (the "PURCHASE PRICE"). Simultaneously with the execution of this
Agreement, Buyer shall pay the Purchase Price by wire transfer of immediately
available funds to the escrow agent (the "ESCROW AGENT") identified in those
certain Escrow Instructions of even date herewith, a copy of which is attached
hereto as Exhibit C (the "ESCROW INSTRUCTIONS"). Simultaneously with the
execution of this Agreement, the Company shall deliver one or more duly
authorized, issued and executed certificates (I/N/O Buyer or, if the Company
otherwise has been notified, I/N/O Buyer's nominee) evidencing the Preferred
Shares and the Warrants which Buyer is purchasing, to the Escrow Agent or its
designated depository. By executing and delivering this Agreement, Buyer
<PAGE> 2
and the Company each hereby agree to observe the terms and conditions of the
Escrow Instructions, all of which are incorporated herein by reference as if
fully set forth herein.
C. METHOD OF PAYMENT. Payment into escrow of the Purchase
Price shall be made as set forth in the Escrow Instructions.
II. BUYER'S REPRESENTATIONS AND WARRANTIES
Buyer represents and warrants to and covenants and agrees with
the Company as follows:
A. Buyer is purchasing the Preferred Shares, the Warrants, the
Common Stock issuable upon exercise of the Warrants (the "WARRANT SHARES"), the
Common Stock, if any, issuable in payment of dividends on the Preferred Shares
(the "DIVIDEND SHARES"), and the Common Stock issuable upon conversion or
redemption of the Preferred Shares (the "CONVERSION SHARES" and, collectively
with the Preferred Shares, the Warrants, the Warrant Shares and the Dividend
Shares, the "SECURITIES") for its own account, for investment purposes only and
not with a view towards or in connection with the public sale or distribution
thereof in violation of the Securities Act.
B. Buyer is (i) an "ACCREDITED INVESTOR" within the meaning of
Rule 501 of Regulation D under the Securities Act, (ii) experienced in making
investments of the kind contemplated by this Agreement, (iii) capable, by reason
of its business and financial experience, of evaluating the relative merits and
risks of an investment in the Securities, and (iv) able to afford the loss of
its investment in the Securities.
C. Buyer understands that the Securities are being offered and
sold by the Company in reliance on an exemption from the registration
requirements of the Securities Act and equivalent state securities and "blue
sky" laws, and that the Company is relying upon the accuracy of, and Buyer's
compliance with, Buyer's representations, warranties and covenants set forth in
this Agreement to determine the availability of such exemption and the
eligibility of Buyer to purchase the Securities;
D. Buyer acknowledges that in making its decision to purchase
the Securities it has been given an opportunity to review the Commission Filings
(as defined in Section III.H. hereof) and to ask questions of and to receive
answers from the Company's executive officers, directors and management
personnel concerning the terms and conditions of the private placement of the
Securities by the Company.
E. Buyer understands that the Securities have not been
approved or disapproved by the Securities and Exchange Commission (the
"COMMISSION") or any state securities commission.
F. This Agreement has been duly and validly authorized,
executed and delivered by Buyer and is a valid and binding agreement of Buyer
enforceable against it in accordance with its terms, subject to applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
similar laws affecting creditors' rights and remedies generally
-2-
<PAGE> 3
and except as rights to indemnity and contribution may be limited by federal or
state securities laws or the public policy underlying such laws.
G. Neither Buyer nor its affiliates nor any person acting on
its or their behalf shall enter into, prior to the Closing or at any other time
while any of the Preferred Shares remain outstanding, any put option, short
position or other similar instrument or position with respect to the Common
Stock and neither Buyer nor any of its affiliates nor any person acting on its
or their behalf will use at any time shares of Common Stock acquired pursuant to
this Agreement to settle any put option, short position or other similar
instrument or position that may have been entered into prior to the execution of
this Agreement; provided, however, that nothing in this Section II.F. shall
operate to forbid Buyer or any of its affiliates or any person acting on its or
their behalf from selling, or entering into any other transaction with respect
to, the Common Stock contemporaneously with or following such date and time as
the person or persons in whose name or names the Common Stock delivered at
conversion of Preferred Shares, as provided in the Certificate of Designation,
shall be issuable shall be deemed to have become the holder or holders of record
of the Common Shares represented thereby and all voting and other rights
associated with the beneficial ownership of such Common Shares shall have vested
with such person or persons.
III. THE COMPANY'S REPRESENTATIONS
The Company represents and warrants to Buyer that:
A. CAPITALIZATION.
1. The authorized capital stock of the Company consists
solely of: 100,000,000 shares of capital stock, of which as of March 27,
2000 (x) 34,422,928 shares of Common Stock, par value $.01 per share, were
issued and outstanding; (y) 275,000 shares of Series E convertible
preferred stock, par value $.01 per share, were issued and outstanding; and
(z) 287,408 shares of Series F 8% convertible preferred stock, par value
$.01, were issued and outstanding. As of March 27, 2000, the Company had
outstanding stock options to purchase 1,743,876 shares of Common Stock and
warrants outstanding to purchase 14,745,997 shares of Common Stock. The
exercise price for each of such outstanding options and warrants is
accurately set forth on Schedule III.A.1. hereto.
2. The Conversion Shares, the Dividend Shares and the
Warrant Shares have been duly and validly authorized and reserved for
issuance by the Company, and when issued by the Company upon conversion of,
or in lieu of cash dividends on, the Preferred Shares and on exercise of
the Warrants will be duly and validly issued, fully paid and nonassessable
and will not subject the holder thereof to personal liability by reason of
being such holder.
3. Except as disclosed on Schedule III.A.3. hereto, there
are no preemptive, subscription, "call," right of first refusal or other
similar rights to acquire any capital stock of the Company or any of its
Subsidiaries or other voting securities of the Company that have been
issued or granted to any person and no other obligations of the Company or
any of its Subsidiaries to issue, grant, extend or enter into any security,
-3-
<PAGE> 4
option, warrant, "call," right, commitment, agreement, arrangement or
undertaking with respect to any of their respective capital stock.
4. Schedule III.A.4. hereto lists all the subsidiaries of
the Company (the "SUBSIDIARIES"). Except as disclosed on Schedule III.A.4.
hereto, the Company does not own or control, directly or indirectly, any
interest in any other corporation, partnership, limited liability company,
unincorporated business organization, association, trust or other business
entity.
5. The Company has delivered to Buyer complete and correct
copies of the Certificate of Incorporation and the By-Laws of each of the
Company and the Subsidiaries, in each case as amended to the date of this
Agreement. Except as set forth on Schedule III.A.5., the Company has
delivered to Buyer true and complete copies of all minutes of the Board of
Directors of the Company (the "BOARD OF DIRECTORS") since 1997.
B. ORGANIZATION; REPORTING COMPANY STATUS.
1. Each of the Company and the Subsidiaries is a
corporation duly organized, validly existing and in good standing under the
laws of the state or jurisdiction in which it is incorporated and is duly
qualified as a foreign corporation in all jurisdictions in which the
failure so to qualify would reasonably be expected to have a material
adverse effect on the business, properties, prospects, condition (financial
or otherwise) or results of operations of the Company and the Subsidiaries
taken as a whole or on the consummation of any of the transactions
contemplated by this Agreement (a "MATERIAL ADVERSE EFFECT").
2. The Company has registered the Common Stock pursuant to
Section 12 of the Securities Exchange Act of 1934, as amended (the
"EXCHANGE ACT"). The Common Stock is listed and traded on the Nasdaq
SmallCap Market ("NASDAQ") and the Company has not received any notice
regarding, and to its knowledge there is no threat of, the termination or
discontinuance of the eligibility of the Common Stock for such listing.
C. AUTHORIZATION. The Company has duly and validly authorized
and reserved for issuance shares of Common Stock, in number sufficient for the
conversion of and the payment of dividends (in lieu of cash payments) on the
600,000 Preferred Shares and the exercise of the Warrants in full, such number
of authorized and reserved shares to be at least 19.9% of the total outstanding
shares of Common Stock on the Closing Date, and (ii) at all times from and after
the date hereof shall have a sufficient number of shares of Common Stock duly
and validly authorized and reserved for issuance to satisfy the conversion of
Preferred Shares, the payment of dividends (in lieu of cash payments) on the
Preferred Shares and the exercise of the Warrants in full. The Company
understands and acknowledges the potentially dilutive effect on the Common Stock
of the issuance of the Preferred Shares and of the Conversion Shares, the
Dividend Shares and the Warrant Shares upon the conversion of, and payment of
dividends on, the Preferred Shares and the exercise of the Warrants,
respectively. The Company further acknowledges that its obligation to issue
Conversion Shares upon conversion of the Preferred
-4-
<PAGE> 5
Shares and Warrant Shares upon exercise of the Warrants in accordance with this
Agreement, the Certificate of Designation and the Warrants is absolute and
unconditional regardless of the dilutive effect that such issuance may have on
the ownership interests of other stockholders of the Company and notwithstanding
the commencement of any case under 11 U.S.C. ss. 101 et seq. (the "BANKRUPTCY
COde"). In the event the Company is a debtor under the Bankruptcy Code, the
Company hereby waives to the fullest extent permitted any rights to relief it
may have under 11 U.S.C. ss. 362 in respect of the conversion of the Preferred
Shares and the exercise of the Warrants. The Company agrees, without cost or
expense to Buyer, to take or consent to any and all action necessary to
effectuate relief under 11 U.S.C. ss. 362. Schedule III.C. hereto sets forth (i)
all issuances and sales by the Company since January 2, 2000 of its capital
stock, and other securities convertible into or exercisable or exchangeable for
capital stock of the Company, (ii) the amount of such securities sold, including
the amount of any underlying shares of capital stock, (iii) the purchaser
thereof, (iv) the amount paid therefor, and (v) the material terms of all
outstanding capital stock of the Company (other than the Common Stock).
D. AUTHORITY; VALIDITY AND ENFORCEABILITY. The Company has the
requisite corporate power and authority to file, and perform its obligations
under, the Certificate of Designation and to enter into the Documents (as
hereinafter defined) and to perform all of its obligations hereunder and
thereunder (including the issuance, sale and delivery to Buyer of the
Securities). The execution, delivery and performance by the Company of the
Documents and the consummation by the Company of the transactions contemplated
hereby and thereby (including, without limitation, the filing of the Certificate
of Designation with the Minnesota Secretary of State's office, the issuance of
the Preferred Shares and the Warrants and the issuance and reservation for
issuance of the Conversion Shares, the Dividend Shares and the Warrant Shares)
have been duly and validly authorized by all necessary corporate action on the
part of the Company. Each of the Documents has been duly and validly executed
and delivered by the Company and the Certificate of Designation has been duly
filed with the Minnesota Secretary of State's office by the Company, and each
Document constitutes a valid and binding obligation of the Company enforceable
against it in accordance with its terms, subject to applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and similar laws
affecting creditors' rights and remedies generally and except as rights to
indemnity and contribution may be limited by federal or state securities laws or
the public policy underlying such laws. The Securities have been duly and
validly authorized for issuance by the Company and, when executed and delivered
by the Company, will be valid and binding obligations of the Company enforceable
against it in accordance with their terms, subject to applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and similar laws
affecting creditors' rights and remedies generally. For purposes of this
Agreement, the term "DOCUMENTS" means (i) this Agreement; (ii) the Registration
Rights Agreement of even date herewith between the Company and Buyer, a copy of
which is annexed hereto as Exhibit D (the "REGISTRATION RIGHTS AGREEMENT");
(iii) the Certificate of Designation; (iv) the Warrants; and (v) the Escrow
Instructions.
E. VALIDITY OF ISSUANCE OF THE SECURITIES. The Preferred
Shares and the Warrants as of the Closing Date, AND the Conversion Shares, the
Dividend Shares and the Warrant Shares upon their issuance in accordance with
the Certificate of Designation and the Warrants, respectively, will be validly
issued and outstanding, fully paid and nonassessable, and
-5-
<PAGE> 6
not subject to any preemptive rights, rights of first refusal, tag-along rights,
drag-along rights or other similar rights.
F. NON-CONTRAVENTION. Except as set forth on Schedule III.F.,
the execution and delivery by the Company of the Documents, the issuance of the
Securities, and the consummation by the Company of the other transactions
contemplated hereby and thereby, including, without limitation, the filing of
the Certificate of Designation with the Minnesota Secretary of State's office,
do not, and compliance with the provisions of this Agreement and other Documents
will not, conflict with, or result in any violation of, or default (with or
without notice or lapse of time, or both) under, or give rise to a right of
termination, cancellation or acceleration of any obligation or loss of a
material benefit under, or result in the creation of any Lien (as defined in
Section III.V.) upon any of the properties or assets of the Company or any of
its Subsidiaries under, or result in the termination of, or require that any
consent be obtained or any notice be given with respect to, (i) the Certificate
of Incorporation or By-Laws of the Company or the comparable charter or
organizational documents of any of its Subsidiaries, (ii) any loan or credit
agreement, note, bond, mortgage, indenture, lease, contract or other agreement,
instrument or permit applicable to the Company or any of its Subsidiaries or
their respective properties or assets, or (iii) any Law (as defined in Section
III.N.) applicable to, or any judgment, decree or order of any court or
government body having jurisdiction over, the Company or any of its Subsidiaries
or any of their respective properties or assets.
G. APPROVALS. No authorization, approval or consent of any
court or public or governmental authority is required to be obtained by the
Company for the issuance and sale of the Preferred Shares or the Warrants (or
the Conversion Shares, the Dividend Shares or Warrant Shares) to Buyer as
contemplated by this Agreement, except such authorizations, approvals and
consents as have been obtained by the Company prior to the date hereof.
H. COMMISSION FILINGS. The Company has properly and timely
filed with the Commission all reports, proxy statements, forms and other
documents required to be filed with the Commission under the Securities Act and
the Exchange Act since November 3, 1997, (the "COMMISSION FILINGS"). As of their
respective dates, (i) the Commission Filings complied in all material respects
with the requirements of the Securities Act or the Exchange Act, as the case may
be, and the rules and regulations of the Commission promulgated thereunder
applicable to such Commission Filings, and (ii) none of the Commission Filings
contained at the time of its filing any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. The financial statements of the Company included
in the Commission Filings, as of the dates of such documents, were true and
complete in all material respects and complied with applicable accounting
requirements and the published rules and regulations of the Commission with
respect thereto, were prepared in accordance with generally accepted accounting
principles in the United States ("GAAP") (except in the case of unaudited
statements permitted by Form 10-Q under the Exchange Act) applied on a
consistent basis during the periods involved (except as may be indicated in the
notes thereto) and fairly presented the consolidated financial position of the
Company and its Subsidiaries as of the dates thereof and the consolidated
results of their operations and cash flows for the periods then ended (subject,
in the case of unaudited statements, to normal year-end audit adjustments that
in the aggregate are not material and to any other adjustment described
therein).
-6-
<PAGE> 7
I. ABSENCE OF CERTAIN CHANGES. Since the Balance Sheet Date
(as defined in Section III.M.), there has not occurred any change, event or
development in the business, financial condition, prospects or results of
operations of the Company and the Subsidiaries, there has not existed any
condition having or reasonably likely to have a Material Adverse Effect, and the
Company and the Subsidiaries have conducted their respective businesses only in
the ordinary course.
J. FULL DISCLOSURE. There is no fact known to the Company
(other than general economic or industry conditions known to the public
generally) that has not been fully disclosed in writing to Buyer that (i)
reasonably could be expected to have a Material Adverse Effect or (ii)
reasonably could be expected to materially and adversely affect the ability of
the Company to perform its obligations pursuant to the Documents.
K. ABSENCE OF LITIGATION. Except as set forth on Schedule
III.K., there are (i) no suits, actions or proceedings pending or, to the
knowledge of the Company, threatened against the Company or any of its
Subsidiaries, (ii) no complaints, lawsuits, charges or other proceedings pending
or, to the knowledge of the Company, threatened in any forum by or on behalf of
any present or former employee of the Company or any of its Subsidiaries, any
applicant for employment or classes of the foregoing alleging breach of any
express or implied contract of employment, any applicable law governing
employment or the termination thereof or other discriminatory, wrongful or
tortious conduct in connection with the employment relationship, and (iii) no
judgments, decrees, injunctions or orders of any court or other governmental
entity or arbitrator outstanding against the Company or any Subsidiary.
L. ABSENCE OF EVENTS OF DEFAULT. Except as set forth in
Schedule III.L., no "EVENT OF DEFAULT" (as defined in any agreement or
instrument to which the Company is a party) and no event which, with notice,
lapse of time or both, would constitute an Event of Default (as so defined), has
occurred and is continuing.
M. FINANCIAL STATEMENTS; NO UNDISCLOSED LIABILITIES. The
Company has delivered to Buyer true and complete copies of the (i) audited
balance sheet of the Company and the Subsidiaries as at January 2, 2000, January
2, 1999 and January 2, 1998, respectively, and the related audited statements of
income, changes in stockholders' equity and cash flows for the three fiscal
years ended January 2, 2000, January 2, 1999 and January 2, 1998 including the
related notes and schedules thereto and (ii) unaudited balance sheets of the
Company and the Subsidiaries and the statements of income, changes in
stockholders' equity and cash flows as at the end of and for each fiscal quarter
ended since April 2, 2000 including the related notes and schedules thereto, all
certified by the chief financial officer of the Company (collectively, the
"FINANCIAL STATEMENTS"), and all management letters, if any, from the Company's
independent auditors relating to the dates and periods covered by the Financial
Statements. Each of the Financial Statements is complete and correct in all
material respects, has been prepared in accordance with GAAP (subject, in the
case of the interim Financial Statements, to normal year end adjustments and the
absence of footnotes), and fairly presents the financial position, results of
operations and cash flows of the Company as at the dates and for the periods
indicated. For purposes hereof, the audited balance sheet of the Company as at
January 2, 2000 is hereinafter referred to as the "BALANCE SHEET" and January 2,
2000 is hereinafter referred to as the "BALANCE SHEET DATE". The Company has no
indebtedness, obligations or liabilities of any kind (whether
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accrued, absolute, contingent or otherwise, and whether due or to become due),
which was not fully reflected in, reserved against or otherwise described in the
Balance Sheet or the notes thereto or incurred in the ordinary course of
business consistent with the Company's past practices since the Balance Sheet
Date.
N. COMPLIANCE WITH LAWS; PERMITS. Each of the Company and its
Subsidiaries is in compliance with all laws, rules, regulations, codes,
ordinances and statutes (collectively, "LAWS") applicable to it or to the
conduct of its business. The Company possesses all material permits, approvals,
authorizations, licenses, certificates and consents from all public and
governmental authorities which are necessary to conduct its business.
O. RELATED PARTY TRANSACTIONS. Except as set forth on Schedule
III.O. hereto, neither the Company nor any of its officers, directors or
"AFFILIATES" (as such term is defined in Rule 12b-2 under the Exchange Act) nor
any family member of any officer, director or Affiliate of the Company has
borrowed any moneys from or has outstanding any indebtedness or other similar
obligations to the Company or any of the Subsidiaries. Except as set forth on
Schedule III.O. hereto, neither the Company nor any of its officers, directors
or Affiliates nor any family member of any officer, director or Affiliate of the
Company (i) owns any direct or indirect interest constituting more than a 1%
equity (or similar profit participation) interest in, or controls or is a
director, officer, partner, member or employee of, or consultant or lender to or
borrower from, or has the right to participate in the profits of, any person or
entity which is (x) a competitor, supplier, customer, landlord, tenant, creditor
or debtor of the Company or any Subsidiary, (y) engaged in a business related to
the business of the Company or any Subsidiary, or (z) a participant in any
transaction to which the Company or any Subsidiary is a party or (ii) is a party
to any contract, agreement, commitment or other arrangement with the Company or
any Subsidiary.
P. INSURANCE. Each of the Company and the Subsidiaries
maintains property and casualty, general liability, workers' compensation,
environmental hazard, personal injury and other similar types of insurance with
financially sound and reputable insurers that is adequate and consistent with
industry standards and the Company's historical claims experience. None of the
Company or the Subsidiaries has received notice from, and none of them has
knowledge of any threat by, any insurer (that has issued any insurance policy to
the Company or any Subsidiary) that such insurer intends to deny coverage under
or cancel, discontinue or not renew any insurance policy presently in force.
Q. SECURITIES LAW MATTERS. Assuming the accuracy of the
representations and warranties of Buyer set forth in Article II hereof, the
offer and sale by the Company of the Securities is exempt from (i) the
registration and prospectus delivery requirements of the Securities Act and the
rules and regulations of the Commission thereunder and (ii) the registration
and/or qualification provisions of all applicable state securities and "blue
sky" laws. Other than pursuant to an effective registration statement under the
Securities Act, the Company has not issued, offered or sold the Preferred Shares
or any shares of Common Stock (including for this purpose any securities of the
same or a similar class as the Preferred Shares or Common Stock, or any
securities convertible into or exchangeable or exercisable for the Preferred
Shares or Common Stock or any such other securities) within the one-year period
next preceding the date hereof, except as disclosed on Schedule III.Q. hereto,
and the Company shall not directly or
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indirectly take, and shall not permit any of its directors, officers or
Affiliates directly or indirectly to take, any action (including, without
limitation, any offering or sale to any person or entity of the Preferred Shares
or shares of Common Stock) which will make unavailable the exemption from
Securities Act registration being relied upon by the Company for the offer and
sale to Buyer of the Preferred Shares and the Warrants (and the Conversion
Shares, the Dividend Shares and the Warrant Shares) as contemplated by this
Agreement. No form of general solicitation or advertising has been used or
authorized by the Company or any of its officers, directors or Affiliates in
connection with the offer or sale of the Preferred Shares and the Warrants (and
the Conversion Shares, the Dividend Shares and the Warrant Shares) as
contemplated by this Agreement or any other agreement to which the Company is a
party.
R. ENVIRONMENTAL MATTERS.
Except as set forth on Schedule III.R. hereto:
1. The Company, the Subsidiaries and their respective
operations are in compliance with all applicable Environmental Laws and all
permits (including terms, conditions, and limitations therein) issued
pursuant to Environmental Laws or otherwise;
2. Each of the Company and the Subsidiaries has all
permits, licenses, waivers, exceptions, and exemptions required under all
applicable Environmental Laws necessary to operate its business;
3. None of the Company or the Subsidiaries is the subject
of any outstanding written order of or agreement with any governmental
authority or person respecting (i) Environmental Laws or permits, (ii)
Remedial Action or (iii) any Release or threatened Release of Hazardous
Materials;
4. None of the Company or the Subsidiaries has received any
written communication alleging that it may be in violation of any
Environmental Law or any permit issued pursuant to any Environmental Law,
or may have any liability under any Environmental Law;
5. None of the Company or the Subsidiaries has any
liability, contingent or otherwise, in connection with any presence,
treatment, storage, disposal or Release of any Hazardous Materials whether
on property owned or operated by the Company or any Subsidiary or property
of third parties, and none of the Company or the Subsidiaries has
transported, or arranged for transportation of, any Hazardous Materials for
treatment or disposal on any property;
6. There are no investigations of the business, operations,
or currently or previously owned, operated or leased property of the
Company or any Subsidiary pending or threatened which could lead to the
imposition of any case or liability pursuant to any Environmental Law;
7. There is not located at any of the properties owned or
operated by the Company or any Subsidiary any (A) underground storage
tanks, (B) asbestos-containing material or (C) equipment containing
polychlorinated biphenyls;
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8. Each of the Company and the Subsidiaries has provided to
Buyer all environmentally related assessments, audits, studies, reports,
analyses, and results of investigations that have been performed with
respect to the currently or previously owned, leased or operated properties
or activities of the Company and such Subsidiaries;
9. There are no liens arising under or pursuant to any
Environmental Law on any real property owned, operated, or leased by the
Company or any Subsidiary, and no action of any governmental authority has
been taken or, to the knowledge of the Company, is in process of being
taken which could subject any of such properties to such liens, and none of
the Company or the Subsidiaries has been or is expected to be required to
place any notice or restriction relating to the presence of Hazardous
Material at any real property owned, operated, or leased by it in any deed
to such property;
10. Neither the Company nor any of the Subsidiaries owns,
operates, or leases any hazardous waste generation, treatment, storage, or
disposal facility, as such terms are used pursuant to the RCRA and related
or analogous state, local, or foreign law. None of the properties owned,
operated, or leased by the Company, any of the Subsidiaries or any
predecessor thereof are now, or were in the past, used in any part as a
dump, landfill, or disposal site, and neither the Company, any of the
Subsidiaries nor any predecessor of any of them has filled any wetlands;
11. The purchase that is the subject of this Agreement will
not require any governmental approvals under Environmental Laws, including
those that are triggered by sales or transfers of businesses or real
property, including, as examples and without limitation, the New Jersey
Industrial Site Recovery Act, N.J. Stat. 13:1K-7 et seq., and the
Connecticut Transfer of Establishments Act, Conn. Gen. Stat. ss. 22a-134 et
seq.;
12. There is no currently existing requirement or
requirement to be imposed in the future by any Environmental Law or
Environmental Permit which could result in the incurrence of a cost that
could be reasonably expected to have a Material Adverse Effect; and
13. Each of the Company and each of the Subsidiaries has
disclosed to Buyer all other acts or conditions that could result in any
costs or liabilities under Environmental Laws.
For purposes of this Section III.R.:
"ENVIRONMENTAL LAW" means any foreign, federal, state or local
statute, regulation, ordinance, or common law as now or hereafter in effect in
any way relating to the protection of human health, safety or welfare or the
environment including, without limitation, the Comprehensive Environmental
Response, Compensation and Liability Act, the Hazardous Materials Transportation
Act, the Resource Conservation and Recovery Act ("RCRA"), the Clean Water Act,
the Clean Air Act, the Toxic Substances Control Act, the Federal Insecticide,
Fungicide, and Rodenticide Act and the Occupational Safety and Health Act, and
the regulations promulgated pursuant to any of them;
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"HAZARDOUS MATERIAL" means any substance that is listed,
classified or regulated pursuant to any Environmental Law, including petroleum,
gasoline, and any other petroleum product, by-product, fraction or derivative,
asbestos or asbestos-containing material, lead-containing paint, water, or
plumbing, polychlorinated biphenyls, radioactive materials and radon;
"RELEASE" means any placement, release, spill, filtration,
emission, leaking, pumping, injection, deposit, disposal, discharge, dispersal,
migration, or leaching to, through, or under the indoor or outdoor environment,
or into, through, under, or out of any property; and
"REMEDIAL ACTION" means any action to (x) clean up, remove,
remediate, treat or in any other way address any Hazardous Material; (y) prevent
or contain the Release of any Hazardous Material; or (z) perform studies and
investigations or post-remedial monitoring and care in relation to (x) or (y)
above.
S. LABOR MATTERS. Neither the Company nor any of the
Subsidiaries is party to any labor or collective bargaining agreement, and there
are no labor or collective bargaining agreements which pertain to any employees
of the Company or any Subsidiary. No employees of the Company or any of the
Subsidiaries are represented by any labor organization and none of such
employees has made a pending demand for recognition, and there are no
representation proceedings or petitions seeking a representation proceeding
presently pending or, to the Company's knowledge, threatened to be brought or
filed, with the National Labor Relations Board or other labor relations
tribunal. There is no organizing activity involving the Company or any
Subsidiary pending or to the Company's knowledge, threatened by any labor
organization or group of employees of the Company or any of the Subsidiaries.
There are no (i) strikes, work stoppages, slowdowns, lockouts or arbitrations or
(ii) material grievances or other labor disputes pending or, to the knowledge of
the Company, threatened against or involving the Company or any of the
Subsidiaries. There are no unfair labor practice charges, grievances or
complaints pending or, to the knowledge of the Company, threatened by or on
behalf of any employee or group of employees of the Company or any of the
Subsidiaries.
T. ERISA MATTERS. All Plans maintained by the Company or any
of its Subsidiaries and ERISA Affiliates are listed in Schedule III.T. and
copies of all documentation relating to such Plans (including, but not limited
to, copies of written Plans, written descriptions of oral Plans, summary plan
descriptions, trust agreements, the three most recent annual returns, employee
communications and IRS determination letters) have been delivered to or made
available for review by the Buyer. Each Plan has at all times been maintained
and administered in all material respects in accordance with its terms and the
requirements of applicable law, including ERISA and the Code, and each Plan
intended to qualify under section 401(a) of the Code has at all times since its
adoption been so qualified, and each trust which forms a part of any such plan
has at all times since its adoption been tax-exempt under section 501(a) of the
Code. The Company and each of its Subsidiaries and ERISA Affiliates are in
compliance in all material respects with all provisions of ERISA applicable to
it. No Reportable Event has occurred, been waived or exists as to which the
Company or any of its Subsidiaries and ERISA Affiliates was required to file a
report with the PBGC, and the present value of all liabilities under each
Pension Plan (based on those assumptions used to fund such Plans) listed in
Schedule III.T. did not, as of the most recent annual valuation date applicable
thereto, exceed the value of the assets of such Pension Plan. None of the
Company, its Subsidiaries and ERISA Affiliates
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has incurred, or reasonably expects to incur, any Withdrawal Liability with
respect to any Multi-employer Plan that could result in a Material Adverse
Effect. None of the Company, its Subsidiaries and ERISA Affiliates has received
any notification that any Multi-employer Plan is in reorganization or has been
terminated within the meaning of Title IV of ERISA, and no Multi-employer Plan
is reasonably expected to be in reorganization or termination where such
reorganization or termination has resulted or could reasonably be expected to
result in increases to the contributions required to be made to such Plan or
otherwise. No direct, contingent or secondary liability has been incurred or is
expected to be incurred by the Company or any of its Subsidiaries under Title IV
of ERISA to any party with respect to any Plan, or with respect to any other
Plan presently or heretofore maintained or contributed to by any ERISA
Affiliate. Neither the Company nor any of its Subsidiaries and ERISA Affiliates
has incurred any liability for any tax imposed under sections 4971 through 4980B
of the Code or civil liability under section 502(i) or (l) of ERISA. No suit,
action or other litigation or any other claim which could reasonably be expected
to result in a material liability or expense to the Company or any of its
Subsidiaries or ERISA Affiliates (excluding claims for benefits incurred in the
ordinary course of plan activities) has been brought or, to the knowledge of the
Company, threatened against or with respect to any Plan and there are no facts
or circumstances known to the Company or any of its Subsidiaries or ERISA
Affiliates that could reasonably be expected to give rise to any such suit,
action or other litigation. All contributions to Plans that were required to be
made under such Plans have been made, and all benefits accrued under any
unfunded Plan have been paid, accrued or otherwise adequately reserved in
accordance with GAAP, all of which accruals under unfunded Plans are as
disclosed in Schedule III.T., and the Company, its Subsidiaries and ERISA
Affiliates have each performed all material obligations required to be performed
under all Plans. The execution, delivery and performance of this Agreement and
the other Documents and the consummation of the transactions contemplated hereby
and thereby (including, without limitation, the offer, issue and sale by the
Company, and the purchase by the Buyer, of the Preferred Shares, the Conversion
Shares, the Warrants, the Warrant Shares and Dividend Shares) will not involve
any "prohibited transaction" within the meaning of ERISA or the Code with
respect to any Plan.
As used in this Agreement:
"CODE" means the Internal Revenue Code of 1986, as amended.
"ERISA" means the Employee Retirement Income Security Act of
1974, or any successor statute, together with the regulations thereunder, as the
same may be amended from time to time.
"ERISA AFFILIATE" means any trade or business (whether or not
incorporated) that was, is or hereafter may become, a member of a group of which
the Company is a member and which is treated as a single employer under section
414 of the Code.
"MULTI-EMPLOYER PLAN" means a multi-employer plan as defined
in section 4001(a)(3) of ERISA to which the Company or any ERISA Affiliate
(other than one considered an ERISA Affiliate only pursuant to subsection (m) or
(o) of section 414 of the Code) is making or accruing an obligation to make
contributions, or has within any of the preceding six plan years made or accrued
an obligation to make contributions.
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"PBGC" means the Pension Benefit Guaranty Corporation referred
to and defined in ERISA or any successor thereto.
"PENSION PLAN" means any pension plan (other than a
Multi-employer Plan) subject to the provision of Title IV of ERISA or section
412 of the Code that is maintained for employees of the Company or any of its
Subsidiaries, or any ERISA Affiliate.
"PLAN" means any bonus, incentive compensation, deferred
compensation, pension, profit sharing, retirement, stock purchase, stock option,
stock ownership, stock appreciation rights, phantom stock, leave of absence,
layoff, vacation, day or dependent care, legal services, cafeteria, life,
health, accident, disability, workmen's compensation or other insurance,
severance, separation or other employee benefit plan, practice, policy or
arrangement of any kind, whether written or oral, or whether for the benefit of
a single individual or more than one individual including, but not limited to,
any "employee benefit plan" within the meaning of section 3(3) of ERISA,
including any Pension Plan.
"REPORTABLE EVENT" means any reportable event as defined in
section 4043(b) of ERISA or the regulations issued thereunder with respect to a
Plan.
"WITHDRAWAL LIABILITY" means liability to a Multi-employer
Plan as a result of a complete or partial withdrawal from such Multi-employer
Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA.
U. TAX MATTERS.
1. The Company has filed all material Tax Returns which it is
required to file under applicable Laws; all such Tax Returns are true and
accurate in all material respects and have been prepared in compliance with
all applicable Laws; the Company has paid all Taxes due and owing by it
(whether or not such Taxes are required to be shown on a Tax Return) and
has withheld and paid over to the appropriate taxing authorities all Taxes
which it is required to withhold from amounts paid or owing to any
employee, stockholder, creditor or other third parties; and since the
Balance Sheet Date, the charges, accruals and reserves for Taxes with
respect to the Company (including any provisions for deferred income taxes)
reflected on the books of the Company are adequate to cover any Tax
liabilities of the Company if its current tax year were treated as ending
on the date hereof.
2. No claim has been made by a taxing authority in a
jurisdiction where the Company does not file tax returns that the Company
is or may be subject to taxation by such jurisdiction. There are no
foreign, federal, state or local tax audits or administrative or judicial
proceedings pending or being conducted with respect to the Company; no
information related to Tax matters has been requested by any foreign,
federal, state or local taxing authority; and, except as disclosed above,
no written notice indicating an intent to open an audit or other review has
been received by the Company from any foreign, federal, state or local
taxing authority. There are no material unresolved questions or claims
concerning the Company's Tax liability. The Company (A) has not executed or
entered into a closing agreement pursuant to section 7121 of the
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Code or any predecessor provision thereof or any similar provision of
state, local or foreign law; or (B) has not agreed to or is required to
make any adjustments pursuant to section 481(a) of the Code or any similar
provision of state, local or foreign law by reason of a change in
accounting method initiated by the Company or any of its subsidiaries or
has any knowledge that the IRS has proposed any such adjustment or change
in accounting method, or has any application pending with any taxing
authority requesting permission for any changes in accounting methods that
relate to the business or operations of the Company. The Company has not
been a United States real property holding corporation within the meaning
of section 897(c)(2) of the Code during the applicable period specified in
section 897(c)(1)(A)(ii) of the Code.
3. The Company has not made an election under section 341(f)
of the Code. The Company is not liable for the Taxes of another person that
is not a subsidiary of the Company under (A) Treas. Reg. Section 1.1502-6
(or comparable provisions of state, local or foreign law), (B) as a
transferee or successor, (C) by contract or indemnity or (D) otherwise. The
Company is not a party to any tax sharing agreement. The Company has not
made any payments, is not obligated to make payments and is not a party to
an agreement that could obligate it to make any payments that would not be
deductible under section 280G of the Code.
As used in this Agreement:
"IRS" means the United States Internal Revenue Service.
"TAX" or "TAXES" means federal, state, county, local, foreign,
or other income, gross receipts, ad valorem, franchise, profits, sales or use,
transfer, registration, excise, utility, environmental, communications, real or
personal property, capital stock, license, payroll, wage or other withholding,
employment, social security, severance, stamp, occupation, alternative or add-on
minimum, estimated and other taxes of any kind whatsoever (including, without
limitation, deficiencies, penalties, additions to tax, and interest attributable
thereto) whether disputed or not.
"TAX RETURN" means any return, information report or filing
with respect to Taxes, including any schedules attached thereto and including
any amendment thereof.
V. PROPERTY. Except as set forth on Schedule III.V., each of
the Company and the Subsidiaries has good and marketable title to all of its
assets and properties material to the conduct of its business, free and clear of
any liens, pledges, security interests, claims, encumbrances or other
restrictions of any kind (collectively, "LIENS"). With respect to any assets or
properties it leases, each of the Company and its Subsidiaries holds a valid and
subsisting leasehold interest therein, free and clear of any Liens, is in
compliance, in all material respects, with the terms of the applicable lease,
and enjoys peaceful and undisturbed possession under such lease. All of the
assets and properties of the Company and its Subsidiaries that are material to
the conduct of business as presently conducted or as proposed to be conducted by
it are in good operating condition and repair. The inventory of each of the
Company and its Subsidiaries is in good and marketable condition, does not
include any material quantity of items
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which are obsolete, damaged or slow moving, and is salable (or may be leased) in
the normal course of business as currently conducted by it.
W. INTELLECTUAL PROPERTY. The Company owns or possesses
adequate and enforceable rights to use all patents, patent applications,
trademarks, trademark applications, trade names, service marks, copyrights,
copyright applications, licenses, know-how (including trade secrets and other
unpatented and/or unpatentable proprietary or confidential information, systems
or procedures) and other similar rights and proprietary knowledge (collectively,
"INTANGIBLES") necessary for the conduct of its business as now being conducted
including, but not limited to, those described on Schedule III.W. hereto. Except
as set forth on Schedule III.W, the Company has all right, title and interest in
all of the Intangibles, free and clear of any and all Liens. The Company is not
infringing upon or in conflict with any right of any other person with respect
to any Intangibles. Except as disclosed on Schedule III.W. hereto, (i) no claims
have been asserted by any individual, partnership, corporation, unincorporated
organization or association, limited liability company, trust or other entity
(collectively, a "PERSON") contesting the validity, enforceability, use or
ownership of any Intangibles, and the Company has no knowledge of any basis for
such claim, and (ii) neither the Company nor the Subsidiaries has any knowledge
of infringement or misappropriation of the Intangibles by any third party.
X. CONTRACTS. All contracts, agreements, notes, instruments,
franchises, leases, licenses, commitments, arrangements or understandings,
written or oral (collectively, "CONTRACTS") which are material to the business
and operations of the Company and the Subsidiaries are in full force and effect
and constitute legal, valid and binding obligations of the Company and the
Subsidiaries and, to the best knowledge of the Company, the other parties
thereto; the Company and the Subsidiaries and, to the best knowledge of the
Company, each other party thereto, have performed in all material respects all
obligations required to be performed by them under the Contracts, and no
material violation or default exists in respect thereof, nor any event that with
notice or lapse of time, or both, would constitute a default thereof, on the
part of the Company and the Subsidiaries or, to the best knowledge of the
Company, any other party thereto; none of the Contracts is currently being
renegotiated; and the validity, effectiveness and continuation of all Contracts
will not be materially adversely affected by the transactions contemplated by
this Agreement.
Y. REGISTRATION RIGHTS. Except as set forth on Schedule
III.Y., no Person has, and as of the Closing (as defined in Article VII), no
Person shall have, any demand, "piggy-back" or other rights to cause the Company
to file any registration statement under the Securities Act, relating to any of
its securities or to participate in any such registration statement.
Z. DIVIDENDS. The timely payment of dividends on the Preferred
Shares as specified in the Certificate of Designation is not prohibited by the
Certificate of Incorporation or By-Laws of the Company or any agreement,
Contract, document or other undertaking to which the Company or any of the
Subsidiaries is a party.
AA. INVESTMENT COMPANY ACT. Neither the Company nor any of the
Subsidiaries is an "investment company" within the meaning of the Investment
Company Act of 1940, as amended (the "INVESTMENT COMPANY ACT"), nor is the
Company nor any of the
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Subsidiaries directly or indirectly controlled by or acting on behalf of any
Person which is an "investment company" within the meaning of the Investment
Company Act.
BB. BUSINESS PLAN. Any business information of the Company
previously submitted to Buyer in any form, including the projections contained
therein, was prepared by the senior management of the Company in good faith and
is based on assumptions that the Company believes are reasonable. The Company is
not aware of any fact or condition that could reasonably be expected to result
in the Company not achieving the results described in such business plan.
CC. YEAR 2000 COMPLIANCE. The Company has reviewed its
products, business and operations that could be adversely affected by the risk
that computer applications used by the Company and the Subsidiaries may be
unable to recognize, and properly perform date-sensitive functions involving,
dates prior to and after December 31, 1999 (the "YEAR 2000 PROBLEM"). The
Company believes its internal information and business systems will be able to
perform properly date-sensitive functions for all dates before and after January
1, 2000. In addition, the Company has surveyed those vendors, suppliers and
other third parties (collectively, the "OUTSIDE PARTIES") with which the Company
or any of the Subsidiaries do business and whose failure to adequately address
the Year 2000 Problem could reasonably be expected to adversely affect the
business and operations of the Company or any of the Subsidiaries. Based upon
the aforementioned internal review and surveys of the Outside Parties as of the
date of this Agreement, the Year 2000 Problem has not resulted in, and is not
reasonably expected to have, a Material Adverse Effect.
DD. INTERNAL CONTROLS AND PROCEDURES. The Company maintains
accurate books and records and internal accounting controls that provide
reasonable assurance that (i) all transactions to which the Company or each of
the Subsidiaries is a party or by which its properties are bound are executed
with management's authorization; (ii) the reported accountability of the
Company's and the Subsidiaries' assets is compared with existing assets at
regular intervals; (iii) access to the Company's and the Subsidiaries' assets is
permitted only in accordance with management's authorization; and (iv) all
transactions to which any of the Company and the Subsidiaries is a party or by
which its properties are bound are recorded as necessary to permit preparation
of the financial statements of the Company in accordance with GAAP.
EE. PAYMENTS AND CONTRIBUTIONS. Neither the Company nor any of
its Subsidiaries nor any of their respective directors, officers or, to their
respective knowledge, other employees has (i) used any company funds for any
unlawful contribution, endorsement, gift, entertainment or other unlawful
expense relating to political activity; (ii) made any direct or indirect
unlawful payment of company funds to any foreign or domestic government official
or employee, (iii) violated or is in violation of any provision of the Foreign
Corrupt Practices Act of 1977, as amended; or (iv) made any bribe, rebate,
payoff, influence payment, kickback or other similar payment to any person with
respect to Company matters.
FF. NO MISREPRESENTATION. No representation or warranty of the
Company contained in this Agreement or any of the other Documents, any schedule,
annex or exhibit hereto or thereto or any agreement, instrument or certificate
furnished by the Company to Buyer pursuant to this Agreement contains any untrue
statement of a material fact or omits to state a
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<PAGE> 17
material fact required to be stated therein or necessary to make the statements
therein not misleading.
GG. FINDER'S FEE. There is no finder's fee, brokerage
commission or like payment in connection with the transactions contemplated by
this Agreement for which Buyer is liable or responsible.
IV. CERTAIN COVENANTS AND ACKNOWLEDGMENTS
A. RESTRICTIVE LEGEND. Buyer acknowledges and agrees that,
upon issuance pursuant to this Agreement, the Securities (including any
Dividends Shares, Conversion Shares or the Warrant Shares) shall have endorsed
thereon a legend in substantially the following form (and a stop-transfer order
may be placed against transfer of the Preferred Shares, the Warrant Shares and
the Conversion Shares until such legend has been removed):
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY
STATE, AND ARE BEING OFFERED AND SOLD PURSUANT TO AN EXEMPTION FROM
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH LAWS.
THESE SECURITIES MAY NOT BE SOLD OR TRANSFERRED EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT
TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT OR SUCH OTHER LAWS."
B. FILINGS. The Company shall make all necessary Commission
Filings and "blue sky" filings required to be made by the Company in connection
with the sale of the Securities to Buyer as required by all applicable Laws, and
shall provide a copy thereof to Buyer promptly after such filing.
C. REPORTING STATUS. So long as Buyer beneficially owns any of
the Securities, the Company shall timely file all reports required to be filed
by it with the Commission pursuant to Section 13 or 15(d) of the Exchange Act.
D. USE OF PROCEEDS. The Company shall use the proceeds from
the sale of the Securities (net of amounts paid by the Company for Buyer's
out-of-pocket costs and expenses, whether or not accounted for or incurred in
connection with the transactions contemplated by this Agreement (including the
fees and disbursements of Buyer's legal counsel), and finder's fees in
connection with such sale) solely for acquisitions and for general corporate and
working capital purposes.
E. LISTING. Except to the extent the Company lists its Common
Stock on The New York Stock Exchange, the Company shall use its best efforts to
maintain its listing of the Common Stock on Nasdaq. If the Common Stock is
delisted from Nasdaq, the Company will use its best efforts to list the Common
Stock on the most liquid national securities exchange or quotation system that
the Common Stock is qualified to be listed on.
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<PAGE> 18
F. RESERVED CONVERSION SHARES. The Company at all times from
and after the date hereof shall have such number of shares of Common Stock duly
and validly authorized and reserved for issuance as shall be sufficient for the
conversion in full of, and the payment of dividends on, the Preferred Shares and
the exercise in full of the Warrants such number of authorized and reserved
Shares to be at least 19.9% of the total outstanding Shares of Common Stock on
the Closing Date.
G. INFORMATION. Each of the parties hereto acknowledges and
agrees that Buyer shall not be provided with, nor be given access to, any
material non-public information relating to the Company or any of the
Subsidiaries.
H. EXEMPTION FROM INVESTMENT COMPANY ACT. The Company shall
conduct its business, and shall cause the Subsidiaries to conduct their
businesses, in such a manner that neither the Company nor any Subsidiary shall
become an "investment company" within the meaning of the Investment Company Act.
I. ACCOUNTING AND RESERVES. The Company shall maintain a
standard and uniform system of accounting and shall keep proper books and
records and accounts in which full, true and correct entries shall be made of
its transactions, all in accordance with GAAP applied on a consistent basis
through all periods, and shall set aside on such books for each fiscal year all
such reserves for depreciation, obsolescence, amortization, bad debts and other
purposes in connection with its operations as are required by such principles so
applied.
J. TRANSACTIONS WITH AFFILIATES. Neither the Company nor any
of its Subsidiaries shall, directly or indirectly, enter into any transaction or
agreement with any stockholder, officer, director or Affiliate of the Company or
family member of any officer, director or Affiliate of the Company, unless the
transaction or agreement is (i) reviewed and approved by a majority of
Disinterested Directors (as defined below) and (ii) on terms no less favorable
to the Company or the applicable Subsidiary than those obtainable from a
non-affiliated person. A "DISINTERESTED DIRECTOR" shall mean a director of the
Company who is not and has not been an officer or employee of the Company and
who is not a member of the family of, controlled by or under common control
with, any such officer or employee.
K. ISSUANCES OF ADDITIONAL CONVERTIBLE PREFERRED SHARES OR
CONVERTIBLE DEBENTURES. So long as Buyer beneficially owns greater than 5% of
the Preferred Shares, the Company shall not issue any additional convertible
preferred stock or convertible debt securities, in each case, convertible into
Common Stock at a floating conversion price, without the prior written consent
of Buyer.
L. CERTAIN RESTRICTIONS. So long as any Preferred Shares are
outstanding, no dividends shall be declared or paid or set apart for payment nor
shall any other distribution be declared or made upon Junior Securities (as
defined in the Certificate of Designation), nor shall any Junior Securities be
redeemed, purchased or otherwise acquired (other than a redemption, purchase or
other acquisition of shares of Common Stock made for purposes of an employee
incentive or benefit plan (including a stock option plan) of the Company or any
Subsidiary, for any consideration by the Company, directly or indirectly, nor
shall any moneys be paid to or made available for a sinking fund for the
redemption of any shares of any such stock.
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<PAGE> 19
V. TRANSFER AGENT INSTRUCTIONS
A. The Company undertakes and agrees that no instruction other
than the instructions referred to in this Article V and customary stop transfer
instructions prior to the registration and sale of the Common Stock pursuant to
an effective Securities Act registration statement shall be given to its
transfer agent for the Common Stock and that the Conversion Shares, the Dividend
Shares and the Warrant Shares shall otherwise be freely transferable on the
books and records of the Company as and to the extent provided in this
Agreement, the Registration Rights Agreement and applicable law. Nothing
contained in this Section V.A. shall affect in any way Buyer's obligations and
agreement to comply with all applicable securities laws upon resale of such
Common Stock. If, at any time, Buyer provides the Company with an opinion of
counsel reasonably satisfactory to the Company that registration of the resale
by Buyer of such Common Stock is not required under the Securities Act and that
the removal of restrictive legends is permitted under applicable law, the
Company shall permit the transfer of such Common Stock and promptly instruct the
Company's transfer agent to issue one or more certificates for Common Stock
without any restrictive legends endorsed thereon.
B. Buyer shall have the right to convert the Preferred Shares
by telecopying an executed and completed Notice of Conversion (as defined in the
Certificate of Designation) to the Company. Each date on which a Notice of
Conversion is telecopied to and received by the Company in accordance with the
provisions hereof shall be deemed a Conversion Date (as defined in the
Certificate of Designation). The Company shall transmit the certificates
evidencing the shares of Common Stock issuable upon conversion of any Preferred
Shares (together with certificates evidencing any Preferred Shares not being so
converted) to Buyer via express courier, by electronic transfer or otherwise,
within five business days after receipt by the Company of the Notice of
Conversion (the "DELIVERY DATE"). Within 15 days after Buyer delivers the Notice
of Conversion to the Company, Buyer shall deliver to the Company a certificate
or certificates evidencing the Preferred Shares being converted.
C. Buyer shall have the right to purchase shares of Common
Stock pursuant to exercise of the Warrants in accordance with its applicable
terms of the Warrants. The last date that the Company may deliver shares of
Common Stock issuable upon any exercise of Warrants is referred to herein as the
"WARRANT DELIVERY DATE."
D. The Company understands that a delay in the issuance of the
shares of Common Stock issuable in lieu of cash dividends on the Preferred
Shares or upon the conversion of the Preferred Shares or exercise of the
Warrants beyond the applicable Dividend Payment Due Date (as defined in the
Certificate of Designation), Delivery Date or Warrant Delivery Date could result
in economic loss to Buyer. As compensation to Buyer for such loss (and not as a
penalty), the Company agrees to pay to Buyer for late issuance of Common Stock
issuable in lieu of cash dividends on the Preferred Shares or upon conversion of
the Preferred Shares or exercise of the Warrants in accordance with the
following schedule (where "NO. BUSINESS DAYS" is defined as the number of
business days beyond five days from the Dividend Payment Due Date, the Delivery
Date or the Warrant Delivery Date, as applicable):
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<PAGE> 20
<TABLE>
<CAPTION>
COMPENSATION FOR EACH 10 SHARES
OF PREFERRED SHARES NOT CONVERTED
TIMELY OR 500 SHARES OF COMMON
STOCK ISSUABLE IN PAYMENT OF
DIVIDENDS OR UPON EXERCISE OF
NO. BUSINESS DAYS WARRANTS NOT ISSUED TIMELY
----------------- ----------------------------------
<S> <C>
1 $ 25
2 50
3 75
4 100
5 125
6 150
7 175
8 200
9 225
10 250
more than 10 $250 + $100 for each Business Day
Late beyond 10 days
</TABLE>
The Company shall pay to Buyer the compensation described above by the transfer
of immediately available funds upon Buyer's demand. Nothing herein shall limit
Buyer's right to pursue actual damages for the Company's failure to issue and
deliver Common Stock to Buyer. In addition to any other remedies which may be
available to Buyer, in the event the Company fails for any reason to deliver
such shares of Common Stock within five business days after the relevant
Dividend Payment Due Date, Delivery Date or Warrant Delivery Date, as
applicable, Buyer shall be entitled to rescind the relevant Notice of Conversion
or exercise of Warrants by delivering a notice to such effect to the Company
whereupon the Company and Buyer shall each be restored to their respective
original positions immediately prior to delivery of such Notice of Conversion on
delivery.
VI. DELIVERY INSTRUCTIONS
The Securities shall be delivered by the Company to the Escrow
Agent pursuant to Section I.B. hereof on a "delivery-against-payment basis" at
the Closing.
VII. CLOSING DATE
The date and time (the "CLOSING DATE") of the issuance and
sale of the Preferred Shares and the Warrants (the "CLOSING") shall be the date
hereof or such other date as shall be mutually agreed upon in writing. The
issuance and sale of the Securities shall occur on the Closing Date at the
offices of the Escrow Agent. Notwithstanding anything to the contrary contained
herein, the Escrow Agent shall not be authorized to release to the Company the
Purchase Price or to Buyer the certificate(s) (I/N/O Buyer or I/N/O Buyer's
nominee) evidencing the Securities being purchased by Buyer unless the
conditions set forth in Sections VIII.C. and IX.H.
hereof have been satisfied.
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<PAGE> 21
VIII. CONDITIONS TO THE COMPANY'S OBLIGATIONS
Buyer understands that the Company's obligation to sell the
Securities on the Closing Date to Buyer pursuant to this Agreement is
conditioned upon:
A. Delivery by Buyer to the Escrow Agent of the Purchase
Price;
B. The accuracy on the Closing Date of the representations and
warranties of Buyer contained in this Agreement as if made on the Closing Date
(except for representations and warranties which, by their express terms, speak
as of and relate to a specified date, in which case such accuracy shall be
measured as of such specified date) and the performance by Buyer in all material
respects on or before the Closing Date of all covenants and agreements of Buyer
required to be performed by it pursuant to this Agreement on or before the
Closing Date; and
C. There shall not be in effect any Law or order, ruling,
judgment or writ of any court or public or governmental authority restraining,
enjoining or otherwise prohibiting any of the transactions contemplated by this
Agreement.
IX. CONDITIONS TO BUYER'S OBLIGATIONS
The Company understands that Buyer's obligation to purchase
the Securities on the Closing Date pursuant to this Agreement is conditioned
upon:
A. Delivery by the Company to Buyer of evidence that the
Certificate of Designation has been filed and is effective;
B. Delivery by the Company to the Escrow Agent of one or more
certificates (I/N/O Buyer or I/N/O Buyer's nominee) evidencing the Securities to
be purchased by Buyer pursuant to this Agreement;
C. The accuracy on the Closing Date of the representations and
warranties of the Company contained in this Agreement as if made on the Closing
Date (except for representations and warranties which, by their express terms,
speak as of and relate to a specified date, in which case such accuracy shall be
measured as of such specified date) and the performance by the Company in all
respects on or before the Closing Date of all covenants and agreements of the
Company required to be performed by it pursuant to this Agreement on or before
the Closing Date, all of which shall be confirmed to Buyer by delivery of the
certificate of the chief executive officer of the Company to that effect;
D. Buyer having received an opinion of counsel for the
Company, dated the Closing Date, in form, scope and substance reasonably
satisfactory to Buyer as to the matters set forth in Annex A;
E. There not having occurred (i) any general suspension of
trading in, or limitation on prices listed for, the Common Stock on Nasdaq, (ii)
the declaration of a banking moratorium or any suspension of payments in respect
of banks in the United States, (iii) the commencement of a war, armed
hostilities or other international or national calamity directly or
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<PAGE> 22
indirectly involving the United States or any of its territories, protectorates
or possessions, or (iv) in the case of the foregoing existing at the date of
this Agreement, a material acceleration or worsening thereof;
F. There not having occurred any event or development, and
there being in existence no condition, having or which reasonably and
foreseeably could have a Material Adverse Effect;
G. The Company shall have delivered to Buyer (as provided in
the Escrow Instructions) reimbursement of Buyer's out-of-pocket costs and
expenses, whether or not accounted for or incurred in connection with the
transactions contemplated by this Agreement (including the fees and
disbursements of Buyer's legal counsel), of $50,000;
H. There shall not be in effect any Law, order, ruling,
judgment or writ of any court or public or governmental authority restraining,
enjoining or otherwise prohibiting any of the transactions contemplated by this
Agreement;
I. Delivery by the Company of irrevocable instructions to the
Company's transfer agent to reserve such number of shares of Common Stock equal
to 19.9% of the total outstanding shares of Common Stock on the Closing Date for
issuance of the Conversion Shares and the Warrant Shares;
J. The Company shall have obtained all consents, approvals or
waivers from governmental authorities and third persons necessary for the
execution, delivery and performance of the Documents and the transactions
contemplated thereby, all without material cost to the Company; and
K. Buyer shall have received such additional documents,
certificates, payment, assignments, transfers and other delivers, as it or its
legal counsel may reasonably request and as are customary to effect a closing of
the matters herein contemplated.
X. TERMINATION
A. TERMINATION BY MUTUAL WRITTEN CONSENT. This Agreement may
be terminated and the transactions contemplated hereby may be abandoned, for any
reason and at any time prior to the Closing Date, by the mutual written consent
of the Company and Buyer.
B. TERMINATION BY THE COMPANY OR BUYER. This Agreement may be
terminated and the transactions contemplated hereby may be abandoned by action
of the Company or Buyer if (i) the Closing shall not have occurred at or prior
to 5:00 p.m., New York City time, on May 22, 2000 (the "LATEST CLOSING DATE");
provided, however, that the right to terminate this Agreement pursuant to this
Section X.B. shall not be available to any party whose failure to fulfill any of
its obligations under this Agreement has been the cause of or has resulted in
the failure of the Closing to occur at or before such time and date; provided,
further, however, that if the Closing shall not have occurred on or prior to the
Latest Closing Date, the Closing may only occur after the Latest Closing Date
with the written consent of Buyer.
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<PAGE> 23
C. TERMINATION BY BUYER. This Agreement may be terminated and
the transactions contemplated hereby may be abandoned by Buyer at any time prior
to the Closing Date, if (i) the Company shall have failed to comply with any of
its covenants or agreements contained in this Agreement, (ii) there shall have
been a breach by the Company of any representation or warranty made by it in
this Agreement, (iii) there shall have occurred any event or development, or
there shall be in existence any condition, having or reasonably likely to have a
Material Adverse Effect or (iv) the Company shall have failed to satisfy the
conditions provided in Article IX hereof.
D. TERMINATION BY THE COMPANY. This Agreement may be
terminated and the transactions contemplated hereby may be abandoned by the
Company at any time prior to the Closing Date, if (i) Buyer shall have failed to
comply with any of its covenants or agreements contained in this Agreement or
(ii) there shall have been a breach by Buyer of any representation or warranty
made by it in this Agreement.
E. EFFECT OF TERMINATION. In the event of the termination of
this Agreement pursuant to this Article X, this Agreement shall thereafter
become void and have no effect, and no party hereto shall have any liability or
obligation to any other party hereto in respect of this Agreement, except that
the provisions of Article XI, this Section X.E and Section X.F shall survive any
such termination; provided, however, that no party shall be released from any
liability hereunder if this Agreement is terminated and the transactions
contemplated hereby abandoned by reason of (i) willful failure of such party to
perform its obligations hereunder or (ii) any misrepresentation made by such
party of any matter set forth herein.
F. FEES AND EXPENSES OF TERMINATION. If this Agreement is
terminated for any reason, the Company shall promptly reimburse Buyer for all of
Buyer's out-of-pocket costs and expenses incurred in connection with the
transactions contemplated by this Agreement and the other Documents (including,
without limitation, the fees and disbursements of Buyer's legal counsel).
XI. SURVIVAL; INDEMNIFICATION
A. The representations, warranties
and covenants made by each of the Company and Buyer in this Agreement, the
annexes, schedules and exhibits hereto and in each instrument, agreement and
certificate entered into and delivered by them pursuant to this Agreement shall
survive the Closing and the consummation of the transactions contemplated
hereby. In the event of a breach or violation of any of such representations,
warranties or covenants, the party to whom such representations, warranties or
covenants have been made shall have all rights and remedies for such breach or
violation available to it under the provisions of this Agreement or otherwise,
whether at law or in equity, irrespective of any investigation made by or on
behalf of such party on or prior to the Closing Date.
B. The Company hereby agrees to indemnify and hold harmless
Buyer, its Affiliates and their respective officers, directors, partners and
members (collectively, the "BUYER INDEMNITEES") from and against any and all
losses, claims, damages, judgments, penalties, liabilities and deficiencies
(collectively, "LOSSES") and agrees to reimburse Buyer Indemnitees
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<PAGE> 24
for all out of-pocket expenses (including the fees and expenses of legal
counsel), in each case promptly as incurred by Buyer Indemnitees and to the
extent arising out of or in connection with:
1. any misrepresentation, omission of fact or breach of any
of the Company's representations or warranties contained in this Agreement
or the other Documents, or the annexes, schedules or exhibits hereto or
thereto or any instrument, agreement or certificate entered into or
delivered by the Company pursuant to this Agreement or the other Documents;
2. any failure by the Company to perform in any material
respect any of its covenants, agreements, undertakings or obligations set
forth in this Agreement or the other Documents or any instrument,
certificate or agreement entered into or delivered by the Company pursuant
to this Agreement or the other Documents;
3. the purchase of the Preferred Shares and the Warrants,
the conversion of the Preferred Shares and the exercise of the Warrants and
the consummation of the transactions contemplated by this Agreement and the
other Documents, the use of any of the proceeds of the Purchase Price by
the Company, the purchase or ownership of any or all of the Securities, the
performance by the parties hereto of their respective obligations hereunder
and under the Documents or any claim, litigation, investigation,
proceedings or governmental action relating to any of the foregoing,
whether or not Buyer is a party thereto; or
4. resales of the Common Shares by Buyer in the manner and
as contemplated by this Agreement and the Registration Rights Agreement.
C. Buyer hereby agrees to indemnify and hold harmless the
Company, its Affiliates and their respective officers, directors, partners and
members (collectively, the "COMPANY INDEMNITEES") from and against any and all
Losses, and agrees to reimburse the Company Indemnitees for all out-of-pocket
expenses (including the fees and expenses of legal counsel) in each case
promptly as incurred by the Company Indemnitees and to the extent arising out of
or in connection with:
1. any misrepresentation, omission of fact or breach of any
of Buyer's representations or warranties contained in this Agreement or the
other Documents, or the annexes, schedules or exhibits hereto or thereto or
any instrument, agreement or certificate entered into or delivered by Buyer
pursuant to this Agreement or the other Documents; or
2. any failure by Buyer to perform in any material respect
any of its covenants, agreements, undertakings or obligations set forth in
this Agreement or the other Documents or any instrument, certificate or
agreement entered into or delivered by Buyer pursuant to this Agreement or
the other Documents.
D. Promptly after receipt by either party hereto seeking
indemnification pursuant to this Article XI (an "INDEMNIFIED PARTY") of written
notice of any investigation, claim, proceeding or other action in respect of
which indemnification is being sought (each, a "CLAIM"), the Indemnified Party
promptly shall notify the party against whom indemnification
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<PAGE> 25
pursuant to this Article XI is being sought (the "INDEMNIFYING PARTY") of the
commencement thereof; but the omission so to notify the Indemnifying Party shall
not relieve it from any liability that it otherwise may have to the Indemnified
Party except to the extent that the Indemnifying Party is materially prejudiced
and forfeits substantive rights or defenses by reason of such failure. In
connection with any Claim as to which both the Indemnifying Party and the
Indemnified Party are parties, the Indemnifying Party shall be entitled to
assume the defense thereof. Notwithstanding the assumption of the defense of any
Claim by the Indemnifying Party, the Indemnified Party shall have the right to
employ separate legal counsel and to participate in the defense of such Claim,
and the Indemnifying Party shall bear the reasonable fees, out-of-pocket costs
and expenses of such separate legal counsel to the Indemnified Party if (and
only if): (x) the Indemnifying Party shall have agreed to pay such fees,
out-of-pocket costs and expenses, (y) the Indemnified Party and the Indemnifying
Party reasonably shall have concluded that representation of the Indemnified
Party and the Indemnifying Party by the same legal counsel would not be
appropriate due to actual or, as reasonably determined by legal counsel to the
Indemnified Party, potentially differing interests between such parties in the
conduct of the defense of such Claim, or if there may be legal defenses
available to the Indemnified Party that are in addition to or disparate from
those available to the Indemnifying Party, or (z) the Indemnifying Party shall
have failed to employ legal counsel reasonably satisfactory to the Indemnified
Party within a reasonable period of time after notice of the commencement of
such Claim. If the Indemnified Party employs separate legal counsel in
circumstances other than as described in clauses (x), (y) or (z) above, the
fees, costs and expenses of such legal counsel shall be borne exclusively by the
Indemnified Party. Except as provided above, the Indemnifying Party shall not,
in connection with any Claim in the same jurisdiction, be liable for the fees
and expenses of more than one firm of legal counsel for the Indemnified Party
(together with appropriate local counsel). The Indemnifying Party shall not,
without the prior written consent of the Indemnified Party (which consent shall
not unreasonably be withheld), settle or compromise any Claim or consent to the
entry of any judgment that does not include an unconditional release of the
Indemnified Party from all liabilities with respect to such Claim or judgment.
E. In the event one party hereunder should have a claim for
indemnification that does not involve a claim or demand being asserted by a
third party, the Indemnified Party promptly shall deliver notice of such claim
to the Indemnifying Party. If the Indemnified Party disputes the claim, such
dispute shall be resolved by mutual agreement of the Indemnified Party and the
Indemnifying Party or by binding arbitration conducted in accordance with the
procedures and rules of the American Arbitration Association. Judgment upon any
award rendered by any arbitrators may be entered in any court having competent
jurisdiction thereof.
XII. GOVERNING LAW
This Agreement shall be governed by and interpreted in
accordance with the laws of the State of New York, without regard to the
conflicts of law principles of such state.
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<PAGE> 26
XIII. SUBMISSION TO JURISDICTION
Each of the parties hereto consents to the exclusive
jurisdiction of the federal courts whose districts encompass any part of the
City of New York or the state courts of the State of New York sitting in the
City of New York in connection with any dispute arising under this Agreement and
the other Documents. Each party hereto hereby irrevocably and unconditionally
waives, to the fullest extent it may effectively do so, any defense of an
inconvenient forum or improper venue to the maintenance of such action or
proceeding in any such court and any right of jurisdiction on account of its
place of residence or domicile. Each party hereto irrevocably and
unconditionally consents to the service of any and all process in any such
action or proceeding in such courts by the mailing of copies of such process by
certified or registered airmail at its address specified in Article XIX. Each
party hereto agrees that a final judgment in any such action or proceeding shall
be conclusive and may be enforced in other jurisdictions by suit on the judgment
or in any other manner provided by law.
XIV. WAIVER OF JURY TRIAL
TO THE FULLEST EXTENT PERMITTED BY LAW, EACH OF THE PARTIES
HERETO HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ITS RESPECTIVE
RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT
OF THIS AGREEMENT OR ANY OTHER DOCUMENT OR ANY DEALINGS BETWEEN THEM RELATING TO
THE SUBJECT MATTER OF THIS AGREEMENT AND OTHER DOCUMENTS. EACH PARTY HERETO (I)
CERTIFIES THAT NEITHER OF THEIR RESPECTIVE REPRESENTATIVES, AGENTS OR ATTORNEYS
HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH PARTY WOULD NOT, IN THE EVENT
OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS AND (II) ACKNOWLEDGES THAT
IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE
MUTUAL WAIVERS AND CERTIFICATIONS HEREIN.
XV. COUNTERPARTS; EXECUTION
This Agreement may be executed in any number of counterparts
and by the different parties hereto on separate counterparts, each of which when
so executed and delivered shall be an original, but all the counterparts shall
together constitute one and the same instrument. A facsimile transmission of
this signed Agreement shall be legal and binding on all parties hereto.
XVI. HEADINGS
The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.
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<PAGE> 27
XVII. SEVERABILITY
In the event any one or more of the provisions contained in
this Agreement or in the other Documents should be held invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein or therein shall not in any way be
affected or impaired thereby. The parties shall endeavor in good-faith
negotiations to replace the invalid, illegal or unenforceable provisions with
valid provisions the economic effect of which comes as close as possible to that
of the invalid, illegal or unenforceable provisions.
XVIII. ENTIRE AGREEMENT; REMEDIES, AMENDMENTS AND WAIVERS
This Agreement and the Documents constitute the entire
agreement among the parties pertaining to the subject matter hereof and
supersede all prior agreements, understandings, negotiations and discussions,
whether oral or written, of the parties. No supplement, modification or waiver
of this Agreement shall be binding unless executed in writing by all parties. No
waiver of any of the provisions of this Agreement shall be deemed or shall
constitute a waiver of any other provision hereof (whether or not similar), nor
shall such waiver constitute a continuing waiver unless otherwise expressly
provided.
XIX. NOTICES
Except as may be otherwise provided herein, any notice or
other communication or delivery required or permitted hereunder shall be in
writing and shall be delivered personally or sent by certified mail, postage
prepaid, or by a nationally recognized overnight courier service, and shall be
deemed given when so delivered personally or by overnight courier service, or,
if mailed, three (3) days after the date of deposit in the United States mails,
as follows:
A. if to the Company, to:
PopMail.com Inc.
1331 Corporate Drive, Suite 350
Irving, TX 75038
Attention: Stephen D. King
(972) 550-5500
(972) 550-5581 (Fax)
with a copy to:
Maslon Edelman Borman & Brand, LLP
3300 Norwest Center
Minneapolis, MN 55402
Attention: William M. Mower
(612) 672-8358
(612) 672-8397
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<PAGE> 28
B. if to Buyer, to:
The Shaar Fund Ltd.
c/o Levinson Capital Management
2 World Trade Center, Suite 1820
New York, NY 10048
Attention: Samuel Levinson
(212) 432-7711
(212) 432-7771 (Fax)
with a copy to:
Cadwalader, Wickersham & Taft
100 Maiden Lane
New York, NY 10038
Attention: Dennis J. Block, Esq.
(212) 504-5555
(212) 504-5557 (Fax)
C. if to the Escrow Agent, to:
Cadwalader, Wickersham & Taft
100 Maiden Lane
New York, NY 10038
Attention: Dennis J. Block, Esq.
(212) 504-5555
(212) 504-5557 (Fax)
The Company, Buyer or the Escrow Agent may change the foregoing address by
notice given pursuant to this Article XIX.
XX. CONFIDENTIALITY
Each of the Company and Buyer agrees to keep confidential and
not to disclose to or use for the benefit of any third party the terms of this
Agreement or any other information which at any time is communicated by the
other party as being confidential without the prior written approval of the
other party; provided, however, that this provision shall not apply to
information which, at the time of disclosure, is already part of the public
domain (except by breach of this Agreement) and information which is required to
be disclosed by law (including, without limitation, pursuant to Item 601(b)(10)
of Regulation S-K under the Securities Act and the Exchange Act).
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<PAGE> 29
XXI. ASSIGNMENT
This Agreement shall not be assignable by either of the
parties hereto prior to the Closing without the prior written consent of the
other party, and any attempted assignment contrary to the provisions hereby
shall be null and void; provided, however, that Buyer may assign its rights and
obligations hereunder, in whole or in part, to any Affiliate of Buyer.
[SIGNATURE PAGE FOLLOWS.]
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<PAGE> 30
IN WITNESS WHEREOF, the parties hereto have duly executed and
delivered this Agreement on the date first above written.
POPMAIL.COM INC.
By: s/ Stephen D. King
-------------------------------------------
Name: Stephen D. King
Title: Chief Executive Officer
THE SHAAR FUND LTD.
INTERCARRIBEAN SERVICES
By:
---------------------------------------------
Name:
Title:
<PAGE> 31
Pursuant to Item 601 of Regulation S-K, the following Exhibits
and Schedules have been omitted from this filing. The
Registrant will furnish a copy of any omitted Exhibit or
Schedule to the Commission upon request.
EXHIBIT A COMMON STOCK PURCHASE WARRANTS
EXHIBIT B CERTIFICATE OF DESIGNATION
EXHIBIT C ESCROW INSTRUCTIONS
EXHIBIT D REGISTRATION RIGHTS AGREEMENT
SCHEDULE III.A.1. EXERCISE PRICES OF OPTIONS AND WARRANTS
SCHEDULE III.A.3. PREEMPTIVE, SUBSCRIPTION, "CALL,"
RIGHT OF FIRST REFUSAL OR SIMILAR RIGHTS
SCHEDULE III.A.4. SUBSIDIARIES
SCHEDULE III.A.5. MINUTES
SCHEDULE III.C. ISSUANCES AND SALES OF SECURITIES
SCHEDULE III.F. CONTRAVENTION
SCHEDULE III.K. LITIGATION
SCHEDULE III.L. EVENTS OF DEFAULT
SCHEDULE III.O. RELATED PARTY TRANSACTIONS
SCHEDULE III.Q. SECURITIES LAW MATTERS
SCHEDULE III.R. ENVIRONMENTAL MATTERS
SCHEDULE III.T. ERISA MATTERS
SCHEDULE III.V. PROPERTY
SCHEDULE III.W. INTELLECTUAL PROPERTY
SCHEDULE III.Y. REGISTRATION RIGHTS
ANNEX A FORM OF OPINION
A-1
<PAGE> 1
EXHIBIT 10.3
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT, dated as of May 2, 2000
(this "AGREEMENT"), by and between PopMail.com Inc., a Minnesota corporation,
with principal executive offices located at 1331 Corporate Drive, Suite 350,
Irving, TX 75038 (the "COMPANY"), and The Shaar Fund Ltd. (the "INITIAL
INVESTOR").
WHEREAS, upon the terms and subject to the conditions of the
Securities Purchase Agreement dated as of May 2, 2000, by and between the
Initial Investor and the Company (the "SECURITIES PURCHASE AGREEMENT"), the
Company has agreed to issue and sell to the Initial Investor (i) 600,000 shares
of Series G 10% Convertible Preferred Stock, par value $.01 per share (the
"PREFERRED SHARES") which, upon the terms of and subject to the conditions of
the Company's Certificate of Designation of Series G 10% Convertible Preferred
Stock (the "CERTIFICATE OF DESIGNATION"), are convertible into shares of the
Company's common stock, par value $.01 per share (the "COMMON STOCK") and (ii)
Common Stock Purchase Warrants (the "WARRANTS") to purchase shares of Common
Stock; and
WHEREAS, to induce the Initial Investor to execute and deliver
the Securities Purchase Agreement, the Company has agreed to provide with
respect to the Common Stock issued or issuable in lieu of cash dividend payments
on the Preferred Shares, upon conversion of the Preferred Shares and exercise of
the Warrants certain registration rights under the Securities Act;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants contained herein, the parties hereto, intending to be legally
bound, hereby agree as follows:
1. DEFINITIONS
(a) As used in this Agreement, the following terms shall
have the meanings:
(i) "AFFILIATE," of any specified Person means any
other Person who directly, or indirectly through one or more
intermediaries, is in control of, is controlled by, or is under common
control with, such specified Person. For purposes of this definition,
control of a Person means the power, directly or indirectly, to direct
or cause the direction of the management and policies of such Person
whether by contract, securities, ownership or otherwise; and the terms
"CONTROLLING" and "CONTROLLED" have the respective meanings correlative
to the foregoing.
(ii) "CLOSING DATE" means the date and time of the
issuance and sale of the Preferred Shares and the Warrants.
(iii) "COMMISSION" means the Securities and Exchange
Commission.
(iv) "CURRENT MARKET PRICE" on any date of
determination means the closing bid price of a share of the Common
Stock on such day as reported on the Nasdaq SmallCap Market ("NASDAQ");
provided, if such security is not listed or admitted to trading on the
Nasdaq, as reported on the principal national security exchange or
<PAGE> 2
quotation system on which such security is quoted or listed or admitted
to trading, or, if not quoted or listed or admitted to trading on any
national securities exchange or quotation system, the closing bid price
of such security on the over-the-counter market on the day in question
as reported by Bloomberg LP, or a similar generally accepted reporting
service, as the case may be.
(v) "EXCHANGE ACT" means the Securities Exchange Act
of 1934, as amended, and the rules and regulations of the Commission
thereunder, or any similar successor statute.
(vi) "INVESTOR" means each of the Initial Investors
and any transferee or assignee of Registrable Securities which agrees
to become bound by all of the terms and provisions of this Agreement in
accordance with Section 8 hereof.
(vii) "PERSON" means any individual, partnership,
corporation, limited liability company, joint stock company,
association, trust, unincorporated organization, or a government or
agency or political subdivision thereof.
(viii) "PROSPECTUS" means the prospectus (including,
without limitation, any preliminary prospectus and any final prospectus
filed pursuant to Rule 424(b) under the Securities Act, including any
prospectus that discloses information previously omitted from a
prospectus filed as part of an effective registration statement in
reliance on Rule 430A under the Securities Act) included in the
Registration Statement, as amended or supplemented by any prospectus
supplement with respect to the terms of the offering of any portion of
the Registrable Securities covered by the Registration Statement and by
all other amendments and supplements to such prospectus, including all
material incorporated by reference in such prospectus and all documents
filed after the date of such prospectus by the Company under the
Exchange Act and incorporated by reference therein.
(ix) "PUBLIC OFFERING" means an offer registered with
the Commission and the appropriate state securities commissions by the
Company of its Common Stock and made pursuant to the Securities Act.
(x) "REGISTRABLE SECURITIES" means the Common Stock
issued or issuable (i) in lieu of cash dividend payments on the
Preferred Shares, (ii) upon conversion or redemption of the Preferred
Shares or (iii) upon exercise of the Warrants; provided, however, a
share of Common Stock shall cease to be a Registrable Security for
purposes of this Agreement when it no longer is a Restricted Security.
(xi) "REGISTRATION STATEMENT" means a registration
statement of the Company filed on an appropriate form under the
Securities Act providing for the registration of, and the sale on a
continuous or delayed basis by the holders of, all of the Registrable
Securities pursuant to Rule 415 under the Securities Act, including the
Prospectus contained therein and forming a part thereof, any amendments
to such registration statement and supplements to such Prospectus, and
all exhibits to and other material incorporated by reference in such
registration statement and Prospectus.
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<PAGE> 3
(xii) "RESTRICTED SECURITY" means any share of Common
Stock issued or issuable in lieu of cash dividend payments on the
Preferred Shares, upon conversion or redemption of the Preferred Shares
or exercise of the Warrants except any such share that (i) has been
registered pursuant to an effective registration statement under the
Securities Act and sold in a manner contemplated by the prospectus
included in such registration statement, (ii) has been transferred in
compliance with the resale provisions of Rule 144 under the Securities
Act (or any successor provision thereto) or is transferable pursuant to
paragraph (k) of Rule 144 under the Securities Act (or any successor
provision thereto), or (iii) otherwise has been transferred and a new
share of Common Stock not subject to transfer restrictions under the
Securities Act has been delivered by or on behalf of the Company.
(xiii) "SECURITIES ACT" means the Securities Act of
1933, as amended, and the rules and regulations of the Commission
thereunder, or any similar successor statute.
(b) All capitalized terms used and not defined herein have the
respective meaning assigned to them in the Securities Purchase Agreement.
2. REGISTRATION
(a) Filing and Effectiveness of Registration Statement. The
Company shall prepare and file with the Commission not later than 60 days after
the Closing Date, a Registration Statement relating to the offer and sale of the
Registrable Securities and shall use its best efforts to cause the Commission to
declare such Registration Statement effective under the Securities Act as
promptly as practicable but in no event later than 150 days after the Closing
Date, assuming for purposes hereof a Conversion Price under the Certificate of
Designation of $1.00 per share. The Company shall promptly (and, in any event,
no more than 24 hours after it receives comments from the Commission), notify
the Buyer when and if it receives any comments from the Commission on the
Registration Statement and promptly forward a copy of such comments, if they are
in writing, to the Buyer. At such time after the filing of the Registration
Statement pursuant to this Section 2(a) as the Commission indicates, either
orally or in writing, that it has no further comments with respect to such
Registration Statement or that it is willing to entertain appropriate requests
for acceleration of effectiveness of such Registration Statement, the Company
shall promptly, and in no event later than two business days after receipt of
such indication from the Commission, request that the effectiveness of such
Registration Statement be accelerated within 48 hours of the Commission's
receipt of such request. The Company shall not include any other securities in
the Registration Statement relating to the offer and sale of the Registrable
Securities. The Company shall notify the Initial Investor by written notice that
such Registration Statement has been declared effective by the Commission within
24 hours of such declaration by the Commission.
(b) REGISTRATION DEFAULT. If the Registration Statement
covering the Registrable Securities required to be filed by the Company pursuant
to Section 2(a), is not (i) filed with the Commission within 60 days after the
Closing Date or (ii) declared effective by the Commission within 150 days after
the Closing Date (either of which, without duplication, an "INITIAL DATE"), then
the Company shall make the payments to the Initial Investor as provided in
3
<PAGE> 4
the next sentence as liquidated damages and not as a penalty. The amount to be
paid by the Company to the Initial Investor shall be determined as of each
Computation Date (as defined below), and such amount shall be equal to 2% (the
"LIQUIDATED DAMAGE RATE") of the Purchase Price (as defined in the Securities
Purchase Agreement) from the Initial Date to the first Computation Date and for
each Computation Date thereafter, calculated on a pro rata basis to the date on
which the Registration Statement is filed with (in the event of an Initial Date
pursuant to clause (i) above) or declared effective by (in the event of an
Initial Date pursuant to clause (ii) above) the Commission (the "PERIODIC
AMOUNT") provided, however, that in no event shall the liquidated damages be
less than $25,000; provided, further, however, that if the Registration
Statement is not declared effective by the Commission within 210 days after the
Initial Date set forth in clause (ii) above, then the Liquidated Damage Rate
shall increase to 3%; provided, further, however, that the Liquidated Damage
Rate shall increase by 1% for each 30 day period after the 210th day after the
Initial Date set forth in clause (ii) above that the Registration Statement is
not declared effective by the Commission. The full Periodic Amount shall be paid
by the Company to the Initial Investor by wire transfer of immediately available
funds within three days after each Computation Date.
As used in this Section 2(b), "COMPUTATION DATE" means the
date which is 30 days after the Initial Date and, if the Registration Statement
required to be filed by the Company pursuant to Section 2(a) has not theretofore
been declared effective by the Commission, each date which is 30 days after the
previous Computation Date until such Registration Statement is so declared
effective.
(c) ELIGIBILITY FOR USE OF FORM S-3. The Company agrees that
Registration Statement on Form S-3 it shall file all reports and information
required to be filed by it with the Commission in a timely manner and take all
such other action so as to maintain such eligibility for the use of such form.
(d) ADDITIONAL REGISTRATION STATEMENT. In the event the
Current Market Price declines to $1.50 per share or less and each time
thereafter that the Current Market Price declines by 10% (each such date, a
"DECLINE DATE"), the Company shall, to the extent required by the Securities Act
(because the additional shares were not covered by the Registration Statement
filed pursuant to Section 2(a)), as reasonably determined by the Initial
Investor, file an additional Registration Statement with the Commission for such
additional number of Registrable Securities as would be issuable upon conversion
of the Preferred Shares and exercise of the Warrants (the "ADDITIONAL
REGISTRABLE SECURITIES") in addition to those previously registered, assuming
(x) with respect to the first Additional Registration Statement, a Conversion
Price of $.50 per share and (y) with respect to each succeeding Additional
Registration Statement, a Conversion Price of 10% less than the Conversion Price
assumed with respect to the immediately preceding Additional Registration
Statement. The Company shall, to the extent required by the Securities Act, as
reasonably determined by the Initial Investor, prepare and file with the
Commission not later than the 30th day thereafter, a Registration Statement
relating to the offer and sale of such Additional Registrable Securities and
shall use its best efforts to cause the Commission to declare such Registration
Statement effective under the Securities Act as promptly as practicable but not
later than 60 days thereafter. The Company shall not include any other
securities in the Registration Statement relating to the offer and sale of such
Additional Registrable Securities.
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<PAGE> 5
If the Additional Registration Statement is not (i) filed with
the Commission within 30 days after the Decline Date or (ii) declared effective
by the Commission within 90 days after the Decline Date (either of which,
without duplication, an "ADDITIONAL REGISTRATION DATE"), then the Company shall
make the payments to the Initial Investor at the Liquidated Damage Rate from the
Additional Registration Date to the first Additional Computation Date and for
each Additional Computation Date thereafter, calculated on a pro rata basis to
the date on which the Additional Registration Statement is filed with (in the
event of an Additional Registration Date pursuant to clause (i) above) or
declared effective by (in the event of an Additional Registration Date pursuant
to clause (ii) above) the Commission (the "ADDITIONAL PERIODIC AMOUNT")
provided, however, that in no event shall the liquidated damages be less than
$25,000; provided, further, however, that if the Additional Registration
Statement is not declared effective by the Commission within 120 days after the
Additional Registration Date set forth in clause (ii) above, then the Liquidated
Damage Rate shall increase to 3%; provided, further, however, that the
Liquidated Damage Rate shall increase by 1% for each 30 day period after the
120th day after the Additional Registration Date set forth in clause (ii) above
that the Additional Registration Statement is not declared effective by the
Commission. The full Additional Periodic Amount shall be paid by the Company to
the Initial Investor by wire transfer of immediately available funds within
three days after each Additional Computation Date.
As used in this Section 2(d), "ADDITIONAL COMPUTATION DATE"
means the date which is 30 days after the Additional Registration Date and, if
the Additional Registration Statement required to be filed by the Company
pursuant to this Section 2(d) has not theretofore been declared effective by the
Commission, each date which is 30 days after the previous Additional Computation
Date until such Additional Registration Statement is so declared effective.
(e) (i) If the Company proposes to register any of its
warrants, Common Stock or any other shares of common stock of the Company under
the Securities Act (other than a registration (A) on Form S-8 or S-4 or any
successor or similar forms, (B) relating to Common Stock or any other shares of
common stock of the Company issuable upon exercise of employee share options or
in connection with any employee benefit or similar plan of the Company or (C) in
connection with a direct or indirect acquisition by the Company of another
Person or any transaction with respect to which Rule 145 (or any successor
provision) under the Securities Act applies), whether or not for sale for its
own account, it will each such time, give prompt written notice at least 20 days
prior to the anticipated filing date of the registration statement relating to
such registration to each Investor, which notice shall set forth such Investor's
rights under this Section 2(e) and shall offer such Investor the opportunity to
include in such registration statement such number of Registrable Securities as
such Investor may request. Upon the written request of any Investor made within
10 days after the receipt of notice from the Company (which request shall
specify the number of Registrable Securities intended to be disposed of by such
Investor), the Company will use its best efforts to effect the registration
under the Securities Act of all Registrable Securities that the Company has been
so requested to register by each Investor, to the extent requisite to permit the
disposition of the Registrable Securities so to be registered; provided,
however, that (A) if such registration involves a Public Offering, each Investor
must sell its Registrable Securities to any underwriters selected by the Company
with the consent of such Investor on the same terms and conditions as apply to
the Company and (B) if, at any time
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<PAGE> 6
after giving written notice of its intention to register any Registrable
Securities pursuant to this Section 2 and prior to the effective date of the
registration statement filed in connection with such registration, the Company
shall determine for any reason not to register such Registrable Securities, the
Company shall give written notice to each Investor and, thereupon, shall be
relieved of its obligation to register any Registrable Securities in connection
with such registration. The Company's obligations under this Section 2(e) shall
terminate on the date that the registration statement to be filed in accordance
with Section 2(a) is declared effective by the Commission.
(ii) If a registration pursuant to this Section 2(e) involves
a Public Offering and the managing underwriter thereof advises the Company that,
in its view, the number of shares of Common Stock, Warrants or other shares of
Common Stock that the Company and the Investors intend to include in such
registration exceeds the largest number of shares of Common Stock or Warrants
(including any other shares of Common Stock or Warrants of the Company) that can
be sold without having an adverse effect on such Public Offering (the "MAXIMUM
OFFERING SIZE"), the Company will include in such registration only such number
of shares of Common Stock or Warrants, as applicable, as does not exceed the
Maximum Offering Size, and the number of shares in the Maximum Offering Size
shall be allocated among the Company, the Investors and any other sellers of
Common Stock or Warrants in such Public Offering ("THIRD-PARTY SELLERS"), first,
pro rata among the Company and any Third-Party Sellers, and second, pro rata
among the Investors, in each case on the basis of the relative number of shares
of Common Stock or Warrants originally proposed to be offered for sale under
such registration by each of the Investors, the Company and the Third-Party
Sellers, as the case may be. If as a result of the proration provisions of this
Section 2(e)(ii), any Investor is not entitled to include all such Registrable
Securities in such registration, such Investor may elect to withdraw its request
to include any Registrable Securities in such registration. With respect to
registrations pursuant to this Section 2(e), the number of securities required
to satisfy any underwriters' over-allotment option shall be allocated among the
Company, the Investors and any Third Party Seller pro rata on the basis of the
relative number of securities offered for sale under such registration by each
of the Investors, the Company and any such Third Party Sellers before the
exercise of such over-allotment option.
3. OBLIGATIONS OF THE COMPANY
In connection with the registration of the Registrable
Securities, the Company shall:
(a) Promptly (i) prepare and file with the Commission such
amendments (including post-effective amendments) to the Registration Statement
and supplements to the Prospectus as may be necessary to keep the Registration
Statement continuously effective and in compliance with the provisions of the
Securities Act applicable thereto so as to permit the Prospectus forming part
thereof to be current and useable by Investors for resales of the Registrable
Securities for a period of five years from the date on which the Registration
Statement is first declared effective by the Commission (the "EFFECTIVE TIME")
or such shorter period that will terminate when all the Registrable Securities
covered by the Registration Statement have been sold pursuant thereto in
accordance with the plan of distribution provided in the Prospectus, transferred
pursuant to Rule 144 under the Securities Act or otherwise transferred
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<PAGE> 7
in a manner that results in the delivery of new securities not subject to
transfer restrictions under the Securities Act (the "REGISTRATION PERIOD") and
(ii) take all lawful action such that each of (A) the Registration Statement and
any amendment thereto does not, when it becomes effective, contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, not misleading and
(B) the Prospectus forming part of the Registration Statement, and any amendment
or supplement thereto, does not at any time during the Registration Period
include an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
Notwithstanding the foregoing provisions of this Section 3(a), the Company may,
during the Registration Period, suspend the use of the Prospectus for a period
not to exceed 60 days (whether or not consecutive) in any 12-month period if the
Board of Directors of the Company determines in good faith that because of valid
business reasons, including pending mergers or other business combination
transactions, the planned acquisition or divestiture of assets, pending material
corporate developments and similar events, it is in the best interests of the
Company to suspend such use, and prior to or contemporaneously with suspending
such use the Company provides the Investors with written notice of such
suspension, which notice need not specify the nature of the event giving rise to
such suspension. At the end of any such suspension period, the Company shall
provide the Investors with written notice of the termination of such suspension;
(b) During the Registration Period, comply with the provisions
of the Securities Act with respect to the Registrable Securities of the Company
covered by the Registration Statement until such time as all of such Registrable
Securities have been disposed of in accordance with the intended methods of
disposition by the Investors as set forth in the Prospectus forming part of the
Registration Statement;
(c) (i) Prior to the filing with the Commission of any
Registration Statement (including any amendments thereto) and the distribution
or delivery of any Prospectus (including any supplements thereto), provide (A)
draft copies thereof to the Investors and reflect in such documents all such
comments as the Investors (and their counsel) reasonably may propose and (B) to
the Investors a copy of the accountant's consent letter to be included in the
filing and (ii) furnish to each Investor whose Registrable Securities are
included in the Registration Statement and its legal counsel identified to the
Company, (A) promptly after the same is prepared and publicly distributed, filed
with the Commission, or received by the Company, one copy of the Registration
Statement, each Prospectus, and each amendment or supplement thereto, and (B)
such number of copies of the Prospectus and all amendments and supplements
thereto and such other documents, as such Investor may reasonably request in
order to facilitate the disposition of the Registrable Securities owned by such
Investor;
(d) (i) Register or qualify the Registrable Securities covered
by the Registration Statement under such securities or "blue sky" laws of such
jurisdictions as the Investors who hold a majority-in-interest of the
Registrable Securities being offered reasonably request, (ii) prepare and file
in such jurisdictions such amendments (including post-effective amendments) and
supplements to such registrations and qualifications as may be necessary to
maintain the effectiveness thereof at all times during the Registration Period,
(iii) take all such other lawful actions as may be necessary to maintain such
registrations and qualifications in effect at all times during the Registration
Period, and (iv) take all such other lawful actions
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<PAGE> 8
reasonably necessary or advisable to qualify the Registrable Securities for sale
in such jurisdictions; provided, however, that the Company shall not be required
in connection therewith or as a condition thereto to (A) qualify to do business
in any jurisdiction where it would not otherwise be required to qualify but for
this Section 3(d), (B) subject itself to general taxation in any such
jurisdiction or (C) file a general consent to service of process in any such
jurisdiction;
(e) As promptly as practicable after becoming aware of such
event, notify each Investor of the occurrence of any event, as a result of which
the Prospectus included in the Registration Statement, as then in effect,
includes an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading, and
promptly prepare an amendment to the Registration Statement and supplement to
the Prospectus to correct such untrue statement or omission, and deliver a
number of copies of such supplement and amendment to each Investor as such
Investor may reasonably request;
(f) As promptly as practicable after becoming aware of such
event, notify each Investor who holds Registrable Securities being sold (or, in
the event of an underwritten offering, the managing underwriters) of the
issuance by the Commission of any stop order or other suspension of the
effectiveness of the Registration Statement at the earliest possible time and
take all lawful action to effect the withdrawal, recession or removal of such
stop order or other suspension;
(g) Cause all the Registrable Securities covered by the
Registration Statement to be listed on the principal national securities
exchange, and included in an inter-dealer quotation system of a registered
national securities association, on or in which securities of the same class or
series issued by the Company are then listed or included;
(h) Maintain a transfer agent and registrar, which may be a
single entity, for the Registrable Securities not later than the effective date
of the Registration Statement;
(i) Cooperate with the Investors who hold Registrable
Securities being offered to facilitate the timely preparation and delivery of
certificates for the Registrable Securities to be offered pursuant to the
registration statement and enable such certificates for the Registrable
Securities to be in such denominations or amounts, as the case may be, as the
Investors reasonably may request and registered in such names as the Investor
may request; and, within three business days after a registration statement
which includes Registrable Securities is declared effective by the Commission,
deliver and cause legal counsel selected by the Company to deliver to the
transfer agent for the Registrable Securities (with copies to the Investors
whose Registrable Securities are included in such registration statement) an
appropriate instruction and, to the extent necessary, an opinion of such
counsel;
(j) Take all such other lawful actions reasonably necessary to
expedite and facilitate the disposition by the Investors of their Registrable
Securities in accordance with the intended methods therefor provided in the
Prospectus which are customary under the circumstances;
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<PAGE> 9
(k) Make generally available to its security holders as soon
as practicable, but in any event not later than three (3) months after (i) the
effective date (as defined in Rule 158(c) under the Securities Act) of the
Registration Statement, and (ii) the effective date of each post-effective
amendment to the Registration Statement, as the case may be, an earnings
statement of the Company and its subsidiaries complying with Section 11(a) of
the Securities Act and the rules and regulations of the Commission thereunder
(including, at the option of the Company, Rule 158);
(l) In the event of an underwritten offering, promptly include
or incorporate in a Prospectus supplement or post-effective amendment to the
Registration Statement such information as the managers reasonably agree should
be included therein and to which the Company does not reasonably object and make
all required filings of such Prospectus supplement or post-effective amendment
as soon as practicable after it is notified of the matters to be included or
incorporated in such Prospectus supplement or post-effective amendment;
(m) (i) Make reasonably available for inspection by Investors,
any underwriter participating in any disposition pursuant to the Registration
Statement, and any attorney, accountant or other agent retained by such
Investors or any such underwriter all relevant financial and other records,
pertinent corporate documents and properties of the Company and its
subsidiaries, and (ii) cause the Company's officers, directors and employees to
supply all information reasonably requested by such Investors or any such
underwriter, attorney, accountant or agent in connection with the Registration
Statement, in each case, as is customary for similar due diligence examinations;
provided, however, that all records, information and documents that are
designated in writing by the Company, in good faith, as confidential,
proprietary or containing any material nonpublic information shall be kept
confidential by such Investors and any such underwriter, attorney, accountant or
agent (pursuant to an appropriate confidentiality agreement in the case of any
such holder or agent), unless such disclosure is made pursuant to judicial
process in a court proceeding (after first giving the Company an opportunity
promptly to seek a protective order or otherwise limit the scope of the
information sought to be disclosed) or is required by law, or such records,
information or documents become available to the public generally or through a
third party not in violation of an accompanying obligation of confidentiality;
and provided, further, that, if the foregoing inspection and information
gathering would otherwise disrupt the Company's conduct of its business, such
inspection and information gathering shall, to the maximum extent possible, be
coordinated on behalf of the Investors and the other parties entitled thereto by
one firm of counsel designed by and on behalf of the majority in interest of
Investors and other parties;
(n) In connection with any underwritten offering, make such
representations and warranties to the Investors participating in such
underwritten offering and to the managers, in form, substance and scope as are
customarily made by the Company to underwriters in secondary underwritten
offerings;
(o) In connection with any underwritten offering, obtain
opinions of counsel to the Company (which counsel and opinions (in form, scope
and substance) shall be reasonably satisfactory to the managers) addressed to
the underwriters, covering such matters as are customarily covered in opinions
requested in secondary underwritten offerings (it being agreed that the matters
to be covered by such opinions shall include, without limitation, as of the date
of
9
<PAGE> 10
the opinion and as of the Effective Time of the Registration Statement or most
recent post-effective amendment thereto, as the case may be, the absence from
the Registration Statement and the Prospectus, including any documents
incorporated by reference therein, of an untrue statement of a material fact or
the omission of a material fact required to be stated therein or necessary to
make the statements therein (in the case of the Prospectus, in light of the
circumstances under which they were made) not misleading, subject to customary
limitations);
(p) In connection with any underwritten offering, obtain "cold
comfort" letters and updates thereof from the independent public accountants of
the Company (and, if necessary, from the independent public accountants of any
subsidiary of the Company or of any business acquired by the Company, in each
case for which financial statements and financial data are, or are required to
be, included in the Registration Statement), addressed to each underwriter
participating in such underwritten offering (if such underwriter has provided
such letter, representations or documentation, if any, required for such cold
comfort letter to be so addressed), in customary form and covering matters of
the type customarily covered in "cold comfort" letters in connection with
secondary underwritten offerings;
(q) In connection with any underwritten offering, deliver such
documents and certificates as may be reasonably required by the managers, if
any; and
(r) In the event that any broker-dealer registered under the
Exchange Act shall be an "AFFILIATE" (as defined in Rule 2729(b)(1) of the rules
and regulations of the National Association of Securities Dealers, Inc. (the
"NASD RULES") (or any successor provision thereto)) of the Company or has a
"CONFLICT OF INTEREST" (as defined in Rule 2720(b)(7) of the NASD Rules (or any
successor provision thereto)) and such broker-dealer shall underwrite,
participate as a member of an underwriting syndicate or selling group or assist
in the distribution of any Registrable Securities covered by the Registration
Statement, whether as a holder of such Registrable Securities or as an
underwriter, a placement or sales agent or a broker or dealer in respect
thereof, or otherwise, the Company shall assist such broker-dealer in complying
with the requirements of the NASD Rules, including, without limitation, by (A)
engaging a "QUALIFIED INDEPENDENT UNDERWRITER" (as defined in Rule 2720(b)(15)
of the NASD Rules (or any successor provision thereto)) to participate in the
preparation of the Registration Statement relating to such Registrable
Securities, to exercise usual standards of due diligence in respect thereof and
to recommend the public offering price of such Registrable Securities, (B)
indemnifying such qualified independent underwriter to the extent of the
indemnification of underwriters provided in Section 6 hereof, and (C) providing
such information to such broker-dealer as may be required in order for such
broker-dealer to comply with the requirements of the NASD Rules.
4. OBLIGATIONS OF THE INVESTORS
In connection with the registration of the Registrable
Securities, the Investors shall have the following obligations:
(a) It shall be a condition precedent to the obligations of
the Company to complete the registration pursuant to this Agreement with respect
to the Registrable Securities of a particular Investor that such Investor shall
furnish to the Company such information regarding
10
<PAGE> 11
itself, the Registrable Securities held by it and the intended method of
disposition of the Registrable Securities held by it as shall be reasonably
required to effect the registration of such Registrable Securities and shall
execute such documents in connection with such registration as the Company may
reasonably request. As least seven days prior to the first anticipated filing
date of the Registration Statement, the Company shall notify each Investor of
the information the Company requires from each such Investor (the "REQUESTED
INFORMATION") if such Investor elects to have any of its Registrable Securities
included in the Registration Statement. If at least two business days prior to
the anticipated filing date the Company has not received the Requested
Information from an Investor (a "NON-RESPONSIVE INVESTOR"), then the Company may
file the Registration Statement without including Registrable Securities of such
Non-Responsive Investor and have no further obligations to the Non-Responsive
Investor;
(b) Each Investor by its acceptance of the Registrable
Securities agrees to cooperate with the Company in connection with the
preparation and filing of the Registration Statement hereunder, unless such
Investor has notified the Company in writing of its election to exclude all of
its Registrable Securities from the Registration Statement; and
(c) Each Investor agrees that, upon receipt of any notice from
the Company of the occurrence of any event of the kind described in Section 3(e)
or 3(f), it shall immediately discontinue its disposition of Registrable
Securities pursuant to the Registration Statement covering such Registrable
Securities until such Investor's receipt of the copies of the supplemented or
amended Prospectus contemplated by Section 3(e) and, if so directed by the
Company, such Investor shall deliver to the Company (at the expense of the
Company) or destroy (and deliver to the Company a certificate of destruction)
all copies in such Investor's possession, of the Prospectus covering such
Registrable Securities current at the time of receipt of such notice.
5. EXPENSES OF REGISTRATION
All expenses, other than underwriting discounts and
commissions, incurred in connection with registrations, filings or
qualifications pursuant to Section 3, but including, without limitation, all
registration, listing, and qualifications fees, printing and engraving fees,
accounting fees, and the fees and disbursements of counsel for the Company, and
the reasonable fees of one firm of counsel to the holders of a majority in
interest of the Registrable Securities, not to exceed $20,000 per Registration
Statement, shall be borne by the Company.
6. INDEMNIFICATION AND CONTRIBUTION
(a) The Company shall indemnify and hold harmless each
Investor and each underwriter, if any, which facilitates the disposition of
Registrable Securities, and each of their respective officers and directors and
each person who controls such Investor or underwriter within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act (each such
person being sometimes hereinafter referred to as an "INDEMNIFIED PERSON") from
and against any losses, claims, damages or liabilities, joint or several, to
which such Indemnified Person may become subject under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon an untrue statement or alleged
untrue statement of a material fact contained in any Registration Statement
11
<PAGE> 12
or an omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein, not misleading,
or arise out of or are based upon an untrue statement or alleged untrue
statement of a material fact contained in any Prospectus or an omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; and the Company hereby agrees to
reimburse such Indemnified Person for all reasonable legal and other expenses
incurred by them in connection with investigating or defending any such action
or claim as and when such expenses are incurred; provided, however, that the
Company shall not be liable to any such Indemnified Person in any such case to
the extent that any such loss, claim, damage or liability arises out of or is
based upon (i) an untrue statement or alleged untrue statement made in, or an
omission or alleged omission from, such Registration Statement or Prospectus in
reliance upon and in conformity with written information furnished to the
Company by such Indemnified Person expressly for use therein or (ii) in the case
of the occurrence of an event of the type specified in Section 3(e), the use by
the Indemnified Person of an outdated or defective Prospectus after the Company
has provided to such Indemnified Person an updated Prospectus correcting the
untrue statement or alleged untrue statement or omission or alleged omission
giving rise to such loss, claim, damage or liability.
(b) INDEMNIFICATION BY THE INVESTORS AND UNDERWRITERS. Each
Investor agrees, as a consequence of the inclusion of any of its Registrable
Securities in a Registration Statement, and each underwriter, if any, which
facilitates the disposition of Registrable Securities shall agree, as a
consequence of facilitating such disposition of Registrable Securities,
severally and not jointly, to (i) indemnify and hold harmless the Company, its
directors (including any person who, with his or her consent, is named in the
Registration Statement as a director nominee of the Company), its officers who
sign any Registration Statement and each person, if any, who controls the
Company within the meaning of either Section 15 of the Securities Act or Section
20 of the Exchange Act, against any losses, claims, damages or liabilities to
which the Company or such other persons may become subject, under the Securities
Act or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon an untrue statement
or alleged untrue statement of a material fact contained in such Registration
Statement or Prospectus or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein (in light of the circumstances under
which they were made, in the case of the Prospectus), not misleading, in each
case to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was made in reliance
upon and in conformity with written information furnished to the Company by such
holder or underwriter expressly for use therein; provided, however, that no
Investor or underwriter shall be liable under this Section 6(b) for any amount
in excess of the net proceeds paid to such Investor or underwriter in respect of
shares sold by it, and (ii) reimburse the Company for any legal or other
expenses incurred by the Company in connection with investigating or defending
any such action or claim as such expenses are incurred.
(c) NOTICE OF CLAIMS, ETC. Promptly after receipt by a party
seeking indemnification pursuant to this Section 6 (an "INDEMNIFIED PARTY") of
written notice of any investigation, claim, proceeding or other action in
respect of which indemnification is being sought (each, a "CLAIM"), the
Indemnified Party promptly shall notify the party against whom indemnification
pursuant to this Section 6 is being sought (the "INDEMNIFYING PARTY") of the
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<PAGE> 13
commencement thereof; but the omission to so notify the Indemnifying Party shall
not relieve it from any liability that it otherwise may have to the Indemnified
Party, except to the extent that the Indemnifying Party is materially prejudiced
and forfeits substantive rights and defenses by reason of such failure. In
connection with any Claim as to which both the Indemnifying Party and the
Indemnified Party are parties, the Indemnifying Party shall be entitled to
assume the defense thereof. Notwithstanding the assumption of the defense of any
Claim by the Indemnifying Party, the Indemnified Party shall have the right to
employ separate legal counsel and to participate in the defense of such Claim,
and the Indemnifying Party shall bear the reasonable fees, out-of-pocket costs
and expenses of such separate legal counsel to the Indemnified Party if (and
only if): (x) the Indemnifying Party shall have agreed to pay such fees, costs
and expenses, (y) the Indemnified Party and the Indemnifying Party shall
reasonably have concluded that representation of the Indemnified Party by the
Indemnifying Party by the same legal counsel would not be appropriate due to
actual or, as reasonably determined by legal counsel to the Indemnified Party,
potentially differing interests between such parties in the conduct of the
defense of such Claim, or if there may be legal defenses available to the
Indemnified Party that are in addition to or disparate from those available to
the Indemnifying Party, or (z) the Indemnifying Party shall have failed to
employ legal counsel reasonably satisfactory to the Indemnified Party within a
reasonable period of time after notice of the commencement of such Claim. If the
Indemnified Party employs separate legal counsel in circumstances other than as
described in clauses (x), (y) or (z) above, the fees, costs and expenses of such
legal counsel shall be borne exclusively by the Indemnified Party. Except as
provided above, the Indemnifying Party shall not, in connection with any Claim
in the same jurisdiction, be liable for the fees and expenses of more than one
firm of counsel for the Indemnified Party (together with appropriate local
counsel). The Indemnified Party shall not, without the prior written consent of
the Indemnifying Party (which consent shall not unreasonably be withheld),
settle or compromise any Claim or consent to the entry of any judgment that does
not include an unconditional release of the Indemnifying Party from all
liabilities with respect to such Claim or judgment.
(d) CONTRIBUTION. If the indemnification provided for in this
Section 6 is unavailable to or insufficient to hold harmless an Indemnified
Person under subsection (a) or (b) above in respect of any losses, claims,
damages or liabilities (or actions in respect thereof) referred to therein, then
each Indemnifying Party shall contribute to the amount paid or payable by such
Indemnified Party as a result of such losses, claims, damages or liabilities (or
actions in respect thereof) in such proportion as is appropriate to reflect the
relative fault of the Indemnifying Party and the Indemnified Party in connection
with the statements or omissions which resulted in such losses, claims, damages
or liabilities (or actions in respect thereof), as well as any other relevant
equitable considerations. The relative fault of such Indemnifying Party and
Indemnified Party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or omission or
alleged omission to state a material fact relates to information supplied by
such Indemnifying Party or by such Indemnified Party, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. The parties hereto agree that it would not be just
and equitable if contribution pursuant to this Section 6(d) were determined by
pro rata allocation (even if the Investors or any underwriters were treated as
one entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to in this Section 6(d).
The amount paid or payable by an Indemnified
13
<PAGE> 14
Party as a result of the losses, claims, damages or liabilities (or actions in
respect thereof) referred to above shall be deemed to include any legal or other
fees or expenses reasonably incurred by such Indemnified Party in connection
with investigating or defending any such action or claim. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The obligations of the Investors
and any underwriters in this Section 6(d) to contribute shall be several in
proportion to the percentage of Registrable Securities registered or
underwritten, as the case may be, by them and not joint.
(e) Notwithstanding any other provision of this Section 6, in
no event shall any (i) Investor be required to undertake liability to any person
under this Section 6 for any amounts in excess of the dollar amount of the
proceeds to be received by such Investor from the sale of such Investor's
Registrable Securities (after deducting any fees, discounts and commissions
applicable thereto) pursuant to any Registration Statement under which such
Registrable Securities are to be registered under the Securities Act and (ii)
underwriter be required to undertake liability to any Person hereunder for any
amounts in excess of the aggregate discount, commission or other compensation
payable to such underwriter with respect to the Registrable Securities
underwritten by it and distributed pursuant to the Registration Statement.
(f) The obligations of the Company under this Section 6 shall
be in addition to any liability which the Company may otherwise have to any
Indemnified Person and the obligations of any Indemnified Person under this
Section 6 shall be in addition to any liability which such Indemnified Person
may otherwise have to the Company. The remedies provided in this Section 6 are
not exclusive and shall not limit any rights or remedies which may otherwise be
available to an indemnified party at law or in equity.
7. RULE 144
With a view to making available to the Investors the benefits
of Rule 144 under the Securities Act or any other similar rule or regulation of
the Commission that may at any time permit the Investors to sell securities of
the Company to the public without registration ("RULE 144"), the Company agrees
to use its best efforts to:
(a) comply with the provisions of paragraph (c) (1) of Rule
144; and
(b) file with the Commission in a timely manner all reports
and other documents required to be filed by the Company pursuant to Section 13
or 15(d) under the Exchange Act; and, if at any time it is not required to file
such reports but in the past had been required to or did file such reports, it
will, upon the request of any Investor, make available other information as
required by, and so long as necessary to permit sales of, its Registrable
Securities pursuant to Rule 144.
8. ASSIGNMENT
The rights to have the Company register Registrable Securities
pursuant to this Agreement shall be automatically assigned by the Investors to
any permitted transferee of all or any portion of such Registrable Securities
(or all or any portion of any Preferred Shares or
14
<PAGE> 15
Warrant of the Company which is convertible into such securities) only if: (a)
the Investor agrees in writing with the transferee or assignee to assign such
rights, and a copy of such agreement is furnished to the Company within a
reasonable time after such assignment, (b) the Company is, within a reasonable
time after such transfer or assignment, furnished with written notice of (i) the
name and address of such transferee or assignee and (ii) the securities with
respect to which such registration rights are being transferred or assigned, (c)
immediately following such transfer or assignment, the securities so transferred
or assigned to the transferee or assignee constitute Restricted Securities, and
(d) at or before the time the Company received the written notice contemplated
by clause (b) of this sentence the transferee or assignee agrees in writing with
the Company to be bound by all of the provisions contained herein.
9. AMENDMENT AND WAIVER
Any provision of this Agreement may be amended and the
observance thereof may be waived (either generally or in a particular instance
and either retroactively or prospectively), only with the written consent of the
Company and Investors who hold a majority-in-interest of the Registrable
Securities. Any amendment or waiver effected in accordance with this Section 9
shall be binding upon each Investor and the Company.
10. CHANGES IN COMMON STOCK
If, and as often as, there are any changes in the Common Stock
by way of stock split, stock dividend, reverse split, combination or
reclassification, or through merger, consolidation, reorganization or
recapitalization, or by any other means, appropriate adjustment shall be made in
the provisions hereof, as may be required, so that the rights and privileges
granted hereby shall continue with respect to the Common Stock as so changed.
11. MISCELLANEOUS
(a) A person or entity shall be deemed to be a holder of
Registrable Securities whenever such person or entity owns of record such
Registrable Securities. If the Company receives conflicting instructions,
notices or elections from two or more persons or entities with respect to the
same Registrable Securities, the Company shall act upon the basis of
instructions, notice or election received from the registered owner of such
Registrable Securities.
(b) If, after the date hereof and prior to the Commission
declaring the Registration Statement to be filed pursuant to Section 2(a)
effective under the Securities Act, the Company grants to any Person any
registration rights with respect to any Company securities which are more
favorable to such other Person than those provided in this Agreement, then the
Company forthwith shall grant (by means of an amendment to this Agreement or
otherwise) identical registration rights to all Investors hereunder.
(c) Except as may be otherwise provided herein, any notice or
other communication or delivery required or permitted hereunder shall be in
writing and shall be delivered personally or sent by certified mail, postage
prepaid, or by a nationally recognized overnight courier service, and shall be
deemed given when so delivered personally or by overnight courier service, or,
if mailed, three days after the date of deposit in the United States mails, as
follows:
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<PAGE> 16
(i) if to the Company, to:
PopMail.com Inc.
1331 Corporate Drive, Suite 350
Irving, TX 75038
Attention: Stephen D. King
(972) 550-5500
(972) 550-5581(Fax)
with a copy to:
Maslon Edelman Borman & Brand, LLP
3300 Norwest Center
Minneapolis, MN 55402
Attention: William M. Mower
(612) 672-8358
(612) 672-8397
(ii) if to the Initial Investor, to:
The Shaar Fund Ltd.,
c/o Levinson Capital Management
2 World Trade Center, Suite 1820
New York, NY 10048
Attention: Samuel Levinson
(212) 432-7711
(212) 432-7771 (Fax)
with a copy to:
Cadwalader, Wickersham & Taft
100 Maiden Lane
New York, NY 10038
Attention: Dennis J. Block, Esq.
(212) 504-5555
(212) 504-5557 (Fax)
(iii) if to any other Investor, at such address as
such Investor shall have provided in writing to the Company.
The Company, the Initial Investor or any Investor may change the foregoing
address by notice given pursuant to this Section 11(c).
(d) Failure of any party to exercise any right or remedy under
this Agreement or otherwise, or delay by a party in exercising such right or
remedy, shall not operate as a waiver thereof.
16
<PAGE> 17
(e) This Agreement shall be governed by and interpreted in
accordance with the laws of the State of New York. Each of the parties consents
to the jurisdiction of the federal courts whose districts encompass any part of
the City of New York or the state courts of the State of New York sitting in the
City of New York in connection with any dispute arising under this Agreement and
hereby waives, to the maximum extent permitted by law, any objection including
any objection based on forum non conveniens, to the bringing of any such
proceeding in such jurisdictions.
(f) The remedies provided in this Agreement are cumulative and
not exclusive of any remedies provided by law. If any term, provision, covenant
or restriction of this Agreement is held by a court of competent jurisdiction to
be invalid, illegal, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions set forth herein shall remain in full
force and effect and shall in no way be affected, impaired or invalidated, and
the parties hereto shall use their best efforts to find and employ an
alternative means to achieve the same or substantially the same result as that
contemplated by such term, provision, covenant or restriction. It is hereby
stipulated and declared to be the intention of the parties that they would have
executed the remaining terms, provisions, covenants and restrictions without
including any of such that may be hereafter declared invalid, illegal, void or
unenforceable.
(g) The Company shall not enter into any agreement with
respect to its securities that is inconsistent with the rights granted to the
holders of Registrable Securities in this Agreement or otherwise conflicts with
the provisions hereof. The Company is not currently a party to any agreement
granting any registration rights with respect to any of its securities to any
person which conflicts with the Company's obligations hereunder or gives any
other party the right to include any securities in any Registration Statement
filed pursuant hereto, except for such rights and conflicts as have been
irrevocably waived. Without limiting the generality of the foregoing, without
the written consent of the holders of a majority in interest of the Registrable
Securities, the Company shall not grant to any person the right to request it to
register any of its securities under the Securities Act unless the rights so
granted are subject in all respect to the prior rights of the holders of
Registrable Securities set forth herein, and are not otherwise in conflict or
inconsistent with the provisions of this Agreement. The restrictions on the
Company's rights to grant registration rights under this paragraph shall
terminate on the date the Registration Statement to be filed pursuant to Section
2(a) is declared effective by the Commission.
(h) This Agreement, the Securities Purchase Agreement, the
Escrow Instructions, dated as of a date even herewith (the "ESCROW
INSTRUCTIONS"), between the Company, the Initial Investor and Cadwalader,
Wickersham & Taft, the Preferred Shares and the Warrants constitute the entire
agreement among the parties hereto with respect to the subject matter hereof.
There are no restrictions, promises, warranties or undertakings, other than
those set forth or referred to herein. This Agreement, the Securities Purchase
Agreement, the Escrow Instructions, the Certificate of Designation and the
Warrants supersede all prior agreements and undertakings among the parties
hereto with respect to the subject matter hereof.
(i) Subject to the requirements of Section 8 hereof, this
Agreement shall inure to the benefit of and be binding upon the successors and
assigns of each of the parties hereto.
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<PAGE> 18
(j) All pronouns and any variations thereof refer to the
masculine, feminine or neuter, singular or plural, as the context may require.
(k) The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning thereof.
(l) The Company acknowledges that any failure by the Company
to perform its obligations under Section 3, or any delay in such performance
could result in direct damages to the Investors and the Company agrees that, in
addition to any other liability the Company may have by reason of any such
failure or delay, the Company shall be liable for all direct damages caused by
such failure or delay.
(m) This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same agreement. A facsimile transmission of this signed
Agreement shall be legal and binding on all parties hereto.
[SIGNATURE PAGE FOLLOWS.]
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<PAGE> 19
In Witness Whereof, the parties have caused this Agreement to
be duly executed and delivered as of the date first above written.
PopMail.com Inc.
By: s/ Stephen D. King
------------------------------------
Name: Stephen D. King
Title: Chief Executive Officer
The Shaar Fund Ltd.
Intercarribean Services
By:
------------------------------------
Name:
Title:
<PAGE> 1
EXHIBIT 10.4
SANDS BROTHERS & CO., LTD.
INVESTMENT BANKERS
MEMBER NYSE
90 PARK AVENUE, NEW YORK, N.Y. 10016
(212) 697-5200 TOLL FREE (800) 866-6116 FAX (212) 986-2792
April 17, 2000
Popmail.com, Inc.
8260 North Creek Drive
Suite 140
Cincinnati, Ohio 45236
Attn: Stephen D. King, CEO
Dear Mr. King:
This is to confirm our understanding that Sands Brothers & Co., Ltd. has
been engaged as financial advisor to Popmail.com, Inc., its successors,
subsidiaries and affiliates (collectively, the "Company"), with respect to
financial advisory, mergers and acquisitions, corporate finance and related
matters for the two year period commencing on the date hereof; provided, however
that either party shall have the right to terminate this Agreement at anytime
following the six month anniversary of this Agreement upon thirty days prior
written notice. Upon such early termination, any previously paid financial
advisory fees and warrants shall be retained by Sands Brothers and any
indemnification obligations provided hereunder shall survive such termination.
In this regard, Sands Brothers shall devote such business time and attention to
matters on which the Company shall request its services as shall be determined
by Sands Brothers in its sole discretion.
A. Financial Advisory Services
During the term of this agreement, Sands Brothers shall provide the
Company with such regular and customary financial advisory services as are
reasonably requested by the Company, provided that Sands Brothers shall not be
required to undertake duties not reasonably within the scope of the financial
advisory services in which it is generally engaged. In performance of its
duties, Sands Brothers shall provide the Company with the benefits of its best
judgment and efforts. It is understood and acknowledged by the parties that the
value of Sands Brothers' advice is not measurable in a quantitative manner and
Sands Brothers shall be obligated to render advice, upon the request of the
Company, in good faith, as shall be determined by Sands Brothers. Sands
Brothers' duties may include, but will not necessarily be limited to:
(i) advice regarding formation of corporate goals and their
implementation,
(ii) advice regarding the financial structure of the Company, its
divisions or subsidiaries or any programs and projects undertaken
by the Company,
(iii) advice regarding the securing, when necessary and if possible, of
financing (other than with respect to a Financing Transaction),
<PAGE> 2
Mr. Stephen D. King, CEO
April 17, 2000
Page 2
(iv) advice regarding corporate organization, personnel and selection of
needed specialty skills,
(v) review of possible joint venture, merger, acquisition or similar
proposals (other than with respect to an Acquisition Transaction),
and
(vi) subject to satisfactory completion of its due diligence
investigation and regulatory requirements, the provisions of
analyst coverage on the Company's stock.
The Company acknowledges that Sands Brothers and its affiliates are in the
business of providing financial advisory services (of all types contemplated by
this agreement) to others. Nothing herein contained shall be construed to limit
or restrict Sands Brothers or its affiliates in conducting such business with
respect to others or in rendering such advice to others.
The Company recognizes and confirms that Sands Brothers in acting pursuant
to this engagement will be using information in reports and other information
provided by others, including, without limitation, information provided by or on
behalf of the Company, and that Sands Brothers does not assume responsibility
for and may rely, without independent verification, on the accuracy and
completeness of any such reports and information. The Company hereby warrants
that any information relating to the Company that is furnished to Sands Brothers
by or on behalf of the Company will be fair, accurate and complete and will not
contain any material omissions or misstatements of fact. The Company agrees that
any information or advice rendered by Sands Brothers or its representatives in
connection with this engagement is for the confidential use of the Company's
Board of Directors only in its evaluation of the matters for which Sands
Brothers has been engaged and, except as otherwise required by law, the Company
will not and will not permit any third party to disclose or otherwise refer to
such advice or information in any manner without Sands Brothers's prior written
consent.
In consideration of such financial advisory services, the Company agrees
to pay Sands Brothers a non-accountable fee of $50,000, which shall be payable
upon the execution of this agreement. In addition, the Company shall also issue
to Sands Brothers, upon execution of this letter, five-year warrants to purchase
1,000,000 shares of Common Stock of the Company upon the following terms:
<TABLE>
<CAPTION>
Number of Warrants Exercise Price Vesting
- ------------------ -------------- -------
<S> <C> <C>
250,000 Closing Bid Price of 100% Immediate
PopMail Stock on date hereof
250,000 Closing Bid Price of 100,000 Warrants for each
PopMail Stock on date hereof $1 million Financing
Transaction (as hereinafter
</TABLE>
<PAGE> 3
Mr. Stephen D. King, CEO
April 17, 2000
Page 3
<TABLE>
<S> <C> <C>
defined) consummated. (i.e, all
250,000 warrants would be
vested upon a Financing
Transaction or series of
Financing Transactions in which
$2.5 million is raised).
500,000 $4.00 100% upon consummation of
Financing Transaction(s) in
which $10 million in the
aggregate has been raised,
including any prior Financing
Transaction up to such point in
time.
</TABLE>
The warrants issuable hereunder shall contain such terms and conditions as are
satisfactory in form and substance to Sands Brothers, the Company and their
respective counsel, including, without limitation, corporate anti-dilution
rights, survival in the event of a merger of the Company, immediate registration
covenants with 25% penalty (which percentage relates to the issuance of
additional warrants) in the event a registration statement covering the warrants
and underlying securities is not filed within 30 days of the date hereof.
All payments referenced in this paragraph shall be in addition to any
other compensation described herein.
B. Acquisition Transaction
For purposes of this agreement, the term "Acquisition Transaction" means
(i) any merger, consolidation, reorganization or other business combination
pursuant to which the businesses of a third party are combined with that of the
Company, (ii) the acquisition, directly or indirectly, by the Company of all or
a substantial portion of the assets or common equity of a third party by way of
negotiated purchase or otherwise or (iii) the acquisition, directly or
indirectly, by a third party of all or a substantial portion of the assets or
common equity of the Company by way of negotiated purchase or otherwise;
provided, however, that the transactions involving (i) KMK restaurant, (ii)
sales of existing restaurants owned by the Company, (iii) purchase of Fan Asylum
and (iv) purchase of LCS Golf shall not be deemed to be Acquisition Transactions
for purposes of this agreement.
In connection with a proposed Acquisition Transaction, Sands Brothers's
advisory services will include the following: (i) assistance in the evaluation
of a third party from a financial point of view, (ii) assistance and advice with
respect to the form and structure of the Acquisition Transaction and the
financing thereof, (iii) conducting discussions and negotiations regarding an
Acquisition
<PAGE> 4
Mr. Stephen D. King, CEO
April 17, 2000
Page 4
Transaction and (iv) providing other related advice and assistance as the
Company may reasonably request in connection with an Acquisition Transaction.
For purpose of this agreement, "Consideration" means the aggregate value,
whether in cash, securities, assumption (or purchase subject to) of debt or
liabilities (including, without limitation, indebtedness for borrowed money,
pension liabilities and guarantees) or other property, obligations or services,
paid or payable directly or indirectly (in escrow or otherwise) or otherwise
assumed in connection with an Acquisition Transaction. The value of such
Consideration shall be determined as follows:
(a) the value of securities, liabilities, obligations, property and
services shall be the fair market value as we shall mutually agree
upon at the date of the closing of the Acquisition Transaction; and
(b) the value of indebtedness, including indebtedness assumed, shall be
the face amount.
If the Consideration payable in an Acquisition Transaction includes
contingent payments to be calculated by reference to uncertain future
occurrences, such as future financial or business performance, then any fees of
Sands Brothers relating to such Consideration shall be payable at the earlier of
the (i) receipt of such Consideration or (ii) time that the amount of such
Consideration can be determined.
In connection with our services, you agree that if, during the term of
this agreement or within one year thereafter, an Acquisition Transaction is
consummated with a third party introduced to the Company by Sands Brothers
("Sands Third Party"), or the Company enters into a definitive agreement with a
Sands Third Party which within one (1) year is consummated as an Acquisition
Transaction, you will pay Sands Brothers a transaction fee equal to three (3%)
percent of Consideration, provided, however, if the Company (directly or through
a third party) procures the other party to an Acquisition Transaction without
the direct or indirect introduction by Sands Brothers, the Company shall pay
Sands Brothers a fee equal to one (1%) percent of Consideration.
C. Future Financings
For purposes of this agreement, the term "Financing Transaction" means a
public offering, private placement, syndication or other sale of equity or debt
securities of the Company (other than convertible securities) or other
on-balance or off-balance sheet corporate finance transaction of the Company;
provided, however, that Company-directed equity or debt offerings not involving
the use of a third party agent which raise in the aggregate not more than
$500,000 shall not be deemed to be a Financing Transaction for purposes of this
agreement.
The Company hereby grants to Sands Brothers a right of first refusal with
respect to any Financing Transaction during the term of this agreement. It is
understood that if such a proposed
<PAGE> 5
Mr. Stephen D. King, CEO
April 17, 2000
Page 5
financing is offered to Sands Brothers, Sands Brothers shall have ten (10) days
in which to determine whether or not to accept such offer and, if Sands Brothers
refuses, and provided such a Financing Transaction is consummated (a) with
another underwriter or placement agent upon substantially the same terms and
conditions as those afforded to Sands Brothers and (b) within six months after
the end of the aforesaid ten (10) day period, this right of first refusal shall
thereafter be forfeited and terminated; provided however, if the financing is
not consummated under the conditions of clauses (a) and (b) above, then the
right of first refusal shall once again be reinstated under the same terms and
conditions set forth in this paragraph. Notwithstanding the foregoing, the
following shall be applicable (i) if the Company engages a "bulge bracket" or
"major bracket" underwriter (as such terms are commonly understood in the
investment banking community) with respect to a proposed public financing, Sands
Brothers agrees to be moved to the right on the cover of any prospectus relating
to such transaction, provided that its economic interest in the proposed
transaction is reasonably acceptable to Sands Brothers and (ii) the compensation
level to be paid to Sands Brothers in connection with any Financing Transaction
shall not be less than an 8% placement fee, 2% non-accountable expense allowance
and 10% warrant coverage with respect to such compensation items.
Additionally, if during the period Sands Brothers is retained by you or
within one year thereafter, Sands Brothers introduces the Company to another
party or entity and as a result of such introduction, a Financing Transaction is
consummated, the Company shall pay Sands Brothers upon the consummation of such
Financing Transaction a fee equal to five (5%) percent of the gross proceeds
raised in such transaction. If paid the foregoing five (5%) percent fee in
connection with a Financing Transaction of the type contemplated in this
paragraph, Sands Brothers shall not be paid the 8% placement fee, 2%
non-accountable expense allowance and 10% warrant coverage as described in the
immediately preceding paragraph.
D. Board of Directors Designee.
For a period of not less than five (5) years from the consummation of any
Financing Transaction, the Company will, at Sands Brothers' option and if so
requested by Sands Brothers, recommend and use its best efforts to elect one
designee of Sands Brothers at the option of Sands Brothers, either as a member
of or nonvoting advisor to its Board of Directors; such designee, if elected or
appointed, shall attend meetings of the Board and receive no more or less
compensation than is paid to other non-management directors of the Company and
shall be entitled to receive reimbursement for all reasonable costs incurred in
attending such meetings including, but not limited to, food, lodging and
transportation.
To the extent permitted by law, the Company will agree to indemnify Sands
Brothers' designee for the actions of such designee as a director of the
Company. In the event the Company maintains a liability insurance policy
affording coverage for the acts of its officers and directors, it will agree, if
possible, to include Sands Brothers' designee as an insured under such policy.
<PAGE> 6
Mr. Stephen D. King, CEO
April 17, 2000
Page 6
If Sands Brothers does not exercise its option to designate such member of
or advisor to the Company's Board of Directors, they shall nonetheless have the
right to send one representative (who need not be the same individual from
meeting to meeting) to observe each meeting of the Board of Directors. The
Company agrees to give Sands Brothers notice of each such meeting (or copies of
any consents in lieu of meetings) and to provide them with an agenda and minutes
of the meeting no later than it gives such notice and provides such items to the
directors.
E. General
The Company agrees to indemnify Sands Brothers and related persons in
accordance with the indemnification letter annexed hereto as Schedule A, the
provisions of which are incorporated herein in their entirety.
This letter, including Schedule A, constitutes the entire understanding of
the parties with respect to the subject matter hereof, supercedes any prior
agreements that the parties have executed regarding the subject matter of this
letter, any and all of which shall be deemed null and void and may not be
altered or amended except in a writing signed by both parties. This Agreement
shall be deemed to have been made and delivered in New York City and shall be
governed as to validity, interpretation, construction, effect and in all other
respects by the internal laws of the State of New York. The Company (l) agrees
that any legal suit, action or proceeding arising out of or relating to this
letter shall be instituted exclusively in New York State Supreme Court, County
of New York, or in the United States District Court for the Southern District of
New York, (2) waives any objection which the Company may have now or hereafter
to the venue of any such suit, action or proceeding, and (3) irrevocably
consents to the jurisdiction of the New York State Supreme Court, County of New
York, and the United States District Court for the Southern District of New York
in any such suit, action or proceeding. The Company further agrees to accept and
acknowledge service of any and all process which may be served in any such suit,
action or proceeding in the New York State Supreme Court, County of New York, or
in the United States District Court for the Southern District of New York and
agrees that service of process upon the Company mailed by certified mail to the
Company's address shall be deemed in every respect effective service of process
upon the Company, in any such suit, action or proceeding. Sands Brothers agrees
to copy the Company's attorneys Maslon Edelman Borman & Brand, 3300 Norwest
Center, 90 South Seventh Street, Minneapolis, MN 55402- 4140 on mailings made to
the Company per the immediately preceding sentence. THE PARTIES HERETO AGREE TO
WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION
BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY DOCUMENT OR AGREEMENT
CONTEMPLATED HEREBY. Neither the execution and delivery of this letter by the
Company nor the consummation of the transactions contemplated hereby will,
directly or indirectly, with or without the giving of notice or lapse of time,
or both: (i) violate any provisions of the Certificate of Incorporation or
By-laws of the Company; or (ii) violate, or be in conflict with, or constitute a
default under, any agreement, lease, mortgage, debt or obligation of the Company
or require the payment, any pre-payment or other penalty with respect thereto.
In addition, the Company
<PAGE> 7
Mr. Stephen D. King, CEO
April 17, 2000
Page 7
represents that the matters described in this Agreement have been approved by
the Board of Directors of the Company.
If the foregoing correctly sets forth the terms of our agreement, kindly
so indicate by signing and returning the enclosed copy of this letter, together
with a check payable to Sands Brothers & Co., Ltd. in the amount of Fifty
Thousand ($50,000) Dollars.
SANDS BROTHERS & CO., LTD.
By: s/ Lloyd H. Saunders
--------------------------------------------
Authorized Signatory
ACCEPTED AND AGREED AS OF
THE DATE FIRST ABOVE WRITTEN
Popmail.com, Inc.
By: s/ Stephen D. King
----------------------------------------------
Stephen D. King, Chief Executive Officer
<PAGE> 8
SCHEDULE A
INDEMNIFICATION
Recognizing that matters of the type contemplated in this engagement
sometimes result in litigation and that Sands Brothers's role is advisory, the
Company agrees to indemnify and hold harmless Sands Brothers, its affiliates and
their respective officers, directors, employees, agents and controlling persons
(collectively, the "Indemnified Parties"), from and against any losses, claims,
damages and liabilities, joint or several, related to or arising in any manner
out of any transaction, financing, proposal or any other matter (collectively,
the "Matters") contemplated by the engagement of Sands Brothers hereunder, and
will promptly reimburse the Indemnified Parties for all expenses (including fees
and expenses of legal counsel) as incurred in connection with the investigation
of, preparation for or defense of any pending or threatened claim related to or
arising in any manner out of any Matter contemplated by the engagement of Sands
Brothers hereunder, or any action or proceeding arising therefrom (collectively,
"Proceedings"), whether or not such Indemnified Party is a formal party to any
such Proceeding. Notwithstanding the foregoing, the Company shall not be liable
in respect of any losses, claims, damages, liabilities or expenses that a court
of competent jurisdiction shall have determined by final judgment resulted
solely from the gross negligence or willful misconduct of an Indemnified Party.
The Company further agrees that it will not, without the prior written consent
of Sands Brothers, settle, compromise or consent to the entry of any judgment in
any pending or threatened Proceeding in respect of which indemnification may be
sought hereunder (whether or not Sands Brothers or any Indemnified Party is an
actual or potential party to such Proceeding), unless such settlement,
compromise or consent includes an unconditional release of Sands Brothers and
each other Indemnified Party hereunder from all liability arising out of such
Proceeding.
The Company agrees that if any indemnification or reimbursement sought
pursuant to this letter were for any reason not to be available to any
Indemnified Party or insufficient to hold it harmless as and to the extent
contemplated by this letter, then the Company shall contribute to the amount
paid or payable by such Indemnified Party in respect of losses, claims, damages
and liabilities in such proportion as is appropriate to reflect the relative
benefits to the Company and its stockholders on the one hand, and Sands Brothers
on the other, in connection with the Matters to which such indemnification or
reimbursement relates or, if such allocation is not permitted by applicable law,
not only such relative benefits but also the relative faults of such parties as
well as any other equitable considerations. It is hereby agreed that the
relative benefits to the Company and/or its stockholders and to Sands Brothers
with respect to Sands Brothers's engagement shall be deemed to be in the same
proportion as (i) the total value paid or received or to be paid or received by
the Company and/or its stockholders pursuant to the Matters (whether or not
consummated) for which Sands Brothers is engaged to render financial advisory
services bears to (ii) the fees paid to Sands Brothers in connection with such
engagement. In no event shall the Indemnified Parties contribute or otherwise be
liable for an amount in excess of the aggregate amount of fees actually
<PAGE> 9
received by Sands Brothers pursuant to such engagement (excluding amounts
received by Sands Brothers as reimbursement of expenses).
The Company further agrees that no Indemnified Party shall have any
liability (whether direct of indirect, in contract or tort or otherwise) to the
Company for or in connection with Sands Brothers's engagement hereunder except
for losses, claims, damages, liabilities or expenses that a court of competent
jurisdiction shall have determined by final judgment resulted solely from the
gross negligence or willful misconduct of such Indemnified Party. The indemnity,
reimbursement and contribution obligations of the Company shall be in addition
to any liability which the Company may otherwise have and shall be binding upon
and inure to the benefit of any successors, assigns, heirs and personal
representatives of the Company or an Indemnified Party.
The indemnity, reimbursement, contribution provisions set forth herein
shall remain operative and in full force and effect regardless of (i) any
withdrawal, termination or consummation of or failure to initiate or consummate
any Matter referred to herein, (ii) any investigation made by or on behalf of
any party hereto or any person controlling (within the meaning of Section 15 of
the Securities Act of 1933, as amended, or Section 20 of the Securities Exchange
Act of 1934, as amended) any party hereto, (iii) any termination or the
completion or expiration of this letter or Sands Brothers' engagement and (iv)
whether or not Sands Brothers' shall, or shall not be called upon to, render any
formal or informal advice in the course of such engagement.
<PAGE> 1
EXHIBIT 10.5
WARRANT AGREEMENT dated as of April 17, 2000 between
Popmail.com, Inc., a Minnesota corporation (the "Company") and Sands Brothers &
Co., Ltd., a Delaware corporation (hereinafter referred to variously as the
"Holder" or "Sands Brothers").
W I T N E S S E T H:
WHEREAS, the Company and Sands Brothers have entered into a
certain financial advisory agreement of even date herewith (hereinafter the
"Advisory Agreement"), pursuant to which Sands Brothers is entitled to receive
certain compensation, including, among other things, warrants ("Warrants") to
purchase a total of 1,000,000 shares of the Company's common stock, par value
$.01 per share ("Common Stock"), upon and subject to the terms and conditions of
the Advisory Agreement.
NOW, THEREFORE, in consideration of the premises, the payment
by the Holder to the Company of TWENTY FIVE ($25.00) DOLLARS, the agreements
herein set forth and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agrees as
follows:
1. Grant; Vesting; Exercise Price.
ss.1.1 Grant. The Company hereby issues to the Holder
effective as of the date hereof, but exercisable as set forth in Section 1.2,
the right to purchase an aggregate of 1,000,000 shares of Common Stock, until 5
p.m. New York time on the applicable Expiration Date (as defined hereinafter),
subject to the terms and provisions contained in this Warrant Agreement and
exercisable in accordance with Section 1.2 hereof.
<PAGE> 2
ss.1.2 Vesting. The Warrants shall vest and become exercisable
in accordance with the following schedule, provided that, all Warrants shall
terminate and become null and void upon the Expiration Date irrespective of the
exercisability thereof:
a. An aggregate of 250,000 Warrants ("Tranche 1") shall
vest and become exercisable by the Holder upon the
date hereof and shall be exercisable until the date
that is five years from the date hereof.
b. An aggregate of 100,000 Warrants ("Tranche 2") shall
vest and become exercisable by the Holder at the time
of each $1 Million of Financing Transaction (as
defined in the Advisory Agreement) up to $2.5 Million
of such Financing Transactions. For example, at the
time a single or series of Financing Transactions are
consummated in which $2.5 Million of gross proceeds
are raised, 250,000 Warrants shall immediately vest
and shall be exercisable until April 17, 2005.
c. An aggregate of 500,000 Warrants ("Tranche 3") shall
vest at the time of an aggregate of $10 Million of
Financing Transactions (including any Financing
Transactions that have been consummated in Tranche 2)
have been consummated. For example, at the time a
single or series of Financing Transactions are
consummated in which $10 Million of gross proceeds
are raised, 250,000 Warrants shall immediately vest
pursuant to Tranche 2 and 500,000 Warrants shall
immediately vest pursuant to Tranche 3, each of which
shall be exercisable until April 17, 2005.
2
<PAGE> 3
ss.1.3 Exercise Price. The Warrants shall be exercisable at
exercise prices as set forth in Section 6 hereof, as adjusted from time to time
in accordance with Section 8.
2. Warrant Certificates. The warrant certificates (the
"Warrant Certificates") delivered and to be delivered pursuant to this Agreement
shall be in the form set forth in Exhibits A-1 and B-1 attached hereto and made
a part hereof, with such appropriate insertions, omissions, substitutions, and
other variations as required or permitted by this Agreement.
3. Exercise of Warrant.
ss.3.1 Method of Exercise. The Warrants initially are
exercisable at an initial exercise price ("Initial Exercise Price") (subject to
adjustment as provided in Section 8 hereof) per share of Common Stock set forth
in Section 6 hereof payable by certified or official bank check in New York
Clearing House funds, subject to adjustment as provided in Section 8 hereof.
Upon surrender of a Warrant Certificate with the annexed Form of Election to
Purchase duly executed, together with payment of the Exercise Price (as
hereinafter defined) for the shares of Common Stock purchased at the Company's
principal offices in Ohio (presently located at 8260 North Creek Drive, Suite
140, Cincinnati, Ohio 45236) the registered holder of a Warrant Certificate
("Holder" or "Holders") shall be entitled to receive a certificate or
certificates for the shares of Common Stock so purchased. The purchase rights
represented by each Warrant Certificate are exercisable at the option of the
Holder thereof, subject to the terms and conditions herein, in whole or in part
(but not as to fractional shares of the Common Stock underlying the Warrants).
Warrants may be exercised to purchase all or part of the shares of Common Stock
represented thereby. In the case of the purchase of less than all the shares of
Common Stock purchasable under any Warrant Certificate,
3
<PAGE> 4
the Company shall cancel said Warrant Certificate upon the surrender thereof and
shall execute and deliver a new Warrant Certificate of like tenor for the
balance of the shares of Common Stock.
ss.3.2 Exercise by Surrender of Warrant.
(a) In addition to the method of payment set forth in Section
3.1 and in lieu of any cash payment required thereunder, the Holder(s) of the
Warrants shall have the right at any time and from time to time to exercise the
Warrants in full or in part by surrendering the Warrant Certificate in the
manner specified in Section 3.1 in exchange for the number of shares of Common
Stock equal to the product of (x) the number of shares to which the Warrants are
being exercised multiplied by (y) a fraction, the numerator of which is the
Market Price (as defined in Section 8.1 hereof) of the Common Stock less the
Exercise Price and the denominator of which is such Market Price.
(b) Solely for the purposes of this Section 3.2, Market Price
shall be calculated as the average of the Market Price for each of the five
trading days preceding the Notice Date.
4. Issuance of Certificates. Upon the exercise of the
Warrants, the issuance of certificates for shares of Common Stock or other
securities, properties or rights underlying such Warrants, shall be made
forthwith (and in any event such issuance shall be made within five (5) business
days thereafter) without charge to the Holder thereof including, without
limitation, any tax which may be payable in respect of the issuance thereof, and
such certificates shall (subject to the provisions of Sections 5 and 7 hereof)
be issued in the name of, or in such names as may be directed by, the Holder
thereof; provided, however, 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 such certificates in a name other than that of the Holder and
the Company shall not be required to issue or deliver such certificates unless
or until the person or persons requesting the issuance thereof shall
4
<PAGE> 5
have paid to the Company the amount of such tax or shall have established to the
satisfaction of the Company that such tax has been paid.
The Warrant Certificates and the certificates representing the
shares of Common Stock (and/or other securities, property or rights issuable
upon exercise of the Warrants) shall be executed on behalf of the Company by the
manual or facsimile signature of the then present Chairman or Vice Chairman of
the Board of Directors or President or Vice President of the Company under its
corporate seal reproduced thereon, attested to by the manual or facsimile
signature of the then present Secretary or Assistant Secretary of the Company.
Warrant Certificates shall be dated the date of execution by the Company upon
initial issuance, division, exchange, substitution or transfer.
5. Restriction On Transfer of Warrants. The Holder of a
Warrant Certificate, by its acceptance thereof, covenants and agrees that the
Warrants are being acquired as an investment and not with a view to the
distribution thereof.
6. Exercise Price.
ss.6.1 Initial and Adjusted Exercise Price. Except as
otherwise provided in Section 8 hereof, the Initial Exercise Price of each
Warrant shall be as follows: (i) Tranche 1 and Tranche 2 shall have an Initial
Exercise Price of $1.625 per share of Common Stock for each of the 500,000
Warrants; and (ii) Tranche 3 shall have an Initial Exercise Price of $4.00 per
share of Common Stock for each of the 500,000 Warrants. The adjusted exercise
price shall be the price which shall result from time to time from any and all
adjustments of the Initial Exercise Price in accordance with the provisions of
Section 8 hereof.
5
<PAGE> 6
ss.6.2 Exercise Price. The term "Exercise Price" herein shall
mean the Initial Exercise Price or the adjusted exercise price, depending upon
the context.
7. Registration Rights.
ss.7.1 Registration Under the Securities Act of 1933. The
Warrants and the shares of Common Stock issuable upon exercise of the Warrants
and any of the other securities issuable upon exercise of the Warrants have not
been registered under the Securities Act of 1933, as amended (the "Act") for
public resale. Upon exercise, in part or in whole, of the Warrants, certificates
representing the shares of Common Stock and any other securities issuable upon
exercise of the Warrants (collectively, the "Warrant Securities") shall bear the
following legend:
The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended
("Act") for public resale, and may not be offered or sold
except pursuant to (i) an effective registration statement
under the Act, (ii) to the extent applicable, Rule 144 under
the Act (or any similar rule under such Act relating to the
disposition of securities), or (iii) an opinion of counsel, if
such opinion shall be reasonably satisfactory to counsel to
the issuer, that an exemption from registration under such Act
is available.
For purposes of this Warrant Agreement, the term "Registrable Stock"
shall mean (i) any shares; (ii) any shares of Common Stock that may be issued
pursuant to those certain Warrants of even date herewith issued by the Company
to Sands Brothers & Co., Ltd. and its designees; (iii) any shares of Common
Stock issued to the Holder, relating to the Shares, by way of a stock split,
reorganization, merger or consolidation; and (iv) any Common Stock issued to the
Holder, relating to the Shares, as a dividend on the Shares.
ss.7.2 Piggyback Registration. If, at any time during the five
year period commencing six months after the date hereof, the Company proposes to
register any of its securities
6
<PAGE> 7
under the Securities Act of 1933 ("the Act") (other than in connection with a
merger or pursuant to Form S-8, S-4 or comparable registration statement) it
will give written notice by registered mail, at least twenty (20) days prior to
the filing of each registration statement, to Sands Brothers and to all other
Holders of the Warrants and/or the Warrant Securities of its intention to do so.
If Sands Brothers or other Holders of the Warrants and/or Warrant Securities
notify the Company in writing within fifteen (15) days after receipt of any such
notice of its or their desire to include any such securities in such proposed
registration statement, the Company shall afford Sands Brothers and such Holders
of the Warrants and/or Warrant Securities the opportunity to have any such
Warrant Securities registered under such registration statement, but only to the
extent that such Warrant Securities cannot otherwise be sold without restrictive
legend under Rule 144(k). In connection with any offering involving an
underwriting of securities of the Company, the Company shall not be required
under this Section 7.2 to include any of the Holders' Registrable Securities in
such underwriting unless they accept the terms of the underwriting as agreed
upon between the Company and the underwriters selected by it (or by other
Persons entitled to select the underwriters), and then only in such quantity as
the underwriters determine in their sole discretion will not jeopardize the
success of the offering by the Company. If the underwriting agreement relating
to such offering so requires, the Holders of Registrable Securities included in
the registration shall enter into letter agreements restricting the sale or
other disposition of Registrable Securities for the period specified in the
underwriting agreement, custody agreements and related agreements and grant
powers of attorney relating to the sale and delivery of the Registrable
Securities all in customary form. Notwithstanding any other provision hereof to
the contrary, in the case of a registration pursuant to this Section 7.2, if the
underwriter advises the Company in writing that marketing factors require a
7
<PAGE> 8
limitation of the number of securities to be underwritten, then the Company
shall so advise all Holders that have requested that Registrable Securities be
included in the registration, and the number of Registrable Securities that may
be included in the underwriting shall be in the same proportion (as nearly as
practicable) as the number of Registrable Securities as to which Holders shall
have initially requested inclusion in such registration bears to the total
number of securities of the Company (including such Registrable Securities) as
to which all persons that shall be entitled to request inclusion of such
securities in such registration shall initially so request such inclusion, or as
such persons (including such Holders) may otherwise agree.
ss.7.3 Registration Statement Filing.
(a) The Company shall cause to be filed within 30 days from
the date hereof a registration statement and such other documents, including a
prospectus, as may be necessary in the opinion of both counsel for the Company
and counsel for Sands Brothers and Holders, in order to comply with the
provisions of the Act, so as to permit a public offering and sale of their
respective Warrant Securities for nine (9) consecutive months by such Holders
and any other Holders of the Warrants and/or Warrant Securities (which right is
in addition to the registration rights under Section 7.2 hereof), but only to
the extent that such Warrant Securities cannot be otherwise sold without
restrictive legend under Rule 144(k). The Company shall use its best efforts to
cause such registration statement to become effective within one hundred twenty
(120) days of the date hereof.
(b) Anything contained in this Warrant to the contrary
notwithstanding, in the event the Company fails to file such registration
statement with the Commission prior to the expira tion of the aforementioned 30
day period or (ii) cause such registration statement to become effective prior
8
<PAGE> 9
to the expiration of the aforementioned 120 day period (except when the Company
is proceeding in good faith to cause the registration statement to become
effective in a timely manner and the failure to become effective is due solely
to delays at the Securities and Exchange Commission or other factors which are
outside of the Company's control), in addition to any other rights and
privileges of Holder, the Company shall issue an additional 250,000 Warrants to
the Holders which shall be in the form of Tranche 1 Warrants.
ss.7.4 Covenants of the Company With Respect to Registration.
In connection with any registration under Section 7.2 or 7.3 hereof, the Company
covenants and agrees as follows:
(a) The Company shall pay all costs (excluding any
underwriting or selling commissions or other charges of any broker-dealer acting
on behalf of Holders or Holders' legal expenses), fees and expenses in
connection with all registration statements filed pursuant to Sections 7.2 and
7.3(a) hereof including, without limitation, the Company's legal and accounting
fees, printing expenses, blue sky fees and expenses. If the Company shall fail
to comply with the provisions of Section 7.4(a), the Company shall, in addition
to any other equitable or other relief available to the Holder(s), be liable for
any or all damages due to loss of profit sustained by the Holder(s) requesting
registration of its Warrant Securities.
(b) The Company will use reasonable efforts to take all
necessary action which may be required in qualifying or registering the Warrant
Securities included in a registration statement for offering and sale under the
securities or blue sky laws of the state requested by the Holder.
(c) The Company shall indemnify the Holder(s) of the Warrant
Securities to be sold pursuant to any registration statement and each person, if
any, who controls such Holder within the meaning of Section 15 of the Act or
Section 20(a) of the Securities Exchange Act of 1934, as
9
<PAGE> 10
amended ("Exchange Act"), against all loss, claim, damage, expense or liability
(including all expenses reasonably incurred in investigating, preparing or
defending against any claim whatsoever) to which any of them may become subject
under the Act, the Exchange Act or otherwise, arising from such registration
statement, provided that, there shall be no indemnification by the Company
pursuant to this Section 7.4(c) against any losses, claims, damages, expenses or
liabilities whatsoever arising out of or relating to in any manner any untrue
statement of a material fact in any such registration statement or any omission
of any material fact therefrom necessary to make the statements contained
therein not misleading in light of the circumstances under which they were made
to the extent but only to the extent that such untrue statements or omissions
relate to, or are based upon, any written information provided to the Company by
Sands Brothers or any Holder.
(d) Nothing contained in this Agreement shall be construed as
requiring the Holder(s) to exercise their Warrants prior to the initial filing
of any registration statement or the effectiveness thereof.
(e) The Company shall not permit the inclusion of any
securities other than the Warrant Securities to be included in any registration
statement filed pursuant to Section 7.3 hereof without the prior written consent
of the Holders of the Warrants and Warrant Securities representing a Majority of
such securities (assuming an exercise of all of the Warrants).
(f) The Company shall furnish to each Holder participating in
the offering and to each underwriter, if any, a signed counterpart, addressed to
such Holder or underwriter, of an opinion of counsel to the Company, dated the
effective date of such registration statement (and, if such registration
includes an underwritten public offering, an opinion dated the date of the
closing under the underwriting agreement).
10
<PAGE> 11
(g) If required under the Act, the Company shall as soon as
practicable after the effective date of the registration statement, and in any
event within 15 months thereafter, make "generally available to its security
holders" (within the meaning of Rule 158 under the Act) an earnings statement
(which need not be audited) complying with Section 11(a) of the Act and covering
a period of at least 12 consecutive months beginning after the effective date of
the registration agreement.
(h) The Company shall deliver promptly to each Holder
participating in the offering requesting the correspondence and memoranda
described below and the managing underwriter copies of all correspondence
between the Commission and the Company, its counsel or auditors and all
memoranda relating to discussions with the Commission or its staff with respect
to the registration statement and permit the Holder and underwriter to do such
investigation, upon reasonable advance notice, with respect to information
contained in or omitted from the registration statement as it deems reasonably
necessary to comply with applicable securities laws or rules of the National
Association of Securities Dealers, Inc. ("NASD"). Such investigation shall
include access to books, records and properties and opportunities to discuss the
business of the Company with its officers and independent auditors, all to such
reasonable extent and at such reasonable times and as often as any such Holder
shall reasonably request as it deems necessary to comply with applicable
securities laws or NASD rules.
(i) In addition to the Warrant Securities, upon the written
request therefor by any Holder(s), the Company shall include in the registration
statement any other securities of the Company held by such Holder(s) as of the
date of filing of such registration statement, including
11
<PAGE> 12
without limitation, restricted shares of Common Stock, options, warrants or any
other securities convertible into shares of Common Stock.
(j) For purposes of this Agreement, the term "Majority" in
reference to the Holders of Warrants or Warrant Securities, shall mean in excess
of fifty percent (50%) of the then outstanding Warrants or Warrant Securities
that (i) are not held by the Company, an affiliate, officer, creditor, employee
or agent thereof or any of their respective affiliates, members of their family,
persons acting as nominees or in conjunction therewith or (ii) have not been
resold to the public pursuant to a registration statement filed with the
Commission under the Act.
8. Adjustments to Exercise and Number of Securities.
ss.8.1 Market Price. As used herein, the term "Market Price"
at any date shall be deemed to be the last reported sale price, or, in case no
such reported sale takes place on such day, the average of the last reported
sale prices for the last five (5) trading days, in either case as officially
reported by the principal securities exchange on which the Common Stock is
listed or admitted to trading, or, if the Common Stock is not listed or admitted
to trading on any national securities exchange, the average closing bid price as
furnished by the NASD through NASDAQ or similar organization if NASDAQ is no
longer reporting such information, or if the Common stock is not quoted on
NASDAQ, as determined in good faith by resolution of the Board of Directors of
the Company, based on the best information available to it.
ss.8.2 Intentionally Deleted.
ss.8.3 Subdivision and Combination. In case the Company shall
at any time subdivide or combine the outstanding shares of Common Stock, the
Exercise Price shall forthwith be proportionately decreased in the case of
subdivision or increased in the case of combination.
12
<PAGE> 13
ss.8.4 Adjustment in Number of Securities. Upon each
adjustment of the Exercise Price pursuant to the provisions of this Section 8,
the number of Securities issuable upon the exercise of each Warrant shall be
adjusted to the nearest full amount by multiplying a number equal to the
Exercise Price in effect immediately prior to such adjustment by the number of
Warrant Securities issuable upon exercise of the Warrants immediately prior to
such adjustment and dividing the product so obtained by the adjusted Exercise
Price.
ss.8.5 Definition of Common Stock. For the purpose of this
Agreement, the term "Common Stock" shall mean (i) the class of stock designated
as Common Stock in the Certificate of Incorporation of the Company as may be
amended as of the date hereof, or (ii) any other class of stock resulting from
successive changes or reclassifications of such Common Stock consisting solely
of changes in par value, or from par value to no par value, or from no par value
to par value. In the event that the Company shall after the date hereof issue
securities with greater or superior voting rights than the shares of Common
Stock outstanding as of the date hereof, the Holder, at its option, may receive
upon exercise of any Warrant either shares of Common Stock or a like number of
such securities with greater or superior voting rights.
ss.8.6 Merger or Consolidation. In case of any consolidation
of the Company with, or merger of the Company with, or merger of the Company
into, another corporation (other than a consolidation or merger which does not
result in any reclassification or change of the outstanding Common Stock), the
corporation formed by such consolidation or merger shall execute and deliver to
the Holder a supplemental warrant agreement providing that the holder of each
Warrant then outstanding or to be outstanding shall have the right thereafter
(until the expiration of such Warrant) to receive, upon exercise of such
warrant, the kind and amount of shares of stock and other securities
13
<PAGE> 14
and property receivable upon such consolidation or merger, by a holder of the
number of shares of Common Stock of the Company for which such warrant might
have been exercised immediately prior to such consolidation, merger, sale or
transfer. Such supplemental warrant agreement shall provide for adjustments
which shall be identical to the adjustments provided in Section 8. The above
provision of this Subsection shall similarly apply to successive consolidations
or mergers.
ss.8.7 No Adjustment of Exercise Price in Certain Cases. No
adjustment of the Exercise Price shall be made:
(a) Upon the issuance or sale of the Warrants or the shares
of Common Stock issuable upon the exercise of the Warrants; or
(b) If the amount of said adjustment shall be less than 2
cents ($.02) per Security, provided, however, that in such case any adjustment
that would otherwise be required then to be made shall be carried forward and
shall be made at the time of and together with the next subsequent adjustment
which, together with any adjustment so carried forward, shall amount to at least
2 cents ($.02) per Security.
ss.8.8 Dividends and Other Distributions. In the event that
the Company shall at any time prior to the exercise of all Warrants declare a
dividend (other than a dividend consisting solely of shares of Common Stock) or
otherwise distribute to its stockholders any assets, property, rights, evidences
of indebtedness, securities (other than shares of Common Stock), whether issued
by the Company or by another, or any other thing of value, the Holders of the
unexercised Warrants shall thereafter be entitled, in addition to the shares of
Common Stock or other securities and property receivable upon the exercise
thereof, to receive, upon the exercise of such Warrants, the same property,
assets, rights, evidences of indebtedness, securities or any other thing of
value that they
14
<PAGE> 15
would have been entitled to receive at the time of such dividend or distribution
as if the Warrants had been exercised immediately prior to such dividend or
distribution. At the time of any such dividend or distribution, the Company
shall make appropriate reserves to ensure the timely performance of the
provisions of this Subsection 8.8.
9. Exchange and Replacement of Warrant Certificates. Each
Warrant Certificate is exchangeable without expense, upon the surrender thereof
by the registered Holder at the principal executive office of the Company, for a
new Warrant Certificate of like tenor and date representing in the aggregate the
right to purchase the same number of Securities in such denominations as shall
be designated by the Holder thereof at the time of such surrender.
Upon receipt by the Company of evidence reasonably satisfactory
to it of the loss, theft, destruction or mutilation of any Warrant Certificate,
and, in case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it, and reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of the Warrants, if
mutilated, the Company will make and deliver a new Warrant Certificate of like
tenor, in lieu thereof.
10. Elimination of Fractional Interests. The Company shall not
be required to issue certificates representing fractions of shares of Common
Stock upon the exercise of the Warrants, nor shall it be required to issue scrip
or pay cash in lieu of fractional interests, it being the intent of the parties
that all fractional interests shall be eliminated by rounding any fraction up to
the nearest whole number of shares of Common Stock or other securities,
properties or rights.
11. Reservation and Listing of Securities. The Company shall at
all times reserve and keep available out of its authorized shares of Common
Stock, solely for the purpose of issuance
15
<PAGE> 16
upon the exercise of the Warrants, such number of shares of Common Stock or
other securities, properties or rights as shall be issuable upon the exercise
thereof. The Company covenants and agrees that, upon exercise of the Warrants
and payment of the Exercise Price therefor, all shares of Common Stock and other
securities issuable upon such exercise shall be duly and validly issued, fully
paid, non-assessable and not subject to the preemptive rights of any
stockholder. As long as the Warrants shall be outstanding, the Company shall use
its best efforts to cause all shares of Common Stock issuable upon the exercise
of the Warrants to be listed (subject to official notice of issuance) on all
securities exchanges on which the Common Stock issued to the public in
connection herewith may then be listed and/or quoted NASDAQ.
12. Notice to Warrant Holders. Nothing contained in this
Agreement shall be construed as conferring upon the Holders the right to vote or
to consent or to receive notice as a stockholder in respect of any meetings of
stockholders for the election of directors or any other manner, or as having any
rights whatsoever as a stockholder of the Company. If, however, at any time
prior to the expiration of the Warrants and their exercise, any of the following
events shall occur:
(a) the Company shall take a record of the holders of its
shares of Common Stock for the purpose of entitling them to receive a dividend
or distribution payable otherwise than in cash, or a cash dividend or
distribution payable otherwise than out of current or retained earnings, as
indicated by the accounting treatment of such dividend or distribution on the
books of the Company; or
16
<PAGE> 17
(b) the Company shall offer to all the holders of its Common
Stock any additional shares of capital stock of the Company or securities
convertible into or exchange for shares of capital stock of the Company, or any
option, right or warrant to subscribe therefor; or
(c) a dissolution, liquidation or winding up of the Company
(other than in connection with a consolidation or merger) or a sale of all or
substantially all of its property, assets and business as an entirety shall be
proposed;
then, in any one or more of said events, the Company shall give notice
of such event at least fifteen (15) days prior to the date fixed as a record
date or the date of the closing the transfer books for the determination of the
stockholders entitled to such dividend, distribution, convertible or
exchangeable securities or subscription rights, or entitled to vote on such
proposed dissolution, liquidation, winding up or sale. Such notice shall specify
such record date or the date of closing the transfer books, as the case may be.
Failure to give such notice of any defect therein shall not affect the validity
of any action so taken.
13. Notices. All notices, requests, consents and other
communications hereunder shall be in writing and shall be deemed to have been
duly made when delivered, or mailed by registered or certified mail, return
receipt requested:
(a) If to the Holders, Sands Brothers & Co., Ltd., 90 Park
Avenue, 39th Floor, New York, New York 10016 as shown on the books of the
Company; or
(b) If to the Company, to the address set forth in Section 3
hereof or to such other address as the Company may designate by notice to the
Holders.
14. Supplements and Amendments. Except as otherwise expressly
provided herein, the provisions of this Agreement may be amended or waived at
any time only by the written
17
<PAGE> 18
agreement of the parties hereto. Any waiver, permit, consent or approval of kind
or character on the part of each Company or the Holder of any provisions or
conditions of this Agreement must be made in writing and shall be effective only
to the extent specifically set forth in such writing.
15. Successors. All the covenants and provisions of this
Agreement shall be binding upon and inure to the benefit of the Company, the
Holder and their respective successors and assigns hereunder.
16. Assignment or Loss of Warrant.
(a) This Warrant is not assignable or transferable without
the written consent of the Company, except by operation of law or as provided in
(b) below.
(b) This Warrant shall not be transferable by Holder other
than to a "Permitted Transferee" (as defined below); provided, that any
Permitted Transferee shall be absolutely prohibited from transferring all or any
portion of this Warrant other than to Holder or another Permitted Transferee of
Holder; and provided further, that if Holder dies or becomes incapacitated, this
Warrant may be exercised by Holder's estate, legal representative or
beneficiary, as the case may be, subject to all other terms and conditions
contained in this Warrant.
(c) For purposes of this Agreement, Permitted Transferees
shall include officers, directors, shareholders and employees of Sands Brothers,
members of the "immediate family" (which shall be limited to Holder's spouse,
children, and parents) of Holder, to trusts for such person's own benefit and/or
for the benefit of members of Holder's immediate family; provided, that such
Permitted Transferees must agree in writing to be bound by all of the terms of
this Agreement to the same extent as Holder hereunder, in form acceptable to
counsel to the Company, including but not limited to restrictions on the
exercise of this Warrant and on transfers of the Warrant Securities, as
18
<PAGE> 19
the case may be, following exercise of this Warrant, such that any Warrant
Securities so acquired shall be held subject to the terms of this Agreement.
Warrant Securities held by any Permitted Transferee shall be aggregated with
those held by the Permitted Transferee's transferor in order to determine the
number of shares subject to the provisions of this Agreement.
17. Governing Law; Submission to Jurisdiction. This Agreement
and each Warrant Certificate issued hereunder shall be deemed to be a contract
made under the laws of the State of New York and for all the purposes shall be
construed in accordance with the laws of said State without giving effect to the
rules of said State governing the conflicts of laws.
The Company and the Holder hereby agree that any action,
proceeding or claim against it arising out of, or relating in any way to, this
Agreement shall be brought and enforced in the courts of the State of New York
or of the United States of America for the Southern District of New York, and
irrevocably submits to such jurisdiction, which jurisdiction shall be exclusive.
The Company, and the Holder hereby irrevocably waive any objection to such
exclusive jurisdiction or inconvenient forum. Any such process or summons to be
served upon any of the Company and the Holder (at the option of the party
bringing such action, proceeding or claim) may be served by transmitting a copy
thereof, by registered or certified mail, return receipt requested, postage
prepaid, addressed to it at the address as set forth in Section 13 hereof. Such
mailing shall be deemed personal service and shall be legal and binding upon the
party so served in any action, proceeding or claim. The Company and the Holder
agree that the prevailing party(ies) in any such action or proceeding shall be
entitled to recover from the other party(ies) all of its/their reasonable legal
costs and expenses relating to such action or proceeding and/or incurred in
connection with the preparation therefor.
19
<PAGE> 20
18. Entire Agreement; Modification. This Agreement and the
Advisory Agreement (to the extent portions thereof are referred to herein)
contain the entire understanding between the parties hereto with respect to the
subject matter hereof and may not be modified or amended except by a writing
duly signed by the party against whom enforcement of the modification or
amendment is sought.
19. Severability. If any provision of this Agreement shall be
held to be invalid or unenforceable, such invalidity or unenforceability shall
not affect any other provision of this Agreement.
20. Captions. The caption headings of the Sections of this
Agreement are for convenience of reference only and are not intended, nor should
they be construed as, a part of this Agreement and shall be given no substantive
effect.
21. Benefits of this Agreement. Nothing in this Agreement
shall be construed to give to any person or corporation other than the Company
and the Holder any legal or equitable right, remedy or claim under this
Agreement; and this Agreement shall be for the sole and exclusive benefit of the
Company and the Holder.
22. Counterparts. This Agreement may be executed in any
number of counterparts and each of such counterparts shall for all purposes be
deemed to be an original, and such counterparts shall together constitute but
one and the same instrument.
20
<PAGE> 21
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
[SEAL]
Popmail.com, Inc.
By: /s/Stephen D. King
------------------------------
Title: Chief Executive Officer
Attest:
Secretary
SANDS BROTHERS & CO., LTD.
By: /s/ Lloyd H. Saunders
----------------------------
Authorized Officer
21
<PAGE> 22
EXHIBIT A-1
FORM OF TRANCHE 1 AND TRANCHE 2 WARRANT CERTIFICATE
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, (ii) TO THE
EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT
RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION OF COUNSEL, IF
SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE ISSUER, THAT AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:30 P.M., NEW YORK TIME, APRIL 17, 2005
[Note: Tranche 2 Warrant shall be dated as per the timing of applicable
Financing Transactions]
No. Warrants
---- ----
WARRANT CERTIFICATE
This Warrant Certificate certifies that
, or registered assigns, is the registered holder of
Warrants, to purchase from the period commencing on the date hereof and
expiring at 5:30 p.m. New York time on the date that is the fifth year
anniversary of the date hereof ("Expiration Date"), up to fully-paid and
non-assessable shares of common stock, $.01 par value per share ("Common Stock")
of Popmail.com, Inc., a Minnesota corporation (the "Company"), at an initial
exercise price, subject to adjustment in certain events (the "Exercise Price"),
of $1.625 per share of Common Stock, upon surrender of this Warrant Certificate
and payment of the Exercise Price at an office or agency of the Company, or by
surrender of this Warrant Certificate in lieu of cash payment, but subject to
the conditions set forth herein and in the Warrant Agreement dated April 17,
2000 between the Company and Sands Brothers & Co., Ltd. (the (the "Warrant
Agreement"). Payment of the Exercise Price shall be made by certified or
official bank check in New York Clearing House funds payable to the order of the
Company.
No Warrant may be exercised after 5:30 p.m., New York time, on
the Expiration Date, at which time all Warrants evidenced hereby, unless
exercised prior thereto, hereby shall thereafter be void.
- A-1 -
<PAGE> 23
The Warrants evidenced by this Warrant Certificate are part of
a duly authorized issue of Warrants issued pursuant to the Warrant Agreement,
which Warrant Agreement is hereby incorporated by reference in and made a part
of this instrument and is hereby referred to for a description of the rights,
obligations, duties and immunities thereunder of the Company and the holders
(the words "holders" or "holder" meaning the registered holders or registered
holder) of the Warrants.
The Warrant Agreement provides that upon the occurrence of
certain events the Exercise Price and the type and/or number of the Company's
securities issuable thereupon may, subject to certain conditions, be adjusted.
In such event, the Company will, at the request of the holder, issue a new
Warrant Certificate evidencing the adjustment in the Exercise Price and the
number and/or type of securities issuable upon the exercise of the Warrants;
provided, however, that the failure of the Company to issue such new Warrant
Certificates shall not in any way change, alter, or otherwise impair, the rights
of the holder as set forth in the Warrant Agreement.
Upon due presentment for registration of transfer of this
Warrant Certificate at an office or agency of the Company, a new Warrant
Certificate or Warrant Certificates of like tenor and evidencing in the
aggregate a like number of Warrants shall be issued to the transferee(s) in
exchange for this Warrant Certificate, subject to the limitations provided
herein and in the Warrant Agreement, without any charge except for any tax in
other governmental charge imposed in connection with such transfer.
Upon the exercise of less than all of the Warrants evidenced by
this Certificate, the Company shall forthwith issue to the holder hereof a new
Warrant Certificate representing such numbered unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof
as the absolute owner(s) of this Warrant Certificate (notwithstanding any
notation of ownership or other writing hereon made by anyone), for the purpose
of any exercise hereof, and of any distribution to the holder(s) hereof, and for
all other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined in
the Warrant Agreement shall have the meanings to them in the Warrant Agreement.
- A-2 -
<PAGE> 24
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed under its corporate seal.
Dated as of April 17, 2000
Popmail.com, Inc.
By:
------------------------------------
Title:
Attest:
Secretary
- A-3 -
<PAGE> 25
[FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.1]
The undersigned hereby irrevocably elects to exercise the
right, represented by this Warrant Certificate, to purchase shares of
Common Stock at an exercise price of $ per share and herewith tenders in
payment for such Securities a certified or official bank check payable in New
York Clearing House Funds to the order of in the amount of $ ,
all in accordance with the terms hereof. The undersigned requests that a
certificate for such Securities be registered in the name of whose
address is and that such Certificate be delivered to
whose address is .
Signature
--------------------------------
(Signature must conform in all respects to name of
holder as specified on the face of the Warrant
Certificate.)
--------------------------------------------
(Insert Social Security or Other Identifying Number of
Holder)
- A-4 -
<PAGE> 26
[FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.2]
The undersigned hereby irrevocably elects to exercise the
right, represented by this Warrant Certificate, to purchase shares of Common
Stock in accordance with the terms of Section 3.2 of that certain Warrant
Agreement dated as of April 17, 2000 between Popmail.com, Inc. and SANDS
BROTHERS & CO., LTD. The Undersigned requests that a certificate for such
Securities be registered in the name of whose address is
and that such Certificate be delivered to whose
address is .
Signature
--------------------------------
(Signature must conform in all respects to name of
holder as specified on the face of the Warrant
Certificate.)
-------------------------------------------
(Insert Social Security or Other Identifying Number of
Holder)
- A-5 -
<PAGE> 27
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such holder
desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED here sells, assigns and
transfers unto
(Please print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint Attorney, to
transfer the within Warrant Certificate on the books of the within-named
Company, with full power of substitution.
Dated: Signature:
(Signature must conform in all respects to name of
holder as specified on the face of the Warrant
Certificate.)
(Insert Social Security or other Identifying
Number of Assignee)
- A-6 -
<PAGE> 28
EXHIBIT B-1
FORM OF TRANCHE 3 WARRANT CERTIFICATE
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, (ii) TO THE
EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT
RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION OF COUNSEL, IF
SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE ISSUER, THAT AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS
CERTIFICATE IS RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT
REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:30 P.M., NEW YORK TIME, April 17, 2005
No. Warrants
---- ----
WARRANT CERTIFICATE
This Warrant Certificate certifies that
, or registered assigns, is the registered holder of
Warrants, to purchase from the period commencing on the date hereof and
expiring at 5:30 p.m. New York time on April 17, 2005 ("Expiration Date"), up to
fully-paid and non-assessable shares of common stock, $.01 par value per
share ("Common Stock") of Popmail.com, Inc., a Minnesota corporation (the
"Company"), at an initial exercise price, subject to adjustment in certain
events (the "Exercise Price"), of $4.00 per share of Common Stock, upon
surrender of this Warrant Certificate and payment of the Exercise Price at an
office or agency of the Company, or by surrender of this Warrant Certificate in
lieu of cash payment, but subject to the conditions set forth herein and in the
Warrant Agreement dated April 17, 2000 between the Company and Sands Brothers &
Co., Ltd. (the "Warrant Agreement"). Payment of the Exercise Price shall be made
by certified or official bank check in New York Clearing House funds payable to
the order of the Company.
No Warrant may be exercised after 5:30 p.m., New York time, on
the Expiration Date, at which time all Warrants evidenced hereby, unless
exercised prior thereto, hereby shall thereafter be void.
- B-1
<PAGE> 29
The Warrants evidenced by this Warrant Certificate are part of
a duly authorized issue of Warrants issued pursuant to the Warrant Agreement,
which Warrant Agreement is hereby incorporated by reference in and made a part
of this instrument and is hereby referred to for a description of the rights,
obligations, duties and immunities thereunder of the Company and the holders
(the words "holders" or "holder" meaning the registered holders or registered
holder) of the Warrants.
The Warrant Agreement provides that upon the occurrence of
certain events the Exercise Price and the type and/or number of the Company's
securities issuable thereupon may, subject to certain conditions, be adjusted.
In such event, the Company will, at the request of the holder, issue a new
Warrant Certificate evidencing the adjustment in the Exercise Price and the
number and/or type of securities issuable upon the exercise of the Warrants;
provided, however, that the failure of the Company to issue such new Warrant
Certificates shall not in any way change, alter, or otherwise impair, the rights
of the holder as set forth in the Warrant Agreement.
Upon due presentment for registration of transfer of this
Warrant Certificate at an office or agency of the Company, a new Warrant
Certificate or Warrant Certificates of like tenor and evidencing in the
aggregate a like number of Warrants shall be issued to the transferee(s) in
exchange for this Warrant Certificate, subject to the limitations provided
herein and in the Warrant Agreement, without any charge except for any tax in
other governmental charge imposed in connection with such transfer.
Upon the exercise of less than all of the Warrants evidenced by
this Certificate, the Company shall forthwith issue to the holder hereof a new
Warrant Certificate representing such numbered unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof
as the absolute owner(s) of this Warrant Certificate (notwithstanding any
notation of ownership or other writing hereon made by anyone), for the purpose
of any exercise hereof, and of any distribution to the holder(s) hereof, and for
all other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined in
the Warrant Agreement shall have the meanings to them in the Warrant Agreement.
- B-2
<PAGE> 30
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed under its corporate seal.
Dated as of , 2000
----------
Popmail.com, Inc.
By:
---------------------------------
Title:
Attest:
Secretary
- B-3
<PAGE> 31
[FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.1]
The undersigned hereby irrevocably elects to exercise the
right, represented by this Warrant Certificate, to purchase shares of
Common Stock at an exercise price of $ per share and herewith tenders in
payment for such Securities a certified or official bank check payable in New
York Clearing House Funds to the order of in the amount of $ ,
all in accordance with the terms hereof. The undersigned requests that a
certificate for such Securities be registered in the name of whose
address is and that such Certificate be delivered to
whose address is .
Signature
---------------------------------
(Signature must conform in all respects to name of
holder as specified on the face of the Warrant
Certificate.)
-----------------------------------------------
(Insert Social Security or Other Identifying Number of
Holder)
- B-4
<PAGE> 32
[FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.2]
The undersigned hereby irrevocably elects to exercise the
right, represented by this Warrant Certificate, to purchase shares of Common
Stock in accordance with the terms of Section 3.2 of that certain Warrant
Agreement dated as of April 17, 2000 between Popmail.com, Inc. and SANDS
BROTHERS & CO., LTD. The Undersigned requests that a certificate for such
Securities be registered in the name of whose address is
and that such Certificate be delivered to whose
address is .
Signature
--------------------------------
(Signature must conform in all respects to name of
holder as specified on the face of the Warrant
Certificate.)
--------------------------------------------
(Insert Social Security or Other Identifying Number of
Holder)
- B-5
<PAGE> 33
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such holder
desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED here sells, assigns and
transfers
unto
(Please print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint Attorney, to
transfer the within Warrant Certificate on the books of the within-named
Company, with full power of substitution.
Dated: Signature:
(Signature must conform in all respects to name of
holder as specified on the face of the Warrant
Certificate.)
(Insert Social Security or other Identifying
Number of Assignee)
ACTUAL WARRANTS FOLLOW:
- B-6
<PAGE> 1
FOR IMMEDIATE RELEASE
MAY 8, 2000
<TABLE>
<S> <C> <C>
At the Company: Investor Contact:
POPMAIL.COM, INC.: POPMAIL NETWORK METROPOLITAN CAPITAL PARTNERS
Stephen D. King John Palms Michael Lafferman, President
CEO President [email protected]
[email protected] [email protected] www.metcapinc.com
(972) 550-5532 (972) 550-5532 (310) 358-9977
</TABLE>
POPMAIL.COM ANNOUNCES RELEASE OF ENEWSNOTIFIER 3.0
POPMAIL.COM UPGRADES POPULAR E-MAIL MARKETING SERVICE
AND RAISES ADDITIONAL $4.5 MILLION DOLLARS OF CAPITAL
DALLAS, TX, May 8, 2000 - PopMail.com, inc. (Nasdaq: POPM - news), a leading
permission- and affinity-based content and e-mail marketing company, announced
today the introduction of EnewsNotifier (ENN) 3.0, the latest version of the
Company's popular permission marketing e-mail service. Through its ENN e-mail
service, PopMail.com has established a significant presence in the broadcast,
print media, entertainment and professional sports industries.
ENN is a "permission marketing" e-mail service that allows organizations to
capture specific interest and demographic information about their customers and
create a member database. These organizations can then use this database to send
out targeted and customized messages to registered members on the topics of
interest to them. ENN gives its clients the capability to communicate and market
their products and services more effectively and efficiently, thereby generating
additional revenues and market share.
ENN 3.0 incorporates a number of improvements that will create incremental
revenue opportunities, increase functionality, and provide easier use. These
features, developed through continuous communications with clients in the
Company's key vertical markets of media, sports and entertainment, include:
- - CLICK-THROUGH TRACKING - allows clients to monitor how many recipients
click on links in an e-mail message
- - HTML TEMPLATES - enables clients to send graphically rich e-mail messages
quickly and easily
- - BANNER ADS - provides space for companies to sell space provided in ENN 3.0
landing and sign-up pages
- - BIRTHDAY CLUB - permits registrants to enter date of birth, allowing
clients to create automated birthday greetings with special offers
- - AUTOMATED BOUNCE BACK SCRUBBING - keeps system databases clean by
deactivating e-mail addresses no longer in use
- more -
<PAGE> 2
PopMail.Com, Inc.
May 8, 2000
Page 2
Other upgrades include expanded database targeting efficiencies, improved
administrator capabilities and enhanced registrant sign-up and profile
modification features.
Stephen D. King, Chief Executive Officer at PopMail.com, said, "This latest
version of ENN will greatly benefit our current clients and attract many new
ones. PopMail knows the importance of keeping its products and services
up-to-date, and we are confident we have done this with ENN 3.0. By listening to
our clients and meeting their needs, our company should continue to be a leader
in permission e-mail marketing."
The ENN 3.0 introduction plays a key role in PopMail.com's business model by
monetizing the Company's databases with advertising and e-commerce, as well as
helping clients effectively build permission e-mail databases.
POPMAIL RAISES ADDITIONAL $4.5 MILLION DOLLARS IN PRIVATE EQUITY FINANCING
To help provide cash reserves and ability to fund these types of working capital
requirements, the Company recently closed on a $4.5 million equity financing.
This consisted of Convertible Preferred Shares with a minimum of a six month
holding period prior to conversion and public sale.
ABOUT POPMAIL.COM, INC.
PopMail.com, inc. is a "permission marketing" and "affinity-based" e-mail
marketing company, serving the needs of individual businesses in a one-on-one
relationship with their customers. The Company targets four main vertical
markets for its network services: broadcast, media, sports and entertainment
industries. Companies in these vertical markets typically have customers who
have a strong affinity towards their products and services, such as a favorite
sports team, radio station or upcoming broadcast or publication. Combining these
email services allows companies to cut through the clutter and inefficiencies of
traditional marketing and begin promoting and branding more effectively and
efficiently to their viewers, listeners, fans and customers on the topics and
items that are of interest to them.
The Private Securities Litigation Reform Act of 1995 Provides a "Safe-harbor"
for Forward-looking Statements. Certain Information Included in This Press
Release (As Well as Information Included in Oral Statements or Other Written
Statements Made by or to be Made by the Company) Contains Statements That are
Forward-looking, Such as Statements Relating to Plans for Future Expansion. Such
Forward-looking Information Involves Important Risks and Uncertainties That
Could Significantly Affect Anticipated Results in the Future; and Accordingly,
Such Results May Differ From Those Expressed in Any Forward-looking Statement
Made by or On Behalf of the Company. These Risks and Uncertainties Include, But
are Not Limited To, Completion of Definitive Purchase Agreements, Ability to
Obtain Needed Capital, Ability to Attract and Retain Key and Other Personnel,
Those Relating to Development Activities, Dependence On Existing Management,
Leverage and Debt Service, Domestic or Global Economic Conditions, and Changes
in Customer Preferences and Attitudes. for More Information, Review the
Company's Filings With the Securities and Exchange Commission.
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